How cutting deals with employers saves health systems money

In recent years, escalating hospital-insurer disputes have left many patients, providers, and employers feeling powerless.

A dispute between New York’s Mount Sinai and Anthem Blue Cross Blue Shield is one of the latest examples of these squabbles cutting off healthcare access. About 9,000 Mount Sinai physicians went out of network for about 200,000 Anthem patients after the two sides couldn’t agree on pricing. That disruption lasted from March 1 until April 13, when they finally signed a contract.

Add insurer-hospital tension to rising healthcare costs from both hospitals and payers, sprinkle in frustration with third parties like pharmacy benefit managers—healthcare continues to be a complicated headache, particularly for self-funded employers that have their own money on the line.

So, some employers are taking health insurance into their own hands, bypassing carriers and inking contracts directly with providers. The specifics of direct contracts can vary, but typically refer to arrangements in which employers negotiate prices for procedures and medications directly with healthcare systems. The arrangements also typically allow access to healthcare data that employers can use to plan and manage costs.

“There doesn’t have to be inherent friction between employers and hospitals, but there will be if we can’t get our incentives aligned,” Claire Brockbank, director of union 32BJ’s health benefits fund, told us. The union represents over 185,000 property service workers primarily in the Northeast.

What’s in it for employers? Companies could be drawn to direct contracts because they would likely gain more control over how their healthcare budget is spent, sources told us.

Employers spent an average of $20,143 on employee health premiums in 2025, according to KFF, up from $12,687 one decade prior. But even as their health costs grow, businesses may have limited leverage to pursue direct agreements with providers, Elizabeth Mitchell, president and CEO of the coalition Purchaser Business Group on Health, said. That’s because some health plan contracts restrict employers’ ability to do direct contracting.

“More and more of our employers [are] insisting on retaining those rights and defining what they want from their provider partners,” Mitchell, whose organization represents large employers such as Costco and Microsoft, said.

Ultimately, Mitchell said she’s observed a growing recognition that “it is not the health plans’ money; it is a self-insured employer’s money. It is their workforce, and they should be able to do whatever they want to do with it.”

This consideration played a role in 32BJ’s Dec. 2025 decision to contract directly with Northwell Health, the largest healthcare provider in New York, with the expectation to save $46 million in the first year.

When speaking with providers, the union sought out a partner that would keep in mind “it’s not anybody’s money but our money, on behalf of our workers,” Brockbank told us.

The promise of reduced costs is another major factor driving employers to direct contracting, sources told us. Members of the Health Transformation Alliance, a cohort of self-insured employers, typically “pay anywhere from 8% to 12% less at the same hospital for the same procedure” when they use direct contracting because bureaucratic network requirements are no longer there, CEO Robert Andrews said.

Duly Health and Care, a multispecialty physician medical group based in Downers Grove, Illinois, moved from a group health plan to a direct contract managed by Imagine360, an independent third-party administrator, this year. In doing so, the company hopes to reduce costs and drive better outcomes, CHRO Paul Dumas said.

Duly’s health costs were expected to increase by 19.6% in 2026 if it had stayed with its previous carrier, which was one of the big four that dominate the market. That’s significantly higher than other industry estimates, which range from 6% to upwards of 9%. As of June, six months after Duly switched to direct contract, that estimated expense exposure had gone down to just 2%, he said. Employee premiums went up by 2%–3%, he added. “We’re still getting the same level of outcomes at a significantly less cost to the employer.”

Dumas attributed the success of the new plan thus far to the fact that Duly has greater transparency into and control over pricing, as well as the ability to steer workers toward more cost-effective treatments, like primary care. (The company also had an advantage in negotiating this plan because it essentially contracted with itself; the majority of Duly employees receive care from Duly providers, according to Dumas.)

“We spend over $100 million on healthcare,” he said of the decision to switch to a new contract. “It’s not something I can manage passively.”

The hospital perspective. Employer-provider relationships can have key benefits for health systems, too.

Privately insured patients are a health system’s largest source of revenue and effectively subsidize the cost of providing care to Medicare, Medicaid, and uninsured patients, Michael Stubee, VP of payer strategy for Central Florida-based nonprofit healthcare system Orlando Health, told us.

Orlando Health works with employers via vetted third parties to design health plans in which the system is the exclusive in-network provider. In exchange, employers get discounts.

This relationship directly brings more revenue to the health system and allows for other types of flexibilities, too, Stubee said.

Within this dialogue, employers can bring concerns, like if a school district’s employees aren’t able to make it in for a doctor’s appointment during school hours. Orlando Health can then open early hours or after-hours slots, Stubee said.

Employer relationships also allow Orlando Health to advocate for its own priorities, like lower plan deductibles. (High-deductible health plans are a significant contributor to unpaid medical debt and a major problem for the health system, Stubee said.)

“We would much rather have a direct dialogue with employers and have the ability to solve problems as we go rather than have, necessarily, large public spats or, frankly, consternation about the way we do business,” Stubee said.

The downsides of direct contracts. While there are surely some upsides to direct contracting for both employers and healthcare systems, this solution isn’t without downsides.

The seemingly simple question, “What insurance card do I put down for this appointment?” for example, doesn’t always have a clear answer under a direct contract, Andrews said. Employees are typically accustomed to providing a health insurance card from a carrier such as UnitedHealthcare, but when an employer has a direct arrangement with a provider, they may provide a company-branded card for certain services.

While this may seem somewhat minor, “if you’re an HR person, it’s a huge deal,” Andrews said. “If the card isn’t familiar and it doesn’t get accepted, you’ve got yourself a bad day.”

Such issues are typically fixable by working with a partner such as a third-party administrator, he noted. Securing such partners, he continued, represents another major challenge for HR teams interested in direct contracting. These contracts require more bandwidth than traditional health plans, he said, meaning HR teams may have to engage additional partners, either internally or externally.

And then there’s the issue of getting employees used to the new plan. The change management challenges of direct contracting have been “significant,” Dumas said.

“There was an education period in communication with employees because it’s not branded as a Blue Cross Blue Shield or an Aetna,” he said. Dumas said Duly invested significant time and effort into educating employees about the new plan. He said it was important to clarify to workers that while they had changed the network and healthcare partner, the company had designed their specific health plan to largely remain the same. He told us “the vast majority of employees have continued seeing their previous providers.”

Boeing has similarly put resources into helping workers make the most out of its direct contracts, Kathy Mullins, the company’s VP of total rewards, said via email. “A key challenge is communicating to employees the need to use specific provider networks for optimal benefits, which we accomplish through mailings and dedicated websites,” she said, adding that Boeing has direct arrangements with health systems and advanced primary care providers in regions including Puget Sound, San Antonio, and St. Louis.

“One of the hardest things with these types of plans is the fear of the unknown,” Ahmed Marmoush, founder and CEO of Handl Health, which provides healthcare pricing data to insurance brokers, said. Whenever employers are contemplating changes to their healthcare plans, they’re often afraid that workers will interpret these changes as sacrificing quality, particularly if there’s a cost-saving element, he said.

As such, Marmoush emphasized “the importance of a good communication strategy when it comes to changing people’s health insurance.” Employers should pursue a variety of ways to communicate changes to employees, from phone calls to all-hands, and do so well in advance of open enrollment, “so people understand the trade-offs,” he said.