Direct Contracting: Moving the Risk from CMS to Providers

By September 9, 2020 January 27th, 2021 No Comments

To be Successful, Providers Need Expert Partners in Value-Based Care

Since 2008, the value-based healthcare model has been transforming the way we care for patients. The strategy to reward healthcare providers with incentives for quality care began with programs such as the Hospital Readmission Reduction Program (HRRP) and has continued to evolve with Medicare’s various Accountable Care Organization (ACO) models, Comprehensive Primary Care Plus (CPC+), and others.

September 9, 2020

The newest program added to the evolution of value-based healthcare is CMS’s Direct Contracting Model—voluntary payment model options to reduce costs and preserve or improve quality care for beneficiaries in Medicare fee-for-service (FFS). This program was built from the lessons learned from Accountable Care Organizations (ACOs), like the Medicare Shared Savings Program (MSSP) and the Next Generation ACO (NGACO) models. 

In a recent press release about the new value-based Direct Contracting and Primary Cares Initiative, U.S. Department of Health & Human Services Secretary Alex Azar explained: “For years, policymakers have talked about building an American healthcare system that focuses on primary care, pays for value, and places the patient at the center. These new models represent the biggest step ever taken toward that vision. Building on the experience of previous models and ideas of past administrations, these models will test out paying for health and outcomes rather than procedures on a much larger scale than ever before.” 

This exciting time for healthcare places accountability on providers and payers to provide the highest quality care. In return for successful patient outcomes, CMS rewards those risk-bearing organizations. According to CMS, “Organizations have expressed interest in a model that draws upon private sector approaches to risk-sharing arrangements and payment and reduces administrative burden commensurate with the level of downside risk.”

Direct Contracting continues to build on lessons learned in Medicare Advantage and various other population health-based alternative payment models. Enrollment began in June of 2020. Some 1,100 have applied to this point, and CMS has already started to communicate the rules of the game. The program is set to launch in April 2021, while the performance period will kick off January 2021 (lasting five years). Applicants are currently going through the exploratory phase where they align legal, vet processes, and find partners as needed to determine how and if they will participate in Direct Contracting.

“There are internal and external benefits to Direct Contracting,” according to Brian Fuller, CEO of Integrated Care Solutions (ICS). “This is where healthcare is going—fee-for-service, we can’t afford it. It’s not good for patients. It’s not good for federal spending. It’s not necessary. For all these reasons, the system is moving to value. There’s a strategic benefit to moving down this path to value, and the only way to get there is to participate in these programs, including Direct Contracting. That’s the 30,000-foot level benefit. 

“The 10,000-foot level benefit is that there are real costs to be taken out of the system. The system is incredibly inefficient, it’s incredibly variable. There was no incentive to do it any differently than we’ve done in the past. To any CFO, there are real dollars here. If you can put $15M under management and generate 15-percent savings, that’s $2.25M! In a time when healthcare margins aren’t going up in any area of healthcare drastically, that revenue has real benefits, and it represents a diversification of revenue that also has value to the business. On the business side of healthcare, there are real benefits and rewards.

“At the 1-foot level, it meaningfully impacts patients. The patient experience is improved in these programs, the patient outcomes are improved. From the finance side, it’s more efficient. From the eyes of the patient, efficiency equals better overall health. Patient outcomes are improved because of programs like this, and that’s good for the patient.

Through value-based models, primary, specialty, acute care, and private-sector partners are integrated to provide the most quality and effective care. This is particularly important in the Direct Contracting model as risk-bearing organizations are required to reduce the total cost of care and improve performance against key quality metrics.

To succeed in the program, Direct Contracting applicants must assess their ability to take on and manage risk. Care management capability and processes ensure patient outcomes, reduce rehospitalizations, and ultimately return money into the risk-bearing organizations’ pockets. 

Questions that value-based organizations should be asking: 

  1. Do we have an existing infrastructure for care coordination and care management (i.e. managing patient care and transitions over time, network management, member engagement, and population health management services)? 
  2. Do we have the ability to manage full or partial capitated payments?
  3. Do we know what our investment requirements are to optimize, build, or buy to close MSO gaps? 

If the answer is no to these, aligning with partners like ICS during this application and vetting stage is of the utmost importance. Companies like ICS are designed to work within these value-based healthcare models. 

“If you’re one of 1,100 applicants of Direct Contracting and don’t have advanced care management capability, you need that system to be successful,” Fuller explained. “As you are working through the exploratory phase, start down that path and decision making to find a partner in the process now. It takes time to set up partnerships. Though April 2021 seems like a long time away, it’s not.”

As a partner, ICS takes on the financial risk with organizations and fully aligns incentive for both the quality and cost of care. 

In addition to aligning partners through the process, risk-bearing organizations should consider additional ways to optimize participation in the Direct Contracting program, according to Cope Health Solutions. 

  1. Make Direct Contracting part of the overall value-based payment (VBP) strategy and operations.
  2. Understand the target Direct Contracting attributed population, network, service area, and geographic region.
  3. Ensure that the required licensing and compliance apparatus is in place before the start of either the 2020 Implementation Year or 2021 Performance Year. 
  4. Develop a network optimization and management strategy.
  5. Ensure there’s a plan for member engagement, membership growth, and retention. 
  6. Design a compliant governance model and funds flow. 

Fully embracing programs like value-based Direct Contracting will support a healthcare system that focuses on the patient and benefits the bottom line. 

“These models can serve as an inflection point for value-based transformation of our healthcare system, and American patients and providers will be the first ones to benefit,” Azar said.

And the benefit is especially impactful during an economic downturn or pandemic. The coronavirus has cost the healthcare system a significant amount of revenue; models through CMS that deliver consistent payments unattached to volume of care are particularly attractive. In fact, due to COVID-19, CMS plans to reopen the Direct Contracting program in the spring of 2021 for new applicants. The new applicants would have the opportunity to enter the program in 2022. 

If you are a Direct Contracting applicant in need of a partner with expertise in value-based care and proven results working with risk-bearing organizations, contact ICS today for a free consultation.



ICS helps organizations improve community care coordination and drive the transformation to value-based care. Learn more about how ICS delivers results for organizations by putting patients first. Call us today: 860-622-7645.


Discharge Planning: A Critical Component of the Continuum of Care