Medicare Advantage Ignorance Can Be Painful

Thursday, April 21, 2016 | Larry Sobal

The Medicare Shared Savings Program (MSSP) and next-gen ACOs are getting all the media attention and headlines. That may explain why I’ve found an alarming number of organizations and physicians who are very uninformed regarding the Medicare Advantage (MA) program and the mechanics by which it functions. Unfortunately, this ignorance comes at a high cost, either through provider-owned health plans losing money or health systems and their physicians losing out on incentive bonuses. 

First, some Medicare Advantage basics. Since the 1970s, Medicare beneficiaries have had the option to receive their Medicare benefits through private health plans, mainly HMOs, as an alternative to original Medicare parts A and B. The Balanced Budget Act of 1997 named Medicare’s managed care program Medicare+ Choice. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 renamed it Medicare Advantage.

Here are some other interesting facts related to Medicare Advantage:

  • MA beneficiaries now number close to 18 million and represent around 31% of all Medicare beneficiaries.
  • Although large investor-owned insurers continue to dominate the market share with providing MA plans (UnitedHealth Group is largest), provider-owned health plans are increasingly becoming MA insurers, with nearly 60% of new MA plans sponsored by a health system.
  • More than 95% of MA plans offer vision, dental or hearing benefits.
  • Eligible individuals can usually choose between multiple MA plan designs, with more than 90% of MA members having a choice of a plan with no monthly premium.
  • The average monthly MA premium for 2015 across all plan types was $62.69 in 2015, which is reasonably small compared to most commercial health plans.

In conclusion, MA plans will be attractive to the more than 10,000 baby boomers who are turning 65 each day in the U.S., especially those who are relatively healthy.

In an era when reimbursement and margins are being squeezed, not being paid for the work that was actually done is a painful form of ignorance.

What I find most interesting is that, with all the emphasis being placed on moving from volume to value, Medicare Advantage has already been operating on a capitated basis for many years (since Medicare pays the health plan a set amount every month for each MA member). In other words, any health plan with an MA population is taking all the risk. And since 2000, CMS pays the MA plan risk-adjusted premiums based on the risk pool served by that plan (or, for new plans, in that plan’s service area) in a prior year. Sure, it has its flaws, but it’s a pretty progressive payment model that should be a great incubator for learning how to manage populations for a fixed fee.

Health care companies offering MA plans (private or provider-owned) can do quite well financially in the MA program. But many organizations are still not optimizing what MA has to offer them. For example, premium payments made by CMS to the MA-sponsoring health plan are based on enrolled beneficiaries’ demographics and health risk characteristics. Medicare uses beneficiaries’ characteristics, such as age and prior health conditions, and a risk adjustment model (the CMS–hierarchical condition category, or HCC) to develop a measure of expected relative risk for covered MA spending. Typically, more than 50% of the payment to the plan is based on the HCCs, so it can easily mean a difference of thousands of dollars a year for each patient.

Therefore, it’s in the best interest of a provider-owned MA plan to work closely with its physicians and hospitals to accurately document patient conditions to impact HCCs, which can dramatically impact how much Medicare pays for you to care for that patient. Or, if the MA plan is operated by a national payer, its contract will likely include attractive incentives to reward providers for capturing that information fully and correctly; however, I repeatedly see organizations that are not working hard to educate their clinicians and staff on the importance of HCCs. This not only has negative financial implications for MA, but HCCs are also the basis for how other plans assess the relative health risk of your patient population. Erroneously low HCCs will cause others to assume that your population is healthier than it really is.

What amazes me is how poorly this is understood and how much money is being left on the table by health plans and providers alike. I’m talking millions of dollars of lost opportunity in many cases. And in an era when reimbursement and margins are being squeezed, not being paid for the work that was actually done is a painful form of ignorance.


Larry SobalLarry Sobal is Executive Vice President of Business Development at MedAxiom. He has a 35-year background as a senior executive in medical group leadership, hospital leadership and insurance. As part of his current role, Larry consults, writes and presents on topics relevant to transforming physician practices and health systems.


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