Direct Contracting with Businesses by Family Physicians (Discussion Paper)


The majority of family physicians still rely on a fee-for-service model for their primary revenue stream. This includes commercial insurance and government sponsored health care funded through programs such as Medicare, Medicaid, the State Children’s Insurance Program, (SCHIP), and occasionally other local tax-based programs for the indigent. Some physicians in community based practices have been pursuing alternate payment strategies.

The alternate strategies have included cash-based fee-for-service models, monthly retainer fees, and direct contracting either between physician and patients, or between a physician or physician group and local employers. This process of directly contracting with businesses in communities is evolving to include a more comprehensive level of service, longer appointments, and traditionally unreimbursed services such as phone calls and telemedicine visits.

Physicians contracting directly with business entities is not a new phenomenon, but in the past it has often focused on business-related services, such as worker’s compensation or occupational health and screening services. In this scenario, the services provided were limited and of a specific nature. Payment was typically pre-determined. The primary care physician may or may not have been involved in a cost control strategy to assist the patients and the business in reducing or eliminating unnecessary expenditures.


Family physicians have often looked at direct contracting with businesses as a way to bypass the insurance industry’s control of the revenue stream. Historically, the physicians involved in direct contracting were organized into large networks of physicians and other health care service providers to meet the needs of large or medium sized businesses. The direct contracting initiatives of the past often involved the provision of on-going primary care, and sometimes specialty care outside a traditional insurance program. In many instances the physician groups involved had difficulty organizing within the restrictive regulatory environment and competing with the ready access to providers available through an established competing insurance plan. These plans often included hospital care and were difficult for primary care providers to participate in.

As costs continue to escalate within the insurance based model, additional opportunities to develop alternative strategies emerge. More family physicians are offering services to help businesses control unnecessary expenditures and reduce the administrative burdens associated with health insurance.

The following are several types of services that family physicians may offer:

  • Wellness and preventive services or programs to businesses. Examples of such services are health fairs, flu vaccine programs, cancer screenings, or osteoporosis screening programs.
  • Traditional worker’s compensation services or return to work and stay at work programs under a direct contract.
  • Occupational health screenings (drug and alcohol testing, Department of Transportation testing requirements, Federal Aviation Administration physicals).
  • Comprehensive primary care services for episodic illness and chronic care under a direct primary care (DPC) contract arrangement though their own clinic. These services may be offered at the family physician’s usual practice site, or a work site clinic may be established.
  • Separate worksite clinics staffed by physicians or midlevel providers with physician oversight. These clinics include traditional occupational health or regulatory compliance or may offer complete primary care services for employees and/or their families. Chronic care may be referred to the primary office or performed at the worksite clinic.

There are multiple benefits for both the employees and the employer under such arrangements. Such services significantly reduce employee absences from work for minor illness and for routine follow-up for on-going illnesses. The services may also prevent unnecessary after-hours trips to the urgent care center or emergency room. Moreover the preventive care and chronic care services provide a usual source of care for patients who may not have an established site for care or a primary care physician. There is clear evidence that patients provided access to primary care have better outcomes and reduced total expenditures than patients who are unguided in the current US healthcare system, and employers are beginning to realize this.

Physician payment may be based on some combination of:

  • A per employee per month fee that may vary depending on the demographics and size of the group and services provided.
  • A negotiated flat fee that covers the total cost, including fees for the physician or any midlevel providers involved in providing care.
  • There may be an additional co-payment paid by the patient.

Ideally, this revenue stream does not involve the patient’s primary health insurance. The payments are made directly to the physician and he or she is not required to bill a third party administrator. This reduces the self-funded employer’s cost for this portion of employee health care, as the third party administrative charge is avoided (which can be up to 40 percent of the total).

The types of services included are the usual services provided by family physicians, and may include episodic care, chronic care and preventive care. In some cases basic radiology and/or lab fees are also included (through the physician’s office or a negotiated discount between the physician and a commercial laboratory or radiology facility). Physicians who offer other ancillary medical services or in-office pharmaceutical dispensing can potentially add these to a direct contract with the self-insured employer. Additional preventive care services such as immunizations are often provided periodically at the work site.

For on-site clinics, the business may provide low cost or no cost onsite facilities. In other instances the employer may be responsible for funding the initial setup of a clinic facility and the ongoing onsite facility expense.

Physicians involved in these arrangements contend that the savings obtained by reducing claims expense to the company’s insurance or worker's compensation costs more than offsets their expenditures on the physician’s services. This is especially true for companies that are self-insured and have a third party administrator processing the claims. Their overall utilization and cost of claims may be reduced and may provide them an advantage when renewing or renegotiating their contracts.

The greatest hurdle to overcome for most family physicians in promoting this type of alternative strategy is the need for physicians or their representative to educate the business owner and patients on the advantages and potential benefits of such arrangements and to prepare and negotiate a contract. (April Board 2010) (2015 COD)