How Medicare is quietly being privatized

click to enlarge “Direct Contracting,” a scheme launched under the Trump administration, is inviting corporations to profiteer off of Medicare. - Shutterstock
“Direct Contracting,” a scheme launched under the Trump administration, is inviting corporations to profiteer off of Medicare.

Healthcare is big business — literally one of the most lucrative corporate endeavors in the country, accounting for one-fifth of our total economy. And the way that the business of healthcare interferes with actually providing Americans with appropriate, accessible, and affordable healthcare has been a frequent subject of my writing in these pages. From hospital consolidation to drug pricing, rising premiums to healthcare inequities, the fact that our healthcare system is designed to maximize profit for a few large corporations is the root, if not all, of the problem.

The fattest slice of that very, very large pie is healthcare for seniors — the Americans who most often need care. American seniors are insured through Medicare, a government health insurance program that’s supposed to offer them affordable, comprehensive healthcare. But as this is the American healthcare system we’re talking about, the knives are constantly out for Medicare — looking for just another bite.

Late last year, I wrote about the Medicare (dis)Advantage program, a frontal assault on Medicare, which cajoles beneficiaries into selecting privately managed Medicare plans. The private health insurance corporations that administer these plans get to keep the money they don’t spend on healthcare as profit, putting $27 billion of taxpayer money into the pockets of health insurance corporations in 2018 alone.

As bad as Medicare Advantage is, a new plan hatched under the Trump administration — and being allowed to proceed under the Biden administration — is even worse. But unlike Medicare Advantage, most seniors haven’t even heard about it.

It’s called Direct Contracting. Designed by the Trump administration, it’s a sop to the health insurance corporations and private equity firms that have been such a persistent force in Republican healthcare circles. They agree on a simple goal: privatize everything.

To understand Direct Contracting, it's worth reviewing how traditional Medicare works. Like any private insurance program with which most of us are familiar, Medicare beneficiaries pay a certain premium depending on their income to have access to the service. When they see a doctor or go to the hospital, Medicare kicks in to pay for their care. In Medicare’s case, the bulk of their healthcare costs are subsidized by taxpayer dollars.

But that’s changing as corporations champ at the bit to get as much taxpayer money as they can. Medicare Advantage does this by coaxing seniors to enroll in privately operated versions of Medicare for a few added perks. Direct Contracting does it behind seniors’ backs and offers nothing in return. Instead of cajoling seniors to hand over their Medicare dollars, large corporations, called Direct Contracting Entities, target doctors. When a doctor signs up, all of the Medicare beneficiaries they see are signed up too — without their knowledge or consent. The Direct Contracting Entity acts as a middleman between the physician and Medicare — and like Medicare Advantage, they profit off of the Medicare dollars that aren’t spent on beneficiaries. In exchange for signing up, the doctors earn a kickback from the Direct Contracting Entity.

This isn’t even the worst version of Direct Contracting. Right now, Direct Contracting Entities have to recruit physicians to join willingly. In the iteration the Trump administration had previously developed, Medicare would just hand a defined geographic area over to a specific entity into which any physician practice seeing Medicare patients would automatically be enrolled.

Nevertheless, Direct Contracting will cheat seniors and taxpayers. To understand how, you have to understand the incentives of a profiteering Direct Contracting Entity. On the one hand, they want to get as much money per beneficiary as possible — and because Medicare gives the Direct Contracting Entity more money to care for sicker patients, they have an incentive to upcode (or exaggerate) patient diagnoses by leaning on enrolled physicians to upcode their patients in turn for a cut of the income. But while they have an incentive to exaggerate patient diagnoses, they also have an incentive to spend as little money as possible for their care so as to keep as much of the money that Medicare gives them in profits. Code high, treat low. That’s how Direct Contracting Entities maximize profits.

Imagine the experience for seniors: without telling you, your physician enrolls you in a scheme to make money off your Medicare dollars by partnering with an unnamed, unseen corporation that then presses on them to over-diagnose you while skimping on your care. You’re told you're sicker, but receive less care for it.

Everyone from traditional health insurers to private equity firms are lining up to cash in. But Direct Contracting isn’t a matter of law; Congress never voted on this. It’s just a pilot program designed by the Trump administration … that the Biden administration is now carrying forward. They could kill Direct Contracting in its tracks if they wanted to! The fact that it’s not should be extremely worrying to seniors, consumer rights advocates, and anyone who pays taxes to the U.S. government.

The irony here is that President Biden ran on a public option — which doesn’t look to be coming anytime soon. Instead of that promise, his administration is allowing a backdoor private buyout of Medicare.

Originally published Jan. 25 on The Incision. Get more at

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About The Author

Abdul El-Sayed

Dr. Abdul El-Sayed is a physician, epidemiologist, public health expert, and progressive activist who served as Detroit’s health director and ran for governor in 2018. He is the author of Healing Politics: A Doctor's Journey Into the Heart of Our Political Epidemic and Medicare for All: A Citizen's Guide, as well...
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