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.
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.
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….
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.
Open Enrollment and Star Ratings for 2013
Open enrollment season has started and CMS has posted the star ratings for each Medicare Advantage (MA) plan and Prescription Drug Plan (PDP) on the Medicare.gov website, which is the official site beneficiaries use to get information on their plan choices. Five star plans get a special gold star icon and have special enrollment periods. Higher performing MA plans also receive higher bonuses. Low performing plans are also designated by a special icon on the Medicare website. Most MA plans whose rating fell will see a decrease in their payments in 2014.
The good news is that overall plan ratings improved in 2013 compared to 2012. 127 MA plans had four or five star ratings compared to 106 in 2012. These represent 23 percent of all MA plans and 37 percent of all MA enrollees. The average MA-PD star rating weighted by enrollment is 3.66 percent compared to 3.44 percent in 2012. Five star plans are marked with a gold star on the Medicare Plan Finder and these include: Kaiser Foundation Health Plan (6 separate plans), Group Health Plan, Group Health Cooperative, Gunderson Lutheran Health Plan, Humana Wisconsin Health Organization, Health New England.
PDPs also improved in 2013 compared to 2012. 26 PDPs had four or five star ratings compared to 13 in 2012. The average star rating in 2013 is 3.30 compared to 2.96 for the 2012 ratings. 30 percent of PDPs received the highest ratings and these served 18 percent of enrollees. Five star PDPs with gold star ratings on the Medicare website include Excellus Health Plan in New York, Hawaii Medical Services Association Wellmark/Blue Cross Blue Shield in the upper Midwest and Northern Plains, Catamaran Insurance of DE.
The number of low performing plans declined for 2013, For 2013, 26 contracts received 2.5 stars or lower for the last three years of which 10 are MA plans and 16 are PDPs. In 2012, 30 plans were designated as low performing. 20 of the low performing plans from last year either improved their ratings, withdrew their contract or consolidated.
MA plans and PDPs have a number of concerns about the methodology used to establish the star ratings, including the age of the data (e.g. the 2013 ratings are based on 2011 data), the frequent changes in methodogy and the difficulty in improving scores from year to year. For most plans these ratings are good news and the star rating has gone up for most measures from 2012 to 2013. Three new measures focused on care coordination and improvement. For MA-PDs, the national average for the care coordination measure was 85 percent or 3.4 stars. Non-SNPs performed better on this measure than SNPs. The measure for net improvement showed that MA contracts on average achieved a score of 3.1 for Part C and 3.4 for Part D while PDPs achieved an average score of 4.1. However approximately 10 percent of the plans will see a lower bonus as a result of their new lower ratings and plans with 2.5 stars or less for three years in a row face the possibility of termination from the program.
http://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovGenIn/PerformanceData.html
GOP Piling-on Begins on the Medicare Advantage Star Ratings Demo
House Republican Committee chairmen began to pile onto rising controversy around the $8.3 billion Medicare Advantage Star Ratings Demonstration this week, first brought to attention by the Government Accountability Office's study of the program commissioned by Senator Orrin Hatch (R-UT) in April.
In May, the American Action Forum — an influential conservative think tank here in DC — released a report authored by former Congressional Budget Office Chief Douglas Holtz-Eakin blasting the Stars Demo. "The system rewards beneficiaries for choosing those plans favored by the selected CMS criteria, rather than the plans that best meet their needs," said the report. It went on to say the program will actually serve to limit choice — and since counties with higher incomes will end up having higher-rated plans, it will have an adverse effect on low-income beneficiaries. "The goal of incentivizing quality health plans is legitimate and admirable; that goal will not be achieved by the rating structure currently being put into place," Holtz-Eakin wrote.
Last Friday House Ways and Means Committee Chairman Dave Camp (R-MI) weighed in with a nasty-gram to HHS Secretary Kathleen Sebelius demanding extensive additional information on the development of the Stars Demo. Camp wrote, "With its most recent report, GAO has determined HHS exceeded its legal authority to implement this demonstration, which calls into question all activities surrounding the development of the (Stars Demo)". Camp requested that Secretary Sebelius detail all communications with the "CMS Actuaries' office, the Office of Management and Budget, the White House, the Democratic National Committee, the Democratic Congressional Campaign Committee, the Democratic Senatorial Campaign Committee and" — wait for it — "Obama for America, which led the agency to take action related to the (Stars Demo)". Wait, wait — did he just say that? The Obama campaign directed CMS to launch this demo? Having worked in the agency I can tell you these guys are smoking something excluded from Part D coverage.
Times Are A-Changin'...Get Your Team to the GHG Forum June 12-13
In response to client requests, GHG is holding its first-ever Client Forum June 12-13 in Washington. With so much change in the air in government programs, the Forum is the perfect opportunity to get your team focused on the road ahead.
This isn't a disjointed lineup of vendors selling from the podium like at your usual industry conference: the presenters are all GHG's elite subject-matter experts, and the agenda is designed to be a silo-busting deep dive for government programs executive teams, with downtime built-in to allow you and your team to process and plan ahead. If you want answers, this is your gathering.
Change is a constant in the government programs world, and most of the folks who call us for help are those who are too busy these days to do anything but react. We have a motto at GHG: you can't react your way to excellence. Take two days to join us, bring your team leaders, and learn about how to get ahead of what's coming.
I don't often pick fits with the GAO...But when I do, I prefer it's about Medicare Advantage
The non-partisan GAO doesn't much like the demonstration plan that accelerated the MA Quality based payment initiative, known as the Star Rating System. You can read why here, here, or here. For my colleague John Gorman's great summary, visit us over here.
I can save you the linkage: the gist is that (much) too much of the $8 billion in bonus money goes to average plans. A secondary theme to the criticism—articulated by politicians and commentators, not the GAO—is that the bonus money was cannily used by the Obama administration to soften the blow of the payment cut to MA plans that was a large source of funding for Obamacare.
Let's dispense with the second point first: The bonus program is at present worth $8B per year (that's about to change). The cuts to MA were over $130B. Soften? Not exactly up to his standards.
The first point is more interesting. It's true that on the bell curve most plans are average. And it's true that the demonstration program extended bonuses to these plans for three years. It's also true that the bonuses go away in 2015, when only the 4+ star plans will see any bonuses. So that $8B number will drop, and fast. Take a look at the best performing plans: they are by and large small, dense, local and affiliated with a dominant provider system in their home market. Further, the rating system is getting harder every year. Many measures are graded on a curve and the class is getting smarter. And as the industry masters certain measures, they are retired and replaced with new measures that are predominantly outcomes oriented--- hard things for the plans to manage.
And perhaps most critically, it has also been lost in the discussion that CMS has sent out dozens of letters to low-performing plans (those sub 3 stars for 3 years) reminding them that CMS has the authority to terminate that plan's contract.
That's a big stick to go along with all those carrots.
GAO Says Stars Bonus Demo is an $8 Billion Waste
The Government Accountability Office released a report yesterday recommending that CMS cancel the Star Ratings Bonus Demonstration, saying it would spend over $8 billion rewarding plans with only average quality improvement. That $8.3 billion -- to be awarded to plans with at least a 3-Star rating -- would offset "a significant portion" of the MA payment cuts in the Affordable Care Act (ACA).
Congressional Republicans who requested the study said the demo was an expensive political ploy designed to pump money to mediocre Medicare plans and shield beneficiaries from the effects of the ACA cuts. Sen. Orrin Hatch (R-UT) said the GAO report suggests that the administration abused its authority in implementing the program. GAO, the investigative arm of Congress, didn't speak to GOP charges that the bonuses are politically motivated -- but it did note that the Stars demo "dwarfs" all other Medicare pilot projects in nearly 20 years.
Most of the bonus money, of course, goes to plans in the middle of the bell curve with 3-3.5 stars on Medicare's five-star rating scale. Available through 2014, the bonuses do soften much of the impact of the ACA cuts to Medicare Advantage -- in 2012, the bonus program offset more than two-thirds of the hit from ACA, and has clearly helped MA enrollment growth and declining average premiums the last two years.
The GAO recommended that CMS should implement the bonus structure as outlined in the ACA, which costs less and rewards only the highest rated plans. Under the original ACA bonus structure, only MA plans with four or more stars would qualify for the bonus. CMS in late 2010 said it would instead move to a three-year demonstration program, which increased the amount paid and would make three-star plans eligible for the bonuses. The demo costs $5.3 billion more than the original ACA version, making it one of the biggest demonstration programs Medicare has undertaken.
Hatch, the ranking Republican on the Senate Finance Committee, which oversees Medicare, is questioning whether the administration had the legal authority to create the program in the first place. "The Obama administration seems to be using a technicality to sidestep Congress and write itself a blank check to spend more money for political purposes leading into this year's elections," Hatch said in a statement. "The White House does not have the authority to green-light spending on whatever program it wants," he added. "This report is just the beginning -- I will be demanding answers."
The Medicare Payment Advisory Commission (MedPAC), the expert panel that advises lawmakers on Medicare, also criticized the bonus plan as the administration was pursuing it. MedPAC said the Stars Demo amounts to "a mechanism to increase payments" and its design "sends the wrong message about what is important to the program and how improved quality can best be achieved." MedPAC Chairman Glenn Hackbarth added that the Stars bonus demo "lessens the incentive to achieve the highest level of performance."
The administration says it disagrees with the GAO findings and believes the bonuses will improve the quality of care. Medicare "believes the demonstration supports our national strategy to improve the delivery of health care services, patient health outcomes, and population health," CMS said in its formal response to the GAO report. "Absent this demonstration, we believe that many plans would not have an immediate incentive to improve the quality of care delivered to (Medicare Advantage) enrollees."
I get it and I don't get it. Everybody in Washington -- Republicans and Democrats alike -- knew that this demonstration had little to do with quality improvement and everything to do with lessening the ACA's cuts on plans and beneficiaries alike. The ACA's cuts were the remedy to the excessive subsidies to MA plans in the Medicare Modernization Act of 2003, and the Stars demo was the "glide path" that bridged the two. Hatch is one of the strongest advocates of Medicare Advantage in Congress, and he fought valiantly against the ACA's $137 billion hit to the program over 10 years. With this GAO report he seems to have decided that it's worth calling in friendly fire on the program to score political points against the President in an election year.
I can see alot of noise on this report, especially with the Medicare Trustees' Report also out yesterday. After all, the furor over the GSA's Las Vegas conference scandal was over a tiny fraction of the pile of money in play here, literally. But I think the recommendation of terminating the demo is dead on arrival. Rewarding high quality, and squeezing out low quality plans as CMS has promised for those below 3 stars, is so clearly a good idea that we don't expect the Star bonus demo to go anywhere...though CMS officials may want to arrange their own parking space on the Senate side for all the hearings they'll get called into for this.
Don't waste your travel budget
We're less than three months from the GHG Forum. This is NOT your usual conference. We've developed a unique educational retreat for management teams working in government programs. I'm thrilled at the presentations our faculty are preparing: we're putting our senior consultants on the stage to deliver case studies, war stories and tales of best practices. But just as importantly, we're building in time for you to react to these sessions with your team--- to develop questions for your track faculty, compare notes, discuss implementing the best practices you've learned about.
We know it's a new concept in an industry that's become accustomed to sales people masquerading as subject matter experts. But we think that's it's badly needed. Many management teams we work with bemoan the lack of time and space to learn, collaborate and plan for success. In this environment, it's easy to simply react. But no one has ever reacted their way to excellence.
No doubt, if you send one to two people they will benefit individually. But isn't the isolation of our departments from each other central to our basic challenge of reforming our plans? We invite you to join other plans (some are sending as many as a dozen attendees) in making the GHG Forum your travel investment for the year. Send a team. We'll show you around.