CMS Advance Notice for 2014: This Is What Austerity Looks Like
CMS's Advance Notice for Medicare Advantage and Part D for 2014 was released after the close on Friday and tanked health plan stocks on Tuesday. It is a shocking, stark portrait of what austerity looks like. There's nothing but bad news in it, and it's worse than anyone expected. Start with an average cut in payments of 6% (combined impact of ACA, proposed trend, and increase in coding adjustment); now add the likelihood of sequestration taking effect on March 1 -- another 2% cut; add the impact of draconian changes in risk adjustment and the 2014 industry tax for another point or two. All in, CMS could cut as deep as 9-10% if the proposed rates become final on April Fool's Day. The industry has little more than 5 weeks to howl, lobby, mobilize and cajole CMS to its senses before the meat-axe falls.
If the proposed rates become effective, it will lead to meaningful, painful benefit cuts. Plans will try to shift some of the pain to providers, and doctors, hospitals and pharmacists will see another year of payment cuts. It will stunt the stunning 10%+ growth in Medicare Advantage the last several years. Industry consolidation will intensify as local and regional MA plans struggle to make ends meet.
We knew the ACA cuts to Medicare Advantage were significant and were softened by the Star Ratings Demonstration. We expected that CMS would take a harder line with health plans in a second Obama term, especially with the deficit fight raging in Washington. The draft notice also shows that the Medicare fee-for-service physician pay cut could come home to roost as well on April Fool's Day. A permanent fix to the Medicare physician pay cut would help MA rates by 4.5-5.5%, offsetting some of the shortfall in payments. But it would cost upwards of $130 billion and we can't take that to the bank in the current political environment.
There's a difference between Chicken Little and Paul Revere...and there was an epic meteor shower on our planet this week. The clock is ticking for stakeholders in Medicare Advantage and Part D to engage with their legislators and CMS to prevent these proposed rates from becoming a cruel hazing on April Fool's Day.
Obama Spikes Reform in SOTU Speech. Where Now for Medicare?
I hope you enjoyed the State of the Union (SOTU) address as much as I did -- it's the Super Bowl of policy geeks. I saw it as an effective rallying tool around a number of the President's goals that will deeply challenge the GOP opposition, like an increase in the minimum wage and immigration reform. But it was the utter lack of any new ideas for Medicare that struck me -- and definitely no olive branch to House Budget Committee Chairman US Rep. Paul Ryan (R-WI) on premium support. So where now for Medicare?
Medicare status quo advocates are turning cartwheels this week. Since the election Democrats have walked back every significant program reform that was on the table since the debt ceiling mess last summer -- eligibility age increase, means testing, and the like. On the eve of across-the-board spending cuts on March 1 and a possible government shutdown on March 27, both driven in part by Medicare deficit politics, the President slammed the door on Medicare reform in both his Inaugural Address and then again in SOTU. And that's tragic: Obama has no better opportunity to save Medicare for the long term than right now. Instead, we're sticking to the path of incremental fixes and accounting gimmicks.
As a nation we have our heads in the sand on the viability of this pillar of American life. Medicare will run out of money no later than 2024. The program is unsustainable in its current form. Everybody in Washington who knows anything about Medicare knows this. What they also know -- but nobody's saying -- is that premium support or something like it is inevitable as the only structural reform that can set Medicare on solvent footing for the long-term.
Former HCFA/CMS Administrators Drs. Gail Wilensky, Mark McClellan, Bruce Vladeck and I all comment on the future of Medicare in First Report Managed Care's latest edition here.
Resources
Listen in as Gorman Health Group's Senior Vice President Bill MacBain shares an update on the impending sequester, what GHG thinks is likely to happen next, and the potential impact on Medicare Advantage.
Visit our website to learn how Gorman Health Group can help support your Medicare Advantage goals.
John Gorman comments on the future of Medicare in the First Report Managed Care's latest edition.
Some Scary Medicare News in the CBO Report
The Congressional Budget Office (CBO) released its new economic outlook yesterday with some interesting predictions on the launch of the Affordable Care Act's health insurance marketplaces (exchanges). But it was some of its Medicare findings that blew my hair back last night:
- CBO concurred with Medicare trustees that the trust fund will run dry by 2024, driven by rapid aging of the population.
- The number of Medicare beneficiaries enrolled in the program will grow by 36%, or an estimated 18 million people, between 2012 and 2023.
- The number of Baby Boomers turning 65 is projected to grow from an average of about 7,600 per day in 2011 to more than 11,000 per day in 2029.
- Over the next decade, annual net spending on Medicare will jump 82%, from $508 billion this year to $914 billion in 2023, according to CBO. As a share of the economy it will rise from about 3% of GDP today to 5% by 2037.
Check out this graph
Further proof that if you're not in Medicare Advantage and Part D, you won't be in healthcare soon.
Resources
Listen to a discussion focused on the lessons learned from MA and Part D when it comes to product strategy in the Exchanges.
Learn how Gorman Health Group can support your Medicare Advantage and Part D goals
2013 Will be a Very Busy Regulatory Year
CMS is planning to issue a lot of regulations in 2013 that will impact Medicare Advantage (MA) and Prescription Drug Plans (PDPs) as well as plans that will be offered in the individual and small group market Exchanges.
The Medicare Advantage and Part D Advance Notice of Payment Rates and Call Letter will be issued in mid-February and the Final Rate Notice and Call Letter will be released the first week in April 2013. These documents provide critical rate and policy information for MA and PDP plan designs, benefits and cost structures as well as for overall compliance for plan year 2014.
CMS will issue a proposed rule on how they will implement the Medicare Advantage Medical Loss Ratio (MLR) Requirements which takes effect in 2014. The ACA requires MA plans to meet a minimum loss ratio of 85 percent or remit the difference to CMS.
CMS is also planning to issue a proposed rule in September 2013 on "Policy and Technical Changes to the MA and PDP Programs for Contract Year 2015".
CMS also plans to finalize a number of regulations that implement provisions in the Affordable Care Act (ACA). These include:
• Insurance Market Rate Review
• Essential Health Benefits, Actuarial Value, and Accreditation
• Eligibility, Appeals and Other Provisions under the ACA
• Certain Preventive Services under the ACA
• Wellness Programs
• Notice of Benefit and Payment Parameters
• Minimum Essential Coverage Exemptions
• Nondiscrimination
Resources:
To learn more about how Gorman Health Group can help with Medicare Advantage Regulations visit our website.
To learn more about how Gorman Health Group can help with Part D Regulations visit our website.
To learn more about how Gorman Health Group can help with Compliance, visit out website.
Download Jean LeMasurier's summary on three new proposed regulations implementing provisions in the Affordable Care Act.
The Claws Will Come Out at CMS in 2013
Health plans and other stakeholders in Medicare Advantage and Part D can be assured of one thing by President Obama's reelection: that the claws will come out at the Centers for Medicare and Medicaid Services (CMS) in his second term.
Having worked a number of years at the agency I can tell you there is a natural tendency among career regulators to be emboldened in a President's second term. With legacy in mind they know that a Democratic White House won't push back much on a more aggressive posture with the private sector. And frankly many of those regulators have scores to settle with some of the companies in their portfolio that go back even pre-Obama. Now's their chance.
But CMS on the warpath in the next four years is driven by many more factors this time around, like the fact that the agency would like to be in business with many fewer than the almost 2,000 plan options available in Medicare Advantage. The career staff feels there's an embarrassment of riches in MA/Part D, to the point that it confuses beneficiaries. Therefore, a priority in the second term will be to simplify the program by systematically hunting down and eliminating inferior species.
Second, CMS made it very clear that it would begin targeting Medicare Advantage and Part D plans with lower than 3-Star ratings for three or more years in 2013. Low-Stars plans also get the "Scarlet Letter" of a low-quality indicator on Medicare.gov, and this past AEP marked the first time CMS actually sent letters to enrollees of sub-3 Star plans encouraging them to take a look at higher-ranked plans in their market. If you've been below 3 Stars the last several years you now have a target on your back.
Third, budget pressures and cuts to CMS's administrative funding in the last couple years meant that CMS shifted more of its traditional oversight functions to the plans themselves. This year, through routine site visits and remote data monitoring, CMS will find that many of those functions have been neglected and the agency will make some examples. This is particularly true of the renewed focus by CMS on delegation oversight -- how a plan monitors its vendors like its pharmacy benefit manager and affiliated provider groups. They'll also pay much more attention to "compliance effectiveness" -- whether the plan's internal compliance program is actually a living, breathing function that roots out issues before they become problems for beneficiaries.
Fourth, there were a number of new audit protocols for 2013 announced by CMS in last year's call letter, such as expanded use of private contractors overseeing program integrity in Medicare Advantage and Part D, renewed emphasis on remote monitoring of sales and enrollment "red flags", and intense focus on Complaint Tracking Module cases where beneficiaries are howling about poor performance.
Finally, 2013 will be the year that the long-dreaded Risk Adjustment Data Validation (RADV) audits will begin in earnest. CMS, its program integrity vendors, and the law enforcement branch of HHS, the Office of Inspector General (OIG), will undertake dozens of audits of health plans' diagnostic data submitted for risk adjustment in the coming two years. Yesterday OIG said the $124 billion MA program is the focus of very few investigations from fraud-hunters—a conclusion that comes on the heels of several RADV audits alleging hundreds of millions of dollars of questionable payments in the program. Last year HHS officials published the results of years-long investigations into four MA plans, and concluded that the plans had received nearly $600 million more than they should have in 2007 by inflating diagnostic data. All four companies denied the allegations, but OIG is continuing with probes of several other of the 175 plans participating in MA.
This is also about setting the tone with health plans before the launch of the Affordable Care Act's health insurance exchanges this fall. CMS knows most of the plans that participate in Medicare Advantage and Part D will also jump into the exchange, and bloodying some noses in 2013 lets them all know who's calling the shots as we sail into what promises to be a chaotic launch of health reform. Remember the messy launch of the Medicare drug benefit in 2006? The launch of the exchanges and the complexity of the subsidies will make Part D pale in comparison...and CMS wants its private sector partners to be walking on eggshells.
Smart executive teams will commit themselves to a doctrine of "lean and clean" and a culture of compliance in the President's second term.
Resources:
For more infomration on how Gorman Health Group can help with Part D requirements, visit our website.
For information on how Gorman Health Group can help support your goals with Medicare Advantage, visit our website.
To find out how Gorman Health Group can help you develop a Star Ratings action plan, visit our website.
Transition Readiness
As AEP comes to a close on December 7, we are well into the time that organizations need to make sure that new members receive all of their required materials, including their identification cards. Having the annual election stretch to December 31 in the past was certainly to an organization's advantage from a sales perspective, but it was an operational challenge when it came to ensuring those late applicants had access to services on day one.
In regards to access to services, there is no time like the present to make sure your Part D transition policies and procedures are in place, functional, and operational. (In fact, there's no time like the past to have done this already.) CMS identified in their September 10 memo that transitioning new and existing members is a best practice, insomuch that it eases administration and all beneficiaries are treated as new in order to meet the transition requirements. However, plan sponsors tell me that this is not always feasible, and thus they implement the minimum requirements necessary.
So what is the requirement you ask? Plan sponsors must provide a temporary fill when the member requests a refill of a non-formulary drug (including Part D drugs that are on a plan‟s formulary but require prior authorization or step therapy under a plan‟s utilization management rules) within the first 90 days of coverage under a new plan. This 90 day time frame applies to retail, home infusion, long-term care and mail-order pharmacies. Failure to do so was a common finding in the 2012 program audits. CMS found that incorrect transition logic or edits had been applied, leaving some transition-eligible drugs to be rejected.
Think about what the obligations are as outlined in the Prescription Drug Benefit Manual Chapter 6 (as well as all subsequent guidance), and ask the right questions of your PBM to ensure this process is in place. Not only that, but to share the wise words of a former manager of mine, "Trust but verify." Review your rejected claims on a daily basis and analyze if any rejections are inappropriate, and if so, do what's needed to ensure members get their drugs. Failure to do so, in my opinion, is one of the most serious reasons that CMS may find a plan in breach of their Federal contract. Your Medicare Compliance Officer will soon be attesting to seven questions specific to Part D transition via the 2013 Readiness Checklist. Give him or her the confidence to attest favorably by means of robust documentation, including test results that demonstrate functioning logic and appropriate edits, and a plan for focused daily rejected claims review.
A Half-Trillion from Medicare/Medicaid in Fiscal Cliff Deal?
In a recent webinar we predicted that we would see $300-500 Billion in savings from Medicare and Medicaid in a deal to avoid the fiscal cliff. The shapes in the fog are becoming clearer and we'll stand by it: Senate Majority Whip Dick Durbin said this morning on MSNBC's "Morning Joe" that he'd like to see around $400 Billion in cuts from Medicare as lawmakers negotiate a deal to avoid the fiscal cliff.
"I think that's something we should start working with, I think that's a good indication of where we could go. But when we sit down with revenue on one side and entitlements on the other, that's when we get specific."
Durbin suggested a few ways to help achieve those cuts: more means testing, possibly a separate prescription drug program with a low-cost option (?) and encouraging the development of ACOs. Later, during a speech to the Center for American Progress, Durbin, a member of the 2010 Simpson-Bowles Commission, discussed raising the Medicare eligibility age. He's got plenty of "savers and raisers" up his sleeve: "There were some 20 options that were given to us, and I supported a number of them."
Durbin took a welcome poke at some of his Democratic colleagues who oppose reforming Medicare and Medicaid: "Some say don't touch entitlements, I don't think that's a responsible approach," Durbin said. "Untouched, unchanged, Medicare runs out of money in 12 years — 12 years."
Election Gives Health Reform the Kiss of Life
It's hard to argue this wasn't a decisive victory for the President and Democrats in the Senate. What remains to be seen is whether intractable Congressional Republicans will come to the table to get stuff done.
While it was a distant #2 issue in exit polls, this election was a de facto referendum on health reform. The ACA will not be repealed and is now assured to be Obama's lasting legacy. The "repeal and replace" campaign -- over three dozen repeal attempts in Obama's first term at taxpayer expense of more than $50 million -- is over. The GOP fought the ACA fiercely but I expect it will be hugely popular by 2016. Our hope is that Congressional Republicans will lay down their arms and help shape the ACA's implementation so they can share the credit when it's as successful as Medicare Part D has been. House Speaker John Boehner made some welcome gestures this week, asserting that "ObamaCare is the law of the land" and that the repeal agenda is over. We'll see.
Here are some thoughts on what happens in government health programs now that the election is over:
Sequestration and Fiscal Cliff: the 2% across-the-board sequester will not happen and the two parties will make a deal on the fiscal cliff that leaves everyone pissed — like compromise is supposed to. The political dynamics strongly favor the President, as his ideal scenario — raising taxes on the wealthy to accompany budget cuts -- occurs without any legislative action, and nothing happening in Congress is always a safe bet these days. Any deal reached will now involve both entitlement cuts and tax increases, we'd guess in the neighborhood of $2T or roughly half that recommended by the Simpson-Bowles Commission, and it will have bipartisan support.
"Doc Fix": The Sustainable Growth Rate (SGR) or the "doc cut" will be fixed, but it has to be paid for — and that's the obstacle both parties struggle with. MA rates are profoundly impacted by this issue, and Congress's inclination to deal with it through annual increments rather than the 10-year price tag in CBO estimates means that MA plans must wait until the next year's rates are announced. The discrepancy between how and when MA rates are set vs. FFS means that MA plans are never really made whole. It's a tremendous challenge for our industry — and an enormous windfall for MA in 2014 and beyond if Congress solves the problem.
Exchanges: Many Red State governors held out hope the election would settle whether they must prepare for health reform. The 11th hour means most have been caught flat-footed and the Federal Exchange will operate in over 30 states and will be the defining marketplace for health insurance starting in 2014. Far-right governors in Kansas and Virginia will eat the Federal fallback; Wisconsin Governor Scott Walker is now scrambling to get his own exchange together, and a handful of others may follow. It's one of the supreme ironies of Obama's reelection: the governors who screamed loudest of a "government takeover of health care" are about to get just that for their inaction, when the Federal Exchange comes to town in 2014.
Medicaid: most, if not all, of the 7-8 Red States who opposed expansion following the Supreme Court ruling will fold and take the expansion funds in the next 90 days — it's just too good a deal to pass up. Most of the 16 Million new Medicaid beneficiaries envisioned by the ACA — many childless uninsured adults -- will be assured of coverage in a second Obama term.
Dual Eligibles: The migration of dual eligibles to health plans will now move forward in more than two dozen of states in the next two years. The state fiscal crisis will overwhelm concerns about the speed of the migration, and it will result in over $200 Billion in new annualized premiums for plans in the next 3 years. The duals are now affirmed as the biggest opportunity for health insurers in a generation — bigger than the exchanges. They're also the most vulnerable, complex and expensive patients in the entire US health system and will challenge health plans like never before.
Medicare Advantage and Part D will continue on the course set by the ACA, and we expect the consolidations within the industry to accelerate with the election's uncertainty resolved. Look for a much tougher CMS in a second Obama term, with a continued increase in oversight, bolder regulations raising the bar, and a tougher compliance posture from CMS for Medicare Advantage and Part D plans.
- The Stars program's current trends will continue: Standards will change every year and underperforming plans will be hunted down and eliminated. CMS may get moving on SNP-specific rating standards, as SNP plans will be in trouble soon without them. Plans with 4+ Stars will continue to get bonuses and rebates under the ACA, but 2013 will usher in a new era of sub-3 Star plans being shut down by a much tougher CMS.
- CMS will keep trying to find a better way to risk adjust. We expect an attempt to recalibrate the HCC coefficients based on encounter data, which will change the dynamic: Plans will have to find missing codes to avoid being cut, rather than getting paid more. How CMS adjusts for the FFS error rate will be crucial.
- SNP and 1876 reauthorizations will both get paid for, but we need a vehicle to get the 1876 extension quickly, since it expires the end of December 2012. SNPs expire at the end of 2013, and so have more time for reauthorization.
Medicare: We expect Medicare will serve as a piggy bank for deficit-reduction proposals, given its size and fiscal situation.
- The Ryan/Wyden Medicare reform proposal will be debated as a gesture of "cross the aisle" goodwill from the President, but won't come close to enactment. But "premium support" will go mainstream in the debate and become more palatable over time — it reeks of inevitability and Democrats must come to the table to save the program we all hold so dear. The discussion begun by Ryan and Wyden must have its day.
- We expect the cuts that have been considered in prior budget proposals will be back on the table, including: fraud detection, reforming Medicare cost sharing rules, restricting first dollar coverage in Medigap, extending Medicaid drug rebates to duals and LIS, and more means testing. Provider cuts will also be on the table, especially for hospitals.
- An increase in the eligibility age to 67 is a possibility. But unlike with Social Security, deferring the eligibility age merely cuts off the lowest-cost tail of the distribution. The cost reduction would be disproportionately small compared to the number of people politicians would upset.
ACOs: with the ACA intact, the truly astounding surge in ACOs participating in Medicare, Medicaid and the commercial market will continue. Over 100 ACOs are already operating in Medicare. Over 500 applications were received by CMS for the September filing deadline for the Medicare Shared Savings Program, and over 300 ACOs are active in the commercial market and Medicaid reforms. With the election ACOs are here to stay as the bedrock contracting vehicle for the evolution and enrichment of forward-looking providers.
While it ended up a "status quo election" it gave the Affordable Care Act an indelible kiss of life and ushers in one of the biggest changes in our domestic policy in a generation. Now it's time to get down to the real work of implementing it.
Medicare Part D is Crushing It
A bipartisan group came out with another survey showing that Medicare Part D is just about the greatest thing the government's done in a generation.
The survey of 2,363 seniors ages 65 and older, conducted by KRC Research and Medicare Today, showed that 90 percent of seniors surveyed are currently satisfied with the Medicare prescription drug coverage they receive. That's the highest level of satisfaction on record, and the survey found both Republicans and Democrats surveyed were equally happy with it. Sixty-one percent of those surveyed said without the program, they wouldn't be able to fill their doctor's prescriptions.
David Kendall, senior fellow for health and fiscal policy at Third Way, said on a call with reporters that the Medicare prescription drug benefit was a key example of successful bipartisanship because it was "enacted by Republicans and perfected by Democrats...Republicans left a doughnut hole, and Democrats have successfully fought to fill it." He also noted that the program is currently coming in under original cost projections and studies have shown that prescribing drugs bring down other health care costs for patients: Harvard researchers found that the Part D program saves Medicare about $1,200 per year for each senior who previously did not have good drug coverage through lower hospital, nursing home, and other costs. Even though drugs cost money upfront, they reduce spending downstream through fewer surgeries or other medical procedures.
Grace-Marie Turner, the Galen Institute's president, said, "The key is that [Part D] really continues to demonstrate the effectiveness of competition and consumer choice."
These studies are new testaments that private sector health plans, when aggressively regulated, can deliver on a tremendous public good at a cost lower than anticipated -- Part D has consistently come in $100 Billion less than projected when it became law. It's one of the best things the government has done in decades -- and Congress should keep their paws off it as the fiscal cliff approaches.
Newbies Slow Dual Eligible Expansion in Key States
After last week's AHIP conference on Medicare and Medicaid and MANY coffees and cocktails later, a picture emerged that the only thing slowing the movement of dual eligibles into health plans isn't nervous advocacy groups or overstretched regulators -- it's newbies to the game of caring for the nation's most vulnerable patients.
Dual-eligible expansion has slowed in key states due to the influx of a number of inexperienced plans in states like Florida and New York — Florida in particular, where provider-sponsored plans and other late-comers are popping up like mushrooms in response to the state's long-term care integration RFP. Ohio has selected its plans in a tortured process, but many are newcomers to duals and many influential providers are in disarray, slowing momentum. By contrast, California is moving apace — in counties with experienced plans like Orange and Los Angeles, while delaying implementation in counties covered by plans with little or no track record.
Some interesting challenges lay ahead for Melanie Bella's Office of Federal/State Integration at CMS, which has handled the surge admirably but now needs to balance quality priorities against Medicaid agencies that want fewer strings attached despite the flood of newbies. At this stage CMS's pipeline and market intel suggests the following states to watch:
|
Year |
Early Adopter States |
|
2013 |
MA, CA, FL, IL, OH, MN, WI |
|
2014 |
AZ, HI, NY, TN, TX, WA, ID, MI, OR, RI, SC, VA |
To address the "newbie" phenomenon, I suspect in many of these states some very strange bedfellows will emerge, like Blue Cross/Blue Shield plans partnering with large provider systems or traditional Medicaid-focused plans. Stay tuned — it ain't easy getting a $200 billion market off the ground among companies with precious little track record in serving those who need their services the most. The launch of Part D will seem like a milk run once this transition is complete.