The Centers for Medicare & Medicaid Services (CMS) Innovation Center announced a Letter of Interest (LOI) for a new geographic model option within the Direct Contracting portfolio. The geographic model would transfer full financial risk for a minimum of 30,000 Original Medicare beneficiaries in a defined geographic market to interested entities such as health plans, accountable care organizations (ACOs), health systems or healthcare providers.

Below we outline key considerations for those evaluating the Geographic Direct Contracting Model opportunity. CMS plans to begin the first three-year performance period for this model on January 1, 2022, and anticipates a second three-year performance period starting January 1, 2025.

IN DEPTH

Action Items for Interested Entities

The LOI was released December 3, 2020, and must be submitted by 11:59 pm PST on December 21, 2020. The LOI form includes basic information about the applicant, an opportunity to rank interest in the 15 specific target regions, information about the applicant’s capabilities and a maximum three-page narrative about how the applicant can use certain functions to advance value-based care in the region.

The LOI is non-binding, and organizations are not obligated to participate in the model if they submit the LOI. Also, for the geographic model, entities will have the option to apply even if they do not submit an LOI, which differs from many previous Innovation Center models where an LOI was required in order to participate. CMS expects the Request for Applications to be released in January 2021.

Key Takeaway: The LOI is a fairly light lift to submit, but with only two weeks to complete it, interested entities will need to move quickly.

Types of Entities

CMS appears to be casting a wide net and a number of different entities are mentioned as potential Geographic Direct Contracting Entities (Geo DCEs): ACOs, health systems, healthcare provider groups, health plans and innovative partnerships between health plans and healthcare providers.

One potential area where interested entities may seek clarification from CMS is around the agency’s statement in its Fact Sheet that participants in the model must be covered entities under Health Insurance Portability and Accountability Act (HIPAA). This could potentially preclude the participation of some entities, such as ACOs, if they do not qualify as a covered entity. This requirement may end up being moot in states that require a Geo DCE to be a licensed insurer or health maintenance organization (HMO) due to the extent of financial risk involved.

Key Takeaway: CMS wants to make the program available for a broad range of entities, but the structure of the program and financial risk involved will likely act as a practical limit on the number and type of entities able to qualify as a Geo DCE.

Selection of Regions

The LOI identifies 15 geographic regions and asks organizations potentially interested in participating to rank their interest in these regions. Based on feedback, the Innovation Center expects to narrow this list down and to solicit participants in four to 10 regions in the first performance period. The 15 regions are:

• Atlanta, Dallas, Denver, Detroit, Houston, Los Angeles, Miami, Minneapolis, Orlando, Phoenix, Philadelphia, Pittsburgh, Riverside, San Diego and Tampa.

CMS expects to have between three to seven Geo DCEs per region, depending on the number of beneficiaries in a region. CMS estimates that each region has between 150,000 and 700,000 Original Medicare beneficiaries. Each Geo DCE will be aligned with a minimum of 30,000 beneficiaries, and there is no maximum.

Key Takeaway: Entities with a strong interest in a specific region should consider submitting the LOI to improve the likelihood their region is selected.

Bringing Features of Medicare Advantage Program to Original Medicare

Geo DCEs would be permitted to reduce cost-sharing below standard Original Medicare cost-sharing when beneficiaries use providers that are contracted with the Geo DCE. This would allow Geo DCEs to develop de facto provider networks and encourage utilization of their preferred providers even though beneficiaries would maintain freedom of choice consistent with all other Original Medicare models.

In addition, Geo DCEs would be able to employ prior authorization and other utilization management mechanisms that are common in Medicare Advantage as long as coverage determinations are made consistent with Original Medicare coverage standards.

Key Takeaway: Allowing Geo DCEs to create preferred provider networks and perform utilization management brings two tools typically associated with the Medicare Advantage program to Original Medicare. This also makes it more likely that entities interested in becoming Geo DCEs will be health plans or health systems with their own provider-sponsored health plan because of their ability to leverage their existing claims processing and utilization management infrastructure.

Significant Financial Commitment

Geo DCEs would be required to provide a financial guarantee equal to 10% of their aggregate benchmark. This would require a much larger financial guarantee than under the Global or Professional tracks of the Direct Contracting Model, both because it’s a significantly higher percentage of the benchmark (10% vs. 2.5% to 4%) and because the minimum number of aligned beneficiaries for a Geo DCE is much greater. Using rough math for illustrative purposes, if we assume a Geo DCE has the minimum 30,000 aligned beneficiaries in a region and the benchmark is set at $10,000 annually per beneficiary, the DCE would need to provide a $30 million guarantee through escrowed funds, a line of credit or a surety bond. The amount would increase proportionally if the DCE’s number of aligned beneficiaries exceed the minimum.

Although not addressed by CMS, Geo DCEs will need to consider state laws governing risk-bearing entities, which could subject the Geo DCE to risk-based capital and financial solvency requirements in addition to the CMS financial guarantee described above. CMS historically has not preempted the application of state insurance licensing standards under CMS Innovation Center models, so we expect that Geo DCEs would likely need to comply with any applicable state standards. Because Geo DCEs will be taking risk from the federal government, rather than directly from consumers or employers, and the federal government remains ultimately responsible for the provision of Medicare benefits to applicable beneficiaries, there may be a substantial degree of ambiguity about the applicability of existing state regulatory frameworks to Geo DCEs. Many states have not yet addressed whether any state licensure or regulatory requirements apply to entities participating in the Global and Professional Direct Contracting Models, so we may anticipate similar delays in clarity around these issues for Geo DCEs.

Key Takeaway: Because of the significant financial commitment required of a Geo DCE, well-capitalized large companies such as health plans and potentially large health systems are better positioned to finance participation in the program.

New Administration

As part of the transition to a new presidential administration, we expect new leadership at the Department of Health and Human Services, CMS and the CMS Innovation Center, who will want to advance their own priorities and dictate the direction of model development. This may have significant implications for the further refinement and advancement of the geographic model, especially with many details of the model still in development.

Note that we expect the Global and Professional Direct Contracting Models available for an April 1, 2021, start date to continue as planned.

Key Takeaway: Stakeholders with a specific perspective on this model’s development should share those thoughts with the CMS Innovation Center as there is potential to continue to inform the design of this model.