The 2015 Medicare Advantage Final Call Letter = Unicorn Rainbow Farts
The Center for Medicare and Medicaid Services’ (CMS) release of the final 2015 Call Letter for Medicare Advantage (MA) Monday after the close was a “unicorns farting rainbows” moment. Unicorn rainbow farts bring happiness and joy to all those that observe them, and then dissipate quickly. After a beating at the hands of the ever-more powerful insurance lobby for another draconian draft released in February, CMS reversed itself yet again and proclaimed a 0.4% increase in MA benchmarks. Lobbyists and Wall Street analysts rejoiced…only to find after a closer look that there are some nasty hooks in the pie CMS put on the windowsill.
We’ve tried for days to replicate CMS’ math to get to a 0.4% increase, and can’t, because it’s vapor, magical horse methane. The truth is, we’re looking at an average cut of at least 3% for MA next year, and our logic follows below:
Others agree: DeutscheBank says -3.5%; Morgan Stanley projects -3.1%, Bank of America says -3.3%. And that ushers in a two-year march in the desert for Medicare plans following the 6% hit they took in 2014. There will be wide variation among plans, with lesser negative impact for plans which can continue to bid below the benchmarks.
The trends by themselves cut the benchmarks a lot, to the tune of almost 8%. And there’s a ripple effect there, on Star ratings of all things: the -4% trend on the old benchmarks lowers the ceiling, and the effect is to truncate Stars bonuses in almost half of US counties. Ironically, high-performing plans take a hit, especially in double bonus counties, in this final rate announcement.
CMS’s second consecutive reversal of its proposed ban on diagnostic codes for risk adjustment from home visits was a huge win for the industry, and as we see it, the one ray of light in the final call letter. CMS delayed the change until 2016, and that delay makes up for most of the impact of the negative trends in the benchmarks. But this isn’t an equal across the board fix. Given that the FFS normalization factor places a 4% multiple on every point of a plan’s risk adjustment factor (RAF) score, plans have an even greater incentive to identify and document every diagnosis that maps to an HCC.
This is further amplified by the decision to roll back the phase in of the new HCCs. On average, the new HCC scores would cut about 2.6% out of MA plans’ payments. In 2014, CMS is blending new and old HCCs, with new scores given a 0.75 weight. For 2015, they are rolling that back to a 0.33 weight. That’s worth 109 basis points by our calculation. So, compared to 2014, one RAF point is worth 1.05 points in 2015. Given the deferral of the home risk assessment rule for at least another year, plans should be doing home visits intensively this year, and working to evolve their programs to be more clinically meaningful, e.g., a care plan for every diagnostic code submitted from a home visit, and making the house call into more of a “mobile medical home” including mobile labs, imaging and drug therapy counseling.
CMS also makes clear in the final call letter that Medicare Advantage plans ranked 3 Stars or less for 3 consecutive years will be nonrenewed. This means termination notices could be going out as early as August given plans have to execute 2015 contracts with the agency in September, before the Annual Enrollment Period. Many plans will choose to nonrenew rather than be publicly shut down by CMS for poor quality. Dozens of plans are now dead men walking, including several of the publicly-traded Medicaid plans and several Blue Cross/Blue Shield organizations. So in a matter of weeks, a Hunger Games-style “reaping” will occur that will change the face of this industry.
So the long walk in the desert for Medicare Advantage begins. Forward-looking plans will prepare by ramping up their risk adjustment operations, ensuring their Stars programs have the resources they need to keep scores moving up, revisiting their service models, and working daily on closer collaboration with their provider networks.
Resources
On April 11 GHG Comments on the Final Rate Announcement in a webinar hosted by Gorman Health Group Founder and Executive Chairman John Gorman, financial expert and former health plan CFO, Bill MacBain, and former regulator and industry-renowned policy expert Jean LeMasurier. Register for the webinar >>
Listen in as John Gorman shares his reactions to the 2015 Final Call Letter from CMS. He covers the implications of the final rates, as well as what the pull back on risk adjustment means to MA plans this year, and beyond. Click here to download the podcast >>
Join Gorman Health Group May 1 — 2 at the Red Rock Casino and Resort in Las Vegas for the 2014 GHG Forum. This two-day event builds on the success of past GHG Forums and is designed to provide best practices for the decision makers of organizations serving Medicare members, Exchange beneficiaries, and the Dual eligible population. Register now >>