2012 Health Pricing Boot Camp Nov. 5-6, Medicare Track Kevin L. Pedlow, ASA, FCA, MAAA William R. Sarniak, FSA, MAAA

(1)

2012 Health Pricing Boot Camp

Nov. 5- 6, 2012

Medicare Track

Kevin L. Pedlow, ASA, FCA, MAAA

William R. Sarniak, FSA, MAAA

(2)

2012 SOA BOOT CAMP

MEDICARE ADVANTAGE

PRICING, DOCUMENTATION

AND AUDIT

Kevin Pedlow ASA, MAAA, FCA

1

Agenda

¨

Documentation

¨

General Comments

¨

OOPC & TBC

¨

Base Period Medical Expense Reconciliation

¨

Trend Factor Support

¨

Gain/Loss Rules

¨

Administrative Costs

(3)

Documentation

3 •Audit = Documentation

•ASOP# 41 Actuarial Communications

Section 3.2 Actuarial Report

“In the actuarial report, the actuary should state the actuarial

findings, and identify the methods, procedures, assumptions,

and data used by the actuary with sufficient clarity that another

actuary qualified in the same practice area could make an

objective appraisal of the reasonableness of the actuary’s work

as presented in the actuarial report.

•Documentation = Work (Work Plan and Work Management

Tool)

General Comments – Bid Development vs.

Audit

4 •Bid Development is extremely complex, with many

inter-related components

•Keeping all moving parts connected during the hectic bid

development process is almost impossible

•It is far easier to go in after the fact to search and find

discrepancies than it is to keep all items in order for bid

submission

(4)

General Comments – Purpose of Audit

5 •Review current bids with results intended to improve the next

year’s bid submissions

•All Findings & Observations must be stated in the next year’s bid

documentation with the initial submission – along with specifics on

how the bid addresses these issues

•Bid Desk Reviewer will be notified of all F&O’s (Starting with 2014

bids, the Reviewer will have a copy of the full F&O)

General Comments – Orange Blank

6 •Page 7 – reported medical expense and administrative

expense

•Page 11 – medical expense by product and incurred

time-frame

•Exhibit of Premiums and Enrollment – membership by

quarter (without retro-activity)

(5)

Out-Of-Pocket-Cost (OOPC) Differentials

7 •Meaningful differences ($20 PMPM)

•SAS Model made available by CMS

Total-Beneficiary-Cost (TBC) Changes

8 •Limit year-over-year changes ($36 PMPM)

•Limit is adjusted for benchmarks (region & star rating)

•Essentially a game of competing against yourself

(avoiding “bait and switch”)

(6)

Base Period Medical Reconciliation

9 Components of Medical Costs

•Medical Claims

•Capitation

•Off-System

common: Newsletter, Nurse Hotline, Part B Rx

from PBM, Medical Management, etc.

Base Period Medical Reconciliation

(continued)

10 Purpose of Reconciliation

•Ensure data accuracy

•Confirm all components of medical expense are

included

(7)

Base Period Medical Reconciliation

(continued)

11 Reconciliations

•Amounts must be followed from bid entries to Financial

Statements

•Common to tie GL to FS, then other items to GL

•Capitation to GL

• This is usually a direct tie, as “paid” and “incurred” timing is

typically the same

•Off-System to GL

• This is usually a direct tie, as “paid” and “incurred” timing is

typically the same

•Medical claims to GL

• Bid includes DOS of base period, run-out through Feb,

Mar?

• GL tied to FS show paid during base year, regardless of

DOS

• medical claims triangles connect the bid data to the GL

amounts

•IBNR – best estimate for run-out past date of data (no PAD)

•Provider Incentives – to be included in base period medical

costs

Support for Trend Factors

12 General

•Historical trends

•Benchmark Trends

•Forecast trend selection (in and amongst historical and

benchmarks, with explanation of the choice – notes

and/or meeting notes)

(8)

Support for Trend Factors (continued)

13 Provider Payment Change

•Underlying

Fees

Schedule

Changes

(Medicare

FFS

reimbursement)

•Contract Changes (compiled over provider/contract level

volume)

Support for Trend Factors (continued)

14 Population Change

•Geographic Shifts (county level costs)

•Risk Score Changes

(9)

Support for Trend Factors (continued)

15 Other Factors

•MSP (Changes to the factor/membership or changes to

the implemented identification process)

•Other

Gain/(Loss) Rules

16 •Different Purposes (Aggregate Support and Negative Margins)

•Aggregate Support

• Select Plan, Organization or Parent Org. Level

• Accumulated gains at this level must be within 1.5% of pricing

gains for non-Medicare LOBs (Indiv & I/C SNPS).

• Each plan bid must be “reasonable” and be without

anti-competitive practices (Product Pairings may be required to

confirm this)

•Negative Margins (Product Pairings)

• May Pair a Negative Margin plan with other plans

oIdentical service areas

oLocal Plans or RPPO or PFFS

oNon-SNP or same SNP Type

oCombine to Positive Margin

(10)

Base Period Administrative Costs

17 •GL or TB – With tie to Financial Statements (FS are audited

and considered to be accurate)

•Cost Allocations of expenses by Account, Department or Cost

Center tied to GL or TB (allocated to Medicare, MA vs. PD,

and to Bid Entries)

•Documentation – should be able to map all costs from bid

entries to the Financial Statements

•Audit – Review the documentation trail from FS to bid entries,

select allocations of a few Accounts, Departments or Cost

Centers for reasonable allocation methodologies

•NMEC & User Fees – include as Direct Administrative

Expenses ($0.30 NMEC Part C & $0.06 NMEC Part D and

9-months at $0.13 User Fee Part D for 2013)

Contract Period Administrative Costs

18 •Projected from base period expenses or current budget (if

from budget, tie to base period must be shown and available

for validation)

•Similar modeling to base period is helpful for review – and

easier for Reviewer/Auditor to understand

•Forecast assumptions documented and supported

•Clear mappings to bid entries (PMPM)

(11)

Related-Party Expenses

19 Definition of Related Party

•Review all company Legal Entities

•State Waiver for reporting on Schedule Y does not alleviate

CMS disclosure

Related-Party Expenses (continued)

20 Disclosure

•Disclosure #1 – Statement of Related Parties (even if

there are none)

•Disclosure #2 – Details of agreement (relationship,

services provided, financial considerations)

(12)

Related-Party Expenses (continued)

21 Administrative Services

•Method #1 – consistent with not recognizing the

independence of the entity (i.e., cost allocations)

•Method #2 – comparable fees paid as what the

related party receives for these services form

unrelated parties

Related-Party Expenses (continued)

22 Medical Expenses

•Less common – usually with provider owned health

plans

•Same requirements as with administrative expenses

•Typically follow Method #2 – Comparable fees

•Comparable Fees – Provider must show it receives

similar payments from other Medicare Organizations

• 100% of Medicare is comparable to fees from CMS

(13)

Medicare as Secondary Payer (MSP)

23 •General

• Pay 17.4% of normal payment (17.3% for 2013)

•Working Files

• list each member that is identified as MSP

providing Other Insurer

• Plan Sponsor can research and provide updates

to CMS

•MMRs

• Show payment levels for MSP members

• Details for calculating current MSP reductions to

(14)

2012 SOA BOOT CAMP

MEDICARE ADVANTAGE PART C

REVENUE

Bill Sarniak FSA, MAAA Highmark Inc.

1

Agenda- CMS Revenue

¨

History and Goals of CMS Risk Adjustment

¨

The CMS HCC Risk Adjustment Model

¨

Timing of Data Submissions related to Risk Scores

¨

Risk Score Projections

¨

Impact of Health Care Reform and STAR ratings

(15)

History and Goals of CMS Risk

Adjustment

3

History of CMS Risk Adjustment

Model

LAW

Payment

Years

R

2 _Risk

Score

AAPCC

Adjusted Average

Per Capita Cost

TEFRA

Tax Equity &

Fiscal

Responsibility Act

1985-1999

1.0%

Demographi

c

PIP-DCG

Principal Inpatient

Diagnostic Cost

Group

BBA

Balanced Budget

Act

2000-2003

(Phased-In)

5.5%

Demographi

c& Inpatient

CMS-HCC

Hierarchical

Condition Categories

BIPA

Beneficiary

Improvement

Protection Act

2004-present

12.5%

Demographi

c& Inpatient

&

Ambulatory

RX-HCC

MMA

(Medicare

Modernization

Act)

2006-present

25%

Demographi

c& Inpatient

&

Ambulatory

4 Medical R-Squared from “Evaluation of the CMS-HCC Risk Adjustment

Model “ , CMS, March 2011

(16)

Goals of Risk Adjustment

¨

Objective of Risk Adjustment:

¤

To pay plans for the risk of the beneficiaries they enroll, as a way to incent the plan to better

manage the member’s care.

¤

Allows CMS to directly compare bids on a standardized basis.

¤

Reduce adverse selection and promotes Plans to enroll all types of risks. This increases

access for beneficiaries and reduces gaming.

¨

Medicare Advantage Plans are paid on a Prospective basis, using CMS’ “Risk Based”

methodology related to the health risk status of plan members.

¨

Prospective payment approach-uses diagnosis as a measure of health status (based on

historical claims experience) and demographic information of each beneficiary

¨

Pay appropriate and accurate payments for subpopulations with significant cost differences

based on their risk

¨

The risk factor is determined by the claims and encounter data submitted by the Medicare

Advantage plan on behalf of each member, each year. The diagnosis data accepted by CMS in

the prior year will determine the payment the plan will receive for that member the following year

(i.e. 2011 dates of service determine 2012 CMS payment)

¨

The claims and encounters must be supported by an appropriate, accurate and complete medical

record, as the medical record is the only credible documentation recognized by CMS during

audits.

5 The CMS HCC Risk Adjustment Model

6

(17)

CMS HCC (Hierarchical Condition

Categories) Model

¨

Used to predict contract medical claims for Medicare

Advantage enrollees.

¨

Based on diagnosis codes from either MA plans or Medicare

FFS.

¨

Prospective using inpatient and ambulatory diagnoses from

year x to predict costs for year x+1 (lag?)

¨

Starting point is a demographic/Medicaid/originally disabled

factor.

¨

Non-ESRD HCCs for Community and Institutional Members:

¤

70 Diagnostic categories

¤

6 Disease Interactions

¤

5 Disabled/Disease Interactions

7 HCC Model

CMS HCC Model (Medical)

Frailty Factors

Aged-Disabled

_ESRD

Community

Risk Model

Institutional

Risk Model

New Enrollee

ContinuingEnrollees Transplant New Enrollees

Community -Functioning Graft

Institutional

-Functioning Graft Dialysis

Functioning Graft Dialysis 4-9 Months 10+ Months New Enrolle Risk Scores For C-SNPS

~ 99.5% of members

~ 97% of CMS Revenue

8

(18)

HCC Starting point is a demographic

factor…

Table 1. CMS-HCC Model Community and Institutional Relative Factors for the CMS-HCC Risk Adjustment Model

Model Type Factor Type Community Institutional

3 4 Demographic Female 0-34 Years 0.210 0.950 Female 35-44 Years 0.217 0.950 Female 45-54 Years 0.276 0.950 Female 55-59 Years 0.343 1.031 Female 60-64 Years 0.415 1.031 Female 65-69 Years 0.279 1.131 Female 70-74 Years 0.337 1.025 Female 75-79 Years 0.426 0.900 Female 80-84 Years 0.525 0.772 Female 85-89 Years 0.651 0.700 Female 90-94 Years 0.786 0.576 Female 95 Years or Over 0.822 0.447 Male 0-34 Years 0.117 1.089 Male 35-44 Years 0.133 0.960 Male 45-54 Years 0.193 0.960 Male 55-59 Years 0.272 1.020 Male 60-64 Years 0.337 1.082 Male 65-69 Years 0.283 1.281 Male 70-74 Years 0.346 1.178 Male 75-79 Years 0.436 1.178 Male 80-84 Years 0.534 1.104 Male 85-89 Years 0.656 1.041 Male 90-94 Years 0.824 0.883 Male 95 Years or Over 0.993 0.796 Medicaid & Originally Disabled Interactions

Medicaid_Female_Aged 0.202 0.096 Medicaid_Female_Disabled 0.103 0.096 Medicaid_Male_Aged 0.232 0.096 Medicaid_Male_Disabled 0.099 0.096 Originally Disabled_Female 0.228 -Originally Disabled_Male 0.160

-9

The 70 Conditions and their Risk Factors (1

of 2)

Disease

Coefficients Description Label

Community Factors Institutional Factors HCC1 HIV/AIDS 0.458 1.732 HCC2 Septicemia/Shock 0.766 0.796 HCC5 Opportunistic Infections 0.465 0.471 HCC7 Metastatic Cancer and Acute Leukemia 2.175 0.910 HCC8 Lung, Upper Digestive Tract, and Other Severe Cancers 0.919 0.576 HCC9 Lymphatic, Head and Neck, Brain, and Other Major Cancers 0.706 0.413 HCC10 Breast, Prostate, Colorectal and Other Cancers and Tumors 0.187 0.240 HCC15 Diabetes with Renal or Peripheral Circulatory Manifestation1 0.371 0.413 HCC16 Diabetes with Neurologic or Other Specified Manifestation1 0.371 0.413 HCC17 Diabetes with Acute Complications1 0.371 0.413 HCC18 Diabetes with Ophthalmologic or Unspecified Manifestation1 0.371 0.413 HCC19 Diabetes without Complication1 0.127 0.173 HCC21 Protein-Calorie Malnutrition 0.745 0.358 HCC25 End-Stage Liver Disease 1.006 0.937 HCC26 Cirrhosis of Liver 0.413 0.350 HCC27 Chronic Hepatitis 0.262 0.350 HCC31 Intestinal Obstruction/Perforation 0.310 0.352 HCC32 Pancreatic Disease 0.362 0.374 HCC33 Inflammatory Bowel Disease 0.302 0.283 HCC37 Bone/Joint/Muscle Infections/Necrosis 0.585 0.670 HCC38 Rheumatoid Arthritis and Inflammatory Connective Tissue Disease 0.361 0.304 HCC44 Severe Hematological Disorders 1.129 0.600 HCC45 Disorders of Immunity 0.945 0.533 HCC51 Drug/Alcohol Psychosis3 0.373 -HCC52 Drug/Alcohol Dependence3 0.373 -HCC54 Schizophrenia 0.517 0.407 HCC55 Major Depressive, Bipolar, and Paranoid Disorders 0.360 0.301

(19)

The 70 Conditions and their Risk Factors (2

of 2)

Disease

Coefficients Description Label

Community Factors

Institutional Factors HCC75 Coma, Brain Compression/Anoxic Damage3 0.580 0.060 HCC77 Respirator Dependence/Tracheostomy Status 1.767 2.129 HCC78 Respiratory Arrest 1.117 1.121 HCC79 Cardio-Respiratory Failure and Shock 0.531 0.485 HCC80 Congestive Heart Failure 0.346 0.228 HCC81 Acute Myocardial Infarction 0.294 0.439 HCC82 Unstable Angina and Other Acute Ischemic Heart Disease 0.274 0.439 HCC83 Angina Pectoris/Old Myocardial Infarction 0.170 0.331 HCC92 Specified Heart Arrhythmias 0.289 0.245 HCC95 Cerebral Hemorrhage 0.359 0.151 HCC96 Ischemic or Unspecified Stroke 0.265 0.151 HCC100 Hemiplegia/Hemiparesis 0.534 0.069 HCC101 Cerebral Palsy and Other Paralytic Syndromes3 0.131 -HCC104 Vascular Disease with Complications 0.594 0.470 HCC105 Vascular Disease 0.302 0.138 HCC107 Cystic Fibrosis 0.385 0.378 HCC108 Chronic Obstructive Pulmonary Disease 0.340 0.378 HCC111 Aspiration and Specified Bacterial Pneumonias 0.734 0.605 HCC112 Pneumococcal Pneumonia, Emphysema, Lung Abscess 0.206 0.197 HCC119 Proliferative Diabetic Retinopathy and Vitreous Hemorrhage 0.236 0.440 HCC130 Dialysis Status 1.348 2.228 HCC131 Renal Failure 0.297 0.353 HCC132 Nephritis 0.116 0.353 HCC148 Decubitus Ulcer of Skin 1.165 0.517 HCC149 Chronic Ulcer of Skin, Except Decubitus 0.476 0.291 HCC150 Extensive Third-Degree Burns3 1.246 -HCC154 Severe Head Injury3 0.580 0.060 HCC155 Major Head Injury3 0.171 -HCC157 Vertebral Fractures without Spinal Cord Injury 0.467 0.154 HCC158 Hip Fracture/Dislocation3 0.435 -HCC161 Traumatic Amputation 0.793 0.266 HCC164 Major Complications of Medical Care and Trauma 0.311 0.325 HCC174 Major Organ Transplant Status 1.084 0.925 HCC176 Artificial Openings for Feeding or Elimination 0.659 0.861 HCC177 Amputation Status, Lower Limb / Amputation Complications 0.793 0.266

11 Disabled and Disease Interactions

D_HCC5 Disabled_Opportunistic Infections3 _0.597

-D_HCC44 Disabled_Severe Hematological Disorders 1.340 0.633 D_HCC51 Disabled_Drug/Alcohol Psychosis 0.383 0.284 D_HCC52 Disabled_Drug/Alcohol Dependence 0.105 0.284 D_HCC107 Disabled_Cystic Fibrosis3 2.556 -INT1 DM_CHF2 0.150 0.111 INT2 DM_CVD 0.150 0.051 INT3 CHF_COPD 0.278 0.248 INT4 COPD_CVD_CAD 0.233 0.118 INT5 RF_CHF2,3 _0.262 -INT6 RF_CHF_DM2 0.600 0.373 NOTES: 1

Includes Type I or Type II Diabetes Mellitus.

2

Beneficiaries with the three-way interaction RF*CHF*DM are excluded from the two-way interactions DM*CHF and RF*CHF. Thus, the three-way interaction term RF*CHF*DM is not additive to the two-way interaction terms DM*CHF and RF*CHF. Rather, it is hierarchical to, and excludes these interaction terms. A beneficiary with all three conditions is not "credited" with the two-way interactions. All other interaction terms are additive.

3 _{HCC or disease interaction excluded from institutional model because estimated coefficient less than 0 or}

statistic less than 1.0.

4 _{HCC15, HCC16, HCC17 and HCC18 are constrained to be equal.}

Disabled/Disease Interactions

Disease Interactions

DM is diabetes mellitus (HCCs 15-19). CHF is congestive heart failure (HCC 80).

COPD is chronic obstructive pulmonary disease (HCC 108). CVD is cerebrovascular disease (HCCs 95, 96, 100, and 101). CAD is coronary artery disease (HCCs 81-83). RF is renal failure (HCC 131).

(20)

Why it’s called Hierarchical…

Table 2. Disease Hierarchies for the CMS-HCC Model

If the Disease Group is Listed in This Column... ...Then Drop the Associated Disease Group(s) Listed in This Column

Disease Group Label

5 Opportunistic Infections 112 7 Metastatic Cancer and Acute Leukemia 8, 9, 10 8 Lung, Upper Digestive Tract, and Other Severe Cancers 9, 10 9 Lymphatic, Head and Neck, Brain and Other Major Cancers 10 15 Diabetes with Renal Manifestations or Peripheral Circulatory

Manifestation 16, 17, 18, 19 16 Diabetes with Neurologic or Other Specified Manifestation 17, 18, 19 17 Diabetes with Acute Complications 18, 19 18 Diabetes with Ophthalmologic or Unspecified Manifestations 19 25 End-Stage Liver Disease 26, 27 26 Cirrhosis of Liver 27 51 Drug/Alcohol Psychosis 52 54 Schizophrenia 55 67 Quadriplegia/Other Extensive Paralysis 68, 69, 100, 101, 157 68 Paraplegia 69,100,101,157 69 Spinal Cord Disorders/Injuries 157 77 Respirator Dependence/ Tracheostomy Status 78, 79 78 Respiratory Arrest 79 81 Acute Myocardial Infarction 82, 83 82 Unstable Angina and Other Acute Ischemic Heart Disease 83 95 Cerebral Hemorrhage 96 100 Hemiplegia/Hemiparesis 101 104 Vascular Disease with Complications 105,149 107 Cystic Fibrosis 108 111 Aspiration and Specified Bacterial Pneumonias 112 130 Dialysis Status 131,132 131 Renal Failure 132 148 Decubitus Ulcer of Skin 149 154 Severe Head Injury 75,155 161 Traumatic Amputation 177 Hierarchical Condition Category (HCC)

13 Factors for new enrollees

Table 3. Preliminary CMS-HCC Model Relative Factors for Aged and Disabled New Enrollees

Non-Medicaid & Non-Originally Disabled Medicaid & Non-Originally Disabled Non-Medicaid & Originally Disabled Medicaid & Originally Disabled 0-34 Years 0.545 0.919 - -35-44 Years 0.723 1.097 - -45-54 Years 0.881 1.255 - -55-59 Years 0.957 1.331 - -60-64 Years 1.094 1.468 - -65 Years 0.504 1.085 1.108 1.689 66 Years 0.506 0.920 1.043 1.457 67 Years 0.506 0.920 1.043 1.457 68 Years 0.543 0.957 1.080 1.494 69 Years 0.569 0.983 1.106 1.520 70-74 Years 0.660 0.991 1.274 1.605 75-79 Years 0.864 1.165 1.478 1.779 80-84 Years 1.057 1.358 1.671 1.972 85-89 Years 1.264 1.565 1.878 2.179 90-94 Years 1.264 1.565 1.878 2.179 95 Years or Over 1.264 1.565 1.878 2.179 0-34 Years 0.233 0.788 - -35-44 Years 0.510 1.065 - -45-54 Years 0.754 1.309 - -55-59 Years 0.885 1.440 - -60-64 Years 0.951 1.506 - -65 Years 0.517 1.248 0.931 1.662 66 Years 0.532 1.135 1.083 1.686 Female Male

14

(21)

Risk Score Example

□

Risk Score Example: Mrs. Jones

□

81 years old, Resides in the home

□

Original reason for entitlement is Aged

□

Medicaid eligible

□

Plan submitted six diagnostic codes with dates of service during last year

□

Acute Myocardial Infarction – 410.21, 410.41, 410.91

□

Hip Fracture – 821.00, 821.10, 821.20

□

Which model applies?

□

Part C CMS-HCC

□

Which risk factors apply?

□

Community

□

Female 80-84 years old = 0.525

□

Medicaid Female, aged = 0.202

□

ICD-9 410.21, 410.41, 410.91 map to HCC 81 Acute Myocardial Infarction = 0.294

□

ICD-9 821.00, 821.10, 821.20 map to HCC 158 Hip Fracture/Dislocation = 0.435

□

What is her risk score?

□

0.525+0.202+0.294+0.435 = 1.456

15 Class Assignment- Determine Risk

Score

□

Risk Score Example: Mr. Smith

□

72 years old, Institutionalized in a Nursing Home

□

Original reason for entitlement to Medicare is that he was disabled

□

Plan submitted diagnostic codes with dates of service during last year that

translate into three HCC’s

□

HCC 17- Diabetes with Acute Complications

□

HCC 18- Diabetes with Ophthalmologic or Unspecified Manifestation

□

HCC 68- Paraplegia

□

Which model applies?

□

Which risk factors apply?

□

What is his risk score?

(22)

RxHCC

Model

2011 RxHCC Model

New Enrollee

Continuing

Enrollee

Low Income

Non-Low

Income

Institutional

Community >=65 Community <=65 Institutional Not ESRD, Not originally disabled Non-Low Income With ESRD, Not originally disabled Originally Disabled with ESRD Originally Disabled with ESRD Low Income Non-Low Income Low Income With ESRD Without ESRD Not ESRD, Not originally disabled With ESRD, Not originally disabled Originally Disabled with ESRD Originally Disabled with ESRD

17 Sample Distribution of Enrollment by

Risk Score Range

10% 15% 20% 25% 30% 35% PE RC EN T O F TO AL M EM BE RS

Pecentage of Members by Risk Factor Range

(23)

Timelines of Risk Score Data

19 Lagged Diagnosis Data

Jul10 Aug10 Sep10 Oct10 Nov10 Dec10 Jan11 Feb11 Mar11 Apr11 May11 Jun11 Jul11 Aug11

Sep11

Oct11 Nov11 Dec11

Dates of Service

Ultimately, CY 2012 revenue will be based on diagnosis codes from services that were incurred in CY 2011.

However, starting in January 2012, Risk Scores and the associated CMS revenue are estimated based

upon an earlier time period (July 2010-June 2011) due to data availability.

CMS Monthly Revenue- 1

st

_{Half of the Year}

Sweep 1

Lag Period

Sweep Date

Revenue Year 2012

1

st

_{half of revenue year}

Jan12 Feb12 Mar12 Apr12 May12 Jun12 Jul12 Aug12 Sep12 Oct12 Nov12 Dec12

A “Sweep Date” is when CMS officially closes a period for data submission for Risk Adjustment.

Therefore, all service dates during the fiscal year (Jul10 – Jun11) are included in the calculation of the

risk scores/revenue for the first 6 months of the year.

(24)

Dates of Service

Non-Lagged, Calendar Year Diagnosis Data

Revenue Year 2012

CMS Monthly Revenue- 2nd Half of the Year

& Elimination of the Lag True-up

In July of each Revenue Year, CMS will switch from lagged to non-lagged diagnosis data. CMS will restate

the risk scores for the 1

st

_{have of the year based on the updated data. This will generate a lump sum}

positive or negative payment between CMS and the Company. In addition, all monthly payments going

forward for the rest of the year will be based on the non-lagged calendar year data.

The ‘

Elimination of the Lag’,

which is a lump sum revenue payment received in July, is

applied retroactively through January of the current Revenue Year. During the 2

nd

_{half of the}

revenue year, the monthly revenue is based on the non-lag period risk score.

2

nd

_{Half Revenue Year}

1

st

_{Half Revenue Year}

Jul10 Aug10 Sep10 Oct10 Nov10 Dec10 Jan11 Feb11 Mar11 Apr11 May11 Jun11 Jul11 Aug11 Sep11 Oct11 Nov11 Dec11

Mar12

Jan12 Feb12 Mar12 Apr12 May12 Jun12 Jul12

Aug12 Sep12 Oct12 Nov12 Dec12

Sweep 2

Non-Lag

Sweep Date

21 $$

Dates of Service-2011

Calendar Year

Revenue Year

2012

Final Adjustment for “Run-out” Payment to close out Revenue Year

In August of the year after a “Revenue Year” (August 2013 for Revenue Year 2012), CMS will make one

final true-up payment and restatement of risk scores to account for any diagnosis codes that were

incurred in CY 2011 that were reported to CMS by 1/31/13 (between Sweep 2 and Sweep 3). Essentially,

Companies get more than a full year of opportunity to report run-out . Additionally, this is the same time

period (between sweep 2 and 3) that companies usually perform retroactive initiatives to ensure correct

diagnosis reporting.

Jan12 Feb12 Mar12 Apr12 May12 Jun12 Jul12 Aug12

Sep12 Oct12 Nov12 Dec12

Jan11 Feb11 Mar11 Apr11 May11 Jun11 Jul11 Aug11 Sep11 Oct11 Nov11 Dec11

Final 2012 Payment from CMS- 2013

Sweep 1

Lag

Sweep Date

Sweep 2

Non-Lag

Sweep Date

Sweep 3- Final

Sweep Date

(25)

Risk Score Projections

23 Projecting Risk Scores:

- CMS Preferred Methodology

(2013 Bid

Example)

¤

2 Sources of starting risk score data (both provided by

CMS)

1. Beneficiary File containing 12 months of 2011 membership with

retroactive enrollment and retroactive status adjustments (Most

Common).

2. Plan-level data for the July 2011 enrollee cohort that reflects

retroactive enrollment and retroactive status adjustments.

¤

Advantages of Using 2011 Risk Scores from CMS as

base:

1. Consistent with the base period medical expenses

2. Requires no adjustment for seasonality since reflect CY or avg for

2011

3. Reflects complete CY 2010 diagnosis data through final 1/31/12

sweep.

4. CMS adjusts the risk scores to reflect the latest risk score model

(2013)

(26)

Projecting Risk Scores (Preferred Methodology)

Sample Calculation

(2013 Bid Example)

25 2013 Risk Score Projection (Bid WS 5):

Contract / PBP

H9999-001 H9999-002 H9999-003

Bronze Plan Silver Plan Gold Plan

CMS Beneficiary File- 2011 RAF (2013 HCC Model)

0.955

1.000

1.048 1) Plan Specific Coding Trend

2012

1.018

1.018 2013

1.028

1.028 2) Population Change Adjustment

From 2011 to 2012

1.000

1.000 From 2012 to 2013

1.000

1.000 3) MA Coding Pattern Difference / Coding Intensity = 1 - .0341 (2013)

0.966

0.966 4) 2013 FFS Normalization Adjustment

= 1 / 1.028

0.973

0.973 Projected 2013 Risk Score

0.939

0.983

1.030 2011 Base Period Risk Score (Bid WS 1):

Contract / PBP

H9999-001 H9999-002 H9999-003

Bronze Plan Silver Plan Gold Plan

CMS Beneficiary File- 2011 RAF (2011 HCC Model)

1.010

1.055

1.103 MA Coding Pattern Difference / Coding Intensity

= 1 - .0341 (2011)

0.966

0.966 2011 FFS Normalization Adjustment

= 1 / 1.058

0.945

0.945 2011 Risk Score

0.922

0.963

1.007 Projecting Risk Scores:

- CMS Preferred Methodology

¤

Required Adjustments to base (2011) risk scores from

CMS

1. Plan Specific Coding Trend

2. Changes in Plan Population

3. Adjustment for FFS Normalization

4. Adjustment for MA Coding Pattern Differences

(27)

Projecting Risk Scores (Preferred)- Required Adjustments:

1. Plan Specific Coding Trend

¨

The actuary should determine based on reviewing historical

trends. If credible historical data is not available, may want to

use FFS trend of ~1.5% per year (check for published value)

27 Enrollment

Historical Risk Score Trend

Plan

2007

2008

2009

2010

2011 YTD 3/12

CY08 CY09 CY10 CY11

Avg.

YTD 3/12*

H9999-001

10,000 10,400 11,000 11,250 11,780

12,000

1.9%

3.2%

1.7%

1.6% 2.1%

2.1%

H9999-002

6,300

6,500

7,000

7,250

7,400

7,000

1.6%

2.9%

1.7%

1.9% 2.0%

2.2%

H9999-003

2,500

2,800

3,000

6,200

6,000

5,800

1.4%

3.1%

4.0%

2.3% 2.7%

2.3%

Total

18,800 19,700 21,000 24,700 25,180

24,800

1.7%

3.1%

2.0%

1.9% 2.2%

2.2%

* YTD 3/12 represents CY12 estimate based on converting to CY12 risk score using CMS alternate methodology.

Known Impacts

- 2008: Implemented Retrospective Chart Review Process to Improve Risk Score Accuracy.(impacts 2009 risk scores)

- Key competitor closed their richest benefit plan. One time influx into our richest plan.

Adjusted Risk Score Trend

CY08 CY09 CY10 CY11

Avg.

1.9%

1.8%

1.7%

1.6% 1.8%

1.6%

1.5%

1.7%

1.9% 1.7%

1.4%

1.7%

2.0%

2.3% 1.9%

1.7%

2.4% 1.8%

Projecting Risk Scores (Preferred)- Required Adjustments:

2. Changes in Plan Population

¨

The actuary should account for any known or expected

material changes in the plan population from the base

period (2011) to the projection period (2013). Any

population changes applied to risk scores should be

considered when setting claim trend projections as well.

Consistency between claim and revenue projections is

critical for bids.

(28)

Projecting Risk Scores (Preferred)- Required Adjustments:

3. FFS Normalization

¨

Attempts to keep HCC model calibrated to a 1.0 risk score by

correcting for underlying population and coding changes that

occur from the model calibration year to the payment year. For

example, the 1.028 factor for the 2013 payment year adjusts for

any expected changes since 2011 which is the year for which

the model is calibrated.

FFS Normalization

Model

Implied

Bid

Aged/Disabled

Model

Calibration

Annual

Year

MA Factor

Recalibrated

Year

Adjustment

2007

1.029 Yes

2005

1.4%

2008

1.040 No

2005

1.3%

2009

1.030 Yes

2007

1.5%

2010

1.041 No

2007

1.3%

2011

1.058 No

2007

1.4%

2012

1.079 No

2007

1.5%

2013

1.028 Yes

2011

1.4%

29 Projecting Risk Scores (Preferred)- Required Adjustments:

4. MA Coding Pattern Differences

¨

Beginning in 2010, CMS began adjusting MA risk scores to

account for coding pattern differences between

Fee-for-Service Medicare and Medicare Advantage Plans. MA risk

scores have tended to grow faster than FFS risk scores

over time.

Coding Pattern Differences

Bid

Year

Adjustment

2007

N/A

2008

N/A

2009

N/A

2010

-3.41%

2011

-3.41%

30

(29)

Projecting Risk Scores (Preferred Methodology)

Sample Calculation

(2013 Bid Example)

31 2013 Risk Score Projection (Bid WS 5):

Contract / PBP

H9999-001 H9999-002 H9999-003

Bronze Plan Silver Plan Gold Plan

CMS Beneficiary File- 2011 RAF (2013 HCC Model)

0.955

1.000

1.048 1) Plan Specific Coding Trend

2012

1.018

1.018 2013

1.028

1.028 2) Population Change Adjustment

From 2011 to 2012

1.000

1.000 From 2012 to 2013

1.000

1.000 3) MA Coding Pattern Difference / Coding Intensity = 1 - .0341 (2013)

0.966

0.966 4) 2013 FFS Normalization Adjustment

= 1 / 1.028

0.973

0.973 Projected 2013 Risk Score

0.939

0.983

1.030 2011 Base Period Risk Score (Bid WS 1):

Contract / PBP

H9999-001 H9999-002 H9999-003

Bronze Plan Silver Plan Gold Plan

CMS Beneficiary File- 2011 RAF (2011 HCC Model)

1.010

1.055

1.103 MA Coding Pattern Difference / Coding Intensity

= 1 - .0341 (2011)

0.966

0.966 2011 FFS Normalization Adjustment

= 1 / 1.058

0.945

0.945 2011 Risk Score

0.922

0.963

1.007 Projecting Risk Scores:

- CMS Alternate Methodology

¤

Used for plans with limited or no enrollment during the base

period. May also be appropriate if there were significant

changes to the plan or enrollment characteristics since the

base period.

¤

For example for the 2013 bids- if there was a plan that was

new in 2011 (base year) that had very little enrollment in 2011;

however it had a significant enrollment increase for January

2012.

¤

In this case, you will likely have credible risk scores from the

CMS Monthly Membership Report (MMR) for January 2012

through March 2012 when you are preparing your 2013 bids

in April of 2012.

(30)

Projecting Risk Scores

(2013 Bid Example)

:

- Alternate Methodology- Likely

Adjustments

1. Conversion to a “Raw” Risk Score-

MMR risk scores reflects

FFS Normalization and Coding Pattern Adjustments for the data year.

Need to back this out

2. Impact of Lagged vs. Non-Lagged Diagnosis Data-

If using

MMR risk scores from first quarter of 2012 which are based on lagged

diagnosis codes, then will need to adjust to reflect what those risk

scores will actually look like once the risk scores are restated to reflect

the non-lagged risk score which will be based on calendar year 2011

diagnoses.

3. Run-out of Diagnosis Data (From Sweep 2 to Sweep 3)

4. Seasonality-

often see a decline in risk scores throughout the year

as members with higher risk scores may die and new entrants usually

have lower risk scores.

5. Risk Model Change

6. Plan Specific Coding Trend

7. Population Changes

8. Convert back to a “Payment” Risk score-

by adjusting for the

bid year FFS Normalization and Coding Pattern factors

33 Revenue Seasonality and Lag /

Run-out Adjustments

34

$750.00 $760.00 $770.00 $780.00 $790.00 $800.00 $810.00 $820.00 $830.00 $840.00 $850.00 $860.00 $870.00 $880.00

CMS

Payment

PMPM

(31)

Projecting Risk Scores (Alternate Methodology)

Sample Calculation

(2013 Bid Example)

35 2013 Risk Score Projection (Bid WS 5):

Contract / PBP

H9999-001 H9999-002 H9999-003 Bronze Plan Silver Plan Gold Plan

1st-Qtr 2012 Risk Score (from MMR)

0.853

0.905

0.942 1a) Back out 2012 FFS Normalization

1.079

1.079 1b) Back out 2012 Coding Intensity (1 / (1 - .0341)

1.035

1.035 2) Lag to Non-Lagged Adjustment

1.038

1.038 3) Runout/Completion Adjustment (August 2013 Payment)

1.010

1.010 4) Seasonality Adjustment (1st Quarter to CY)

0.975

0.975 CY 2012 "Raw" HCC Risk Score

0.974

1.033

1.076 5) Risk Model Changes (2012 to 2013)

0.940

0.940 6) Plan Specific Coding Trend (2012 to 2013)

1.028

1.028 7) Population Change Adjustment (2012 to 2013)

1.000

1.000 8a) 2013 FFS Normalization Adjustment

= 1 / 1.028

0.973

0.973 8b) 2013 MA Coding Pattern Difference

= 1 - 0.0341

0.966

0.966 Projected 2013 "Payment" Risk Score

0.941

0.998

1.039 Risk Scores- Additional Efforts to Ensure

Accurate Diagnosis Coding

¨

Retrospective Initiatives-

Use vendors or internal

resources to identify “suspected opportunities” for missed diagnosis

codes (i.e. look back at the diagnoses that you already have and

see if anything seems to be missing). For example, if a member

has been a diabetic for the last 5 years, but no diagnosis for

diabetes is in the current year claims, then check the medical record

for evidence of diabetes.

¤

Usually involves an on-site visit to the physician’s office to check the medical