The goals of value-based care are commendable. If the United States healthcare system could perfectly attain delivery of value-based care, patients would spend less money to achieve better health. Also, providers would realize efficiencies and provide greater patient satisfaction, and payers would control costs and reduce risk.

Although those goals haven’t fully been realized, the transition from fee-for-service (FFS) to value-based care (VBC) continues to pick up steam through payment models developed by the Centers for Medicare & Medicaid Services’ Center for Medicare and Medicaid Innovation (CMMI). These payment structures are designed to reward healthcare providers for keeping patients healthy and incentivize physician practices, hospitals and health systems to collaborate in a “more coordinated manner, focusing on delivering high quality care while avoiding unnecessary utilization and costs.”

Assessing goals and benefits of Direct Contracting

The most recent accountable care payment model introduced by CMS is Direct Contracting (DC). Part of the Primary Cares Initiative, it’s a set of 3 voluntary payment model options aimed at reducing expenditures and preserving or enhancing quality of care for beneficiaries in Medicare fee-for-service. Direct Contracting builds on the Medicare Shared Savings Program (MSSP) and the Next Generation ACO model and leverages components of Medicare Advantage and the private sector but doesn’t replace MSSP.

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As a risk-based initiative, this model offers higher levels of risk and reward than MSSP and allows providers who want to participate to take risk for Medicare Part A and B expenditures. It incentivizes them to assume increased financial risk for greater reimbursement returns and was developed for accessibility by physician practices who’ve succeeded in risk arrangements with Medicare Advantage plans but have few or no traditional Medicare patients. 

According to CMS, a primary function of Direct Contracting is to provide new opportunities for organizations without significant experience in FFS to enter into value-based care arrangements. It gives physician practices a way to receive higher payment when patients stay healthy but take on risk if patients end up sicker.

Benefits offered by Direct Contracting include:

  • multiple risk-sharing arrangements
  • flexible beneficiary alignment options, including enhancements to voluntary alignment relative to existing Medicare initiatives
  • capitation payment options that vary by risk-sharing arrangement
  • benefit enhancements and payment rule waivers to improve care coordination and service delivery
  • a focus on complex chronic and seriously ill beneficiaries
  • options for organizations that have not participated in Medicare FFS previously

Exploring an overview of DCEs

Legal entities that participate in Direct Contracting pursuant to a Participation Agreement with CMS are called Direct Contracting Entities (DCEs). In the DC model, these DCEs are measured in their performance against a discounted benchmark and must evaluate strategies that support maximizing both revenue and shared savings. Physicians can utilize DCEs to access a capitated revenue stream for their DC-attributed Medicare FFS patients, thereby diversifying their revenue sources.

critical access hospital

There are 4 kinds of DCEs under the Direct Contracting model, including

  • Standard: comprised of organizations that generally have experience serving Medicare FFS beneficiaries, including Medicare-only and also dually eligible beneficiaries, who are aligned to a DCE through voluntary alignment or claims-based alignment. 
  • New Entrant: comprised of organizations that have not traditionally provided services to a Medicare FFS population and who will primarily rely on voluntary alignment.
  • High Needs Population: comprised of DCEs that serve Medicare FFS beneficiaries with complex needs, including dually eligible beneficiaries, who are aligned to the DCE through voluntary alignment or claims-based alignment.
  • MCO-based: comprised of DCEs that manage the Medicare FFS expenditures of full-benefit dually eligible beneficiaries who receive Medicaid benefits though a Medicaid Managed Care Organization (MCO).

Reviewing changes linked to COVID

DCEs have, like most of the U.S. healthcare industry, been affected by the COVID-19 pandemic. Providers have had to make decisions based on the impact, including “delaying elective surgeries; facing disruption in critical revenue streams; and simultaneously experiencing increased costs for Personal Protective Equipment.” Many stakeholders feared the challenges posed by COVID-19 would make it “difficult for them to be ready to participate in 2021, especially given some of Direct Contracting’s innovative model features that require significant advanced planning.”

In response to concerns, the following model adjustments were made

  • Financial methodology: This will reflect change in duration of 2021 Performance Period due to April 1, 2021 start.
  • Quality reporting: This will adjust quality benchmarks, if necessary, to reflect change in duration of 2021 Performance Period due to April 1, 2021 start.
  • Model timeline: This will delay the start of the first Performance Period for cohort #1 to April 1, 2021. It will also create application cycle during 2021 for second cohort to launch January 1, 2022.

The previous model – Next Generation ACO – was scheduled to expire on December 31, 2020, but was extended by CMS until the end of December 2021. Initially consisting of only one cohort beginning January 2021, CMMI added a new application cycle for a second cohort in the Direct Contracting program.

Overall, these changes mean that the first performance year for DC will begin April 1, 2021, although the application for participation in it closed on July 6, 2020. The application period for the second cohort of DCEs scheduled to begin on January 1, 2022 opens this spring.

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Participation in PY6 of Direct Contracting will be available to all DCEs, both those scheduled to begin the performance period this April and others scheduled to launch in January 2022.

A key enhancement made to the DC model by CMMI is an improved capitation glide path. Instead of having to accept 100% capitation from the start of the program, individual participating primary care physicians now have the option to select their own capitation percentages starting with minimal floors, ranging from 5% of revenue in 2022 to 20% in 2024.

This occurs before they must transition to full capitation in 2025 and 2026, the final 2 years of the program. Another enhancement is increased payment flexibility due to DCEs not having the choice to procure at least 2% of the benchmark in enhanced payments, no matter what their base Primary Care Capitation percentages are.

Evaluating the industry response

According to the CMS Innovation Center, there are a total of 51 DCEs participating in the Direct Contracting model implementation period to prepare for the first performance year that begins on April 1, 2021. Most of these participants are medical groups and ACOs who will serve Medicare fee-for-service beneficiaries in 39 states and Washington, D.C. and Puerto Rico.

Though there has been a mostly positive response to the Direct Contracting program, some industry groups have asked CMS to release more details on the model’s financial specifications. Others have requested that the agency consider an increased shared savings rate for professional DCEs, lower discount levels for DCE benchmarks and a waiver for the 2% retention withhold.

Learn about how Harmony Healthcare serves hospitals and health systems, physician practices, and other organizations by helping them transition to value-based care and enhance their clinical and financial outcomes.

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