WASHINGTON — The Biden administration is quietly continuing a little-known Trump-era pilot program that clears the way for doctors and private health insurers to switch patients from Medicare to privately run insurance. Though there has been little public discussion of the program, it has the potential to expand to the wholesale privatization of Medicare.
Progressive lawmakers and doctor and patient groups are now scrutinizing the program, after a year of it flying under the radar.
“I think there’s a lot of interest in stopping this,” Rep. Jan Schakowsky said. “To privatize Medicare without the knowledge of people who chose Medicare is scandalous. We can’t let that happen.”
Despite calls to shut down the pilot project, the Biden administration has no plans to do so. The current plan is to run the program through the end of Biden’s term, potentially allowing a future president to expand its scope and further erode Medicare, the pillar of public healthcare in America.
The pilot program, known as direct contracting, allows for doctors to transfer their patients off of core Medicare to a private model, where a third party is paid a fee to manage their benefits. The government says it will preserve patient benefits while experimenting with new ways to “produce value and high quality health care.” Opponents say it is a backdoor method of privatizing Medicare against the desire or consent of patients.
For decades, private insurers have pushed to get a piece of Medicare, the public health insurance program created in 1965 for people age 65 and older. The government created a private Medicare stream in 1997, now called Medicare Advantage, and companies spend a great deal of money advertising such plans. They’ve won over more than 26 million enrollees, making up more than 40% of the Medicare population, to the over 3,500 Medicare Advantage plans, according to the Kaiser Family Foundation.
The privatization of Medicare has been lucrative for the industry. Medicare Advantage plans are more expensive but have not been shown to provide better health outcomes. That disparity grows wider every year. The added costs born by the public to fund the program are believed to add up to tens of billions of dollars. At a time when Medicare is facing insolvency in the near future, the more expensive Medicare Advantage plans are projected to soon overtake traditional Medicare.
But there remains one major hurdle to Medicare Advantage expansion: You have to convince enrollees to actively switch out of the default public plan.
In the waning months of his administration, then-president Donald Trump launched a program, lobbied for by private industry, to circumvent this. It would allow insurers to bypass the will of patients altogether. Formally known as the Global and Professional Direct Contracting Model, the program allows insurers to negotiate with doctors to move their patients from straight Medicare plans to privately run insurance.
Direct contracting flips the onus. Instead of patients having to actively choose to leave core Medicare, they are transferred by their doctor and only need to be told in an annual notification. They may have to switch doctors to opt out.
The tactic is an experiment in finding new ways to lower costs at a time when Medicare is facing insolvency. It also opens up a new front for privatizing Medicare. On the front end, insurers can buy ads advertising their plans to Medicare enrollees. On the back end, they can try to sell doctors on moving their patients to private plans.
When Biden took office, his administration faced the choice of what to do about direct contracting. At the time it had not yet launched and was set to be far more sweeping.
The Trump administration’s plan was for mass privatization of Medicare, with whole geographic regions being shifted from public to private plans with no patient input or ability to opt out. The Biden White House shut down the so-called geographic stream. But when it came to the rest of the direct contracting program, the Biden administration allowed it to go ahead.
One Democratic Senate aide said that because companies had already spent a substantial amount of money preparing for the program, his administration would have faced fierce industry backlash if they shut it down.
The Centers for Medicare and Medicaid Services (CMS) approved 53 companies across 38 states to kickstart direct contracting in 2021. CMS is not saying how many people have been filtered into the direct contracting model but said that information will be released in the second quarter of 2022.
The Biden administration essentially chose a middle ground. Medical industry companies were disappointed because new companies applying to be part of the program were frozen out. On the other side, the group Physicians for a National Health Program wanted the program to be shut down altogether.
By neither closing nor expanding the program, the White House was able to mostly avoid high-profile scorn of industry and progressives for a year. But that is starting to change.
Earlier this month, more than 50 progressive members of Congress signed a letter to CMS asking for the program to be shut down and patients to be returned to the traditional Medicare model by July 1, 2022.
The program is set to run for five years, from 2021 until 2026. Crucially, that extends its life past Biden’s current term. If a Republican wins in 2024 and is looking to increasingly privatize Medicare, they would not need to come up with a plan from scratch. They could simply expand the direct contracting model, which by then would be well established.
“I don’t think there’s any question that that would be part of the agenda if that happened. It’s a good reason why this pilot program should not even be allowed to take off,” Schakowsky said. “It’s time for us to stop it before it really gets going.”
So far, that isn’t happening.
Asked about the future of direct contracting, CMS spokesperson Raymond Thorn said his organization is considering public input. “The CMS Innovation Center is actively listening to the comments being made about the Global and Professional Direct Contracting Model,” he said. “This feedback is invaluable as we consider the future of the model.”
Thorn defended the pilot project by saying CMS was experimenting with “opportunities to improve Original Medicare.” He described direct contracting entities as “doctors, hospitals, and other health care providers that work together to improve quality of care and patient experience.”
Under regular Medicare, doctors are paid a fee for providing care to patients. Under direct contracting, CMS pays a per-patient rate to what is known as a direct contract entity to manage care. If these entities can deliver care at a cheaper cost, they reap a profit. If not, they break even or take a loss. Entities can opt to take on 100% of the profit/loss risk or split it 50/50 with the government.
As for patients, many may not even understand they’re in a new program. Nine out of ten people likely won’t understand the changes even if they are notified, said Michael Abrams, managing partner at Numerof & Associates, a healthcare consulting firm.
“This whole area is a bit of a mystery to most people. Even people in the industry,” he said. “And yet, there’s real money in this particular game. More people will figure it out over time. Whether that is to the advantage or disadvantage of patients we’ll have to wait and see.”
Abrams is hopeful that Medicare’s experimenting with paying doctors to manage care, instead of simply paying out fees for services, will lead to better health outcomes at a cheaper cost. But it also comes with risk.
The per-patient rate paid in direct contracting is set based on factors like geography, past healthcare costs, and risk. A doctor diagnosing patients with more ailments ups their risk score and leads to higher payments from the government. Abrams said that risk score gaming in direct contracting at this point is just hypothetical — and at a certain point would constitute fraud.
One thing he does not doubt is the potential for direct contracting to one day encompass Medicare, replacing the current model altogether.
“It depends on the way it plays out. It depends on the way it’s implemented. But yes, there is that potential,” he said.
Direct contracting is an expansion of an earlier experiment to allow doctors, hospitals, and other providers to coordinate care by joining up into networks. So far that program has been a modest success, showing some improvements in customer care.
The key difference in direct contracting is that many of the companies are controlled by investors, rather than providers. This brings an added profit incentive akin to the private health care market most people deal with.
One direct contractor, Clover Health, is a private equity-backed company that derives almost all of its revenue from Medicare. Last year short-selling firm Hindenburg Research accused Clover of deceptive advertising to seniors and hiding from investors that it was the target of a Department of Justice investigation looking into at least a dozen issues. Clover’s stock fell but then became a meme stock on Reddit and was buoyed by a wave of small investors.
Clover recently told investors that it expects its number of direct contracting patients to grow significantly from its current 62,000, and for profit margins on those customers to also improve.
Direct contractor Oak Street Health told analysts on an earnings call that it expects direct contracting patients to bring in higher payments from the government than other Medicare patients. Alignment Health told investors it was encouraged by the financial upside but worried about the strength of the program.
If direct contracting ends up lasting, and expanding, companies that have a piece of the pie will become attractive targets for acquisition or private equity backing, at a time when the health industry is already seeing a frenzy of consolidation.
Whether the program ends up as a short-lived experiment or the Trojan horse that leads to the wholesale privatization of Medicare may depend on what the Biden administration does between now and 2024. With one side calling for the program to be shut down and the other calling for it to be expanded, the current plan remains to keep it going as is and see how it goes.