Part 2 of a two-part podcast featuring Dr. Ed Weisbart, national board member and Missouri chapter chair of Physicians for a National Health Program, discussing the latest threat to traditional Medicare called “Direct Contracting Entities.” What are they? How do they make money? Why is this a problem? And what can we do about it?
Wall Street’s Latest Attack on Traditional Medicare
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Welcome to Code WACK!, your podcast on America’s broken healthcare system and how Medicare for All could help. I’m your host Brenda Gazzar.
So what in the world are direct contracting entities and how might they affect the health care of American seniors? Will this pilot program ultimately help or hinder quality care? Dr. Ed Weisbart, a retired family physician, former chief medical officer of Express Scripts and a national board member of Physicians for a National Health Program, weighs in on this troubling development.
Welcome to Code WACK!, Dr. Weisbart.
Q: There’s a so-called innovation to traditional Medicare being introduced, a pilot program called direct contracting entities or DCEs. That sure doesn’t sound anything like health care. Can you tell us what a direct contracting entity is and why we should care about this?
Weisbart: As a recent article in Health Affairs blog said, this is Orwellian in the way it’s titled, so if you find that this new phrase ‘direct contracting entity’ is confusing to you, it’s the craziest way to call it, cause if you remember from the previous episode, traditional Medicare is very direct, right? Medicare has a direct relationship with doctors so that sounds like a direct contracting entity but that’s not at all what this means. This new name direct contracting entities is a program that was begun under the Trump administration overtly to introduce the private industry – venture capital and private equity and for profit insurance – to introduce them into the 60% of Medicare that they don’t have access to today.
So, most Medicare members have said, I don’t want the commercial industry. I don’t want a for-profit middle person intermediary. I just want Medicare. Most — 60% have said that. And so, the industry has said “well, you know, we want some of that game. We want a part of that pie” and so they persuaded the Centers for Medicare and Medicaid Innovation to start what’s still a pilot program, where much as in Medicare Advantage, or as in accountable care organizations or in a few other programs, Medicare would no longer pay doctors and hospitals. If you are in a direct contracting entity, Medicare would no longer pay your doctor and hospital for the most part. Instead, they would pay these new for-profit, venture capital private equity or insurance company or publicly traded companies. All of your money for health care would go there, and then they would be in charge of doling out the payments to doctors and hospitals and such.
It’s a little bit more nuanced than that. There are some variations to this but, in general, direct contracting entities, in direct opposition to the way the name sounds, creates a new level of fiscal intermediaries, a new at-risk group, whose interest is in you not getting care, not in you getting care. It’s a dreadful concept, it’s a dreadful concept. It’s something that it’s still in the pilot phases right now so we can stop it before it gets crazy out of control and we need to stop this new initiative, direct contracting entities.
Q: I see. So what does it mean for someone who’s in a DCE?
Weisbart: If you’re in one, you still retain all of your traditional Medicare benefits. Direct contracting entities can’t tell you “no, you can’t go to the doctor or no, you can’t go to the hospital,” at least on paper, but we know that their game will be to nudge you, to guide you. Nobody is really responsible for making sure that you know you have all those choices. You might get a letter once telling you you have that but the direct contracting entity is not going to want to emphasize that so they’re going to be guiding you to fewer choices, fewer hospitals and getting in the way of health care.
Q: Hmmm. So it’s basically creating a middleman…
Weisbart: That’s exactly right.
Q: …that takes a cut of the money that should be going directly to the providers?
Weisbart: And venture capital, Wall Street, private equity, they know this. They’ve looked at this model and some folks call it the Medicare Gold Rush now you know having this incredible rush of money coming into new startup industries and ventures to take advantage of this new entity called direct contracting entities.
Wall Street wouldn’t be investing so incredibly heavily, so incredibly quickly as they are right now if there weren’t a way for them to make a ton of money off of this, and where does that money come from? They’re investing in it because they know that there’s still money left in the Medicare Trust Fund that they can drain. They think that they can get the premiums to go higher for Part B. I don’t know what they’re really thinking but they’re not investing this money because they’re out to improve public health so we’re all going to pay for this. We have to stop it before it’s gotten out of control.
Q: Hmmm. So Dr. Weisbart, to clarify, the DCEs then do operate with a capitation system?
Weisbart: Yes, direct contracting entities themselves are capitated for your care by the federal government. That’s the concept. The direct contracting entities receive varying degrees and varying scopes of capitation for your health care, a monthly fee or an annual fee to cover some or all of your healthcare expenses so it’s exactly what you said. The direct contracting entity gets the money in, and then every dollar that they have to pay out on health care, frankly, is a dollar away from their bottom line, from their profits, from their return on invested capital to Wall Street. Every dollar that they pay, that they have to pay out comes out of their capitation so they have a compelling business interest to maximize those capitations by gaming the system, and to minimize how much they pay out by either directly or indirectly interfering with your care. They can’t completely say “no you can’t go for that care”, they can’t do that, but they can really kind of make it seem like they can.
Q: Um, so when doctors get a set amount per patient, healthier patients cost them less to treat than unhealthy patients. Doesn’t this incentivize doctors to avoid taking on sick patients?
Weisbart: Yeah. The other side of that equation is one of the key reasons I went to medical school. I thought the idea that if you “capitate” physicians — if you pay doctors a certain amount per month to take care of people in general — that would mean that it’s to my advantage to keep you healthy. If I can keep you healthy, well then you’re going to cost less and I’ll be able to make more money. If I did something stupid to you that was you know expensive or harmful, you would then become more expensive to take care of, and I would be partially paying for that. So I thought capitation was a brilliant idea.
What I didn’t know, and what I know now, is that the way to make money under capitation is not by making people healthier. Healthcare prevention takes a decade to pay off. Really good preventive medicine takes a decade to pay off and then it’s not a business case for prevention. We should do it, but it’s not a big money maker. The way to make money under capitation is to not have sick people in your practice. That’s the way to make money so I think you’re right. Capitation rewards you for not having sick people.
And there’s ways to modify and adjust it, but it’s a game of Whack a Mole. You’re always staying a step ahead of that so there is no good way to pay doctors and so because no matter what you do, you’re going to have some kind of an issue, but the most important thing to do I think is to remove the perverse incentives. Stop having it so that we doctors can make more money by shunning the sick. You don’t want to put us in that situation and stop putting it so that we doctors can make more money by doing unnecessary expensive things. You want to get rid of those kind of perverse incentives.
Q: How then do you think that’s affecting patients?
Weisbart: Like I said I went to medical school because I believed in this model of capitation in one form or another so I used to live and practice within the largely capitated system, and I was in charge of I think there were about 10 medical offices scattered around Chicago and we had one in particular that like all the others was largely capitated and it was a terrific place. They did great care. They were top of the charts on patient satisfaction, and on mammograms and all that stuff and they were profitable. Hooray. It proves the case. Then they got one patient in with a very expensive form of hemophilia and it was going to cost a million dollars a year. Actually it did cost a million dollars a year to treat this one person.
And so, of course, you pay that, you know, we had to figure out ways to come up with the money for it because it’s a lot of money but we did, but I was in charge of the group, right. So there was a business imperative on me to make him not like us. We didn’t do any of these things but I was thinking about you know let’s not answer the phone if we know it’s him. Let’s put him on hold. You know if he comes in for his visit, let’s make him wait an hour or two. We didn’t ever do that but let’s lose his chart a little bit. Let’s not call him with those test results. Playing that through the intent would be that after six months or so he would say you know that used to be a great office you know, but I don’t know what’s happened to them but it’s gone downhill and I’m going to find me a new doctor.
And maybe he would call and threaten us and tell us, you know, how terrible things were and that he was going to get a new doctor and I’d say, “oh, I’m so sorry.” We didn’t do any of those things but I’m still atoning for the fact that I thought all that through because that was the business pressure, was to make a sick person not want to go to our doctors.
Q: Right and what do you think is at stake then for patients?
Weisbart: For patients, as Dixon from PNHP recently said, nobody – literally nobody – is asking for the system to get more complicated. Nobody is saying, you know, if we’re just a little bit more complicated, that would fix things. Nobody is saying that but that’s what this will do, so you won’t be able to follow the money, right. Who is it going to? You won’t be able to track where your money’s going. You’re gonna have somebody in the middle of your care with direct contracting entities, who will say they’re your advocate and ally trying to help you through the system, but in reality, the business pressure on them, their motivation is not quite the same as what your physician in the exam room usually is.
So from a patient point of view, I think it’s a whole new exposure to a whole new level of complexity that’s going to drive up the cost of your care with no reason to think it’s going to improve quality. There are all sorts of analyses that say there’s no reason to think that. It’s not going to make health care better. It’s going to make it more expensive and more profitable for the foxes that are raiding the chicken coop.
Q: And how do you think the DCEs and the pilot program, if it moves forward, would affect the Medicare for All movement?
Weisbart: It really complicates it. When the movement was really first kind of growing with that name, there was a movement to not call it Medicare for All, but to call it single payer, because structurally that’s what it is — it is one payer, you know, let’s just have one payer. Get rid of all of these insurance companies and just have one payer, and let it be Medicare, have one payer — single payer. It really simplifies things.
There was a movement to have it just be called the single-payer movement and that group lost out to the group that said no nobody knows what a payer is, nobody knows what single payer is. Everybody knows and loves Medicare. Medicare is pretty simple. Let’s kind of go straight with that. So let’s make it Medicare for All. It fits on the bumper sticker better. It’s nice. Well, the world has changed a lot, and the Medicare program is under such direct attack (with) Medicare Advantage now, with all these denials and referrals and prior authorizations and networks. Most people don’t really understand when they have Medicare Advantage that they really don’t even have Medicare, so the more we let traditional Medicare get corroded by things like Medicare Advantage or direct contracting entities, the more we corrode Medicare itself, the harder it is to say, you know, let’s get Medicare for All. We’ve always said improved Medicare right it’s always been improved Medicare. I myself have often run into people who say, why would I want Medicare for all you know the problems I’ve had? And they are almost always problems with Medicare Advantage, and so we’ve had to have the discussion of that’s not Medicare, and once they understand that then they’re much more happy with “oh, yeah, let’s get rid of all of that stuff.”
So, confound that by having a third stream in here, having people with Medicare Advantage, having people in direct contracting entities, and then an even smaller group that’s holding on to that precious for dear life traditional Medicare, it makes our message so much more complicated. Now there’s two things to say “no, that’s not what we mean” about. Yeah, we can go back to the language of single payer. We can emphasize the improved Medicare for All, but it makes our job more complicated and it puts us on the defense, right, because now we’re talking about how do we protect Medicare, but I would say that every problem is potentially an opportunity.
It’s giving us a chance to get people to really try to understand what Medicare Advantage is and isn’t. We should stop “advantaging” Advantage. We should not let DCEs enter this new space so it’s giving us an opportunity to reinform and educate people and point out the absurd complexity, and point out the Gold Rush coming in to take our money away. I think there’s a whole new suite of organizing tools that we can develop because of these outrageous new attacks so I think it’s potentially galvanizing us.
Q: Thank you, Dr. Weisbart. Was there anything we didn’t touch on or anything else you wanted to mention?
Weisbart: If somebody’s really wonky and wants to read more, there’s two great new pieces in the Oct. 1 week of the Health Affairs blog on this. I think if you just go to the Health Affairs blog and look up direct contracting entities, you’ll find two really terrific pieces from Rick Gilfillan and Don Berwick. So read those. They are dense but are really important. So join us. Go to PNHP.org, even if you are not a doctor.
Thank you Dr. Ed Weisbart.
Find more Code WACK! episodes on ProgressiveVoices.com and on the PV App. You can also subscribe to Code WACK! wherever you find your podcasts. This podcast is powered by HEAL California, uplifting the voices of those fighting for health care reform around the country. I’m Brenda Gazzar.
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