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The Medicare Direct Contracting Controversy

Analysis  |  By Laura Beerman  
   May 26, 2022

Participants, supporters, and opponents weigh in on the role of Medicare Advantage subsidiaries as program design evolves.

Direct contracting (DC) is an interesting name for a CMS model that permits private health plan subsidiaries to be part of Medicare fee-for-service (FFS) care reimbursement.

DC normally refers to the disintermediating of payers. Common examples include employers who contract with centers of excellence, ACOs, health systems, and integrated delivery networks—leaving health plans or other entities to act as administrative service organizations.

This DC trend is growing in the private sector.

A January 2022 HealthLeaders story noted that 73% of employers intend to adopt these strategies in the next three years. An American Journal of Accountable Care analysis added that the rising importance of social determinants of health (SDOH) linked with alternative data is driving purchasers toward "high-performance solutions" that are more innovative and disruptive.

The trend is also growing in the public sector via CMS.

The agency, the largest national healthcare purchaser, is to some degree disintermediating itself: allowing Medicare Advantage (MA) affiliates to manage Medicare FFS lives through the Global and Professional Direct Contracting (GPDC) model. GPDC will be retooled and relaunched in January 2023 as ACO REACH but with at least some of its current players.

Now that the April ACO REACH program deadline has passed, HealthLeaders looks at a slew of participants—including tech-driven, health-plan affiliated direct contracting entities (DCEs)—that want to continue their GPDC involvement, and the industry voices for and against the direct contracting design that ACO REACH will continue.

Health-plan subsidiaries proliferate: Two perspectives

Health Affairs reports that 28 of the first 52 GPDC participants announced in January 2021 were "investor-, not provider-, controlled [DCEs], most with roots in MA. Six of these, owned by four different MA insurers, are approved to operate in 19 states, with potential access to over 20 million traditional Medicare beneficiaries, over 60 percent of the national total."

Some of these entities continued with the deferred January GPDC 2022 cohort including Clover Health Partners, a subsidiary of Medicare Advantage (MA) plan and physician support services company Clover Health, and ActiveHealth Management, a subsidiary first of Aetna and now its parent company, CVS Health.

Both Clover and Active intend to apply for ACO REACH, which has evolved to prioritize health equity, support underserved patients and providers, and strengthen provider governance.

In a recent HealthLeaders interview, Clover Health president Andrew Toy emphasized his commitment to serving both MA and Medicare FFS populations: "Serving all people is the right thing to do morally," Toy says.

The company's Clover Assistant, a "digital on-ramp for value-based care" as highlighted in a 2021 HealthLeaders interview with Toy, gives PCPs the tools for better, more personalized, data-driven care. Toy adds that Clover Assistant's scalability is one component of its DCE expansion into GPDC and now ACO REACH.

"We applaud and welcome CMMI's evolution of ACO REACH to focus on advancing health equity for America's most vulnerable by making value-based care accessible to more physicians."

Mohamed Diab—former president and CEO of ActiveHealth Management and now an ACO CEO for CVS Health—also believes that CMS and CMMI are taking the best path toward. Diab further supports that these approaches remain provider friendly and are designed to physician achieve VBC success, aided by technology.

"Physicians don't have these resources," notes Diab.

"I've been in healthcare more than 25 years. I'm a physician by training, and do not believe that FFS works for the beneficiary or the provider," he adds, noting that the most rewarding part of his work is helping both.

"Yes, this work involves population health and technology. But we're talking about someone's mother or grandfather," says Diab. "The most enjoyable part of my work is reviewing patient cases and seeing that we are making a difference in their lives. It makes waking up on Monday morning an enjoyable experience."

DCE proponent positions

The mission drive of Clover and Active are apparent, as are their tech capabilities and feelings about FFS: "Nobody has benefitted from a transactional, fragmented system," says Diab.

Francois de Brantes agrees. He is also a strong DCE proponent and is SVP of Signify Heath, which "activat[es] the home as a key part of the care continuum" through a healthcare platform that supports provider VBC. Like Clover, Signify's business applies to both Medicare managed care and FFS beneficiaries. De Brantes believes that providers want these models just as much as other stakeholders.

He notes that MA-affiliated DCEs have to operate differently under GPDC and ACO REACH, moving toward the VBC and population health models—back by tech and health equity—that he believes the new CMS models exemplify.

To help make this point, de Brantes cites a January 2022 Health Affairs article co-authored by MedPAC Commission chair Dr. Michael E. Chernew who argues that ACOs—including GPDC—promote efficiency and equity better than FFS without compromising quality.

Chernew and his co-author, Dr. J. Michael McWilliams, refute circulating criticisms by arguing that ACOs and GPDC:

  1. Do not limit patient choice, noting that beneficiaries can still see any provider and without adverse effects
  2. Remain provider-centric
  3. Continue to promote VBC objectives
  4. Maintain Medicare guardrails against bad actors and code gaming, the latter more strongly than MA or Medicare Shared Savings Program (MSSP) models
  5. Do not represent an MA colonization of traditional Medicare

DCE opposition

Others disagree with these positions—namely Dr. Donald Berwick, President Emeritus and Senior Fellow of the Institute for Healthcare Improvement and a former acting head of CMS under the Obama Administration.

In part two of a September 2021 series, also in Health Affairs, Berwick and co-author Dr. Richard Gilfillan argue that direct contracting:

  1. Does limit patient choice in a larger sense "as millions of traditional Medicare beneficiaries, who made a specific choice not to enroll in MA, will find themselves in an MA-like managed care environment"
  2. Is not provider-centric, if more providers are pressured through perverse incentives to join ACOs with MA-like controls
  3. Undermine VBC objectives by involving the MA firms that are "so expert at driving up costs"
  4. DCEs will "bring their MA-based medical, claims payment and possibly other managed care administrative practices" to the program
  5. Represents a privatization of traditional Medicare in just about every way

More success through more complexity?

In a statement that might strain credulity, Chernew and McWilliams write that while an intermediary between CMS and providers "may seem analogous to MA … it is better understood as allowing cash flows conducive to transmitting incentives to partnering providers." The authors cite this as further evidence that direct contracting reaffirms patient choice.

Berwick and Gilfillan call this relationship anything but direct or empowering to physicians. It is also difficult to understand how adding a layer of payment complexity will make direct contracting VBC models more successful than 40-plus that have failed to produce "statistically significant savings to Medicare and to taxpayers.

Something better, but what?

In part one of the Health Affairs series, Berwick and Gilfillan reserve their strongest DCE criticisms for the model's resemblance to Medicare Advantage—calling MA a "perverse business model" that is responsible for chronic overpayment, "risk-score gaming," and for producing a "money machine" controlled by small number of individual plans.

And while "the tyranny of fee-for-service," as de Brantes terms it, "needs dislocation," it remains to be seen whether DCE and ACO REACH will be the best path to get there.

Laura Beerman is a contributing writer for HealthLeaders.


CMS' planned launch of ACO REACH continues to highlight the direct contracting elements that remain in the model.

These elements are a boon to the tech-driven, Medicare Advantage subsidiaries whose growth strategies include fee-for-service beneficiary management.

Some of the most prominent names in healthcare reform have starkly different views on whether direct contracting will help or hurt.

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