Let's Get the Ryan/Wyden Party Started!
This morning I was quoted in conservative standard-bearer Fred Barne's lead opinion piece in the Wall Street Journal on the Ryan/Wyden Medicare reform plan. Fred makes the point that Ryan is beginning to convince Democrats that his approach is reasonable.
I don't know if Ron Wyden, Jim Capretta and I make Ryan's new proposal "bipartisan", but the optimist in me has long hoped we can turn down the volume on the Medicare reform street-fight long enough to have a thoughtful discussion about it.
The pragmatist in me recognizes it's an election year and that nothing meaningful can happen on this issue this year -- but it will certainly be front and center in the big deficit reduction debate coming in 2013.
Garbage In. Clarity Out
So you may have bad, ugly, horrible, scary data and internally you don't have a means to lump it all together to give you a clear picture of what happened in 2010, 2011, and the challenges you are facing in 2012 with your members, your network physicians or your risk adjustment program.
You have twelve or more different revenue and quality initiatives and twenty different vendors supporting you. How can you combine these or give one clear picture? You need to build an internal repository for charts, claims, and risk adjustment data, which marries your claims and clinical data for each member and each network physicians' profile. Here is how we provide clarity for our clients:
1. Actionable Member Profiles: by combining Censeo Health's Advanced Evaluation, CareCurrent, and CareConnect analytics and reports, we can show you and your physicians the whole picture of the member's history, current conditions, plus what case management programs they have triggered, and the documentation strength of the codes recorded for the member. The complete and actionable member profile is a "must have" output from your risk adjustment and quality systems.
2. Comprehensive & Insightful Physician Profiles: through our service offerings, Censeo highlights coding strengths and weakness, compliance areas of improvement, support documents and elements for a patient's plan of treatment from labs to pharmacy to chronic conditions and possible gaps in care, clinical program and pathways needed, and a monitoring system for the resolution of condition or gaps in care by the community physicians. You need to support the network physician's plan of treatment by providing actionable and insightful tools for the physician as the patient navigates the care pathway.
These are not static report cards with a problem list but rather a dynamic instrument supporting your clinical success and engagement programs. If your system has these elements, fabulous - you are on top of your game. If you are developing these, wonderful - you are on the right track. If you cannot develop these internally, we can create this complete clarity for you in ten (10) business days through our mapping system and integration engine.
Memo on CMS Advance Notice and Draft Call Letter for 2013
CMS continues to refine operational policy for Medicare Advantage and Part D plans. View our summary of the 45-Day Advance Notice and Draft Call Letter for 2013 by clicking here. I was disappointed CMS did not finalize their proposed regulations prior to issuing this document. As a result some of the more significant policy changes will be reserved for the final rate announcement and final Call Letter.
I was struck by how complicated the payment formulas have become. While use of more recent data should make the formulas more accurate, there are so many other factors that can affect the bottom line in different directions that may be hard to predict, including the recalibrated MA and Part D risk adjustment processes. The new frailty adjustors for Fully Integrated Dual SNPs should provide an incentive for these plans to grow more rapidly, which is exactly the direction that CMS intends.
The number of quality measures continue to grow, with the most intriguing new measure being the net quality improvement at the Part C and Part D contract level. But I wonder how plans can keep up with all of the new measures and modifications to current measures each year. CMS continues to advance its value based purchasing agenda, including moving down the path of measuring performance of plans with less than 1,000 enrollees. This will pose some methodological challenges but should provide a more level playing field for plan comparisons.
Why Medicare Advantage is Here to Stay
If you want to understand why Medicare Advantage is now part of the firmament of the US healthcare economy, and will now weather almost anything Congress and the Administration can throw at it, you need only comprehend what Medicare contributes to the big players' bottom lines.
Since the exodus from the program that followed the Balanced Budget Act of 1997, and its resurgence with the Medicare Modernization Act of 2003, Medicare Advantage has become a monkey on the backs of the major payers that they just can't afford to quit, no matter how austere things get in the Capital.
Medicare has driven much of the industry's earnings growth over the past few years, as commercial risk membership has fallen and margins were pressured by rising cost trends last year. So even though Medicare may not contribute a lot on an overall basis, it has been a major contributor to earnings.
Carl McDonald, our good friend and uber-analyst at CitiGroup, shows in his EBITDA analysis of the "big 12" payers that Medicare Advantage contributed almost 23% of earnings on a weighted average basis, United at 28%, and 3 -- Universal American, HealthSpring and Humana -- deriving over 60% of their earnings from Medicare.
There are several reasons why MA is here to stay -- the reliance on capitation to bring stability to Medicare and Medicaid expenditures in our new Age of Austerity; the relentless march of American demographics and the Baby Boomers being more plan-friendly than the World War II generation; the consistent value proposition the "one-stop shop" MA offers relative to traditional FFS Medicare or the Medigap/Prescription Drug Plan combination; the migration of many delivery systems to MA, fleeing declining rates and rising expectations in FFS, to name a few.
But the real reason is that Wall Street is like Nikita Khrushchev at the Battle of Stalingrad, pointing a gun at his own comrades in the face of the Nazi onslaught: "Not one step backwards." Any of the big 12 exiting from the program would be inconceivable today. And that ensures robust participation in the program for the foreseeable future.
The Goat Rodeo
You hear a lot of interesting comments when you are meeting with health plans and large medical groups. One of my favorite phrases is "last year was a goat rodeo." The visual makes me laugh every time — goats, kids, and general goat chaos. However, in risk adjustment, you cannot afford an internal or vendor "goat rodeo."
If last year you had a risk adjustment goat rodeo, start taking notes and you may want to ask for some strategic planning assistance.
Here are the quick start metrics you should collect, map out, and monitor:
• 2011 Chart Review Volume, ROI, and projected timing of premium impact
• 2012 Hospital Data Feed Schedule from their HIMS database
• 2011 Member assessment volume, ROI and projected timing of premium impact
o Percent and impact by PCP
o Percent and impact in the SNF setting
o Percent and impact in the in-home
• 2011 Member data link to member services, case management, and PCP
• 2012 Chart review and member evaluation findings strategies linking to care
• 2012 Gaps in care closure program (outreach to documentation verification)
• 2011 HEDIS deficiencies and resolution success
• 2012 HEDIS program roadmap
• 2011 STARs goals and impact
• 2012 STARs roadmap
• 2011 & 2012 Claims based HCC analysis and documentation closure initiative
If you have a roadmap with timelines and an internal project leader for these aforementioned tasks you may still headed for a goat rodeo. The final pieces to ensure success are internal controls, plus a strong, efficient, and effective partner.
My Crystal Ball
IF the Supreme Court (SCOTUS) find the mandate unconstitutional, THEN the Exchanges begin to unravel.
And IF that happens, THEN the Dems will have an extraordinary issue to run on in 2012, which is as meaningful to Congressional races (remember: Congress holds the money) as it is to the Presidency.
But IF it doesn't, the GOP will have the same. It will look like this: "We're being turned into France! But without the French kissing!"
And IF they successfully take the house and hold the Senate—a scenario in which they likely capture the Big House too—then they can defund the exchanges even if they can't muster 60 votes in the Senate to overturn it.
Should be an interesting year.
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.