Escalating U.S. health care costs in recent decades has prompted innovation among large governmental and private sector payers to shift from a fee-for-service payment model toward value-based purchasing. Such transformation has required close partnership and alignment of business interests between payers and providers. Quality measurement remains a critical feature of new value-based purchasing models to ensure that beneficiary access to care is not adversely affected by the stronger incentives for lower total cost of care.
The Direct Contracting Model, which comprises two of the latest voluntary risk-sharing options from the Centers for Medicare & Medicaid Services (CMS) Innovation Center, intends to address these issues and promote value-based purchasing.
In 2019, the CMS Innovation Center announced the establishment of the Direct Contracting Model. Seen as an ambitious and transformative model, it would test flexible payment arrangements within the traditional fee-for-service Medicare program while incorporating greater beneficiary engagement and benefit enhancement tools popular among private sector payers and Medicare Advantage plans.
The Direct Contracting Model’s Role in Transforming Health Care via Value-Based Purchasing
Transform risk-sharing arrangements in Medicare fee-for-service
The Direct Contracting Model offers both capitated and partially capitated population-based payments that move away from traditional fee-for-service models and toward a value-based purchasing model.
Capitated payments are expected to better align financial incentives between CMS and providers compared to fee-for-service arrangements.
- Full Capitation - Direct Contracting entities that accept full capitation payments can earn up to 100% of savings or owe up to 100% of losses.
- Partial Capitation - Those that accept partial capitation payments can share up to 50% of the savings achieved using a benchmark or owe up to 50% of losses.
- Financial risks and benefits - Direct Contracting entities take on financial risk when they accept capitation. At the same time, using the Direct Contracting Model gives the providers a prospectively determined, predictable revenue stream that can be used to improve patient care and promote efficiency of service delivery.
Broaden participation in CMS Innovation Center models
- Allow participation by organizations new to Medicare fee-for-service, such as physician managed organizations that currently operate exclusively in the Medicare Advantage program.
- Enable participation of organizations that manage complex chronic and seriously ill beneficiary populations. Such organizations have historically been less likely to participate in risk-sharing arrangements with Medicare.
Empower beneficiaries to engage in their care delivery
The Model allows Direct Contracting Entities to provide incentives to engage beneficiaries to actively participate in their provider relationships through voluntary alignment and potential benefit enhancements, including:
- Providing vouchers for over-the-counter medications
- Sponsoring meal programs
- Offering wellness program memberships
- Making other incentives similar to those allowed under the Medicare Advantage program available.
Reduce provider burden to meet health care needs effectively
- Require a smaller set of core quality measures.
- Allow waivers to facilitate care delivery.