In December 2019, CMS released the long-awaited details on its Direct Contracting program, the most advanced risk-sharing arrangement to-date. Below is an overview of Direct Contracting, the program’s rationale, challenges, and what it means for the market.

1. What is Direct Contracting?

• CMS’ most advanced risk-sharing program yet.
• ACOs take risk on the total cost of care for their Medicare FFS beneficiaries each year.
• Direct Contracting builds on lessons-learned from NextGen ACO (currently highest upside/downside program available from CMS).
• The model allows Providers and risk-bearing entities to ‘directly contract’ with CMS and receive monthly capitation payments for the care of their patients.
• This model evolves elements of legacy shared-savings programs and inherits some best-practices from industry payers.
• Performance years for Direct Contracting are 2021 – 2025.

2. Why Direct Contracting?

• This is part of CMS’ long-term plan to curb growth in medical costs; the program aims to improve outcomes and lower annual total costs of care for Medicare and dually-eligible beneficiaries.
• Direct Contracting is the highest risk-sharing program to come from CMS; it is the next logical step on the risk continuum after NextGen ACO.
• The program is intended to improve the patient experience by incentivizing more coordinated care.
• The Direct Contracting model is designed to lighten administrative burdens for providers by allowing contracting directly with CMS.

3. What are some key differences between Direct Contracting and previous risk-sharing models?

• More organization types can participate than just ACOs, but they must be approved by CMS via an application.
• Introduces competition by:
  • Incentivizing providers to attract and compete for the loyalty of beneficiaries, particularly new beneficiaries.
  • Creating an extra bonus pool for the best providers nationwide.
• Greater complexity compared to previous programs – Multiple participation options, benchmarking methodologies, and performance parameters.

4. Who in the market is interested in applying for Direct Contracting?

• Every NextGen ACO because NextGen is ending at the end of 2020. NextGen’s must decide whether they take the plunge into Direct Contracting, or step back to Pathways to Success. However, the latter may be unappealing because the opportunity for upside is lower.
• Likely all MSSP Track 3/Pathways Enhanced ACOs.
• Risk-Bearing Entities or organizations that take financial risk with/on behalf of providers – they provide tools, people, processes to ACOs to help them succeed in value-based programs.
• CMS received 1,400+ letters of intent for this program at last count.

5. What are some key challenges?

• Timeline: It’s now too late in the year for ACOs and potential participants to build their recommendations, convene their boards, and make decisions this year. They’ll need to fast-track their decisions over the next few months in order to be ready for performance start in 2021.
• Strategic Complexity: Per the above, Direct Contracting introduces multiple benchmarking methodologies to determine capitation amounts, and ramps these up over the course of 5 years, making accurate performance forecasting that much more difficult and important.
• Operational Complexity: With capitation, providers will need to set up administrative processes to distribute payments for services to providers, and negotiate agreements with preferred providers.
• Details: CMS left out some key details from the rule, like risk adjustment, which they are still finalizing.

6. What does it mean for the market and for you?

• Direct Contracting creates an urgency for better enterprise analytics for ACOs. With the short timeline, ACOs now more than ever need to be able to understand their past performance compared to competitors and benchmarks, and project future performance to make participation decisions with confidence.
• Best-guess isn’t good enough. Higher Risk = Higher Confidence needed in your decisions. To date, ACOs have had to fly into these programs with a best-guess of how they’ll do, but there have been some cautionary tales. The complexity and the high stakes of this program make it that much more important for our customers to have precise information to drive their decision making.

Clarify Health works with leading organizations to power success in value-based care programs. Visit our Clarify Care for Providers page to learn more.

This article was originally posted in December 2019 and updated in August 2020.