There Is No Plot to Privatize Medicare (And Here’s Why)

No Plot to Privatize Medicare | Direct Contracting | Pearl Health

A colleague recently sent me this video (referenced in this post’s title) over Slack. “Many misconceptions in here,” he said. To put it lightly. 

The video starts off with host Thom Hartmann setting the stage: his guest, Dr. Ana Malinow, President of Physicians for a National Health Program (PHNP), is here to talk about the plot to privatize Medicare in the form of the Centers for Medicare and Medicaid Innovation’s (CMMI) new Global and Professional Direct Contracting (GPDC) model. 

In this post, I’ll evaluate the claims made during the interview. I’ll largely draw on the GPDC model rules as facts and encourage those interested to check. Helpful hint: the best public primary source of information on the topic is the CMMI Request for Applications, which provides a detailed overview of the model. It’s ~100 pages — not for the faint of heart!


The TL;DR:

Direct Contracting isn’t privatizing Medicare. It employs public-private partnerships to improve Medicare. This type of partnership can and should coexist with goals around Medicare For All.

Direct Contracting Entities (DCEs) and Medicare Advantage (MA) plans are incredibly different. More specifically, DCEs don’t curtail Medicare benefits in the same way as Medicare Advantage (MA) plans may. Yes, Medicare beneficiaries may be added to a DCE without their knowledge. But, importantly, patients’ benefits can’t be reduced, so there are neither intentional nor unintentional negative effects on patients’ access to benefits. Most importantly, the Medicare Trust Fund is in dire need of efficiencies to reduce cost increases. DCEs are our best bet to do so. 


Claim 1: “DCEs are just another name for MA.”

Dr. Malinow describes Direct Contracting Entities (DCEs) as being virtually identical to Medicare Advantage (MA) plans. “These DCEs are no different from Medicare Advantage. They just call themselves something different,” she says during the interview. PNHP’s “DCE Fact Sheet echoes this argument.

This point is at the crux of Dr. Malinow’s argument, and it’s fundamentally incorrect. Here are some differences between MA plans and DCEs:

  • MA plans can deny members’ specialist care if members don’t get a referral from a PCP first. HMO-style MA plans, the most common in the MA market, share this type of gating. In contrast, DCEs don’t process claims and, therefore, cannot deny coverage for care in this way — or any way. Claims processing for beneficiaries aligned to a DCE is still handled by Medicare and beneficiaries retain their open access rights.
  • MA plans control the size of co-pays, premiums and deductibles for Medicare beneficiaries that sign up for their plans. This is called ‘plan design’ in insurance lingo. Direct Contracting doesn’t use this concept at all. In contrast, if aligned with a DCE, beneficiaries receive at least the same benefits as if they weren’t aligned to a DCE and were receiving normal care in Traditional Medicare.
  • MA plans design networks of providers and facilities, limiting enrolled patients’ access to caregivers. In contrast, beneficiaries aligned to a DCE maintain their Medicare rights to go to any provider that accepts Medicare nationwide. They may be incentivized to follow the care plans of their PCP, but they also retain the choice not to.
  • MA plans gate certain procedures and medications through prior authorization requirements and utilization management reviews. In contrast, DCEs don’t manage medications and have no authority to curtail or gate procedures pending utilization review. To be fair, there was an unimplemented ‘flavor’ of DCEs (called “Geographic” participants) that could conduct utilization management reviews and would have processed claims — very much like an insurance company — but the Biden administration wisely canceled this version of the model.

Finally, there has been a great deal of attention on the ways that MA plans inflate — sometimes fraudulently — the reimbursements they receive from Medicare for managing their patient populations. This practice is called “risk adjustment”. At a high level, it amounts to receiving more money from Medicare for managing a sicker population. The measurement of sickness can be adjusted through the process of “risk coding” those patients. In other words, MA plans assign condition codes to a patient, which increases their risk score and, as a result, the reimbursements tied to them. This mechanism was originally intended to ensure MA plans weren’t biased to attracting healthier patient populations. Instead, it spawned an industry whose purpose is to inflate risk scores as much as possible.

The architects of the GPDC model learned from the mistakes of MA. Although they still incorporate the notion of risk adjustment, they enacted two critical changes to avoid this risk coding arms race:

  1. The risk scores of beneficiaries aligned to a DCE cannot increase more than 3% year-over-year; and
  2. Each year, all DCEs are re-indexed to the average risk score of beneficiaries aligned to DCEs nationwide.

At a high level, this means that coding patients accurately will allow DCEs to ‘keep up with the pack’ but will not lead to the same inflationary phenomenon experienced in MA. This will save Medicare money.

In summary, DCEs cannot make use of any of the most used — and, for beneficiaries, most painful  — tools to lower the cost of care of MA plan members or increase the reimbursement that MA plans receive for managing the care of those members. They are fundamentally different programs.

Claim 2: “DCEs were created without a mandate and remove consumer choice.”

Dr. Malinow accurately notes that Direct Contracting is the latest in a set of models that CMMI have deployed since its inception as part of the passage of the Affordable Care Act to attempt to lower the cost of providing care to Medicare beneficiaries while maintaining care access and quality. However, she inappropriately dangles the specter of government agencies acting to adapt Medicare without Congressional legislation, without noting that these models have strict limitations on how they can affect beneficiaries.

By the way, Medicare Advantage isn’t such a model, as Dr. Malinow seems to suggest; it was enacted through Congressional legislation. Where Dr. Malinow and I agree: MA is a largely failed program, despite Congressional involvement in its crafting. This is also why MA plans have a much greater degree of latitude in how they can curtail otherwise-guaranteed beneficiary rights for those who opt into their plan.

Dr. Malinow also correctly explains that a Medicare beneficiary may be aligned to a DCE based on having substantial prior claims history with a Primary Care Provider that enrolls in a DCE, without the beneficiary making any proactive choice to ‘join’ the DCE. That is true, but not nearly as insidious as she makes it sound. 

As explained above, beneficiaries can’t have their Medicare rights and benefits curtailed in any way: they don’t need referrals, they don’t have to get permission to receive advanced services from the DCE (or outside it), and they don’t have to stay within a confined network. The only changes a Medicare beneficiary should experience for being aligned to a DCE are:

  1. She’ll get a more attentive primary care physician who is more engaged with managing their care. Primary care physicians are incentivized to be more attentive, because they receive a share of savings on their patients’ total-cost-of-care that they generate with their increased attention. 
  2. She’ll get access to optional ‘beneficiary engagement incentives’ that a DCE may apply for (pending approval from CMS) to reward patients for adhering to care plans or having healthy behaviors. DCEs’ mantra may very well be: “No sticks, all carrots”.

Claim 3: “DCEs won’t create efficiencies and will cost the Medicare Trust Fund money.”

Dr. Malinow is also accurate when she points out that, to date, the value-based care models tested by CMMI have had mixed results. There are a few positive performances and a number of models that failed to save the government money. Nor has MA saved the country money, even with all of the additional cost control measures available to it. However, I believe (to be clear, we’re getting into theory and interpretation) that her diagnosis of the macro situation is misguided.

“[CMMI] believe[s] that the reason US healthcare costs are so high compared to other countries is due to physician greed and Americans getting too much healthcare,” Dr. Malinow argues. “And so, to address this, what they do, well, they squeeze physicians by making them sign up on these capitated and risk schemes, which DCEs are.”

At the heart of the GPDC model is a belief that the high costs of care in Medicare are driven by lack of coordination and active care management of Medicare beneficiaries. By removing the volume-machine incentives of fee-for-service reimbursement through moving participating providers to a capitated reimbursement, DCEs free PCPs to focus their attention on those patients most in need of it. With DCEs, PCPs also mitigate their exposure to downturns in patient visits. Sadly, many primary care practices painfully experienced this during the height of the Covid-19 pandemic.

By sharing the savings realized by more active care management, with the PCPs generating the value, the GPDC model realigns the economic focus away from high-cost facilities and reactive care and to individual providers and preventative care. That is also the heart of how the model proposes to save Medicare money: incentivizing those best positioned to keep Medicare beneficiaries healthy and manage their conditions before they require emergent interventions.

Primary care physicians that perform well in the model should experience better economics. If anyone is squeezed, it will be large hospital systems that rely on expensive surgeries and inpatient visits, the need for which will hopefully be reduced by more proactive management. And to be clear, someone needs to be squeezed.

The year-over-year increase of Medicare costs is unsustainable and cannot be solved through broader coverage. Personally, I’m in favor of some sort of single payer solution, whether it’s Medicare for All or a viable alternative. But increasing coverage on a fee-for-service chassis without addressing the underlying systemic inefficiencies in American healthcare will not solve the cost problem. Moreover, being in favor of guaranteed government coverage does not mean that there can’t be a place for private actors, working in partnership with that public guarantee and competing to create a more efficient and accountable healthcare system.

Finally, Dr. Malinow claims the program will hurt seniors. At no point in the video does she describe how, nor are there any specific concerns with the Direct Contracting model outlined on PNHP’s website. This is a big miss, in my view. These are important issues in the largest segment of one of the most complex industries in America and deserve patient attention to the details and nuance of the programs being discussed. We cannot solve the problem of universal coverage and the affordability of those programs without getting into the weeds of what has worked and what hasn’t. That is a hard but necessary endeavor and one I would challenge PNHP to undertake if they are serious about achieving these goals.


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Gabriel Drapos | Pearl Health | Chief of Staff

Gabe Drapos