• The federal government overhauled a Trump-era Medicare program that healthcare upstarts have bet on.
• Some lawmakers had urged the government to kill the program over concerns about profiteering.
• But analysts say the changes unveiled last week could drive more revenue to the companies.

On February 24, the federal government announced changes to a controversial Medicare experiment that Democratic lawmakers had argued would feed the coffers of investor-owned and private-equity-backed companies while worsening care for millions of older Americans. 

The program, formerly known as Medicare direct contracting and rebranded as “ACO Reach,” was designed during the Trump administration and kicked off last April. It aimed to transform how doctors caring for Medicare patients were paid so that they were accountable for quality and costs.

Last month, dozens of House Democrats urged the government to kill the program — a move that would have taken a bite out of the top lines of healthcare upstarts that participate in the program, including Cano Health, Clover Health, Oak Street Health, and VillageMD.

Instead, the government made changes to the program that could make it more lucrative for companies, some analysts said.

“Most financial details of the program are actually improved,” Gary Taylor, an analyst at Cowen, wrote in a February 25 research note. In an email to Insider, he confirmed that these changes should make the program a better opportunity for participating companies, at least slightly.

Ryan Daniels, an analyst at William Blair, said in a February 24 note that the changes could benefit companies such as Oak Street, a primary-care chain based in Chicago, that care for patients in locations with bigger healthcare disparities.

Still, other analysts from Evercore ISI and Jefferies said that while some changes were positive, more details were needed to size up how they’d ultimately affect the companies’ finances. Some companies in the program, including Clover, Oak Street, Agilon, Humana, CareMax, and Alignment Healthcare, were trading up the day after the announcement.

Certain changes to the Medicare program could drive higher payments to participating companies

The new ACO Reach program is part of a massive shift in the $4.1 trillion healthcare system to pay doctors to keep patients healthy and costs low. It encourages doctors to prevent patients from worsening by giving them a fixed upfront budget to care for patients, rather than having doctors bill for every service and test, which experts say drives up costs.

The government expects 1.8 million patients to be cared for by doctors participating in the program in 2022.

The program was already expected to be a boon to some companies. Ahead of the overhaul, the insurer Clover said it expected to serve up to 165,000 people in the program this year, and it projected that would drive $2 billion to $2.3 billion in revenue. Analysts at Cowen projected that primary-care company Agilon could collect $1.2 billion in revenue from the program in 2022, while the clinic chain Cano could net $360 million in revenue. These projections have not been updated since the program changed. 

Certain changes that the Biden administration made, which go into effect in 2023, shouldn’t get in the way of those projections. Here’s what they are: 

• Under the program, the government keeps a percentage of the fixed fees paid to certain participants to guarantee savings for Medicare. The Biden administration reduced that percentage from 5% to 3.5% in the later years of the program, which runs through 2026.
• The government also stakes a percentage of payments on whether the organizations meet certain quality metrics. It reduced that percentage from 5% to 2% of payments.

These changes mean that the government would keep a smaller portion of payments for itself, while the companies would have more cash to invest in improving the quality of patient care, said David Ault, an attorney at the law firm Ropes & Gray. He added that it might also encourage more groups to participate in the program. 

Other changes include:

• Dialing up the program’s focus on improving health equity and ensuring that people in underserved areas of the country get better access to care. Some groups could also fetch higher payments from the government for caring for underserved Medicare enrollees.
• Requiring participating organizations to have governing boards that are 75% controlled by healthcare providers, up from 25% under the old version.

But this change doesn’t ban insurers or investor-backed companies from taking par, Ault said. That’s a big deal because House Democrats criticized the participation of such companies, and some industry observers predicted they’d be shut out of the new program.

“The vast majority of organizations either have or want to have significant provider leadership in their governing body,” Ault said.

Not all changes were positive for companies, though they could benefit patients. For example, new requirements to report more data to the government could increase administrative costs, analysts told Insider.

Overall, companies that participated in the program, including Agilon, CareMax, Oak Street, and VillageMD, told Insider they viewed the changes positively.

“This gives us the stability needed to continue our investment in technology and services to help physicians better serve Medicare beneficiaries,” said Ben Quirk, the chief strategy officer at the Miami primary-care chain CareMax.