“A Corporate Goldmine”

Over the past year, seniors around the country have been getting letters from the Centers for Medicare and Medicaid Services (CMS) informing them that they needn’t worry, but their doctor was now part of something called a direct contracting entity (DCE). “Your Medicare Benefits have not changed,” the letters stress no less than twice. “NO ACTION NEEDED,” they blare.

If you take it from CMS, DCEs are simply a collection of different health care providers “who agree to work together to keep you healthy” — an innovative new payment model to keep health care costs down and raise the quality of care up. For its critics, the initiative is something far less benign.

“What direct contracting does is turn the public side of Medicare into a corporate goldmine,” says Diane Archer, president of Just Care USA.

Under traditional Medicare, when a beneficiary gets care from a doctor, a hospital or any other health care provider, the program reimburses that provider directly at a set rate. Direct contracting adds a third party into the mix: Medicare makes a monthly payment to a DCE, which then decides what care a beneficiary will get, and uses that money to cover a specified part of their medical expenses — pocketing whatever they don’t spend as profit. While making cost-saving efficiencies usually means cutting out the middleman, direct contracting adds one in.

Critics like PNHP warn that the program comes with the same kinds of pitfalls as Medicare Advantage, the program that for the first time carved out a role of private insurers in the public Medicare system, when it was passed as part of a Reagan-era deficit reduction bill forty years ago. One is “upcoding,” the notorious practice where Medicare Advantage insurers make their patients appear less healthy than they really are, the better to drive up the payments they get from Medicare.

As a result, according to the very congressional agency set up to give policy advice on Medicare, the risk scores for patients under the semi-privatized system are 8 percent higher than for those on traditional Medicare, something one analysis determined cost taxpayers more than $106 billion in overpayments from 2010 to 2019.

After puffing up their profits at the taxpayer’s expense, Medicare Advantage insurers then tend work aggressively to minimize the costs on their end. A 2018 HHS inspector general report found inappropriate denial of care was rampant in the program, and a Kaiser Family Foundation analysis determined Medicare Advantage enrollees tended to pay more for longer hospital stays. It’s all well and good until you get seriously ill, at which point your out-of-pocket costs start soaring.

“The insurance companies are making twice as much money from Medicare Advantage than they do form employer-sponsored health insurance,” says Dr Ana Malinow, professor of pediatrics at the University of California San Francisco. “Workers have no more money, employers don’t, but who does? The government.”

Privatized by 2030

Malinow and others say that despite the similarities, direct contracting is even more pernicious than Medicare Advantage. That’s because direct contracting specifically targets those who have rejected this semi-privatized model, and chosen to stay in traditional Medicare. Those beneficiaries get a letter in the mail, open it up, and learn their doctor, and by extension, they, are now in a DCE. They’re assured all the while that everything is fine — that they’ll soon be getting “better quality care,” even — and never told if they can opt out, or how.

When DCE opponents won a Zoom meeting with Center for Medicare and Medicaid Innovation (CMMI) director Liz Fowler last December, she assured them it was possible to opt out — as long as you switched primary care providers. The attendees were shocked. Finding a new doctor is disruptive for anyone, let alone seniors who may have spent years with one they trusted, and it was deeply unpopular. Just think back to Barack Obama’s insistence that “you can keep your own doctor” under Obamacare, one of the most potent attacks on that health care reform effort. Besides that, it’s something easier said than done in rural areas short on health care choices.

But the 54 percent of the nearly $900 billion Medicare budget that’s still devoted to the program’s traditional version is too tempting to simply leave untouched by the for-profit health care industry. “The largest national insurers are positioning to become DCEs,” former CMS administrators Richard Gilfillan and Donald M. Berwick wrote last year.

That includes companies like Aetna, Alignment Health, Humana, and Clover Health, backed by Google parent company Alphabet. This isn’t the half of it, according to PNHP, which charges that virtually any company, even a venture capital firm, can apply to be a DCE and doesn’t need Congress to be approved. All are eager to take advantage of the looser rules around DCEs: while Medicare spending on administrative costs is in the single-digit percentages, and Medicare Advantage plans are forbidden by law from putting more than 15 percent of their premium revenue toward paying them, direct contracting has no such limit.

Critics also see something even more nefarious behind the initiative.

“The goal is to privatize all of Medicare through this program,” says PNHP president Susan Rogers.

It echoes the warnings of Gilfillan, Berwick, and virtually every other critic of direct contracting. Though a pilot program for now, CMS has made clear it wants to eventually move all enrollees of traditional Medicare into “a care relationship with accountability for quality and total cost of care by 2030” — vague jargon that nevertheless echoes the language direct contracting proponents use to talk about the program.

In other words, if the government has its way, by the end of the decade, every beneficiary of the traditional, entirely public Medicare will have a private, for-profit entity jammed between them and their health care. The largest remaining segment of the US health care system not dominated by corporate hands will become something else.

Paved With Corporate Greed

The road to this point has been paved by multiple administrations from both parties. CMMI, the CMS “innovation center” that came up with direct contracting, was created by the Affordable Care Act (ACA), the Obama administration’s corporate-shaped, flagship health care reform effort. Originally meant to devise new health care payment models that would fix the spiraling costs and quality of care issues endemic to US health care, its mission was ripe for hijacking by the corporate interests that find a way to infiltrate every well-meaning government agency.

That moment came in 2018, when Trump’s HHS secretary appointed health care executive Adam Boehler to head CMMI, where he soon set the plans for direct contracting into motion. According to the Intercept, Boehler designed direct contracting with specific companies in mind, including Oxeon, the venture capital firm that had backed a number of DCEs-to-be, including the very start-up Boehler had left to join CMMI — and which he contracted with to staff the agency as it developed the initiative.

One would have thought the Trump program would have been nixed by the Biden administration, particularly with talk of the new president’s Rooseveltian ambitions and a coming revival of activist government. Instead, the administration simply canceled one iteration of direct contracting, and went ahead with a different one in April 2021, with more set to roll out this year.

The administration remains financially in thrall to the for-profit health sector. Biden’s campaign had been backed from the very start by the for-profit health care industry, and by the end of the general election, Biden had out-raised Trump among health care executives, insurance companies, and pharmaceuticals.

That includes the very officials responsible for direct contracting’s continuation. Fowler, the head of Biden’s CMMI, played a key role in drafting the insurer-friendly ACA, and had gone to work for pharmaceutical giant Johnson & Johnson prior to this current stint in Washington. Before all that, she’d served for two years as vice president of public policy for health insurer WellPoint. In 2014, WellPoint changed its name to Anthem — one of the big insurers involved in the direct contracting pilot through its subsidiary, CareMore.

Yet even Fowler appears to privately understand the folly of deepening the for-profit sector’s involvement in Medicare. Judy Albert, an ob-gyn and a clinical assistant professor at the University of Pittsburgh, recalls Fowler telling her and other DCE critics in December that a single-payer system would be the best solution — if they were starting from scratch.

“I think part of that is they were playing to the audience,” she says. “But why don’t they try that for a model?”

Action Needed

For a long time, hardly anyone even knew about direct contracting, whether the public, the press — or even members of Congress. Members of PNHP recalled briefing eight lawmakers and their staffers about DCEs late last year, who were shocked to learn the program existed, let alone that the Biden administration had chosen to keep it going.

Since then, momentum for pushing back has gradually built. Archer says she and other DCE opponents began educating members of Congress about it early last year, and she credits Representatives Mark Pocan (D-WI), Katie Porter (D-CA), Lloyd Doggett (D-TX), and Bill Pascrell, Jr (D-NJ) with acting “swiftly and effectively,” writing a letter to HHS secretary Becerra in the middle of the year, to which he replied in August.

After the anti-DCE coalition’s briefing, Congressional Progressive Caucus cochair Pramila Jayapal (D-WA) gathered more than fifty signatures for another letter to Becerra this January, this one demanding an end to direct contracting and returning things to the status quo by the first of July this year. To kick off February, Senator Elizabeth Warren (D-MA) used her position as chair of the Senate finance subcommittee on fiscal responsibility and economic growth to denounce the program, warning of the “fiscal disaster” of inviting the “corporate vultures … already scamming Medicare” to skim more from the program, and calling on Biden to stop it.

But as welcome as they are, these are still relatively isolated actions, considering the stakes.

“What should be happening right now in Congress is not happening,” says Archer.

Meanwhile, with the issue gaining prominence, the health care industry is mounting its own pushback, reaching out to lawmakers to correct what they say is misinformation about the program, which they claim is simply focused on bringing “the virtues of organized groups into what is really a fragmented and dysfunctional model.”

On February 14, the National Association of ACOs (Accountable Care Organizations), an industry trade group representing DCEs, delivered to Becerra its own letter, calling on CMMI to “fix, don’t end, the direct contracting model.” Its suggestions include limiting the kinds of DCEs that can take part in the program, and a “rebranding and name change.” In turn, PNHP countered with its own letter arguing the opposite, one signed by twenty-four thousand health professionals.

It is still an uphill battle for the opponents of DCEs. Money talks in Washington, and past, current, and prospective DCEs have spent $2 million in 2021 alone lobbying Congress, CMS, HHS, and other bodies on issues that include direct contracting. That includes names like Oak Street Health, Clover Health, agilon health, and America’s Physician Groups, the DCE trade group that has been reaching out to lawmakers. Tenet Healthcare, a massive hospital operator, spent more than $4 million alone lobbying on a variety of issues this year, including direct contracting.

To beat back such well-funded efforts, opponents need to muster public outrage. But DCE opponents say it’s been slow going trying to get the national press to cover the issue, and even now, it continues to fly largely under the radar, with only a handful of mainstream outlets covering it. Should the issue pick up more champions in Congress, and inspire more coverage in the press, Americans learning about the risks of direct contracting may be inspired to pick up the phone and demand to their local representatives that CMS gets its government hands off their Medicare.

Joe Biden was elected on the promise of building on the progress of the Great Society. We may have to settle for simply preventing him from gutting one of its greatest legacies.