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.