CMS’ planned changes in the Medicare Advantage (MA) capitation rate methodology and risk adjustment methodology, which will lead to a projected payment rate increase of around one percent in 2024, are an important step towards eliminating waste, maintaining the integrity of the Medicare Trust Fund, and keeping Medicare Part B premiums in check for everyone with Medicare. The planned changes are meaningful improvements that take account of, and rein in, some of the tens of billions of dollars in excess payments to Medicare Advantage plans as a result of upcoding in recent years and going forward.
Social Security Works, Just Care USA, Public Citizen and the Center for Health and Democracy strongly support these planned changes, which will improve the accuracy of payments to Medicare Advantage plans. We urge you to finalize them.
The planned improvements address some issues with the current flawed system for capturing the health risk of enrollees in order to reduce the excess payments to Medicare Advantage plans. They fix some of the upcoding that leads to additional payments to Medicare Advantage plans, even when the Medicare Advantage plans are not spending more money on patient care.
While the projected rate increase is lower than what the insurance industry wants, it should not compromise benefits or result in increased costs for Medicare Advantage enrollees. The government will continue paying Medicare Advantage plans significantly more per enrollee than Traditional Medicare. Medicare Advantage plans will continue to amass billions of dollars in profits.
Unfortunately, CMS’ authority to correct for massive Medicare Advantage excess payments is circumscribed. CMS is bound to adhere to the current risk-adjusted capitated payment model for Medicare Advantage plans. This model entrusts the Medicare Advantage plans themselves with determining the health risk of their members and pays the Medicare Advantage plans more for enrollees with more diagnosis codes.
This risk-adjustment method rewards Medicare Advantage plans best able to capture enrollees’ diagnosis codes, regardless of whether the Medicare Advantage plans spend more money covering care for their enrollees with additional diagnosis codes. It creates a perverse incentive for Medicare Advantage plans to do everything in their power to “find” diagnosis codes to ascribe to their enrollees—“upcode”—in order to maximize profits. And, it makes Medicare Advantage plans that do not have the tools or resources to add as many diagnosis codes as possible to their enrollees’ records less competitive than those Medicare Advantage plans that do.
Some Medicare Advantage plans hire outside firms to conduct home visits of enrollees with the specific purpose of ascribing new diagnosis codes to their medical records. These Medicare Advantage plans might also pay in-network primary care providers more for assigning more diagnosis codes to their patient records.
According to MedPAC, these activities led to far higher per enrollee payments (106 percent) in Medicare Advantage than in Traditional Medicare, at a total cost to taxpayers of $27 billion this year alone. According to other analysts who have taken a deep dive into risk-adjustment in Medicare Advantage, the excess payments are closer to 120 percent of Medicare, well over $80 billion this year. These excess payments are projected to total $600 billion over the next eight years. The CMS proposed formula for its 2024 rate increase would eliminate or change some codes to better reflect the additional risk some Medicare Advantage plans bear.
Ultimately, to stop the upcoding, the federal government must wrest responsibility for risk-adjustment from the Medicare Advantage plans. CMS can conduct risk-adjustment itself. Better still, since risk-adjustment is an imperfect payment system that will always overpay for the healthy and underpay for the sick, creating perverse incentives, the government should revise its capitated payment model to better align with the goals of Medicare Advantage—lower costs to Medicare and better quality. Only the latter option helps ensure Medicare Advantage enrollees can get the care they need.
If the government paid Medicare Advantage plans for the cost of services they delivered, plus a management fee, with a risk-adjusted limit that the government set, the Medicare Advantage plans would have a greater incentive to deliver high-value care to people with costly conditions and have far less opportunity to game the payment system. The current payment system, and any new payment model unrelated to the cost of services Medicare Advantage plans deliver, suffers from three fundamental flaws that affect enrollee care at both the individual and macro levels:
First, it incentivizes some, if not most, Medicare Advantage plans to compete for healthy enrollees, as they cost very little to cover. In fact, healthy enrollees cost about one-tenth of what the government pays the Medicare Advantage plans to cover services for these enrollees. Further, insurers design Medicare Advantage plans with lower cost and sometimes lower quality specialists and specialty providers to avoid the sickest patients. The sickest patients cost many times what the government pays the Medicare Advantage plans for these enrollees. In theory, the payments for healthy and sick would balance out. But, in practice, covering all medically necessary care for a disproportionate share of the sickest enrollees would put the Medicare Advantage plans out of business.
Second, a payment system unrelated to the cost of services delivered incentivizes some, if not most, Medicare Advantage plans to withhold care and provider payments, particularly for the 10 percent of people who represent 70 percent of Medicare spending. Unfortunately, this is easy for Medicare Advantage plans to do. The bad-actor Medicare Advantage plans use their own proprietary prior authorization rules that are out of sync with standard medical practice and pay their physicians to deem medically necessary treatment unnecessary, even when these physicians lack the qualifications to make the decision. CMS cannot oversee Medicare Advantage plans’ medical necessity decisions at a micro level. And, CMS cannot keep Medicare Advantage plans from inappropriately cutting payments to physicians and hospitals. By giving Medicare Advantage plans this discretion over coverage and payments, including those Medicare Advantage plans that are bad actors, the government endangers the lives of the millions of enrollees with complex and costly conditions and puts the financial stability of some providers at serious risk.
Third, the current risk-adjusted payment system incentivizes some, if not many, Medicare Advantage plans to ignore good care management. Good care management would involve collection of complete and accurate encounter data to determine what’s working and what’s not working and a reporting out so that there is continuous learning that benefits everyone. What’s worse is that this payment system has kept the government and researchers from being able to analyze patient encounter data to determine which plans are providing good care and which are withholding critical care. As a consequence, millions of people are misled into joining Medicare Advantage plans that might not meet their care needs.
The current payment system also permits Medicare Advantage plans to claim they spend 85 percent of their revenues on patient care and “quality” initiatives, as required by law, without meaningful assurance that they do.
In an ideal world, CMS would have the tools, resources and political will to identify and hold Medicare Advantage plans accountable for their bad acts in meaningful ways that would actually deter them from committing bad acts. That is fantasy, as the current design of Medicare Advantage makes good oversight and accountability effectively impossible, even if CMS had adequate staff and other resources. For now, without fundamental design changes, we are left with a Medicare Advantage system that has no proven value, hundreds of billions in excess costs, and no way to ensure enrollees who need costly care actually receive it.
No one should want the government to overpay for Medicare services, especially when there is no good data to support their value. No one should want vulnerable older adults and people with disabilities to enroll in Medicare Advantage plans that won’t meet their needs when they need care.
If Medicare Advantage is to “work” for taxpayers and enrollees:
- We need an appropriate limit on Medicare Advantage plan revenue, equal to or less than Traditional Medicare per enrollee.
- We need a standardized claims processing system for all Medicare Advantage plans that ensures coverage of medically reasonable and necessary services, with a public—non-proprietary— prior authorization overlay.
- We need Medicare Advantage plans to have a financial incentive to provide high-value care to people with costly conditions and to compete for these enrollees.
- We need Medicare Advantage plans to cover care from all cancer centers of excellence and other Medicare providers to ensure people have good access to care.
- We need a standardized system for the government to collect and share de-identified patient encounter data so that “value” can be assessed, and we can have in place a robust system for identifying persisting and emerging health care needs, including the ability to detect a disease outbreak or the need for greater resources in a community as a result of a force majeure.
- We need a “strict liability” punishment for Medicare Advantage plans that violate their legal and contractual obligations, including automatic plan termination for ongoing violators.
In sum, CMS’ planned improvements in the MA capitation rate methodology and risk adjustment methodology, which will lead to a projected payment rate increase of 1 percent in 2024, will help reduce excess payments to Medicare Advantage plans. However, without further improvements, they will not bring Medicare Advantage plans in line with Traditional Medicare. Medicare Advantage plans still will be able to upcode improperly and devise ways to stint on enrollee care in order to earn windfall profits.
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