Direct Contracting — a Pathway Forward for Healthcare Delivery amidst COVID-19

Co-authored by Mara McDermott, Vice President at McDermott+Consulting

COVID-19 has underscored the vulnerabilities of our health care delivery system. It has exposed the weakness of a fee-for-service payment model that pays clinicians for the volume of services provided. At the same time, we have seen the relative resilience of alternative payment models and Medicare Advantage contracts that rely on either pre-payment for the health of a population or incentives for better quality and care coordination. In these models and programs, incentives are aligned to population health and better outcomes, rather than volume. Heading into the new year, physician practices should assess their options to move away from traditional fee-for-service reimbursement mechanisms and should consider the technology-enabled solutions that will facilitate that transformation.

Over the past decade, the Centers for Medicare & Medicaid Services (CMS) and the Center for Medicare & Medicaid Innovation, have driven the adoption and acceleration of payment and delivery reform across the country. These reforms have enjoyed bi-partisan support as a mechanism of creating organized systems of care, deploying team-based approaches, improving quality, and reducing costs. In September 2020, CMS Administrator Seema Verma announced that 541 ACOs in the Medicare Shared Savings Program generated $1.19 billion in total net savings to Medicare. These programs have also fostered innovative approaches in local communities. For example, Caravan Health’s collaborative ACO model, which aggregates and supports rural providers in their transformation journey, saved $154 million, received $50 million in shared savings and earned 94% in their quality scores in 2019. Next Generation ACOs have moved to higher levels of financial risk and reward and are similarly generating savings and improving quality and care experiences for patients. Trinity Health’s Next Generation ACO achieved nearly a 98% quality performance score and $22.4 million in shared savings in its 2018 performance year. Aledade, a physician led ACO, saved $180 million with $56 million distributed to providers participating in the Medicare shared savings program in 2019.

The model portfolio at the Innovation Center continues to evolve. Clinicians and the government are building on what works. Along those lines, the CMS Innovation Center recently announced financial specifications and other details for the Direct Contracting model. This model builds on the success of the Pioneer and Next Gen ACO models, and downstream capitated contracts between Medicare Advantage plans and physician groups.

Like its predecessors, Direct Contracting will allow entities who want to participate to take risk for Medicare Part A and B expenditures. The model offers a scalable approach to taking full risk for the traditional Medicare population, allowing entities to receive capitated payments and offering flexible options for payment to contracted clinicians. Direct Contracting Entities (DCEs) will be measured in their performance against a discounted benchmark.

The model differs from previous iterations of total cost of care models in the Innovation Center portfolio in that it is intended to be accessible to practices who have succeeded in risk arrangements with Medicare Advantage plans but who have few or no traditional Medicare patients. The model allows an on ramp for so called “new entrant” DCEs that will be participating in risk in traditional Medicare for the first time. The financial model includes certain incentives to encourage participation by these entities.

The model also offers participation options for what it calls “Standard DCEs,” those with experience providing care to FFS beneficiaries. The model could serve as a next step for Next Generation ACOs or ENHANCED Medicare Shared Savings Program Participants who want to experiment with different downstream payment arrangements on their risk journey. These entities should carefully examine their participation options across model offerings to determine which model is best for their circumstance.

In the Direct Contracting Model, CMS continues to deploy voluntary alignment alongside claims-based alignment. This means that beneficiaries may designate a DCE participant provider as their primary clinician or main source of care. DCEs will be permitted to proactively communicate with beneficiaries and may have additional tools and incentives to attract beneficiaries. While voluntary alignment is not new to the ACO space, the additional incentives and tools may prove useful in improving its success. The incentives available in this model are more closely aligned to the supplemental benefit offerings in Medicare Advantage, including dental and transportation vouchers, wellness program memberships, and phone applications and other medication adherence tools.

DCEs will also be measured on their quality performance. The financial model includes a withhold and earnback for quality performance, similar to Next Gen, but with a greater percentage at risk and a new set of quality measures.

Direct Contracting, like models before it, will have benefit enhancements and waivers. Similar to those available in Next Gen, DCEs will have access to the 3-day skilled nursing facility waiver, post-discharge home visits, care management home visits and telehealth waivers.

Key themes have emerged among organizations successful in full risk models that set the groundwork for Direct Contracting. Chief among these is partnering to deploy technology and data to identify, stratify and manage patient populations. For example, PatientPing provides powerful and actionable data to coordinate care across the continuum, “…connect[ing] healthcare providers across the country through simple, powerful technology. Get a Ping when your patient receives care.” NaviHealth, on the other hand, works with risk based organizations and payers to manage transitions of care from the hospital to post-acute care settings. In the outpatient primary care setting, providers are relying on Sitka to deliver just in time specialty insights to avoid unnecessary specialty referrals. Further, Contessa is taking hospital level care into the home, and Doctor On Demand is now covered under Medicare Part B. These companies are signaling where we are headed; home. As Dana Strauss, VP of Partner Engagement of ICS said, “the newest models under value-based care ultimately reward days at home over everywhere else.” DCEs will need to have a method and partner to deliver high quality primary and specialty care into the home.

The CMS Innovation Center has announced 51 participants in the Direct Contracting model implementation period (an early participation option to allow entities to begin to align beneficiaries). Additional DCEs will join this cohort for the first performance year which begins April 1, 2021. Another round of applications will open this spring. Organizations that are motivated to continue to pursue their risk strategy in traditional Medicare should size up their Direct Contracting options and begin putting in place their technology infrastructure to improve quality and control costs.

References: Direct Contracting: A Collaborative Relationships Between DCEs and SNFs, Integrated Care Solutions, Dec 8, 2020

About the authors

Kelsey P. Mellard, MPA, is the CEO and co-founder of Sitka, a customized video software platform and specialty provider network, coupled to support the management of Part B spend. Prior to founding Sitka, Kelsey held positions at Honor Homecare, naviHealth, UnitedHealth Group, the Center for Medicare and Medicaid Innovation and the Kaiser Family Foundation.

Mara McDermott, JD, is Vice President of McDermott+Consulting, a health care lobbying and policy firm in Washington, DC. Previously, Mara served as the Senior VP of Federal Affairs at America’s Physicians Groups, a professional association representing risk-bearing physician practices. Mara began her career practicing law at a large, Washington, DC-based firm focusing on healthcare industry legal issues.

Founder & CEO of Sitka, a full-stack telehealth solution. Kansas-raised, advocate for affordable healthcare, #TitleIX, and our beautiful Mother Earth.