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Advocates Sound Alarm About Pilot Program They Say Could Privatize All of Medicare

Stethoscope on top of $100 bills.The Biden administration is moving forward with a Trump-era pilot program that would hand over the care of millions of Medicare beneficiaries to private, mostly for-profit, groups. 

Health care advocates warn that that the little-known plan will limit patients’ choice of providers and effectively privatize Medicare for beneficiaries who specifically chose traditional, public Medicare because they wanted to be able to select their own doctors. The program was created without congressional oversight and can expand without Congress’s approval.

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“It could potentially complete the privatization of our public precious good called Medicare,” says Ed Weisbart, MD, who chairs the Missouri chapter of Physicians for a National Health Program (PNHP). “It violates the spirit of a public health program, which Medicare is, by driving larger corporate profits as a priority over improving our health, which Medicare is remarkably successful at.”

Already, some 42 percent of Medicare beneficiaries are in private Medicare Advantage plans, to which the federal government gives a fixed monthly fee for each Medicare beneficiary under the plan’s care. The less money the plans spend on patient care, the more money they and their investors make.

The new pilot program, called Direct Contracting, would extend key aspects of this model to other Medicare beneficiaries in 38 states, Washington, D.C., and Puerto Rico, potentially covering 30 million of the 36 million beneficiaries in traditional Medicare.  Fifty-three Direct Contracting Entities (DCEs), most of which are investor-owned with ties to Medicare Advantage commercial insurers, have already signed contracts to be fiscal intermediaries between patients and their providers.

Beneficiaries Automatically Enrolled

Under the program, these DCEs will form their own networks of providers, which beneficiaries will be strongly encouraged, although not required, to use.  Traditional Medicare beneficiaries will be enrolled in these networks, often without their knowledge or consent.  The DCEs will be paid a set amount per patient, called a capitation payment, which will vary depending on a patient’s “risk score.”  If the patient care costs less than the per-patient amount, the DCE keeps some or all of the difference.  If it costs more, the DCE loses money.

Beneficiaries will not be able to opt out of being “aligned” with a DCE.  Medicare will assist the DCEs by searching the claims history of beneficiaries – again without patients’ knowledge or consent -- to see if they have visited a participating DCE provider with which they could be aligned.

All this will likely be confusing for Medicare beneficiaries, many of whom will have three different entities processing their claims: the DCE, Medicare, and the beneficiary’s Medicare supplemental insurance (Medigap) plan.

“Rather than allowing patients to go to providers directly under traditional Medicare, DCEs invite insurers and investors to step in and interfere with the care that Americans get,” said Rep. Katie Porter (D-CA) at a recent PHNP webinar on Direct Contracting. The DCEs, Porter charged, will “drive up costs for patients in order to maximize profits . . . Wall Street wins, patients and taxpayers lose.” 

Lowering Costs Is the Stated Aim . . .

The idea behind the pilot is that these care networks will lower costs and spur innovation by managing care.  The model, according to the federal Centers for Medicare and Medicaid Services (CMS), “is expected to increase beneficiaries’ access to innovative, affordable care while maintaining all original Medicare benefits.”

Not all medical providers oppose Direct Contracting, particularly those already affiliated with provider groups.

“Models of care that are focused on systems of reimbursement such as capitation and holding physicians accountable for cost, coordination, and quality are integral to moving away from the fee-for-service model and toward more transformative models of care that reward value,” said Don Crane, president and CEO, of America’s Physician Groups said in December 2020.

. . . But Financial Incentives Worry Critics

Critics of the program have raised a number of concerns.  They note that many beneficiaries will be unaware that they can opt out of a DCE’s provider network, and say that DCEs will seek to contain costs by discouraging or denying needed care. (It is unclear how CMS will monitor beneficiaries’ access to care.)

Advocates also note that, as with Medicare Advantage, DCEs will have a strong financial incentive to “upcode” patients – that is, to tell the government that patients in their care are sicker than they really are so the DCE can receive a higher reimbursement.  Finally, critics are convinced that DCEs affiliated with Medicare Advantage plans will use the opportunity to steer beneficiaries away from traditional Medicare and into these highly lucrative plans.

No one knows whether the DCEs will actually be profitable, but Wall Street is betting that they will be.

“Wall Street considers Direct Contracting Entities to be eight times more valuable per patient than Medicare Advantage firms,” wrote Chris Tomlinson, a business columnist for the Houston Chronicle. 

Even if DCEs don’t make money initially, patient advocates say that many investors are betting on selling the DCE for a profit down the road, a favored model of private equity investment.  “The real strategy is to make rapid growth and then leave and go on to the next investment,” said PNHP’s Weisbart.

Two nationally known physicians who once led CMS are warning against the pilot program. Writing in the blog of the journal Health Affairs, Dr. Donald M. Berwick, a former CMS Administrator, and Dr. Richard Gilfillan, a former director of CMS’s Center for Medicare and Medicaid Innovation, call Direct Contracting a new addition to the “Medicare Money Machine” and characterize its name as “Orwellian.”  “‘Indirect Contracting’ would have been a far more accurate name,” they write, “since the cornerstone of the program was CMS’s opening the door to non-provider-controlled [DCEs] to become the fiscal intermediaries between patients and providers.”

Blanket Authority to Experiment

Experimental health delivery models like Direct Contracting were made possible by the Affordable Care Act.  The landmark 2008 law established the Center for Medicare and Medicaid Innovation and gave it almost blanket authority to test ways to improve health care quality and reduce costs without congressional approval or oversight.  The Trump administration seized on this authority to craft the Direct Contracting model. 

Its most extreme version is called Geographic Direct Contracting, which would auto-assign every traditional Medicare beneficiary living in a number of large geographic regions into a Medicare Advantage-like “Geo DCE” without the right to opt out. Advocates persuaded the Biden administration to pause this program in March, although it is still “under review” and could resurface. 

But the Biden administration has continued the rollout of a less extreme version, the Global and Professional Direct Contracting (GPDC), which CMS calls a “voluntary risk-sharing payment model.”

Rep. Porter is among lawmakers who are calling on the administration to immediately freeze this version as well, contending that while it is intended to make Medicare more efficient, it actually will do the opposite, noting that between 2008 and 2020 the federal government has overpaid Medicare Advantage plans -- which were designed to contain costs in similar ways – by $143 billion.

In late November a group of physicians from around the nation traveled to Washington, D.C., to educate lawmakers about the Direct Contracting threat, call for a congressional hearing and present U.S. Department of Health and Human Services (HHS) Secretary Xavier Becerra a petition signed by more than 13,000 people, including 1,500 physicians.  The petition warns that moving the DCE program forward threatens “the future of Medicare as we know it.”

“[Direct Contracting] is very complex and it is extremely hard to explain,” said PNHP board member Dr. Judy Albert at the HHS press event.  “There has been very little coverage in the mainstream media, allowing the program to fly under the radar. . . . Together, we will continue to raise the alarm until we stop this threat to Medicare.”


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