We have pointed out numerous times that the Medicare Advantage arm of Medicare, which now enrolls almost a third of beneficiaries, generally provides better benefits, better managed care and lower cost for members. The way CMS has designed reimbursement for the MA plans, however, may be causing the program to pay the plans more than it should or needs to. A recent analysis published in Health Affairs supports this conclusion, but may have flaws. (HA Article) The history of the health plan program for Medicare is relevant to understanding the current reimbursement approach. For a couple of decades the plans were accused of cherrypicking healthy enrollees so they could be more profitable. And the evidence suggested that generally the plans did enroll people with less illness burden. So CMS began adjusting payments to the plans based on both what the average FFS costs are in the plan’s service area and on the specific health status of the enrollee. This “risk score” is critical to how much a plan gets paid for each enrollee.
So, lets see, if you are a health plan and that risk score is important to your reimbursement, do you think you will spend much time trying to maximize it, basically by ensuring that every possible illness, condition and diagnosis for the member is reported to CMS? The analysis in Health Affairs suggests that risk scores for MA enrollees have increased about 1.5% per year more than risk scores for FFS enrollees have. Now it is very likely that at least some of this is the failure of the unmanaged FFS Medicare arm to adequately identify all health needs of beneficiaries. The authors of the analysis, however, assume that MA plans enroll healthier or at least as healthy beneficiaries as those who stay in the FFS arm. This is a questionable assumption. Given the current reimbursement, the plans actually have every reason to enroll less healthy members, as they get paid a lot more for them and have demonstrated repeatedly an ability to get both better quality results and be more efficient in using care resources. I suspect that, especially since plans now enroll a third of all beneficiaries, they are getting people who truly have more health needs. As MA enrollment inevitably heads toward 50% of all beneficiaries, it will be impossible for them to cherrypick members.
The bottom line of the analysis is that Medicare is paying about $200 billion a year too much to the plans. That is absurd and relies on assumptions, like the one discussed above, that simply aren’t logical, a primary one being a complete ignoring of CMS’ use of encounter data as the risk-scoring source. As readers of this blog now, I believe the plans are overcoding. Whether they are overpaid, given the quality they deliver, is a subjective judgment. In any event, the simplest solution is one already being put in place–exclusive use of actual encounter data to identify a member’s risk score; and that encounter data should be derived from a legitimate preventative or treatment visit, not one solely for “assessment” purposes. Another more sensible way to address any issue is to adjust risk scores by treatment patterns. Compare how a member with a specific diagnosis gets treated in MA with how the same diagnosis gets treated in FFS and adjust by that proportion. Or even better, change reimbursement to pure competition. Use the lowest bid as the benchmark and no one gets paid more than that bid.