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.
Federally Facilitated Exchanges — Getting States to Help Out
The fog has cleared. CMS sees the size of the FFE Mountain and is beginning to put its plans in place to get health plans certified to participate in the FFE by August 2013. While the partnership states have clearly indicated their intention to play a role in reviewing federal requirements for FFE applicants, other states' governors have cited a myriad of reasons for not having an exchange. At this point, CMS has a few issues to sort through before they can give directions to applicants.
Each state must communicate to CMS their level of cooperation in conducting reviews of applications and oversight of health plans in the FFE. All of this activity must be accomplished at warp speed to make sure that everyone is on the same page in terms of their roles and responsibilities in getting plans on the FFE.
For the seven partnership states, the decision is clear. Each state has provided information in their blueprint application about areas they will oversee. While this is a major step, CMS and each partnership state will need to mutually agree how state requirements comport with FFE requirements. Where they do not, states must understand federal criteria and conduct reviews accordingly in the application process. An MOU will certify the process in each state.
Currently, twenty-four other states that have chosen not to partner with CMS will follow different routes as the FFE becomes operational. CMS extended the timeline to February 15 to encourage more of these states to become a partnership state. To give them an idea of what partnership means, CMS published descriptions of the roles the states can play in a partnership.
At the same time, CMS has made numerous entreaties to these states about roles that they can play in the FFE oversight process (see pp14-16). Consequently, CMS must plumb each non-partner state to determine their interest. This means that leadership in the state regulatory agencies must determine the degree to which they should become a cog in the federal regulatory system.
For some, providing no support is fundamental political theater that demonstrates state independence and requires the federal government to incur full costs along with responsibility for failure. Notably, any of these passive states can still receive payments to provide licensure and solvency as well as any other information that will assist the FFE.
For FFE states willing to coordinate, the CMS task is to evaluate state requirements to determine equivalency to FFE requirements and agree on methods for oversight with each state in whatever limited number of areas equivalency can be established, as well as how information can be continuously shared to support FFE oversight activities.
The dance steps needed for mating state regulatory structures with the federal government in each of the 24 non-partner states are substantial. Getting state/federal agreement to mutually oversee health plans in any limited area requires bureaucratic grease, especially in a compacted timeline. To work with states and make the path as clear and uncomplicated as possible, CMS is making a framework to do this with added definitions and analytic tools. The goal: to be ready in three months for the first applicants.
Notwithstanding resolving equivalency of requirements in states that wish to hold off federal takeover in even a small way, the mating process will also bog down in negotiations around added resources, costs incurred and payment for state services. CMS needs to ensure that these issues do not become obstacles that upend the August 2013 timeline. CMS will need to re-consider using any state's regulatory structure when it becomes clear this engagement process has overwhelmed the goal in that state.
Resources:
Download Jean LeMasurier's whitepaper on Insurance Exchanges in the ACA.
Read Steve Balcerzak's previous blog post on the FFE draft application for qualified health plans.
American Taxpayer Relief Act of 2012
The January 1 legislation to fix the fiscal cliff postpones the scheduled 27 percent Medicare physician fee schedule cut under the Sustainable Growth Rate formula for one year. In order to pay for the doc fix, there are a number of payment reductions to Medicare fee for service providers, especially reductions in hospital and ESRD payments, and an extension of the DME competitive bidding program to diabetes test strips purchased at retail pharmacies. The Medicare Advantage (MA) program also takes a hit. The legislation saves $2.5 billion over ten years by adjusting the MA risk adjustment methodology to increase the coding intensity adjustment factor for 2014 from 1.3 percentage points to 1.5 percentage points and to increase the adjustment factor for 2019 and subsequent years from 5.7 percent to 5.9 percent. The coding intensity adjustment is intended to reflect different coding patterns between Medicare Advantage plans and FFS providers.
The legislation postpones the sequester for two months. MA plans are subject to a 2 percent cut beginning in March if the sequester is not repealed or amended.
The legislation extends the special needs program through December 2014 and the Medicare managed care cost program through December 2013.
The legislation extends the authority and funding ($7.5 million in FY 2013) for SHIPs (State Health Insurance Programs) and Area Agencies on Aging to conduct outreach and assistance for low income subsidy programs.
The legislation extends the Qualifying Individual (QI) program and the Transitional Medical Assistance program through December 2013.
The legislation amends two provisions in the ACA. The legislation precludes spending for any new Consumer Operated and Oriented Plans (CO-OPs). The legislation also repeals the CLASS long term care program and establishes a Commission on Long Term Care to make recommendations on long term services and supports.
Resources
For more information on how Gorman Healh Group can help with Medicare Advantage Risk Adjustment visit our website.
View a 90-minute recording on "Risk Adjustment in the Exchanges - Lessons Learned from MA and Part D".
Listen in to what Jean LeMasurier thinks will happen next regarding the outcome of the fiscal cliff.
We Can All Agree On This, I Think
Resources
John Gorman and Nathan Goldstein discuss what is next for Government Healthcare in this podcast. Download the recording here.
Federally Facilitated Exchanges: The draft application for qualified health plans
In at least 23 states, governors are allowing a "Federal takeover" in the form of a federally facilitated exchange (FFE). Now, CMS has published the first draft of the application that health plans need to complete to become a qualified health plan (QHP) in the CMS FFE. To be sure, the exchange regulation allows individual exchanges flexibility in defining rules and operations, provided they meet the basic requirements. This flexibility applies equally to how CMS interprets its role in operating exchanges in the FFE states.
Notwithstanding the publication of proposed rules around benefit packages, actuarial equivalents, risk adjustment and accreditation two weeks ago, the draft QHP application gives us only a glimpse at the sub-regulatory requirements an insurance provider must meet to qualify for a FFE contract. It is normal that laws beget regulation that change into sub-regulatory requirements in the form of manuals, applications and memos. The process is painstaking, long and aggravating as the government attempts to re-explain or respond to every question -- especially for new programs. So early adaptors, beware. There were approximately 100 promises of additional guidance in the final exchange regulation published in March. This draft application puts only a small dent in that promised guidance.
More importantly, for health plans who were expecting to be approved by sending CMS a copy of their state license and a benefit package, the draft application provides real meaning to "Federal takeover". The FFE application is effectively a new licensure process since each health plan is an unknown to CMS. Familiarity with a state regulator has almost no meaning, and a new set of judgments and evaluations are applied. CMS wants to see your state license first, but you will also need to explain that you are solvent and are in good standing with the state. For basics, CMS asks for extensive administrative data on the organization and its staffing. If there are corrective actions in place, CMS will determine if they are sufficient.
The draft application notes that multiple areas will have additional information added over time. One undefined, major area is a new section that will address parameters for network adequacy that may or may not agree with state licensure requirements. Also, a separate listing is required for a new, undefined provider category for essential community providers. No doubt, this section will undergo its own evolution. Additionally, for the FFE, CMS adds new requirements. For example, there is no exchange regulation for a compliance plan. However, for operating in the FFE, it's required.
Similar to applications for Medicare Advantage and Part D, FFE health plan applications will be submitted electronically. This includes the usual complexities given the nature of the systems used by CMS for validation and document uploads. A series of attestations is used to ensure that plans have reviewed requirements.
In the Medicare Advantage and Part D world, manuals and memos provide sub-regulatory guidance that defines these requirements. However, there is little or no sub-regulatory guidance for the FFE attestations. So far, only regulations are cited and, as noted above, there are over 100 places in the exchange regulation where future guidance is promised.
Finally, requirements for benefit plans and risk adjustment are in their comment period and are destined to become a part of the application. At the same time, the application promises that it will change over the next few months before it is final in early Spring 2013. However, the draft application clearly indicates to us that CMS will engage in a serious regulatory process. Clues to their methods have been firmly established in processes used in Medicare Advantage and Part D. Given the expected timeframes, health plans need to identify resources that can efficiently provide the right kind of responses during what promises to be a tumultuous startup to 2014.
The Path to a Deal on the Fiscal Cliff
Outside the Beltway Bubble it must look like we're about to go all Thelma & Louise off the fiscal cliff. In fact, each day the path to a deal becomes clearer, as brilliantly displayed by our friends at WaPo's WonkBlog. The one thing that is crystal-clear: the final deal will piss off everyone.
Medicare Advantage Plans Need the "Doc Fix" More Than Docs Do
Predictably, the "Doc Fix" has become a political football in the fiscal cliff discussions here in Washington, and it continues to have huge bearing not just on physicians but Medicare Advantage plans as well. You could say MA plans need the "Doc Fix" more than docs do.
The Sustainable Growth Rate (aka the SGR) is a formula established by Congress in the Balanced Budget Act of 1997, and sets an annual expenditure target for traditional Medicare physicians' services, based on the annual growth in per capita expenditures for physician and related services. Spending in excess of the target is supposed to produce an off-setting reduction in physician fees. Spending below the target has actually generated fee increases, which, of course, made the situation worse in the following year. As the Congressional Budget Office put it: "the SGR method allows spending per beneficiary to grow with inflation, with [some] additional adjustments."
In 2002, for the first time the SGR generated a cut to physician fees, of 4.8%. In 2003, the SGR would have cut an additional 4.4%. Instead, Congress increased fees by 1.7% (an annualized swing of 6%, although only effective for 10 months). In 2004, the SGR would again have cut physician fees, by 4.5% -- but Congress increased fees by 1.5%...and so on to this very day. The SGR calculation is cumulative, so each year, the overrides and increases are added to the SGR, compounding the problem. The cut to occur on January 1, 2013 is projected to be 27%.
In an ideal world, Congress would use the lame duck session to fix this once and for all. After all, those who were going to lose have lost, those who were going to win have already won, new members don't arrive until January, and the next election is nearly two years away when the half-life of any political memory is about six weeks. There's never been a better time to enact the doc fix.
However, the fiscal cliff, and the remaining intransigence of the far right of the House Republican caucus, make things difficult. A permanent "doc fix" costs about $245 billion. Legislators who are pledged to reducing the size of government programs are going to have a hard time voting to add that much to Medicare, even though everyone knows that Congress will add at least that amount on an annual basis anyway.
So once again, we're likely to see a one-year fix at the last minute, kicking the can down the road another year, and again leaving doctors wondering about the viability of Medicare participation if they are going to get jerked around on an annual basis.
And, Medicare Advantage friends take note: this isn't just a physician headache. The SGR is costing Medicare Advantage plans a ton of money. While Congress consistently holds physicians whole, albeit often in the 11th hour, the SGR gets baked into the Medicare Advantage benchmark calculations. The correction to Medicare Advantage benchmark payments lags a full year. By then, a new SGR cut has been calculated, a cut probably bigger than the last. So the retroactive correction for last year's predicted cut that never happened is offset by including the next year's cut in the benchmark calculations. That's why temporary fixes continue to depress MA rates, while a permanent fix would boost them 5-6% two years later -- essentially offsetting the MA cuts that helped fund health reform. And it's why MA plans need the doc fix to happen more than docs do.
As Lewis Carroll said, "The hurrier I go, the behinder I get."
Of course they should! (But not for the reason you may think)
The New York Times reports that Hospitals fear they may bear the brunt of Medicare cuts. I should hope so! But not because they are wildly profitable at the expense of efficiency and innovation elsewhere.
To be wildly profitable itself is, in my book, no sin. But that's moot in this case: the average hospital in the US breaks even—barely—as Forbes recently noted. The fact that a small number put major dough on the bottom line only makes them like restaurants in the way that a few are able to monopolize a local market while most limp along. Just because Wolfgang Puck can buy an island doesn't mean your brother's pizzeria will thrive.
As the insanely smart Clay Christensen has postulated in The Innovator's Dilemma, hospitals are expensive because they are conflations of three highly contradictory business models: the first of these is the "Solution Shop," as typified by a consulting or law firm. These business are well-matched for the Fee-for-Service payment model. Where hospitals are concerned, this is the realm of their diagnostic and intuitive medicine activities. The value they create here is inherently open-ended. The reimbursement structure should be as well. The NYT's own "Diagnosis" Series is a brilliant example of this.
The second of these is the "Value Adding Process" business, as seen elsewhere in manufacturing, restaurants and education. Take something and do stuff to make it better. Like a pizza. Or a knee. This is best financed through a fee-for-outcome model. "I will pay you $12 for that lunch." When Atul Gawande wrote recently about what the Cheesecake Factory can teach hospitals, it was no doubt these types of medical procedures that he had in mind. Lasik surgery or knee replacements are a good match for his famous "Checklist Manifesto." One need only to look at medical tourism to see how the market has responded as hospital execs lumber along under the weight of overhead which does not drop as the price of a new hip does.
The last of these three models is the "Facilitated Network." Think of your own insurance company. You pay to get access to a risk pool. Another example from healthcare that is slowly taking off is the communities of patients (cancer suvivors, people living with diabetes) who add value with each other through social networks. One can certainly imagine many ways a thriving network of 5 million diabetics could make its sponsor a little cash.
In that hospitals are inefficiently organized, they are expensive. In that they are expensive, they have sown the seeds of their own destruction. As the market and policymakers alike look for oxen to gore, there are few better options. Time will tell if the hospital business model can disentangle itself and reorganize before the entities holding these companies crash and burn.
What Health Care Federalism Looks Like
Insurers are beginning to grumble about the state-by-state variation in Exchange design as implementation bears down on the industry. Fierce Health Payer has a quick summary of the griping here. While I can't blame them for their frustrations (hey, we have to figure out all 50, too!) I do wonder how they would feel about the alternative: a national exchange whose model may not adequately recognize the dramatic differences in how care is delivered by geography, demography, provider culture, et al. Just look to the Medicare Advantage program and its challenges thus far in creating a quality rating system that does not properly account for the challenges in caring for a rural population.
Curious to know your thoughts, dear readers, on the virtues of the open vs. closed models….
Democrats Painting Themselves Into a Corner on Entitlements in Fiscal Cliff
It took no time for Democrats to walk back the growing momentum on an eligibility age increase for Medicare: last week House Minority Leader Nancy Pelosi and prominent Democrats in the Senate slammed the door on that idea. So today several Senate Democrats floated a key Medicare concession to try to get to yes on the fiscal cliff: higher premium payments for wealthy seniors, or means testing. Problem is, like an increase in eligibility age, it won't get them very far in terms of savings. It doesn't add up to enough to appease GOP deficit hawks, and it really pisses off liberals who see means testing as a slippery slope to a welfare-like Medicare.
So the Dems are saying no to increasing the eligibility age on Medicare; no to touching Social Security; and no to cutting Medicaid. A number of Senate Democrats are saying they can hold their nose and support means testing if it means the GOP will raise taxes on the top 2 percent of wage earners and if it's part of a significant deficit reduction plan. There's overwhelming opposition among Democrats to going any further, which means they're painting themselves -- and President Obama -- into a corner on entitlements.
The President broke with Democratic orthodoxy when he agreed tentatively to raising the Medicare age in last summer's doomed debt-ceiling talks with House Speaker John Boehner. The President proposed additional Medicare means testing in his deficit reduction plan, and the idea also showed up in last year's deficit-reduction list between Vice President Joe Biden and House Majority Leader Eric Cantor.
Obama has offered up $600 billion in cuts to health-based entitlement programs and non-mandatory programs, including a proposal that saves $350 billion by overhauling bulk purchases of prescription drugs as well as Medicare means testing. But the President is demanding $1.4 trillion in new taxes, including raising marginal tax rates on families who earn more than $250,000. Boehner has floated $800 billion in new taxes from closing unspecified loopholes and deductions as well as $1 trillion in cuts, including out of entitlement programs. So you can see the path to a deal by splitting the baby: $800 billion in entitlement cuts, and $1.1 trillion in new taxes.
Both the President and House Republicans released proposals in 2012 that would require more seniors to pay a means-tested premium. House Republicans would have reduced the income level from $85,000 to $80,000 for individuals and $170,000 to $160,000 for couples. The President would have charged more to the wealthiest 25 percent of seniors. Obama's plan would have saved $20 billion over 10 years, but other plans have been estimated to save more than $200 billion.
Senate Finance Committee Chairman Max Baucus (D-MT) said he's more open to means testing than moving the entitlement age from 65 to 67: "It's more fair." Senate Majority Whip Dick Durbin (D-IL) and Budget Committee Chairman Kent Conrad (D-ND) are advocates of the proposal, and other Democrats are open to it as well.
The GOP says means testing is only a first step, arguing that Medicare, Medicaid, Social Security and the Children's Health Insurance Program (CHIP) consume over 40% of an annual Federal budget of $3.6 trillion. They insist more structural reforms are necessary. Democrats are nervous that Obama will be excessively conciliatory on entitlement cuts in his negotiations with Boehner and will expect their votes to support any agreement he can reach.
Leaving themselves such a skinny path out of this wilderness will make the home stretch on the fiscal cliff a tough slog for Democrats.