Direct contracting favors new entrants over existing ACOs

The agency would use a similar approach to set benchmarks for an ACO’s voluntarily aligned beneficiaries. And it will rely on a rate book, usually used with Medicare Advantage plans, to list rates for separate regions. This benchmarking approach could be more transparent than the Innovation Center’s standard approach, said former CMS Chief Innovation Officer Dr. Mai Pham, now CEO of the Institute for Exceptional Care.

Experts said provider organizations should consider a wide range of factors when deciding whether to take part in direct contracting, including: their ability to manage risk; their ability to engage beneficiaries; market competitiveness; performance relative to other providers in their region; and alternatives to direct contracting.

Providers with significant Medicare Advantage experience and existing ACOs are well-prepared to manage risk under direct contracting because they already use care-coordination and care-management strategies. Large providers and health plan-affiliated providers could also do well because their size and structure make it easier to manage risk than smaller, more fragmented organizations.

“Those with salaried physicians may have an easier time adopting these direct-contracting cash flow mechanisms,” said Jill Donovan, a principal at consulting firm Leavitt Partners.

She said organizations with strong brands and large populations could use their market position to get traditional Medicare beneficiaries to sign up with them.

“Voluntary alignment pays off big time,” Donovan said. “If you can do that, you can set yourself up for some really strong success in this model.”

A key for providers will be assessing how competitive their market is before deciding whether to join the model. Providers in markets with substantial Medicare Advantage penetration or several competing ACO-like organizations could struggle if their populations overlap with other providers, said Dr. Joshua Liao, medical director of payment strategy for UW Medicine. Those organizations could have trouble engaging their populations and coordinating their care.

“There are some pretty big overlap issues that (the Innovation Center) needs to address,” said Kim Kauffman, direct-contracting project lead at Cano Health, a regional group practice. “For example, I’m standing up this global (direct-contracting entity) with a group in Miami, and I don’t know if there’s (another one) standing up a high-needs model.” That could cannibalize their shared savings.

Groups with recent organizational changes should also proceed cautiously since direct contracting uses recent claims data to prospectively assign beneficiaries to existing ACOs. “If there’s a merger, an acquisition, a splitting out of (tax identification numbers), etc. The past may not predict the future,” Liao said.

Participants might also struggle if they meaningfully over- or under-perform compared to their region because the Innovation Center blends historical and regional performance to set benchmarks under direct contracting.

After providers decide whether they could succeed with directing contracting, they should compare it to their other options, experts said.

Health plan-affiliated providers could use direct contracting as an opportunity to market their Medicare Advantage offerings to traditional Medicare beneficiaries, Pham said. But it’s a bit of a gamble since the Innovation Center caps risk score growth at 3% under the model. Medicare Advantage experience might not translate to direct contracting either. Provider organizations that succeeded in Medicare Advantage often “come into a Medicare fee-for-service ACO program thinking they’ve got it all figured out,” Pham said. “It takes them a while to understand that traditional beneficiaries are (different because) there’s self-selection there. It can be a disaster.”