Episode Details

In this healthcare podcast, I'm talking about direct contracting IRL (in real life) with Katy Talento. This is a conversation that's more about the reality of direct contracting than the theory of direct contracting, and this was not an accident. So much of healthcare transformation is really easy to say and much harder to actually do.

So … direct contracting. In the context we discuss in this episode, generally direct contracting means when an employer or their benefits consultant, more likely, hooks up with a provider organization, lots of times a hospital or a health system. Moving forward here, I'm just gonna say employer when I sort of really mean the employer and their TPA and their repricer, the constellation of consultants and other vendors that are working with the employer.

So, just for simplicity, the employer says to the provider organization, "Hey, let's cut out the middleman here" (middleman likely being some insurance carrier). "I will just pay you directly, and it will be a win-win because no one is sucking out up to 15% to 20% right out of the middle, and also I'll steer my employees/patients/members your direction, which is great for us as a self-insured plan because money saved and also because I've done some quality analytics and I think you're relatively good at delivering care … so I'm happy to help my members find you."

The employer will, in general broad strokes, pay the provider organization some percentage over the Medicare rate for procedures or codes or bundles. By the way, the dollar amount over Medicare for the bundles or procedures or codes can vary depending on factors like what service line it is because, unlike RBP (reference-based pricing), direct contracting is a negotiation. It's a two-way deal. RBP, a lot of times, is the payer/employer deciding what they're gonna pay and then paying it—without sitting around a table with the provider figuring all this out together. So, if only from this one dimension, direct contracting is something that you'd think that hospitals/health systems/providers would be kind of into and up for.

One thing that I didn't really understand before this conversation is that, if we're talking about an employer direct contracting with, say, a hospital, the list of direct-contracted procedures or codes or bundles might include pretty much all of the services that the hospital can perform; but, in general, the employer is only going to steer members there or make it financially attractive to go to the hospital for, for example, emergency or unavoidable procedures. Why? Because no employer wants patients going to the hospital for things that they could get a whole lot cheaper in an outpatient setting with no less quality.

So, unless a hospital is willing to compete on price with other care settings, then an employer is not going to steer their members there. If you're a hospital, you might take this as a con. But, on the other hand, consider that if there's a few hospitals in the area, the general direction will be to go to the one with the direct contract. Furthermore, if a plan is gonna steer members, they're gonna steer them whether they have a direct contract with you or not.

Katy makes one point early and often throughout this conversation. From a hospital perspective, doing a direct contract is and should be pretty easy. From an employer perspective, too, there should not be a lot of disruption or friction for employees. There doesn't need to be. Done right, it should be a win-win for the employer, provider, and, most of all, the patient who doesn't get stuck with high bills, balance bills, and lower-quality care than might be available to them through their benefits.

Katy goes through the steps to create a direct contract and the challenges she has faced along the way. We also get into the wonderful world of payviders, so you could consider this an extension to the episode with Jeb Dunkelberger (

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