CMS proposal for direct-contracting model may put private groups in charge

The agency that runs Medicare wants to give private organizations a chance to try administering traditional Medicare coverage.

The agency, the Centers for Medicare and Medicaid Services (CMS), has announced a two-part test for a new Geographic Direct Contracting Model.

CMS said the Geo program will let private organizations, or “direct contracting entities,” administer traditional Medicare coverage for some enrollees. CMS wants the first direct contracting entities to begin testing the Geo approach in somewhere between four and 10 communities from Jan. 1, 2022, through Dec. 31, 2024. A second Geo test period would run from Jan. 1, 2025, through Dec. 31, 2027.

Links to Geographic Direct Contracting Model program resources are available here.

Any “covered entity,” or organization that has to take charge of complying with Health Insurance Portability and Accountability Act (HIPAA)  personal health information privacy and date security rules, could apply to be a direct contracting entity in the Geo program, CMS officials said in the Geo program announcement.

“Covered entities include most types of provider organizations as well as health plans,” officials said.

Typical Geo applicants are likely to be health plans, or provider-run organizations that have significant experience with managing medical cost risk, such as health care provider groups or health care systems that have participated in accountable care organizations, officials said.

How traditional Medicare works now

Medicare is a federal program that provides health coverage for 63 million Americans who are at least 65 years old, receive Social Security Disability Insurance benefits or have kidney disease so severe that they have either had kidney transplants or are getting kidney dialysis.

Congress created the Medicare Part A hospitalization insurance program in 1965. Congress added the Medicare Part B program, which covers physician and outpatient services, in 1983.

Medicare managers already let private organizations provide an alternative to traditional Medicare coverage through the Medicare Advantage plan program. About 25 million people use Medicare Advantage coverage or related types of coverage.

The companies that run Medicare Advantage plans often use health care provider networks that are similar to the provider networks built into commercial health coverage for people under 65. A Medicare Advantage plan might send a doctor or hospital a flat fee per month per patient, or capitation payment, to cover the cost of routine care.

The new Geo program would be part of the traditional Medicare program, which CMS calls “Original Medicare,” rather than part of the Medicare Advantage program.

CMS uses private organizations, called Medicare Administrative Contractors, or MACs, to administer Original Medicare coverage.

One set of MACs oversees Original Medicare medical coverage. A second set oversees coverage for “durable medical equipment,” such as wheelchairs.

In Arizona, California and Washington state, for example, the MAC for Original Medicare medical coverage is Noridian Healthcare Solutions LLC, an arm of Blue Cross Blue Shield of North Dakota.

The Medicare MACs are invisible to most enrollees.

Managers of Original Medicare let almost any licensed physician who accepts Original Medicare reimbursement rules and other rules treat Medicare enrollees.

Outside of test programs and other special programs, Original Medicare usually pays doctors and hospitals fees for each service provided, rather than capitation payments, or payments for bundled care.

Critics of the fee-for-service approach say it’s complicated to administer and encourages providers to offer too much care.

Ordinary Original Medicare comes with complicated deductible, co-payment and coinsurance rules, and no annual out-of-pocket limit on what an enrollee must spend on out-of-pocket costs.

Geo test program

A Geo contractor would manage health coverage and health care for Original Medicare enrollees in one specific region, such as Atlanta.

The contractor would make extra money if it did a good job of holding the cost of care down, while complying with Medicare care access rules and other rules. However, it would lose money if costs were high.

A contractor could use a preferred provider network to try to hold down costs. A contractor could never have an enrollee pay more out of pocket than an enrollee in Original Medicare would pay, but a contractor could reduce out-of-pocket costs for enrollees who saw in-network provider.

A Geo contractor also could provide other patient wellness and chronic condition management incentives that might be difficult for Original Medicare to offer under current rules.

A Geo contractor could offer vouchers for OTC medications, transportation, wellness and chronic condition management program memberships, electronic patient monitoring systems, vision and dental care services, and up to $75 in gift cards per year for participating in disease management programs.

A Geo contractor also could pay for home visits for care management, and it could choose to waive the Medicare rule that requires a patient to be admitted to a hospital for at least three days before Medicare will pay for convalescent care in a nursing home for that patient.

CMS officials said they believe each Geo contractor in the test program would oversee care for at least 30,000 Medicare enrollees. Officials expect each community in the test program to have three to seven Geo contractors.

A would-be Geo contractor would have to offer to cut Medicare costs for enrollees by at least about 2% to 3%, according to the program announcement.

Some of the Medicare enrollees using Geo contractor-run coverage would sign up for the coverage voluntarily. Other enrollees might end up with Geo coverage because their primary care providers are in a Geo contractor’s preferred provider network, officials said.

CMS said it would try to keep the Geo program from disrupting the risk pool for standard Original Medicare by prohibiting enrollees from opting out of the Geo program.

Officials said they expect the test Geo contractors to serve Medicare enrollees in one of 15 communities: Atlanta; Dallas; Denver; Detroit; Houston; Los Angeles; Miami; Minneapolis; Orlando, Florida; Phoenix; Philadelphia; Pittsburgh; Riverside, California; San Diego; or Tampa, Florida.

Officials show calculations suggesting that a typical test market might have about 30% to 40% of its enrollees allocated to Geo contractor-run coverage.

Non-binding letters of interest are due Dec. 21, and applications are due April 2, 2021.

Geo test program challenges

Several challenges face the program. For one, the Biden administration might choose to change or kill the Geo test program.

Patient groups, health care providers or other parties could sue to block the program, or they could persuade Congress to block the program.

Insurers and health care provider organizations could stop the program by declining to become Geo contractors, and health care providers in a region could decline to join the preferred provider networks for the Geo contractors in that region.

Agents’ and brokers’ role

A successful Geo program could give health insurers new ways to service Medicare enrollees, but it could reduce patients’ incentive to sign up for Medicare Advantage plans or Medicare supplement insurance.

Agents and brokers help many people sign up for Medicare Advantage and Medicare supplement insurance coverage.

CMS officials do not say in the Geo program announcement whether they expect agents and brokers to play a role in the Geo enrollment process.