Employers seeking to reduce health care expenditures are turning to direct contracting as a way to control provider cost increases. In a direct contract, the participation of third parties is minimized. The health care provider and a corporate buyer directly negotiate a price agreement for the delivery of health care services. However, as managed care penetration increases, the ability of hospitals and physicians to assume risk while providing high quality, cost effective care will be paramount. Physicians and hospitals who choose to work together may find a physician-hospital organization an effective vehicle to meet the current and future market challenges of direct contracting.