“Traditional TPA centered health plans, inefficient and expensive, are becoming outdated faster than a you can say ‘What Happened?’
“Payer platforms are emerging………….such as the partnership between Mishe Health and Mark Cuban’s Cost Plus Wellness, which allows real-time adjudication, flexible benefit design, same-day provider payments, and transparent contract management.”
Sidney Haitoff – Joseph Puthumana – Addison Dama – Yang Wang – Ge Bai
SOURCE: Health Affairs
April 1, 2025
In 2024, 63% of workers with employer-sponsored insurance in the United States were enrolled in self-insured plans—rising to 83% for employers with 1,000+ workers. In these plans, employers pay for the health care expenses incurred by their workers through third party administrators (TPAs) in administrative services only contracts, rather than purchasing coverage directly from insurance companies. In this process, self-insured employers and TPAs often have misaligned objectives: while the employer seeks to provide care for their workers at low costs, most TPAs aim to maximize their profits, with revenues typically tied to clients’ overall claims.
In the meantime, employers have limited ability to assess TPA performance or implement effective oversight and control measures. This combination of misaligned incentives and lack of control creates a complex and opaque cycle: providers submit bills for inflated charges, TPAs present employers with “discounted rates” and collect administrative fees based on net spending, employers view these adjustments favorably, and TPA fees, along with premiums, continue to rise year after year. In 2024, average family premiums rose 7% from 2023, reaching $25,572.
The ever-rising premiums burden both employers and workers, reducing their profit margins and take-home pay, respectively, and elevate the cost of hiring, reducing the global competitiveness of U.S. products and services. As some recent high-profile lawsuits suggest, self-insured employers are increasingly exposed to legal risks for violating Employee Retirement Income Security Act (ERISA) fiduciary duties due to imprudent health benefit management. In a previous Health Affairs Forefront article, we called on self-insured employers to bring health care decisions in-house to improve efficiency and mitigate legal risks. In this article, we extend the discussion and focus on employer-provider direct contracting as a promising strategy.
What Is Employer-Provider Direct Contracting?
Employer-provider direct contracting refers to a process by which employers negotiate directly with providers and set transparent prices for procedures and medications, without TPAs, to avoid administrative obfuscation and distorted incentives. The direct primary care model, such as Atlas MD, allows workers to take unlimited primary care visits and receive office-based procedures (e.g., EKGs, stitches, ultrasound) for a flat monthly fee paid by the employer. Direct primary care providers usually offer medication, lab testing, radiology, and other services at competitive cash prices. This approach is especially valuable to managing complex cases for high-need patients. A similar model, direct specialty care—in which medical specialists are paid a single rate for a procedure bundled with all pre- and post-operative care, such as those participating in health care platforms Carrum Health and Lantern—offers the same convenience and transparency.
In direct contracting, providers commit to low payment rates for treatment bundles authorized by employers, freed from unpredictable revenue streams, administrative burdens, and resultant burnout. Since employers can steer their workers to direct contract providers, providers must compete on price and quality, therefore enabling market forces to drive efficiency towards quality and affordability. This dynamic creates a meaningful counterforce to consolidation in the provider market, benefiting employers and patients.
Historically, only TPAs have possessed the required technical infrastructure to administer such payments, making their involvement mandatory even in direct contracting arrangements and compromising the potential cost savings. Payer platforms are emerging to overcome this challenge, such as the partnership between Mishe Health and Mark Cuban’s Cost Plus Wellness, which allows real-time adjudication, flexible benefit design, same-day provider payments, and transparent contract management.
Direct Contracting Pricing
From providers’ perspective, direct contracting transactions are similar to cash-pay ones. Direct primary care has been shown to reduce overall health care demand by 12.6% and emergency room visit by 40.5%. As prior research has shown, hospital cash prices are often cheaper than insurer-negotiated prices for the same provider nationwide, even for non-shoppable services like trauma activation fees. Providers are willing to offer competitive cash prices due to the absence of administrative complexities and the fraction of price-sensitive patients. Direct contracting may put further downward pressure on cash prices by bringing higher patient volumes to the contracted providers.
Approximately 90% of the prescription drugs filled in the U.S. are generic and biosimilar products. Purchasing them through insurance is often more expensive than using cash-pay pharmacies (e.g., GoodRx, Costco, and the Mark Cuban Cost Plus Drugs Company). Due to the spread pricing imposed by pharmacy benefit managers (PBMs), even insured patients’ out-of-pocket cost-sharing often exceeds the cash prices. Many brand-name companies have also launched direct-to-consumer programs (e.g., LiliDirect and PfizerForAll), bypassing PBMs and eliminating the gross-to-net price bubble, which harms patients whose cost-sharing is based on the drugs’ gross price.
Therefore, using cash-pay channels—through direct contracting with payer platform companies, cash-pay pharmacies, or direct primary care providers—offers a promising strategy for containing health care spending for employers and workers. It’s worth emphasizing the tradeoff inherent in direct contracting: similar to insurance plans with narrow networks, employers and workers save money by using direct-contracting providers rather than a broad network of providers.
How Can Policymakers Facilitate Employer-Provider Direct Contracting?
Direct contracting imposes downward pricing pressure and upward quality pressure to the health care market, eliminates administrative complexity, and alleviates provider burnout. This approach benefits patients, employers, and providers, while expanding access to care. Policymakers should consider the following options to foster its development.
Codify Price Transparency As In S.3548
In February, President Trump signed an executive order to enforce health care price transparency. Importantly, cash price transparency and legitimacy are indispensable for the implementation of direct contracting. S.3548 – the Health Care PRICE (Prices Revealed and Information to Consumers Explained) Transparency Act, a bipartisan bill introduced in the U.S. Senate, requires that hospitals, clinical diagnostic laboratories, imaging centers, and ambulatory surgical centers disclose their cash prices. If a cash price has not been established, they must disclose the minimum amount accepted from cash-pay patients. The bill would also override state-level regulatory restrictions that prevent insured patients from accessing affordable and indiscriminatory cash prices.
Level The Playing Field For The Provider Market
Direct contracting with self-insured employers is a more attractive option for small providers than for large providers because the patient volume from employers is more meaningful to small providers. In other words, implementing direct contracting is more challenging when the provider market is monopolized. We believe that consolidation in the provider market is not accidental—numerous government policies have tilted the playing field toward large health systems and away from small independent practices. Examples include site-based payments, the 340B Drug Pricing program, certificate of need laws, certificate of public advantage laws, the Stark Law, and the restrictions on physician-owned hospitals. Removing these regulations, which protect large incumbent health systems at the expense of patients and plan sponsors, would allow physicians and small facilities to compete and adopt innovative, flexible business models such as direct contracting.
Can Workers Directly Purchase From Providers?
Besides employer-provider direct contracting, workers themselves should also be encouraged to directly purchase from providers. After a worker pays cash to use a lower-priced provider, the worker should receive full reimbursement from the employer, as well as shared savings benchmarked against prices of employer-contracted providers. Alternatively, employers should have the option to offer workers low-premium plans that cover only insurable events (with stop-loss insurance separately purchased by the employer), accompanied by large contributions to their Health Savings Accounts (HSAs). This approach would allow flexible worker-provider direct purchase, accommodate the diverse health care preferences of workers, and protect workers’ risk exposure.
Workers with sufficiently funded HSAs would personally and directly benefit from cost savings and enjoy the freedom to choose providers and treatment options without network restrictions or insurance interference, thereby stimulating provider competition in the direct-pay market and further benefiting patients. Congress should remove the requirement that HSAs must be coupled with high-deductible plans, thus expanding access to HSAs for employers and workers, as proposed in H.R.1769 – Healthcare Freedom Act.
Looking Forward
Direct contracting has the potential to help self-insured employers remove exposure to misaligned incentives from TPAs and enhance affordability and quality. Workers would benefit from expanded choices, lower premiums, better quality, and higher take-home pay. Providers would experience less administrative burnout, fewer insurance restrictions, and faster collection cycles, allowing them to focus on serving patients and innovating care delivery.
Direct contracting is one facet of a broader shift toward the direct access paradigm—including direct primary care, direct specialty care, and direct medication, which allows American workers to access non-discriminatory prices without administrative complexities standing between them and their providers. The bottom-up demand for a nimble and dynamic health care system from employers, workers, and providers has sparked various business developments, making the market increasingly ready for the dynamic direct access paradigm.
Authors’ Note
Wang and Bai are supported by Arnold Ventures. Sidney Haitoff is the Co-Founder and CEO of Mishe Health. Addison Dama is a Research Intern at Mishe Health.
