High hospital prices are a leading driver of high and rising costs in the U.S. health care system, resulting in insurance premium growth that outpaces the growth in wages and inflation. In particular, the cost of hospital care accounts for one-third of all U.S. health care expenditures. On average, hospitals command prices in the commercial market that are more than twice as high as Medicare, with some hospitals charging three or four times as much. High hospital prices have been fueled by a number of factors, including increasing market consolidation and “must-have” hospitals flexing their market power to negotiate significantly higher prices from commercial insurers.
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On December 3, 2020, CMS unveiled a new payment and care delivery model, the Geographic Direct Contracting Model (Model). The Model is a geographic-based approach to value-based care aimed at improving the quality of care and reducing costs for Medicare beneficiaries across an entire geographic region. This new experimental program advances Medicare’s shift towards value-based care.
The Model will enable Direct Contracting Entities (DCEs) to build integrated relationships with healthcare providers and community organizations in a region to better coordinate care and address the clinical and social needs of Medicare beneficiaries. DCEs will take responsibility for the total cost of care for Medicare Fee for Service (FFS) beneficiaries in a specific region and implement region wide care delivery and value-based payment systems with the goal of improving care. DCEs–which may include sophisticated Accountable Care Organiz