The Bio + Health Newsletter

Doubling down on direct contracting; Can discovery be engineered? Clubhouse FOMO, and more

Justin Larkin and a16z editorial

Posted March 31, 2021

This post first appeared as an issue of the a16z Bio Newsletter. Subscribe to stay on top of the latest trends in bio and healthcare.

Doubling down on direct contracting

Justin Larkin

One of the hallmarks of value-based care is a shift away from reactive, fee-for-service models and toward prospective payment models. Direct contracting is a model where large holders of risk — like self-funded employers and health plans — contract directly with a narrow set of provider groups and health systems for a specific population and a defined set of services. This can look as simple as contracting with a handful of health systems to provide all-inclusive care bundles for joint surgery, to something as broad-reaching as establishing an Accountable Care Organization (ACO) for the comprehensive care of a patient population in a given region. Because both parties share in accountability and responsibilities across cost, care coordination, and outcomes, models like these represent a major step in the transition toward value-based care.

Over the past year, CMS (Centers for Medicare & Medicaid Services) announced two key direct contracting initiatives: the core Direct Contracting Model, which is formally launching next month; and the Geographic Direct Contracting Model, which was paused this past month for further review in a heated industry debate.

Under the core Direct Contracting Model, a wide range of participating DCEs (Direct Contracting Entities) contract with CMS for primary care or full, comprehensive care under shared upside and downside risk. On the list of 51 eligible phase 1 DCEs are several medical groups, industry players (including Aetna, Davita subsidiaries), and new entrants (including Iora, Oak Street, CityBlock, and VillageMD). The core model is emerging from the implementation phase and heading into its formal launch in April 2021, when we’ll see which of these DCEs decide to move forward. This is a non-trivial decision given the shared upside and downside risk in these models.

In contrast, under the Geographic Direct Contracting Model announced in late 2020, DCEs will directly contract under shared risk with CMS with care coordination ownership over entire geographic regions. The primary goal of this model is to drive accountability over cost and quality for patients who have typically received care across a fragmented set of provider groups. This model was scheduled to move ahead in the first half of 2021, but was placed under review last week by the new administration and the future is uncertain.

These CMS Direct Contracting programs represent a key step forward by driving increased access to value-based care for the Medicare Fee-for-Service group of beneficiaries. And importantly, they create a range of new opportunities for new entrants by 1) substantially broadening the range of care organizations that can participate in these models (including new entrants that previously would have been ineligible) and 2) granting increased flexibility on the benefits design and patient care initiatives that can be offered, thus creating unique opportunities for new entrants that offer care solutions that can ultimately drive higher-value care (but would have not been within scope or incentivized with traditional Medicare Fee-For-Service).

These programs are harbingers of wider-spread opportunities for new entrants to play a meaningful role in value-driven models by enabling new entrants to participate as DCEs — and in providing a new technology and services stack to help DCEs succeed in these models. In short, startups now have a more interesting seat at the table both as potential vendors to Medicare Fee-for-Service care providers, and as care providers in their own right.

Justin Larkin is an investing partner on the Bio + Health team, focused on healthtech, including care delivery and horizontal infrastructure.

Right care, right place, right time

This past month, Todd Park — cofounder and Executive Chairman of Devoted Health, and formerly Chief Technology Officer and technology advisor for President Barack Obama — talked to a16z general partner Vijay Pande and Bio Eats World Host Hanne Winarsky about the massive shift toward value-based care (versus fee-for-service and volume) in the healthcare industry: what it really means, how to implement it, and what the possible opportunities are. We asked him what it would take to re-engineer American healthcare today to make this healthcare system the envy of the world.

“I think a way that the U.S. can leapfrog going from bottom of the rankings in the developed world to the top is to make an increasingly strong move toward value-based payment and care; see the rise of more and more tech-enabled payvider stacks across the country; have those tech-enabled payvider stacks, in all their different forms, compete with an increasing energy on the basis of outcomes, and cost, and consumer experience. And fueling massive innovation, right? Versus if the entire U.S. health-care system were actually being run centrally. We just have to get to a place where we create the right magnetic field from an incentive standpoint by continuing to move strongly toward value-based payment, so that value-based care innovation and value delivery information can really blossom through these tech-enabled payvider stacks and all their configurations competing with each other.”

Listen to the whole conversation here »

Can discovery be engineered?

In many ways, Dr. Jennifer Doudna — winner of the 2020 Nobel Prize for the co-discovery (with Emmanuelle Charpentier) of CRISPR-Cas9 — is an icon of “discovery” science. And the discovery of CRISPR-Cas9 is one of the most powerful tools we’ve ever had towards engineering biology, fueling a massive shift towards engineering in the field. In this conversation, a16z general partner Vijay Pande and Doudna talk about what happens as CRISPR and other tools to engineer and interrogate biology mature. What does the future of biology look like? Can discovery itself be engineered and industrialized, as biology begins to shift from an artisanal process to an industrialized one?

Listen here »

Got Clubhouse FOMO?

Clubhouse FOMO is a thing. We’ve been talking on the a16z Bio Clubhouse show “It’s Time to Heal” every Monday at 5pm PT on everything from metabolic health with Casey Means (Chief Medical Officer at Levels Health), to digital diagnostics with Gaurav Singal (Brigham Women’s), to consumer-centric care with Stephen Klasko (CEO of Jefferson Health), to genetic engineering with George Church (Professor at Harvard Medical School and serial entrepreneur), to the power of patient data with Anne Wojcicki (CEO of 23AndMe).

If you can’t hang with us live, you can check out all these conversations and more on a16z Live.

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