February 29, 2024
The Honorable Xavier Becerra, Secretary, U.S. Department of Health and Human Services, Washington, DC
The Honorable Chiquita Brooks-LaSure, Administrator, Centers for Medicare and Medicaid Services, Washington, DC
Mr. Jonathan Blum, Principal Deputy Administrator and Chief Operating Officer, Centers for Medicare and Medicaid Services, Washington, DC
Meena Seshamani, MD, Deputy Administrator and Director, Center for Medicare, Centers for Medicare and Medicaid Services, Washington, DC
Dear Secretary Becerra, Administrator Brooks-LaSure, Principal Deputy Administrator Blum, and Deputy Administrator Seshamani:
The undersigned share a commitment to protecting and enhancing the Medicare program for all beneficiaries. Medicare Advantage (MA) now accounts for more than half of all Medicare enrollment. However, the rapid growth in MA enrollment reflects the unequal financing of MA versus traditional Medicare (TM) rather than superior performance by MA plans. In 2024, MedPAC estimates that Medicare will overpay MA plans by 23%, at least $88 billion, due to upcoding of diagnoses and favorable selection alone. That amounts to a staggering $2,700 more per beneficiary than the same beneficiary would cost TM. This subsidization and the resulting overpayments to MA are wasteful, unfair, and create a set of perverse outcomes. By fundamentally distorting the marketplace, unequal financing strongly pushes beneficiaries to choose MA over traditional Medicare for the wrong reasons. We strongly believe in giving beneficiaries a fair, even-handed choice between MA and TM and advocate for improving both programs.
At the state level, the rapid growth of MA is distorting the insurance markets for dual eligibles, retirees and commercially covered lives. MA firms, financed by subsidies, are consolidating plans and owned primary care practices then using their increased market power to extract higher commercial rates at a state and regional level.
In 2023, CMS finalized positive steps that began to rein in some of the major contributors to excessive MA subsidization by revising the MA payment formula in the CY 2024 Rate Announcement and finalizing the MA Risk Adjustment Data Validation (RADV) Rule. The Rate Announcement included a three-year phase-in of the V28 HCC risk adjustment model, which began to close some of the more egregious loopholes for upcoding. We vigorously applauded this important step and at a minimum urge CMS to continue with the planned three-year implementation schedule. We also recommend CMS take further steps to improve choices for beneficiaries by adopting other measures to reduce distortions in the Medicare coverage marketplace.
Background:
MA Overpayments have grown tremendously
The MA industry continues to drive ever-higher revenues primarily by increasing their “risk scores,” which MedPAC reports are the largest source of overpayments. Inflated risk scores increase monthly MA payments by an estimated 20.1 percent (or 14.2 percent after accounting for the 5.9 percent statutory minimum adjustment). Per CMS, average MA risk scores are increasing approximately at a rate of 5% per year when measured using the 2020 V24 Model risk score model but by 3.3% under the V28 2024 Model. Upcoding not only distorts choices between MA and TM but also unfairly penalizes MA plans that do not engage in equally aggressive upcoding because they do not receive the same “revenue enhancements” that enable higher profits while offering somewhat more generous benefits. As recently documented by Kronick et al, some large MA firms, such as United Healthcare, are much more aggressive coders and drive much higher Risk Scores than their competitors. One 2024 Advance Notice comment letter, using data provided by United Healthcare in their own 2022 study, demonstrated that they submitted twice as many diagnoses as were submitted for a matched FFS population, positioning them to obtain as much as 34% more revenue.
Over the past year researchers have elucidated even more drivers of MA overpayments. Lieberman et al demonstrated that favorable selection contributes an additional 14% in overpayments. Ryan et al demonstrated that favorable selection increases benchmarks resulting in 4% additional revenue over and above the Lieberman numbers. MedPAC concluded that favorable selection adds 9% in more overpayments. When added to the 14% from Risk Scores, they estimate that total overpayments will be 23% in 2024. These overpayments are added into the calculation of Part B premiums that all Medicare beneficiaries pay. 58% of these payments are considered Part B. The Beneficiary premium is set to cover 25% of all Part B expenses meaning beneficiaries will pay 15% of any overpayments. So, $13 B in 2024 and $220 B over 10 years will come directly from beneficiaries’ pockets.
Despite CMS spending $15 B in 2024 quality payments, and over $60 billion since the Affordable Care Act, MedPAC continues to point out that “it is impossible to evaluate the quality of care in Medicare Advantage.” However, studies have shown that MA members are directed into networks of lower rated hospitals, skilled nursing facilities, and home health agencies. MA beneficiaries in need of complex cancer care have less access to it and worse outcomes. Mortality rates differ widely across MA plans with one study showing that 10,000 deaths annually result from beneficiaries unknowingly enrolling in poor performing plans. Other studies show that patients with costly and complex conditions are much more apt to disenroll from MA Plans, presumably because they are concerned about getting the care they need. But for most people choosing MA is a one-way street. All but four states allow medical underwriting of people returning to Medigap. The result is Medigap prices that are unaffordable for all but the wealthy.
Once again, MA acts as a driver of inequities. This reality is also a major driver of the favorable selection in MA. People in TM who know they have a serious medical condition are much less likely to move into MA.
Total MA Subsidies are greater than just Overpayments
MedPAC estimates compare MA payments to what the same population would cost CMS under traditional Medicare coverage. But the subsidies we provide to MA are even greater. First, the legislated county and quality Bonus payments which are in addition to traditional Medicare costs, according to MedPAC, increase benchmarks by 8% and revenue by about 5.2%. Second, MA benchmarks include the cost of the “induced utilization” Medicare incurs as a result of the higher service use by the 90% of beneficiaries that have supplemental insurance. These higher medical costs are passed through to MA Plans as revenue because they are included in the benchmark. They have been estimated to add 11% more revenue to MA firms. Total subsidies, which is the incremental revenue provided to MA Plans above what they say they can provide Medicare benefits for, are likely in the range of 40%, or $140 B annually and $2 T over 10 years.
MA exposes beneficiaries to significant out-of-pocket costs and plans avoid decreasing cost sharing
MA is not first dollar coverage for most members. According to a United Health study MA members on average still pay for about 11% of the cost of their medical services. Despite being given the revenue to cover this in their premium, and despite rapidly increasing rebates due to risk score gaming, MA plans have not used their subsidized payments to improve cost sharing for members, presumably because as MedPAC says:
“. . . doing so could induce greater service use among enrollees, as occurs among FFS beneficiaries with first dollar Medigap coverage.” In short, they maintain significant member coinsurance to further their aim of liming the use of services. The most significant area of impact is the 20% and higher MA coinsurance for high cost drugs used to treat cancer and other serious illnesses. These limited benefits have the added effect of deterring high-cost paents from enrolling.
MA plans receive $15 Billion in Star-Rating Bonuses that do not meaningfully reflect quality
Contrary to the original intent to provide incentives and reward exemplary performance, the CMS Quality Bonus Program (QBP) and the attendant Star Ratings neither provide beneficiaries with meaningful quality information nor reward plans for excellent performance. Indeed, the disproportionate share of 4-star and4.5-star plans reflect the “Lake Wobegon Effect”, where all plans are above average —not quality, as MedPAC has extensively documented.
In line with the MedPAC recommendations for completely revamping the QBP, MA quality accountability should move away from overreliance on performance measurement by moving to a quality improvement approach. CMS and Medicare have been and can be even more of a force for the proactive improvement of the quality of health care for beneficiaries and, indeed, for all Americans. Unfortunately, Medicare’s longstanding, positive influence on health care quality has been compromised by various statutory mandates for implementation of pay-for-performance programs (P4P) throughout Medicare. Numerous quality experts have now concluded that two decades of providing financial rewards and penalties for specified, measured performance has failed to improve the quality-of-care provided to Medicare beneficiaries but has come with high direct and opportunity costs as well as added burden for MA plans and providers. As argued by Berenson and Skopec recently, it is time for a fundamental reconsideration of the reliance on measurement and P4P as the primary approaches in Medicare for assuring accountability for the quality-of-care provided to beneficiaries.
Quality measurement can identify exemplary and substandard performance but cannot accurately distinguish gradations of acceptable care – the situation applicable to the large majority of MA plans. To achieve better quality across MA, Medicare payments should reward delivery organizations that achieve exceptional quality-of-care performance. Likewise, it makes sense to avoid rewarding, and, indeed, in some cases penalize organizations that perform poorly. However, penalties and rewards systems must include consideration of the particular challenges of organizations addressing the needs of especially challenged populations. MA plans with demonstrably substandard performance on quality measures should be subject to direct sanctions resulting from more vigilant program oversight by CMS. Further, program oversight should more assertively assure MA plan administrative compliance with program requirements rather than assuming that the QBP will provide the necessary discipline for MA plans to adhere to program expectations and requirements. Given the apparent success of the CMMI funded “Partnership-for-Patients” in the last decade and the more recent success of the Million Hearts trial, MA plans and their contracted and employed providers should be expected to participate actively in provider-payer collaboratives. MA plans participating in these collaboratives would be expected to provide financial support for activities required by the particular QI model, often recouping their investment in improved quality, with decreased spending.
We believe that CMS should support a major project, perhaps through a National Academy of Sciences, Engineering, and Medicine consensus study, to review and recommend revision of the current reliance on P4P across Medicare programs and consider a shift in emphasis to adoption of quality improvement projects applicable to the majority of providers and MA plans. In considering revision of the measurement system, the expert study should consider the feasibility of shifting the focus to reflect state-of-the-art inclusion of patient ratings, accurate assessment of clinical outcomes, and a focus on what truly matters to patients, families, and communities. In considering adoption of quality improvement initiatives, featuring multi-party collaboratives, the study should specify the appropriate, complementary roles of MA insurers and providers working together to achieve measured improvement and align the approach with that of their ACO programs.
MA grows because of inequitable subsidies, not better care
MA proponents cite their ability to deliver care for less as the basis for their success. There is a small number of MA plans that have a history of innovative care practices designed to improve outcomes for their members. Many of these are the descendants of the original group model HMOs that were part of the early Medicare privatization pilots. There are also thousands of employees in MA plans who are deeply committed to improving the lives and health of their members. But increasing revenue in MA is much easier than improving care, and driving revenue has replaced improving care as the central focus of the MA industry. It is the large subsidies – $2,700 per beneficiary – that are the source of the improved benefits and lower premiums, not savings from better care.
MA’s rapid growth results from a very unlevel playing field. TM does not receive subsidies to provide the limited Dental, Vision or Hearing coverage MA plans offer. Most significantly, TM does not limit beneficiaries’ financial exposure because the program’s 1960’s-era indemnity benefit package (which we believe needs to be modernized) has no out-of-pocket cap and a coinsurance rate averaging 16%. While people can buy supplemental insurance to eliminate this risk, many, especially beneficiaries with lower income, cannot afford hundreds of dollars in monthly premiums to purchase Medigap plans. As a result of direct subsidies, MedPAC estimates that 99 percent of beneficiaries have the opportunity to purchase zero-premium MA/PD plans that offer prescription drug coverage and somewhat enhanced benefits. In assessing whether the growth of MA enrollment constitutes a reasonable proxy for the quality of its plans, imagine two ice cream trucks where one charges a reasonable price while the other gives ice cream away for free. The higher market share of the second results from free ice cream, not better ice cream!
But, as described above, zero premium does not mean zero cost. MA members still face significant OOP expenses. If they have significant illness these can mount up to the average OOP cap of $5,000 or even beyond in some Plans up to the $8,000 – $13,000 maximum in-network and Out of Network OOP caps that CMS allows. And as noted this is most meaningful for patients who need high cost part B drugs for treatment of cancer and other serious illnesses. This is why MA members continue to cite the cost of services as reasons for not obtaining care.
Massively subsidizing Medicare Advantage leads to perverse policy outcomes
Assessing aspects of Medicare and MA should not be done in isolation. A view considering the greater impacts on our healthcare system reveals unintended—and highly undesirable— policy outcomes that one would never seek directly.
1. Increasing numbers of medically and financially vulnerable individuals are driven into limited networks of lower quality providers and then subjected to administrative procedures designed to constrain access to needed care, which threaten the health and financial security of beneficiaries.
2. Because lower income individuals and, disproportionately, people of color, are most in need of the highly subsidized MA benefits, we are spending more to push historically marginalized populations into lower quality care, thereby increasing the healthcare inequities the Administration is rightfully committed to eliminating.
3. Inequitable MA subsidies have resulted in a vast administrative preauthorization and claims denial superstructure that permeates the delivery system delaying and distorting care delivery, denying payment to providers, increasing administrative complexity and costs for all segments of the system.
4. Overpaying MA plans funds the acquisition of primary care practices by for-profit firms driven by financial results not health outcomes.
5. Overpaying MA increases total Medicare spending, threatens the sustainability of Medicare itself, and is destabilizing traditional Medicare through unfavorable selection and the decline in beneficiaries making fee-for-service spending no longer a useful benchmark that is representative of the Medicare population as a whole.
6. We will take $15 billion in 2024 and $210 B over the next 10 years from the pockets of seniors and people with disabilities via higher Part B premium to make these overpayments to MA firms.
Recommendations:
Use Current administrative authorities to rein in MA subsidies
We encourage HHS and CMS to act using their current authorities to create a more level playing field for Medicare beneficiaries while also buttressing the financial sustainability of the Medicare program. Many opportunities to reduce MA overpayments remain that can be acted upon now:
• Connue without interrupon the three-year phase-in of the V28 2024 HCC risk adjustment system. While Plans argue that reducing overpayments will require reducon in benefits, research findings show that the effects would be modest, at best.
• Further revise the HCC model considering approaches as recently recommended by Kronick et al.
• Explore other approaches using modern stascal and ML techniques to develop an alternave to HCC that could improve accuracy especially for lower cost patients.
• Increase the Coding Intensity Factor adjustment to MA payment, as has been long recommended by MedPAC, above the 5.9% statutory minimum, and customize it to firms that are very high coders.
• Explore approaches to creating a new risk adjustment system that is resistant to gaming. As examples, alternative approaches could include extended beneficiary surveys, MA plan/contract-specific coding intensity factors, reducing MA plan payments for those enrollees that recently switched to MA based on the prior year’s risk-adjusted spending.
• Eliminate contractual arrangements and incentive systems that MA plans use to reward providers for adding more diagnostic codes that result in higher premiums including percentage of premium risk contracts.
• Further revise the way CMS pays MA plans including changes to the benchmarking system to address the multiple documented sources of overpayments such as favorable risk selection.
• Revise the QBP to accurately reflect local MA plan information rather than aggregate findings and incorporate corrective action and sanctions for MA plans with 1-, 2- or 3-star ratings. Large employers, including state governments, need local data to understand the performance of the Plan retirees are actually entering. Only having performance at the national level can cloud local or regional concerns.
• CMS should support a major project, perhaps through a National Academy of Sciences, Engineering, and Medicine consensus study, to review and recommend revision of the current reliance on P4P in MA and across Medicare programs.
• Assure the long-term viability of the Accountable Care Organization movement, drawing lessons from experience to date
• Explore a CMMI model that would combine an improved traditional Medicare benefit with the use of ACOs and other alternative payment models to evaluate potential to decrease CMS expenditures by decreasing migration into MA
Work directly with Congress to create a level playing field for real beneficiary choice:
We believe that the traditional Medicare benefit package should be modernized. An optimal approach would offset the costs of an improved traditional Medicare benefit package with some of the savings from reduced MA subsidies. By making traditional Medicare a viable alternative for many who believe they cannot afford it today, these changes would be an important step towards meeting the Administration’s goal of advancing health equity. The cost of these improved benefits would flow into MA Benchmarks thereby blunting the MA lobby’s contention that reducing subsidies would require a reduction in benefits. In addition, work with Congress to revise the MA quality bonus program (QBP) and CMS’s approach to MA county adjustments to make them both budget neutral, as is required for all other Medicare bonus payments.
We want to thank you and your dedicated and highly professional teams for the outstanding efforts to date to improve coverage and care for all. Feel free to contact us at any time if we can be of any assistance.
Sincerely,
Scot Armstrong, Former President & CEO, Group Health Cooperative, Former Commissioner, Medicare Payment Advisory Commission
Richard J. Baron, MD, CEO and President, ABIM Foundaon, Former Director, Seamless Care Division, CMMI, Centers for Medicare and Medicaid Services (CMS)
Elaine Batchlor, MD, CEO, MLK Community Healthcare, Los Angeles, California
Robert Berenson, MD, Instute Fellow, Urban Institute, Former Acting Deputy Administrator, CMS, Former Vice-chair, MedPAC
Susan E. Birch, MBA, BSN, RN, Director, Washington State Health Care Authority
Donald Berwick, MD,President Emeritus and Senior Fellow, Institute for Healthcare Improvement (IHI), Former Administrator, CMS
Maureen Bisognano, President Emerita and Senior Fellow, Institute for Healthcare Improvement
Lawrence Casalino, M.D., Ph.D. Professor, Emeritus of Populaon Health. Livingston Farrand Professor of Public Health, (2008-2022), Chief, Division of Health Policy and Economics, (2008-2021), Weill Cornell Medical College
Tina Castanares, MD, Principal, Castanares Consulting, Joseph Damore, LFACHE, President and CEO, Damore Health Advisors
Andrea M. Ducas, MPH, Vice President, Health Policy, Center for American Progress
Michael Eliastam MD, MPP, FACP
Ezekiel J. Emanuel, M.D., Ph.D., Levy University Professor, Vice Provost for Global Initiatives, Co-Director, Healthcare Transformation Institute, Perelman School of Medicine and The Wharton School, University of Pennsylvania, Judy Feder, Professor and former Dean, McCourt School of Public Policy, Georgetown University
Elliott Fisher, MD, MPH, Professor of Medicine and Health Policy, The Dartmouth Institute, Senior Fellow, IHI
Lisa K. Fitzpatrick, M.D., MPR, MPA, CEO Grapevine Health, Former Chief Medical Officer, Medicaid, Washington, DC
Emily R. Gee, PhD, Senior Vice-President, Inclusive Growth, Center for American Progress
Richard J. Gilfillan, MD, Independent Consultant, Former Deputy Administrator, CMS, Former Director, CMMI, Former CEO, Trinity Health
Merrill Goozner, Editor & Publisher of GoozNews.substack.com, Former Editor, Modern Healthcare
Tia Goss-Sawhney DrPH, FSA, MAAA, Chief Operating Officer, Highlight Health
Paul Ginsburg, PhD, Senior Fellow, USC Schaeffer Center, Professor, USC Price School of Public Policy, Nonresident Senior Fellow, Brookings Inst., Former Vice-Chair, MedPAC
Frederick Isasi JD, MPHl Former Executive Director, Families USA
Glenn Hackbarth, Former Chair, MedPAC, Former Deputy Administrator CMS
Gary S. Kaplan MD, FACP, FACPE, CEO Emeritus, Virginia Mason Health System, Virginia Mason Franciscan Health
Steve Lieberman, President, Lieberman Consulting Inc., Senior Non-Resident Fellow – USC Schaeffer Center, Non-Resident Fellow – Brookings Institution
Peter Lee, Senior Scholar, Stanford University, CERC, Former Executive Director, Covered California, Former Deputy Director, Center for Medicare and Medicaid Innovation, CMS
Michael R. McGarvey, MD, Chair, Board of Directors, New York County Health Services Review Organization
John C (Jack) Lewin, MD, Administrator, Hawaii State Health Planning and Development. Senior Advisor to Governor Green, Honolulu, Hawaii, Founder and CEO, Lewin and Associates LLC, New York, NY
Arnold Milstein, MD, Medical Director, Purchasers Business Group on Health, Clinical Excellence Research Center Director, Stanford University Former Commissioner, MedPAC
Roy Schutzengel, MD, MBA, Former Medical Director, Integrated Systems of Care Division, California Department of Health Care Services
Cary Sennett, MD, PhD, Principal, The Sennett Consulting Group, Former Executive Vice President, National Committee on Quality Assurance
Bruce Vladeck, PhD, Former Administrator, Healthcare Financing Administration, U.S. Department of Health and Human Services
Judy Zerzan-Thul, MD, MPH, Chief Medical Officer, Washington State Health Care Authority, Former Chief Medical Officer,Colorado Dept of Health Care Policy and Financing
