The Impact of Health Reform
Estimates and projections of the costs of a new health program are often way off the mark. Two major expansions of Medicare had opposite impacts. The ESRD benefit which was added to Medicare in 1972 has resulted in significantly higher costs than originally estimated while the Medicare Part D program ended up costing about 40 percent less than originally projected.
We are now starting to see the impact of several new programs added by the ACA. A recent IRS study found that fewer small employers took advantage of a new tax credit with the result that costs to date are approximately one-fourth of the CBO estimate. Similarly, expenditures for the pre-existing condition insurance plan have been less than expected due to the low take up rate. On the other hand, thousands of employers have benefited from the subsidies under the Early Retiree Reinsurance program and the funds are expected bo be exhausted before 2014 and millions of children have been insured by the provisions to extend coverage to young adults.
Several articles in the November issue of Health Affairs have taken a second look at projections for expanded coverage under Medicaid and the health exchanges which will start in 2014. In an article reviewing the estimate of 16 million new Medicaid recipients by faculty from Harvard, the title says it all: "Policy Makers Should Prepare for Major Uncertainties in Medicaid Enrollment, Costs and Needs for Physicians Under Health Reform". Authors Benjamin Sommers, Katherine Swartz and Arnold Epstein estimate that there will be 13 million new enrollees with a range of 8.5 — 22.4 million new enrollees and that costs could range from $34 - $98 billion per year. Discussion at a conference to roll out the new Health Affairs issue concluded that the take up rate could vary dramatically by state, for example take up could be discouraged in states with budgetary woes through limited marketing or could be high in states that have historically had aggressive outreach programs to expand Medicaid eligibility.
At the same conference John Shiels from Lewin discussed his article "Without the Individual Mandate, The Affordable Care Act Would Still Cover 23 Million; Premiums Would Rise Less Than Predicted". The article concludes that if the individual mandate is overturned, there will be no death spiral since the government subsidies are so generous that they will not deter large numbers of individuals from signing up. The authors estimate that premiums will increase 12.6% if fewer young and healthy individuals sign up. While the government would have to pay more for the costs of the newly insured who qualify for subsidies, overall costs to the government will be lower since fewer people will qualify for subsidies and there will be fewer Medicaid enrollees.
It will be interesting to see how it all turns out.
Get Ready for Network Shock
Have you submitted an application to CMS to expand your provider network lately? If not, you may be in for a big surprise. Inadequate provider networks have always been the number one reason CMS rejects Medicare Advantage (MA) applications. But in recent years CMS has raised the bar even higher.
So what's so new at CMS? Here are just a few of the significant changes for networks:
• CMS has created totally new and rigid network adequacy standards for all MA Plans wanting to build or expand;
• Provider access time and distance standards now exist for every MA eligible county;
• CMS now defines the required contracted provider counts for every physician and facility specialty for each County;
• Minimum bed counts are now also required for hospitals and related services;
• MA Plans must contract with 35 physician specialties and 25 hospital and ancillary types to demonstrate adequacy to CMS;
• Ninety percent (90%) of the all Medicare beneficiaries in the county must be able to access every required physician and facility specialties using the time and distance standards;
• CMS commissioned new analytic software they use to calculate MA Plan's network adequacy;
• The new software objectively determines if your network passes or fails. If you don't own or have access to this software you are at an extreme disadvantage;
• The applications from Plans failing to attain ninety percent (90%) adequacy in each of the 60 required provider specialties are now routinely denied;
• Your Application will be in jeopardy if even one physician or ancillary specialty fails to meet the new rigorous CMS standards.
Are your networks ready for CMS scrutiny? If not, let GHG's Provider Network team help you prepare. We can analyze your network with Quest Analytics, the same software CMS uses. Over the past decade, Gorman has assisted numerous health plans build CMS compliant networks. We can meet your needs whether it is a full turn-key development or simply filling gaps in your existing network.
We invite you to contact us if you'd like to learn more about how Gorman can assist building a successful CMS compliant Network.
Super-Committee: On An Elevator to Hell, Going Down!
It's crunch time for the Congressional "Super-Committee" on the deficit, and predictably, it ain't going well. The Super-Committee has until Thanksgiving to come up with its proposal to cut at least $1.5 Trillion from the national debt, and the battle lines are so immovable at this point that Congressional leaders went behind closed doors this weekend to try to avert a disaster. The LA Times covered the impasse here.
As we've stated here before we think a failure to vote out a proposal is both likely and preferred for the healthcare industry, especially Medicare Advantage plans. But that doesn't mean it's a good outcome for the country. For one, credit agencies have threatened to downgrade the US' credit rating again if the Super-Committee fails.
The U.S. lost its AAA ranking by Standard & Poor's for the first time on Aug. 5, following the debt ceiling fiasco. The firm cited political failures to reduce record deficits and weakening "effectiveness, stability and predictability of American policy making and political institutions." The US has an AAA rating from Moody's and an AAA ranking from Fitch Ratings with a stable outlook. A failure by the Super-committee to agree on at least $1.2 trillion of cuts would "likely result in negative rating action," which carries a more than 50 percent chance of downgrade during the next two years, Fitch said Aug. 16 in a statement.
So, thanks again to our leaders on the Hill, we're facing another terrible, horrible, no-good, very bad day as a country on November 23 -- and maybe getting a sigh of relief as healthcare executives.
ACOs Are Here to Stay. They will vary in form, but not function
I just returned from the Second National Accountable Care Organization Congress. It was a three day conference focused on discussing the role that ACOs, public and private, will play in the movement to reengineer how healthcare services are delivered, evaluated, priced and paid f or.
The speaker panels consited predominately of public and private policy wonks discussing the shifting dynamics in regulatory attempt to drive healthcare reform and providers sharing their positive results in delivery sytem reenginnering efforts, including ACO and medical Home development initiatives.
Attendees to the conference were primarily physician organizations, some hospital organizations and the typical collection of consultants. The mood at the conference was both sober and decidedly upbeat. Sober because everyone recognized that the status quo was no longer an option going forward and upbeat because the underlying tenets of ACOs, i.e. Coordinated care, Stakeholder collaboration, greater patient engagement,improved information sharing, etc. were principles that everyone could support and use as drivers for healthcare delivery system reform.
The overriding themes that I took away from the conference are summarized below. Suffice it to say that all of us who work within the healthcare industy and who are committed to creating an approach to healthcare delivery that is sustainable both clinically and financially, recognize that much needs to be done and that ACOs are but one tool in that journey. We at Gorman Health Group believe it is a journey worth taking.
The themes from the ACO Congress that I believe resonated with most attendees were:
- ACO concept is here to stay and will flourish in one form or another
- ACOs will not all look alike. If you have seen one ACO you have seen one ACO. Commonalities will be collaboration, value based payment, patient engagement, attention to quality metrics, etc
- ACO development will be driven by the private sector, not by the government
- Collaboration amongst the stakeholders, (patients, providers and payers) is key to ACO success, it is key to system reengineering
- Trajectory and end point for payment reform will be global payment. The question is when, not if
- Patient centered medical homes are a core construct of an ACO, not an adjunct
- Collection, analysis and sharing of information is critical to improved, more efficient care
- Team based medicine is here to stay and will be the driving force for improvement of care quality
- Information, the collection, anlysis and reporting out, will be critical to any delivery system reengineering efforts
- And last but very important there was general agreement that CMS/CMMI significantly exceeded provider expectations regarding the positive changes to the shared savings program as reflected in the final rule.
Forbes Gets it Wrong on Medicare Advantage
Forbes recently published a blog post ("Seniors: No, You Cannot Keep Your Plan Even if You Like It") that was wildly off the mark on the future of Medicare Advantage. I commented directly there (my handle on the Forbes blog is MedicareNinja), but had to call it out here.
I agree, the President overpromised to seniors when he famously said during the health reform debate "If you like your health care plan, you can keep your health care plan." You can't cut $135 Billion from plan payments and expect to have no impact on beneficiaries. But Forbes got it wrong: we are NOT about to see another exodus from the program as we did in the late 1990s.
As we've said here before, the exhortations of the death of MA are premature. We got confirmation from CMS last month: MA premiums will fall another 4% in 2012, and enrollment will grow by a brisk 10%. This after a robust 2011 where we think AEP will close with MA enrollment up over 8% vs. 2010.
The plans aren't going anywhere for several reasons -- none of which you see if all you're reading is wonky CBO and MedPAC reports.
First, government programs (Medicare and Medicaid in particular) are the only segments of the insured that are growing. As noted earlier, MA enrollment will grow over 8% this year, topping 12.5 million beneficiaries. Part D is approaching 20 million enrollees. Just this week Cigna announced it's spending over $3 Billion to acquire HealthSpring, a pure-play MA plan. Why? Because they see tremendous continued growth in the program, not because of its imminent demise.
Second, publicly-traded companies like MA leaders Humana and United are now dependent on Medicare, deriving twice their earnings from the program than they did a decade ago (average publicly-traded health plan earnings from Medicare in 1999: 13%; today, 26%, with some like HealthSpring and Universal American over 70%.) Bottom line: the big boys ain't going anywhere.
Third, over 40% of beneficiaries aging into Medicare have enrolled in MA plans the last two years, indicating the Boomers are a much more plan-friendly population than the World War II generation given managed care trends in the commercial market (HMOs, PPOs and POS plans represent more than 90% of all insured Americans).
Fourth, and most importantly, market-leading plans are adapting to the health reform cuts by focusing on Star Ratings quality bonuses and mastering the new state of the art in risk adjustment: the prospective home advanced evaluation. It's working, enabling plans to hold the line on benefits and premiums, and maintaining the attractiveness of these products vs. Medigap or traditional Medicare.
As long as the Congressional deficit Super-Committee doesn't fire another broadside at MA plan payment rates this fall, 2012 is shaping up to be a VERY good year, and I'd venture an estimate of over 15 million beneficiaries in these MA plans by the end of 2015.
The Forbes piece struck me as a wonky political hatchet job, trying to score cheap political points against Obama without any real basis in reality. They're usually above that sort of thing.
ACO Workload
The final Shared Savings ACO regulation was published November 2, 2011 in the Federal Register. As I was reading through these regulations, I kept thinking about Bob Berenson's remark at a recent Health Affairs meeting where he said that CMS has fewer staff today than they did in the 1980s. How have they managed all of this new regulatory work on top of the routine issuance of annual fee schedule updates and other regulatory workloads? And what about the potential 270 ACOs that might apply? And now CMS is responsible for all of the ACA regulations and implementation such as overseeing the development of new exchanges in all of the states. In the meantime, CMS has implemented the Medicare Modernization Act which substantially increased the number of Medicare Advantage plans and added a whole new workload of Prescription Drug Plans. For MMA, CMS at least received some contract funding. I am wondering what will happen to staffing and funding as a result of the action or inaction of the Super Committee.
Final ACO Regulations and Guidance
I have finally finished reading the Shared Savings ACO regulations and companion guidance. No wonder it took so long. There are so many changes ranging from major policy changes to smaller changes intended to reduce burden. In my career with CMS, I do not remember any final regulation where the policy moved so far from the policies outlined in the NPRM. It is clear that CMS really listened to all of the comments. I think CMS wants this program to work. Initial feedback from stakeholders seems to be mostly positive.
However, the devil is in the details. While there are substantial improvements in the final rule, there are still a lot of requirements that organizations must meet to be approved for the Shared Savings program. The timetable is very tight. We haven't seen the application yet and even though the start dates have been extended, interested organizations need to consider the real timeline prior to the start date. This includes strategy discussions, organizational and financial assessments, and the work necessary to develop the detail that will be required to complete an application. Organizations interested in applying for the Advance Payment funds will need to apply for an April or July 2012 start date as well as submit two separate applications — the ACO application and an application for Advance Payments. It will be interesting to see how many organizations want to be on the cutting edge of delivery system reform with Medicare as a partner.
Creativity Shapes the Complexity of Part D Benefit Design
The question was recently posed on a social website as to "why some PDPs have no incentives for mail order and why some PDPs have bizarre generic tiers?" Although the question was specific to Oregon Medicare Prescription Drug Plans (PDP), it can be extrapolated nationwide. There are a variety of dynamics in play in the benefit design for PDPs, as well as MA-PDs, that have a significant impact on the complexity of the Part D Benefit offering. In considering the question, I have listed several possible reasons for the lack of mail-order incentives and the "bizarre generic tiers."
First, the national benchmark for the Part D benefit premium has decreased for the third consecutive year as the market has become more competitive, while the pharmaceutical inflation rate continues to raise approximately twice the national rate at 9.2% in 2011 and predicted to be 8.3% in 2012. Plans compensate for the increase by shifting to higher member cost-share using more tiering options, a broader range of copays, and more preferred tiers. CMS is allowing six tiers in 2012, allowing for both preferred brand and generic tiers. Utilization costs can be managed effectively by applying lower cost-sharing to more cost-effective therapies.
Next, Generic approvals are changing the landscape as many blockbuster drugs are moving off patent and becoming available in generic versions. Lipitor, Lexapro, and Zyprexa as well as other drugs representing over $1 Billion in sales either have or will become available over the next year. In many cases, however, the generic pricing is not much different than the brand name versions. As generics, they move to generic cost-sharing tiers, often actually increasing the cost to the plan. As a result the non-preferred generic tier is born with increased member cost sharing.
Next, the Specialty Drug Industry is a $40 billion industry involving more than 600 specialty pharmaceuticals currently under development in a market that is expected to top $160 billion by 2013. Management of this drug class is a challenge faced by every health plan. One of the tools applied to the management of specialty drugs is using cost-share tiers. Percentage based tiers are often applied to shield the risk.
Finally, Medicare Plan Rating incentives for MA-PDs achieving a five star rating are significant. Nine Five-Star Plans earned in excess of $4 billion in bonus payments for 2012 Plan Ratings. Starting in January, plans with three stars or better will get bonuses of 3 to 5 percent of their total Medicare payments. Five-star plans also can market to and enroll members year-round, while all other plans enrollment is limited to Medicare's annual open period. Member satisfaction plays a substantial role in those ratings. Part D Plan ratings look at factors such as access to prescriptions. Excessive step therapy and prior authorization requirements are member dissatifiers. By reducing restriction but increasing cost-sharing, members encounter less delay at point of purchase. Savings available by switching to a less costly therapy is also a satisfier.
Mail-Order service is on the decline as more and more plans are offering "mail-order at retail." When given the choice, the vast majority of Medicare Beneficiaries prefer to use their local retail pharmacies according to numerous studies. Although Medicare requires that an extended day's supply is available at retail, there was a cost saving advantage for using mail-order. As plans level the playing field, members seeking extended prescription supplies opt to use retail pharmacies. Again, increased member satisfaction results in better plan ratings and member retention.
Although there may be many other explanations, I believe these are some key reasons explaining the variation in plan design. Creativity and informatics continue to play a huge role in the delivery of high quality, cost-effective healthcare to Medicare Beneficiaries.
Surgery in the last year of life
Lancet recently published a fascinating study of surgery in the last year of life in Medicare members. During 2008, 1,802,029 Medicare beneficiaries over 65 years of age died; one of every three of those had a surgical procedure during his or her last year of life. The study did not sort out the reasons the procedures were done, but there is a short list of possibilities. Some are likely valid, and some are less so. Surgery in the elderly can be done to relieve pain, to improve function, or to prolong life. You might point out that prolonging life or improving function in the last year of life doesn't make much sense, but remember, no one actually knew at the time that it was the last year of life. Other reasons for doing these procedures are harder to support and include doing things just because you know how to do them (the "everything looks like a nail if you are a hammer" argument), family pressure ("You have to do everything to save her."), and money ("There is an opening in the surgery schedule and a bed in the ICU.").
There was one other interesting part of the study—geographical variation. These late life surgeries were 1/3 as common in Honolulu as in Gary, Indiana. The rates were especially high around the southern end of Lake Michigan and in the Rio Grande Valley in south Texas. Geographic variations are much more consistent with decisions made for cultural and financial reasons than with decisions based on clinical factors.
Most of the rhetoric surrounding the Medicare financial crisis has concentrated on cutting plan profits and decreasing provider reimbursements. There has also been a push for preventive care with the tacit (and unproven) assumption that prevention will improve health and decrease expense in the elderly. There has been some discussion (albeit hesitant) of increasing the contribution from beneficiaries or increasing the age of eligibility. What has not been emphasized is spending what is in the system more effectively. The high rate of surgery in the last year of life is one of several examples of spending a great deal of money with questionable impact of either quality or length of life. Until we have the political and societal will to have those discussions, Medicare's financial dilemma will remain unsolved.
A Big Deal in Medicaid Following One in Medicare
Right on the heels of the CIGNA/HealthSpring deal, AmeriGroup announced it's acquiring Health Plus, a large Medicaid plan in New York City with around 320,000 members owned by safety net hospital sponsor Lutheran Healthcare in Brooklyn, for $85 million. The price reflects just 0.09x of Health Plus' $1 billion in revenue, a big discount to public Medicaid MCO market valuations of 0.3x to 0.4x revenue, indicative of a company that was struggling. Amerigroup is significantly expanding on its current base in NY, which stands at about 100,000 members. The company's Medicaid market share in NY will increase from 3% to 11% when the deal closes next year.
The New York Medicaid market is an attractive one to target, given its large enrollment, plans to expand managed care state-wide by April 2012, and the potential expansion under health reform in 2014. With approximately five million Medicaid recipients, New York has the second largest number of Medicaid enrollees in the nation. Texas currently accounts for 30% of AmeriGroup's Medicaid enrollment so this is a nice "triple-down" bet on another of its large markets.
As we've noted in these pages recently, consolidation is intensifying in the managed care industry over the coming 12-18 months. The Cigna/HealthSpring acquisition could be just the beginning as the Medicare and Medicaid markets appear particularly ripe for consolidation due to their tremendous growth prospects while the commercial market continues to dwindle.