Bloomberg Law
Feb. 22, 2022, 10:30 AM

Curbs on Insurers, Private Equity Sought for Medicare Pay Plan

Tony Pugh
Tony Pugh

Health industry officials hope a palette of possible fixes will help save a disputed Medicare pilot program that faces overhaul or elimination by the Biden administration as early as this week.

The suggested changes range from limiting the role of private equity and health insurers in the program to revamping how spending targets for care are set.

The professional and global direct contracting model was designed to help move traditional Medicare away from fee-for-service care and toward value-based care, in which provider reimbursements are based on patient outcomes and cost efficiency.

The model is under fire from dozens of congressional Democrats, who are pressuring the Biden administration to kill it. In a recent letter to HHS officials, 54 House Democrats said the pilot program is an attempt to privatize Medicare and creates a “perverse motive to decrease the quality and volume of seniors’ care.”

Health-care industry groups have mounted a furious push to persuade the administration to fix rather than eliminate the model, which brings physician groups and team-based care to fee-for-service Medicare.

High costs, poor results, and waste have been a problem in traditional Medicare, said Don Crane, president and CEO of America’s Physician Groups.

“To have the model snatched away by well-intended but misinformed people that want to preserve a highly dysfunctional system and who also, with all due respect, are not factually correct with respect to their allegations, would be one of the greatest shames in American health care,” Crane said in an interview.

Medical organizations, known as direct contracting entities (DCEs), that participate in the model can assume either 50% or 100% of the risk-adjusted cost of care for Medicare beneficiaries—while sharing in the savings and losses accordingly.

The model “involuntarily places beneficiaries” in a Medicare managed care template “if their primary care doctor is part of a DCE,” said Diane Archer, president of Just Care USA, a digital hub to help baby boomers navigate health-care choices.

“So lots of them won’t even know what’s hit them. There is no fix that will make this a meritorious model,” Archer said.

Adding ‘Guardrails’

Crane said the pilot program should be promoted and continued with some important “guardrails,” like limiting contracting entities to physician groups only and requiring these groups to have 75% of their boards be participating physicians.

Currently, participants in the model can be “provider organizations (like health systems), primary care practices, clinics, health plans or other health care organizations,” according to the Centers for Medicare & Medicaid Services. House Democrats say the contracting entities can also be privately owned, some by large health insurance companies and private equity firms.

Companies participating in the model include 1Life Healthcare Inc., Oak Street Health Inc., and Clover Health Investments Corp., according to a Feb. 15 research note by SVB Leerink analysts.

Another worthwhile guardrail, according to Crane: preventing parent owners of the contracting entity from “exercising too much influence, or maybe even any influence,” on the delivery of care.

“The concept here is that this is to be a program that moves from individual physicians to organized physician groups. Not to anybody else,” Crane said.

Health plans, private equity firms, and other business interests that own direct contracting entities “shouldn’t be the entity charged with the responsibility of delivering care,” Crane said.

“But to say that they, as a funding source, they can’t be a funder and a lender? Oh my god, we need all the capital we can get to build American health care,” Crane said.

A Fresh Look at Benchmarks

A product of the Trump administration, the pilot program began operation in April 2021, but the CMS stopped accepting applications from new organizations interested in participating in 2022.

The contracting entities have spending targets, or benchmarks, based on their patients’ prior spending history over several years. They operate much like accountable care organizations, the groups of hospitals, doctors and other clinicians that also provide coordinated care in fee-for-service Medicare. These ACOs also participate in the model, said David Pittman, senior policy adviser at the National Association of ACOs.

When determining benchmarks for the model, the CMS put more emphasis on the cost of care during the most recent year. Pittman said this disadvantages ACOs because that’s typically the lowest-cost year for their patients because ACOs have already been working for several years to reduce care costs.

“We’re trying to get them to flip it,” Pittman said of the CMS, and make the most recent year have the least influence on the reimbursement and rate-setting process for contracting entities.

Savings by ACOs

The group also wants the CMS to factor Medicare savings provided by ACOs into the contracting entity benchmarks for future performance, Pittman said.

“By correcting some of these things,” the CMS would “lower the incentives for these new players, which are the butt of political opposition, to be in the model,” Pittman said of contracting entities backed by health insurers and private equity and venture capital firms.

“We’re trying to make suggestions that would, sort of, elevate the participation of provider-led, historically successful ACOs,” which include hospital systems, health systems, medical practices, and other provider-based entities, Pittman said.

Whatever the fixes, Archer and others say the pilot program still skews Medicare toward the private Medicare Advantage program that now accounts for over 40% of program benefits.

Even though the model allows patients to go outside the network for care—unlike Medicare Advantage—it “has the potential to capture all of the remaining traditional Medicare members” who chose not be in a managed care system, said Ed Weisbart, a board member at Physicians for a National Health Plan.

“I think it would be terrific if they would end the direct contracting model,” Weisbart said.

—With assistance from John Tozzi

To contact the reporter on this story: Tony Pugh in Washington at

To contact the editor responsible for this story: Brent Bierman at