It took a while to figure out.
CLOV’s tendency to put its technology platform in front of other business considerations obscures exactly how and where they are executing on the new CMS Direct Contracting Program. They do not easily fit into CMS’s demonstration design. The Direct Contracting Program is built for medical practices and especially those in primary care. While CLOV has a physicians’ practice, Medical Service Professionals of New Jersey with 15 clinicians, it is not the Direct Contracting Entity but involved in the program as a provider.
The Direct Contracting Entity for CLOV is the newly established Clover Health Partners. CHP does not have any of its own clinicians but appears to have arrived at contractual relationships with 210 practices in eight states, known as “participant providers.” Additionally, CHP has contracted with 77 post-acute and services providers in six states, dominated by skilled nursing facilities, and known under this program as “preferred providers.”
CMS, using claims history, has assigned to CHP Medicare beneficiaries whose plurality of primary care was provided by the participant providers. This procedure is known as “claims alignment" and occurs annually. CLOV reports that they have approximately 65,000 beneficiaries aligned this way. Voluntary alignment can occur quarterly at the option of the Medicare beneficiary.
As contracted providers to CHP, these 210 participant practices have presumably agreed to a reduction in their Medicare Fee for Service billings in exchange for the monthly capitated payment CHP will get from CMS for each beneficiary with a claims billing history of primary care codes. Generally, the specialty areas captured by this claims analysis include:
- General Practice
- Family Medicine
- Internal medicine
- Pediatric Medicine
- Geriatric Medicine
- Nurse Practitioner
- Clinical Nurse Specialist
- Physician Assistant
We identified about 5200 clinicians associated with CLOV’s participant providers, including about 1,000 at ProHealth in New York, an Optum subsidiary. However, we were only able to identify about 1 physicians that would be involved as a result of their primary care specialty. About 1/3 of these physicians are concentrated in about a dozen practices in New York (Optum) and Kansas.
Under the Direct Contracting Program, CLOV will participate in the Global risk option which requires 100% two-sided risk. It is not clear whether CLOV has elected the Total Cost of Care or the Primary Cost of Care payment mechanism. As far as we know, they have not clarified but given the types of providers in their participant and preferred groups, it appears they will be using the TCC payment mechanism.
Assuming the TCC payment mechanism, CLOV will be paid a monthly capitated amount of around $1,000 per beneficiary known as the benchmark amount. The benchmark rate in Kansas is higher, ~$1,100 and in New Jersey, lower ~$940.
CLOV assumes 100% of the risk associated with each aligned beneficiary’s care, supported by risk mitigation tools like risk corridors and stop loss arrangements. They are liable to CMS for any upcoding or risk profile creep that has been associated with these types of arrangements in the past.
Again assuming CLOV has adopted the TCC payment mechanism, CLOV will negotiate with its preferred providers a rate and, in turn the preferred provider will agree to a reduction in their FFS claims to Medicare. CMS also applies a withhold to account for leakage of services to providers not on the preferred provider list and for those who are on the list which do not agree to a 100% reduction in their FFS claims.
A reconciliation of FFS claims versus the capitated amount is conducted at year end and the losses/savings calculated.
(Note: I have simplified a discussion of this process for the sake of readability so please call if you need more information for model building)
Assuming 65,000 beneficiaries disclosed by management, which strikes us as high given the small size of the practices, the top line contribution of the Direct Contracting program would be about $780M annually, prorated to $585M for 2021. CMS has estimated that primary care services should account for around 7% of the monthly capitated amount or about $40M in 2021. That suggests about $545M to manage care for non-primary care for 65,000 beneficiaries.
Assuming each aligned beneficiary remains in the program (i.e. does not migrate to Medicare Advantage, move or pass away), the total Member Months for aligned beneficiaries for 2021 should be about 585,000. In a break-even scenario, CLOV would have approximately $931/beneficiary/month for non-primary care and $68.37/beneficiary/month for primary care, not counting SG&A and other non-benefit related expenses.
In its guidance, CLOV indicated total benchmark payments under management of $700 to $800M which comports with the $1,000/beneficiary/month for 65,000 beneficiaries. However, they appear to be guiding to an annual number not one pro-rated for the April 2021 start.
They cite $20-$30M in revenue, which we assume would be after payments to participant and preferred providers but before risk adjustment, administrative expense, etc. Assuming that is the case and that the $20-$30M in revenue is an annual number, the revenue cited by management would suggest $25.64 to $38.46/beneficiary/month before non-benefit related expenses, risk adjustments, etc. If the $20-$30M guidance is a pro-rated number, the per beneficiary/month revenue amount would be $34.18 to $51.28/beneficiary/month.
The mid-point of the revenue guide for the Direct Contract program, then, assumes benefit expense of about $967.95 for a full year and $957.26 for a prorated year. For context, CLOV’s primary insurance subsidiary spent $937.92/member/month in 2019 and $1,1114.18/member/month in 1Q 2021. MLR is historically above the industry average, excluding COVID months.
Contributing to CLOV’s poor history of benefit expense management are other risks:
- Unlike JWS/Cano or OSH, CLOV has little control over the doctors that drive patient flow and make referrals because they are not employed by CLOV or directly affiliated, except for the 15 clinicians in New Jersey. The nature of the relationship calls into question how effective contracted providers will be in recruiting voluntarily aligned beneficiaries.
- The participant providers with which CLOV has contracted are predominantly single and double practitioners, many located in CLOV’s home state of New Jersey. These practices will benefit from the dependable revenue stream provided by the Direct Contracting Program but they have little patient flow and even less influence over local market dynamics.
- The preferred providers with which CLOV has contracted are heavily weighted to high cost post-acute institutional care, although AMED and LHCG do appear on their list. Preferred providers have been contracted with in six states instead of the eight in which participant providers are located, limiting CLOC’s ability to manage total cost of care in Vermont and Arizona. Absent from the list of preferred providers are things like diagnostic resources, hospitals and other high cost services.
The one bright spot is Kansas where CLOV has contracted with public hospitals that offer a wide range of services from primary to acute care and are typically the only health care system available to the local population. Kansas is also under-penetrated by Medicare Advantage plans which means less competition for the eligible populations.
Let us know if you have any questions. Data available on request although most of our models are getting too large to fit through the internet. We can extract small chunks if you have a specific request.
Emily Evans
