CMS Redesigns Controversial Medicare Direct Contracting ModelAs the pressure from Democrats and advocacy groups grew, the Biden administration has begun redesigning a controversial payment model. This model is aimed to present value-based payment structures in standard Medicare, and cancel another Trump-era model that CMS paused early last year. Continue reading to learn more about the redesigns of the controversial Medicare direct contracting model.

The decision to retain the direct contracting model — albeit with numerous changes and a new name — was met with mixed reactions from stakeholders.

Following pressure from progressive Democrats and advocacy groups, the Biden administration is redesigning a controversial payment model that aims to introduce value-based payment arrangements in traditional Medicare, and canceling another Trump-era model that CMS paused early last year.

Thursday’s announcement effectively sunsets the Global and Professional Direct Contracting Model in its current form, and transitions certain participants and members into a newly established model, called ACO Realizing Equity, Access, and Community Health (REACH), beginning next year.

Additionally, regulators are shelving the geographic direct contracting model, which was launched in December 2020 and paused in March 2021, effective immediately.

The decision to retain the direct contracting model — albeit with numerous changes and a new name — was met with mixed reactions from stakeholders, with some cheering the newest iteration of an accountable care model in traditional fee-for-service Medicare, and some arguing ACO REACH doesn’t fix direct contracting’s core problems.

The original direct contracting model was launched to coordinate primary and specialty care while giving access to enhanced benefits in Medicare, like telehealth visits and help with co-pays. The model, in which physicians can accept either full or partial capitation as payment, offers higher levels of risk and reward compared to other ACO models, while providing additional flexibilities. That garnered strong support from many health systems, physicians, and medical group organizations, which argued holding physicians accountable for outcomes means patients are more likely to receive team-based, preventative care that improves outcomes while holding costs low.

However, the model has recently come under increased fire, resulting in rumors the Biden administration was considering terminating the program altogether. Its critics, including many progressive Democrats, said the program could lead to the privatization of Medicare, threatening access to high-quality care for all Americans.

CMS appeared to address those concerns on Thursday with ACO REACH’s announcement. The agency said that in the future, any model it tests within traditional Medicare must ensure beneficiaries retain all rights, including the freedom to choose between all Medicare-enrolled providers and supplies. Future models will also promote greater health equity and extend access in underserved communities, a key prong of the Biden administration’s healthcare agenda.

“Models that do not meet these core principles will be redesigned or will not move forward,” CMS said Thursday.

The ACO REACH model is built around those principles, according to the agency. Under the revamped model, CMS will more strictly ensure compliance with beneficiary protections, screen model applicants more harshly, and more actively monitor participants, while enacting stronger protections against inappropriate coding and risk score growth, the agency said.

Additionally, all participating organizations will be required to develop health equity plans to identify underserved communities and implement programs to measurably reduce health disparities within their beneficiaries.

And it has a much stronger emphasis on provider-led organizations.

At least 75% of each participating ACO’s governing body must be controlled by participating providers or their representatives. That’s compared to just 25% during the first two performance years of the direct contracting model.

That stronger guardrail will incentivize the participation of physician groups in ACO REACH, but could limit the ability for certain legacy direct contracting entities — such as Clover Health, Oak Street Health, and One Medical — to fully consolidate revenues and earnings from the program, SVB Leerink analyst Whit Mayo said.

“We’d guess this announcement appeases, to some degree, the criticisms applied by the progressive base around the participation in the program by MA and private equity sponsors. The emphasis around provider-controlled governance does seem intended to address these criticisms,” Mayo said.

Mayo also noted CMS’ intention to fully vet the ownership and governance models during the application process could potentially limit participation, though the certainty obtained by this announcement is a positive for the program.

The global and professional direct contracting model will run through the end of this year before transitioning to the ACO REACH model. Current participants must agree to meet all of the new model’s requirements by January 2023 in order to participate.

ACO REACH will test-run through 2026.

A number of physician groups applauded the Biden administration to keep the core tenets of direct contracting while making changes to promote health equity and put the focus on physicians.

The National Association of ACOs called it the “right decision for both traditional Medicare patients and the future of value-based care.”

“Many of the criticisms against Direct Contracting were a product of great misunderstanding about the model and the overall shift to value-based payment,” NAACOS CEO Clif Gaus said in a statement. “Instead, keeping the model with additional focus on equity, increased provider governance, improvements to risk adjustment, and other changes is best moving forward.”

America’s Physician Groups, which represents more than 300 U.S. medical groups, said it was “extraordinarily pleased” that CMS is retaining the direct contracting model with “important revisions.”

Meanwhile, group purchasing organization Premier said the redesigned model improves direct contracting by putting providers in the driver’s seat.

“ACO REACH includes several updates for which Premier has long advocated including reducing discounts to ensure providers have adequate payment under the Global track, reducing the quality withhold, and applying consistent methodologies and policies across participants to ensure healthcare providers have the same opportunity to participate as non-providers,” the group said. Premier also applauded how CMS built a mechanism into the payment methodology to address equity, by applying a beneficiary-level adjustment that should increase the benchmark for ACOs with a higher proportion of high-need members.

However, not all stakeholders were pleased.

Physicians for a National Health Program, a group of 25,000 doctors, slammed ACO REACH as “Direct Contracting in disguise.”

“This new model doubles down on Direct Contracting’s fatal flaws, inserting a profit-seeking middleman between beneficiaries and their providers. ACO REACH will pay middlemen a flat fee to ‘manage’ seniors’ health, allowing them to keep 40% of what they don’t spend on care as profit and overhead,” PNHP President Susan Rogers said.

PNHP also criticized that traditional Medicare beneficiaries will still automatically be enrolled into ACO REACH entities without their consent, as indirect contracting. To opt-out, they would need to change primary care providers, Rogers said.

Additionally, CMS did not bar companies that include private equity investors or other profit-seeking entities from participating, a key point of concern for PNHP.

However, of the 99 organizations participating in direct contracting in 2022, most are provider-led entities, according to NAACOS. And the total represents a significant expansion of the program from 2021, when 53 entities participated in direct contracting’s first performance year.

CMS tests new payment models through its innovation agency, CMMI, which was created by the Affordable Care Act in 2010 to improve the quality of care while moving the industry away from fee-for-service payment.

The agency is currently working to streamline and modernize its models, following criticism from lawmakers and watchdogs that models didn’t include enough oversight or guardrails, had conflicting incentives, and weren’t giving enough bang for their buck.

CMMI has tested upwards of 50 models over the past decade. But just six have generated savings for taxpayers and Medicare, and only four have met the requirements to be expanded.

The Biden administration outlined its vision for the next decade of CMMI in August, saying the innovation center will work to streamline and harmonize its models, with a focus on health equity as a central goal. The agency is aiming to get every Medicare beneficiary and a majority of Medicaid members into an accountable care arrangement over the next decade.

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