Is MA a
ripoff of taxpayers, a godsend for integrated, cost-effective care, or somehow
both? You can’t take a stand on this question from 30,000 feet. So let us guide
you through the valley of details.
February
14, 2019 TIMOTHY KELLEY Senior
Contributing Editor
In an old
joke, a man sprinkles a magic powder to ward off elephants. “But there are no
elephants around here!” protests a skeptic.
“You
see?” says the man. “It works!”
In one
sense, the funding of Medicare Advantage (MA) clearly works. Insurers are
flocking to offer these privately managed plans, through which a growing share
of Medicare enrollees—in 2018, it was 34%—choose to get their benefits. When
companies contract with CMS to offer an MA plan, they receive monthly capitated
payments for enrollees, which must cover all Part A and Part B benefits except
hospice, and, in most cases, a separate payment for Part D prescription drug
benefit as well. But the calculation of these payments raises several
questions, and one big one echoes singer Avril Lavigne in a 2002 pop hit.
She
didn’t inquire—although one might—whether MA payment creates a true “level
playing field” with government-run, fee-for-service Medicare. And she didn’t
ask if the way MA plans are paid is the best way to incentivize quality and the
“value-over-volume” transition that U.S. health care is widely believed to
need. Lavigne sang simply—and plaintively: “Why do you have to go and make
things so complicated?”
Amen,
Avril.
Of
course, it’s complicated partly because it’s tough. “Figuring out how to pay
the plans accurately and fairly has posed a persistent challenge,” wrote
Richard Kronick, former director of the Agency for Healthcare Research and
Quality (AHRQ), in a February 2017 Health Affairs blog. He
went on to warn that because the MA payment system over-rewards plans for the
medical risks their enrollees face, “unless there is a further policy response,
Medicare will substantially overpay MA plans over the coming decade—likely to
the tune of hundreds of billions of dollars.”
Medicare
Advantage penetration by state, 2018
Source:
Kaiser Family Foundation analysis of CMS state/county market penetration files,
2018
A
different assessment came on the same blog early last year from Robert E.
Moffit of the conservative Heritage Foundation and coauthors Rita E. Numerof
and Christen M. Buseman. Noting that plans are paid a capitated rate tied to
CMS quality measures (and conceding that the system isn’t perfect), they stated
approvingly that MA plans “leverage the business-rich experience and care
management capabilities of commercial payers and have demonstrated, to a large
degree, the special advantages of the private-sector market response to patient
wants and needs.”
“Business-rich,”
maybe. But truly competitive? Last May, Steven Lieberman, a nonresident fellow
at the Brookings Institution, weighs in with five coauthors, once again on
the Health Affairs blog, with a negative on that one.
“Research suggests that the current MA bidding structure does not strongly
promote competition, allowing plans to bid above their true costs and to retain
rebate dollars instead of fully pass[ing] savings through to beneficiaries,”
they wrote. The rub, they argued, is that complicated payment system.
So let’s
take a look at how plans are paid.
The short
answer—and it is not all that short—is that CMS establishes benchmark monthly
amounts for each county based on fee-for-service Medicare spending, and those
benchmarks guide insurers in submitting “bids,” which CMS then customarily
accepts. “Bids” is in quotation marks because, as MA critics note, the system
is not one of true competitive bidding with some plan (or plans) getting the
contract and others not. In the MA world, a bid includes the benchmark amount
and the plans’ administrative expenses and profit margin, which can’t exceed
15% of total plan revenues. When a bid exceeds the plan’s risk-adjusted
benchmark, an extra premium is charged to enrollees. When it’s lower than the
benchmark, as is more often the case, the plan is paid not only the amount of
its bid, but also a share (from 50% to 70%, depending on quality ratings) of
the difference between the benchmark and the bid. That amount is known as a
rebate, and the plan is required to use it—after deducting small percentages
for administration and profit—either to provide additional services to
enrollees or to lower their premiums.
But
almost every word in our paragraph of MA 101 is a metaphorical rock which, if
upended, reveals a swarm of wriggling complications. In fact, it speaks
volumes—and not very reassuring ones—that the way this country pays for its
best stab at cost-effective care for seniors is an ever-evolving and almost
impenetrable agglomeration of legislation, regulation, market behavior, and
accumulated custom. With benchmarks, bids, and rebates, the three basic units
in this payment process, however, there’s also a toolbox of modifying factors
that, examined one by one, shed further light on the details, which—as
usual—are where the devils reside.
1
Quality star ratings
It makes
sense in this value-focused era that MA plan payment should be influenced by
the quality of care and service, and it is—with some limitations, as we’ll see.
Plans are assessed with a quality rating of from one to five stars (five is
tops) based on nearly 50 measures that include how well they provide
screenings, immunizations, and checkups; help members manage chronic
conditions; and satisfy customers and respond to their calls and questions.
Data come from member surveys, reports by plans, and reviews of billing, among
other sources. For plans’ Part D services, a separate rating is based on drug
safety, accuracy of drug pricing, and member satisfaction, and the two ratings
are combined to create an overall plan rating.
Plans
with four- or five-star ratings are awarded quality bonuses that nominally are
supposed to boost benchmarks by 5%. In actual practice, for 2018 they added 4%
to the average plan’s benchmark and 3% to plan payments, according to the
Medicare Payment Advisory Commission (MedPAC), a nonpartisan agency that advises
Congress on Medicare. Two important details about quality bonuses: First, in
roughly half of U.S. counties, benchmarks are capped at pre-ACA levels, which
may block some or all of a quality bonus from applying, and second, bonuses may
be doubled in certain urban counties with low fee-for-service spending and
historically high MA penetration. MedPAC has called for an end to that
practice.
By the
time a quality rating goes into the baker’s oven of MA plan payment, it’s
pretty stale dough. As Catherine M. Murphy-Barron, principal and consulting
actuary for the consulting firm Milliman, explains, the star ratings that will
trigger quality bonuses and inform consumers’ choices for 2020 coverage will be
based on ratings issued in October 2018—“and most of the data for that year’s
star rating was collected in 2016.”
Another
problem with the use of quality star ratings, noted by MedPAC in its annual
report to Congress, is “contract cross-walking.” In this practice, a company
operating in geographically disparate areas combines far-flung units under a
single contract so they can all enjoy bonus payments earned by one unit’s high
quality rating—even when the other units thereby included haven’t merited such
a grade. The commission cites one company that used such contracting to
piggyback its lower-rated 300,000-member plan in the South onto a four-star,
20,000-member regional plan in the Northeast so that the big Southern plan
could garner bonus payments it had not earned. MedPAC has long recommended that
CMS fix this problem, but it hasn’t yet.
2
Preliminary adjustments
Benchmarks
don’t just happen. You might think they’d simply be last year’s Medicare FFS
spending in the county, right? Wrong! In the lullaby prose of the Congressional
Research Service (CRS), “to project per capita FFS spending in each county, the
Secretary [of HHS] calculates historic spending data from original Medicare
claims and estimates a trend to determine the growth” in FFS Medicare. Then a
national FFS per capita monthly spending estimate (for 2018, this was $848.21)
is multiplied by a county-level index called the “average geographic
adjustment” to “determine the relative difference in per capita spending in
each county.”
At least
in recent years, several other adjustments have then been made “which are
either specified in the statutes or made at the Secretary’s discretion,” as CRS
reports. They’ve included tweaks to reflect price inflation, changes in
growth-estimate methodology mandated by the ACA, a subtraction representing
reduced Medicare spending for care veterans get from the VA instead of their
plan, and a phaseout of what amounted to a double compensation for hospitals’
indirect medical education.
3
The quartile system
The MA
game can’t be played without players, and the ACA’s drafters wanted to be sure
insurers would suit up and come onto the MA field—even in remote rural areas.
They also wanted to push most medical costs in the direction consensus says
they need to go: downward. So they devised a system in which the nation’s 3,142
counties (or county equivalents, where parishes, boroughs, etc., predominate
instead of counties) are ranked according to total Medicare FFS spending. That
ranked list is divided into quartiles, and benchmarks are adjusted by a factor
that corrects somewhat for geographic disparities.
For the
lowest-spending counties, benchmarks are multiplied by 115% “to help attract
plans,” as MedPAC writes. In the next-lowest quartile the factor is 107.5%, then
it’s 100%. The biggest-spending quartile’s benchmarks are multiplied by 95%,
again in MedPAC’s words, “to generate Medicare savings.”
“In
remote areas, there might not be any Medicare Advantage plans available if we
didn’t overpay them,” comments Laura Skopec of the Urban Institute, who says
that the fact that the percentage downside is smaller than the upside is neatly
balanced by the distribution of enrollees. “The vast majority of people live in
95% counties,” she says. “And this 95%-to-115% spread has the magical property
of getting payments on average nationally to about 100% of traditional
Medicare.”
Local MA
plans that operate in more than one county use a benchmark that’s averaged
across the counties it served, weighted by enrollment.
4
Regional plans
Did we
say “local” plans? There’s another kind too. Unlike local plans—which may be
HMOs (as most are), PPOs, special-needs plans, or private FFS plans—regional
plans must be PPOs, and each must serve all of one of 26
regions established by CMS. Calculating benchmarks for regional plans,
confesses the advocacy group Better Medicare Alliance in deadpan printed prose,
“is a bit more complex.” Basically, these regional benchmarks are a weighted
average of two things: (1) the average county-level benchmark, weighted by the
number of Medicare beneficiaries in each county and the national share of
beneficiaries in FFS Medicare, and (2) the average plan bid, weighted by each
plan’s projected enrollment and the national percentage of beneficiaries in MA.
5
Risk scores
Enrollees
in bad health, of course, cost more than those in good health. And, as Kronick,
the former head of AHRQ notes, plans are rewarded (over-rewarded, he believes)
for higher-risk patients. Based on ICD-10 diagnostic codes from patient encounters
submitted by MA plans and using a model called Hierarchic Condition Categories,
CMS pools data in diagnostic buckets it terms DxGroups and combines these in
categories, announcing annually the coefficients by which the various condition
categories are expected to increase costs. This becomes the basis for each
enrollee’s risk score. A risk score of 1.0 means the member is expected to
generate roughly the average level of spending in the coming year, while a 2.0
risk score anticipates twice the average cost, doubling the payment.
MedPAC’s
March 2018 report to Congress gives the example of an 84-year-old male in a
certain county who’s not eligible for Medicaid. An annual capitated payment for
his care would be $5,707, it reports. For an otherwise equivalent man with
diabetes the heightened risk score would turn that into $6,765. And what about
one with vascular disease as well? The plan would get $9,796 for that
gentleman’s care.
6
Coding intensity adjustments
But FFS
Medicare will always be an imperfect template for MA plan payment. That’s
because MA plans have an incentive FFS lacks to identify risk
aggressively—after all, it affects how much they’re paid. FFS providers mostly
code for procedures performed. An enrollee’s diabetes that triggered a visit last
year may not be reflected in coding the treatment of this year’s broken leg.
But MA plans go to great lengths to identify every possible diagnosis. Through
medical record reviews, home-visit health risk assessments, widely promoted
annual checkups, and shared risk programs with providers (or even what MedPAC
calls “pay-for-coding” programs), plans collect diagnoses the way New York
City’s homeless population collects recyclable cans in the street.
Of
course, that might entitle them to a halo rather than horns—such identification
of risk can, theoretically, enable the follow-up and robust condition
management that proactive care requires. But coding is also a system that is
allegedly systemically gamed. Says MedPAC’s 2018 report: “Some plans appear to
have modified their approach to coding diagnoses to maximize revenue to the
detriment of accurate reporting of diagnosis codes or consideration of patient
needs. In recently unsealed lawsuits, whistleblowers alleged that plans ignored
evidence of improper coding; used software that is incapable of deleting
invalid diagnoses, or ignored the status of a diagnosis as valid or invalid;
and focused clinical programs on patients with a potential for coding a higher
level of severity (e.g., diabetes without complications) but not on patients
already coded with the highest level of severity for a condition (e.g.,
diabetes with complications) who might benefit the most from disease
management.”
Since
pre-ACA days, going back at least to the Deficit Reduction Act of 2005,
Congress has recognized that this disparity of incentives between MA and FFS in
risk adjustment has justified a numerical fix. It called for a compensatory
downward adjustment in MA risk scores, and for the 2014 payment year, according
to Kronick, that adjustment factor was 3.41%. Following further direction in
the ACA and the American Taxpayers Relief Act of 2012, the downward fix was
increased by 0.25% yearly until it reached 5.91% for 2018. Many experts believe
that for a truly level playing field it should be larger—more like 8% to 11%.
CMS has statutory authority to increase it more, but hasn’t.
“They
never redid the analysis,” says Shawn Bishop, the Commonwealth Fund’s vice
president for controlling health care costs and advancing Medicare. Indeed, a new
risk-adjustment model could be created based on MA’s own claims data, she says,
and CMS is working on that—but at an apparent snail’s pace. Meanwhile, coding
intensity adjustment is a political hot potato the agency would rather not
juggle further.
“CMS just
isn’t motivated to take on this issue,” says Bishop. “It’s a political
decision, not a data decision. The analysis is difficult, and the plans don’t
like the adjustment to begin with. They’re making a ton of money doing it this
way.” In any case, it’s widely agreed that average MA risk scores have been
rising relative to FFS—by 1.5% annually over the past decade, says Kronick.
7
Rebate percentages
Quality
star ratings (remember them?) play a role once again when it’s time for MA
plans to receive rebates. The rebate, of course, is a fixed percentage of the
difference between an MA plan’s risk-adjusted benchmark and the bid it has
submitted as an offer to provide capitated care. Plans with three quality stars
or fewer receive 50% of the benchmark-bid difference as a rebate; those with
three-and-a-half to four stars get 65%, and those with four-and-a-half or five
stars are awarded 70%. And the additional services that can be offered with
rebate money—sweeteners to attract new enrollees at the next open enrollment
period—include at-home care and telemedicine.
An
invitation to plans
Pulling
back out of the weeds a bit, concerns about MA plan payment aren’t limited to
the growing risk-adjustment gap between MA and FFS and all the other details.
They also go to the whole benchmark-bid process and the way it works. As health
economist Austin Frakt has noted, benchmarks really have nothing to do with
plan costs. They’re an open invitation to plans to “bid” up to a clearly stated
permissible level.
Agrees
the Urban Institute’s Skopec: “When you give plans a benchmark to bet
against—when you tell them, basically, the maximum you’re willing to pay—you
may get higher bids than if they were bidding blind.” She concedes that fewer
plans might bid if true price competition ruled instead. But she believes the
present Rube Goldberg-style MA payment system suffers from an unresolved
tension between two goals: maximum choice for seniors and maximum savings for
taxpayers.
Indeed,
Harvard health economist Vilsa Curto and his colleagues studied Medicare costs
from the year 2010 and found that basing MA benchmarks on FFS Medicare costs
caused $21 billion in overpayments that year.
But are
you ready for a little policy whiplash? Curto and company also found that MA still
saved money over FFS, with spending reduced by 9% to 30% at no sacrifice in
quality.
We live
in an age of irreconcilable politics, when red won’t give blue an inch, nor
vice versa. But even a conservative can’t avoid noticing some element of
cross-subsidy here from the bad ol’ government to the knight-on-a-white-horse
private sector. No more than a liberal/progressive can deny that the preventive
medicine and care coordination MA seeks to encourage just may be where hope
lies.
Medicare Advantage by the percentages
99%: Medicare
enrollees with access to a Medicare Advantage (MA) plan
90%: MA beneficiaries with a choice of at least five plan options
85%: Required minimum medical-loss ratio (share of revenue spent on member benefits; any excess must be refunded to CMS)
77%: MA enrollees (for 2018, projected) in plans with bids below fee-for-service spending totals
>60%: MA enrollees in HMOs, 2018
40%: MA beneficiaries enrolled in a zero-premium plan
34%: Medicare beneficiaries enrolled in MA plans, 2018
8%: Growth rate in MA enrollment from 2017 to 2018 (and also from 2016 to 2017)
Sources: Medicare Payment Advisory Commission (MedPAC), Better Medicare Alliance, Kaiser Family Foundation
2020
foresight: an MA payment timeline
As this
magazine is published, the process that will determine the amounts of monthly
capitated payments to Medicare Advantage (MA) plans next year, in 2020, has
already begun. Here are highlights:
·
Late autumn 2018: CMS
issued a preview of rates for 2020.
·
February 2019: CMS
publishes Advance Notice and draft of its “call letter.”
·
April 2019: The
agency promulgates its Final Rate Notice and Call Letter.
·
June 3, 2019 (first Monday in the
month): MA plans submit bids for 2020 coverage.
·
October 2019: MA
plans begin marketing.
·
Oct. 15–Dec. 7, 2019: MA
open-enrollment period, in which members sign up for the coming year.
·
Jan. 1, 2020: Plan
year begins.
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