More Good News for Medicare Advantage in 2013 Rate Announcement
CMS released the 45-Day Notice of CY 2013 Medicare Advantage (MA) rates after the market close on Friday, and while it's the usual hot mess of green-eyeshade factors that comprise payment, it brought unexpectedly positive news for the industry. If it holds up in the final rate announcement on April 2, it will represent the largest increase in payments to plans in 4 years. Here's a brief rundown of what's hot, what's not, and what to watch in the runup to the final rates.
HOT
- The weighted average rate increase for 2013 is 2.47%, net likely flat. Most Wall Street analysts expected a cut of 2-4% in 2013. Again, this represents the largest increase in payments to MA plans in 4 years.
- CMS maintained the risk adjustment coding intensity adjustment at 3.41%, for the third consecutive year. 2013 will be the last year CMS can offer this concession -- the ACA mandates that coding intensity increase to 4.71% in 2014, and then by at least 25 basis points/year 2015-2018, bringing it to at least 5.7% by 2019. There is no incremental impact on 2013 rates, and plans get an extra year to get their risk adjustment houses in order before the pain starts.
- CMS made no mention of Risk Adjustment Data Validation (RADV) audits, which have been looming large over the plans for the past 3 years and remain a prominent source of revenue recoveries in the President's last two budget proposals.
- The fee-for-service normalization factor, which adjusts for upward trend in risk scores in MA vs. FFS, was a big positive for 2013. It usually rises or falls by 1-2% a year, and in most years it increases. For 2013, CMS is dropping the FFS normalization factor by almost 5 points, boosting 2013 rates by around 150 basis points.
- CMS's general tone toward the industry was decidedly more positive, as it was last year. CMS noted that the proposed annual growth rate "will sustain a strong Medicare Advantage landscape for 2013," and highlighted that enrollment increased roughly 10% in the last year. I guess once you top 25% enrollment in Medicare the agency has to show you some love.
- Star Ratings quality bonuses and rebates remain a key source of revenue boosts for high performing plans, which helps to offset the cuts to MA in health reform. Bonuses will increase in 2014 for plans with ratings of 3.5-4.5 Stars. We estimate that Star bonuses will increase payment by more than 4% in 2012 and around 25 basis points in 2013, as MA plans' overall Star rating increased to 3.56 stars, up 0.11 Stars year-over-year.
- CMS is also rebasing MA county rates for 2013. Historically this is usually a good thing for the plans (though CMS notes it could hurt a little next year). CMS is required to undertake this exercise every 3 years, and the consensus among many Wall Street analysts is that rebasing will add approximately 60 basis points to the 2013 rates.
- The "Doc Fix": In the past, CMS has insisted on basing its trends on the law in force at the time they made the projection. The doc fix on the books for 2/17/2012, the date of this advance notice, only extends through 2/29. The new doc fix, through 12/31, hasn't been signed into law yet. So our guess is that the advance notice doesn't include a catch up correction for a doc fix for the remainder of 2012. The fact that CMS didn't hold a conference call makes us think they didn't want to discuss the matter until the bill is signed. If we're right, we'll see a higher trend and higher rates in the final notice on April 2, when an additional 10 months of higher doctors' fees is factored in.
- Sequestration: the 2% cut to Medicare from the failure of the not-so-Super-Committee is the law of the land as of today, so CMS should have included that in their trending -- and we still came out ahead.
NOT
- CMS is updating and recalibrating the HCC (risk adjustmetnt) system for Medicare Advantage for the first time since 2009. The current HCC model for Medicare Advantage has 70 HCCs, a decrease of 7 from 2011. Our best guess of the impact of the HCC changes will cut 2013 rates by 125 basis points on average. Some
diseases will pay better and some will pay worse after recalibration, which could have a significant impact on some plans. CMS is looking for a better way to calculate the coefficients, one that is not so sensitive to
plans' activities to improve coding accuracy and completeness. One thing they are looking at is the impact when plans target a specific subset of members for prospective evaluations.
WHAT TO WATCH
- Repeal of sequestration before April would, presumably, result in a higher 2013 trend -- but that ain't gonna happen in an election year. Wait for something in the lame duck session after the election, when Congress has to deal with sequestration, the expiration of the Bush tax cuts, the expiration of the payroll tax holiday and the 2012 doc fix. Should look like a cross between cage fighting and smash-mouth hockey. If sequestration is repealed, it will show up as a correction to the 2014 rates.
All in all, a very positive development for our favorite program, considering the Age of Austerity we live in.
End of an Era -- and a New Beginning -- at XLHealth
United Health Group closed the acquisition of XLHealth this week, two months ahead of schedule. XLHealth has been one of our biggest clients for the last 8 years, and I had the distinct honor of serving on their board of directors the last 4 years. It was a brilliant "get" for United -- both in terms of gaining further expertise in management of the severely chronically ill and the dually-eligible and in keeping competitors from acquiring it. But they also got one of the best management teams in the business, led by our old pals Fred Dunlap (CEO), Paul Serini (EVP) and Mete Sahin (CFO) -- and in this new era of execution risk it's their leadership that mattered most. Those 3 guys represent the best turnaround artists our industry has seen in a long time, and United was right to tie them up for the next 3-5 years.
XLHealth was deep in the financial ditch and on the verge of serious regulatory trouble in 2007 when the company was taken over by Matlin Patterson, a New York private equity firm, in their first foray into a healthcare venture (at the time Matlin was known as the guys who took Alitalia Airlines private). XLH's history had been focused on disease management, and they frankly weren't very good at it. When they called us in 2004 with the idea of running Chronic Special Needs Plans on a PPO chassis in largely Southern rural markets ("we want to manage diseases, not providers"), we told them they were nuts and did our best to change their minds. We failed, and by 2007, so had they.
But Matlin Patterson stepped up. They also acquired our risk adjustment subsidiary at the time, and folded the two together under Dunlap's leadership. What happened over the ensuing 4 years should be the stuff of industry legend as Fred wisely deployed capital, revamped the XLH product portfolio to better manage severely ill beneficiaries, dug deep into the plan's troubled operations, and innovated their way out of a clinical black hole. They launched the single-largest house call program in the nation and a call center staffed entirely by pharmacists doing nothing but outbound calls to members with polypharmacy issues. By the fall of 2011 XLHealth had emerged as the first profitable C-SNP in history and was acquired by United for an unprecedented valuation.
As XLHealth now becomes a focal point for United in how to aggressively manage the chronically ill and the dually-eligible, further adding to their pole position among major payers in this brand-new world of health reform, the industry as a whole would do well to steal a page from their playbook: the only way out of Medicare Advantage cuts in 2013-2015 is to focus intensely on your highest-cost members, to move boldly on risk adjustment, and to lead, not just from the top, but from the front.
It was my distinct honor to serve as a director of XLHealth, and we wish Fred, Paul, Mete and the team all the best in their new beginning with United.
Medicare Advantage and Diagnostic Accuracy
There have been recent suggestions that Medicare Advantage plans are receiving excessive reimbursement from CMS as a result of "up coding" in the risk adjustment system. There are a number of reasons why these suggestions are inaccurate and counterproductive.
First, one must understand where the codes submitted for risk adjustment originate. The majority of diagnostic codes that drive risk adjustment are captured from claims, and the majority of claims data originate from outpatient encounters generated by physician offices in which payments are a function of procedures rather than diagnoses. For that reason, there is a high error rate in those submissions, and, since the risk adjustment model was built on fee for service Medicare claims, the error rate is built into the model as well.
Since Medicare Advantage plans are reimbursed based on diagnostic data, there has been an impetus to improve diagnostic coding. Accuracy and specificity in coding is very different from "up coding." CMS has correctly taken the position that it is in the interest of Medicare beneficiaries to have a correct and complete record of their medical conditions, and the risk adjustment system provides a powerful incentive in that direction.
Conversion to encounter based submissions will have a defining effect on risk adjustment payments as well. It is the stated intention of CMS to use the encounter data/RAPS submission overlap period to create a Medicare Advantage specific reference data base with which to recalibrate the risk adjustment model. When that is done, the difference in coding accuracy between fee for service Medicare and Medicare Advantage cease to be a factor.
Finally, the risk adjustment system affords a unique value to Medicare Advantage members. Because they are reimbursed for accurately documenting the members' medical conditions, a number of forward thinking plans have instituted programs of detailed diagnostic evaluations of their members. Since risk adjustment diagnoses cannot be submitted without a demonstrable link to care for those diagnoses, plans are collecting data on gaps in care and helping the members and their physicians address those gaps. Plans are being rated and will be partially reimbursed based on their performance in this area. That kind of care coordination is not possible in a fee for service setting and is of undeniable benefit to the nation's elderly.
Overall, the Medicare Advantage risk adjustment system is a striking example of using financial incentives to positively influence the delivery of health care. It is yet another example of the Medicare system creating a model that can be productively exported to other government health care programs and to the private sector.
At Supremes' Mid-Session Recess, Hints on the Individual Mandate
I've long thought this November's Presidential and Congressional elections are far more relevant to the future of the Accountable Care Act than the US Supreme Court's consideration of the Constitutionality of the individual mandate. On that point, this morning's WaPo had a new poll showing President Obama with his first clear lead in a hypothetical matchup against Mitt Romney.
The Supremes started their mid-session recess this week and are on track to hear more than 5 hours of oral arguments on the ACA's individual mandate in March, with a ruling expected at the end of the Court's session in late June -- right smack in the middle of the election season. Court watchers have given some interesting perspectives in the last couple weeks that indicate the ruling is likely to go Obama's way -- and not necessarily by a 5-4 margin.
In the first half of this term, the Court has shown several nuanced positions on thorny partisan issues -- a real rarity in Washington in these days of polarization. Court experts say this suggests conservatives -- including Chief Justice John Roberts -- may bridge the divide between the five Republicans and four Democrats on the mandate. Roberts, in particular, "is very cautious of the institutional credibility of the Court," said Barry Friedman, a New York University law professor. By achieving unanimity in several major cases thus far, the Roberts Court showed an ability to reach narrow agreement on topics with clear ideological lines. The decisions show that Roberts "is working very hard, as apparently are some of the justices, to ensure that the Court doesn't draw negative attention to itself" on partisan issues, Friedman said.
In the Citizens United campaign finance decision, Roberts wrote separately to reiterate his commitment to "the important principles of judicial restraint and stare decisis" -- or respect for precedent. And there's plenty of precedent that would support the Congress' powers to regulate interstate commerce and taxation of economic activity as the mandate does. Adherence to stare decisis is among the "certain decision-making rules that guide [justices'] actions and sometimes prohibit them from acting consistent with their ideological preferences," said Forrest Maltzman, a professor of political science at George Washington University.
Professor Michael Bailey of Georgetown University said last week, "I just have the sense that Roberts will go in to find a way to uphold the law, but in a way that narrows," without overturning the key 1942 decision that established Congress' broad powers to regulate interstate commerce.
In a January interview Professor John Yoo of Berkeley Law, a prominent conservative and former Bush Administration legal adviser, predicted Justice Anthony Kennedy, the Court's moderate vote, and Roberts would likely to join the four liberals to uphold the Affordable Care Act's individual mandate. "Roberts cares about the institutional permanence of the Court and protecting it from politics," Yoo said. "I could see Roberts going with the majority" to exercise his prerogative as chief justice "to control who got to write the opinion to keep it as narrow as possible."
According to a Kaiser Family Foundation poll released last week, this kind of decision wouldalso be responsive to public opinion. While 67 percent of those polled don't believe health care reform's individual mandate is constitutional, half want the the law kept as it is or expanded. Narrowing Congress' commerce powers without striking down the health care mandate, then, would address the public's constitutional concerns without changing a law that promotes a policy that most people like.
And as I've always said: markets are a better predictor of events than anything. This morning the futures trading site InTrade.com had only a 39.8% chance of the Court ruling against the mandate later this year. My money's on the Court upholding the mandate, by a 6-3 margin.
Ryan Redux: Another Medicare Cage Match Smackdown is Coming
I think it's a shame that Democrats are already demogoguing the issue -- Ryan/Wyden is a vast improvement over his original plan and worth a thoughtful debate -- but hey, it's an election year, what can you expect? Here's what: alot of incumbent blood on the floor of the House and Senate over the next several months, more "Medi-Scare" tactics by both sides, and likely, no major reforms until a monster deficit reduction package in 2013.
The State of the Union in Medicare Advantage Has Never Been Stronger
At long last the January 1 enrollment numbers are in from CMS and the State of the Union in Medicare Advantage has never been stronger. Our favorite program hit almost 13 million enrollees last month. Premiums are down 7% on average for 2012 and enrollment has grown by about 10% year-over-year from last January. Hate on, haters -- all the predictions of the demise of Medicare Advantage when the ACA passed are proving false and the program is bangin'.
CMS went on to say that:
- On average, there are 26 Medicare Advantage plans to choose from in nearly every county across the country;
- Access to Medicare Advantage remains strong: 99.7 percent of Medicare beneficiaries have access to a Medicare Advantage plan; and
- Since 2010, when the Affordable Care Act was passed, Medicare Advantage premiums have fallen by 16 percent and enrollment has climbed by 17 percent.
"Not only are average premiums lower, but plans are better, with more beneficiaries enrolled in 4 and 5 star plans," said CMS Acting Administrator Marilyn Tavenner. "The Affordable Care Act has strengthened Medicare Advantage by motivating plans to improve the quality of their coverage."
"We're seeing a very competitive landscape," said Jon Blum, CMS's deputy administrator. "The
plans seem to want to compete hard for their beneficiaries." The reason? Health plans have never been more dependent on Medicare, which now represents upward of 30% of earnings on average for publicly-traded companies that dominate the program. Since the passage of the ACA, it's been a "make it work" moment, and the plans are winning for the most part. Digging into the numbers on the market leaders we see the following:
- Humana added 250,000 lives in two months, or growth of 12.9%
- UnitedHealth added 132,000 lives
- Coventry had a very strong AEP with growth of 12.2%
- Health Net looked similarly strong with growth of 10.1% -- after having been sanctioned by CMS last year.
MA Enrollment - Good News
Today Secretary Sebelius announced the results of the annual election period showing that Medicare Advantage (MA) enrollment increased by 10 percent compared to this time last year. She declared that Medicare Advantage is "stronger than ever". This is consistent with my prediction in a December 2, 2011 blog based on reports we were seeing on the ground and hearing from the industry. The best news is that more beneficiaries are enrolling in 4 and 5 star plans, suggesting that the star bonuses and better information to beneficiaries may be influencing the choices. It is interesting that enrollment in stand-alone Prescription Drug Plans increased while enrollment in Medicare Advantage plans with drug coverage (MA-PDs) declined compared to last year. Enrollment in Special Needs Plans also increased about 10 percent. I look forward to seeing research on the effects of the new quality incentives on beneficiary choices and future changes in star ratings and beneficiary satisfaction surveys.
The End of Health Insurance?
Writing in the January 30 New York Times, Zeke Emanuel and Jeffrey Lieberman predict that accountable care organizations will totally replace health insurance within the next eight years.
They credit the health care reform act with establishing this revolutionary new form of care, in which claim processing is unnecessary, and ACOs will perform the risk-pooling function of insurance. This is uninformed twaddle raised to breathtaking heights.
First of all, the affordable care act did not create accountable care organizations. They have been around, under different names such as capitated physician groups and independent practice associations, since the San Joaquin Foundation for Medical Care pioneered the concept in the 1950s. If the notion of capitated groups of physicians hasn't supplanted health insurance over the past sixty years, it's hard to understand how the affordable care act will suddenly cause that effect now.
What the ACA did do was authorize a variant of ACO as an adjunct to the fee-for-service Medicare program (and set up a largely ignored demonstration program for pediatric ACOs under Medicaid). Unlike the imaginary ACO that Emanuel and Lieberman conjure up, the Affordable Care Act version is based on fee for service payments, not capitation. While the Pioneer demo program will experiment with capitation, the vanilla ACO version authorized under health care reform requires that all healthcare providers continue to submit claims and receive fee payments from Medicare. How does this threaten health insurance? It doesn't touch the non-Medicare world at all, and it consciously avoids changing benefits or payment mechanisms in the nation's largest health insurance scheme, Medicare itself.
Emanuel and Lieberman assume that ACOs will be paid on a per capita basis, and that the capitation will somehow flow from the ACO to individual practitioners. In practice, this process requires the enrollment and claim processing functions of an insurance company. From whom, if not insurance companies, will payment be received? They rightly note that about 60% of people who receive coverage from employers are actually insured by the employer, who contracts with an insurance company to perform the tasks of determining eligibility, paying claims, maintaining networks of health care providers (including ACOs of various descriptions), and providing insurance to protect the employer from unusually large claims. How would a Medicare program designed to reward efficiency have any impact on these employer programs?
They envision ACOs pooling risk for populations of 15,000 or more beneficiaries, as insurance companies do now. Any that do so will come under state insurance statues, and will either have to become insurance companies themselves, or contract with insurance companies as risk-bearing provider organizations. Someone, either the ACO or an upstream carrier, will have to carry the reserves and comply with state mandates.
With the advent of health insurance exchanges, it is probably that local provider organizations will be able to develop and market their own insurance plans in competition with the national giants. The exchanges will create a retail marketplace in which the advantages enjoyed by the large carriers in marketing wholesale to employers will be diluted. But make no mistake, these new entrants will still be insurance companies, and will still need to operate in compliance with both the statutory requirements and economic realities that govern the business of health insurance.
Don't Throw Away Your Insurance Card Just Yet
I just can't resist commenting on the January 30th commentary in The New York Times by Ezekiel Emanuel and Jeffrey Liebman on the demise of the Insurance industry by 2020 at the hands of an explosion of Accountable Care Organizations.
To test that premise, let's go back to the role that insurance companies play in the health care market place. Insurance companies, otherwise known as payers, provide a financial safety net to consumers of health care services by aggregating different types of providers willing to provide health care services to consumers at a predetermined price. The insurance companies in turn contract with employers and individuals to provide that network for a cost to the employers or individuals ( usually the cost is shared). That cost, referred to as a premium, is determined by various factors that speak to how often the covered individual has used healthcare services in the past and based on that history how often the insurance company believes that the patient will access health services in the future, (usually the future is defined in annual increments) and by what the market place has priced the value of that service to be.
Said differently, the insurance company plays the role of a middleman between purchaser and supplier. In that role the insurance company also does something else, namely the aggregation of a lot of information about you and me regarding our utilization of health services and the consequent extrapolated assumptions about our lifestyle. Such data aquisition becomes a valuable commodity not easily or cheaply replicated by other organizations including self insured employers or ACOs.
What about ACOs? The Accountable Care Organization is typically either a provider sponsored or payer sponsored enterprise. In either case the ACO stakeholders include providers, patients or consumers and the payer/insurance company--in the absence of the insurance company the payer is the emloyer, the government, small business group purchasers, or the individual. The purpose of the ACO is to provide a framework for delivering the right service in the right setting, at the right time and for the most reasonable cost. The purpose is not to replace the payer, in fact the payer becomes a necessary strategic partner for ACOs with respect to information sharing, sharing of risk based on aggregation of defined populations via disease stratefication, etc.
The authors reference several benefits of an ACO which they assume will trigger the demise of insurance companies such as payment shifting from FFS to a fixed amount per patient; ACOs making money by keeping patients healthy; ACOs pooling patient acuity and consequent risk by capturing large groups of patients thus pooling risk; ACOs eliminating administrative costs such as those associated with claims billing and processing, and in general by eliminating unnecessary tests and procedures.
Those benefits can and should be realized by an ACO if everything goes according to plan. Those same benefits can also be realized by other types of health care redesign initiatives such as medical homes, or by payer sponsored networks of excellence or by Integrated delivery system service line initiatives or by any number of different approaches to providing improved coordinated care.
The bottom line is that ACOs will play a significant role in the movement to redefine how healthcare services are delivered, priced and paid for. They are a tool in the arsenal of healthcare reform. They also differ in character, scope and focus from enterprise to enterprise. Do they represent the successor to insurance companies as we know them today? I think not.
WSJ asks, "Can ACOs Improve Health Care While reducing Costs?"
Specifically the question that the WSJ posed in its article on January 23 to three health industry experts, (Don Berwick, former CMS Administrator, Jeff Goldsmith, President of Health Futures and Tom Scully, CMS Administrator from 2001-2004) was whether ACOs are the answer to what ails the health care system. As expected, the response from each of the three respondents differed in outlook, driven by their political, professional and personal perspective.
Don Berwick as the "architect" of a series of innovate healthcare delivery demonstration programs, including Medicare ACO's, obviously is pro ACO - citing the goals inherent in ACO formation as improved quality of services, access and consumer choice, provided at a reasonable cost and accomplished by changing the relationship between provider, consumer and payer.
Mr Goldsmith questions the value of ACO's, citing that ACO's are self serving, not provider friendly, expensive to implement, (an ACO implemented in a midsized market will cost about 30 million) and most importantly don't save patients any money while dictating to the patient the timing, type and quality of treatment available.
Mr. Scully takes a more middle of the road approach, indicating that he likes what Mr Berwick is trying to do but argues that programs like ACO are not significant change agents with respect to timing and incentives. In his opinion ACO are just one minor part of a much larger solution, as yet undefined, that must be achieved to effect significant change in how the US provides healthcare. He does go on to offer a number of recommendations as to how to pay providers, believing as so many do that financial incentives are a more effective tool for changing provider and consumer behavior than any other.
My response is that their opinions about what is good and not so good about ACO's and what is needed to get us out of the healthcare mess we are in is reflective of the debate as a whole. Namely that there is no one size fits all solution to what ails healthcare as it is provided and priced.
ACO's are not a panacea solution for what ails health care. It is not a model that can be replicated in all parts of the US via a rubber stamp process. The financial drivers underpinning the ACO enterprise is not a win/win proposition for everyone that makes a living from the healthcare industry.
Accountable Care Organizations are one tool out of an as yet ill defined tool box designed to help "fix" a healthcare system that is crashing around our ears. ACO's offer a pathway for better coordination of services, better communication between provider and patients, a hopefully more realistic approach to patient diagnosis and treatment planning and ultimately a framework within which patients are more engaged in deciding what is best for them when it comes to healthcare,.
Oh and about that 30 million dollar pricetag for implementing an ACO. Think about what an ACO is to do, i.e. organize care, offfer access to that care and provide better patient" thru put" in the inpatient and outpatient setting. Does that really cost 30 million to accomplish per enterprise?
We spend a lot of time, energy and resources talking about and reacting to the shortcomings of our approach to health services provision and pricing. Those critical of initiatives like the ACO enterprise argue that it is not new, hasn't worked , is doomed to fail, etc.. What strikes me is that we spend a lot of time looking backwards to chart the future. Doing so makes it difficult to see what might be ahead when focused on what was and is.
I believe that every problem has a solution and sometimes those solutions are not grounded in the past but are new, innovative and to coin a phrase, (just kidding) must reflect out of the box thinking. Anyone up to the challenge?