WASHINGTON — The Biden administration is quietly pursuing a little-known Trump-era pilot program that paves the way for doctors and private health insurers to transition Medicare patients to private insurance. Although there has been little public discussion of the program, it has the potential to extend to the full privatization of Medicare.
Progressive lawmakers and physician and patient groups are now reviewing the program, after a year under the radar.
“I think there’s a lot of interest in stopping this,” Rep. Jan Schakowsky said. “Privatizing Medicare without the knowledge of the people who chose Medicare is outrageous. We cannot let this happen.
Despite calls to stop the pilot, the Biden administration has no intention of doing so. The current plan is to see the program through to the end of Biden’s term, potentially allowing a future president to broaden its reach and further erode Medicare, the mainstay of public health care in America.
The pilot program, known as contract direct, allows doctors to transfer their patients out of basic health insurance to a private model, where a third party receives a fee to administer their benefits. The government says it will preserve benefits for patients while experimenting with new ways to ‘deliver value and high quality healthcare’. Opponents say it is a stealth method of privatizing Medicare against the wishes or consent of patients.
For decades, private insurers have lobbied for a slice of Medicare, the public health insurance program created in 1965 for people age 65 and older. The government created a private health insurance stream in 1997, now called Medicare Advantage, and companies spend a lot of money advertising these plans. They’ve won over 26 million enrollees, or more than 40 percent of the Medicare population, to more than 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. This gap is widening every year. The additional costs to the public to fund the program are thought to run into the tens of billions of dollars. At a time when Medicare faces insolvency in the near future, more expensive Medicare Advantage plans are expected to soon overtake traditional Medicare.
But there remains a major obstacle to expanding Medicare Advantage: you have to convince enrollees to actively leave the public default plan.
In the final months of his administration, then-President Donald Trump launched a program, solicited by private industry, to circumvent this. This would allow insurers to completely circumvent patients’ wishes. Officially known as the Global and Professional Direct Contract Model, the program allows insurers to negotiate with doctors to transition their patients from simple Medicare plans to private insurance.
Direct contracts reverse the burden. Instead of patients having to actively choose to leave primary health insurance, they are transferred by their doctor and only need to be informed in an annual notification. They may need to change doctors to opt out.
The tactic is an experiment in finding new ways to cut costs at a time when Medicare faces insolvency. It also opens a new front for the privatization of Medicare. Upstream, insurers can buy advertisements announcing their plans to Medicare enrollees. Ultimately, they may try to sell doctors to transfer their patients to private plans.
When Biden took office, his administration faced the choice of what to do about direct contracts. At the time, it had not yet been launched and was expected to be much larger.
The Trump administration’s plan was to massively privatize Medicare, with entire geographic regions moving from public to private plans without patient participation or the ability to opt out. The Biden White House has shut down the so-called geographic feed. But when it comes to the rest of the direct contract program, the Biden administration cleared it to go ahead.
A Democratic Senate aide said that because companies had already spent a substantial amount of money preparing for the program, his administration would have faced a fierce backlash from industry if it shut it down.
The Centers for Medicare and Medicaid Services (CMS) has approved 53 companies in 38 states to launch direct contracts in 2021. CMS does not say how many people have been screened in the direct contract model, but said the information will be released. in the second quarter of 2022.
The Biden administration has essentially chosen middle ground. Companies in the medical industry were disappointed as new companies applying to be part of the program were excluded. On the other side, the group Physicians for a National Health Program wanted the program to be stopped altogether.
By not shutting down or expanding the program, the White House was able to avoid the 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 calling for the program to be closed and patients to return to the traditional Medicare model by July 1, 2022.
The program is expected to run for five years, from 2021 to 2026. Crucially, it extends its lifespan beyond Biden’s current term. If a Republican wins in 2024 and seeks to increasingly privatize Medicare, he wouldn’t need to come up with a plan from scratch. They could simply extend the direct contract model, which would then be well established.
“I don’t think there’s any doubt that it would be on the agenda if it happened. That’s a good reason why this pilot program shouldn’t even be allowed to take off,” Schakowsky said. “It’s time for us to stop it before it really starts.”
So far this is not happening.
Asked about the future of direct contracts, CMS spokesman Raymond Thorn said his organization was considering public comment. “The CMS Innovation Center is actively listening to feedback on the global and professional direct contract model,” he said. “These comments are invaluable as we consider the future of the model.”
Thorn defended the pilot, saying CMS was experimenting with “opportunities to improve Original Medicare.” He described direct contracting entities as “physicians, hospitals and other health care providers who work together to improve the quality of care and the patient experience.”
Under regular health insurance, physicians receive fees for providing patient care. Under a direct contract, CMS pays a fee per patient to what is called a direct contract entity to manage the care. If these entities can provide care at a lower cost, they will benefit. Otherwise, they break even or suffer a loss. Entities can choose to assume 100% of the profit/loss risk or share it 50/50 with the government.
As for patients, many may not even understand that they are on a new program. Nine out of 10 people are unlikely to understand the changes even if they are notified, said Michael Abrams, managing partner at Numerof and 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 is real money in this particular game. More people will understand this over time. Whether this is to the benefit or disadvantage of patients, we will have to wait and see.
Abrams hopes Medicare’s experimentation with paying doctors to manage care, instead of just paying fees for services, will lead to better health outcomes at a cheaper cost. But it also carries risks.
The rate per patient paid under a direct contract is set based on factors such as geography, past healthcare costs and risk. A doctor who diagnoses patients with more diseases increases their risk score and results in higher payments from the government. Abrams said risk-scoring play in direct contracts at this stage is only hypothetical – and at some point would constitute fraud.
One thing he does not doubt is the possibility that direct contracts will one day encompass health insurance, completely replacing the current model.
“It depends on how it goes. It depends on how it is implemented. But yes, there is that potential,” he said.
Direct contracts are an extension of previous experience to allow doctors, hospitals and other providers to coordinate care by joining networks. So far, this program has been a modest success, showing some improvements in customer service.
The main difference in direct contracts is that many companies are controlled by investors rather than suppliers. This brings an additional profit incentive similar to the private healthcare market that most people deal with.
A direct contractor, Clover Health, is a private equity-backed company that derives nearly all of its revenue from Medicare. Last year, short-selling firm Hindenburg Research accused Clover of misleading advertising to seniors and hiding from investors that it was the target of a Justice Department investigation into at least a dozen problems. Clover’s stock fell but then became a Reddit meme stock and was buoyed by a wave of retail investors.
Clover recently told investors that it expects its number of direct contract patients to grow significantly from its current 62,000, and profit margins for those customers will also improve.
Direct contractor Oak Street Health told analysts on an earnings call that it expects direct contract patients to bring in higher government payments than other Medicare patients. Alignment Health told investors it was encouraged by the financial upside but worried about the strength of the program.
If the direct deals end up lasting and growing, the companies that hold a slice of the pie will become attractive targets for acquisition or private equity financing, at a time when the healthcare industry is already on a consolidation frenzy. .
Whether the program becomes a short-lived experiment or the Trojan horse that leads to full privatization of Medicare may depend on what the Biden administration does by 2024. With one side calling for the program to be shut down and the other calling for its extension, the current plan remains to keep it as it is and see how it goes.