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.
Little Good News for Medicare Advantage in Senate Finance Hearing
The Senate Finance Committee held a hearing on Medicare yesterday and received testimony by CMS Medicare chief Jon Blum. Almost a week after the shocking 45-day Notice for Medicare Advantage (MA) and Part D was released, Blum offered little in the way of good news on the 2014 rates.
Blum said CMS is committed to ensuring seniors have strong choices and accuracy in payments. He briefly addressed the draconian 45-day Notice and said that one reason 2014 proposed rates to MA plans are lower is because Medicare spending is lower, and that's good news for the program. He also said it's longstanding CMS policy not to assume a Sustainable Growth Rate (SGR or the "doc pay cut") fix until it is current law, and said the best way to stabilize both traditional Medicare and MA is with a long-term fix to the SGR. He's certainly right about that, but with a $130 Billion price tag, may not be feasible while the budget debate rages here in DC.
Blum admitted that CMS does have discretion with respect to the risk adjustment model, and that could be good news for MA plans -- changes to the HCC model drove a significant portion of the cuts in the 45-day Notice. He suggested -- obliquely -- that CMS's proposal to refine the HCCs "to exclude certain conditions that are most commonly coded by Medicare Advantage plans" could be reconsidered.
Finance Committee Chairman Max Baucus (D-MT) said there is a need to address the 45-day Notice cuts, but did not offer any specific proposal, and neither did Blum. CMS has lowered the overpayments to MA plans relative to FFS from 14% in 2009 to just 4% in 2013 (before the proposed 45-day Notice cuts to 2014 rates), with the difference to be "phased down further." Blum stated on several occasions that the Medicare Advantage rates were proposed, not final. He said the payment reductions over the past few years coupled with membership growth in the program is evidence that CMS can reduce payments and yet the program can grow.
Blum later suggested that CMS's goal was to ensure that seniors have opportunities to enroll in 4 and 5 star plans, and pointed out that those plans not achieving 4 stars on the CMS rating system would face significant additional payment challenges.
So the brutal proposed 2014 payment rates for MA have Congress' attention, but a solution is far from clear with the sequester looming on March 1. The probability of a legislative SGR fix by June -- when MA bids for 2014 are due -- is virtually nonexistent, and that's tragic as an SGR fix of two or more years would bump up MA rates by about 5%, offsetting much of the shortfall in payments. Fixing the risk adjustment proposals won't impact benchmarks, so are only of limited value. Relief on other proposed payment changes like the Total Benefit Cost limits would be helpful but wouldn't significantly change the rate cuts.
So we got a few rays of daylight in the gloom of the 45-day Notice, but no clear path to fixing its worst features. AHIP is on the Hill with a massive lobbying campaign, and there's a steady stream of visitors to CMS seeking relief, but no evidence yet that we might duck the 9-10% cuts in the proposal with 30 days before it's final.
Resources
Listen in to John Gorman's take on the draft call letter and his thoughts on the implications for Medicare Advantage health plans — and their providers.
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.
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.
Some Scary Medicare News in the CBO Report
The Congressional Budget Office (CBO) released its new economic outlook yesterday with some interesting predictions on the launch of the Affordable Care Act's health insurance marketplaces (exchanges). But it was some of its Medicare findings that blew my hair back last night:
- CBO concurred with Medicare trustees that the trust fund will run dry by 2024, driven by rapid aging of the population.
- The number of Medicare beneficiaries enrolled in the program will grow by 36%, or an estimated 18 million people, between 2012 and 2023.
- The number of Baby Boomers turning 65 is projected to grow from an average of about 7,600 per day in 2011 to more than 11,000 per day in 2029.
- Over the next decade, annual net spending on Medicare will jump 82%, from $508 billion this year to $914 billion in 2023, according to CBO. As a share of the economy it will rise from about 3% of GDP today to 5% by 2037.
Check out this graph
Further proof that if you're not in Medicare Advantage and Part D, you won't be in healthcare soon.
Resources
Listen to a discussion focused on the lessons learned from MA and Part D when it comes to product strategy in the Exchanges.
Learn how Gorman Health Group can support your Medicare Advantage and Part D goals
FFE — Notice of Intent to Apply
Things should be starting up in the next few weeks for health plans interested in offering products in the FFE. Given the lack of specificity in the final exchange regulation and CMS' pursuit of state help, potential applicants will be in a constant scramble to see who's on first between the states and CMS. So, there is a need for tactical observation and quick analysis to determine their ability to meet each new twist as it is announced. It is a moving target of regulation that does not lead to a sense of certainty for any health plan that they can or will apply.
Preliminary CMS timelines call for submission of a notice of intent (NOI) to apply sometime in February. CMS relies on the NOI to begin to set up their automated systems for actual applications that will be received beginning in April. While CMS does not use the NOI to determine their need for resources, a large response could do just that. Also, the NOI is not binding, starting with a fairly incomplete set of requirements means that applicants can only estimate their willingness to follow through with an application and merely send one in to check the startup box in the process.
CMS has also let it be known that there is no timeline for states to decide if they want to be a regulator in the FFE. Some state legislators in FFE states are being pressed for more state regulatory action by their constituent health plans. So, it is likely that some health plans will not know which regulations will be applied as they make a decision to complete the application.
No doubt, CMS is looking for the lowest common denominator that will relieve their worry over resources as well as the concerns of potential applicants. However, potential applicants need to know ASAP if the FFE requires building new structures and operations or not when state rules are determined sufficient. While submitting an NOI is a no-brainer, the expense of actually making the application under these uncertain circumstances has real budgetary meaning for some health plans and may staunch some of the willingness to complete the application.
The preliminary FFE timeline looks like this.
February — March
- Health Plans submit Notice of Intent to apply
- FFE Health Plan Application released
April — May -
- CMS begins review of applications
- CMS releases benefit module
- CMS tests consumer application
June — July — CMS Call Center goes live
- CMS conducts all application reviews
- CMS reviews all benefit proposals
August — September
- CMS completes all health plan FFE agreements
- CMS readies each FFE for enrollment operations
October
- Open Enrollment begins
November - December
- Open Enrollment continues
January 2014
- Open Enrollment continues
- QHPs begin coverage period for enrollees
March 2014
- Open Enrollment Ends
Resources
Gorman Health Group Senior Vice President of Public Policy Jean LeMasurier offers a summary of the latest guidance on the state partnership exchange, released on January 3, 2013 from HHS.
Download Jean LeMasurier's whitepaper on Insurance Exchanges in the ACA.
Listen to a discussion focused on the lessons learned from MA and Part D when it comes to product strategy in the Exchanges.
Read Gorman Health Group Chairman, John Gorman's, blog titled "Exchange Activity Kicks into High Gear".
Exchange Activity Kicks Into High Gear
With all the activity underway across the states, you'd think we were less than 10 months away from when health plans in the Exchanges begin enrolling or something. Oh wait...HOLY CRAP we're less than a year from launch! The game is on, friends:
- Minnesota is taking steps to put its health insurance exchange into law, which has been operating under an executive order for over a year.
- Florida's special Senate committee will meet for the second time to discuss potential implementation of the healthcare law.
- California's budget, released last week, endorsed selling Medicaid bridge plans (low or zero premium plans for people earning between 138% to 200% of the FPL) on the state's exchange.
- Mississippi may receive a decision this week or next from HHS on whether the state's exchange has received conditional certification.
- Connecticut reported that five insurers and four dental plans applied to participate on its exchange.
- Oregon announced 16 insurers applied to sell on its exchange.
- Washington DC is in the process of engaging stakeholders and has created work groups on essential health benefits and established advisory boards for plan management and consumer assistance.
- Illinois's Health Care Reform Implementation Council is meeting today and exchanges may be a topic of conversation.
It's time to get real, folks: this is happening. Starting in October.
Resources:
Listen to a discussion focused on the lessons learned from MA and Part D when it comes to product strategy in the Exchanges.
Hear Gorman Health Group experts discuss the Federal Facilitated Exchange (FFE) and implications for health plans.
The Claws Will Come Out at CMS in 2013
Health plans and other stakeholders in Medicare Advantage and Part D can be assured of one thing by President Obama's reelection: that the claws will come out at the Centers for Medicare and Medicaid Services (CMS) in his second term.
Having worked a number of years at the agency I can tell you there is a natural tendency among career regulators to be emboldened in a President's second term. With legacy in mind they know that a Democratic White House won't push back much on a more aggressive posture with the private sector. And frankly many of those regulators have scores to settle with some of the companies in their portfolio that go back even pre-Obama. Now's their chance.
But CMS on the warpath in the next four years is driven by many more factors this time around, like the fact that the agency would like to be in business with many fewer than the almost 2,000 plan options available in Medicare Advantage. The career staff feels there's an embarrassment of riches in MA/Part D, to the point that it confuses beneficiaries. Therefore, a priority in the second term will be to simplify the program by systematically hunting down and eliminating inferior species.
Second, CMS made it very clear that it would begin targeting Medicare Advantage and Part D plans with lower than 3-Star ratings for three or more years in 2013. Low-Stars plans also get the "Scarlet Letter" of a low-quality indicator on Medicare.gov, and this past AEP marked the first time CMS actually sent letters to enrollees of sub-3 Star plans encouraging them to take a look at higher-ranked plans in their market. If you've been below 3 Stars the last several years you now have a target on your back.
Third, budget pressures and cuts to CMS's administrative funding in the last couple years meant that CMS shifted more of its traditional oversight functions to the plans themselves. This year, through routine site visits and remote data monitoring, CMS will find that many of those functions have been neglected and the agency will make some examples. This is particularly true of the renewed focus by CMS on delegation oversight -- how a plan monitors its vendors like its pharmacy benefit manager and affiliated provider groups. They'll also pay much more attention to "compliance effectiveness" -- whether the plan's internal compliance program is actually a living, breathing function that roots out issues before they become problems for beneficiaries.
Fourth, there were a number of new audit protocols for 2013 announced by CMS in last year's call letter, such as expanded use of private contractors overseeing program integrity in Medicare Advantage and Part D, renewed emphasis on remote monitoring of sales and enrollment "red flags", and intense focus on Complaint Tracking Module cases where beneficiaries are howling about poor performance.
Finally, 2013 will be the year that the long-dreaded Risk Adjustment Data Validation (RADV) audits will begin in earnest. CMS, its program integrity vendors, and the law enforcement branch of HHS, the Office of Inspector General (OIG), will undertake dozens of audits of health plans' diagnostic data submitted for risk adjustment in the coming two years. Yesterday OIG said the $124 billion MA program is the focus of very few investigations from fraud-hunters—a conclusion that comes on the heels of several RADV audits alleging hundreds of millions of dollars of questionable payments in the program. Last year HHS officials published the results of years-long investigations into four MA plans, and concluded that the plans had received nearly $600 million more than they should have in 2007 by inflating diagnostic data. All four companies denied the allegations, but OIG is continuing with probes of several other of the 175 plans participating in MA.
This is also about setting the tone with health plans before the launch of the Affordable Care Act's health insurance exchanges this fall. CMS knows most of the plans that participate in Medicare Advantage and Part D will also jump into the exchange, and bloodying some noses in 2013 lets them all know who's calling the shots as we sail into what promises to be a chaotic launch of health reform. Remember the messy launch of the Medicare drug benefit in 2006? The launch of the exchanges and the complexity of the subsidies will make Part D pale in comparison...and CMS wants its private sector partners to be walking on eggshells.
Smart executive teams will commit themselves to a doctrine of "lean and clean" and a culture of compliance in the President's second term.
Resources:
For more infomration on how Gorman Health Group can help with Part D requirements, visit our website.
For information on how Gorman Health Group can help support your goals with Medicare Advantage, visit our website.
To find out how Gorman Health Group can help you develop a Star Ratings action plan, visit our website.
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.
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.
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."