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November 5, 2021

Drug Costs and Direct Contracting in Healthcare

How Direct Contracting in Healthcare Can Help Curb Your Drug Spend

It’s no surprise that the United States spends more on healthcare than any other developed nation, and costs are expected to continue to climb. And, as we aren’t yet free from Covid’s grips, it’s still unknown to what degree the global pandemic will affect medical and prescription costs.

As reported by the Peter J. Peterson Foundation, in 2018, the U.S. spent approximately “3.6 trillion on healthcare, which averages to about $11,000 per person.” If that’s not shocking enough, healthcare costs rose from 5 percent of the U.S.’s gross domestic product (GDP) in 1960 to 18 percent in 2018. 

What is Causing the Rise in Healthcare Costs?

One of the most significant contributors to increased healthcare costs?  Prescription drugs. According to a 2020 study by GoodRx, “drug prices have increased by 33% [from 2014 until 2020], outpacing price increases for any other medical commodity or service.” In first two months of 2020, 693 drugs increased their prices by an average of 6 percent, 619 brand drugs increased pricing by an average of 5.2 percent, and 20 generic drugs increased pricing by an average of 29.4%. 

According to the Centers for Medicare and Medicaid Services, “[n]ational health spending is projected to grow at an average annual rate of 5.4 percent for 2019-28 and to reach $6.2 trillion by 2028,” making up almost 20 percent of the U.S.’s GDP by 2028. And these projections don’t consider COVID and its continuing (and future) financial impact on healthcare.

These rising costs impact numerous stakeholders in the healthcare industry, including payers, third-party administrators, pharmacy benefit managers (PBMs), employers, and employees (and their families). As employers continue to meet these rising healthcare prices, organizations regularly search for solutions that control costs. 

One solution that has been gaining in popularity is direct contracting. In this article, we will explore how direct contracting in healthcare can help curb your drug spend.

What is Direct Contracting in Healthcare?

Direct contracting allows employers to negotiate prices and services directly with the healthcare provider or ancillary services instead of through an intermediary, such as an employer-provided group health plan or pharmacy benefits manager. The result is simple.  Drive value-based, high-quality care while reducing costs and increasing efficiencies. 

Instead of paying group insurance plan premiums for care that employers can’t always tailor or negotiate the prices, organizations can directly contract with specific providers outside of the plan.  For example, a large, self-funded employer may directly engage with a provider for a particular service, such as cardiology or joint replacement. Alternatively, the employer may directly contract with a facility or physician group for comprehensive care.

Direct contracting in healthcare works not only for medical and preventative services but prescriptions as well. For example, employers can directly contract with pharmacies through transparent PBMs. In this arrangement, the employer reduces drug costs, and the pharmacies retain more income since multiple stakeholders aren’t depleting the pharmacy’s cash flow through administrative costs and fees. The PBM is essential to this arrangement as it can negotiate drug benefits nationally. 

By contracting with these “direct contracting entities” – for medical or drug coverage — employers can better control costs while providing high-quality care to their employees and their families. 

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What are the Benefits of Direct Contracting?

The primary benefit of direct contracting in healthcare is controlling medical and pharmacy costs while supplying quality services. For employers, direct contracting allows for increased price transparency and enhanced employee satisfaction and productivity by providing custom-tailored services specific to the needs of their employee populations. BenefitsPro agrees, stating:  

[D]irect contracting removes the inefficiencies and high costs associated with fragmented care and redundant care, helping employers achieve their goals of lower costs and better outcomes. And the savings for employer groups can be significant. Employers can expect annual savings of between 10% and 20% on average over a fragmented PPO health plan.

Let’s look more specifically at the benefits of direct contracting in pharmacy benefit management. With pharmacy benefits as one of the top cost-drivers in healthcare, understanding your drug spend is imperative to helping you control costs—both now and in the future–while providing high-quality healthcare. 

To help determine potential savings in your pharmacy spend with direct contracting, you can compare the costs of your current drug spend with the prices available to you through direct contracting.  However, knowing your current drug spend depends on your health plan can be complicated as these costs are often bundled with other healthcare expenses. 

Accessing actionable data helps you untangle those bundled costs, providing insight into your pharmacy spend in real-time.

And, while you’re comparing your current spend to direct contracting costs, don’t forget to look at value-added services, such as immunizations or clinical programs, according to the Thriving Pharmacist. Doing so helps you to tailor prescription and other medical programs specifically for your employee population, helping your “staff stay healthy, have fewer sick days, and lower overall health costs.”

Optimizing your health care plan or PBM contracts with direct contracting not only serves as a cost management tool but allows benefit managers and employers to better predict future drug spend. 

What are the Challenges Related to Direct Contracting?

Although direct contracting in healthcare offers numerous benefits, there are also challenges. First, although somewhat simple in concept, legal contracts can be complex and convoluted. Therefore, before entering a direct contracting arrangement, it’s essential to understand the contract itself, paying close attention to responsibilities, representations, and potential liability.

For direct contracting to achieve its primary benefits, employers, for example, must ensure that gaps of care don’t exist between the group health plan and the services provided under the direct contracting arrangement. Further, as with all employee benefits, employers must ensure that administration and legal compliance are up to snuff – at all times.

Additionally, for many healthcare stakeholders, direct contracting is still seemingly new. Because of this, direct contracting may fall outside of many stakeholders’ comfort zones, potentially preventing them from entering a more favorable arrangement. 

Many of these challenges will be overcome with time as direct contracting in healthcare becomes more mainstream. But, until then, continued education on the benefits of direct contracting will be needed – as with any new industry offering.

As healthcare solutions continue to focus on value rather than volume, direct contracting should remain in the mix as a way to offer high-quality healthcare while trimming the fat and removing unnecessary intermediaries. 

To make direct contracting a success, PBMs, employers, and other healthcare stakeholders need to access understandable and actionable data, allowing these entities to “harness the data toward meaningfully lowering costs or improving quality.” Also, make sure you’re using data specifically applicable to the services you’re monitoring, such as your drug spend. 

Through advanced pharmacy claims analysis, Xevant can help you manage direct contracted programs, helping you to optimize client performance by converting data into immediate savings opportunities. Whether you’re a PBM, TPA, or benefits manager, Xevant provides the data you need before you need it. 

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Brandon Newman, CEO of Xevant


Brandon Newman, CEO of Xevant

"Brandon has a dynamic, 25-year leadership career spearheading several businesses with emphasis on growth, revenue, and sales performance. He has run many high-growth environments, including start-ups, turnarounds, and $1B+ dollar businesses. As a serial entrepreneur, he has a proven record of founding new businesses and advancing them through growth and acquisition, merger, or roll-up including ScripPoint, Veridian, and AviaraMD. He is the driving force for vision, new market strategy, revenue growth, technology development, and partner alliances."


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Mitch Searle

Director, Demand Marketing

Mitchell is a seasoned marketing leader with over a decade of experience driving direct-response demand. From bootstrap budgets to multi-million dollar per month budgets, Mitchell knows how to ensure positive returns on marketing investments. With extensive experience in both B2C and B2B, he has a knack for delivering show-stopping and world-class campaigns that generate immediate impact as well as long-lasting impressions.

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Dave Sanders

VP, Data

With almost 20 years of experience as a senior executive and strategic leader in the data industry, Dave transforms companies through innovative technology solutions. He’s built high performing teams at various types of companies, including Ancestry, the New England Patriots, and Vivint. Dave has successfully migrated many companies to the cloud and always enjoys the challenge of improving processes. He’s excited to help lead Xevant data engineering to make an impact in healthcare.

David Ninow

VP, Product Management

Serving as Xevant’s VP of Product Management, David is a product and technology executive who has led and scaled successful product teams at organizations ranging from high-growth startups to established multi-billion-dollar B2B brands. With expertise building innovative SaaS solutions that disrupt established markets, he is laser-focused on driving the realization of Xevant’s industry-changing vision with world-class product strategy and execution. David is an avid outdoorsman, musician, and family man; perfectly positioned at the foot of the beautiful Wasatch Mountains in Utah.

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From the 2023 drug trend report

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Pete Tantillo

Chief Financial Officer

Pete is an accomplished technology executive who has led many organizations through high growth and profitability stages and has worked with some of the world’s largest companies. Pete most recently completed an exit for RapidRatings, a highly successful data and information analytics company in the risk management and supply chain analytics space where he was both CFO and COO for the business. Prior to RapidRatings, Pete spent ten years working for private-equity and venture backed technology companies in both SaaS and traditional software solutions. Pete also spent 13 years at powerhouse technology company SAP where he led field services for SAP America. Pete started his career in public accounting with Arthur Andersen & Co and is a licensed CPA. He graduated with a business degree from the College of William & Mary in Virginia. 

Ashwin Patel

SVP, Data

Ashwin (Ash) has more than 20 years leadership experience in data warehousing and business intelligence practices within the healthcare sector. At Xevant, Ash leads the data and business intelligence teams and is responsible for future state expansion of Xevant data technology platforms and processes, partnering with the organization’s product teams to develop best-in-class products and solutions. Prior to Xevant, Ash was VP Business Intelligence for HealthSmart Benefit Solutions based in Irving, TX, a third-party administrator (TPA) of medical, pharmacy, and clinical data. Ash earned a Bachelor of Science degree in computer science and operations research from Leeds Becketts University in Leeds, England.

Sahily Paoline

Chief Clinical Officer

Sahily is a licensed pharmacist and expert business leader with more than 20 years of experience delivering high-quality clinical care, building and leading organizations, and staffing and motivating teams in the pharmaceutical and digital health industries. Sahily specializes in Clinical Program Management, Pharmacy Practice and Operations, and building and growing business. She is passionate about the use of data and technology in patient care and believes in a holistic approach to healthcare.
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Megan Foster

Manager, People Operations

Todd Rode

VP, Services & Corporate Operations

Todd served as an Artillery officer in the U.S. Army before a disability turned his focus to the business world. He’s carried a bag, led multiple sales operations and sales development efforts, and run a sales team in complex selling environments. The son of small business owners, Todd enjoys helping business leaders grow by using proven, repeatable processes. He holds a BS from the United States Military Academy at West Point and an MBA from the Kellogg School of Management at Northwestern University. Todd lives in Nashville with his wife. He spends as much time outside as possible and co-founded a brewery in 2019.  He’d love to tell you the full story over a pint sometime.

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Marvin Roi Elvambuena

Director, Web Development

Marvin is responsible for all aspects of software development efforts at Xevant, including architecting and managing software solutions from the ground up. He brings with him a performance history of leading loosely defined enterprise software projects in rapid changing environments. He has previously worked in several industries such as HR solutions, insurance, shared services, and payroll and holds a BS in Information Technology with specialization in Web Development.

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Jaylyn Palmer

Chief of Staff

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Scott Sorenson

Chief Technology Officer

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Greg Abram

Chief Growth Officer

Greg is a results-driven sales professional with more than 12 years of experience in the PBM and healthcare markets. As VP of Sales, Greg leads the Xevant sales team focused on growing revenue and expanding market reach. Prior to Xevant, Greg served in multiple leadership and growth positions with Myriad Genetics, Navitus Health Solutions, Catamaran, and CVS Caremark Corporation. Greg’s passion to create long-lasting, aligned partnerships has delivered tremendous value for PBMs, health plans, large purchasing groups, and fortune 500 organizations throughout the country.
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Jeff Weber

Chief Operating Officer

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Griff McGee

Corporate Controller

Griffin is CPA and finance and accounting professional with more than 10 years’ experience in public accounting, internal audit, and consulting. Throughout his career Griffin has worked with clients to solve complex problems, improve and implement new processes and achieve public company readiness. Prior to joining Xevant, Griffin served in several audit and consulting roles with Protiviti, Change Healthcare, Genesco and Decosimo, CPAs.

Daniel Telford

Director, Corporate Treasurer

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Gerrit Lemmen

VP, Rebates

Gerrit is an experienced leader in the PBM, Specialty and Formulary rebate markets. As VP of Rebates at Xevant, Gerrit is responsible for managing drug rebates through Xevant’s revolutionary pharmacy benefits platform. In his previous roles at Magellan Rx Management, Gerrit led highly respected commercial rebate operations teams and focused on increasing efficiency that enabled scalability and growth.

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Mike Simmons

VP, Product Management

Mike is a true product champion & ambassador with 18+ years of experience in critical product launch, strategic branding, and delivering profitable campaigns that capture market share and create growth. His vision and skills for implementing integrated, high-impact, go-to-market strategies have proven to drive increased sales and an overall improvement of marketing programs. Mike’s ability to leverage business savvy in order to align management, data intelligence, and content management generate more informed business decisions resulting in enhanced revenue for progressive, enterprise organizations.

Laura Phillipson

VP, Strategic Accounts

Laura Phillipson is a client management expert with experience managing client services teams. Her past roles include Sr. Client Services Executive for Navitus and over a decade of experience as a Certified Pharmacy Technician. Laura’s career in client relations spans nearly two decades. An avid sports fan, Laura excels in helping clients create a strong strategy with a competitive edge. Laura’s extensive background in both customer service and the medical field provides an ideal blend to lead client management for Xevant.

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Chad Davis

Director, Compliance

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Director, Data Warehouse

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Chief Marketing Officer

Greg is an expert marketer and innovative business builder specializing in launching and building high growth companies. As a founding member and on the leadership team of multiple venture backed tech startups, Greg has extensive experience in numerous markets including software services, health and medicine, commercial real estate, and consumer focused products. His primary motivation is driving demand and growth through an omni channel, go-to-market strategy. When Greg is not neck deep building an exhilarating business, he can often be found mountain biking, fly fishing, or carving deep powder on remote mountains.

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Jace Garfield

Chief Analytics Officer

Jason (Jace) Garfield, MSW has thrived in many industries ranging from data and information technology to foster care and mental health management. In his role with the Utah State Justice Commission, he helped publish medical research on drug effectiveness. Jason’s passion for technology and data automation paved the way towards innovations in identifying new to market drugs, tracking systems to identify clinical interventions, and data automations, resulting in millions in operational cost reductions. At Xevant, Jace leads every aspect of product operations and is responsible for a diverse team of technology experts.

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Jason Hardin

Chief Revenue Officer

With 20+ years of sales and sales management experience in SaaS sales and professional services, Jason is a dynamic, performance driven leader with an exceptional record of achievement in motivating sales teams to exceed quotas, while ensuring client success.  Having led many organizations in the start-up, high growth, and emerging phases, Jason brings an entrepreneurial hunger to the sales, client success, and business development organizations with the ability to penetrate new markets, produce high growth sales results, achieve adoption and retention goals, and grow market share and revenue quickly.  

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Jeff is the Chief Operating Officer at Xevant and is accountable for operational excellence at the company. Prior to joining Xevant, Jeff successfully applied his extensive, multidisciplinary expertise in building and scaling growth and service infrastructures within start-up, mid-market, and Fortune 500 technology and services companies. He has recruited and built new leadership and functional teams within operations, sales, marketing, product development, client success, finance, and HR. The success of these business transformations also contributed to a culture of increased accountability and empowerment, contributing to significant improvement in employee engagement and overall enhanced business performance. Jeff holds an MBA from Duke University’s Fuqua School of Business in North Carolina and a Bachelor’s Degree in Finance and Economics from Grove City College in Pennsylvania.

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Lindsay Jones

Chief Financial Officer

Lindsay Jones, CPA, is a financial executive with experience in start-up companies & mature enterprises. He has a proven track record of helping, leading, and enhancing executive management teams. He has worked with private equity groups and private investors to identify, analyze, and close acquisitions and divestitures of companies. He has founded two startup companies, owned his own business, and closed over $500 million in private and public equity and debt financing, in his twenty-year career. 

Brandon Newman

Chief Executive Officer

Brandon has a dynamic, 25-year leadership career spearheading several businesses with emphasis on growth, revenue, and sales performance. He has run many high-growth environments, including start-ups, turnarounds, and $1B+ dollar businesses. As a serial entrepreneur, he has a proven record of founding new businesses and advancing them through growth and acquisition, merger, or roll-up including ScripPoint, Veridian, and AviaraMD. He is the driving force for vision, new market strategy, revenue growth, technology development, and partner alliances.