Fitch: Direct Contracting Between Hospitals & Employers Expected to Grow

Tue May 20, 2014 2:00pm EDT

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(The following statement was released by the rating agency) NEW YORK, May 20 (Fitch) 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. For more information, a special report titled "Seeking Value: Direct Contracting Strategies" is available on the Fitch Ratings web site at www.fitchratings.com. Contact: Jennifer Kim Associate Director +1-212-908-0740 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Eva Thein Senior Director +1-212-908-0674 Dmitry Feofilaktov Analyst +1-212-908-0345 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: Seeking Value: Direct Contracting Strategies here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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