A pilot program to test an alternative payment option to the Medicare’s fee-for-service (FFS) system has generated concerns among some beneficiary advocates, including the National Committee, that it could eventually insert managed care elements to the entire traditional Medicare program that could limit health care provider choice.

Traditional Medicare remains popular because it offers people the choice of doctors and hospitals they want.  In fact, the percentage of health care providers that accept Medicare beneficiaries is greater than the more limited networks of doctors and hospitals available under most private health insurance plans. In addition, there are no “gate keepers” that prevent beneficiaries from seeing the specialist of their choice or centers of excellence, like the Mayo Clinic or the Johns Hopkins University Hospital.

But some health care policy experts claim that traditional Medicare is inefficient because fee-for-service payments incentivize providers to increase the volume of their billed services and treatments.  They also think coordination of care is inadequate because no one provider is responsible for holistic care of the patient.

Medicare “Accountable Care Organizations” (ACOs) were included in the Affordable Care Act (P.L. 111-148) to address these concerns by encouraging more efficient care and better support care coordination in traditional Medicare, particularly for beneficiaries with chronic health conditions.  An ACO is a network of doctors and hospitals that shares financial and medical responsibility for providing coordinated care to patients in hopes of limiting unnecessary spending. At the heart of each patient’s care is a primary care physician.  ACO providers make more money if they keep costs down and their patients healthy.  Providers must control at least 75 percent of the ACO’s governing body. The remaining 25 percent must include a Medicare beneficiary and may include private insurers and other investor backed companies.

While some health care experts believe ACOs have succeeded in providing better coordination of care to beneficiaries with chronic conditions, ACO direct savings to Medicare have been modest.  According to a November 2018 New England Journal of Medicine article, larger integrated ACO systems might benefit from increasing the breadth of incentives for providers to ensure they adhere to ACO’s mission of coordinating care.  For that reason, ostensibly, the U.S. Department of Health and Human Services’ Centers for Medicaid and Medicare Innovation (CMMI) set up the Medicare Direct Contracting program. The “Global Professional Direct Contracting” (GPDC) pilot project was set up during the Trump Administration to improve upon ACOs.  In 2021, beneficiary advocates were successful in getting the Biden Administration to pause a particularly concerning part of the direct contracting program, the “Geo Model”, that would have aggressively shifted large numbers of beneficiaries into managed care plans.

At the center of this demonstration program are “Direct Contracting Entities” (DCEs) that contract with the federal government — as an alternative option to traditional Medicare FFS payment — to provide managed care services with an open network of providers with specific beneficiaries.  CMS estimates that about 300,000 Medicare beneficiaries participate in DCEs.  While original ACOs are rewarded or penalized based on the service and performance they provide, (including savings generated) DCEs receive an agreed-upon monthly payment to treat beneficiaries that participate — or are “aligned” — in the DCE.  The monthly payment is called a “capitated” payment, that means the DCEs make money if they spend less than the capitated payment on patients and lose money if they spend more than the payment. Under the GPDC demonstration, either 50 percent or 100 percent of the payment can be subject to savings or losses.

The Ownership and Motivation of Direct Contracting Entities is Cause for Concern

Although 75 percent of original ACOs are controlled by health care providers, the provider governance requirement for DCEs is only 25 percent though this will go up to 75 percent in 2023 (see “CMS Restructures Medicare DCE Demonstration” below).  In addition, private insurers and other investor backed companies may participate as DCEs (in original ACOs, networks of individual practices, Skilled Nursing Facilities, and hospital systems can also be DCEs).  Opening the door to greater private insurer participation in DCE is puzzling since decades of research by the Medicare Payment Advisory Commission (MedPAC) has shown that private Medicare plans are more costly than traditional Medicare. In July 2021, MedPac reported that between 2014 and 2018, total health care spending per enrollee (including cost sharing) grew 24 percent for those who were privately insured, compared with 10 percent for beneficiaries in traditional fee-for-service Medicare.

An additional concern about some for-profit health plans that participate in Medicare is that they are more likely to game the payment system.  The National Committee fears that DCEs and ACOs could inflate the sickness of their patients — a measurement known as a “risk score” — to get higher payments from Medicare.

One of the features of ACOs, including this demonstration, that CMMI touts is that aligned beneficiaries are not limited to the providers that participate in the DCE – they may see any provider that accepts Medicare payments.  But this may be a hollow choice if their Primary Care Physician in their ACO, including the new “REACH ACOs”, steers them only to participating providers and away from doctors and hospitals outside the DCE network.

A major concern is that like traditional ACOs the beneficiary unknowingly chooses a doctor that participates in the DCE.  Then the beneficiary is essentially auto-enrolled by their doctor into the DCE without their consent.  It is not until after this enrollment takes place that beneficiaries are notified that they are now aligned with the DCE but can opt out at that point.  At the writing of this paper, it was unclear what or if any effort is made to educate the beneficiary about how DCEs work or who owns the DCE.  The lack of consent may be of more concern with new REACH ACOs than traditional ones, as these models more aggressively reward achieving savings.

CMS Restructures Medicare DCE Demonstration in Response to Stakeholder Concerns

On February 24, 2022, the Centers for Medicare and Medicaid Services announced that they were restructuring and rebranding the DCE demonstration project in response to concerns raised by Medicare beneficiary advocacy groups.

Effective January 1, 2023, DCE’s will be renamed the “Accountable Care Organization Realizing Equity, Access and Community Health” (ACO REACH) model.  Provider control of the ACO REACHs will increase from 25 percent to 75 percent – like original ACOs.  In addition, the remaining 25 percent of an ACO governing board must include at least one beneficiary representative and a consumer advocate.  However, like original ACOs, private insurers and other investor backed companies can be part of the non-provider 25 percent governing the ACO REACH.

The February 24th announcement said that the ACO REACH models will have a new innovative payment approach, but it was unclear from the materials provided by CMS how the payment system would be different from that of DCEs.

CMS also said that the rebranded model would include better beneficiary protections, including:

  • Up front screening of provider groups applying to become an ACO REACH
  • Robust monitoring of ACO REACH providers
  • Greater transparency during the implementation of the demonstration project
  • Sharing more information with providers
  • Stronger protections against ACO REACH “upcoding” – the abusive practice of inflating the sickness of their patients to get higher payments from Medicare

The Medicare agency emphasized that beneficiaries aligned with the ACO REACH model would continue to have the same access to providers as traditional Medicare beneficiaries not participating in the demonstration project.  They also said that ACO REACHs would not have limited provider networks, require prior authorizations or other means of restricting care.

Finally, CMS said that it was officially ending – instead of pausing – the Trump-era “Geo Model” that would have aggressively shifted large numbers of beneficiaries into managed care plans.


While the National Committee commends CMS for responding to Medicare beneficiary group concerns about the DCE model, particularly the decision to limit the involvement of private insurers and other investor backed companies, we continue to be troubled by the potential for ACO REACHs to make health care decisions that help themselves at the expense of beneficiaries.  Furthermore, we applaud CMS for their efforts to prevent “upcoding” in ACO REACHs, but urge the agency to apply the same robust enforcement to Medicare Advantage plans where this abusive practice is a greater problem.

What is more, CMS’s restructuring of the project did not compel ACOs to acquire the consent of beneficiaries prior to being enrolled into project.  They also did not address the need to educate beneficiaries about how ACOs work, including how the payment system could affect them.  We urge CMS to make resolving these shortcomings a priority.

Finally, we urge the House Committees on Ways and Means and Energy and Commerce and the Senate Committee on Finance to request that the Government Accountability Office study whether DCE primary care physicians are steering their Medicare patients only to participating providers and away from doctors and hospitals outside the DCE network.

The National Committee remains open to working with the Center for Medicare and Medicaid Services to contain cost and improve quality of care but without reducing access to providers that participate in traditional fee for service Medicare.