2015 Medicare Advantage Draft Rate Notice is a Bear: Messy, Noisy, and Smells Like Roadkill

February 24, 2014
|In Policy & Health Reform, Star Ratings, Strategy, Risk Adjustment
|By GHG Advisors

Friday after the close of business, CMS released the draft 2015 “call letter”, the rate announcement for Medicare Advantage.  As expected, it’s a bear: messy, noisy, and smells like roadkill.  It’s just about a worst-case scenario for flabby, distracted, uncommitted health plans in Medicare — the roadkill to come. The table is now heavily tilted against low performers who can’t keep up. Some topline observations:

  • The benchmark calculations were anticipated and about as rough as they could be under the Affordable Care Act. Having said that, for the “glass half-full” types, the average MA benchmark is still 103.4% of Medicare fee-for-service expense.  In the 1990’s under the old AAPCC methodology, all plans got 95% of fee-for-service, and plenty of plans were profitable — and that was before risk adjustment and Stars. We knew the Bush party was over. It’s time to get over it and push forward because the only way out now is through.
  • The Star Ratings quality demonstration is officially over, and those plans below 4 Stars are now leaving a blood trail in the snow. After this year, as required under the ACA, all plans above 4 Stars will get a 5% bonus, while those below get nothing.
    • CMS makes it clear in the call letter that it will terminate sub-3-Star plans for three consecutive years at the end of 2014.  The reaping is coming in a few short months.
    • The demo’s conclusion is a grave wound for 3.5 Star plans, who just missed the threshold and take an additional 3.5% cut for added misery.
    • At the same time, CMS made a big move to remove Stars as a barrier to market entry for new plans, especially those spawned by high-performing veteran organizations.  A new plan starts out with a 3.5 Star rating now — and will receive the 3.5% bonus; a new plan born of a veteran MA organization gets a weighted average of all its other plans.  It’s a welcome mat for Stars heroes like Kaiser, Providence, and CIGNA to expand to new markets, especially those with weak competition.
  • The risk adjustment provisions were very tough, but leave significant maneuvering room for sophisticated plans to adapt their much-maligned home visits into a mobile medical home model that closes gaps in care for the chronically ill.
    • It’s the beginnings of good policy but not there yet, and CMS is giving the industry an opportunity to shape it.   We should not fight this policy change and should embrace the dialogue.
    • The home is the most underutilized source of care for frail elders, and risk adjustment must be much more than a data collection exercise.
    • While we got some hidden rate relief in a slightly favorable FFS normalization factor, we only anticipate 300 bps improvement on average, but for those flabby plans who can’t keep up, the impact will be much less.

Our estimate is that the average MA plan will experience a real cut in payment of -4.9% if the draft is finalized in April. This includes a rough estimate of the impact of the new risk adjustment rules, and the average impact of the end of the Stars demo.

If this rate announcement is enacted, it’s survivable for the adaptable and the high performers — like the old adage about walking in the woods with a friend when you get chased by a bear, you just have to outrun the other guy.  There is no question the 2015 call letter is an evolutionary event and some inferior species will be eliminated.

Want to know more? Watch this space for tons of additional resources from the veteran Gorman team.

 

Resources

Sign up for a Free GHG web account and receive an alert when GHG’s summary of the draft 2015 “call letter” is available.

Join us on Thursday, February 27 to hear financial expert and former health plan CFO, Bill MacBain, and former regulator and industry-renowned policy expert Jean LeMasurier review critical take aways from the CMS Advance Notice, and what MA plans should prepare for in the next 45 days. Register >>

John Gorman featured in Wall Street Journal article “Government Proposes Cuts to Insurers’ Medicare Payments.” Click here to read more.  

On April 11, Bill MacBain and Jean LeMasurier will be back, and this time joined by John Gorman, Executive Chairman of GHG,  to offer insight on the Final Rate Announcement from CMS. You will walk away from this session with critical to-do items and issues to tackle in order to ensure your success in 2015 and beyond.   Register now >>

Register today for The Annual GHG Forum held May 1-2 at the Red Rock Casino and Resort in Las Vegas. This two day event is designed to provide best practices for the decision makers of organizations serving Medicare members, Exchange beneficiaries, and the Dual eligible population.