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Direct Contracting: What Organizations Need To Consider

Direct Contracting: What Organizations Need to Consider

The Centers for Medicare & Medicaid Services (CMS) Innovation Center will implement its new Direct Contracting model on April 1, 2021, leaving room for potential delays due to the coronavirus (COVID-19). The Direct Contracting model is a voluntary, value-based payment model that encourages physicians to take higher levels of risk for greater potential reward for their Medicare patients.

The Direct Contracting model requires participation of capitation and includes the opportunity for practices to have few, if any, Medicare fee-for-service (FFS) patients. An implementation period (IP) will allow practices additional time to align their FFS patients for this new model.

To allow more time for implementation, CMS has made other changes to the Direct Contracting timeline, which include:

  • Practices that applied by February 25, 2020, may participate in the IP beginning on October 1, 2020
  • The Innovation Center is accepting applications from June 4, 2020, through July 6, 2020. Organizations may apply here
  • The Innovation Center announced a second round of Direct Contracting adoption that will begin January 1, 2022. Applications for this may begin around spring 2021.

This adjusted timeline will allow organizations more time to assess the Direct Contracting model and decide if they want to participate. As COVID-19 exposed flaws in the current system, models like the Direct Contracting model, which include capitation payment and funding, may become more attractive to healthcare organizations.

Key Points for Organizations Considering the Direct Contracting model

The organizational structure of the Direct Contracting Entity (DCE) and capitation payment mechanisms
Under this new model, participants will submit claims to CMS for services, and CMS will reduce the claims payment amount to $0. They will then make the capitation payment for those services to the physician or practice. With this model, the cash flow may vary depending on the organizational structure of the practice.

Financial exposure for DCEs is larger than previous Innovation Center models
The Direct Contracting model comes with numerous discounts and withholds generally applied against the performance year benchmark. The overall impact of these discounts and withholds may represent significant risk exposure for DCEs. The organization should evaluate the level of risk and opportunity before choosing to participate.

Direct Contracting is missing critical payment details
CMS says it will use an adjusted Medicare Advantage ratebook to calculate payment for Direct Contracting and a risk adjustment methodology, but these have yet to be specified. Some organizations may benefit from waiting until more details are released.

State regulation of risk-bearing entities
The licensure requirements regarding risk-bearing entities are different in each state. The Direct Contracting model requires that DCEs are in compliance with their state’s laws, which could create burdensome tasks for DCEs.

Voluntary alignment may lead to promising results
Direct Contracting is testing voluntary alignment in traditional Medicare, encouraging patients to take a more active role in their healthcare, especially when choosing a provider. CMS is providing additional tools, such as dental vouchers, wellness memberships, and phone apps to help align other benefits currently available in Medicare Advantage.

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