Direct Contracting Is Reborn as ACO REACH
February 26, 2022

By Travis Broome, Senior Vice President, Policy & Economics

In Summary: CMS addressed three significant concerns with the Direct Contracting model and added the revised model to the menu of ACO options available to practices for 2023. In the days to come, the Aledade policy and data analytic teams will conduct a comprehensive evaluation of all of these options for existing and prospective practices to identify those for whom the new model provides the best chance of success. For most practices, this may well continue to be the current tracks in the Medicare Shared Savings Program (MSSP), but there may be attractive features of the new model for practices that wish to experiment with capitated monthly payments, those who serve disadvantaged communities, or practices that are new and therefore have few existing primary care relationships.

The value-based movement, in general, and accountable care organizations, in particular, continue to enjoy strong, bipartisan support. The ACO idea was conceived during the Bush administration, included in the Affordable Care Act, implemented by the Obama administration, refined by both the Obama and Trump administrations, and supported by the Biden Administration, which wants all Medicare and Medicaid beneficiaries in accountable care relationships by 2030

Direct Contracting was a model started under the Trump administration that sought to attract companies that exclusively operated in Medicare Advantage into Traditional Medicare. In successfully attracting some of those companies, Direct Contracting also pulled some of the Medicare Advantage baggage in with it. This led Senator Elizabeth Warren (D-MA) and Representative Pramila Jayapal (D-WA) to link Direct Contracting to the “privatization” of Medicare

These criticisms were not accurate. Medicare beneficiaries can see any Medicare health care provider, regardless of whether that provider is participating in Direct Contracting or not. Their benefits are only enhanced, not degraded. The taxpayer is protected from possible overpayments due to an intense focus on risk adjustment, which is lacking in Medicare Advantage. Most important, there are plenty of opportunities to improve health and remove wasteful spending to generate savings while improving care.

With the politics receding into the background, let’s look at what changed (besides the name). First and foremost, this is largely the same model that we compared to MSSP back in 2021. Our recommendation has been that, unless your practice is new and lacks established primary care relationships, or highly values primary care capitation, the most tried-and-true path to success in value-based care still runs through MSSP.

But these recent changes have improved the model in our view. Specifically, CMS enhanced two existing provisions and added a vital health equity element. 

  • Physician Governance – First, the physicians who actually see patients and make medical decisions are elevated in the governance of the REACH ACO, similar to the way we have been operating in the Medicare Shared Savings Program. Direct Contracting had required that physicians control only 25% of the governing board while ACO REACH requires 75%. 
  • Risk Adjustment – Second, CMS further limits the ability of model participants to generate revenue solely through risk coding. In Direct Contracting, the baseline for what is called the coding intensity factor would have been reset every two years. If risk score changes varied greatly between ACOs in Direct Contracting, this reset could have taken millions of dollars from ACOs that did not focus on risk coding and given them to those that did. Starting in 2024, ACO REACH will eliminate this two-year reset. It is unclear whether a two-year reset will occur in 2023 or not. Even if it does, ACOs will not have to be looking over their shoulders, wondering if they are winning or losing the risk adjustment game. 
  • Health Equity – Finally, CMS aligns finances to address health inequity in underserved communities. CMS is putting real financial incentives to work here. Too many times, health equity is the subject of much discussion, many grants, but no fundamental re-alignment of financial incentives. In ACO REACH, serving underserved communities will increase an ACO’s benchmark instead of reducing it. (We hope that CMS will bring this financial alignment to the 10 million beneficiaries in MSSP and not confine it to the million or so in ACO REACH.)

The ACO community and health care providers across the country rallied to save and improve Direct Contracting. That support, combined with CMS’s vision, gave us the improved ACO REACH. I am excited to see this innovation model moving forward and grateful for the support displayed by CMS and the Biden Administration to the ACO movement.