How Changing Third-Party Payor Models Can Affect Your Practice

PayrHealth · Updated November 2026

Third-party payor models are changing in five ways that affect practices directly: more patients in Medicare Advantage, more Medicaid in managed care plans, more employers paying claims themselves through self-funded plans, narrower networks, and value-based terms added to fee-for-service contracts. Each shift changes who you negotiate with and how your rates are set.

A practice's revenue depends on the mix of payors its patients carry and the contract with each. When that mix shifts, revenue shifts with it, often before anyone renegotiates. This guide explains what a third-party payor is and what each change means for your contracts.

What is a third-party payor?

A 3rd party payor is any organization, other than the patient, that pays for the patient's care. The first party is the patient, the second is the provider, and the third is whoever pays the claim.

Types of third party payors

• Commercial insurers, for employer and individual plans, including ACA marketplace plans
• Medicare, the federal program for people 65 and older and some people with disabilities
• Medicare Advantage plans, private plans that administer Medicare benefits
• Medicaid, run by each state, often through Medicaid managed care plans
• Self-funded employer plans, where the employer pays claims and hires an insurer or third-party administrator to run the plan
• Other programs, such as TRICARE, workers' compensation and auto insurance

Five shifts in third-party payor models

1. Medicare Advantage is still growing, more slowly

Medicare Advantage covers 55% of eligible Medicare beneficiaries in 2026, and enrollment grew about 3% this year, slower than in past years, according to KFF. Patients who once came with the traditional Medicare fee schedule now come with a private plan's contract, its prior authorization rules and its network. Medicare Advantage contracts are generally negotiable, often as a percentage of the Medicare fee schedule.

2. Medicaid runs through managed care plans

Most states deliver Medicaid through managed care plans that contract with providers directly. Rates often track the state Medicaid fee schedule, but authorization rules, payment timing and network requirements vary by plan.

3. Employers pay claims themselves

Many employers self-fund their health plans and rent a network from an insurer or contract through a third-party administrator. Your contract is usually with the network, but plan rules can differ from employer to employer.

4. Networks narrow and consolidate

Plans steer members to narrower or tiered networks, and commercial enrollment sits with a few large companies. In the median state, five parent companies cover 80% of commercial covered lives and seven cover 90%, in PayrHealth's analysis of enrollment data. In many markets, a handful of contracts decide most of a practice's commercial revenue, and being out of one narrow network can cost you its members.

5. Value-based terms sit on top of fee-for-service

Most value-based programs add bonuses or shared savings to a fee-for-service base rather than replacing it. The fee schedule still sets most of what you are paid, and the value-based terms add targets, attribution rules and sometimes risk. See different types of healthcare provider contracts.

How payor model changes affect your payor mix and revenue

• Medicare Advantage growth. What it can do: more of your Medicare patients paid at a private plan's rate, with more prior authorization. What to do: negotiate Medicare Advantage contracts as carefully as commercial ones.
• Medicaid managed care. What it can do: payment rules and timing vary by plan. What to do: track denials and payment speed by plan, and negotiate terms where rates are fixed.
• Self-funded plans. What it can do: different rules from employer to employer. What to do: know which network contract covers each plan.
• Narrow networks. What it can do: lose you access to a plan's members. What to do: track which networks your patients use, and make the access case where you are out.
• Value-based terms. What it can do: add bonuses and risk on top of the fee schedule. What to do: read targets, attribution and loss caps before signing.

How to adapt

1. Track your payor mix every quarter, by plan and product, not just by company.
2. Benchmark your largest contracts against a percent of Medicare and against published market rates for the same codes.
3. Renegotiate as the mix shifts. A contract that mattered little three years ago may carry a large share of your patients now. See when to renegotiate your payor contracts, and how often.
4. Check payments against contracts, especially with plans that are new to you.
5. Join the networks your patients are moving to. If a closed network stands between you and those members, see what to do when a payor says the network is closed.

Example: Integrated Respiratory Solutions reached 659,369 covered lives through new Missouri network access. Read the case study.

Frequently asked questions

What is a third-party payor in healthcare?

Any organization other than the patient that pays for care: a commercial insurer, Medicare or Medicare Advantage, Medicaid or a Medicaid managed care plan, or a self-funded employer plan.

What are examples of third party payors?

Commercial health insurers, Medicare, Medicare Advantage plans, state Medicaid programs and their managed care plans, self-funded employer plans, TRICARE and workers' compensation.

Is value-based payment replacing fee-for-service?

Not for most practices. Most value-based programs add bonuses or shared savings to a fee-for-service base.

See where your rates stand

PayrHealth negotiates contracts with commercial, Medicare Advantage and Medicaid managed care plans. A free rate review benchmarks each of your payor contracts, using payor price transparency data, against the best-paid quarter of practices like yours, for the same codes, in your market. You see which contracts could pay more, and which gaps reflect leverage a negotiation may not close. It's free, with no obligation, and practices that qualify pick a time with our team right after they submit. See if you qualify for a free rate review.

Read next

• A Guide to Payor Contracting for Providers
• What is a Managed Care Contract?
• Different Types of Healthcare Provider Contracts

How we got this number

PayrHealth analysis of payor enrollment (covered lives) data, January 2026 snapshot, fully and self-insured commercial lives, 50 states plus the District of Columbia. For each state we counted how many parent companies it takes to reach 80% and 90% of commercial lives; five and seven are the medians across states.

Sources

• KFF, Medicare Advantage enrollment update and key trends: kff.org
• MACPAC, Managed care: macpac.gov