Medicare’s much-hyped Direct Contracting model faces an uncertain future

• Proponents of Medicare’s new Direct Contracting model are concerned about its short-term prospects.
• Advocates say direct contracting is a worthy and important concept, although modifications may be needed to ensure the new program meets its goals.
• Critics say the new model emphasizes profits over value.

Medicare’s Direct Contracting model, touted as representing the evolution of alternative payment models, could be shelved less than a year after getting started.

The National Association of ACOs (NAACOS) circulated a letter in support of the model Feb. 14, saying indications out of Washington, D.C., are that Xavier Becerra, secretary of the U.S. Department of Health and Human Services, is looking to terminate the model in the near future.

Any such move might merely foreshadow a revamp that would address some of the criticisms directed at the model, but NAACOS is concerned about a loss of momentum if Becerra acts.

If the model is “abruptly ended, healthcare providers would be terminated from value-based payment participation without warning, making them far less likely to invest and participate in future CMS payment models,” NAACOS wrote in a news release.

NAACOS said 222 organizations, including a number of hospitals and health systems, signed its Feb. 14 letter.

“Fix, don’t end, the Direct Contracting model,” the letter states.

The Center for Medicare & Medicaid Innovation (CMMI) launched the Global and Professional Direct Contracting (GPDC) Model in April, with 53 organizations participating. CMMI soon announced it would not accept new applications for 2022 while it considers changes. The expectation, though, has been that applications would be accepted this year for 2023.

Taking VBP to the next level

Although the Direct Contracting program has its share of detractors, value-based payment (VBP) advocates see the concept as a way to build on the gains and lessons of accountable care models.

“It’s an important step in the right direction because it creates a very different financial incentive environment in which the providers have to operate,” Francois de Brantes, senior vice president for commercial business development with Signify Health, said during an interview in November. “The notion of delegating payment and risk to providers and encouraging them to subcontract with others, including specialty care providers, really makes a ton of sense.”

The program resembles Medicare Advantage in the incentives and flexibilities it makes available to manage the cost and quality of care. The difference is that Direct Contracting offers those opportunities directly to providers, among other entities.

“It’s not that you can’t reduce costs in Medicare,” de Brantes said. “You just have to really manage it — manage the spend, manage the network, engage with providers and get it done. Direct Contracting actually creates that environment for providers to do this on their own without a Medicare [Advantage] plan having to do it.”

Referring to CMMI’s recently stated goal of ensuring all Medicare beneficiaries are in an accountable care relationship by 2030, de Brantes said he can’t see a way to do that “without doubling down, tripling down on Direct Contracting.”

Emerging concerns about the model

The GPDC model most recently came under fire during a Feb. 2 hearing of the Senate’s Subcommittee on Fiscal Responsibility and Economic Growth. The purpose of the hearing was to discuss ways to shore up the Medicare Hospital Insurance Trust Fund, which is projected to become insolvent in 2026.

Sen. Elizabeth Warren (D-Mass.), chair of the subcommittee, said curtailing the GPDC model is a way to guard against profiteering in Medicare. Of the 53 participating direct contracting entities (DCEs), which bear responsibility for the cost and quality of care for aligned beneficiaries, 34 are investor groups or commercial insurers, according to testimony at the hearing.

DCEs are “allowed to pocket what they don’t pay for in services, which is a dangerous financial incentive to restrict and ration seniors’ healthcare,” Susan Rogers, MD, president of Physicians for a National Health Program, said during the hearing. She also said DCEs can keep up to 40% of their Medicare payment for profit and overhead.

“How this is an improvement on traditional Medicare I don’t know, since Medicare spends 98% of its funds on healthcare,” she said. “As a physician, I understand that it is my duty and responsibility to help make the care decisions along with my patients and then coordinate that care. That role is not for investors to take from us.”

Warren said, “The Biden administration should shut down the Direct Contracting model immediately.”

Rethinking the concept of DCEs

Criticism of the GPDC model seemed to intensify in policy circles in December, after a Washington Post column (login required) described the model as an attempt to privatize Medicare.

“An undetermined number of people enrolled in traditional fee-for-service Medicare are now taking part in an experimental program designed during the Trump administration to increase the role of big business in their medical care,” author Helaine Olen wrote.

After the column was published, NAACOS stated that provider-led DCEs such as traditional accountable care organizations, health systems and independent group practices should continue to be supported in the model. The implication was that perhaps other types of DCEs could be nudged out without adversely affecting the model’s broader goals.

“We recommend payment model tests for health plans should be through Medicare Advantage, not through payment models in traditional Medicare,” NAACOS wrote in a December letter. Likewise, de Brantes foresaw the implementation of new criteria for participation, “making sure that [participants] are organizations that have a history of working with Medicare fee-for-service beneficiaries.”

In its February letter, NAACOS reiterated “our recommendation that CMS focus GPDC on providers, keeping them at the center of payment models instead of implementing programs and policies to attract new players into traditional Medicare.”

However, halting the model altogether “would undermine the country’s move away from a volume-based, fee-for-service system and damage our collective efforts to transition to a value-based payment system.”