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.
Let the games begin
By now you should have started your benefit discussion for 2013. With the surprising higher rate coming to plans in 2013 — the competitive juices are flowing across the country. The stakes are high for 2013 and now is not the time to rest on past performances. If I was sitting in the product strategy chair at a health plan I would want the following team members sitting at the table with me: compliance, sales, marketing, medical, claims, network, customer service, Stars, and yes you better have the actuaries sitting with you early on so there are no surprises at the 11th hour.
I look forward to talking to you the next 60 days as we drive to the June 4th filing. Living the product development dream!
2013 Final Call Letter and Regulations
Along with the Final Rate Notice for 2013, CMS recently published the Final Call Letter and a Final Rule with Comments. These documents include changes to policy and operational guidance for Medicare Advantage (MA) and Part D plans for CY 2013.
Our summary of the Final Rate Notice and Final Call Letter
Our summary of the Final Rule with comments
While there are a lot of details in these documents, there were not very many significant policy changes. While CMS projects a weighted average county rate increase of 3.07 next year, GHG analysis suggests that after adjusting for Fee-for-Service rebasing, changes in county quartiles and the ACA phase in, that the actual county rate will vary widely and some counties could even see a net reduction. The Final Call Letter includes exceptions to the new regulatory provisions that allows MAOs to limit DME to specific manufacturers or brands and includes performance and quality criteria for Dual SNPs to offer additional supplemental benefits.
Not surprisingly, the Final Rule keeps the provision that allows CMS to terminate a plan that does not achieve at least a 3 star rating for 3 consecutive years. This is an important value-based purchasing authority that will put some teeth behind the star rating system. Fortunately the three year period starts with data collected this year and is not retrospective. Due to implementation challenges, the final rule does not require Medicare Advantage Organizations (MAOs) to apply the Fee-for-Service Hospital Acquired Infections (HAC) and Present on Admission (POA) Indicator policy for network hospitals. Capitation payments make it difficult for MA plans to reduce payment to hospitals retroactively. CMS sent another signal that it is serious about integrating care for Dual Eligibles by broadening the number of dual SNPs that can offer additional supplemental benefits. Based on the large volume of comments, CMS will not finalize the proposed changes to regulations on the conditions of participation for Long Term Care Facilities (LTC) that would require pharmacists to be independent. The comments identified the need for changes in this area, but the best solution is not the policy in the proposed regulation and CMS is encouraging more transparency in the industry.
If You're Not on the Government Programs Bus, You'll Soon Be Under It
The March enrollment numbers are out from CMS and provides some stark evidence that if you're not in government programs, you're not going to be in health care for much longer. Medicare and Medicaid health plan enrollment continues to grow steadily, and is set to explode later this year as several major states begin to move their dual eligibles into managed care.
CMS's March data for Medicare Advantage (MA) showed a gain of 45,000 new members in March following a strong open enrollment season that added almost 700,000 lives in January and February. All of the major players showed steady sequential organic growth. Medicare Prescription Drug-only Plans (PDPs) grew 62,000 lives this month, following a surprising 810,000 new members during open enrollment. The trends in MA and PDPs confirm our suspicions: Baby Boomers are a much more plan-friendly bunch than the World War II generation, providing a nice tailwind for the sector.
The big story that's emerging, of course, is Medicaid. We know we're on the verge of the biggest premium opportunity health plans have seen since the launch of Medicare Part D in the migration of dual eligibles -- estimated to be around $300B over the next decade, more than half of that in the next 5 years. The surge is beginning in states like Texas (monthly enrollment up over 650,000) and New York (up 35,000 in March). The fun really begins in April when the Michigan and California duals RFPs hit the street -- both rumored to be north of $8B, making them the biggest non-defense RFPs in US history -- and almost a dozen more states releasing theirs in September.
We know commercial health plan enrollment has been stagnant to declining since the before the recession hit in 2009, and that's not expected to improve. Health reform and its promise of coverage expansion doesn't begin until 2014, assuming the ACA survives the Supreme Court and President Obama survives reelection. Remember that Medicaid eligibility expansion accounts for half of ACA's coverage gains (16M), with the remainder coming through Federal subsidies and health insurance exchanges. Neither of those opportunities even comes close to what migration of dual eligibles represent to health plans.
What the March numbers and a crystal ball for the RFP calendar tell us is that if you're not on the government programs bus, you'll soon be under it.
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.
Word for the day: Volatile
Volatile. n. Fickle, inconsistent, easily vaporized.
Thanks to the Affordable Care Act, Medicare Advantage finances are going to be volatile. Unwary actuaries may be easily vaporized.
The new benchmarks, the "specified amount" under the ACA, are based on which quartile a given county is in. Quartiles are defined by average FFS costs. ACA benchmarks range from 95% to 115% of local anticipated Medicare FFS spending in the county, depending on which quartile a county is in. Every time CMS rebases the FFS calculations, a county can change quartiles. The preliminary list of quartile-jumpers for 2013 moves 27% of all US counties, with about 27% of MA beneficiaries, from one quartile to another. Depending on which quartile you start in and where you end up, that's a change in payment of 5% to 7.5% -- or more in the few counties that move more than one quartile. That's a lot of money to have to cut, if you go the wrong direction. Or a lot to have to quickly absorb in new benefits if you go the other way -- since, with the 85% loss ratio floor coming up in 2014, a plan can't simply stash the extra cash in profit.
We won't have the final list of the new quartiles until April 2. And bids are due June 4! That's a scant 2 months to figure out how to either (a) cut 5% or more out of your bid, or (b) add new benefits to absorb the windfall.
When adding benefits, plans will need to keep in mind that the process can reverse with the next rebasing -- in 3 years or less. Added benefits need to be planned like chess moves. What can we add that will help us now, but which won't hurt too much if we have to withdraw them later?
Plans should be doing some serious contingency planing, so they are ready when the rates and quartiles get recalculated. For 2013, the time to start planning is immediately after reading this blog. The preliminary list of county quartiles is a start, but remember that it's subject to change. Any plan with a significant number of members in counties close to the bubble between quartiles should be getting ready now, in case they have to make some quick decisions when preparing their bids.
To add to the fun, double bonus counties can change, too, based on their newly re-based FFS costs relative to the national average. For some plans that qualified for a double bonus in 2012, the rebasing of FFS could make half the bonus disappear in 2013 in some counties. Or, your bonus could double in 2013 in counties that newly qualify for the double bonus. That's more chaos in the bid building process.
The more i think about the quartile system, the more I'm beginning to like competitive bidding as an alternative. Works for part D, after all.
Glass Half Full on Medicare Reform Prospects
Former CMS Administrator and friend of the firm Gail Wilensky, MD is out with a great op-ed piece in the New England Journal of Medicine today on directions for bipartisan Medicare reform. She echoes many of our recent thoughts on the improving prospects for Medicare reform, not in this hotly-contested election year, but as part of deficit reduction in 2013. Her piece covers the gathering momentum behind the Ryan/Wyden reform proposal, as well as structural changes previously thought unthinkable, such as increasing the eligibility age for the program, further means testing, and a targeted growth rate for our favorite entitlement program. We can thank both President Obama and Speaker Boehner for enabling discussion of these reforms since broaching them during the disastrous debt-ceiling debate last summer.
I thought the most compelling part of Dr. Wilensky's argument is her assertion that we have turned the corner on recognizing that the traditional fee-for-service paradigm of Medicare is unsustainable. She notes "growing agreement that a fee-for-service system like Medicare's, which reimburses physicians for some 7000 discrete services, is inconsistent with achieving the care coordination needed by seniors with multiple chronic conditions or complex acute care needs. To me, this growing disillusionment with the incentives and rewards of fee-for-service medicine is the most surprising evolution in thinking of the past quarter century and offers the greatest promise for success in developing a replacement, whatever its parameters."
We agree, and would add that the experience of Medicare Advantage and Part D show the only true path to securing the fiscal solvency of the program is through capitation and care coordination of the chronically ill. It's encouraging to hear a policy luminary like Gail point out that we're closer than we may think to some consensus on new approaches to preserving Medicare for the long haul.
Preaching to the Converted on Medicare Reform
Politico is out with a great op-ed today from centrist thought leader Will Marshall on why the Ryan/Wyden Medicare reform plan deserves a fair hearing -- especially among Democrats. He's preaching to the converted here at GHG -- the Wall Street Journal noted our support for the plan last week in Fred Barnes' column.
I agree with Will (as I usually do; Will and I are both former Clintonians and he is the longtime leader of the Progressive Policy Institute, one of my favorite centrist think tanks) -- we like the concessions Ryan's made to his plan in order to get Senator Wyden (D-OR) to support it, and remain hopeful (though not delusional) that both parties can put aside "Mediscare" tactics this election year for a thoughtful discussion about it. More likely it'll be next year, after the dust has settled from this messy race and the deficit reduction debate begins again in earnest.
RADV Rules Show a New Era Dawning at CMS
After the market close last Friday CMS released its long-awaited methodology for conducting Risk Adjustment Data Validation (RADV) audits. It's a critically important document as for years President Obama has threatened in his budgets to recover billions in payments from Medicare Advantage plans. What it shows is that a new era is dawning at CMS, one brought about by the "tipping point" of Medicare Advantage exceeding 25% of all beneficiaries this year. Call it the era of "the open hand and the closed fist."
First, we have to acknowledge that the RADV methodology clearly reflects the intensive consultation CMS did with industry stakeholders to get their approach right. In a word, where we ended up is great, and CEOs and CFOs across the industry are heaving up sighs of relief this week.
There were four big developments in the announcement. The first: CMS says RADV audits will begin with plan year 2011, not retroactive to 2007, eliminating the four worst years of exposure for the industry as it figured out risk adjustment -- documentation is much better today than it was when the system launched in 2007. Essentially, CMS is saying "the sins of the past are absolved." They didn't have to do that, and we, hundreds of CFOs, and bankers up and down Wall Street and Madison Avenue are thankful they did. For plans that have already accrued for RADV for 2007-2010, like Aetna, there's the potential in the accrual for "found money" or a boost to earnings.
Second, CMS is introducing a "Fee-for-Service Adjuster." This mean the error rate found at individual Medicare Advantage plans will be reduced by the error rate of the traditional Medicare population. This was probably the biggest issue for the industry in the year's worth of negotiations since the draft methodology was released. Doctors generally suck at coding, regardless of whether a member is in a managed care plan or in traditional Medicare. Initially, CMS intended to compare error rates in managed care to 0, rather than comparing them to an error rate in the traditional Medicare program. If CMS had gone with its original approach, it could be argued that plans were being penalized twice. According to CMS, the estimated error rate at managed care plans is around 11%, down from the 2010 error rate of 14%.
Third, CMS will allow plans to submit multiple medical records to substantiate submitted codes, rather than requiring plans to only submit one best medical record. This will make it easier for plans to provide supporting documentation, as sicker members typically see several physicians, and the documentation from all of the treating physicians is rarely combined into a single medical record. The only disappointment here is that CMS will continue to focus audits on medical records and will still not allow alternative sources of clinical data like prescriptions.
Fourth, the audit results will be extrapolated only to the contract being audited. CMS will first determine the number of beneficiaries who are RADV eligible. The RADV eligible members are then ranked from highest to lowest based on their risk score and divided into three equal groups, with one group having the highest risk scores, another the lowest, and the remaining enrollees in the middle. CMS will then select 201 members to review medical records, with 67 enrollees randomly selected from each of the three cohorts. Plans will then submit medical records for these 201 members to support all the submitted codes. The resulting error rate is then reduced by the fee for service error rate, and the resulting figure is applied across the contract being audited only, not across the plan's entire book of MA business.
All in all, CMS made a number of concessions in the RADV methodology that they didn't have to, and which have the effect of significantly mitigating the risk and impact on the plans. They stated they're only after about $370 million in recoveries in 2012, much lower than the President's FY 2012 budget anticipated, and equating to about 0.3% of Medicare Advantage revenues, well below Wall Street expectations. RADV wasn't even mentioned in Obama's FY 2013 budget. Combine that with more favorable-than-expected draft 2013 rates for Medicare Advantage against the backdrop of the Age of Austerity we're in, and we see that these are big, important gestures that point to a new era at CMS: "the open hand and the closed fist." The open hand is that the Administration is now actively working to help plans where it can, especially on matters impacting revenues; the closed fist is the agency's continued willingness to take action against weak performers and the noncompliant. It's about as good as it's gonna get with this gang in the White House.
Let's Get the Ryan/Wyden Party Started!
This morning I was quoted in conservative standard-bearer Fred Barne's lead opinion piece in the Wall Street Journal on the Ryan/Wyden Medicare reform plan. Fred makes the point that Ryan is beginning to convince Democrats that his approach is reasonable.
I don't know if Ron Wyden, Jim Capretta and I make Ryan's new proposal "bipartisan", but the optimist in me has long hoped we can turn down the volume on the Medicare reform street-fight long enough to have a thoughtful discussion about it.
The pragmatist in me recognizes it's an election year and that nothing meaningful can happen on this issue this year -- but it will certainly be front and center in the big deficit reduction debate coming in 2013.