The Facts

On April 29, 2009, the Senate Finance Committee released the first of three anticipated health reform option papers. Included in the Committee's white paper are four proposals to “promote quality, efficiency and care management” in the Medicare Advantage (MA) Program:

  • Modifying the MA Plan payment system
  • Increasing payments for chronic care management
  • Linking payment to quality
  • Simplifying the supplemental benefits offered to Members

Highlighted below are key elements of some of these proposals and insights on how those policies, if adopted, would affect MA Program participants, as well as comments from Jacque J. Sokolov, M.D., chairman and managing partner of SSB Solutions, Inc. Comments on the Committee’s proposals are due May 15, 2009.

What’s at Stake

Reforming the Competitive Bidding Payment System

The Committee sets out two alternate reform proposals for the MA Plan payment system that would take effect beginning in CY 2012.

One approach would reduce the existing benchmarks to which MA Plan bids are compared, either by blending local fee-for-service (FFS) per capita spending and national FFS average per capita spending (rather than having benchmarks reflect 100 percent of local FFS per capita spending), or implementing an across-the-board reduction for all benchmarks as well as additional, targeted reductions for counties with MA Plan payment rates that are significantly higher than local FFS expenditures.

The alternate approach would change the methodology by which the benchmarks are determined to that used in the Medicare Part D Program. Benchmarks would reflect the enrollment-weighted average of MA Plan bids in each county, and all MA Plans would receive the benchmark payment. MA Plans with bids below the benchmark would apply the difference to providing additional benefits (or reducing cost-sharing); MA Plans with bids above the benchmark would collect the difference from Members through monthly premiums.

Additional cuts would be imposed for MA Plans that do not sponsor certain initiatives, such as pay-for-performance, health information technology, and primary care and wellness programs.

McDermott Insight: As the Obama administration also has proposed revamping the competitive bidding system, Medicare Advantage Organizations (MAOs) should expect payment rates to decrease, potentially significantly in geographic areas in which MA Plan payment rates greatly exceed FFS per capita costs.

Payment for Chronic Care Management

In conjunction with reforms to the competitive bidding process (and to reduce potential cuts to MA Plans’ care management activities), the Committee proposes to pay bonuses for evidence-based care management programs for chronic conditions. Bonus payments based on a percentage (e.g., 1 percent to 2 percent) of Medicare’s national average per capita cost could be incorporated into a MA Plan’s monthly payment rates if the MAO implements certain care management activities, such as physician gain sharing arrangements with PCPs and/or achievement of quality improvement targets.

McDermott Insight: A MAO that does not currently target chronic illnesses with care management activities should consider implementing such programs now so that the MAO only has to incorporate adjustments (rather than undertake full scale implementation) to receive the bonus payment. The models of care required of MA special needs plans may provide insight into the kind of evidence-based care management programs that could be required.

Linking Payment to Quality

The Committee proposes to tie a portion of MA Plan payment rates to quality performance, “so that higher ranked MA plans receive an increase compared to lower ranked plans.” The proposal would rely on the Centers for Medicare and Medicaid Services’ (CMS’s) existing ranking system that incorporates HEDIS and HOS quality measures, among other data.

McDermott Insight: A MAO would need to ensure that its processes for collecting and submitting data are refined to capture all relevant data that may affect quality measures, and thus payment. A MAO also could consider working with providers to develop a program that identifies and improves upon those areas where quality scores may be lower than average.

What You Should Do

The Committee’s payment policy changes are proposed to take effect in CY 2012, meaning MAOs would have to position themselves to respond to the changes in time for the June 2011 bid submission deadline. In addition, CMS could implement more modest changes prior to that time.

In anticipation of these or similar reforms, a MAO should begin to analyze its plan benefit packages, provider payment arrangements and member population, and to discern the extent to which the MAO can modify its operations and/or develop and implement new initiatives.. Health care providers can identify those MA Plans that represent a material portion of the providers’ patient population and initiate a dialogue to explore potential new areas of collaboration that will help improve quality outcomes while managing costs.

Featured Commentary

This article features guest commentary from Jacque J. Sokolov, M.D., chairman and managing partner of SSB Solutions, Inc.

The Senate Finance initiative to link Medicare payments to performance measures associated with clinical outcomes and supply side management is appropriate and commendable. Unfortunately, in our opinion, this type of payment reform is only one aspect of the major dysfunctionalities in how we deliver health care to our population. Missing from the Senate document is discussion that pricing transparency, ease of access to health information and technology, coordinated approach to episodic care and readily identifiable accountability for the management of a patient’s total health care requirements are fundamental building blocks to any lasting health care reform. The Senate Finance document also proposes for FFS Medicare new Accountable Healthcare Organizations (ACOs), which may well provide the seeds for a health care delivery approach more focused on patient management with payment reform a secondary albeit important consideration. SSB Solutions has a long history of optimizing Medicare payment changes at the Plan, Hospital and Physician Organization level. No matter what the legislative initiative, there will be different strategies to maximize top line revenue for MA Plans: appropriate HCC maximization (capturing accurately clinical severity levels for appropriate payment) and innovative premium/benefit structure (beneficiary product market segmentation, data mining and price point variability). Every change in Medicare legislation has led to winners and losers. Knowing how to optimize the top line, manage unit cost and align incentives has always served our clients well.