Direct Provider Contracting: The Next Innovation in Paying for Health Care for Medicare Beneficiaries?

By Benjamin C. Silver Timothy O'Brien Elena Bravo-Taylor

Direct Provider Contracting has been used for decades as a way for employers to arrange for specific health care providers to deliver a defined set of services (such as hip or knee replacement) to their employees at a discounted rate. This arrangement is markedly different than the standard approach of employers paying an insurance company for a broad range of covered health care services, with the insurer in turn reimbursing health care providers and/or employees after care is delivered.

Recently, the Centers for Medicare & Medicaid Services (CMS)—the nation’s largest payer for health care services—noted their interest in Direct Provider Contracting. But interest from CMS in Direct Provider Contracting is different in two specific ways from what has come before. Most notably, Medicare is not an employer or a provider purchasing insurance, it is the insurance. It also covers individuals nationwide, making the notion of contracting with a single provider (e.g., one hospital) impractical.

Although CMS has not yet made any specific proposals public, they recently issued a Request for Information—their way of gathering information from the health care community to inform what may come next. Like it sounds, a Request for Information is a signal that CMS is interested in the concept of Direct Provider Contracting in Medicare but has not fully defined what that may mean. Examining the content of the Request for Information can help us to better understand what CMS may have in mind.

Where have I seen this before?

In the version of Direct Provider Contracting that CMS describes, Medicare beneficiaries each select a primary care practice, and the practices enter into a special billing arrangement with CMS for those beneficiaries. The hypothetical payment model they describe bears a striking resemblance to a CMS initiative that RTI currently supports: Comprehensive Primary Care Plus (CPC+). Practices in CPC+ receive a monthly fee to manage patient care, and an annual prospective payment that is “at risk,” meaning it may be required to be paid back if certain quality targets are not met. Some practices also elect to replace part of their standard fee-for-service (FFS) payments instead as a prospective monthly payment for specific services. The aim of this payment is to increase the flexibility in where and how the practices provide care (such as offering doctors’ visits online or with a group of patients). Should CMS pursue a Direct Provider Contracting approach in the future, it is possible that it could evolve out of the CPC+ model and its predecessor.

A beneficiary-driven process?

Another potentially interesting twist on Direct Provider Contracting comes from CMS’s interest in increasing engagement by beneficiaries whose care is paid for by Medicare. The payment mechanisms in the CPC+ effort as well as other innovation models that CMS has implemented rely on assigning a set of beneficiaries to each provider: the provider a beneficiary sees most often typically determines how beneficiaries are attributed to health care practices.

Relatively recently, CMS has begun exploring more active beneficiary engagement in its programs, a process known as “voluntary alignment.” Under voluntary alignment within a Direct Provider Contracting effort, health care practices would sign up to participate in the effort and Medicare beneficiaries would then enroll with their practices. Goals for CMS could include enhancing access to services for Medicare beneficiaries, reducing administrative burden on providers, and giving providers a revenue stream that would allow more flexibility than traditional fee-for-service models in how they offer care.

Currently, Medicare beneficiaries have little to no incentive to align themselves, so structuring a stronger incentive for voluntary alignment would be an important consideration in any future Direct Provider Contracting models. Such incentives could include financial benefits or receipt of additional services such as care coordination. A beneficiary-driven process relies on high levels of engagement, and the success of any program may therefore hinge on how CMS incentivizes that engagement.

Voluntary alignment also presents logistical challenges for providers. A model that requires beneficiaries to enroll themselves may leave providers with both enrolled and un-enrolled patients who are Medicare beneficiaries, leading to differences in care practices and billing workflows. Although primary care practices are likely accustomed to working with numerous payers and benefit packages, CMS has made clear their interest in reducing provider burden.

Although Direct Provider Contracting may still be in the idea phase, health care practices and policy-makers alike should pay close attention to how issues such as payment strategies and voluntary alignment are addressed in the various health care payment models already being tested by CMS. Lessons from these programs can closely inform the future of any Direct Provider Contracting efforts under the Medicare program.