There goes your Medicare: The trouble with DCEs

Many Whatcom County residents are alarmed to discover that their one and only hospital — PeaceHealth — has accepted an explicit invitation to act as a Direct Contracting Entity for Medicare.

Thanks to an excellent presentation from the League of Women Voters of Bellingham/Whatcom County on Jan. 17, residents learned that Direct Contracting Entities (DCEs) act as financial intermediaries between traditional Medicare beneficiaries and health care providers.

How do DCEs do this?

Medicare allows DCEs to automatically search two years of seniors’ claims history without their full consent to find any visits with a participating DCE provider (is your primary care provider one?). This information is used as the basis for enrollment, and then to auto-enroll those patients in the DCE. You may already be “aligned” with a PeaceHealth DCE and may or may not receive a letter informing you of your automatic enrollment (aka “alignment”).

The DCE, and its vertically integrated provider practices and affiliates, receives funds for its aligned population of beneficiaries and is tasked with providing them so-called “value-based” care. Similar to Advantage plans (the version of Medicare run by commercial insurers) a DCE distributes these Medicare funds toward private insurance companies, Wall Street startups and other for-profit interests.

Virtually any type of company can apply to be a DCE, including commercial insurers, venture capital investors and even dialysis centers. There isn’t even a requirement that DCEs be majority-owned by health care providers. This opens the door to ownership by for-profit entities with no health care expertise at all.

PeaceHealth readied itself for this profitmaking opportunity as a DCE by registering numerous new for-profit LLCs in 2020 and 2021. The target patients for these new LLCs, myriad other PeaceHealth aligned provider participants, and their parent PeaceHealth DCE are traditional Medicare beneficiaries.

Traditional Medicare spends 98% of its healthcare budget on patient care while DCEs are required to spend a mere 60% on patient care and may retain up to 40% as profit. “Value-based,” indeed, but for whom? In order to maximize profit, DCEs are incentivized to deny or ration care, control referrals and limit the choice of providers to keep patients in-network. They do all of this at their sole discretion. That translates to far-reaching consequences for patients, including restricting their access to specialized care and practitioners.

Forty-two percent of U.S. Medicare beneficiaries are enrolled in Medicare Advantage plans, and as such, are already being tapped by private insurance. But the remaining 58% of the total U.S. Medicare population are traditional Medicare beneficiaries, and they present an extremely enticing chunk of the Medicare pie. DCEs are uniquely positioned to capture and profit from this formerly untapped and coveted group of “covered lives.”

As these new Direct Contracting Entities become swollen with Medicare funds, venture capital is swooping in. Consolidation (aka mergers and acquisitions) in health insurance and provider services companies reached a fever pitch between 2014 and 2022, resulting in soaring health care costs. Medicare Part B premiums rose 45.5% over that period, in spite of historically low interest rates and cost-of-living adjustments.

Of the 53 DCEs in the Center for Medicare Services pilot, 25 are owned by a mix of for-profit Primary Care Provider (PCP) groups, Management Services Organizations (MSOs) and specialty providers. Twenty-eight are owned by investors and are either publicly traded or publicly backed by private equity and venture capital firms.

How did we get here? 

In 2010 the Affordable Care Act funded the Center for Medicare/Medicaid Innovation (CMMI) with $10 billion for years 2011–2019 and $10 billion for each decade thereafter to “test innovative payment and service delivery models to reduce program expenditures … while preserving or enhancing the quality of care.” Since its launch in 2010, CMMI has established more than 50 “Value-Based Purchasing” models. Only four met the statutory cost and quality criteria to be taken out of the pilot phase.

Those models “have made a very important contribution, but they’re not the innovations that will achieve health system transformation to cost-effective care,” said Liz Fowler, CMMI’s deputy administrator.

In spite of this abysmal record, CMMI continued with its “Value-Based Purchasing” models by launching the DCE program.

The DCE program began in 2020 and is slated to run until December 2026. It is specifically exempted from Congressional approval or oversight. Crucially, CMMI can scale up the DCE program to include all of traditional Medicare without a vote or even a hearing in Congress.

What can I do?

Call or write to your members of Congress to ask them to join the thousands of seniors and medical professionals from across the country calling for the Biden administration to stop this pilot program now while we still have a chance.

Ask them to demand that Secretary Xavier Becerra, at the Department of Health and Human Services, hold Congressional hearings on this destructive program that could result in the total privatization of traditional Medicare by the end of the decade.

Join Physicians for a National Health Program (PNHP) to get involved and keep informed.