Aug 27 2019 | Thought Leadership | By

How to Create a Direct-to-Employer Strategy: 4 Key Steps

When developing value-based care strategies, employer groups—particularly large employers—in your community must be included in your approach. From 2013-2017, employers’ healthcare costs increased on average 3.9% each year versus an average of 3.1% annual growth for the US GDP per capita. Further, employers have not found much relief in working with their plans to manage healthcare costs and are now looking to engage health systems in unique ways.

Engagement and dialogue between health systems and employers will inevitably lead to value-based solutions, but often the path to financial return is not immediately clear. Direct-to-employer contracts are significantly different from typical payer contracts and demand special consideration and understanding.

Across the country, Lumeris has seen health systems achieve the most success with value-based strategies when focused on senior populations in the form of Medicare Advantage and Medicare Shared Savings Programs (MSSPs), given the clinical and financial levers available to manage these populations. Direct-to-employer strategies are appropriately pursued after your organization has developed capabilities and is preforming well in with Medicare risk contracts.

Although many of the same principles apply in both Medicare Advantage and commercial contracts, important differences must be taken into account. Development of a direct-to-employer contracting strategy can be broken down into four stages, each of which includes several elements to take into consideration to foster success.


  1. Choosing the right partner

Developing relationships, forging contracts, acquiring new capabilities, and achieving savings have been challenging for organizations that have pursued value-based contracts, and health systems should proceed thoughtfully. How you contract and with whom you contract are as important as how you manage the populations, and they deserve the same level of consideration and diligence. Decision points include:

  • Characteristics The ideal employer partner is large enough to have a sufficient number of covered lives. Look for local or regional businesses with several thousand employees who live in an area that matches your provider footprint.
  • Philosophy Corporate organizations need to be true partners in the endeavor. They must be innovative and open to fundamental changes in care delivery, such as selecting high performing provider networks and modifying benefit designs. Buy-in from the human resources department is essential.
  • Flexibility Innovative arrangements often need adaptations along the way. Seek companies willing to change course if necessary and build in review/revision periods at the one- and two-year marks.


  1. Aligning the contract

The contract must reflect employer and health system alignment on financial and clinical goals. Having cost and quality data to set realistic goals is important to success under the contract. These contracts will project a trend rate or a goal for cost and quality outcomes at the end of the year. Thus, determining an accurate trend rate can be the difference between success and failure. The various approaches have pros and cons, depending on timing and availability of data. Popular options include:

  • Control group Employees under the new contract are compared against employees who have continued with traditional insurance to establish the cost trend going forward.
  • Estimated trend The healthcare spend for employees under the new contract is estimated based on the historic claims expense for the organization or for the employees who opt in, assuming the data are available.
  • Historic healthcare spend The projected trend is based on local, regional or national healthcare spending trends.

Data collection and transfer is a significant challenge, no matter the model. Poor access to clean, timely data frequently delays the ability to manage populations. Without good data, providers can’t take on risk.


  1. Designing benefits

Benefit design will be a significant determining factor of success. Regardless of whether you take on this task or use an outside consultant, the employer and providers need to be at the table. Other key considerations include:

  • High performing provider network focused on quality and cost,
  • Benefits that encourage in-network utilization,
  • Effective attribution methodology,
  • Competitive product price, and
  • Appropriate broker involvement.


  1. Building membership

Our experience has shown that roughly one-third of eligible employees opt into direct-to-employer programs. However, the concept of “if you build it, they will come” doesn’t fly with enrollment in a new direct-to-employer health benefit. Generating membership requires a thoughtful approach to marketing, such as promoting the benefits of preventive care and building trust with a high-quality provider. Employees will also pay attention to particular benefits such as pediatric providers, on-site clinics, and related health activities such as vaccination fairs.



Direct-to-employer contracting needs to be part of your value strategy. This market still is in the early stages of maturity, but finding a good employer partner, following these steps, and starting cautiously will give you a better chance at success.

Health systems that want to avoid common missteps and accelerate their move into the direct-to-employer market can enter into an operating partnership with an entity that has a track record of working hand-in-hand with providers in their shift to value. Such a partner works with the health system to strengthen the internal capabilities—such as insurance skills, physician alignment and practice change, data systems capacity and expertise, and proficiency in regulatory requirements and compliance—that make success possible.

Not sure where to start? Talk to one of our advisors.

Contact Us