Pilot program moves away from fee-for-service payment model

There is an ongoing Medicare experiment going on in Derry that involves more than 6,000 traditional Medicare recipients and their 44 providers from two primary care practices who signed up for it. It’s being run as what’s called in Medicare lingo a “direct contracting entity,” or DCE, and it is being run by VillageMD, a company owned by the pharmacy giant Walgreens that gets paid a lot of money to take a lot of risk.

It’s one of 53 pilot programs launched in April, which should run for at least five years. They will be closed to new participants after next year.

The idea is to “slowly move away from fee-for-service, traditional Medicare and instead receive a reward tied to results. It’s a pretty amazing thing,” explained Gary Jacobs, executive director of VillageMD’s Center for Public Policy as well as the newly formed DCE coalition America’s Physician Groups. The fee-for-service model remains at the heart of traditional Medicare.

It’s not known how much money is involved, for neither Village MD, the Centers for Medicare & Medicaid Services, nor the practices — Derry Medical Center and Southern New Hampshire Internal Medicine Associates — could tell us by deadline.

But both Jacobs and Dr. Dan Waszkowski, medical director of Derry Medical Center, said the pilot isn’t about money but about providing better care for their patients. Jacobs talked about treating the patient more holistically and making the relationship with the primary care provider “sacrosanct.”

“We take full responsibility for the patients,” he said, and if the patients can improve their health and stay out of the emergency room, “we are going to save money doing that, but we aren’t coming from that.”

For Waskowski, VillageMD is a “fantastic partner. They allow us to grow in ways we wouldn’t have grown. I think they help us provide better care.”

ACOs vs. DCEs

VillageMD is a Chicago-based chain of 230 primary care facilities that currently covers 600,000 lives and manages $4 billion in total medical spend. It started eight years ago as a private equity-backed firm, but partnered up with Walgreens by setting up some 52 co-branded primary care practices, often standing alongside the drugstores. This helped the company boost its revenue to an expected $1.3 billion this year, more than five times the amount it was pulling in four years ago.

In October, Walgreens doubled its stake in VillageMD with a $5.2 billion investment, giving it 63 percent of the company. As a result, the investment should accelerate the opening of 600 “Village Medical at Walgreens” locations in more than 30 U.S. markets by 2025 and 1,000 by 2027.

Despite this close arrangement, VillageMD will remain a standalone company, and the deal allows the company to issue an initial public offering, which it intends to do next year, Jacobs said.

Derry Medical Center (now officially DMC Primary Care) is not owned by VillageMD. The practice is “the largest independent family practice in the state,” Waszkowski said proudly. It is taking part in the pilot to better manage Medicare patients, he added.

At first, DMC tried to do so as a Medicare accountable care organization (ACO), a precursor to a direct contracting entity. Both were the brainchild of the Centers for Medicare & Medicaid Services Innovation Center, a little-known agency created by the Affordable Care Act. VillageMD has five other ACOs, all of which became DCEs, in Arizona, Georgia, Houston, Michigan and another straddling Illinois and Indiana.

Waszkowski was not thrilled by the ACO arrangement. Though initially risk-free, the risks do accrue further down the line, and the ACO didn’t allow enough flexibility, he said. A DCE enables VillageMD to provide extra staff to work with patients to navigate care as well as provide the expertise to aggregate data for better outcomes.

Capitated payments

Of the 53 DCEs, 28 are investor-owned, and six of them are insurer-based, according to Physicians for a National Health Program, or PNHP, a group opposed to DCEs.

That may be because DCE get a direct payment of a certain amount to care for a certain Medicare population. If they — like VillageMD — take on 100 percent of the risk (and not all do), then they will eat the losses if they spend too much and add to their savings if they spend less.

PNHP says doctors are “lured” to participate by promises of retaining up to 40 percent after that risk, but Waszkowski says that no such offer was made to him, although he did hope for “savings” so they could be reinvested in the practice for things like in-house cardiology behavioral health and pain management services.

Capitated payments are basically how Medicare Advantage plans work, though the payment arrangements are pretty complex. But those plans are like HMOs, confining Medicare recipients to a set network of providers. Under a DCE, a provider can steer its patients through referrals, but the patient still can go to whatever provider accepts Medicare and get fully reimbursed.

It’s important that most stay within the network, said Jacobs, “because we have to pay our downstream providers.” But that’s one of the reasons to strengthen the relationship between the primary care provider, so they aren’t just gatekeepers. “Primary care visits increase dramatically, so they get more comfortable with that relationship and they are more apt to call a doctor than run to the emergency room,” he said.

The other difference is that a subscriber actively chooses a Medicare Advantage plan, whereas with a DCE it is the provider who signs up. Patients are asked to sign a form letter acknowledging they are “voluntarily taking part in this new initiative by joining VillageMD New Hampshire ACO (still the DCE’s legal name) because we think it will help us provide better quality care for our patients.” The form doesn’t disclose the payment arrangement the doctor has with DCE, instead providing a website that goes into great detail about the “Global and Professional Direct Contracting Model.”

Critics say it doesn’t amount to much of a choice at all.

“Once doctors sign up with a DCE, their patients are automatically signed up. Patients may receive a letter, typically incomprehensible and quickly tossed in the trash,” wrote Robert S. Kiefner, a retired family physician in Concord and a supporter of PNHP, in an editorial for the Concord Monitor.

VillageMD isn’t the only DCE approved for New Hampshire. Iora Health is approved in 10 states including New Hampshire, but none of its providers are from New Hampshire (or Massachusetts for that matter, another state listed). IORA does run Dartmouth Health Connect, a primary care practice that serves employees of Dartmouth College and King Arthur Flour Company and United Healthcare or Humana Medicare Advantage members.

Bob Sanders can be reached at bsanders@nhbr.com.