What You Need to Know About the Centers for Medicare and Medicaid Innovation Direct Contracting Model

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As a part of CMS’ goal to continue shifting providers from fee for service (FFS), the Centers for Medicare and Medicaid Innovation Center (CMMI) recently released its latest value-based payment model: Direct Contracting.  CMMI is also preparing to sunset the Next Generation Accountable Care Organization (NGACO) model at the end of 2020. Beginning in 2021, the only remaining ACO-type models will be the MSSP and Direct Contracting.[1]


Direct Contracting is a capitated payment model for traditional Medicare patients.  Direct Contracting utilizes an ACO-like entity called a Direct Contracting Entity (“DCE”) to serve as the risk-bearing entity and conduit for payments.  These payments are based on Medicare Part A and B services, the scope to be determined by the DCE, up to 100% of all Part A and B payment. Model features include the following:

  • CMS makes capitated payments to the DCE. The range of responsibility varies by track, but the primary purpose of the model is to support population health initiatives and innovation in health care payment processing. 
  • The DCE enters into contracts with Participant Providers and optional Preferred Providers and pays those providers per those contracts.
  • After the end of each year, CMS will compare actual expenditures, including capitated payments, against the benchmark to determine savings or losses.

Direct Contracting Tracks

Direct Contracting Tracks flow chart
BenchmarkTotal Cost of Care for Part A and Part B for all aligned beneficiaries
Risk-Sharing50% first dollar shared savings/losses100% first dollar shared savings/losses
Benchmark DiscountNone2% of the Benchmark for Performance Year (“PY”) PY1 and PY2Increases by 1% each year up to 5%
Payment MechanismPrimary Care Capitation (PCC):All primary care FFS payments[2] reduced to $0 for Participants.Monthly payment of 7% of the total benchmark (to the DCE)Option to receive additional capitated payments in exchange for reducing other FFS paymentsPrimary Care Capitation (PCC):All primary care FFS payments reduced to $0 for Participants.Monthly payment of 7% of the total benchmark (to the DCE)Option to receive additional capitated payments in exchange for reducing other FFS paymentsORTotal Care Capitation (TCC):All FFS payments reduced to $0 for Participants.Monthly payment of 100% of the anticipated Part A and Part B claims for Participating Providers (to the DCE).Option to receive additional capitated payments for Preferred Provider in exchange for reducing FFS payments to those providers.
Beneficiary AlignmentVoluntary Alignment: Aligns patients based on patient provider selectionClaims-Based Alignment: Aligns patients based on historical primary care provider
Claims SubmissionProviders continue to submit claims to Medicare.
Quality5% of PY Benchmark is a Quality Withhold that can be earned back.Bonus for highest performing DCEsProposed quality measures are all patient surveys or claims-based measures.
Risk CorridorsCMS has proposed risk bands to determine the aggregate amount of shared savings/losses as  percentage of the PY Benchmark. These differ between Professional and Global.
MIPS/ MACRAThis model will qualify as an Advanced Alternative Payment Model (APM) under MACRA. 

Model Entities

The contracting entity will determine different model features, beneficiary alignment, benchmarking methodology, and alternative payment mechanisms. CMS hopes to attract new participation by organizations that have experience with Medicare Advantage but have not to date participated in Medicare FFS.

  • Standard Direct Contracting Entity (DCE): Those who previously have experience with Medicare FFS patients in value programs, such as CHESS or other ACOs.
  • New Entrant DCE: Organizations who have not provided services to Medicare FFS populations.  This could be a new entrant with experience in MA organizations.
  • High Needs Population DCEs: Those servicing Medicare FFS patients with complex needs, such as dual eligible patients.

Benefit Enhancements/Waivers

Benefit Enhancements (BEs)Anticipated for PY 1Proposed BEs for PY1Potential Future BEs Under Consideration
SNF 3-Day Rule WaiverAsynchronous TelehealthPost-Discharge Home VisitsCare Management Home VisitsCost Sharing for Part B ServicesChronic Disease Management Reward ProgramHome Health Services Certified by Nurse PractitionersHomebound Requirement Waiver for Home HealthConcurrent Care for Beneficiaries that Elect the Medicare Hospice BenefitTiered Cost Sharing ReductionAlternative Sites of CareCost-sharing Support for SNF ServicesLong-Term Care Hospital 25-day average Length of Stay requirement and Other Site of Care Restrictions


  • Application Deadlines:
    • February 25, 2020, for DCEs wishing to use 2020 as an Implementation Period to align patients under Voluntary Alignment.
    • Spring 2020 for all DCEs opting to start in 2021.
  • Model Timeline: Performance Years 1-5: 2021-2025
    • To incentivize participation, CMS is imposing a 2% PY Benchmark withhold if the DCE terminates its contract prior to financial reconciliation for PY1.  This would promote a two-year participation period without penalty.

Considerations while evaluating DC viability in your organization:

  • Do you have an established Third Party Administrator (TPA) or other payment partner to help manage payments according to your provider agreements?
  • Have you considered engaging services to compare your organization’s likely performance in DC versus the different MSSP tracks?


[1] It is unclear at this time whether NextGen ACO Model will persist into the future.  CMMI has informally indicated they have submitted the model to the Office of the Actuary for certification, but no formal announcement indicates it will continue.

[2]  Primary Care Services includes certain identified CPT/HCPCS codes including outpatient evaluation and management codes and certain other care management codes.

About the Author

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Melissa Pollock, M.Div., CHC

ACO and Compliance Manager at CHESS