Fact Sheets

Direct Contracting Model: Professional and Global Options Medicaid Managed Care Organization (MCO)-based Direct Contracting Entity (DCE) Fact Sheet

The Centers for Medicare & Medicaid Services (CMS) Center for Medicare and Medicaid Innovation (Innovation Center) developed the Direct Contracting Model Professional and Global Options to test financial risk-sharing arrangements to reduce Medicare expenditures while preserving or enhancing the quality of care furnished to beneficiaries. Direct Contracting offers a variety of pathways for health care providers and suppliers to take on financial risk while being supported by enhanced flexibilities.

In December 2020, the Innovation Center introduced a new type of Direct Contracting Entity (DCE) to better serve the needs of individuals dually eligible for Medicare and Medicaid. This new DCE type will allow Medicaid Managed Care Organizations (MCOs) to better coordinate care for their dually eligible Medicaid managed care enrollees as MCO-based DCEs under the existing Professional and Global Direct Contracting Options.

These new MCO-based DCEs must be either a Medicaid MCO or the corporate affiliate of a Medicaid MCO. The Direct Contracting Model will test whether holding Medicaid MCOs or their corporate affiliates accountable for health outcomes and Medicare fee-for-service costs for their full-benefit dually eligible Medicaid MCO enrollees, in addition to the risk the Medicaid MCOs currently have under Medicaid, will lead to innovative strategies for improving care for this high-risk population.

Currently, Medicaid MCOs with dually eligible individuals who remain in Medicare fee-for-service (FFS) – the population served by MCO-based DCEs – do not have an incentive to coordinate care in a way that reduces Medicare FFS costs for dually eligible beneficiaries. Any savings from MCO investments in care coordination, long-term services and supports (LTSS) delivery, or other Medicaid services that reduce hospitalizations or other acute care utilization currently would accrue to Medicare but not to the Medicaid MCOs. By better aligning incentives, the new MCO-based DCE type seeks to encourage Medicaid MCOs or their corporate affiliates to partner with health care providers and implement care coordination programs that can improve quality and reduce Medicare FFS spending.

The goals of the MCO-based DCE type include aligning Medicaid MCOs’ financial incentives with whole-person care, empowering beneficiaries, and reducing overall spending across the Medicare and Medicaid programs.

What are benefits of the MCO-based DCE type for beneficiaries?

Under Direct Contracting, participating MCO-based DCEs will have new incentives to provide whole-person care and better serve their full-benefit dually eligible enrollees. Some examples of the actions MCO-based DCEs could take under the model to better serve dually eligible individuals include[1]:

  • Establishing processes to connect aligned beneficiaries to a primary care provider, particularly high-value Medicare fee-for-service health care providers;
  • Risk-stratifying and targeting care coordination resources toward aligned beneficiaries at risk of high Medicare spending;
  • Deploying care coordinators or in-home aides who provide Medicaid long term services and supports to also actively promote flu vaccines, preventive screenings, evidence-based falls prevention, and diabetes management activities;
  • Having care coordinators or in-home aides who provide Medicaid long term services and supports assist enrollees with managing Medicare-covered medical appointments to help reduce missed treatments;
  • Training in-home aides – who often cook meals for their clients – on meal preparation for individuals with nutrition-sensitive conditions, like diabetes; and 
  • Entering into value-based purchasing arrangements with nursing facilities that factor in these facilities’ hospitalization rates.

Who can participate in the MCO-based DCE type?

To participate in the Direct Contracting Model as an MCO-based DCE, the entity must be either a Medicaid MCO or a legal entity that is affiliated with a Medicaid MCO under common ownership (i.e., at least partial ownership by the same parent entity, where that parent entity also has a controlling interest). The Medicaid MCO in either scenario must:

  • Meet the requirements to be a Medicaid MCO established in the definition at section 1903(m)(1) of the Act and 42 CFR § 438.2; and
  • Have an active MCO contract with the applicable state to provide Medicaid services to dually eligible enrollees, many of whom may be eligible for alignment to the MCO-based DCE.

Eligible applicants must be either (i) MCOs that have Fully Integrated Dual Eligible Special Needs Plan (FIDE SNP) or Medicare-Medicaid Plan (MMP) contracts with CMS, or (ii) entities that are affiliated under common ownership with an entity that has the FIDE SNP or MMP contract with CMS.  FIDE SNPs, MMPs, and entities that are affiliated under common ownership with organizations sponsoring FIDE SNPs or MMPs can draw upon their expertise coordinating integrated Medicare and Medicaid services and assuming responsibility for the total cost of care for dually eligible beneficiaries.

Also, to be eligible, applicable MCOs must cover long-term supports and services (and specifically be at risk for nursing facility costs) and/or behavioral health services for people with serious mental illness/substance use disorder – unless the state managed care program excludes such individuals.

To ensure that the participation of MCO-based DCEs in Direct Contracting align with states’ plans to better serve dually eligible beneficiaries, MCO-based DCEs will be required to obtain a letter of support from their state Medicaid agency to participate in the model. We will provide additional information about the content of this letter in the near future.

How will CMS align eligible beneficiaries to MCO-based DCEs?

CMS will use MCO enrollment-based alignment to align beneficiaries to MCO-based DCEs. Under MCO enrollment-based alignment, CMS will align to MCO-based DCEs all eligible full-benefit dually eligible individuals who are in Medicare FFS and also enrolled for Medicaid benefits in the Medicaid MCO serving as or affiliated with the MCO-based DCE.  CMS will align only full-benefit dually eligible individuals to MCO-based DCEs, not Medicare-only beneficiaries. CMS continues to fully support integrated Medicare-Medicaid managed care, and beneficiaries enrolled in integrated Medicare-Medicaid managed care options are not eligible for alignment to an MCO-based DCE.

How are MCO-based DCEs different from the other DCE types in the Direct Contracting Model Professional and Global Options?

Key differences between MCO-based DCEs and other Professional and Global DCE types include:

  • CMS will use only MCO enrollment-based alignment, not claims-based or voluntary alignment to align beneficiaries to MCO-based DCEs.
  • Arrangements with DC Participant Providers and Preferred Providers will be optional for MCO-based DCEs.
  • MCO-based DCEs must have a minimum of 3,000 aligned beneficiaries prior to the start of each performance year.

Detailed information about requirements for all Professional and Global DCE types, including MCO-based DCEs, will be available in the upcoming Professional and Global Request for Applications (RFA).

Which risk options are available to MCO-based DCEs?

Both Professional and Global risk-sharing options will be available to MCO-based DCEs. Under Professional and Global, CMS is testing two risk-sharing options: (1) Professional, a lower-risk option (50% shared savings/shared losses); and (2) Global, a full-risk option (100% shared savings/shared losses). MCO-based DCEs that do not identify DC Participant Providers or Preferred Providers will still select a risk-sharing option but will not have a capitation component. Additional information about these risk-sharing options will be in the upcoming RFA.

Please also see the financial methodology papers published on our website for details:

How will MCO-based DCEs be paid under the risk-sharing options?

For MCO-based DCEs that choose not to identify DC Participant Providers or Preferred Providers, there will be no change in payment to providers, and CMS will not issue capitated payments to the DCEs. 

MCO-based DCEs that identify DC Participant Providers or Preferred Providers will be required to have a capitated payment arrangement, similar to those required for other DCE types, whereby CMS makes a capitation payment to the DCE. The DCE may use this capitation payment to support population health, for example by allowing the DCE to enter into value-based payment arrangements with its downstream DC Participant Providers or Preferred Providers or to invest in health care management tools, such as innovative health care technologies (e.g., remote monitoring).

For all MCO-based DCEs, aligned beneficiaries will retain access to the full set of Medicare fee-for-service benefits, and possibly an expanded set. Beneficiaries will also continue to have free choice of Medicare fee-for-service providers.

How will CMS calculate the performance year benchmark for MCO-based DCEs?

Using MCO enrollment-based alignment during the baseline period, CMS will determine the baseline expenditure using Medicare FFS expenditure data. Once the baseline expenditure is determined, CMS intends to follow the same benchmarking methodology used to determine the benchmark for Standard DCEs (substituting MCO-based alignment for claims-based alignment), including prospective trend and regional geographic adjustment factor, blending regional expenditures using the DC/KCC Rate Book, risk adjustment, application of the discount (Global only), quality withhold, and high performers pool. CMS may make adjustments for MCOs not in operation or having limited enrollment during part of the baseline period.  More details on the benchmarking methodology can be found in the upcoming RFA.

Will the MCO-based DCE Type be considered an Advanced Alternative Payment Model (APM)?

In 2022, the first performance year for MCO-based DCEs, the Global and Professional Options of the Direct Contracting Model are expected to be an Advanced Alternative Payment Model (APM). This will apply to all DCE Types, including the MCO-based DCE Type.

What is the MCO-based DCE timeline?

In early 2021, the Innovation Center expects to release a Request for Applications (RFA) for all Professional and Global DCE types, including MCO-based DCEs. This will be the first RFA under Direct Contracting to include MCO-based DCEs. MCO-based DCEs will begin participating in the model in January 2022.

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[1] Details may vary depending on Medicaid managed care contracts, in accordance with applicable federal regulatory requirements in 42 C.F.R. § 438.