Why it's gonna get worse
Not since the Edsel has anything been so perfectly designed to fail as the Supercommittee. So now what? The doc fix, for one, is in big trouble. In Washington accounting, it will cost an arm and a leg to do a permanent doc fix, since the savings it is supposed to generate go on forever, or at least as long as we have Medicare. A permanent solution might have been possible under cover of a Supercommittee deal -- just one more adjustment among the trillions. Now it's out on its own. At least the final accounting is a little better than was projected: only a cut of 27.4%, not 29%. Not much comfort if you are a doctor with a big Medicare practice.
But the Affordable Care Act created another version of the sustainable growth rate, the formula that makes the doc fix necessary. It's the much maligned IPAB -- the Independent Payment Advisory Board. Here's how IPAB works. It will make recommendations to reduce Medicare cost. Congress can adopt or ignore the recommendations. But if medicare grows faster than a preset target, either the recommendations will take effect anyway, or Congress has to come up with equivalent savings. It's another autopilot, just like the sustainable growth rate.
IPAB is prohibited from doing most of the things that would really reduce costs. It can't change eligibility, benefits, or beneficiary cost sharing or premiums. So all it can do is cut provider payments, and promote soft-savings initiatives like ACOs. But we already have ACOs, so what can it do? Cut payments.
It can't touch hospital payment rates until 2020. So who is left? Doctors, that's who. Back to the sustainable growth rate problem.
The IPAB is supposed to work like the Base Realignment and Closing Commission. The commission proposes which military bases to close, and Congress gets an up-or-down vote. It provides cover for members whose districts are going to be hurt by the closings. For any given round, that's only a few districts. But the IPAB recommendations will affect every doctor that sees Medicare patients, in every Congressional district. And every hospital after 2020. Every member of Congress is going to hear local howls, every round. That's a very different scenario compared to the base closing approach.
So with the Supercommittee failure, Congress has placed itself in a box where it is facing drastic defense cuts, expiration of the Bush tax cuts for all income brackets, and an election with a polarized electorate. And now, they have created another insoluable problem with the creation of the IPAB, and the restrictions they have subjected it to. They have reinvented the Edsel.
Deficit Supercommittee: Epic FAIL. Brief Relief for Medicare/caid.
It appeared at the market open Monday that after much hand-wringing this weekend there is no clear path to a compromise for the Congressional Deficit Supercommittee in time for its Thanksgiving deadline. Epic FAIL. The markets responded, down 300 points as of this post. As an American, I'm pissed: now here comes again the credit rating agencies, who will reward this latest political failure with another downgrade and make credit for all Americans harder to obtain. As a healthcare executive, I'm breathing a sigh of relief, however momentary it may be. Sequestration is coming, and it's a better scenario for Medicare and Medicaid than anything this kangaroo court might have come up with.
In terms of the impact on health plans, we fully anticipated that the Super-Committee would not reach a deal, and that sequestration's 2 percent cut to Medicare in 2013 was a given. It won't be without its pain: that's another 2% hit on Medicare Advantage on top of those that helped fund the ACA, and will hurt MA margins in 2013 and 2014. This will make smaller MA players even more vulnerable to assault from large publicly-traded plans and drive a steady drumbeat of consolidation in the program. But we expect that the impact will be manageable for most through mastery of risk adjustment and Star ratings bonuses, with some passthrough to providers and beneficiaries.
The biggest question in the collapse of the Supercommittee is what now happens to the "doc fix" -- the looming 29% cut to Medicare fee-for-service reimbursement rates for physicians that goes into effect in January. The Supercommittee may have been the last bus out of town for the fix.
The failure of the Supercommittee is also a short-term positive for Medicaid, as it was exempted from sequestration. The states' steady march toward managed care for the remainder of the "moms and kids" (TANF) and the dual eligibles and institutionalized will continue unabated, opening up a new market opportunity for health plans in excess of $300 billion per year by 2015.
The focus in Washington will now shift to how to mitigate some of the draconian cuts to the defense budget that are now scheduled to go into effect in 2013 and that will cause Republicans to foam at the mouth. The frenzy to avoid them will accelerate the discussion around more desperate measures for Medicare and Medicaid. The previously unthinkable will become fixtures of the debate in this next year. Raising the eligibility age to 67. Passive enrollment for the duals into health plans. An opt-out only for Medicare beneficiaries -- you're in a plan unless you choose otherwise and pay more. "Death panels."
This will harden partisan battle lines around the future of our two most essential healthcare programs as we head into the elections. In the end, the elected class will duck and cover, demagogue the issues and scare the crap out of seniors, and then take it to the voters in 2012. Election Day can't get here soon enough.
Member Retention has an Exponential Effect on Revenue
The typical MA health plan, on average, loses eight percent of its members annually through voluntary disenrollment, and another four percent involuntarily. Let's assume that same health plan has a membership of 50,000 lives, and from a revenue perspective, typically realizes $1000 per member per month in premiums and Medicare payments to the health plan. That means that just a single percentage point improvement in member retention — going from an eight percent (4000 member loss) to a seven percent voluntary disenrollment rate (3500 member loss) — would result in a $6 million increase in plan revenue. Do the math. That's a 500 member difference, times $1000 PMPM… here are the results as the disenrollment rate improves by one, and even two percentage points.
| Disenrollment Rate: | 8% | 7% | 6% |
| Members lost | 4000 | 3500 | 3000 |
| Resulting Revenue Increase (improving from 8% industry average) | N/A | $6 million | $12 million |
*These figures are based on a health plan with 50,000 members, and $1000PMPM in payments to the plan
At the same time, today's sales & marketing budgets are getting smaller and smaller. If we move beyond a cursory assessment and look at the acquisition costs to replace that one percent (500 members) through sales, we can then see the additional impact that member retention can have on an organization's performance. Depending on your market, the acquisition costs to find a new member can be somewhere around $1,200, on average. This cost includes advertising & marketing costs, sales & marketing operations costs, salaries & benefits of those employees, and can even include software costs and services through other vendors. So assuming a $1,200 cost of acquisition, that one percent improvement in member retention (500 members) just saved your sales and marketing department $600,000 in what it would have cost to replace them. Furthermore, we can assume that $600,000 will still net the health plan another 500 members…and we just showed what that one percentage point was worth.
So let's look at this in perspective. Even if our hypothetical organization is able to immediately replace every single one of the 500 members - representing the difference between an eight percent and a seven percent voluntary disenrollment rate - through new sales, recouping that $6 million in would-be lost revenue, that organization still had to go out and spend $600,000 of their own sales and marketing dollars to make it happen. Thus, if you're looking at this problem objectively, to get the most "bang for your buck", it makes sense to take a hard look at your member retention strategy before moving on to sales and marketing. Remember, retention's impact is two-fold; not only will it impact the bottom line on the payment side, but it will put sales & marketing dollars to more efficient use — where they should be — adding members, not replacing them. Retention doesn't always have to be a cause & effect of benefit design. There are other dynamics in play that beneficiaries take into consideration when choosing a plan. Knowing what those factors are - and ultimately what value your beneficiaries attach to them - can help keep the initial impact of aspects such as benefit structure or premium increases from sending existing members out in search of a new plan.
The Secret Sauce of Risk Adjustment: Implementation, Implementation, Implementation
As we are coming close to year end, we have all learned a great deal. The number one thing we hear from health plans: "I thought they could implement."
Risk adjustment is successful only if you couple speed with quality. The three most constant stumbling points for member evaluations programs are
1) compilation of data
2) suspect list generation
3) provider recruitment
As you talk with your health plan and medical group peers, their references and experience should help you navigate this treacherous path.
The questions you may need to ask:
1. How long does it take you to compile and refresh data? Best in class answer: 10 days to compile a health plan or medical group's data and 1-2 days to refresh it monthly.
2. How long should it take to generate a member suspect list? Best in class answer: 5-10 business days
3. How long does it take you to recruit or train or allocate member evaluation providers? Best in class answer: Within 20 days of contract execution, your assessment vendor needs to have their evaluators recruited, trained, and in the field with your members.
Make sure you ask the right questions and pick the right partners. If you selected a turtle this year, you better start looking for a rabbit for 2012. Slow and stumbling does not win the race and you have to win the risk adjustment race to stay alive.
CMS Insights
At a November 16 forum on Clinician Leadership sponsored by Brookings, Dr. Richard Baron, Group Director of Seamless Care Models at the CMS Innovation Center provided several insights into CMS thinking. Most notably, Dr. Baron said that CMS is running as fast as possible away from the FFS payment system, which is not considered a viable model. Medicare is moving away from a producer model to a patient centered model. The demonstrations that the Innovation Center are rolling out are the direction that CMS would like to see, possibly in five years (e.g. bundled payment, accountable care organizations and models that reward value and quality rather than volume). CMS is aware that hospital and physician consolidation poses a risk of price increases in some markets, but Dr. Baron is hopeful that the provider community is ready to move to a more sustainable model of health care financing and delivery.
Dr. Baron also said there has been an important change in a ruling from their General Counsel. In the past, the lawyers felt that the Innovation Center did not have grant making authority but only authority to run programs. A recent decision reversed this ruling. I am surmising that the recent $1 billion Innovation Challenge opportunity that the Center just released is a result of this new legal interpretation. It is hard to imagine that since the Congress approved $10 billion to fund delivery and payment system innovation that the lawyers would put handcuffs on how it could be spent. Fortunately the cuffs have been removed and the Innovation Center will be able to fund smaller and more projects that are developed by stakeholders in the field.
Dr Baron noted that CMS has been told that many providers are already building in a 10 -20 percent cut in Medicare revenue into their plans with the expectation that budget cuts will be necessary to assure the sustainability of the Medicare program.
The Air of Inevitability Around Romney
I can't remember the last time I had more fun watching electoral politics. Obama suffers an open-mic gaffe and is losing White House staff like he's losing his hair. Herman Cain's sexual harassment fiasco deepened in its second week. Rick Perry suffered an excruciating 45-second brain-fart in a GOP debate where he couldn't remember one of 3 Federal agencies he wants to abolish. Which was the worst primary-ending gaffe: Cain's ongoing trouble with the ladies, Perry's "oops", or Howard Dean's primal scream?
As fun as watching all this is (and it's DC's only spectator sport worth watching these days as our Redskins flush another season down the toilet) its result is an air of inevitability that Mitt Romney will emerge as the GOP nominee for President. Pawlenty, Trump, Bachmann, Christie, Perry, Cain...all surged and flamed out in the face of Romney's rock-steady support at about one-quarter of likely GOP primary voters.
Next to surge as "anyone but Romney" is former House Speaker Newt Gingrich...and he's sure to wither under media scrutiny of the many unpalatable items in his personal and professional lives. As smart as he is, his arrogance is legendary and he is just not a likeable guy. You need to be likeable or at least inspiring to win a nomination, and Gingrich is neither. My guess is he runs out of money right after the Iowa caucuses.
So it still looks like Romney v. Obama next year. The futures markets -- great predictors of uncertain outcomes -- agree, showing Romney futures spiked folllowing Perry's "oops" and Obama holding steady with about 52% of investors saying he'll win reelection. Lack of enthusiasm will likely be the defining characteristic of the 2012 campaign -- the GOP will be only "in like" with Romney and many Democrats will be feeling the same for Obama -- which lends itself to "Advantage -- Incumbent".
I am LOVING this primary season! So much great comedy fodder! I can't wait to see what Saturday Night Live does this weekend.
I still think we're looking at a narrow Obama reelection, and implementation of the ACA in 2014 right on schedule.
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.