Medicare and Direct Contracting with Providers

This could be big and I will explain why in a minute.  Medicare has announced a long-awaited set of demonstrations on directly contracting with at-risk providers.   (CMS Info)   Under the banner of value-based purchasing, Medicare has been working on passing more risk to providers, whether via ACOs, bundled payments, episode payments, or just based on certain cost-effectiveness measures.  In Medicare Advantage, and in many commercial health plans, providers often are at-risk, usually via capitation, for the cost of most or all of a patient’s medical care.  This creates predictability of costs for health plans and aligns providers and payers in the goal of appropriate, cost-effective care.  The countervailing concern is that it may cause a provider to skimp on needed care.  I have long thought Medicare could both improve costs and appropriateness of care, and lower costs for Medicare Advantage type approaches, by directly contracting with providers and using capitation.

Starting in 2020, Medicare plans to start taking initial steps in this direction.  The Primary Cares Initiative will have five payment models–Primary Care First, Primary Care First–High Need Populations, Direct Contracting Global, Direct Contracting Professional and Direct Contracting Geographic.  Under the first two, primary care doctors will be in essence capitated by receipt of a monthly payment and would get higher payments if the patients are complex, with multiple chronic illnesses.  Payment adjustments would be available based on quality and cost performance.  This demonstration is planned to last for five years.  The Direct Care Models are aimed at larger systems with experience at managing populations under risk arrangements, which might include existing ACOs and MA plans.  Participants can take risk for professional services or for all costs of care.  The global payment participants will be at full risk.  As usual, the rubber will meet the road when we see all the details.  CMS claims it is sensitive to minimizing administrative burden.  We’ll see. The other major issue will be whether CMS is willing to force beneficiary lock-in, as occurs in MA plans.  If you can’t control where and how the beneficiary gets care, it is difficult to take financial risk.

If I were the Medicare Advantage health plans, I would be worried about this initiative.  Many of them now serve solely a marketing and regulatory function, as they pass on to specialized primary care groups the financial risk and the responsibility for managing care.  These plans are keeping ten percent or more of the premium.  Medicare could cut them out and save significantly on costs, while relying on providers to serve most of the same functions.