Managed Care Contract Negotiations
Dec 20

Seven potential benefits to direct contracting by physicians

Don’t be surprised if more employers ask you to sign a contract directly with them. Direct contracting is on the rise again as employers try to reduce the escalating costs of health insurance by cutting out the plan middleman. To help you prepare, here are seven potential advantages to contracting directly with an employer.

1. Provider networks are more exclusive. In a typical managed care arrangement, the plan creates a provider network and markets it to all employers in a region. Because it deals with a wide range of potential customers, the plan must have a large provider network with broad geographic and clinical coverage. But in direct contracting, the provider network is more exclusive—it’s made up mostly of providers that the employer/employees have requested.

2. Employer, not plan, controls termination. Because the employer selects and controls the network, the employer, not the plan, has control over terminating a provider’s contract, says Roger Merrill, MD, corporate medical director for Perdue Farms, a large multistate employer that uses direct provider contracting.

3. Easier administrative setup. From an administrative standpoint, employers are often easier to work with than plans. There’s no plan acting as a middleman in a direct employer contract. The employer will either maintain its insurance program in-house or hire a third-party administrator (TPA) to handle network administration for it.

4. Streamlined credentialing and utilization management. Direct contracting typically has fewer requirements regarding management and credentialing than a plan would.

5. Simpler and fairer contracts. Plan contracts are long, complex documents. Although thoroughness is always important for a contract, many of the clauses in plan contracts are one-sided in favor of the plan and often unfair. In contrast, an employer’s direct contract is usually shorter and less onerous. Some employers will even negotiate from the provider’s form or suggested contract.

6. Employer sets own rates. Because there’s no plan involved, the employer isn’t constrained by the plan’s reimbursement rates or fee schedules.

7. Direct communication with the employer. In a direct employer contract, a provider and employer can communicate more directly than if the plan were involved. Even if the employer uses a TPA for administrative services, the provider and the employer still have direct access to each other to discuss lost claims, quality improvement ideas, and other issues.


About Reed Tinsley, CPA
