A DCE, or Direct Contracting Entity, is an organization that participates in a Medicare payment model designed to move away from traditional fee-for-service medicine. Instead of paying doctors for every individual visit, test, or procedure, CMS (the federal agency that runs Medicare) pays DCEs a set amount per patient to manage their overall care. The goal is to reward keeping people healthy rather than performing more services. As of 2023, the DCE model has been restructured and renamed ACO REACH, but the core concept remains the same.
How a DCE Works
In traditional Medicare, doctors and hospitals bill the government for each service they provide. This creates a natural incentive to do more: more office visits, more tests, more procedures. A DCE flips that incentive. The organization receives a predetermined, risk-adjusted payment for each patient it serves, then takes responsibility for coordinating that person’s care within that budget.
If the DCE keeps patients healthy and spends less than the benchmark amount CMS sets, it keeps a share of the savings. If it spends more, it absorbs some or all of the losses depending on its risk arrangement. This structure is called population-based payment, and it’s meant to push healthcare organizations toward prevention, care coordination, and avoiding unnecessary services.
Beneficiaries aligned to a DCE still have regular Medicare. They can see any Medicare-accepting provider, and they don’t have to accept any additional benefits or services the DCE offers. The DCE operates in the background, coordinating care and managing costs without restricting patient choice.
The Two Risk Tracks
DCEs could choose between two levels of financial risk. In the Global track, the organization takes on full responsibility for both savings and losses. CMS applies a 2% discount to the benchmark (rising to 2%–5% in later years), meaning the DCE has to beat a target that’s already set below expected spending. In the Professional track, the organization shares in savings and losses but at lower percentages, and CMS does not apply the benchmark discount.
Both tracks include a 5% quality withhold, meaning CMS holds back a portion of the payment and only releases it if the DCE meets quality performance standards. This is the guardrail meant to prevent organizations from simply cutting costs by denying care.
Fee-for-Service vs. Capitated Payment
The shift from fee-for-service to capitated (per-patient) payment changes provider behavior in measurable ways. Under fee-for-service, doctors are reimbursed for each service after it’s delivered, which can lead to overtreatment. Research published in the Cochrane Database of Systematic Reviews found that fee-for-service payment resulted in more primary care visits, more specialist referrals, and more diagnostic services compared to capitation.
Capitated payment works in the opposite direction. Providers know their payment amount in advance, which encourages cost containment. The tradeoff is a risk of undertreatment, where providers might avoid delivering necessary but expensive care to stay within budget. DCEs were designed to balance these competing pressures through quality measures and patient protections, though critics argue those safeguards aren’t always strong enough.
Who Can Form a DCE
One of the distinguishing features of the DCE model is that it opened Medicare participation to organizations that had never operated in traditional Medicare before. Physician-managed organizations that previously worked only in Medicare Advantage, Medicaid managed care organizations serving dual-eligible beneficiaries, and entirely new entities could all apply. This was a deliberate CMS strategy to bring fresh competition and new care delivery approaches into the Medicare fee-for-service system.
This broad eligibility is also what generated the most controversy. Unlike traditional Accountable Care Organizations (ACOs), which are typically led by groups of doctors and hospitals, DCEs could be backed by private equity firms, insurance companies, and investor-funded startups with no history in Medicare.
The Privatization Debate
DCEs drew sharp criticism from health policy advocates who saw the model as a form of Medicare privatization. The concern centers on delegating control over Medicare spending to private, often profit-driven organizations with limited public accountability. A legal analysis from the University of Florida Journal of Law & Public Policy argued that models placing a high degree of control in the hands of private insurers risk misaligned incentives and lower transparency.
Critics pointed to Medicare Advantage as a cautionary example. That program, which also uses capitated payments through private insurers, has faced widespread problems with upcoding, where organizations submit more expensive diagnoses to CMS than were actually performed, inflating their payments. The concern was that DCEs could follow the same pattern: private entities extracting profit from Medicare while providing less care to beneficiaries.
Supporters countered that DCEs could deliver better-coordinated care and reduce wasteful spending, and that the quality withhold and CMS oversight provided sufficient protection. But the political pressure was significant enough that CMS restructured the program.
Transition to ACO REACH
On January 1, 2023, CMS replaced the Direct Contracting model with a redesigned program called ACO REACH (Realizing Equity, Access, and Community Health). The core payment structure carried over, but CMS added several changes in response to the criticism. New policies require healthcare provider leadership and governance within each participating organization, so doctors and clinicians have decision-making authority rather than outside investors alone. Beneficiary advocates now sit on governing boards. CMS also introduced stricter vetting of applicants, enhanced monitoring, and greater transparency requirements.
The rebranding was more than cosmetic. It signaled CMS acknowledging that the original model didn’t have enough safeguards to prevent the profit-driven dynamics critics had warned about.
Current Scale of the Program
As of 2025, 103 ACOs are participating in the ACO REACH model. These organizations include 161,765 healthcare providers and serve an estimated 2.5 million people with traditional Medicare. The program runs through performance year 2026, and CMS considers it part of a broader push toward accountable care, where providers take financial responsibility for patient outcomes rather than simply billing for volume.
For Medicare beneficiaries, being aligned to one of these entities doesn’t change your insurance card or your ability to choose your own doctors. What it changes is the financial structure behind the scenes: your providers are working within a budget rather than billing per service, and the organization coordinating your care has a financial stake in keeping you out of the hospital.