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.
New ACO Reg has some zingers
The newly minted ACO regulation from Medicare has some zingers hidden in its 696 pages. Okay, to be fair, the actual regulation is only 70 pages long, double spaced. The rest is all preamble, where CMS describes the 1200 comments on the proposed rule, and how they have responded (or not) in the final rule.
The first zinger has to do with the Physician Quality Reporting System, known to its friends as PQRS. Since 2007, CMS has paid a bonus to physicians who report quality data. Under current rules, CMS will pay physicians ½% of allowed charges from 2012 through 2014. BUT, docs in an ACO will only be able to participate in the PQRS through the ACO. The ACO will report as if it were a group practice. If the ACO fails to report in compliance with the PQRS rules, its docs won't get the PQRS bonus. This could be an issue in recruiting doctors who may not see a clear advantage to the ACO to begin with, given all the other requirements.
A second zinger is the approach to risk adjustment. CMS has agreed to use the Medicare Advantage HCC risk adjuster for newly assigned beneficiaries. They won't use HCCs for continuing beneficiaries — people who were assigned to the ACO last year. HCCs are based on diagnosis codes on last year's claims. CMS reasons that an ACO would improve coding accuracy in year one, to get the best risk adjustment they could for continuing beneficiaries in year 2. So only new-to-the-ACO beneficiaries will get risk adjusted for higher HCC scores. BUT, if the average HCC score for continuing beneficiaries goes down in year two, then CMS will risk adjust and reduce the benchmark accordingly. The inference is that reduced scores could only reflect reduced average risk. So ACOs that are not diligent in keeping their risk scores up could be docked a chunk of money for apparent losses resulting from poor coding, not from poor care management.
To read GHG's summary on the CMS Final Rule for the Medicare Shared Savings Program, click here.
Cigna Acquisition of HealthSpring Continues Deal Drumbeat in Senior Markets
This morning CIGNA announced it was acquiring HealthSpring for $3.8 billion, continuing the drumbeat of M&A deals in the Senior market. HealthSpring Chairman and Chief Executive Officer Herb Fritch will lead Cigna's expansion in the Medicare segment. It's definitive proof that even bit players in government programs like CIGNA are investing heavily in the space as the commercial market continues to dry up while Medicare and Medicaid present tremendous growth opportunities. I'd expect to see Aetna make a similar announcement in the coming months as they acquire a different asset to boost their position with seniors. The deal should have positive implications for the other smaller Medicare plans in the industry, like Universal American and WellCare.
On its face it seems like a great deal to expand CIGNA's presence in the senior market. Assuming CIGNA is paying around $500 per life for HealthSpring's roughly 700,000 Medicare PDP lives (HS lost about 100,000 PDP lives going into 2012 by missing auto-assignment of the duals in CA), the price suggests CIGNA is paying about $10,000/member for HealthSpring's 340,000 Medicare Advantage lives. This is lower than the $15,000/member that WellPoint paid for CareMore, but a huge premium relative to recent Medicare valuations, which have normally ranged from $3,000-5,000 per member -- which argues this was an auction like for CareMore that had the effect of driving up the deal price. From the press release:
"The combination provides Cigna with several significant opportunities to further expand upon its successful growth strategy:
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Scaled presence in the highly-attractive Seniors segment, with a highly differentiated Medicare Advantage business that currently has approximately 340,000 Medicare Advantage members in 11 states and Washington, D.C., as well as a large, national stand-alone Medicare prescription drug business with over 800,000 customers;
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One of the most trusted and well-respected brands offering Seniors quality care through its highly differentiated physician partnerships;
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Future growth opportunities to expand HealthSpring's customer base by leveraging Cigna's current client relationships and to further the expansion of HealthSpring into new geographic regions, leveraging Cigna's nationwide presence, customer base and distribution capabilities;
- Ability to offer Cigna's current commercial and individual customers the opportunity to experience HealthSpring's differentiated physician coordination model; and
- Further leverage Cigna's diverse portfolio of specialty programs for the benefit of HealthSpring's customers.
Congratulations to Herb and his team and best of luck on the integration.
Medicare ACO Regs Out While Private Sector Surges
CMS released the final Medicare ACO Shared Savings Program regulations yesterday after taking a beating in over 1,200 industry comments on the draft. Let's hope they made some big changes, as Medicare is in danger of being left in the dust as ACOs surge forward in the commercial sector.
Aetna has created a company-wide organization whose entire focus is on integrating ACOs into all products and services . The HealthPartners Total Cost of Care system is now applied to two-thirds of its members, Wellpoint's multi-payer Medical Home model is expanding beyond California and New York with emerging evidence of its success, and Blues plans in Massachusetts, New Jersey and Maryland are moving forward with their own commercial ACO initiatives. Ten large national and regional health plans gave an update on how fast the ACO concept is exploding.
By contrast, the Medicare ACO program has been quiet as CMS toiled away on a rewrite of the regs, with the final rules out yesterday but relatively little interest emerging beyond the Pioneer ACO Demonstration finalists -- and many of them are still tentative pending review of the new final rule. All 7 of Gorman Health Group's applicants for Pioneer were selected -- but they're not necessarily in yet. CMS's recalcitrance on considering partial and global capitation models for Pioneers is tamping down our clients' enthusiasm as we're told capitation isn't operationally feasible for CMS until Year 3 of the demo. If the final reg isn't a dramatic improvement over the "fart in church" draft regulation in March, I worry that CMS will be left at the altar as payers and providers seek less burdensome opportunities in the commercial and Medicaid markets.
Watch this page for our take on the final regs.
PBM Compliance-Oversight: What you Don't Know Can Cost You
Whether plans stick their heads in the sand or not, it doesn't change the fact that delegating services to a contracted entity is emerging as one of the fastest growing areas of audit risk.
CMS defines Compliance-Oversight Activities to include developing effective metrics and controls, monitoring and reporting, and risk assessment with corrective action for any delegated entities or contractors. Compliance refers to all contract compliance requirements and includes FWA compliance elements and requirements of the plan sponsor.
A Compliance-Oversight Plan should be structured in a way that is data driven — quantifiable performance metrics and monitoring with measurable outcomes. The goals of a Compliance Oversight plan should be proactive — to prevent, detect and respond ("find and fix") and focused — targeted on risk areas.
CMS has made it clear that the stakes have never been higher for the cost of non-compliance. In the area of oversight of contracted entities the warnings are beginning to play out in a variety of ways. At best, a plan sponsor can expect a corrective action plan that comes with intense scrutiny. Recently, CMS announced a series of actions against non-compliant activities that included fines and penalties. At worst, a plan risks non-renewal of its contract with CMS.
There are more subtle costs to the lack of compliance oversight that may not bring down the wrath of a CMS audit. Plans that fail to monitor the activities of their PBM effectively may have a deleterious impact on customer satisfaction. Poor satisfaction will result in lower CAHPS scores and reduced Plan Ratings.
Kaiser Health announced this week that the 9 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. What's more, CMS will aggressively encourage consumers to move their Medicare policies to the higher-ranked plans, giving them a big boost.
Failure to adequately provide compliance oversight to PBMs or other contracted entities is not only risky; it is also a costly failure by a plan sponsor at a time when resources are diminishing. Don't be caught unprepared.
GHG is hosting Medicare Advantage and Part D Compliance Leaders at our Compliance Forum 2011. We'll be addressing CMS' highly energetic regulatory activities and other key issues November 2-4 in Las Vegas. View the preliminary agenda here.
In addition, we're now offering a delayed payment pricing option, just in case your travel budgets have run out before your questions have. If you register now, the registration fee payment will be delayed until January 2012.
Click here to pre-register.