The Biden administration has come under pressure in recent weeks to modify, or even pull back entirely, the Center for Medicare and Medicaid Innovation’s Direct Contracting Model, which was originally developed during the Trump era. (The administration has indicated it will announce its plans for the model “soon”.) The following background on how the model currently works, and the issues raised by its opponents and defenders, may be helpful as the future direction of value-based payment is debated.
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- The Concept. Direct Contracting allows health care providers—Direct Contracting Entities, or DCEs—to accept either full or partial capitation as payment for a defined set of Medicare-covered services. It has been described as the next logical step in the evolution of accountable care organizations (ACOs), as it would break more decisively from fee-for-service and allow provider organizations to accept and manage population-based, and prospectively calculated, monthly payments. DCEs would be fully in charge of determining how they would pay their affiliated providers for the services they deliver. The provider groups most eager to take on risk and move away from fee-for-service—many of whom were Next Generation ACOs, which was terminated by CMS at the end of 2021—are strong supporters of the Direct Contracting model.
- The Timeline. The Trump administration unveiled the original plans for Direct Contracting in April 2019, with a planned roll out in 2020 and 2021. The target dates for program initiation were subsequently pushed back due to disruptions from the COVID-19 pandemic. The first plan year of the model began in April 2021 and is scheduled to run for five years.
- The Options. As originally conceived, Direct Contracting was to offer three participation options to interested parties.
Under the Professional track, primary care practices could accept capitation just for the suite of services typically offered in such settings and receive capitated monthly payments equal to roughly 7 percent of the total cost of care for their aligned patients. All bills for services covered by capitation would be zeroed out in the Medicare claims payment process. Professional model practices would receive payments equal to 50 percent of the savings relative to benchmarks. At the same time, they would be on the hook for 50 percent of any losses.
The Global track is similar to the Professional track, just with more risks and rewards. Global DCEs can elect to receive capitated payments covering the full cost of caring for their aligned patients, or just for primary care services, as with the Professional track. Either way, however, Global DCEs accept 100 percent of the risk for any cost overruns, and get to keep all of the savings when holding spending below their relevant benchmarks.
The Geographic track was included in the original announcement but was always on a slower roll out. The idea was to allow DCEs to take on full risk for all Medicare beneficiaries living in defined geographic areas (rather than just those beneficiaries “aligned” with the DCEs). It was never clear how such a complex program would be administered, or if any organizations would be willing to take on such a difficult assignment. The Biden administration announced in May 2021 that this track was “on pause,” and there is an expectation it will never get implemented.
- Alignment. For the most part, ACOs have relied on claims-based assignments to build their “aligned” beneficiary populations. They become responsible for the full cost of care for beneficiaries who most often get their primary services from physicians participating in them. The Direct Contracting model is supposed to test more voluntary alignment with DCEs—that is, the beneficiaries themselves are to be given clear processes for designating their primary care physicians, and thus also their DCEs. Voluntary alignment is to run alongside claims-based assignments as part of the demonstration.
- Enhancements. DCEs can offer Medicare beneficiaries enhanced benefits to encourage them to boost their alignment numbers. Among other things, DCEs can offer vouchers for medications, transportation support, chronic disease management support, wellness program, and other similar add-ons.
- Current Participants. For the first year of the model, CMMI approved 53 organizations as DCEs, including 39 who opted for full risk under the Global track and the remaining 14 choosing the Professional track option.
- The Criticism. Opponents of Direct Contracting argue it has become a pathway for further privatizing Medicare rather than improving care. They point out that 28 of the current 53 participating DCEs are sponsored by investor-owned firms, including many current MA plans. Their view is that the administration could be improving traditional fee-for-service Medicare without further reliance on for-profit insurers that have already seen immense enrollment growth in their MA plans.
- The Defense. Direct Contracting proponents counter that the entire purpose of the payment for value movement is to move away from a fee-for-service model that underwrites fragmented and expensive care. Moreover, changing direction now, after many companies have invested heavily to stand up their Direct Contracting plans, would send the signal that the administration is backing away from “value agenda” entirely. Organizations would then see CMMI and CMS as unreliable partners for testing new models of care that might require patience to deliver tangible results.
The fight over Direct Contracting is a proxy battle over the future of Medicare. MA plans now provide services to about 40 percent of the beneficiary population, and growing. With Direct Contracting, even more program participants would get their care through managed care plans. The critics pushing back against this trend want a return to improving traditional fee-for-service as the main agenda, with much less reliance on insurance companies. It remains to be seen if this is a viable approach for delivering higher value care.
James C. Capretta is a columnist for State of Reform and a senior fellow at the American Enterprise Institute.