Fitch: direct contracting between hospitals & employers will grow


Direct contracting arrangements between employers and healthcare providers are likely to gain popularity and acceptance in the near term as providers gain experience in population health management and as employers seek to manage employee healthcare costs, according to a new Fitch Ratings report.

"Increasing frustration about rapidly rising healthcare costs have driven employers to search for non-traditional healthcare arrangements that provide financial incentives to more effectively manage annual healthcare spending for their employees," said Jennifer Kim, associate director in Fitch's Public Finance group.

Narrow network and shared savings contracts are expected to be popular among community health systems that provide local care to employer-based populations, while bundled payment products for specialized services would be targeted by institutions with national market recognition and demonstrated quality outcomes in specific service lines.

Providers are expected to take limited risk under first generation contracts and gradually increase risk parameters over the long term as actuarial and risk management skills are refined.

Providers that are able to demonstrate superior clinical outcomes and cost savings are expected to benefit from direct contracting initiatives.

However, the long-term and short-term financial implications are currently unclear. Fitch expects that it will take time for providers to develop best-practices and to hone pricing methodologies to manage the associated risk.

Fitch, US, Jennifer Kim