US healthcare’s last decade was one of transformation, disruption, and experimentation. There was debate around healthcare reform. Consumer-centric technologies were quickly adopted. Providers consolidated. Sites of care shifted. Value-based models became more of an industry focus. Then, as we turned the corner into a new decade amidst budding change, COVID-19 shocked the world.

As we look to innovations over the next decade, one development capturing our attention is the Geographic Direct Contracting Model, or the Geo DC Model, launched in parallel to the existing Professional and Global DC models. Direct Contracting is shaking up the Medicare alternative payment landscape, presenting powerful opportunities to accelerate the shift from volume to value in Medicare. 

CMS’ Push Towards Value Continues

The Centers for Medicare & Medicaid Services (CMS) has continued its push towards value in Medicare by introducing the Geo DC Model. This follows the previously released Medicare Global and Professional Direct Contracting options, which similarly offer a broad range of industry players the opportunity to manage Original Medicare, or Medicare Fee-for-Service (FFS) lives through an influence model. The Geo DC Model seeks to align all original Medicare beneficiaries in targeted geographic areas to Direct Contracting Entities (DCEs) that are responsible for managing total cost of care (TCOC) without imposing additional cost-sharing or care restrictions. Although all three Direct Contracting options could potentially be active in 2022, it’s not yet clear how CMS plans to coordinate the models going forward.

Medicare Direct Contracting represents a fundamental shift in the management of Medicare FFS lives, transitioning from unmanaged care to an innovative model that aligns incentives for member management and cost accountability outside of traditional managed care constructs. The Geo DC Model is differentiated in its scale: all competitors in the Medicare value chain – whether providers, insurers, legacy players, or innovative upstarts – that operate in selected regions will be impacted by the Model and will require a differentiated approach to build and sustain competitive advantage.

CMS Outlines Target Regions for Participation

In its recent Request for Applications, CMS identified ten target regions for potential inclusion in the Geo DC Model. 

Opportunities for Different Industry Players

The Model will transform the Medicare landscape, presenting different growth opportunities and competitive considerations for each industry segment:

Established Payers: Geo DC offers established health plans novel access to the Medicare FFS population – an opportunity to triple its Medicare membership base and improve Medicare Advantage (MA) penetration over time by converting beneficiaries to MA. Model per-patient economics may also be more favorable in the DC Geo Model than in MA - largely driven by reduced selling and general and administrative (SG&A) costs – though payers will need to effectively manage TCOC through the levers prescribed in the Model to capitalize on these savings.

Upstart Payers and Enablement Companies: By aligning 100 percent of Original Medicare patients, the Model offers an opportunity to achieve scale rapidly. These conditions reduce barriers to entry and enable players with limited experience but innovative approaches to secure a foothold.

ACOs and Risk-Bearing Providers: The Model enables ACOs to expand their risk portfolio and build operating efficiencies, offering additional negotiating leverage and population health insight as they take on additional lives. The Model rewards risk-bearing providers who have already invested in health plan capabilities (care management, member engagement, and downstream provider network management) to serve a broader range of Medicare beneficiaries, including new patients untouched by the ACO historically.