My Talk at AHIP's Medicare Conference
I had the pleasure of addressing a standing-room-only crowd at the AHIP Medicare conference yesterday, sponsored by our friends at TMG Health, our 4th year together there. That speech always keeps me on my toes, especially this year -- a tough, smart audience that demands a tough, smart message on how to survive in the new Age of American Austerity. Here are the main points of what I said:
- Volatility and Accountability will define the sext several years in Medicare. Volatility: rates, the Medicaid dual eligible explosion, the Congressional "Super-Committee", industry consolidation, and the 2012 elections. Accountability: it's already here. Star Ratings bonuses, minimum MLR regulations, compliance, rate reviews, RADV audits, and Accountable Care Organizations.
- The State of the Union in Medicare Advantage (MA) and Part D is strong. All predictions of the demise of the program following health reform were wildly premature. MA will grow about 7% this year, and over 40% of beneficiaries aging into Medicare have chosen MA in the last two years. Local PPOs with the drug benefit integrated remain the product of the future in MA, as do Special Needs Plans given the tsunami of dual eligibles -- a $300 Billion market alone. We think MA will pass 15 million members by the end of 2015.
- Medicaid managed care is risky (BIG) business. We've already seen major awards this year in TX, LA and KY. CA is prepping the biggest RFP in US history: 150,000 duals in plans by end of 2012; all duals in plans by end of 2015: a $21 Billion opportunity. WA, FL, NH, NE, MI and HI are all preparing to move duals into plans.
- Volatility: many of us thought we "gave at the office" in health reform when the ACA whacked over $120 Billion from MA rates over a 7-year period. There's more austerity to come from the Congressional "Super-Committee" on the debt. Best case scenario? The Super-Committee fails, sequestration occurs, and we get hit with a 2% cut in 2013, 2014 and 2015, compounded. And what about the "doc fix"? If they don't fix the SGR and docs take a 29.5% cut in Medicare reimbursement in 2012, MA gets hit by about 7% in 2013, and the beneficiaries take it in the shorts. Bar the exits! Consolidation is intensifying in both payer-payer transactions, and payer-provider deals like United/Monarch (CA). And then there's the elections. My money as of today is that Obama gets re-elected by the narrowest of margins, Democrats lose the Senate, and we have another 4 years of economic doldrums with the HUGE exception of the ACA's implementation in 2014.
- Accountability: it's already here, a cornerstone of the ACA. It's embodied throughout, in Star Ratings bonuses, Accountable Care Organizations, with growing incentives for chronic care improvement, member satisfaction, and compliance. The cornerstone is transparent data reporting. Berwick's legacy will be his embedding the "Triple Aim" in the DNA of CMS. And CMS says it will terminate MA plans with less than 3 stars for 3 years running. A "good" star rating is not a hedge against the rate cut: it is an existential issue -- and a management revolution.
- What to Do?
- Aggressive revenue management in the near term. Master risk adjustment and audit-proof the function by embedding it where it belongs in Medical Management, move from claims extracts and chart reviews to Prospective in-home Evaluations, and be a Star Czar.
- Care coordination and chronic care management over the mid-term (3 years). It will take years to see results, but this is what it's all about in the mid-to-long-term. High-touch with the frequent flyers.
- Commit to a Culture of Compliance. The regulator is the purchaser, and you keep this account happy by following their rules. To. The. Letter.
- Revisit the service model and move from reactive to proactive. Health care is still a service business and Boomers are tough customers.
- Establish and Invest in Medical Homes, Accountable Care Organizations, and Exclusive Provider Organizations. In the end, it's all about the docs.
Questions? You can always reach our team at ghg@ghgadvisors.com.
PS Join me for another talk September 25-26 in Arlington at the Opal Events MA Strategic Business Symposium. Complimentary passes are still available today.
America's Hospital Patient Safety Problem in 1 Awesome Graphic
The graphics geniuses at MedicalBillingandCodingCertification.net have come out with another of their charticles examining the American health-care system. The quick takeaway? "The United States ranks dead last out of 19 developed nations in preventable deaths at hospitals." The problem is preventable and the solutions pretty straightforward. The charticle is fascinating and scary. Enjoy.
Consolidation in Medicare Advantage and Prospects for Regional/Local Plans
In the past 12 months three health insurers have each acquired a Medicare Advantage HMO: HealthSpring (Bravo), WellPoint (CareMore), and Humana (Arcadian). Large plans are finding that acquisitions make more sense than investments in organic growth in certain markets, and that enrollment will be driven by millions of plan-friendly Baby Boomers and employers seeking to transfer risk for retirees to Medicare. Investors that sat on the sidelines the last couple years during the financial crisis now need to invest, many large players are sitting on piles of cash, and there are many opportunities in the fragmented MA market. So consolidation will intensify -- what does that mean to regional or local MA plans?
First, there's plenty of room in MA's pantheon for regional and local plans. It doesn't take much enrollment to make the Top 25 in Medicare Advantage given revenues for MA members typically run 4-6x what commercial members pay -- take Independence Blue Cross in Philadelphia. They have about 85,000 members and they're among that hallowed group. 10,000-12,000 members is generally thought to be the "magic number" in MA, where a plan achieves actuarial stability with an enrolled pool big enough to weather the inevitable million-dollar babies at end-stage.
If you're above that number today, you can likely endure and thrive through the next several years of ACA transition and consolidation by following some specific best practices, especially around risk adjustment and Star Ratings management. If you're not there yet, this is going to be a very challenging couple of years ahead.
The best ways for local/regional plans to offset the rate cuts in ACA is on the revenue side. Risk adjustment and Star Ratings management best practices are the keys to survival for local and regional plans, and the methodologies of each actually favor these organizations. The new state of the art in risk adjustment is the advanced prospective evaluation -- a health risk assessment on steroids, conducted in the beneficiary's home by a trained physician (see the many posts by my colleagues Dr. Jack McCallum and RaeAnn Grossman on this subject). It's a complex process, arranging the scheduling, executing the visits, reporting the data to CMS -- but one managed more easily by local/regional plans with assets on the ground than large nationals.
Star Ratings quality bonuses from CMS actually favor local/regional plans as they're calculated at the contract ("H-number") level. Large national insurers typically have sprawling MA service areas: United in California, for example, has an MA contract for the entire state, requiring United to coordinate with literally dozens of physician groups to improve their Star Ratings. By contrast, tiny GEMCare Health Plan in Bakersfield, with a 5-county service area and only a handful of provider groups, is far better positioned to secure its Star bonus than United.
On the downside, minimum Medical Loss Ratio (MLR) regulations can be harder for local/regional plans to contend with. Beginning this year the ACA requires health plans to spend 80% to 85% of premium revenue on reimbursements for clinical services and activities that improve health care quality. Further, costs associated with conversion to ICD-10 coding, EMRs and e-prescribing are harder for smaller firms to absorb. But harder doesn't mean impossible, especially with effective planning and local leadership.
In the end, I think we're probably looking at one-third fewer contracts in MA by 2016 -- 671 today, down to about 400 by then, driven by acquisitions and a hard-nosed CMS pushing weak performers out of the program. That leaves plenty of room for local/regional plans -- if they can execute as well or better than the big dogs, especially on the revenue side of the ledger.
I'll be speaking on this and related topics at AHIP's Medicare conference here in DC on September 13, and again September 26-27 at the Opal Events 3rd Annual Medicare Advantage Strategic Business Symposium. For more information, click here. Hope to see you there.
United Acquisition of Monarch Healthcare (CA): Marx Meets Managed Care, Again
The Wall Street Journal reported this morning that United Healthcare is acquiring our longtime client, Monarch Healthcare in Irvine, CA. The transaction is further evidence that Marx (Karl, not Groucho) has met managed care: a payer controlling the means of production in an intensely competitive market.
There have been several other payer/provider deals in the last few months confirming the trend: WellPoint recently closed its acquisition of provider-owned Medicare Advantage plan CareMore; in June, Highmark bought West Penn Allegheny Health System; last December, Humana bought Concentra.
Expect to see many more of these kinds of deals, for clear strategic reasons: with greater emphasis on performance-based risk contracting arrangements in the future of healthcare financing, and an emerging focus on the patient's experience of care, in many markets it just makes sense for payers to own their supply chain -- and the day-to-day faces of the health plan with its members.
The Medicare "Doc Fix" Will Get Pegged to Quality Measures
We're hearing from friends on the Hill that Republican staff on the Energy and Commerce Committee are thinking about attaching a pay-for-performance system to any fix of the Medicare Sustainable Growth Rate. The new approach would cost less than a straight fix of the SGR, which will slash Medicare payments to doctors by 29 percent at the end of the year if Congress doesn't intervene.
It's still early in its development, but we heard that after a year or two freeze in payment rates, a new, tiered system would be implemented. Physicians in ACOs would get the highest pay rate, followed by doctors in fee-for-service Medicare who meet performance standards, followed last by docs who don't.
There's huge issues all over the concept -- but I like it. And it has an air of inevitability all over it. It will cost close to $300 billion to permanently fix the SGR. There's no way Congress is going to lay down that kind of money without some stiff expectations on quality in return. And it could finally have the effect of breaking the curse that is fee-for-service reimbursement in Medicare -- the root of all evil in the program's cost explosion.
And remember: if Congress doesn't intervene on the SGR, that 29% hit on docs' rates will translate into a 7% whack on Medicare Advantage payments in 2013. It's imperative for both sides of the program that Congress get this done. Stay tuned.
The State of Play on Medicare ACOs
The comment period for the Medicare Accountable Care Organization (ACO) Notice of Proposed Rulemaking closed yesterday, June 6. In the last two months CMS has taken a beating from virtually every corner on the draft regulation as being overly burdensome.
Dozens of groups, including the American Hospital Association (AHA), American Medical Association (AMA) and America's Health Insurance Plans (AHIP), submitted their comments on the proposal. High-profile Physician Group Practices (PGPs) such as the Cleveland Clinic and Mayo Clinic have said they are unlikely to participate in the Medicare ACO initiative.
AHA fears high implementation costs and excessive quality requirements will prevent hospitals from forming ACOs. AHA believes it will cost a 200-bed hospital with 80 primary care physicians and 250 specialists $11.6M to launch a Medicare ACO; a 1,200-bed, 5-hospital system with 250 primary care physicians and 500 specialists is expected to run $26.1M.
Battle lines were drawn on antitrust issues in comments from AMA and AHIP, which offered diametrically-opposed recommendations.
We believe CMS will listen to entreaties to reduce the quality reporting burden and will help provide improved cash flow for ACOs (we hope through partial capitation and getting rid of the 25% withhold) and possibly increase the share of savings that ACOs can keep, to encourage adoption. But given the huge volume of comments and political sensitivities in Congress on ACOs, we think it will be toward year-end before a final regulation is issued.
The "Pioneer ACO" Demonstration is scheduled to begin this fall, with applications due to CMS July 18 and a full program launch January 1st. We are seeing moderate interest among marquee providers — especially those with their own Medicare Advantage plans -- in participating in the Pioneer ACO Demonstration and believe chances are good that CMS will fill its 30 slots for these "ready to launch" ACOs if the agency listens to industry input on partial capitation arrangements in the coming weeks.