Reading the Stars in Medicare in 2014-2015
Whatever you may think of healthcare.gov, CMS is killing it on the Medicare Star Ratings Quality Demonstration.
As we move into the final year of CMS's historic and controversial $8.5 Billion Quality Demonstration, we see clear evidence that quality incentives are working, plans are making major investments to improve their ratings, and quality is improving across the industry. One thing we can be sure of in uncertain times: proven performance-based payment systems like MA Star Ratings will spread to Medicaid, the exchanges, and commercial accounts in the next 3-4 years under banners of transparency and accountability. $8.5 Billion in a $3 Trillion industry seems infinitesimal, but Stars are moving the industry in ways outsize to their impact.
Many industry experts giggled at the Affordable Care Act ‘s (ACA) provision allowing MA plans to earn up to 5% additional reimbursement from the government for quality metrics based on the CMS star system, and 10% in double bonus (mostly rural) counties. The Star ratings system was, at the time, a laughable ranking barely 2% of beneficiaries paid any attention to. Not anymore. In 3 years, CMS has evolved Stars to an increasingly sophisticated carrot and stick for quality improvement, with massive financial implications for payers.
To date, each half-star rating equated to roughly $50 per member per month in bonus payments. For 2014, we estimate the enrollment weighted-average increase to plan paymentst from Star bonuses is approximately 4.75% and 3.3% in 2015. Anything below 4 Stars in 2015 means no bonus and a major financial headwind for plans. With MA plans seeing roughly 5% margins, 2014 being the worst year of MA reimbursement cuts from the ACA, and 2015 meaning the end of bonuses for plans below 4 Stars, plans are making significant investments to improve their ratings.
There was clear evidence that Stars incentives are working: 52% of MA plans are now at 4 Stars, up from around 37% of all MA plans. The average member weighted ranking for 2013 is 3.86, up from 3.7 in 2012. The biggest chunk of MA enrollment is now in 3.5 Star-rated plans: 30% or 4.4 million. There are now 16 5-Star rated plans up from 3 this year.
While tremendous progress is being made on Stars, GHG's analysis of the data also shows what a long, hard journey these performance metrics present to health plans. We have much improving to do in managing conditions like osteoporosis and mental health, where most plans scored badly. And the data shows a need to continually improve the service model, like providing interpreters, managing member complaints and coverage disputes.
MA plans in qualifying counties, mostly rural, can receive a "double bonus," the payment impact of which is significant. There are about 4 million MA members in double bonus counties, roughly 27% of the total MA population. Double bonus counties add about 100 basis points to payments across the entire MA program.
5-Star rated MA and Prescription Drug-only plans can enroll members year-round in 2014, rather than just during the annual enrollment period. This is a major strategic advantage for Star leaders, but one that few have taken full advantage of yet — and that's about to change. With big nationals finally attaining the honor, they'll be ready and hustling all year.
CMS has been very clear that it reserves the right to terminate MA contracts that are below 3 Stars for 3 consecutive years, citing its authority in an April 2012 final rule which became effective this year. About a half-million Medicare beneficiaries are enrolled in plans with less than 3 stars.
Resources:
Interested in seeing how your Plan's performance compares to others in your market? Download GHG's Star Ratings Database that combines the CMS-issued 2014 Star Ratings with those over the program's history from 2008 on.
Hear from GHG Stars expert Jane Scott on October 29th. GHG and AISHealth team up to present a 90 minute webinar: "Inside the 2014 Star Ratings for MA and Part D: Trends and their implications." Register now >>
Want to hear more from John? Decision-makers from Health Plans and Provider Organizations are invited to join GHG for a free webinar on November 19th: "The future of the Government sponsored health care." Register for this free event now >>
ACOs: Here to stay or gone tomorrow?
With the recent announcement by CMS that nine of the 32 Pioneers were dropping out of the program there has been much "Sturm und Drang" about the passing of ACOs into obscurity. A recent article in the Investor Business Daily has gone as far as to predict that not only are all ACOs going to fail, but while in existence they "will diminish the quality of care received" by Medicare patients.
Seriously? Is anyone buying this stuff? Think about it. The program, Pioneer and MSSP, has improved beneficiary access to services, and allowed better coordination of services. This is achieved by ensuring that patient information is shared among caregivers, which improves joint decision making between a care giver and the patient about treatment options. If it all goes according to plan, there should be a reduction in the cost trend because the elimination of unnecessary procedures or treatment results in less "stuff" to charge for. But even if savings do not materialize, isn't the prospect of earlier diagnosis and better treatment outcomes just as good of a result?
Interestingly enough, I do not recall any of the Pioneers who dropped out suggesting that they would stop their efforts at coordinating care or encouraging joint provider patient decision-making, etc.
What's the point you ask? The point is that the underpinnings of the Pioneer and MSSP programs, i.e. providing the right services in the right setting at the right time for the right price, will survive the ACO and will serve as the legacy for all who participated in the program --stay or leave.
Those of us in the healthcare industry committed to the improvement of clinical outcomes while curtailing costs see ACOs for what they are. ACOs are one small step for service delivery engineering, and one giant incentive for continued health care practice reform at the provider and payer level.
So let's stop wasting energy speculating whether, and or when ACOs disappear. The more important question is how do we build on the foundation that CMS has created with the Pioneer, MSSP and other demonstration programs designed to elicit service delivery and pricing innovations. Opportunity knocks.
Resources
If conceived and executed well, the ACO represents a unique opportunity for provider organizations to redefine their financial relationships with payers, beginning with Medicare. Read more on ACO opportunities in our white paper on the topic
Join us on August 8 to get practical advice on the best ways of getting into the MA market from GHG's Chief Development Officer, Aaron Eaton, Senior Vice President of Finance, William A. MacBain, and Senior Director of Compliance Solutions, Regan Pennypacker.
Our comprehensive management solutions provide ACOs in transition with the tools, processes, and expert guidance to drive overall performance through new models of finance, leadership, and clinical value. Visit our website to learn more.
The Market is Working in Part D (Just Like it Will in ObamaCare)
We've always maintained that Medicare Part D is one of the most successful market-based experiments this country has ever attempted, and that it provides the playbook for ObamaCare's health insurance exchanges. There's further evidence out today of the FACT that the government is capable of creating an insurance market from a green field, regulating the hell out of it, and achieving an enormously popular social good.
WaPo reported today that the average monthly premium for Medicare prescription drug plans will creep up by $1 next year, to $31. Average Part D premiums have held steady at around $30 a month for the past 3 years. We'd agree with CMS's assessment that the negligible increase means competition among drug plans is holding down costs, even as benefits have improved for seniors with high prescription bills. It's a dynamic that will become familiar in the exchanges in a few years.
But there's more: last year 7 out of the top 10 plans raised their 2013 premiums by double-digit percentages -- which means that by aggressively shopping, and by some 5,000-6,000 Baby Boomers aging into Medicare daily with low drug utilization, seniors helped keep the average premium from going up more than a buck. That speaks to the growing maturity of the Part D market now 7 years in operation (such as the shift coming in 2014 to "preferred" pharmacy networks), the availability of real consumer information to make good choices, and the improving sophistication of beneficiaries in making them.
Seniors have learned in these seven years some important but subtle tenets of plan selection, many of which are transferable to the exchanges. First is, the monthly premium isn't the whole story. Many seniors, especially those who take several drugs for chronic conditions, have learned that the best values for them often aren't the low-premium plans but rather those with drug formularies and benefit designs that don't penalize them for their health status in out-of-pocket costs.
Example:
- XYZ Health Plan offers a $20/month Part D program, but with a very tight "Tier 1" formulary with few drugs at lowest cost sharing (say, a $5 copay here) and the most common drugs for seniors on Tier 2 with a $25 copay.
- ABC Health Plan charges $40/month for its drug plan, but its Tier 1 covers most oral insulins, statins and cardiac therapies for a $5 copay.
- Therefore, the typical Medicare beneficiary taking one or more of those drugs gets a much better deal from ABC when total out-of-pocket costs are considered.
- Sure, XYZ plan's monthly premium is a fraction of ABC's ($240/year vs. $480/year), but that "savings" is wiped out by higher copays: three drugs on XYZ's Tier 2 gets you copays of $75/month or $900/year. At ABC, those same three drugs are $15/month or $180/year. So, interestingly, the 3-drug senior saves $480/year by joining the higher-premium plan.
I'm willing to bet that we're seeing mid-60's Boomers skew toward the low-premium plans as many aren't yet using multiple drug therapies and are unconcerned by tighter pharmacy networks; and older, sicker beneficiaries beginning to look to higher-premium plans with more generous formularies and cost-sharing. This kind of consumer sophistication takes a few years to take hold in a new insurance market. But it's exactly the kind of purchasing behavior we'll be seeing in the exchanges in 2014 and beyond.
The Part D experience shows how important it will be to bring the "bro's" and the "young invincibles" into the exchanges early to spread risk and help suppress premium growth, and how tight provider networks of high performers impact pricing. It also shows how wildly popular ObamaCare will be after what promises to be a rough first year of implementation and consumers finding their way through the confusion and white noise from the opposition.
Resources
In 2013, GHG Forum attendees went on a detailed walk-through of Part D rejected claims including frequency, sampling, data validation and documentation.
GHG Founder and Executive Chairman John Gorman addressed the critical issues issuers must address before the launch of the Exchanges at the 2013 GHG Forum. Click here to download the recording.
Join us on August 13 and hear GHG's Chief Development Officer, Aaron Eaton, and Independence Blue Cross' Senior Vice President of Health Care Reform Implementation, John Janney, walk through an operational readiness checklist to help make sure your health plan is ready to go live on October. 1.
Cost Sharing in Medicare
The Alliance for Health Reform held a meeting on "Streamlining Cost Sharing in Medicare: The Impact on Beneficiaries" on July 22, 2013 which focused on a number of proposals to modernize Medicare benefits. The Medicare benefit package has not been updated since 1965 and it needs streamlining and improving. Medicare Advantage has already updated many cost sharing features, for example charging co-payments rather than coinsurance for many services and charging a single predictable premium that covers Medicare cost sharing for Parts A, B, and D and supplemental coverage. Medicare Advantage plans also have an out of pocket maximum that protects beneficiaries from catastrophic costs. My colleague Bill McBain recently discussed "Medicare Essential" which was developed by the Commonwealth Fund and would combine Medicare Parts A, B and D into a single premium plan run by the government unlike Medicare Advantage which is offered by private plans. The Bipartisan Policy Center (BPC) has developed its own proposal to modernize Medicare Fee For Service benefits beginning in 2016. The BPC proposal would build on some of the reforms already offered by MA plans and recommended by CBO and MedPAC including a unified Part A and B deductible and an out of pocket spending cap. The BPC proposal includes a catastrophic cap of $5,300, a single $500 deductible and a simplified copayment structure. To provide incentives for primary care, the BPC proposal would not apply the deductible to physician office visits. The BPC proposal would also provide new federal subsidies for beneficiaries between 100 — 150 percent of the FPL. The BPC plan would prohibit all supplemental plans including Medigap, employer coverage, FEHBP and Tricare for Life from providing first dollar coverage.
All of the proposals under discussion would cause major restructuring in the Medigap industry. The impact on Medicare Advantage would depend on the details. MA plans have successfully competed against high cost Medigap policies because beneficiaries realize significant cost savings and have greater protection from catastrophic costs. The BPC proposal is not that different from the cost sharing structures that many MA plans offer today. It is hard to imagine that the BPC's proposed new subsidies for low income beneficiaries would not be extended to low income beneficiaries enrolled in MA plans. MA's value proposition compared to Medigap might not be as strong if the expensive first dollar coverage Medigap policies were eliminated but MA delivery system reforms should continue to give MA plans a competitive advantage.
Resources
Join us on August 8 to get practical advice on the best ways of getting into the MA market from GHG's Chief Development Officer, Aaron Eaton, Senior Vice President of Finance, William A. MacBain, and Senior Director of Compliance Solutions, Regan Pennypacker.
On June 14th at the 2013 GHG Forum, William MacBain presented on the future of Medicare and ways to combat its projected increase in per capita spending in the next two decades. View the recording here.
End-of-Life Shows Signs of Life in Congress
End-of-life care and planning is something we're passionate about here at GHG, and I've gotten in some trouble over the last couple years in arguing Sarah Palin's "death panels" distortion set the debate back a decade. I may have been too pessimistic, or over-estimated the former half-term Alaska governor's influence: end-of-life planning is showing signs of life in Congress. Politico had a great story out profiling Rep. Earl Blumenauer (D-OR) and his bipartisan crusade on the issue, reprinted in full below.
The ‘death panel' bill lives
By Joanne Kenen | 7/21/13 4:00 PM EDT
Rep. Earl Blumenauer wants Congress to talk about death.
Much of Congress would rather walk over hot coals.
The bow-tied, bike-riding Oregon liberal was the author of the 2009 bill aimed at encouraging doctors and physicians to talk to patients about what kind of care they want near the end of life. It notoriously became known as the "death panel."
The bill is back. Or rather, it's never gone away.
Each Congress, Blumenauer reintroduces it. He's even added a few new elements, for instance to make sure that care preferences are incorporated into electronic medical records, not stuffed in someone's bedside table. He's picked up 15 co-sponsors, including a few Republicans. Among them is Rep. Phil Roe (R-Tenn.), an outspoken member of the conservative House GOP doctors caucus, which helps drive an unwavering opposition to Obamacare.
Since the heated "death panel" days, Blumenauer's "made it less radioactive," Jon Keyserling, senior vice president and health policy director of the National Hospice and Palliative Care Organization, said of the congressman's persistence.
But "less radioactive" isn't a glide path to passage, particularly not in a highly partisan Congress with Obamacare still rolling out amidst charges and countercharges about rationing, care quality and Big Government intrusion.
Blumenauer talked to POLITICO about his bill this spring and allowed a reporter to listen this month as he addressed critical care physicians who deal with life-and-death situations all the time — and who too often face ambiguity or dissension within families about what their loved one would have wanted.
He says he's convinced his measure calling for doctors to get compensated for these voluntary conversations could "pass pretty comfortably" — if it were to reach the floor. That's a big "if." The hangover of 2009 has not totally dissipated. A lot of people still don't want to go anywhere near the volatile issue four years after the "death panel" summer.
The ongoing conflict over health care reform adds to the difficulty. "There are some people so invested in repealing Obamacare that they don't want distractions," Blumenauer said.
That frustrates him.
"We have allowed people with ideological or political agendas to play this out," Blumenauer said. "We've really obscured the fact that this is all about making an informed decision that is respected. "
Roe doesn't see eye-to-eye with Blumenauer about Obamacare; he's voted to repeal all or part of it repeatedly and would do so again.
But he's been reaching out to colleagues, trying to explain that this end-of-life medical consult legislation isn't Obamacare. It's about getting people the care they want and helping document their wishes, which may change over time. Both lawmakers noted that an advanced directive doesn't mean a do-not-resuscitate order. People can and do opt for very aggressive do-everything care.
No companion legislation has yet been introduced in the Senate, but Sens. Mark Warner (D-Va.) and Johnny Isakson (R-Ga.) are working on a separate bill addressing several aspects of advanced care planning as well as care for people with life-threatening illness. The bill, which could be introduced soon, won't be identical to the House version, which could prove another impediment to passage.
The heart of the Blumenauer bill is simple: Doctors and patients should talk about aging and about how a disease is likely to progress so that the patient can make clear and informed choices and the doctor can understand and respect them. Those conversations can and should take time.
Doctors get well-paid for doing procedures, Blumenauer said. They should also be paid for the time they talk to a patient about something this important. The bill calls for Medicare to reimburse the physician for one such conversation with the patient every five years, more frequently if the patient's health deteriorates.
Blumenauer notes that Medicare will pay doctors, hospitals and rehab centers tens of thousands of dollars for a terminally ill 90-year-old to get a hip replacement. But it won't pay a couple hundred bucks for a conversation about other dimensions of that terminal illness.
That's not how the legislation got framed in the summer of 2009. Rather than being about finding out what granny wants, it became about throwing granny off the cliff. The measure stayed in the House health care reform bill — but didn't make it into the Senate legislation, which eventually became the law.
"We had over 400 experts and professional organizations come forward and say this is silly, there are no death panels," Blumenauer recalled. "It's simple common sense." That message didn't get through. It fueled the tea party, nearly derailed the health law and left large swathes of the public convinced that death panels exist, that a group of government bureaucrats will say who lives and whose time is up.
Roe knows a lot of that death panel rhetoric came from within his own party — and as much as he dislikes Obamacare, he finds this vein of attack disturbing. The political discussion is so far removed from what people — Democrats and Republicans, lay people and doctors — experience in their own families, he says. He's gone through hard conversations and hard choices himself, he says, both in his own family and as a physician.
Many Oregon lawmakers have taken an interest in end-of-life care as the state pioneered legalization of physician-assisted suicide. That, Blumenauer stresses, is not part of his bill.
He says he really got engaged with the issues during the Terri Schiavo case — or the Terri Schiavo "debacle," as he calls it.
"It was one family's tragedy turned into a national political spectacle," he said. "It could have been avoided if she had documented her wishes."
That made him think about policy steps that could encourage making advanced care planning simpler and more routine. "It struck me as perfect alignment of policy, politics and personal empowerment," he said. "And nothing that I've seen since suggest that it isn't."
Blumenauer doesn't describe his mission as quixotic. It's like any other bill, he says. Building support is a process. Just keep plugging away, one vote at time. He's set a goal of talking personally to every single House member, all 435 of them, in the coming months.
He sees some signs that society may be hitting the tipping point. A lot more books and memoirs are being written about aging, caregiving and death. Millions of Americans are helping care for elderly relatives and finding themselves thrust into wrenching choices, wishing they had more guideposts. No family, Democratic or Republican — or even member of Congress — is immune.
Roe shares that belief, and he joins Blumenauer for strange bedfellow presentations to health and medical groups. But he's less sanguine about how much the winds have changed in Congress.
The bill will pass someday, he said. Asked when that may be, he replied with a joke: "Maybe after I retire."
Resources
Gorman health group can help position you for the challenges—and opportunities—posed by health reform, designing a strategy that takes into account your service area, market environment, core competencies, and vision of the future, click here to find out how.
Join us on August 8 to get practical advice on the best ways of getting into the MA market from GHG's Chief Development Officer, Aaron Eaton, Senior Vice President of Finance, William A. MacBain, and Senior Director of Compliance Solutions, Regan Pennypacker.
Not a Narrow Network - A Smart Network
What we learned in Medicare + Choice is still true today, we don't need narrow provider networks; we need aligned provider networks, aka Smart Networks. We have also learned that narrow networks often cause ill-will with your health systems and uncontrolled leakage. A Smart Network builds a mini-healthcare community similar to an ACO in your healthcare delivery ecosystem. A Smart Network can focus on a health system and it's provider feeder system or it can better engage your Primary Care Physicians (PCP) and "rendering" PCP. Smart Networks typically are invisible to members; however some payers may differentiate copay to encourage Smart Network utilization.
What is a Smart Network?
It is provider community aware, educated, and contractually aligned with the health plan or payers objectives around member health status, medical cost, care delivery, and health outcomes.
What is needed to develop a successful Smart Network?
- DataWarehouse: Success is built on capturing and compiling claims, lab, pharmacy, provider, eligibility, benefit, risk adjustment, and premium files on a very timely basis. This datamart needs to issue reports clearly displaying the successful areas of performance excellence and areas for alert and in need redesign. This is the health plans early warning system and strategy monitoring instrument.
- Multidisciplinary teams: The payer needs to know and monitor the data, drivers, goals and objectives; plus the provider partner need a team to absorb, implement, and impact the drivers and objectives.
- Slow and Steady Deployment: Not everyone can be globally capitated; make certain your team have expertise in gain-sharing for cost reduction programs, bundling payment programs, episode of care models, and mixed payment innovation models so this new structure is a win-win. The reimbursement methodologies may need to include assurance around participation in data capture exercises, code specificity, closing gaps in care, and other outcome, STARS, or risk adjustment initiatives the payer may deploy. Design your methodology; forecast its impact, and internal redesign the workflows touched on both sides — payer and provider.
- Network Management Touch: Make certain you are paying claims timely and accurately today. Health system or providers don't like to partner with those with "high administrative burden." Thus, consider having the following Network Management structure: 1) telephonic claims & process efficiency liaisons 2) contract negotiations and 3) educator, communication, and report review liaisons.
- Joint clear objectives for the SmartNetwork: whether it is a health system, cardiology practice, oncology association, a group of dialysis centers, nephrologist, endocrinologists or an ancillary provider makes certain the teams, objectives, and monitoring reports clearly understand, agree on and represent the short term and long terms goals.
- Early & Continued Dialogue: The initial dialogue will highlight if a provider may be a good SmartNetwork partner and the commitment of monthly or quarterly joint operation committee meetings will cement it. The original initiative may have a flaw in the development or implementation so this joint committee will need to review the impact and augment as needed.
Two closing thoughts:
- Remember bonus payments to providers are considered part of the medical cost in your MLR calculation.
- These Smart Network initiatives often need external support with design expertise, implementation experience, credible reporting design & product, and often a bit of mediation.
GHG is always eager to support the exploration and development of SmartNetworks. We have team members who have worked within PHOs, ACOs, IPAs, large health plans, and specialty medical providers; we are here to help if you need it.
Resources
Gorman Health Group's Senior Vice President of Public Policy,Jean LeMasurier discusses the recent CMS Medical Loss Ratio (MLR) regulation and its provisions.
GHG is helping many experienced plans by developing smart networks: accountable care, shadow capitation, and payment bundling within their current service areas and networks. Visit our website to see how we can help you too.
Strange Bedfellows Come to Medicare Advantage's Rescue
If you can say anything about Medicare Advantage (MA), it definitely makes for strange bedfellows in both the private sector and in the halls of Congress. Last Friday the full lobbying fury of the industry was in evidence as three separate groups of legislators appealed to the Centers for Medicare and Medicaid Services (CMS) on its 2014 rate proposal.
First was a bizarre, bipartisan collection of Representatives: Reps. Bill Cassidy and John Barrow and 93 other lawmakers — mostly GOP, but some Dems — begged CMS to reconsider its approach to the 2014 MA rates, saying CMS shouldn't enact new risk adjustment policies and to assume that the 2014 Sustainable Growth Rate cuts will go into effect. "This reduction in funding will leave many vulnerable seniors with fewer benefits, higher out-of-pocket costs, and in some cases the loss of their current MA coverage," they wrote.
Then, Senators Max Baucus (D-MT) and Orrin Hatch (R-UT), leaders of the Senate Finance Committee, fired their own salvo. In a rare joint letter, they poked CMS for not giving MA plans enough notice on changes to the Star Rating calculation, and for assuming the SGR cuts would not be blocked, as they have every year for the last decade. This one change to CMS's proposal would restore about 5% to MA payments in 2014. "The lack of transparency surrounding this proposal is troubling," Baucus and Hatch wrote, asking CMS to delay changes until they can be vetted. Their voices are particularly important on the 2014 rates, as it is their panel that will handle the long-awaited confirmation of Marilyn Tavenner as CMS Administrator in the coming weeks.
Later that day a group of 22 other Senators sent a letter to CMS expressing their concerns about the 45-Day Notice. Another strange bipartisan assortment including several influential Democrats urged CMS to assume that Congress will address the Sustainable Growth Rate.
We don't have any doubt that CMS will walk back some of the draconian measures they included in the 45-Day Notice. The agency has the most discretion around its proposed risk adjustment changes, and I suspect many of them won't make it into the final rates on April 1. And while the most meaningful remedy is for CMS to assume an SGR fix will be passed later this year, the agency has never taken such a step and we don't expect they will here.
We believe an SGR fix will pass the Congress again, but not until later this fall and well after 2014 bids are due to CMS in June. That means we'll see a roughly 5% bump in MA rates in 2015 -- but still very tough times for MA plans and their members next year.
Resources
Click here to read the MA rate letter Max Baucus and Orrin G. Hatch sent to CMS on March 15, 2013.
To read the MA rate letter the US House of Representatives sent to CMS on March 15, 2013, click here.
Click here to review the MA rate letter the US Senate sent to CMS on March, 15 2013.
Gorman Health Group Senior Vice President Bill MacBain explains the logic behind the proposed rate change, and shares a brief analysis of the impact in this regulatory summary.
Click here to review GHG's comments in response to the Advance Rate Notice, submitted to CMS on March 1, 2013
Gorman Health Group Senior Vice President Jean LeMasurier summarizes the 2014 CMS Draft Call Letter.
What Sequestration Could Mean to Medicare Advantage Claims Payment
Last Friday CMS's Medicare Learning Network released some details on how the sequester will impact Medicare fee-for-service. By extension we see some implications for what it means to Medicare Advantage (MA). The CMS notice offered the following:
| To All Health Care Professionals, Providers, and Suppliers: Mandatory Payment Reductions in the Medicare Fee-for-Service (FFS) Program — "Sequestration" The Budget Control Act of 2011 requires, among other things, mandatory across-the-board reductions in Federal spending, also known as sequestration. The American Taxpayer Relief Act of 2012 postponed sequestration for 2 months. As required by law, President Obama issued a sequestration order on March 1, 2013. The Administration continues to urge Congress to take prompt action to address the current budget uncertainty and the economic hardships imposed by sequestration.
This listserv message is directed at the Medicare FFS program (i.e., Part A and Part B). In general, Medicare FFS claims with dates-of-service or dates-of-discharge on or after April 1, 2013, will incur a 2 percent reduction in Medicare payment. Claims for durable medical equipment (DME), prosthetics, orthotics, and supplies, including claims under the DME Competitive Bidding Program, will be reduced by 2 percent based upon whether the date-of-service, or the start date for rental equipment or multi-day supplies, is on or after April 1, 2013. The claims payment adjustment shall be applied to all claims after determining coinsurance, any applicable deductible, and any applicable Medicare Secondary Payment adjustments. Though beneficiary payments for deductibles and coinsurance are not subject to the 2 percent payment reduction, Medicare's payment to beneficiaries for unassigned claims is subject to the 2 percent reduction. The Centers for Medicare & Medicaid Services encourages Medicare physicians, practitioners, and suppliers who bill claims on an unassigned basis to discuss with beneficiaries the impact of sequestration on Medicare's reimbursement. Questions about reimbursement should be directed to your Medicare claims administration contractor. As indicated above, we are hopeful that Congress will take action to eliminate the mandatory payment reductions. |
Here's what it means for Medicare Advantage:
First, CMS is applying the 2% cut to fee-for-service claims based on dates of service on or after April 1, not dates of payment on or after April 1. Plans that pass the 2% cut on to providers on the same basis as Medicare FFS will be paying at full value for incurred claims with dates of service before April 1, even if paid after that date. However, we expect that CMS will deduct the 2% sequestration from payments to MA plans starting with the April payment. This may cause a short term cash flow issue, with April claim payments for prior months' claims being made at full value, while the April capitation from CMS is at 98% of full value.
Second, the 2% is applied after all other calculations. For instance, assume the Medicare allowable rate for a service is $100, and the service is subject to the Part B coinsurance of 20%. Payment to the provider would normally be $80, with the beneficiary paying the other $20. With the sequestration, it's $78.40 to the provider. But, since the coinsurance is calculated before applying the 2% cut, the beneficiary still owes $20. The original fee schedules still apply: the 2% comes off the payment, not the calculation of the payment.
We're not sure yet how this will affect how MA plans pay claims. For instance, if a plan covers office visits at 100% of Medicare allowable, less a $10 copay, and if they determine that their contracts allow them to pass the sequestration through to providers, does this mean that they would pay $78.40 instead of $80 for the Part B benefit, plus $10 (the $20 coinsurance minus the $10 copay)? That's a total of $88.40, versus $90 the plan would have paid prior to the sequestration, a reduction of 1.78%. But the plan's capitation is being cut by 2%. So revenue gets a bigger hit than claim payments.
If this is an accurate example, calculating this is going to be a nightmare for MA plans' claim systems. They will have to be able to calculate the Medicare Part A or B payment, net of the Part A and B deductibles and coinsurance, and subtract 2%. Then they'll have to add back the full value of the deductibles and coinsurance, and subtract the plan's copayments.
But it gets worse. If plans will only be able to apply the 2% against what Medicare would have paid, they will need deductible accumulators for the Part B annual deductible, and the per benefit period deductible for Part A. And they will need to calculate the different copayments for regular hospital days and lifetime reserve days. Presumably there is no way to know if someone has used up the lifetime reserve, since that would require access to claim data from periods when beneficiaries are covered by FFS Medicare or other MA plans.
It is a little simpler for capitation payments. For plans that capitate providers based on a percent of premium, the 2% cut will just flow through to the capitated provider group. Plans that pay a specified fixed capitation per member month will probably have to eat the reduction. But either way, the capitated delegated provider group will need to follow the Medicare FFS logic if they apply the 2% reduction to their provider payments. So the same complications remain; they just move downstream from the plan to the capitated provider entity. We think this is something that health plans need to address immediately with their capitated providers, to ensure that the capitated entities are prepared to administer the 2% sequestration accurately -- and within the next month.
It's only a matter of time before the complications of sequestration and Congressional inaction reach the point that no one in Medicare Advantage can administer it. That time may come next month if the President and Congress can't come to agreement to avoid a government shutdown on March 27, and if CMS keeps most of its draconian 45-Day Notice proposal in place when final MA rates, and the final terms of the 2014 Call Letter, are announced on April 1.
Resources
Listen in as Gorman Health Group Senior Vice President Bill MacBain shares an update on the sequester, what GHG thinks is likely to happen next, and the potential impact on Medicare Advantage.
Gorman Health Group Senior Vice President Bill MacBain explains the logic behind the proposed rate change, and shares a brief analysis of the impact in this regulatory summary.
Click here to review GHG's comments in response to the Advance Rate Notice, submitted to CMS on March 1, 2013
Gorman Health Group Senior Vice President Jean LeMasurier summarizes the 2014 CMS Draft Call Letter.
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.
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.