Are You a Good Candidate for Direct Contracting?

So you’re the early adopter type, and you want to jump on the Direct Contracting bandwagon. You run your own medical practice successfully, you stay up to speed on the latest CMS news, and while you may not have participated in the original Request For Applications (RFA) and Letter of Intent (LOI) back on November 25, 2019, you intend to apply for the next round.


Before moving forward, let’s do a quick recap for those who are curious about what exactly Direct Contracting is…

“A set of three voluntary payment model options aimed at reducing expenditures and preserving or enhancing the quality of care for beneficiaries in Medicare fee-for-service (FFS)” (CMS Direct Contracting Model Options, 2019). The overall goal of Direct Contracting is to allow various organization types to test the next evolution of risk-sharing arrangements to produce both high-value and high-quality health care.

Direct Contracting allows you to choose from three different participation options (CMS, Direct Contracting Summary, 2019):

  • Professional – A lower-risk sharing arrangement whereby your downside risk consists of 50% savings/losses, and you receive Primary Care Capitation in which there’s a monthly capitated payment for enhanced primary care services.
  • Global – Highest risk-sharing arrangement where the practice is responsible for 100% of savings/losses. You may choose the Primary Care Capitation mentioned above or select Total Care Capitation, which is a risk-adjusted monthly payment for all services provided by preferred providers.
  • Geographic – This risk-sharing arrangement offers you the opportunity to assume the risk for total cost-of-care for Medicare fee-for-service (FFS) beneficiaries in a defined target region.

While this year (2020) participating entities are in an implementation period in which this essentially counts as practice, the first performance year won’t be until 2021.

There are two application submission periods:

  1. Applicants interested in participating in the Implementation Period (submission deadline was on February 25, 2020).
  2. Applicants wanting to start the model in the first performance year (submission application opening Spring 2020).

Keep in mind that Direct Contracting will be an Advanced Alternative Payment Model (APM) starting in its first performance year (2021, eligible to receive the 5% bonus payment if other criteria are met).


CMS designed the different options to try to appeal to different types of provider organizations, but in the end, you’re still taking on risk. Therefore, choosing to jump into the Direct Contracting pool is no small decision. While CMS explicitly states that “Direct Contracting will provide new opportunities for organizations without significant experience in FFS to enter into value-based care arrangements,” Salient recommends that if you are considering filing an application for the first performance year, organizations taking on risk may want to consider the following:

  1. Size – if you’re a small practice, Direct Contracting is probably too risky for you. The smaller your population, the greater percentage of fluctuations you’ll have in attribution and quality measures. While ACOs have to have at least 5,000 beneficiaries to participate in Pathways to Success, several Direct Contracting models require significantly less aligned beneficiaries (CMS, Professional and Global Options, 2019). However, while your organization may meet the minimum threshold of aligned beneficiaries, you may want to consider growing your aligned population, so that you won’t be punished if you have some plurality issues, or patients dying of old age. To alleviate alignment issues, CMS designed the initial implementation period for organizations that want to align beneficiaries to meet the minimum beneficiary requirements. Given that this deadline has passed, organizations will want to consider a different methodology to ensure they meet or exceed the minimum threshold.  
  2. Attribution – Do you find yourself seeing a lot of your patients consistently, or do you practice “transactional medicine,” whereby you see patients that may, or may not, return? If you’re of the latter, I wouldn’t recommend Direct Contracting because you’ll get penalized for losing attributed patients. They’ll see other providers, and then you won’t be able to control their care. Rather than mitigating risk, you’re throwing caution to the wind because you’re increasing your churn rate. That’s not a great recipe for success. Your increased churn rate will significantly impact your organization’s ability to provide continuously good care to patients. Churn rate refers to the rate at which you’re losing patients and gaining new ones. CMS states that 70% of the Medicare population has one, or more, chronic conditions. Therefore, if each practice has 70% of its Medicare population with 1 or more chronic conditions, then 70% of the population should be seen at least once per quarter in order to properly manage their chronic conditions. In fact, per our experience with clients, we’ve found that patients that are continuously attributed to an organization have significantly lower costs than those that are not continuously attributed — likely because those that are continuously attributed are getting the right care at the right time from the primary care provider(s). It’s important to get your workflow and operations in order such that your Medicare and Medicare Advantage patients are coming in for their Annual Wellness Visits and subsequent follow-up visits on a regular basis before committing to Direct Contracting. This is your first step towards practicing good population health.
  3. Patient Engagement – Have you created a culture within your practice that emphasizes patient engagement? The physician-patient relationship is at the core of succeeding in Direct Contracting. In fact, one of the stated goals of the Direct Contracting model is to empower beneficiaries to engage in their care delivery. This enables you to maintain attribution with the patients you already have, it increases the chance that the patients you want will voluntarily align with you, and it augments the opportunity that your patients will seek your practice out before heading to the Emergency Room for health issues they normally shouldn’t. One patient engagement strategy is to provide a “call me first” patient card to patients, so they know to call you first prior to heading to the Emergency Room. All of this lowers costs over time, and that increases your chance at shared savings. Keep in mind that boosting patient engagement can actually be both simple and fun. At my old practice, we used to host quarterly ice cream socials for seniors. You would be surprised at how well-attended they were. Another patient engagement strategy is to provide patients with benefit enhancements, such as gift cards for completing their annual wellness visits.

The goals of the Direct Contracting program are to transform risk-sharing arrangements in Medicare fee-for-service (FFS), broaden participation in CMS Innovation Center (CMMI) models, empower beneficiaries, and reduce provider burden. By looking at the three components listed above, you would be determining whether or not your practice does indeed stand a chance to meet the intended goals set by CMS.


Direct Contracting is certainly both a personal and business decision based on your healthcare philosophy and experience in running a practice focused on population health. If you’re a larger practice, classify yourself as a Patient Centered Medical Home (PCMH), practice enhanced (or leveraged) primary care, or you have prior experience with ACOs, then it’s certainly worth looking into Direct Contracting. If you’re smaller or have no value-based care experience, my recommendation is to learn more first. Figure out how you can implement some of the philosophies and workflows required of VBC, and then move forward with Direct Contracting. It’s a great opportunity for those willing to put in the effort.


Ryan Mackman

About the Author

Ryan Mackman, MBA, MHA - Business Consultant

Ryan Mackman has been an ACO business consultant team member with Salient since March 2018. In this role, he acts as a solution trainer, marketing and sales consultant, as well as Value Based Payment strategist. His skillset helps augment Salient’s efforts at the ACO and physician practice level.

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