Medicare Advantage
Payment Refresher
PRESENTING: Adam Zavadil, Director of Market Strategy & Analysis
Stephen Cox, Manager of Business Improvement Programs May 13, 2015
Agenda
− Medicare Advantage (MA), A Brief History − MA Contract & Plan Basics
− MA Payment Basics
− Benchmarks, old and new − Bidding
− Risk adjustment
− Quality incentive payments
− MA Payment Focus: Benchmark Caps − Questions
Housekeeping and Disclosure
− MA payment is one of the most complex payment systems in health care.
− This presentation is over 75 slides.
− Slides and a recording will be available on the ACHP website in the coming days.
Medicare Advantage
A Brief History
Overview
− Private plans have been affiliated with Medicare since its inception.
− The payment mechanism for plans has shifted over time from predominately cost-based to risk contracting.
− Medicare Advantage has been a ripe area for legislation in the past 20 years.
− There has been a history of substantially changing the plan payment rules every five years or so.
MA Legislative History Overview
6
Early Plan Participation: From Cost to Risk Payment − When plans began participating in Medicare almost 50
years ago, it was done through group practices such as KP and Group Health. Plans were reimbursed for
treating beneficiaries on a reasonable cost basis. − While risk contracting became possible early in the
Medicare program, it was not fully developed until the 1980s and was not widespread until the 1990s.
− Early risk-contracts (1985-97) were based on 95% of the local FFS costs in a geographic area; the idea was that private plans would offer cost savings to the
government.
Balanced Budget Act (BBA), 1997
− Created Medicare+ Choice, which allowed for private PPOs and PFFS plans
− Established rural floor payments to expand access to underserved areas of the country
− Mandated a new method of risk-adjustment beyond demographics
− Attempted to decrease costs by not allowing for
reimbursement rates to increase at the pace of FFS
8
BBRA, 1999 & BIPA, 2000
− There were large enrollment decreases in 1998
and 1999 due to plans withdrawing from the
program.
− Congress ameliorated some of the funding cuts
that were enacted as part of BBA ’97.
− The “large urban floor” was established for
areas within large metropolitan statistical
areas.
9
Medicare Modernization Act (MMA), 2003
− Name change from Medicare+ Choice to Medicare Advantage
− Developed Regional PPOs
− Created Special Needs Plans (SNPs)
− Created Medicare Rx Drug benefit (Part D)
− Required most MA plans to integrate MA (Part A & B) and Rx drugs (Part D) into one plan
− Bidding (A/B and D)
10
Medicare Improvements for Patients and Providers Act (MIPPA), 2008
− IME payment phase-out
− New requirement for Private Fee-for-Service
plans: Must have a written contract with
providers if there is more than one MA
network-based plan in the service area
− Other amendments included new restrictions
on marketing practices and cost-sharing
amounts for dual-eligibles
Affordable Care Act, 2010
− MA Payment Changes
− Modified administrative benchmarks that represent around a 7% to 9% payment cut across plans
− Added quality incentive payments for high performing plans
− Modified phase-in schedules for counties based on the magnitude of the payment cut
− Part D
− Closed the donut hole starting in 2011
American Taxpayer Relief Act, 2012
− Increased the minimum coding intensity adjustment starting in 2014
− The rate is set to escalate through 2019 to a floor of 5.9% (applied to the risk score).
1999-2014 MA & Cost Enrollment
14
Source: Kaiser Family Foundation
ACA
Medicare Advantage Contract &
Plan Basics
HMO & POS
− 62% of total MA enrollment (as of February 2015) − Coordinated care plans
− Must cover all Medicare Part A and Part B health care
− Can limit out-of-network coverage
− HEDIS, CAHPS, HOS and compliance/operational performance quality reporting
Local & Regional PPOs
− 31% of total MA enrollment (as of February 2015) − Coordinated care plans
− A network of providers that have agreed to
contractually specified reimbursement for covered benefits
− Local PPOs have service areas smaller than a Medicare Advantage region
− Regional PPOs cover one or more of the 26 Medicare Advantage service regions
Private Fee-for-Service (PFFS)
− 250,000 members in 2015, accounting for 1.5% of total MA enrollment
− Decline from 2.2M in 2009
− MIPPA eliminated former policy of “deemed”
networks, resulting in a dramatic decrease in this contract type’s popularity
− May offer Part D plans
19
Other Contract Types
In 2015 these other contract types combined to account for 6% of MA enrollment:
− MSA: Medicare Savings Account MSA
− PACE: Program for All-Inclusive Care for the Elderly − Medicare-Medicaid
− Demonstration Products
− Cost (covered in payment section)
Enrollment in MA and Cost Contracts over Time
Contract Type
2/1/2011 2/1/2012 2/1/2013 2/1/2014 2/1/2015 Enrollment Enrollment Enrollment % Enrollment Enrollment % Enrollment Enrollment % Enrollment Enrollment % Enrollment %
1876 Cost 353,025 2.9% 387,660 2.9% 429,596 3.0% 474,667 3.0% 540,953 3.1% Local HMO 7,734,925 64.2% 8,445,099 64.0% 9,277,391 64.1% 9,987,282 63.2% 10,651,885 62.0% Local PPO 2,113,424 17.5% 2,793,968 21.2% 3,141,507 21.7% 3,673,415 23.2% 4,030,304 23.5% MSA 1,315 0.0% 2,575 0.0% 5,465 0.0% 10,863 0.1% 12,289 0.1% National PACE 18,593 0.2% 21,232 0.2% 23,281 0.2% 26,388 0.2% 28,723 0.2% Other* 121,544 1.00% 116,224 0.90% 128,460 0.80% 110,080 0.7% 112,394 0.7% PFFS 577,716 4.8% 506,513 3.8% 409,046 2.8% 305,432 1.9% 257,818 1.5% Regional PPO 1,124,155 9.3% 923,057 7.0% 1,056,612 7.3% 1,217,137 7.7% 1,235,050 7.2% MCR-MCD - - - 9,279 0.1% 310,008 1.8% Total 11,231,692 100.0% 12,048,075 100.0% 13,196,328 100.0% 14,471,358 100.0% 15,814,543 100.0% 21
Special Needs Plans (SNPs)
− Coordinated care plans that enroll a target population:
-- Dual-eligible -- Chronic Care -- Institutional
− As of February 2015, there were about 2 million Medicare beneficiaries in SNPs. This breaks down as follows:
-- Dual-Eligible: 1.65 million and growing -- Chronic Care: 300,745 and growing -- Institutional: 48,686 and stable
− The 2014 ‘Doc fix’ legislation reauthorized SNPs through
2015; the new SGR bill would extends authorization through 2018.
22
MA-PD and EGHP
− Insurers can designate their plans as MA-PD
(includes a drug benefit) or EGHP (a waiver plan for employer groups).
− In February 2015, 89% of MA enrollees had Rx coverage as part of their plan, up from 84% in 2008.
− In February 2015, 19% of beneficiaries were
enrolled through Employer Group Health Plans; this proportion has been constant over the last three years.
Medicare Advantage Payment Basics
Medicare Advantage Payment Basics
− Cost Plans (brief summary)
− Risk Plans
-- Benchmarks - Old methodology - New methodology -- Bidding -- Risk adjustment-- Quality incentive payments
Cost Plans
− Also known at 1876 plans (from section 1876 of the Social Security Act), cost plans may be operated by HMOs.
− Plans are paid a reasonable cost for providing services (similar to FFS).
− Beneficiaries can receive care in or out-of-network; plans are paid through Medicare intermediaries and carriers. − All “extra” benefits must be paid through premiums. − Cost plans will be non-renewed where at least two
competing plans have a minimum of 5,000 enrollees (1,500 in non-urban areas) in the cost plan’s service area.
26
Overview of Risk Payment
27
Source: Medicare Advantage Payment System. MedPAC. Revised Oct. 2012
Setting the Benchmark
Overview of Risk Payment
29
The Benchmark
− There are two benchmarks for each county going forward: − The old benchmarks based on county payment prongs − The new benchmarks based on underlying FFS costs − The transition from old to new benchmarks began in 2012
and phases-in over 2, 4 or 6 years, depending on the magnitude of the change between the old and new benchmark rate.
− Even in counties where the new benchmarks are fully phased-in, the old benchmarks serve as a marker for the benchmark caps.
Length of Phase-in Period for New Payment by County Starting in 2012
Payment Prongs
The Old Methodology for Determining
Benchmarks
MA Risk Plan Payment Types (Prongs) Overview
− Payment rates for local plans are county specific. − The old benchmark payment prongs are based on
risk-adjusted FFS rates at the county level.
− The phase-out of payment prongs as a direct factor in determining benchmarks began in 2012.
Risk Payment Prong Types
− Payment types are assigned at a county-specific level − Fee-for-Service (FFS)
− Floors -- Rural
-- Large Urban − Minimum Update
− The county payment is based on the highest payment of
the types available for a given year.
Modified Local FFS
The New Methodology to Determine
Benchmarks
Modified Local FFS
− The risk-adjusted local FFS rate in traditional Medicare is the basis for both the base rate of the benchmark and the multiplier.
− Benchmark = Local FFS Rate x Payment Quartile Multiplier
− Lowest FFS Quartile: 115%
− Second FFS Quartile: 107.5%
− Third FFS Quartile: 100%
− Fourth FFS Quartile: 95%
− If a county moves between quartiles, then it receives a blended rate of the old and new quartiles for one year.
2016 FFS Multiplier Rates by County
Payment as a Percent of FFS for 2015
38
Benchmarks/FFS Bids/FFS Payments/FFS
All MA Plans 107% 94% 102%
HMO 106% 90% 101%
Local PPO 109% 107% 107%
Regional PPO 102% 97% 100%
PFFS 111% 108% 111%
Restricted Availability Plans (included in totals above)
SNP 106% 93% 101%
Employer Groups 108% 105% 106%
Bidding Against the Benchmark
Overview of Risk Payment
40
Overview of Risk Payment
41
Bidding – Local Medicare Advantage Plans
− Plans have three parts to their bid:
-- The A/B bid is the anticipated cost to deliver the standard Medicare FFS benefit to a plan’s enrollee population.
-- The supplemental bid is the anticipated cost to deliver the supplemental benefits beyond those covered in traditional FFS Medicare.
-- The Part D bid is the anticipated cost to deliver a drug benefit on top of their Medicare Advantage product. − The A/B bid is what is compared to the benchmark.
Note: Regional PPOs have a more complex bidding system not covered in this presentation.
Bidding - Examples
43
− When a plan bids above its benchmark, the difference is made up in premium.
− When a plan bids below its benchmark, 25% is
returned to CMS, while
75% is used by the plan to fund supplemental
benefits.*
Bidding - Continued
− A/B bids above the benchmark are paid the benchmark rate amount with the difference made up through
enrollee premiums.
− The new bidding rebates were fully phased-in for 2014. − 70% for 4.5 and 5 star contracts
− 65% for 3.5 and 4 star contracts
− 50% for contracts lower than 3.5 stars
Note: Regional PPOs have a more complex bidding system not covered in this presentation.
Risk Bidding – Examples
Based on keeping 75% of the rebate amount
45
Reducing Rx Cost Sharing
− Along with changes to MA payment, the recent health care reform legislation also budgeted additional money to reduce the donut hole.
− To the extent the plans were using their rebate dollars to provide coverage in the donut hole, the ACA allows rebate and premium dollars to provide other cost-sharing benefits.
Total Beneficiary Cost
− CMS imposes a limit on the amount a benefit
package can change in terms of benefits and
cost sharing from year to year.
− The limit was $32 PMPM in 2015 and will
remain there for 2016.
Risk Adjustment
Overview of Risk Payment
49
Risk Adjustment
− Risk Adjustment Overview
− CMS-HCC
-- FFS Normalization
-- Coding Intensity Adjustment
What is Risk Adjustment?
− Risk adjustment for Medicare Advantage is
an adjustment to enrollee payment rates
based on their expected expenditures in the
year enrolled.
Why Risk Adjust in Medicare Advantage?
− Payment calibrated to risk-related costs
− No underwriting in Medicare Advantage
− No MA risk corridors or reinsurance
− Not covered by state individual market
regulation
The Risk Adjustment Process
− Risk is calculated for beneficiaries with
more than 12 months Part B experience.
− Risk is calculated at an individual level and
then averaged up to a plan-level risk score.
CMS-HCC
− CMS-HCC (CMS Hierarchical Condition Categories) − Based on demographics, ICD-9 diagnostic codes − ICD-9 codes are classifies into groups (DxGroups) − DxGroups are classified into Condition Categories − Hierarchies made among Condition Categories
− Multiple disease states are additive
− Predicts about 11% of the variability in expenditures
54
CMS-HCC Pictorial Description
55
Updates to the HCC Model
− The HCC model is designed to predict the
prospective cost of a MA enrollee based on the diagnoses recorded for that enrollee.
− As care delivery costs and patterns change, the HCC model is periodically updated to reflect predictive cost changes.
− CMS used two HCC models for 2015.
− The 2014 model counts for 33% of the total risk score, while the remaining 67% is based on the 2013 model.
− CMS is fully transitioning to the new model in 2016.
FFS Risk Normalization
− The 2014 risk model is based on a CMS-HCC model calibrated with 2010 data to predict 2011 costs
using FFS claims.
− If all 2014 Medicare enrollees were computed in the 2014 model (based on 2011 claims) the
average risk score would be less than 1.0 (0.978). − To normalize the risk-scores to an average of 1.0 a
factor is applied to payment (1/0.978 in 2014 model).
Coding Intensity Adjustment
− Not the same as normalization
− CMS asserts that MA plans have an overall different level of coding intensity compared to FFS.
− CMS felt that this difference must be adjusted for across the board.
− Congress has mandated a floor for coding intensity
adjustment in 2016 of 5.41% (CMS can impose a higher number).
− The floor amount will increase by 0.25% every year for the next two years.
Quality Incentive Payments &
The MA Star Rating System
MA Star Ratings Program
− The Star Ratings program has assessed MA-PD plans’ quality performance since 2007.
− Originally intended as a tool for consumers to select health plans based on quality
− Quality performance through the star rating system has an effect on three areas of MA payment:
− Quality incentive payment available to all plans − Urban floor quality bonus payments
− Enhanced rebate quality bonus payments
Composition of Overall Star Ratings
− The inclusion of the improvement measures alters the composition of the overall plan-level rating.
− HEDIS® measures make up the largest portion of the total.
− The five pharmacy treatment measures, all intermediate outcomes, have a larger weight than the nine CAHPS measures.
Star Rating Assignment
− Each measure is assigned a star based on thresholds set by CMS which are then weighted by the type of measure.
− A plan’s overall summary score is then calculated by averaging the weighted stars for all measures.
− Stability over time is also rewarded for those plans showing high and stable performance.
− Summary scores can be at the ‘half-star’ level - e.g. 4.5 stars.
− An MA-PD plan with a SNP must report at least 21 of 42 measures or 19 of 38 measures for plans without a SNP to receive a summary rating.
− More detailed information on methodology, payment and improvement strategies are available through ACHP.
Counties Where “Double Quality Incentives” are Available for 2016
Quality Timeline
− Currently plans are reporting 2015 HEDIS, which is based on 2014 clinical care.
− This will be incorporated into the 2016 Star Ratings (released in the fall of 2015).
− Because this will need to be priced into the
benchmarks, this will be the basis for 2017 plan payments.
− This means the care that is being delivered now will be awarded in 2018!
What Drives a 3-Year Payment Delay?
− Using HEDIS measures as an example, over 75% of the delay is driven by two causes:
− Measures need a
certain time period to capture enough events for a valid sample.
− Plans need to be able to incorporate their scores into a bid.
66 34% 13% 4% 7% 42%
Measure Validity (0-24 months) Claims Run-Out (4-5 months) Measure Auditing (1-2 months)
Quality Incentive Payment’s Relation to the Benchmark
− For contracts that receive an overall rating of 4 stars or greater, 5% is added to their benchmark.
− For example, a benchmark of $1,000 becomes $1,050.
− Plans rated as “Too New” receive a 3.5% quality incentive payment.
− The quality incentive payment is only applied to the new ACA portion of the benchmark in 6 year transition counties.
Overview of Risk Payment
68
Putting it all Together
− County benchmarks are determined as a blend of the old category-based benchmarks and the new % local FFS benchmarks.
− Plan benchmarks are determined as enrollment weighted averages of the county payment rates. − Plans bid against their benchmark (including any
quality incentive payment), with rebate percentage of the difference between the bid and the benchmark
returned to CMS, or the positive difference collected in premiums. This gives a base payment rate.
− A risk-score is calculated for each enrollee.
− A plan’s payment is the base rate multiplied by the HCC risk-factor of an enrollee plus any premiums.
MA Payment Focus:
Benchmark Caps
The Cap from the ACA
− “CAP ON BENCHMARK AMOUNT.—In no case shall the blended benchmark amount for an area for a year (determined taking into account subsection (o)) be greater than the applicable amount that would (but for the application of this subsection) be determined under subsection (k)(1) for the area for the year.”
− Subsection (o) refers to the applicable quality percentage increases.
Capped Counties
What Areas are Affected?
− Rural counties
− Lower FFS counties
− Northern plains
− Interior west
− Northern New England
Estimated 2016 Impact of the Cap
− The percent of revenue loss from the cap is
about $618M.
− ACHP represents 15% of that loss.
− Some ACHP members lose over 2% of
their revenue because of the cap.
− The benchmark cap will affect over 2.4
million MA enrollees in 2016.
Questions??
ACHP Resources
− ACHP has estimated 2014 to 2019 payment rates by contract and county for each of its member plans.
− Benchmarks by Star Rating − Estimated revenue dollars
− Medicare Advantage SnapShots® give a current and
historical picture of the Medicare Advantage market in individual counties, market areas and states.
− ACHP does custom analyses using our market-leading
analytic tools and integrated MA information, payment and quality management system.
− CMS MA Star Ratings and quality improvement resources.
Contact Us
Adam Zavadil
Director, Market Strategy and Analysis Alliance of Community Health Plans
202.785.2247
Stephen Cox
Manager, Business Improvement Programs Alliance of Community Health Plans
202.785.2247
Chloe Stier
Business Analyst
Alliance of Community Health Plans
202.785.2247
