10 Things To Know About Direct Contracting

May 4, 2021

Please note: The following article has been updated to reflect more current information about the evolution of Direct Contracting into ACO REACH. For the most up-to-date information, please visit this blog article: Direct Contracting is now ACO REACH. Readers may also find the following resources helpful: 


Written by Travis Broome

  1. What is Direct Contracting? Direct Contracting is the latest Accountable Care Organization (ACO) model from the Centers for Medicare & Medicaid Services (CMS) Innovation Center. Starting this year, this ACO model is testing primary care capitation, how an ACO model works for health care providers without existing primary care relationships and some tweaks to how the ACO benchmarks are set.
  2. Who was Direct Contracting designed for? Direct Contracting is designed to appeal to organizations that are either new, and therefore have very few existing primary care relationships with traditional Medicare beneficiaries, and/or organizations that highly value primary care capitation.
  3. How does a physician practice participate in Direct Contracting? Just as a practice would partner with an ACO in the Medicare Shared Savings Program, a practice would partner with a Direct Contracting Entity (DCE) in Direct Contracting. An important distinction is that a portion or even all of a practice’s Medicare revenue would flow directly through the DCE. In contrast, in MSSP, a practice continues to bill fee-for-service directly to Medicare while savings flow through the ACO. The bottom line is, if you were to have a problem with your Medicare payments, you would call the DCE, not Medicare.
  4. What does Direct Contracting offer that MSSP does not? The answer is primary care capitation. Depending on what your partner DCE offers, you convert either some or all of your fee-for-service payments to primary care capitation. The amount of capitation and the method of delivery is determined by the DCE and will vary widely from DCE to DCE.
  5. What about quality reporting? Similar to MSSP, quality reporting is done at the DCE level on a small, but important set of measures.
  6. When can I join a Direct Contracting Entity? As a practice, you join a DCE, not Direct Contracting. Some DCEs are in operation now and others will start on January 1, 2022. All DCEs must already be approved by Medicare. 
  7. Will I make more savings in Direct Contracting? In the long run, this is unlikely, though this will vary from practice to practice.  For practices with existing primary care relationships and who have already been successful in MSSP, then MSSP will likely be the better choice as switching to Direct Contracting resets your benchmark. For practices with existing primary care relationships and without a track record in value, MSSP and Direct Contracting are designed to be roughly equivalent.  We can tell you how Direct Contracting is designed. For practices without existing primary care relationships in traditional Medicare, Direct Contracting is the only option so something is more than nothing.
  8. How risky is Direct Contracting? Direct Contracting is very risky. The Innovation Center applies a discount to the benchmark that starts at 2% and grows to 5% over time. This means if you only reduce costs by 1% in year one, then the DCE will actually owe CMS losses of 1% in year one even though costs were below the benchmark. As you can imagine, this becomes quite risky as the discount rises over time.
  9. What role does risk adjustment play in Direct Contracting? Direct Contracting has complicated rules around risk adjustment. The most important thing to realize is that for patients with established primary care relationships, CMS will not allow the risk score to rise for them as a group. This means that if the patients of one DCE rise in risk score faster than the patients in another DCE, then the money is transferred from the first DCE to the second DCE. This zero-sum situation will require an intense focus on risk score accuracy.
  10. How do I choose between MSSP and Direct Contracting? If you have established primary care relationships with traditional Medicare beneficiaries, then CMS set it up for you to choose MSSP. If you have big plans for primary care capitation and a DCE partner that supports those plans, Direct Contracting offers that path, though a lot more can be accomplished with chronic care management fee-for-service than was possible just a few years ago. The other important consideration is longevity. MSSP is a legally required program that has been refined over the last nine years by two different Administrations. Direct Contracting is an experiment designed by the previous Administration. Experiments are exciting and offer new things (primary care capitation), but they are also risky and usually do end.