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Variability in Medicare direct contracting savings illustrates promises, pitfalls of value-based care

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Organizations’ net savings in the first year of a Medicare accountable care model varied widely, spotlighting the difficulties of delivering value-based care, where just a few sick patients or a substandard operational model can significantly skew results, experts say.

Direct contracting entities in the Global and Professional Direct Contracting Model had a roughly 2% net savings rate on average, with a few major outliers, according to a Healthcare Dive analysis of recently released data from the CMS.

The goal of the model is to coordinate primary and specialty care, while giving access to enhanced benefits in traditional Medicare, like telehealth visits and help with co-pays. GPDC, in which physicians can accept either full or partial capitation as payment, offers higher levels of risk and reward compared to other ACO models, while providing additional flexibilities.

The best net savings rate of 29.2% was notched by United Physicians Association, a small DCE in California, while the worst rate of -29.4% was reported by CareMore, a DCE owned by health insurer Elevance, which has since dropped out of the program.

Overall, the 53 DCEs generated $70 million in net savings for Medicare in 2021, according to the financial and quality results.

Physician groups cheered the savings. But overall, the results were “relatively modest,” illustrating the limits of programs built on a fee-for-service chassis, according to David Muhlestein, the chief research and innovation officer of Health Management Associates.

“That’s certainly good. But it’s not going to be how we solve Medicare’s cost challenges,” Muhlestein said.

CMS released the results in late November just months before a planned overhaul of the controversial program, including a rename to ACO REACH. For organizations that did well, the independently validated government data is valuable proof of their efficacy, analysts say.

Value-based primary care company Oak Street Health’s DCE had the second-highest net savings rate of the cohort at 15.5%, but captured the most net savings overall, at $14.6 million.

Considering the recent launch of the model, and that providers with similar patient volumes didn’t deliver commensurate results, Oak Street demonstrated its ability to deliver high-quality care, which should translate to profitability, according to Jefferies analyst Brian Tanquilut.

“This is proof of concept in a way that your programs, your clinic strategy, actually works,” Tanquilut said. The results “give investors and anyone looking at these companies more confidence that this thesis is actually valid.”

The majority of DCEs reported modest savings or losses, with some notable exceptions

DCE’s net savings rate by population size, 2021 performance year

On the flip side, insurtech Clover’s net savings rate of -4.5% resulted in a loss of more than $30.4 million — the worst performance of any entity from a dollars perspective.

Clover’s more than 64,000 beneficiaries illustrates the difficulties of managed care at scale, but also hints at inherent weaknesses in Clover’s business model, experts said.

“When you’ve got 220 patients, you only need to have a couple of people that have major issues that can really throw a bunch of numbers off. If you have 60,000 patients, and you’re seeing negative results, that’s probably indicative of some systemic reason more than any outlier,” Muhlestein said. “Ten years from now, I don’t think [Clover is] going to be around.”

Clover has historically touted direct contracting as a key growth area. When Clover went public in January of 2021, the company attributed 70% of its valuation to the DCE program, according to Health Affairs.

But Clover is now scaling back its participation with the advent of ACO REACH, partially due to unpredictability in the model. CEO Andrew Toy told investors on its third-quarter earnings call in November that Clover plans to “significantly decrease the total number of participating physicians,” which should reduce its attributed lives and managed revenue by as much as two-thirds.

Clover declined an interview request for this article, saying it could not comment on DCE performance per participation guidelines.

Net savings ranged from $14.6 million to a loss of $30.4 million, though most DCEs were in the black

Financial results by DCE, 2021 performance year

In a positive sign for value-based care buy-in, GPDC grew to 99 participants with an estimated 1.8 million beneficiaries in the 2022 performance year. Many of those organizations are expected to stay on when the model transitions to ACO REACH in 2023.

ACO REACH has more stringent requirements around the screening, design and practices of ACOs, including a much stronger emphasis on provider-led organizations and addressing health disparities.

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