Medicare Advantage, Direct Contracting, And The Medicare ‘Money Machine,’ Part 2: Building On The ACO Model

In Part one of this two-part post, we explored the reasons for surging growth and profits in the Medicare Advantage (MA) program and the dynamics, largely related to risk-coding games, that make MA a costly form of transfer of public and beneficiary dollars into private hands. In Part two below, we explore the approach fostered originally by the Trump Administration to implant those same dynamics into the traditional Medicare side of the Centers for Medicare and Medicaid Services (CMS) ledger in the form of the misnamed “Direct Contracting” model. We then offer policy recommendations to restore balance and efficiency to MA and further alternative payment models for traditional Medicare.

Direct Contracting: The Path To Medicare Privatization

Given an Orwellian title, Direct Contracting, launched by Center for Medicare and Medicaid Innovation (CMMI), was anything but direct. “Indirect Contracting” would have been a far more accurate name, since the cornerstone of the program was CMS’s opening the door to non-provider-controlled “Direct Contracting Entities (DCEs)” to become the fiscal intermediaries between patients and providers.

Originally CMS proposed three Direct Contracting Models: Professional, Global, and Geographic (GEO). The GEO Direct Contracting model was the most extreme, proposing to auto-assign every fee-for-service (FFS) beneficiary in a number of large geographic regions into a fully capitated MA-like “Geo DCE.” Beneficiaries were not given the right to opt out. GEO DCEs were expected to assume total responsibility for all FFS beneficiaries in their region. This responsibility included beneficiaries in any accountable care organizations (ACOs) or other Alternative Payment Models (APMs), except those assigned to other types of DCEs. With full capitation, as with MA, GEO DCEs would be responsible for most claims payments as well as medical management. This was, therefore, straightforward privatization of traditional Medicare, differing from MA only in that GEO Direct Contracting beneficiaries retained the right to see any Medicare provider under standard Medicare coverage.

The Global and Professional Direct Contracting models, combined as GPDC, offered alongside GEO DC, look like an extension of the ACO approach. Like ACOs, DCEs create a defined provider network. Beneficiaries are either auto-aligned via claims history or voluntarily enrolled. Members maintain access to all Medicare providers under standard benefits. Benchmarks or capitation rates will include a defined discount to CMS. But GPDC DCEs differ in important ways from ACOs. GPDC DCEs can select varying degrees of capitation up to and including full capitation. Full capitation would require them to pay DCE preferred provider claims. Although beneficiaries do have the right to opt out of CMS data sharing, they remain aligned with the DCE for purposes of capitation payments and ultimate financial reconciliation.  

The ACO model was built as a direct contracting relationship between CMS and providers. ACOs were required to have 75 percent provider governance control. In Direct Contracting, CMS established a stated aim of bringing “organizations that currently operate exclusively in Medicare Advantage” into traditional Medicare, targeting the very MA insurers and investor-controlled provider firms that are driving the MA overpayments explored in Part One of this post. To help accomplish this, CMS decreased the provider governance requirement to just 25 percent.

CMS created other policies that were favorable for “New Entrants” in the Direct Contracting program. Liberalized marketing and sales opportunities, along with the ability to offer additional benefits, play to the sales strengths of MA firms. The New Entrant benchmark methodology was based more on an MA rate-book approach than the ACO historical cost-blended model that nets out prior savings. New voluntarily enrolled beneficiaries, expected to be the majority of beneficiaries for New Entrants, were excluded from the risk coding constraints for several years.

Another publicly stated Direct Contracting aim was to accelerate progress of Medicare coverage away from FFS payment toward value-based contracting (VBC) “alternative payment models” (APMs). The illogical hypothesis was that MA firms, so expert at driving costs up, could do a better job controlling costs than existing ACOs. While savings from ACOs have been modest (MedPAC reports 1 percent to 2 percent), accurate evaluation has been difficult, and the level of ACO success has been controversial, momentum has built every year in this voluntary program. CMS recently announced that ACOs in 2020 decreased costs by over $4 billion and saved CMS almost $2 billion. MedPAC projects that, at a minimum, MA will cost CMS $8 billion more than FFS in 2020.

Notwithstanding ACO success, the prior CMS administration also introduced their “Pathways to Success” ACO policy, which created more stringent requirements for provider-led ACOs and triggered a 15 percent decrease in the number of ACOs. The net result is that experienced MA firms are attempting to pull ACOs apart by soliciting ACO physicians to join their DCE networks.

Ironically, this is all reminiscent of the original, well-intended strategy for privatized Medicare: to bring health maintenance organization (HMO) savings and care improvements to Medicare. But the Direct Contracting model seems to have ignored the lessons learned from the experience of MA and its predecessors at a cost to CMS and taxpayers of hundreds of billions of dollars. As MedPAC confirmed recently, over 35 years, privatized Medicare has always cost more than traditional Medicare, not less.

Current Status Of Direct Contracting

The Trump Administration’s CMS attempted to launch GEO Direct Contracting in its waning days, but the Biden administration paused it. In January 2021, CMS announced the selection of the first tranche of 53 GPDCEs spread across 38 states, which, combined, hold 30 million of the 36 million FFS beneficiaries. A second tranche of DCEs, number unknown, were approved by CMS but elected to defer their start dates to January 1, 2022. CMS paused further entry into this 2022 tranche, with the exception of Next Generation ACOs, but is believed to be considering an additional solicitation for another set of DCEs.

The January tranche did include some traditional, provider sponsored DCEs. However, a majority of the DCEs (28) are investor-, not provider-, controlled, most with roots in MA. Six of these, owned by four different MA insurers, are approved to operate in 19 states, with potential access to over 20 million traditional Medicare beneficiaries, over 60 percent of the national total. (See exhibit 1)

Exhibit 1: Examples Of MA-focused and investor-controlled DCE firms.

MA Insurer-Sponsored GP DCEs				MA PCP/MSOs
MA Insurers	# of States	Status		MA PCP/MSOs	# of States	Status
Aetna	NA	Deferred		Agilon	3	Active
Alignment Health	2	Active		IORA	10	Active
Anthem	5	Active		Landmark	NA	Deferred
Clover Health	10	Active		OakStreet	11	Active
Humana	8	Active		BestValue Health	1	Active

Source: Authors’ analysis. MA = Medicare Advantage; DCE = direct contracting entity; PCP = primary care practice; MSO = management services organization.

While CMMI has not identified firms that have deferred until 2022, Cigna is currently recruiting DCE providers. Aetna’s Activehealth subsidiary was originally approved, and United Healthcare is rumored to be acquiring Landmark, which had also been announced as a DCE. In short, the largest national insurers are positioning to become DCEs. Each of these national MA companies has a broad national network. The possibility of their using these networks to enroll millions of Traditional Medicare beneficiaries is very real. Currently, CMS has stated publicly no limits on the growth of DCE networks and geographies.

Direct Contracting Implications For Beneficiaries

DCEs have the option of selecting varying degrees of capitation from CMS, up to and including full capitation for DCE participating provider services. It is likely that insurer DCEs will choose this approach given their history and operating capabilities. Insurer DCEs then will be responsible for paying claims, and they will bring their MA-based medical, claims payment and possibly other managed care administrative  practices  into Direct Contracting. This environment will be even more confusing than MA, with three different parties processing claims: the DCE, CMS, and the Medicare supplemental insurance payer. In short, millions of traditional Medicare beneficiaries, who made a specific choice not to enroll in MA, will find themselves in an MA-like managed care environment.

Direct Contracting And The Medicare Money Machine

There was a catch in CMS’s strategy to enlist MA firms in Direct Contracting. Would the firm­s accept the risk without the ability to increase risk scores? CMS seems to have been trying to finesse this issue for the past 18 months. Direct Contracting does have significant constraints on risk score increases. For individuals aligned via claims, there is a 3 percent symmetrical cap on risk adjustment factor (RAF) score increases year to year. However, there is no cap on the base year, so DCEs can increase their score over time. A program-wide Co­ding Intensity Factor (CIF) does retrospectively adjust the capped risk adjustment scores for DCEs to correct for aggressive coding at the overall program level. The base year for the CIF is fixed. Thus, while the CIF will decrease code creep for CMS, it will allow the most aggressive coders to benefit at the expense of those who are less aggressive. This reality will lead to major retroactive adjustments to risk scores, financial reconciliation changes, and likely program instability. Alternatively, it is possible that CMS will decide to not enforce the CIF, thereby rewarding gaming.

Originally, voluntarily enrolled individuals who are not aligned with claims, expected to be the majority for new DCEs, would have been excluded from these controls for several years. In response to input from concerned policy and industry experts, CMS has now decreased that exclusion to one year. However, how the voluntarily enrolled individuals will be treated under the cap and the CIF adjustment remains unclear.

DCEs over the past year have already begun evading these constraints by simply increasing risk scores for people before they enroll them. This is exactly what MA firms do with their 64-year-old commercial members prior to enrolling them in MA. As we have heard said by industry insiders, “There is no bad time to work on risk scores.” Overall, it appears that, under current DCE rules, aggressive risk coders might still garner 20-40 percent of MA Money Machine profits. That at least seems to be the story DCE representatives are telling PCPs and investors. The other commonly heard story line is that, even if Direct Contracting does not prove profitable, it provides a perfect pathway for wholesale movement of beneficiaries into MA at a much lower cost of sales.

MA Plans are required to use at least 85 percent of premium revenues to pay for claims. As we showed in Part one, the Money Machine eliminates that constraint in MA. Direct Contracting does not have an explicit MLR requirement. The only limit on profits is a risk corridor methodology that provides for graduated CMS sharing in savings or losses that are greater than 25 percent of the Benchmark, a level DCEs are unlikely to attain without risk score gaming. The net result is that Direct Contracting has an implicit but irrelevant MLR requirement of approximately 60 percent, leaving DCEs well positioned to keep virtually all savings as profits.

The Medicare Gold Rush

MA-focused firms, insurers, and investor-controlled primary care practices (PCPs)/management services organizations (MSOs), can now add Direct Contracting profits to their financial prospectus, and they have. The first six firms in Exhibit 1 in Part One of this post are all investor-controlled DCEs that were recently financed at extraordinary levels. All have cited DCE participation in their investor road shows. Clover Health attributed about 70 percent of their $3.7 billion valuation to Direct Contracting.

These favorable MA and Direct Contracting business model dynamics are enhanced by the strong ambient tailwinds in the Medicare space. One special purpose acquisition company (SPAC) pitch deck highlights the reality that growth in the MA and Direct Contracting market segments, driven by baby boomer aging and increasing per capita costs, will exceed $600 billion in annual Medicare premiums over the next 5 years. This is probably the largest short-term revenue growth opportunity of any current US industry sector. With such massive financial opportunity available, it is no surprise that speculative fever runs high on Wall Street. The evident lack of political will to address the distorted, subsidized MA marketplace and the growing power of the artificial intelligence- (AI) enabled MA Money Machine add fuel to the speculative fire. The result is IPO, SPAC, and private equity investments that have pushed billions of private investment dollars into acquiring MA-focused firms at prices-per-patient-life that beggar imagination. From early April, 2010 through the end of August, 2021, the average stock price for five MA-focused insurers—United Health, Humana, Cigna, Anthem, and CVS/Aetna—increased 825 percent (compared to 280 percent for the entire S&P 500), and the market capitalization for the same five entities increased by 497 percent (as opposed to 245 percent for the S&P 500 as a whole). The market thus seems to affirm MA as the must place to be.

The Risks Of Insurer-Controlled And Investor-Controlled DCEs

Risk-score gaming in Medicare Advantage, now encroaching into Direct Contracting, is creating an accelerating immediate threat to our health care system. Traditional health care providers typically have a longstanding commitment to their patients and communities. The large national MA plans have shown a distinctive ability to destroy value by increasing costs, not adding value, with little local community commitment. As DCEs they will likely find ways to profit through coding or alternatively attempt to move beneficiaries into their MA plans. Either way they will increase Medicare costs at a time when the Trust Fund is in severe jeopardy.

New start-up MA-focused plans are likely short-term players and unlikely in the long run to be able to match the economies of scale of the large national insurers. They will use risk-score gaming to increase rebates, attract new customers, burn through their start-up money, and ultimately be acquired by large insurers.

Investor backed PCP/MSO firms are playing a short-term game. Several offer innovative variations on the intensive PCP clinical-care model that probably deliver better, more convenient care and improved utilization. But all are dependent on the Money Machine to cover their added service costs and their owners’ profits. None offers a sustainable competitive advantage. They likely face either financial failure, rollup, or acquisition by larger firms. This happened in 1990s with Physician Practice Management Companies—the same hype, investment froth, story lines, and then roll-up followed by bankruptcy.

ACOs and DCEs both acquire aligned beneficiaries through their participating PCPs. PCPs cannot be in both for traditional Medicare patients. DCEs are now actively soliciting PCPs to drop their ACO affiliations and join them. Across the country, well-funded DCEs are offering PCPs and ACOs multi-million dollar guarantees. Some are holding out the allure of MA Money Machine-like coding opportunities. Thus, in yet another ironic twist, CMS is enabling the agents of MA cost increases to undo the ACO initiative, which has decreased costs. The Direct Contracting program poses a direct threat to the ACO experiment now underway in the nation.

A Policy Agenda For Reform

For 35 years, privatized Medicare plans have failed to achieve their primary objective of controlling costs while preserving the quality of care. Aside from some notable exceptions with group model and staff model HMOs, capitation of privatized Medicare plans has simply allowed insurance companies to collect from CMS a toll of 15 percent or more on the total cost of care, to deny or downgrade provider claims, and then to pass through the dollars they finally pay using Medicare’s FFS payment systems and prices. Their ability to game the Medicare “star quality rating” system rivals Lake Wobegon: most plans are now rated above average. It is far easier to game the codes than to improve the care or change health care delivery. Based on this track record, insurers should be eliminated from the Direct Contracting initiative.

Risk-score gaming is today necessary for business success in MA. Low risk scores lead to higher prices and lower benefits, a recipe for health plan failure. It is extremely costly to continue to ignore the corrosive, insidious effects of the defective MA HCC risk adjustment system. It undercuts the many dedicated hardworking plan and provider teams caring for MA patients. It is fundamentally redefining our primary care networks, turning PCP practices into insurer-owned or investor-owned coding shops, and impacting large integrated systems the same way. If this trend is left unchecked, CMS will witness even more rapid MA growth and, with it, a more rapid approach to Trust Fund insolvency.

Direct contracting should be indeed “direct,” that is, an arrangement with provider-governed organizations, not financial intermediaries. If primary care needs invested capital, that capital should be tied to the expectation that providers will control how it is used. If CMMI wants to test investor-backed start-up firms, it should do it only at the limited scale needed for the test and only through direct providers of care, not through reconstituted or renamed MA Plans. If the scale of Direct Contracting outpaces the evidence, the Direct Contracting model will instead be what the Trump Administration seemed to intend: an effort, driven by ideological doctrine to turn over to private hands Medicare, the nation’s most popular universal public program.

Our health care system has responded to the COVID pandemic with heroic work by nurses, physicians, hospital employees, and leaders. We will continue to need all of those services in the future. But we also need to redesign our care system. A far better system is not hard to imagine. It would be based in homes and community settings, using hospitals only as a last resort. It would invest heavily both in primary prevention—addressing the true social drivers of illness, injury, and disability—and secondary prevention, helping people with chronic illness anticipate and intercept deterioration. It would focus sharply on what matters to patients. It would assure continuity of care for patients across time and among care settings. The Triple Aim—better care for individuals, better health for populations, and lower per capita cost—can be, and should be, its North Star. That can only be achieved through major changes and improvements in the actual delivery of care, itself, not through financial gaming.

Change Medicare Advantage

The MA program is fundamentally flawed. Most sensible business-minded large employers in America do not give an insurer all their health care money upfront. They know that would cost them more. Instead, they hire administrators, not financial optimization firms. Although politically difficult, the following changes in policy would better position the Medicare Advantage program to meet its original, valuable objectives: to foster innovation in care and coverage, to improve the quality of care, and to reduce per capita costs without harm to patients.

MA overpayments are the consequences of policy decisions, and those decisions could be changed. Congress should instruct CMS to announce an intention to replace the current Hierarchical Condition Category (HCC) RAF scoring system in the next three  years. It should sponsor a major developmental effort to design a replacement risk adjustment methodology that does not rely on provider reporting and that is resistant to gaming. The model would need to address plan-specific and contract-specific risk scores. Potential approaches could include the DECI approach, expansion of the Beneficiary Survey, or potentially the use of small-area social determinants of health models such as the Area Deprivation Index (ADI) and the Child Opportunity Index (COI).

Congress should order CMS to follow the MedPAC recommendations for fixing the structural overpayments related to benchmarks and the Quality Bonus Program.

In the absence of eliminating the HCC system, CMS should move immediately toward a more realistic Coding Intensity Factor (CIF), increasing it by at least the 1 percent per year differential between MA and FFS coding creep. This would freeze MA RAF overpayments at the current level, eliminate the threat of benefit cuts from MA Plans, and provide significant out year savings. CMS should also constrain the MA Money Machine contracting approaches that incent and reward coding and ensure that such incentive payments to owned physician groups are excluded from MLR calculations.   

Importantly, CMS should assure a level playing field for comparing and transparently reporting results in beneficiary care, disease prevention, and total per capita health care costs between the ACO programs and Medicare Advantage.

Replace Or Redesign The Direct Contracting Model Experiment

The best way to mitigate the undesirable effects of Direct Contracting would be to stop the program. Ideally, CMS should announce that the Direct Contracting Model will be replaced in 2023 by a new Medicare Shared Savings Program (MSSP) model that uses CMMI authority to create more advanced tracks for providers, including full capitation. Features should include:

1. Primary Care Capitation
2. Use of the taxpayer identification number-national provider identifier combination
3. Upfront discount and 100 percent of savings option
4. Full capitation
5. A way to let new entrants into the program
6. Easier voluntary enrollment per the Direct Contracting model
7. Enhanced benefits for beneficiaries; and extended care delivery waivers
8. More upfront investment for providers without access to capital.

The HHS Secretary should pursue a path to mandating ACO participation by hospitals, physicians and other providers over five years using CMMI authority based on evidence of success from Pioneer, MSSP, and other ACO models. The MSSP advanced tracks should include only entities that follow the 75 precent provider governance rule, and they should provide guardrails for MA-focused investor-backed entities.

If CMS cannot simply stop the Direct Contracting experiment, at a minimum CMS should make clear that Direct Contracting is a small experiment, not a path to replacement of ACOs. (See Appendix 1) The number of beneficiaries should be limited to 1.3 million, (about the size of the Next Gen ACO test, or about 10 percent of the MSSP) and CMS should limit the size of any specific DCE. CMS should also establish disincentives and rules for DCEs to prohibit movement of beneficiaries to MA, such as fixing the risk score of beneficiaries that move from Direct Contracting to MA at 1.0 in perpetuity.

As with Medicare Advantage, CMS should take specific steps to eliminate risk-score gaming opportunities for DCEs, and to substitute an alternative risk adjustment methodology as discussed above. CMS should assure public transparency for the progress and results of the Direct Contracting model, including access to primary data to facilitate independent evaluations. As detailed in Appendix 1, CMS should also create guardrails for remaining investor controlled DCEs.

In any event, CMS should eliminate all insurers from the Direct Contracting model. MA insurers should focus their attention on delivering the Triple Aim (not higher costs) in MA, not to invading the traditional Medicare space. CMS and CMMI should proceed cautiously in any new Direct Contracting model test to avoid excessive and unwise distortions of investment and impediments to the (simultaneous) ongoing development, improvement, and expansion of ACO models, built on the decade of ACO experience so far. CMS should reinstate the 75 percent provider governance rule for DCEs. Direct Contracting should be with providers, not investors. It would take a major redesign, addressing many of the issues identified above, to make Direct Contracting the future path for provider-based value transformation. 

Advance And Build Upon The Accountable Care Organization Experience

Health care costs as a percent of gross domestic product  have flattened since the ACA. While spillover effects are hard to measure and many components of the ACA affected Medicare spending, Medicare per capita spending growth since ACOs were introduced has been the lowest in decades, notwithstanding the higher trend in MA spending per capita. In their first eight years, ACOs have brought tens of thousands of providers and virtually all segments of the health care industry toward population heath management. CMS data shows that ACOs, which care for over 12 million beneficiaries in 2021, have now generated gross savings of nearly $14 billion and net savings to CMS of over $4 billion.

Some observers have questioned those numbers and recommended significant changes to encourage more ACO engagement and investments by providers. As CMS Administrator Chiquita Brooks-LaSure and coauthors recently wrote on Health Affairs Blog, “While voluntary models can demonstrate a proof of concept, they limit the potential savings and full ability to test an intervention . . . “ We believe the MSSP ACO program, further adapted, is poised to expand rapidly toward global payments and population-based payments, with many participants now ready to accept full risk, exiting at last from the shackles of FFS. CMS should, as fast as is feasible, develop more advanced MSSP ACO models using CMMI authority to include global payment models, and make the MSSP model more inclusive of physician practices at the threshold of participation.

Providers have vacillated for 10 years between FFS and an accountable, value-based care business model. While results from accountable care have not yet been optimal, enough ACO success is in hand to support the belief that providers would be successful if the models were further developed and made mandatory. CMS should provide a multi-year strategy to make FFS less attractive and the ACO opportunity more attractive, leading ultimately to a mandatory ACO program. That commitment would also discourage ACOs from trying to succeed simply by cherry picking efficient providers, rather than trying to improve the mainstream.

CMS should ensure that advancing other payment models, especially Direct Contracting, does not block or impede further development of ACOs, drawing on lessons learned so far.

Support A Constructive Role For Private Investment:

Change requires capital. Creating the health care delivery of the future requires investment, public and private, to help incumbent providers develop new skills and systems, and to help create new entrants with care designs usefully disruptive to legacy models. The non-profit health care sector (especially its primary care components) has had difficulty finding that capital. Investors backed such investment in ACO-enabling firms. These firms and their investors are now being lured into the MA world by easy money. It is essential to correct the HCC Risk Score system to appropriately align capital. We owe entrepreneurs a fair opportunity for return commensurate with risk. We do not owe them fish in a barrel, as MA offers.

As CMS becomes even more effective as a sponsor for care innovation, it will need the savvy and skills to distinguish between helpful private investment and exploitative private investment. Fixing the costly defects in MA and forbidding the importation of those same defects into traditional Medicare, while authentically testing new models of payment, is a good place to start.

Appendix 1: Direct Contracting Model Guardrails

Guardrails For The Global Professional Direct Contracting Model

1. Direct Contracting Entities:
   1. Limit additional new entrants for 2022 to those who serve vulnerable communities with demonstrable health inequities and can demonstrate ability to improve care for beneficiaries.
   2. No further opening for new DCEs if targeted numbers cited below are met in 2021.
   3. Eliminate the insurer DCEs from the GPDC experiment.
   4. Reestablish the 75 percent provider-controlled requirement, as instituted in the original ACO regulations, for all DCEs.

2. Overall Size of the Model Test:
   1. Limit the total size of the Direct Contracting model to approximately 1.3 million, the same as Next Generation ACO program, or to 10 percent of the MSSP
   2. Only exceptions to size should be for DCEs serving vulnerable populations with health/health care inequities.
   3. Primary consideration of size should be the number needed to get an overall evaluation of the model.
   4. Limit the geography and the number of providers for each DCE to that submitted in original application
   5. Confirm that GPDC is a limited test of a new model. It is not the major pathway for advanced ACOs
   6. No DCE should be larger than 100,000 = $1 B in potential capitation
   7. Limit auto-alignment of beneficiaries to 75,000 per DCE
   8. Limit Actual Capitation Payments to individual DCEs to $500 M.

3. Risk-Score Gaming:
   1. Eliminate all potential for DCEs to engage in risk-score gaming by using risk scores from 2 years prior for voluntary enrolled beneficiaries and including voluntarily aligned beneficiaries in the risk-score caps and Coding Intensity Factor adjustments from the time they are aligned. (No one-year delay for voluntary enrolled beneficiaries.)
   2. Adjust the risk adjustment model to eliminate the ability of DCEs to gradually increase their reference year risk score for the 3 percent cap adjustment
   3. Develop DCE-specific CIF methodology that ensures overall program neutrality while adjusting for each DCE’s contribution to overall program coding increase.
   4. CMMI should be explicit in saying it will hold the line on risk adjusting e.g. – it will not hold DCEs harmless, as has been done in other circumstances, when the ultimate determination of risk scores is completed.
   5. CMMI should be explicit that it expects to move to an alternative risk adjustment methodology in the next three years that does not provide any coding gaming opportunity.

4. Transparency:
   1. Publicly confirm which DCEs are already approved for the 2022 cohort.
   2. Confirm current populations for DCE and continuously update.
   3. Commit to providing public access to primary data to allow broad-based understanding of results and independent evaluations.

5. Capitation:
   1. Require DCEs to pass all PCP capitation payments down to the PCP group level.

     6. MA Conversion

1. 1. Prohibit any direct MA marketing to DC-aligned beneficiaries, whether targeted or market-wide activity, with elimination from the program as a penalty for violations.
   2. Fix the risk score of any DCE beneficiary converted to an MA plan at 1.0 in perpetuity.
   3. Create conversion monitoring system to report and review MA conversion rates by DCE.

7. Create an explicit Capitated Care Monitoring System to monitor patient access to and use of high-cost services including biologics, cancer care, etc.

     8. Financial Benchmarks and Reconciliation:

1. 1. Create common methodology for standard and new entrants.
   2. Revise Global risk corridors to provide 50 percent sharing of savings and losses at 15 percent of benchmark and a minimum MLR of 80 percent.

Guardrails For Investor Direct Contracting Entities

1. Limit the size of Investor DCEs:
   1. Limit the total beneficiaries assigned to all investor DCEs to 250,000 now and 250,000 more for 2022 class for a total of 500,000.
   2. Limit assignment of beneficiaries to 50,000 per DCE.
   3. Limit Total Capitation Payments to individual investor DCEs to $500 million.
   4. Limit the growth of PCP network to only owned sites with employed physicians in existing region.

2. Create Risk-Based Capital Reserve requirements for investor DCEs that accept more than 50 percent of the total medical cost in capitation payments.

     3. Require CMS Approval of DCE Acquisitions

1. 1. No automatic assignment of DCE contracts. CMS must review and approve all.
   2. Prohibit acquisition by or assignment of DCE contract to any insurance company or subsidiary.
   3. Limit the ultimate size of any DCE resulting from acquisition to 75,000 beneficiaries.
   4. Include review of history of prior interactions with CMS or other regulators or history of problematic marketplace behavior by firm or executives.

Authors’ Note

Dr. Gilfillan was the CEO of Trinity Health System from 2013 until 2019.  He is a Trustee for United States Pharmacopeia; a Director for the Health Care Transformation Task Force; a member of Advisory Committees for the Institute for Exceptional Care and several Robert Wood Johnson Foundation programs addressing health equity and SDOH (all uncompensated).  Dr. Gilfillan also recently consulted for an integrated health system (compensated).  Dr. Gilfillan was the Director of CMMI during the roll-out of several ACO Models and was involved in the development of CMS ACO regulations.  He has also been a leader and member of teams that managed multiple ACOs and Medicare Advantage plans.

Dr. Berwick served as Administrator of the Centers for Medicare and Medicaid Services from July, 2010, to December, 2011, during which he oversaw the issuing of the initial CMS regulations for Accountable Care Organizations, as well as numerous other regulations devolving from the Affordable Care Act.  He serves on the boards of LumiraDx (stock option compensation); Virta Health (stock option compensation); NRC Health (stipend and stock option compensation); Institute for Exceptional Care (uncompensated); CareVisor (stipend) Partners in Health (uncompensated); Results for Development (uncompensated). He also serves on Advisory Boards for the National Institute for Health Care Management Foundation, Datavant, and the Institute for Accountable Care, and on the  American Medical Association Journal Oversight Committee Dr. Berwick occupies multiple committee positions with the National Academies of Sciences, Engineering, and Medicine.