New Medicare Payment Model: Help Cut Costs and Ease Administrative Burdens?

I. Plan goals and overview

In response to increasing costs of health care delivery in the United States, the Centers for Medicare & Medicaid Services (CMS) has created pilot programs to explore alternative methods for reimbursement of care provided to Medicare beneficiaries through its Innovation Center. Early in 2021, the Innovation Center announced that the first performance year (PY) of its new Global and Professional Direct Contracting Model (GPDC model) would begin April 1, 2021.

The initial performance year includes 53 direct contracting entities. Per the Innovation Center website, CMS is not accepting new applicants to begin their first performance year in 2022. However, entities that applied during the implementation period but elected to defer their start date until January 1, 2022, will still be allowed to participate.

The new model places emphasis on cutting costs while maintaining or improving care quality and outcomes for Medicare Fee for Service (FFS) beneficiaries, while focusing on primary care as the driver of overall patient experiences. To this end, the model includes four main goals:

1. To broaden participation in CMS’ innovation models by allowing participation from organizations without a historical relationship with Medicare FFS — including physician-managed organizations and Medicaid MCOs
2. To transform risk-sharing arrangements using flexible cash flows, prospective spending targets, and payments that better reflect challenges delivering care to complex, chronically ill, and dually eligible populations
3. To empower and engage FFS beneficiaries with a focus on voluntary alignment, allowing beneficiaries to take advantage of included benefit enhancements while still maintaining flexibility and allowing beneficiaries to select providers that best meet their care needs
4. To reduce administrative burden on providers through a reduced set of outcome-driven quality measures designed to allow a greater focus on patient care

II. Direct contracting entities (DCEs)

The GPDC model introduces a new type of coordinated-care organization, called direct contracting entities (DCEs). Like accountable-care organizations, DCEs are made up of health care providers and suppliers that accept accountability for the comprehensive cost and quality of medical care for aligned Medicare FFS beneficiaries.

In general, DCEs are required to have at least 5,000 aligned FFS beneficiaries and are comprised of Medicare-enrolled providers or suppliers who agree to participate with a written agreement to that effect.

The GPDC model creates four distinct types of direct contracting entities:

1. Standard DCEs
   Standard DCEs are composed of organizations with experience serving Medicare FFS. Beneficiaries may be aligned to a standard DCE through either voluntary or claims-based alignment, and performance-year quality benchmarks are a blend of regional and historical expenditures for beneficiaries aligned with the DCE.

2. New Entrant DCEs
   New Entrant DCEs are primarily made up of organizations that have not historically provided care to the Medicare FFS population. Fewer than 50% of participant providers in a New Entrant DCE may have prior experience in Medicare Shared Savings, NGACO, or similar programs. Because of this lack of Medicare FFS experience, New Entrant DCEs will initially rely primarily on voluntary alignment — in PY1-3, fewer than 3,000 beneficiaries can be aligned using claims, while in PY4 and 5, 3,000+ beneficiaries should utilize claims-based alignment.

   Additionally, there is a “glide” path for required beneficiary alignment — 1,000 aligned beneficiaries are required in PY1, 2,000 in PY2, 3,000 in PY3, and so on. Benchmarking for New Entrant DCEs is based solely on regional expenditures for PYs 1-3, then incorporate historical expenditure information for PY 4 and 5.

3. High-Needs Population DCEs
   High-Needs Population DCEs focus on FFS beneficiaries with complex needs, defined as mobility issues, significant chronic or serious illnesses, high mobility issues, a high risk score with two or more unplanned hospital admissions, and/or “signs of frailty,” such as a claim for hospital bed or transfer equipment for use in-home. This DCE type may also include dually eligible beneficiaries.

   High-Needs Population DCEs require a lower beneficiary threshold, starting with 250 beneficiaries in PY1 and gradually increasing to 1,400 required by PY5. Additionally, they are required to use a care model designed for individuals with complex needs (i.e., PACE) for care coordination, and benchmarking is based on regional expenditures for PYs 1-3, like New Entrant DCEs.

4. MCO-Based DCEs
   MCO-Based DCEs manage the Medicare FFS costs of full-benefit dually eligible beneficiaries receiving Medicaid benefits through an MCO. They must be a Medicaid MCO or a legal entity affiliated with a Medicaid MCO under common ownership, and will take greater accountability for total costs of care for aligned dually eligible beneficiaries. No applications were taken for this DCE type for the performance year beginning in 2021 as the type is under review.

III. Provider relationships

DCEs have two general provider relationship types: participant providers and preferred providers. These providers may include physician groups, physician practice networks, federally qualified health centers, critical access hospitals, and rural health clinics. Durable medical equipment and ambulance suppliers, drug and device manufacturers, and providers prohibited from participation in Medicare or Medicaid are prohibited from participation in DCEs. Both participant and preferred providers continue to submit claims to CMS for services provided to DCE-aligned beneficiaries.

Participant providers are used by the DCE to align beneficiaries and are required to accept payment from the DCE based on their negotiated payment arrangement, rather than receiving remittance for claims submitted to CMS. Participant providers are also used to determine a DCE’s service area. A DCE’s core service area for beneficiary alignment includes all counties in which participant providers have offices, while the extended service area includes counties contiguous to the core service area. DCEs may have multiple service areas that are noncontiguous in one or more states, depending on participant provider locations. In contrast, preferred providers are not used when determining alignment, and may elect to receive reduced remittance from CMS and participate in payments through the DCE. Both participant and preferred providers report quality metrics and may take advantage of benefit enhancements and patient engagement incentives.

IV. Risk sharing and payment mechanisms

In an effort to broaden the range of providers operating under DCE common governance, as well as to empower DCEs to improve care coordination and delivery through control of the flow of funds to their downstream providers, the GPDC model includes two capitation arrangements. These arrangements are Total Care Capitation and Primary Care Capitation; there is an additional voluntary advanced payment option for entities electing to participate in Primary Care Capitation. In addition, the final model has two risk-sharing options that direct contracting entities can select: the Professional Population-Based Payment (PBP) and the Global PBP.

a. Capitation options

Primary care capitation includes risk-adjusted monthly payments for enhanced primary care services provided by participant providers, with the option for additional payments for services delivered by preferred providers that elect to accept payment from the DCE. Capitation payments will be equal to 7% of the total cost of care for the enhanced primary care services provided. Primary care capitation is available for participants in both the Professional PBP and the Global PBP.

In addition to the monthly capitated payments, participants in primary care capitation may elect to receive an advanced payment for FFS claims that are not primary care. These payments are based on historical utilization and an estimate of non-primary care spending and are reconciled against actual claims expenditures during final financial reconciliation.

Total care capitation provides monthly payments for all services provided by participant providers, with the same preferred provider option included primary care capitation. Total care capitation is limited to participants in the Global PBP. No payments under total care capitation are reconciled with actual claims expenditures.

Capitated payments are determined prior to the start of a performance year based on the estimated performance-year benchmark and preferred provider claims reduction amount, and are not reconciled against actual expenditures for primary care services. CMS will continue to pay claims for services from nonassociated providers. DCEs are then responsible for passing payments through to providers per the terms of the agreement.

b. Risk-sharing options

In addition to choosing the capitation agreement that best fits a direct contracting entity’s situation, the GPDC model provides two options for risk-sharing arrangements, the Professional PBP and the Global PBP.

The Professional PBP is a lower-risk sharing arrangement; participants will share in 50% of savings and losses. Participants must select the primary care capitation payment mechanism. There is no discount for performance-year benchmarks under the Professional PBP.

In contrast, Global PBP is a higher-risk sharing agreement — participants share in 100% of savings and losses. Participants in the Global PBP may select from either the primary care or total care capitation arrangements, and the plan includes performance-year benchmark discounts that begin at 2% in PY1 and grow to 5% by PY5. Global PBP participants are also eligible for quality-based bonuses at the end of each performance year.

At the conclusion of each performance year, CMS will compare all Medicare expenditures — including FFS claims, capitated payments, and any advanced payments — for services for aligned beneficiaries to the DCE’s benchmark to determine shared savings or losses. CMS will also distribute optional interim shared savings and losses immediately following the performance year, reflecting cost information for the first six months. These payments are then considered during final reconciliation.

c. Benchmarking methodology

CMS utilizes benchmarks to determine shared savings and losses during reconciliation. Benchmarks are a PBPM dollar amount inclusive of the total cost of care for services under Medicare Parts A and B. The benchmarks include a prospective blend of historical spending and regional Medicare expenditures, incorporating an adjusted version of the Medicare Advantage Rate book. Historical spending measures will be adjusted by the U.S. per capita cost growth, and CMS will include a risk adjustment for complex and chronically ill populations.

d. Financial protections

The GPDC model provides two mechanisms for risk management: risk corridors and stop loss. Risk corridors are automatically applied for all DCEs and help mitigate significant variances between actual performance year expenditures and benchmarks that could cause major swings in shared savings and losses. The risk corridors are calculated at an aggregate level.

Stop losses are an additional option for minimizing financial uncertainty related to infrequent and unexpected but high-cost expenditures for aligned beneficiaries. A DCE must decide whether to elect stop loss at the beginning of a performance year; this election will adjust the DCE’s benchmark to reflect the benefit. Stop losses are calculated at the individual beneficiary level, and stop-loss points are determined at the beginning of the performance year.

V. Strengthening quality and reducing provider burden

CMS’ quality strategy for the GPDC model is focused on reducing clinician burden with an emphasis on actionable measures. DCEs report a core set of measures, comparable to the Merit-based Incentive Payment System (MIPS). Measure tools include claims-based utilization, process measures, and measures of patient experiences; at least one of the measures included must be outcome focused.

Claims based measures may include:

• Risk standardized, all condition readmission
• All-cause unplanned admissions for patients with multiple chronic conditions
• Advanced care plan
• Days at home (proposed)

In addition, DCEs may choose to implement a patient activation measure survey or a patient experience survey similar to the CAHPS for ACOs survey to better measure patient satisfaction with the care environment.

VI. Beneficiaries and alignment

Beneficiaries eligible to take part in the GPDC model are enrolled in both Medicare A and B, but NOT enrolled in a Medicare Advantage plan, Medicare Cost Plan, PACE organization, or other Medicare health plan. Their primary payor must be Medicare, they must be a U.S. resident, and must reside in a county included in a DCE’s service area. High-Needs Population DCE beneficiaries require additional criteria to qualify (see DCE description for detail).

There are two ways a beneficiary can become aligned with a DCE. The first is voluntary alignment, in which beneficiaries choose to align by designating a participant provider as their primary care clinician. This process can happen one of two ways — either the beneficiary aligns through prospective alignment at the start of a performance year, or the DCE can opt into Prospective Plus Alignment, in which voluntarily aligned beneficiaries can be added quarterly throughout the performance year. These beneficiaries can then be used in calculating performance-year benchmarks as well as monthly capitated payments.

Claims-based alignment is the second mechanism for beneficiary alignment. CMS will use claims utilization data to align a beneficiary based on where most primary care services are received. A two-year look-back period (alignment period) is used to identify primary care qualified evaluation and management claims. The claims-based alignment algorithm takes into account primary care services provided by participant providers as well as services from nonparticipants for a two-year alignment period, equal to two consecutive 12-month periods, ending six months before the start of the first aligned performance year.

VII. Benefit enhancements and payment rule waivers

To increase beneficiary participation and support DCEs in efforts for voluntary alignment, CMS has included a set of benefit enhancements and patient engagement incentives that DCEs may implement. They are voluntary, and applicants must provide proposals for enhancement implementation and incentive during the application process. Many of the benefit enhancements and payment rule waivers are the same as those offered in the Next Generation ACO model, including:

• 3-Day SNF Rule Waiver
• Telehealth Expansion Waiver
• Post-Discharge Home Visits Rule Waiver
• Care Management Home Visits Rule Waiver
• Chronic disease management reward program
• Cost-sharing support for Part B services

CMS has included the following additional enhancements in PY1:

• Allowing nurse practitioners to certify that a patient is eligible for home health services
• Allowing provision of home health to beneficiaries with specified conditions who are not “homebound”
• Waiver of requirement that beneficiaries electing the Medicare Hospice Benefit forfeit right to curative care, allowing concurrent care for patients who are in hospice

Possible future benefit enhancements include:

• Tiered cost-sharing reduction
• Alternative sites of care
• Cost-sharing support for SNF services
• Long-term care hospital 25-day length of stay and other site-of-care restrictions

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