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Appendix C: Executive Summary – Medicare and the Health Care Delivery System Medicare Payment Advisory CommissionExecutive Summary–As part of its mandate from the • Paying for primary care using a per beneficiaryCongress, each June the Commission reports on payment—The current FFS-based primary care bonusrefinements to Medicare payment systems and on program expires in 2015. We consider an option to continueissues affecting the Medicare program, including additional payments to primary care practitioners, but inbroader changes in health care delivery and the market the form of a per beneficiary payment. The current FFSfor health care services. In the seven chapters of this approach encourages volume. A per beneficiary approachreport we consider: could help encourage care coordination.• Synchronizing Medicare policy across payment • Medicare payment differences across post-acutemodels—In 2012, a third payment model, the accountable settings—Medicare’s payment rates often vary forcare organization (ACO), became available in addition treating similar patients in different settings, such asto the traditional fee-for-service (FFS) and Medicare inpatient rehabilitation facilities (IRFs) and skilledAdvantage (MA) payment models. A major issue is that nursing facilities (SNFs). We examine three conditionsMedicare’s payment rules and incentives are different and and assess the feasibility of paying IRFs the same rates asinconsistent across the three payment models. To address SNFs for those conditions.that issue and start to synchronize Medicare policy acrosspayment models, we examine setting a common spending • Measuring the effects of medication adherence onbenchmark—tied to local FFS spending— for MA plans medical spending for the Medicare population—Weand ACOs. examine the effects of medication adherence for patients with congestive heart failure (CHF) and find that greater• Improving risk adjustment in the Medicare medication adherence is associated with lower medicalprogram—Risk adjustment is currently used to ensure costs, but that effect is dependent on the beneficiaries’that Medicare’s payments track the expected costs of previous health status, decays over time, and is sensitivebeneficiaries. We examine three models for improving to the specifications of the model. In an online appendixhow well risk adjustment predicts cost for the highest cost (available at http://www.medpac.gov), as required byand lowest cost beneficiaries and suggest that, given the law, we review CMS’s preliminary estimate of the updatelimitations of those models, administrative measures may to payments under the physician fee schedule for 2015.be needed to better calibrate payments to expected costs. Synchronizing Medicare policy across• Measuring quality of care in Medicare—Current payment modelsquality measures are overly process oriented, toonumerous, may not track well to health outcomes, and Historically, Medicare has had two payment models:are a burden on providers; they may not be appropriatefor each of the payment models discussed in Chapter 1. traditional FFS and MA. Traditional FFS pays for individualWe examine which approaches to quality measures would services, according to the payment rates established by thebe appropriate to each payment model and consider using program. By contrast, under MA, Medicare pays privatepopulation-based outcome measures (e.g., potentially plans capitated payment rates to provide the Part A andavoidable admissions for the FFS population in an area) Part B benefit package except hospice. Starting in 2012,to evaluate and compare quality within a local area across Medicare introduced a new payment model: the ACO. UnderMedicare’s three payment models. Provider-specific the ACO model, a group of providers is accountable for thequality measures may still be needed for FFS payment spending and quality of care of a group of beneficiariesadjustments. attributed to them. The goal of the ACO program is to give groups of FFS providers incentives to reduce Medicare• Financial assistance for low-income beneficiaries— spending and improve quality, similar to the incentivesWe discuss how changing income eligibility for the given to private plans under the MA program.Medicare Savings Programs could help low-incomeMedicare beneficiaries afford outof- pocket (OOP) costs A major issue is that Medicare’s payment rules and qualityunder a redesigned Medicare FFS benefit package. improvement incentives are different and inconsistent60 THE PHYSICIANS FOUNDATION
across the three payment models. There are various A related issue is how risk-adjustment inaccuraciesapproaches to making those rules more consistent. From affect equity among MA plans, FFS Medicare, and ACOs.the program perspective, the Commission is examining If payment equity among these three payment modelssynchronizing policy across payment models with respect is a goal, risk adjustment that results in more accurateto spending benchmarks, quality measurement, and payments for high-cost and low-cost beneficiaries isrisk adjustment and will be examining synchronizing vital. For example, if the MA sector can attract low-costregulatory oversight. The Commission is also interested beneficiaries (for which Medicare overpays) and avoidin the beneficiary perspective on synchronizing policy high-cost beneficiaries (for which Medicare underpays),across payment models, including how beneficiaries learn the risk-adjusted payments in the MA sector would exceedabout the Medicare program, choose plans, and respond what their enrollees would cost in ACOs or FFS Medicare.to financial incentives. In Chapter 2, we investigate alternative methodsChapter 1 represents the Commission’s initial exploration discussed in the literature for improving how well riskof synchronizing Medicare policy across payment models adjustment predicts costs for the highest cost and lowestand is not intended to be a definitive or comprehensive cost beneficiaries. We examine three models and finddiscussion. In this initial analysis, we focus on setting that all three would introduce some degree of cost-a common spending benchmark—based on local FFS based payment into the MA program, which could reducespending—for MA plans and ACOs as a key element of incentives for plans to manage their enrollees’ conditionssynchronizing Medicare policy across payment models. to hold down costs. The Commission concludes thatUsing an analysis of early results from the Pioneer ACOs, because of the limitations of these models, administrativewe illustrate that no single payment model is uniformly measures may be needed to better calibrate payments toless costly than another model in all markets across the expected costs.country. Which model is less costly and which ACOsand MA plans may want to enter the program would be Measuring quality of care in Medicaresensitive to how benchmarks are set. The Commission is considering alternatives to Medicare’sImproving risk adjustment in the Medicare current system for measuring the quality of care providedprogram to the program’s beneficiaries. A fundamental problem with Medicare’s current quality measurement programs,Health plans that participate in the MA program receive particularly in FFS Medicare, is that they rely primarilymonthly capitated payments for each Medicare enrollee. on clinical process measures for assessing the quality ofEach capitated payment has two parts: a base rate, which care provided by hospitals, physicians, and other types ofreflects the payment if an MA enrollee has the health status providers, measures that may exacerbate the incentives inof the national average beneficiary, and a risk score, which FFS to overuse services and fragment care. As well, someindicates how costly the enrollee is expected to be relative of the process measures are often not well correlated toto the national average beneficiary. The purpose of the risk better health outcomes, there are too many measures, andscores is to adjust MA payments so that they accurately reporting places a heavy burden on providers. In Chapterreflect how much each MA enrollee is expected to cost. 3, we examine which approaches to quality measurement are appropriate for each of the three payment models inCurrently, Medicare uses the CMS–hierarchical Medicare: FFS Medicare, MA, and ACOs. We discuss ancondition category (CMS–HCC) model to risk adjust MA alternative to the current measurement system: usingpayments. This model uses beneficiaries’ demographic population-based outcome measures (e.g., potentiallycharacteristics and medical conditions collected into avoidable admissions for the FFS population in an area)hierarchical condition categories to predict their to evaluate and compare quality within a local areacostliness. But, although it is an improvement over past across Medicare’s three payment models. We considermodels, the CMS–HCC model predicts costs that are a small set of measures that would be less burdensomehigher than actual costs (overpredicts) for beneficiaries to providers and directly related to health outcomes. Awho have very low costs and lower than actual costs populationbased approach could be useful for public(underpredicts) for beneficiaries who have very high reporting of quality for all three models and for makingcosts. These prediction errors can result in Medicare payment adjustments within the MA and ACO models.paying too much for low-cost beneficiaries and notenough for high-cost beneficiaries. These underpayments A population-based outcomes approach may not beand overpayments raise an issue of equity among MA appropriate for adjusting FFS Medicare payments in anplans. Plans that have a disproportionately high share of area because FFS providers have not explicitly agreed tohigh-cost enrollees may be at a competitive disadvantage be responsible for a population of beneficiaries. Therefore,relative to those whose enrollees have low costs. at least for the foreseeable future, FFS Medicare will needThe Medicare Program: An Instrument and Target of Health Care Reform 61
to continue to rely on provider-based quality measures to physicians and other health professionals compared make payment adjustments. We find current provider-level with procedurally based services. That undervaluation quality measurement technology may not be sufficiently has contributed to compensation disparities: Average developed to support payment adjustments for all compensation for specialist practitioners can be more providers in all settings; for example, it may not address than double the average compensation for primary care the full range of physician services. We discuss steps practitioners. Such disparities in compensation could that Medicare could take in the short term to improve its deter medical students from choosing primary care provider-based quality measurement programs. practice, deter current practitioners from remaining in primary care practice, and leave primary care services at Financial assistance for low-income risk of being underprovided. While Medicare beneficiaries Medicare beneficiaries generally have good access to care, in both patient and physician surveys, access for beneficiaries seeking new In Chapter 4, we discuss how changing income eligibility primary care practitioners raises more concern than for the Medicare Savings Programs (MSPs) could help access for beneficiaries seeking new specialists. low-income Medicare beneficiaries afford OOP costs under a redesigned Medicare FFS benefit package. The With the goal of directing more resources to primary care Commission has made two previous recommendations and rebalancing the fee schedule, the Commission made on this issue: a recommendation in 2008 for a budget-neutral primary • The first recommendation, from 2008, was for the care bonus payment, funded by a reduction in payments Congress to align the MSP income eligibility criteria for non–primary care services. The Patient Protection and with the Part D low-income drug subsidy (LIS) criteria, Affordable Care Act of 2010 created a bonus program, but effectively increasing the full Part B premium subsidy it was not budget neutral and thus required additional to beneficiaries with incomes up to 150 percent of the funding. The program provides a 10 percent bonus federal poverty level. MSPs provide financial assistance payment for primary care services provided by primary with the Medicare Part B premium for beneficiaries with care practitioners, from 2011 through 2015. incomes up to 135 percent of the poverty level. Medicare’s Part D prescription drug benefit incorporates a subsidy The primary care bonus program expires at the end structure that provides assistance to beneficiaries with of 2015. The Commission believes that the additional incomes up to 150 percent of the poverty level. payments to primary care practitioners should continue. • The second recommendation, from 2012, was to redesign the FFS benefit package to balance two main goals: first, give While the amount of the primary care bonus payment beneficiaries better protection against high OOP spending, is not large and will probably not drastically change the and second, create financial incentives for them to make supply of primary care practitioners, it is a step in the better decisions about their use of discretionary care. right direction. However, the Commission has become Because reducing beneficiaries’ OOP costs (deductibles, increasingly concerned that FFS is ill suited as a payment copayments, or coinsurance) at the “point of sale” could mechanism for primary care. FFS payment is oriented undermine their incentives to make cost-conscious toward discrete services and procedures that have a decisions about the health care they use, the redesigned definite beginning and end. In contrast, ideally, primary FFS benefit package does not eliminate those costs. care services are oriented toward ongoing, non-face- Without additional help, Medicare beneficiaries with toface care coordination for a panel of patients. limited incomes could have difficulty paying those OOP costs. Increasing the MSP income eligibility In Chapter 5, we consider an option to continue the criteria to 150 percent of the poverty level would additional payments to primary care practitioners, but provide additional financial assistance to lower income in the form of a per beneficiary payment. Replacing the beneficiaries by fully subsidizing their Part B premium, primary care bonus payment with a per beneficiary thus giving them resources to pay their OOP costs at payment could help move Medicare away from the point of service. It therefore represents a targeted an FFS volume-oriented approach and toward a and efficient approach to help low-income beneficiaries. beneficiarycentered approach that encourages care Chapter 4 also provides examples of variation in MSP coordination, including the non-face-to-face activities eligibility across states. that are a critical component of care coordination. In Per beneficiary payment for primary care The Commission establishing a per beneficiary payment for primary has a long-standing concern that primary care services care, the Commission has considered several design are undervalued by the Medicare fee schedule for issues: practice requirements for receipt of the payment, attribution of beneficiaries to primary care practitioners,62 THE PHYSICIANS FOUNDATION and funding.
Site-neutral payments for select conditions improve health outcomes and has the potential to reducetreated in inpatient rehabilitation facilities and the use of other health care services. At the same time,skilled nursing facilities improved adherence increases spending on medications. This issue has led to a proliferation of research on policiesSite-neutral payments reflect the Commission’s position that that encourage better adherence to medication therapythe program should not pay more for care in one setting than (e.g., reduced patient cost sharing) and the impact ofanother if the care can safely and effectively be provided in improved medication adherence on health outcomes,the lower cost setting. In previous reports, the Commission typically measured by the use of other health carehas recommended site-neutral payments for certain services services.across the physician fee schedule and the hospital outpatientdepartment payment system, as well as for select patients In Chapter 7, we examine the effects of medicationacross long-term care hospitals and acute care hospitals. adherence on medical spending for the Medicare population. We examine how changes in cohort definitionsIn Chapter 6, the Commission focuses on site-neutral and model specifications affect estimated effects onpayment to two post-acute care facilities—IRFs and SNFs— medical spending of Medicare beneficiaries with CHFthat are paid under separate payment systems. Currently, adhering to a medication therapy.payments for similar patients with the same condition candiffer considerably between the two payment systems. Using The results of our analysis show that:several criteria, we selected three conditions frequentlytreated in IRFs and SNFs— major joint replacement, other • Better adherence to an evidence-based CHF medicationhip and femur procedures (such as hip fractures), and regimen is associated with lower medical spendingstroke—and assessed the feasibility of paying IRFs the among Medicare beneficiaries with CHF, but the effectssame rates as SNFs for these conditions. We found that likely vary by beneficiary characteristics (e.g., age).the patients with the two orthopedic conditions were verysimilar across the two settings. Differences in outcomes • Beneficiaries who follow the recommended CHFbetween IRFs and SNFs were mixed, with unadjusted therapies tend to be healthier before being diagnosedmeasures showing larger differences between the settings with CHF than nonadherent beneficiaries, with fewerand risk-adjusted measures generally indicating small or medical conditions and lower medical spending.no differences between the settings. Thus, we find the twoconditions represent a good starting point for a site-neutral • The effects of medication adherence diminish over time.policy. If IRFs were paid under current SNF policy for the twoconditions, net IRF payments would decrease. However, the • The estimated effects of medication adherence oncombined industry-wide effects on total payments to IRFs medical spending are highly sensitive to how they arewould be mitigated because under the design we explored modeled. For example, including whether beneficiariesIRFs would continue to receive add-on payments for the died in the model reduced the effect on health careselect conditions and current IRF payments for the majority spending by half. The magnitude of the effect is alsoof their cases. Patients recovering from strokes were more sensitive to how adherence is defined and the criteriavariable, and we conclude that more work needs to be done used to select the study cohort.to more narrowly define the cases that could be subject to asiteneutral policy and those that could be excluded from it. Although our analysis examined only one condition (CHF) and is therefore not generalizable to other conditionsIf payments for select conditions were the same for IRFs or populations, our findings highlight the difficulty ofand SNFs, CMS should evaluate waiving certain regulations estimating the effects of medication adherence. Thisfor IRFs, such as the requirements for intensive therapy and difficulty may be exacerbated by the more complex healththe frequency of physician supervision. Waiving certain profiles of the Medicare population compared with theIRF regulations would allow IRFs the flexibility to function general population often used in studies of medicationmore like SNFs when treating those cases. This flexibility adherence.would help level the playing field between IRFs and SNFswhen treating patients with the site-neutral conditions.Measuring the effects of medication adherencefor the Medicare populationMedication adherence is viewed as an importantcomponent in the treatment of many medical conditions.Adherence to appropriate medication therapy canThe Medicare Program: An Instrument and Target of Health Care Reform 63
Chapter IV Medicare Modernization and CompetitionSome Reflections on the “State of the State” Introduction—As we indicated at the beginning of the report, Medicare has not only been an instrument for health care system reforms, but is also a target of reform ideas due to growing criticism of the program’s costliness and deeply centralized federal oversight structure. In general, the most persistently argued reform idea for Medicare is to replace the traditional program with a competing, private health plan (PHP) model where beneficiaries would have a choice of plans to enroll in to obtain program benefits. It is argued that PHPs will have the incentives and tools to compete for enrollment by lowering costs and improving benefits and service in ways that the government cannot accomplish. Two variations on these ideas are at work in Medicare today under Part C, the Medicare Advantage program, and Part D, the outpatient drug benefit program. Our purpose in our closing chapter is to invite fresh consideration of the changing context of the Medicare competition discussion, which is where the battleground over the reform of Medicare itself has been conducted. Our interest is prompted by the public investment in and potential enrollment success of the ACA exchanges, and by the growing enrollment of Medicare beneficiaries into the Part C Medicare Advantage and Part D drug benefit plans.64 THE PHYSICIANS FOUNDATION
All three of these approaches are voluntary the requirements of participating in andprivate health plan competition and individual receiving payment for services in theenrollment models, although their legal traditional Medicare program. Yet, as weframeworks, targeted populations, and investigate the topic of introducing strongeroperational contexts are different. Each is competition models into Medicare than Partsframed within federal law, and each is both C and D represent today, we find minimaloperationalized and supervised, to varying consideration of the deeper programmaticdegrees, by the same federal agency, the Centers changes such models might entail, beyondfor Medicare and Medicaid Services (CMS). the highest theoretical level. We don’t have answers, but we have a lot of questions.Each of the three models, the ACA exchanges,and Medicare Parts C and D, have differing CMS Operational Imperatives—As we noted infeatures on important dimensions: target the opening to this report, Medicare is nothingpopulation(s); benefit(s) definitions; reference if it’s not the “nuts and bolts” undergirdingpackages for valuation and premium-setting the vast operations required to almostpurposes; plan bidding rules; government seamlessly ensure that Medicare’s aged andsubsidies for enrollees; financial performance, disabled beneficiaries receive the benefitsrisk-adjustment and payment features for plans; they are entitled to with minimal disruptionsmarket conduct rules for plans, and so forth. An in service. This is a “nuts and bolts” policyexamination of these comparative features is framework and operational process thatoutside the scope of this report. However, all more or less successfully links over 50 millionthree models share one distinguishing feature: beneficiaries with the services of thousandsprivate health plan competition is the central of hospitals, over 880,000 physicians, andfeature, but all three competition models are thousands more care professionals andheavily regulated through varying degrees of entities, such as ambulatory surgery centers,federal and state insurance market oversight, skilled nursing facilities, and home healthand/or Medicare-specific legislative and agencies, nationwide.regulatory requirements. Medicare is costly – over $600 billion inTo the extent these models grow in public spending for 2014, and deeply complex in itsacceptance and participation, it suggests regulatory apparatus. For many health caregrowing public comfort with the concepts of professionals, traditional Medicare regulatorystructured, private health plan shopping and policies, including many added by the ACA, haveenrollment (and disenrollment) programs. We become perplexingly intricate and intrusiveshould note this is a familiar model to federal interventions into the health care system asemployees, whose employer health benefits, CMS seeks to drive improvements in value.provided by a broad roster of competingPHPs, have been offered for many years in a Many policy leaders think there are waysstructured, annual enrollment period, with to improve Medicare’s benefits, and reduceboth paper or secure, government website federal costs and complexity, by substitutingshopping and enrollment options. private plan coverage for Medicare’s directly, federally administered traditional program.From a health care provider perspective, The private plan models of Medicare Part Cthe interactions and arrangements with and D, with modifications, might provide aprivate health plans, including with those pathway for replacement of the traditionalplans competing in Medicare for enrollees, program. The ACA private health insurancecould be fundamentally different from exchange model differs in key particulars The Medicare Program: An Instrument and Target of Health Care Reform 65
from the current Medicare plan options, but good thing, or not? Would new proposals,still provides another pathway. such as the House Republicans’ recently endorsed Medicare reform plan genuinelyBefore we turn to consideration of the current change these regulatory superstructures inpolitical environment, it is helpful to understand the Medicare program?the basic Part C and Part D relationships withthe federal government. In short, competition Are there alternatives that are less regulatorymodels do not imply abdication of federal to consider that would also offer appropriateoversight. Nor, in the case of the Medicare Medicare beneficiary protections? WouldAdvantage program, in particular, does the less regulatory models actually succeedexisting traditional fee-for-service program in attracting plans? Critics of government“go away.” Since the MA plans are offering plans regulation in this context may fail to considerdesigned to cover all the traditional Parts A and that plan participation is voluntary; some mayB benefits, the existing program stands as a not participate absent rules that protect thembulwark reference plan shaping many of the MA from assuming undue financial risk. Regulatoryprogram’s requirements and plans’ payment safeguards cut in interesting directions.levels. The Part D program has a more flexibledesign, but there are still important rules for We simply invite readers to keep thesePart D plans to follow. questions in mind as we turn to brief overviews of the Medicare Advantage and drug benefitIndeed, some might argue that the law and programs. Our goals are simply to highlightregulations governing both programs are certain key elements and data regarding bothmicrocosms of the traditional program programs. We then close our report with aregarding the depth of federal oversight brief discussion on the politics of Medicareand regulation of plan participation, bidding competition going forward, asking “Whoand payment methodologies. And, in fact, Owns Competition Theory?”--Republicans orplans in both programs are contractors to Democrats?the government. Are the same regulatorydynamics inherent in the traditional Medicareprogram operating in the competition models,just through different channels? If so, is it a66 THE PHYSICIANS FOUNDATION
Medicare Advantage Basics “Unlike Medicare FFS, in which contractors process and pay claims, in Medicare Part C, CMS contracts with private organizations, known as Medicare Advantage organizations (MAOs), to offer MA health plans and provide covered health care services to enrolled beneficiaries. CMS pays MAOs a pre-determined, fixed monthly payment for each Medicare beneficiary enrolled in one of the MAO’s health plans. MA plans must provide coverage for all services covered under Medicare FFS, except hospice care, and may also provide additional coverage not available under Medicare FFS. MA plans, with some exceptions, must generally allow all Medicare beneficiaries who reside within the service area in which the plan is offered to enroll in the plan. In addition, MA plans must meet all federal requirements for participation, including maintaining and monitoring a network of appropriate providers under contract; having benefit cost-sharing amounts that are actuarially equivalent to or lower than Medicare FFS cost- sharing amounts; and developing marketing materials that are consistent with federal guidelines. Exceptions include special needs plans (SNP) and employer group plans. SNPs offer benefit packages tailored to beneficiaries who are dually eligible for Medicare and Medicaid, are institutionalized, or have certain chronic conditions. Employer group plans can be offered to employers’ or unions’ Medicare-eligible retirees and Medicare-eligible active employees, as well as to Medicare-eligible spouses and dependants of participants in such plans. Medicare beneficiaries with end-stage renal disease (ESRD) may only enroll in an MA plan if they meet certain criteria. For example, beneficiaries with ESRD may enroll in an MA plan if (1) they were already enrolled in the MA plan when they developed ESRD; and (2) they are eligible for a plan offered by their current or former employer or union that has opted to enroll beneficiaries with ESRD; or (3) they had a successful kidney transplant. (Source: GAO. Contractors and Private Plans Play a Major Role in Administering Benefits. Testimony. March 4, 2014.)”68 THE PHYSICIANS FOUNDATION
Medicare Advantage Contracting and Enrollment— way to access their Part A and B benefits,As we discussed in earlier chapters, the Part D is structured to provide benefits onlytraditional Medicare program is an operating through private organizations under contract tohealth insurance plan and its benefits are Medicare.”(p. 9.) For GAO, the ongoing presence ofdelivered through private contractors to the the traditional program, and the fact that many ofgovernment, carrying out CMS-established the contracting parameters under MA are relatedpolicies and protocols. It may surprise some to to the underlying experience in the traditionalunderstand that PHPs, participating in Medicare plan, appears to make that model something lessAdvantage (MA) and competing against the than a genuine competition design, although thetraditional program for enrollment, are also plans compete against CMS and each other forcontractors to CMS in their MA capacity. Please enrollment, and bear a degree of financial risk.refer to the GAO description of the contractingarrangements between CMS and MA plans. “What-If?”—The MA program raises longer- term “What If” questions. What if MAThe MA program had early structural and plan enrollment levels reached 60, 70, 80-percentpayment problems, but successive legislative penetration levels? Could the MA programand policy adjustments in the MMA (2003) be converted from a voluntary enrollmentand the ACA (2010) have made the program program to a system where beneficiariesmore attractive to plans. Enrollment is steadily were required to choose a private plan?growing, showing increased acceptance and What are the implications for the panoplypopularity with Medicare beneficiaries. of policies and operations currently driving the traditional program, for the MA model,Separately, as GAO notes later in the same report, and for the health care system? Is it correctCMS has significant oversight and administrative to think of today’s MA program as closer toresponsibilities under the MA program: an “administered price” PHP contract with risk parameters, than as a competition model “While contract requirements for MA plans for the future? One might argue that the MA and parameters of the program are largely program shifts operational responsibilities derived from statute, CMS has responsibility away from CMS to MA plans, reducing to implement the program and ensure the support responsibilities CMS would compliance with these requirements. The otherwise have incurred for those enrollees. agency’s responsibilities include, among other things, making monthly payments Separately, can plans achieve or surpass the to MA plans, implementing health status program spending performance achievable adjustments to the payments, establishing under regulation? Under a mandatory plan processes for enrolling and dis-enrolling choice model, would all providers contract beneficiaries, reviewing marketing with plans under negotiated terms? Would materials, providing for independent the government abandon its multiple provider review of coverage appeals, conducting participation, payment systems and models, audits, and enforcing compliance. The and quality standards programs and substitute audits typically involve a combination of “network adequacy” requirements instead? desk reviews of documents submitted by MA plans, and at CMS’s discretion, site visits. To ensure compliance, CMS may take a variety of enforcement actions, ranging from informal contacts offering technical assistance to civil money penalties or plan suspension for egregious or sustained noncompliance.” (p. 9)Interestingly, though, GAO does not characterizethe MA program as a “competition model” in theordinary or purest sense. Rather, it states that“Whereas MA offers beneficiaries an alternative The Medicare Program: An Instrument and Target of Health Care Reform 69
TOTAL MEDICARE PRIVATE HEALTH PLAN ENROLLMENT, 1999-2014 In millions: 15.7 14.4 13.1 11.9 10.5 11.1 9.7 8.4 6.9 6.8 6.2 5.6 5.3 5.3 5.6 6.8 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014% of Medicare 18% 17% 15% 14% 13% 13% 13% 16% 19% 22% 23% 24% 25% 27% 28% 30%BeneficiariesNote: Includes MSAs, cost plans, demonstration plans, and Special Needs Plans as well as other Medicare Advantage plans.SOURCE: MPR/KAISER FAMILY FOUNDATION ANALYSIS OF CMS MEDICARE ADVANTAGE ENROLLMENT FILES, 2008-2014,AND MPR, “TRACKING MEDICARE HEALTH AND PRESCRIPTION DRUG PLANS MONTHLY REPORT,” 1999-2007; ENROLLMENTNUMBERS FROM MARCH OF THE RESPECTIVE YEAR, WITH THE EXCEPTION OF 2006, WHICH IS FROM APRIL.MEDICARE ADVANTAGE ENROLLEES’ OUT OF POCKET LIMITS, 2011-2014 24% 22% 24% 44% $5001-$6700 25% $3401-$5000 27% 30% 24% $2501-$3400 46% $2500 or less 46% 42% 29% Mean 5% 4%out-of-pocket limit 2011 5% 5% 2014 2012 2013 $4,882 Median $4,313 $4,296 $4,317 $4,900out-of-pocket limit $3,400 $3,900 $3,500Notes: Excludes Medicare Advantage plans that do not offer prescription drug coverage, special needs plans (SNPs),employer group health plans, demonstrations, and cost plans. Percentages may not sum to 100% due to rounding.Plans with 4% of enrollees were missing information out-of-pocket limits, including 99% of PFFS plan enrollees, andless than 1% of enrollees in HMOs, local PPOs, and regional PPOs.SOURCE: MPR/KAISER FAMILY FOUNDATION ANALYSIS OF CMS ENROLLMENT FILES, 2014.70 THE PHYSICIANS FOUNDATION
MEDICARE ADVANTAGE ENROLLMENT, BY FIRM OR AFFILIATE, 2014 All other United insurers HealthCare 23% 20%Other national Humana 17% Total Medicare Advantage insurers 5% Enrollment, 2014 = BCBS 15.7 Million Cigna 3% 17% Aetna 7% Kaiser Permanente 8%Note: Other includes firms with less than 3% of total enrollment. BCBS are BlueCross BlueShield affiliates and includes WellpointBCBS plans that comprise 4% of all enrollment (approximately 600,000 enrollees) in Medicare Advantage plans. Other nationalinsurers includes approximately 428,000 enrollees across the following firms: Wellcare, HealthNet, Universal American, MunichAmerican Holding Corporation, and Wellpoint non-BCBS plans . Accounts for merger between Coventry and Aetna in 2013;Medicare Advantage plans offered by Coventry covered 306,000 beneficiaries and Aeta plans covered 615,000 in 2013.Percentages may not sum to 100% due to rounding.SOURCE: MPR/KAISER FAMILY FOUNDATION ANALYSIS OF CMS ENROLLMENT FILES, 2014.SHARE OF MEDICARE BENEFICIARIES ENROLLED IN MEDICARE ADVANTAGE PLANS, BY STATE, 2014 29% National Average, 2014 = 30% 43% 17% 14% 51% 7% 20% 33% 3%38% 33% 36% 15% 35% 30% 35% 6% 34% 13% 39% 20% 14% 22% 38% 15% 36% 13% 16% 24% 24% 16% 15% 26% 24% 7% 29% 9% 19% 13% DC 11% 38% 30% 28% 28% 32% 22% 24% 28%0% 38% 46% < 10% 10% - 19% 20% - 29% 30% - 39% > 40% (15 states) (3 states) (6 states) (12 states + DC) (14 states)Notes: Includes MSAs, cost plans and demonstrations. Includes Special Needs Plans as well as other Medicare Advantage plans.SOURCE: MPR/KAISER FAMILY FOUNDATION ANALYSIS OF CMS STATE/COUNTY MARKET PENETRATION FILES, 2014. The Medicare Program: An Instrument and Target of Health Care Reform 71
DISTRIBUTION OF ENROLLMENT IN MEDICARE ADVANTAGE PLANS, BY PLAN TYPE, 2014 Traditional Medicare HMO 64% Fee-for-service Advantage Local PPO 23% Medicare 30% Regional PPO 8% PFFS 2% 70% Other 3% Total Medicare Advantage Enrollment, 2014 = 15.7 Million Note: PFFS is Private Fee-for-Service plans, PPOs are preferred provider organizations, and HMOs are Health Maintenance Organizations. Other includes MSAs, cost plans, and demonstration plans. Includes enrollees in Special Needs Plans as well as other Medicare Advantage plans. SOURCE: MPR / KFF ANALYSIS OF THE CENTERS FOR MEDICARE AND MEDICAID SERVICES (CMS) MEDICARE ADVANTAGE ENROLLMENT FILES, 2014.COMBINED MARKET SHARE OF THE THREE FIRMS OR AFFILIATES WITH THE LARGEST NUMBER OF MEDICARE ADVANTAGE ENROLLEES IN EACH STATE, 2014 68% 99% 99% 80% 97% 90% 50% 94% 84% 86% 99% 66% 82% 42% 89% 90% 71% 98% 74% 77%69% 88% 75% 69% 89% 100% 99% 81% 93% 91% 87% 91% 85% 95% 94% 70% 86% 83% 96% DC 90% 65% 78% 94% 94% 76% 90% 62% 77%100% 68% 85% < 50% 50% - 74% 75% - 89% > 90% (1 states) (11 states) (18 states) (20 states, DC)SOURCE: MPR/KAISER FAMILY FOUNDATION ANALYSIS OF CMS STATE/COUNTY MARKET PENETRATION FILES, 2014.72 THE PHYSICIANS FOUNDATION
Medicare Part D Basics “Whereas MA offers beneficiaries an alternative way to access their Part A and B benefits, Part D is structured to provide benefits only through private organizations under contract to Medicare. Under the Part D program, which began providing benefits on January 1, 2006, CMS contracts with private organizations called plan sponsors. Part D plan sponsors offer outpatient prescription drug coverage either through stand- alone prescription drug plans for those in original FFS Medicare, or through MA prescription drug plans for beneficiaries enrolled in MA. Through the Part D contracts, plan sponsors offer prescription drug plans which may have different beneficiary cost-sharing arrangements (such as copayments and deductibles) and charge different monthly premiums. Plan sponsors include health insurance companies and pharmacy benefit managers. Although pharmacy benefit managers typically manage prescription drug benefits for third- party payers, some pharmacy benefit managers have contracted directly with Medicare to offer Part D plans. Medicare pays plan sponsors a monthly amount per enrollee independent of each enrollee’s drug use, therefore creating an incentive for the plan sponsor to manage spending. Payments to prescription drug plan sponsors are adjusted according to the risk factors—including diagnoses and demographic factors—of beneficiaries enrolled in a sponsor’s plans. However, sponsors still have an incentive to control spending to ensure it remains below the adjusted monthly payments received from CMS and payments received from enrolled beneficiaries. Sponsors can lower drug spending by applying various utilization management restrictions to drugs on their formularies. The Part D program also relies on sponsors to generate prescription drug savings, in part, through their ability to negotiate price concessions, such as rebates and discounts, with entities such as drug manufacturers, pharmacy benefit managers, and pharmacies. Medicare spending on the Part D program has been lower than originally anticipated. Medicare’s actuaries have attributed lower-than-projected expenditures to a combination of factors, including lower-than-projected Part D enrollment, slower growth of drug prices in recent years, greater use of generic drugs, and higher-than- expected rebates from pharmaceutical manufacturers to the prescription drug plans. The MMA required that plan sponsors offer beneficiaries a standard benefit plan, with specified deductible and coinsurance amounts, or a plan with benefits that are actuarially equivalent to the standard plan. Actuarially equivalent plans have the same average benefit value as the standard benefit plan but a different benefit structure. If a sponsor offers the standard benefit or an actuarially equivalent plan, it may also offer an enhanced plan with a higher average benefit level in the same area. For instance, an enhanced plan may offer lower cost sharing, an expanded formulary, or coverage in the coverage gap. (Source: GAO. Contractors and Private Plans Play a Major Role in Administering Benefits. Testimony. March 4, 2014.)”74 THE PHYSICIANS FOUNDATION
Medicare Part D Contracting and Enrollment— oversight role. As with MA, CMS is responsibleThe Medicare Part D structure is viewed as a for ensuring that the payments it makesmore purely competitive model. The outpatient to plans sponsors are accurate. Given thatdrug benefit did not exist in the Medicare final payments to plan sponsors are based,program until it was enacted in 2003 as a in part, on the price concessions that planstand-alone program. By definition, there was sponsors have negotiated, CMS is responsibleno underlying or residual Medicare program for ensuring that data plan sponsors submitthat had previously set benefit parameters that on price concessions are accurate. CMS alsocreated spending and utilization experience for ensures that plan sponsors submit accuratethe covered population. Please refer to GAO’s information to the Medicare Plan Finderdescription of the contracting arrangements. interactive website, which helps beneficiaries compare different plans and identify the planThe Part D program’s fiscal success has that best meets their needs. CMS overseesexceeded expectations, despite a very complex the complaints and grievances processesstatutory benefit structure relative to coverage and may rely on complaints and grievancesand cost-sharing elements. data to undertake compliance actions against specific plan sponsors. CMS also oversees PartIn closing, once again, it is important to D sponsors’ fraud and abuse programs, whichunderstand that Part D plans are also include compliance plans that must includecontractors to CMS. As GAO states: measures to detect, correct, and prevent fraud, waste, and abuse.” (p. 11).“While CMS contracts with plan sponsorsto offer the Part D benefit, the agency has an STANDARD DRUG BENEFIT IN 2014 Catastrophic 5%* 25% $6,690.77** coverage $2,850 Coverage of 28% $310 for generic drugs Approximately $389 per year† and 2.5% forbrand name drugs, 50% discount forbrand name drugs Coverage of 75% up to limit Deductible Premium Out-of-pocket spending Medicare Part D benefit† Discount/out-of-pocket spending/Medicare Part D benefit††Note: Benefit structure applicable to an enrollee who has no supplementary drug coverage.* Cost sharing above the out-of-pocket (OOP) threshold is the greater of either 5 percent coinsurance or a copay of $2.55 for generic drugs,or $6.35 for brand name drugs.**Equivalent to $4,550 in OOP spending: $310 (deductible) + $635 (25% cost sharing on $2,540) + $3,605 (72% cost sharing for genericdrugs, 47.5% cost sharing for brand name drugs, and 50% manufacturer discount for brand name drugs in the “coverage gap”). The amountof total covered drug spending at which a beneficiary meets the annual OOP threshold depends on the mix of brand name and genericdrugs that the individual fills during the coverage gap. The estimated amount of total drug expenses at the annual OOP threshold for 2014($6,690.77) is for an individual, not receiving Part D’s low-income subsidy (LIS), who has no other sources of supplemental coverage.†There is a base beneficiary premium of $389 per year, which is 25.5% of expected Medicare Part D benefits per person, but the actualpremiums that beneficiaries pay vary by plan. Federal subsidies pay for the remainder of covered Part D benefits.††In 2014, cost sharing for drugs filled during the coverage gap will be 72% for generic drugs (the remaining 28% will be picked up by thePart D benefit) and about 47.5% for brand name drugs. The actual cost sharing amount for brand name drugs will depend on the amount ofdispensing fee charged by a plan since the 2.5% covered by the Part D benefit applies to both the ingredient cost and the dispensing fee,while the 50% manufacturer discount applies only to the ingredient cost.. SOURCE: MEDPAC PAYMENT BASICS, OCTOBER 2013. The Medicare Program: An Instrument and Target of Health Care Reform 75
NUMBER OF MEDICARE PART D STAND-ALONE PRESCRIPTION DRUG PLANS, 2006-2014 1,875 1,824 1,689 1,576 1,429 1,109 1,041 1,031 1,169 2006 2007 2008 2009 2010 2011 2012 2013 2014Note: Excludes plans in the territories. Total for 2014 includes 168 plans under CMS sanction and closed to newenrollees as of October 2013.SOURCE: GEORGETOWN/NORC/KAISER FAMILY FOUNDATION ANALYSIS OF CMS PDP LANDSCAPE SOURCEFILES, 2006-2014.NUMBER OF MEDICARE PART D STAND-ALONE PRESCRIPTION DRUG PLANS, BY REGION, 2014 National Average: 35 PDPs 35 32 OR, WA ME, NH 37 34 33 31 33 ID, UT IA, MN, MT, NE, 36 CT, MA, 34 39 RI, VT ND, SD, WY PA, WV 36 34 34 34 38 37 35 NJ 36 3428 33 35 35 35 36 36 IN, KY DE, DC, MD 36 DC 35 34 AL, TN 33 34 33 35 29 28-33 drug plans (9 regions) 34 drug plans (8 regions) 35 drug plans (7 regions) 36-39 drug plans (10 regions)Notes: PDP is prescription drug plan. Excludes plans in the territories. Includes 168 plans under CMS sanction and closed to new enrollees as of October 2013.SOURCE: GEORGETOWN/NORC/KAISER FAMILY FOUNDATION ANALYSIS OF CMS PDP LANDSCAPE SOURCE FILE, 2014.76 THE PHYSICIANS FOUNDATION
WEIGHTED AVERAGE MONTHLY PREMIUMS FOR MEDICARE PART D STAND-ALONE PRESCRIPTION DRUG PLANS, 2006-2014 Projected$45 $38.29 $38.14 $39.90$40 $37.25 $37.57 $35.09$35 $29.89$30 $25.93 $27.39 2013-2014:$25 5% projected increase$20 2006-2014: 54% increase$15$10$5$0 2006 2007 2008 2009 2010 2011 2012 2013 2014Note: Average premiums are weighted by enrollment in each year. Excludes plans in the territories. Estimate for2014 includes premiums for 168 plans under CMS sanction and closed to new enrollees as of October 2013.SOURCE: GEORGETOWN/NORC/KAISER FAMILY FOUNDATION ANALYSIS OF CMS PDP ENROLLMENT ANDLANDSCAPE FILES, 2006-2014.“What-If?”—Our “What If” question is a little participate and what transitional steps woulddifferent under the Part D model. What if the be required? What would happen to Part DPart D competition model effectively replaced plans—in other words, what reason wouldthe Medicare Advantage model, and plans had there be to allow any single benefit like drugsa much different responsibility for valuing, to be handled outside the comprehensiveproviding and managing comprehensive package?Medicare benefits without regard to thetraditional program, but only with regard to These are interesting and important questionsbenefit, bidding, and contracting requirements, that could be hotly contested in the future. Thatand the competitive success of other plans? leads us to the current political environmentWhat would be the implications for program and the deteriorated state of the Medicarebeneficiaries, for the future of the program, competition model discussion.and for the health care system? Would plans The Medicare Program: An Instrument and Target of Health Care Reform 77
Political Cross Currents Over Health Care premium levels and other elements affecting Competition Models—It is important to first beneficiaries and plans. For one thing, it would acknowledge the enactment of the ACA in likely end uniform national premium structures 2010, and the 2013-14 initial open enrollment in Medicare. Today, because health care costs period for individuals purchasing PHPs through vary widely around the country, Medicare federal or state insurance exchanges. We raise beneficiaries in rural and other lower-cost the ACA in this context simply to highlight it as areas deeply cross-subsidize the costs of a government-directed “competition model- beneficiaries residing in high-cost areas. This in-progress” for delivering health insurance is a complicated issue…just one of many. benefits to a targeted population. The ACA’s initial enrollment period closed with In closing, there are challenging policy and approximately 9 million individuals choosing political cross currents around the ACA’s federal private health plans through the federal and and state government supervised exchanges, state insurance exchanges. This may have and other models, such as the Medicare swollen to about 15 million considering many “premium support” model supported by individuals chose to enroll in ACA-compliant House Republicans. However, for the following plans outside of the exchange framework. reasons, it’s hard in the current environment The ACA’s marketplace/plan competition to clearly categorize major political parties’ model is less than one full year into “boots positions on competition models, or to predict on the ground” implementation. It is too what environmental changes will provide soon to judge how fully successful the ACA’s clarity. It is also not clear in many instances competition model shall be over time regarding of what either protagonists or antagonists of enrollment, costs, benefits, administration and “competition in Medicare” consider the key public acceptance. Nonetheless, it represents ingredients to be. an actively proceeding competition model that could influence future thinking about Who “Owns” Competition Theory?—Most would new models for injecting competition into answer this question by saying the Republican the Medicare program’s benefits and delivery party. However, despite prior support for systems. Early indications are that more competitive private plan models in health PHPs will be competing in the 2014-15 open care and in Medicare, the Republican Party enrollment period than did in the first year. has objected to many features of the ACA. Final “What-Ifs?”—If the ACA model succeeds In particular, it has objected to the federal over time, is it conceivable that Medicare government’s heightened authority over health beneficiaries could also choose private plans insurance exchange functions, and over private through the ACA-based exchanges, or through insurers’ benefit offerings and market conduct. a new Medicare-specific exchange? There are The Democratic Party in the past was often enormous implications, but theoretically, no reluctant to embrace competitive plan models, shifts that could not be thought through and yet became the Party to drive that model to accomplished over time, perhaps in stages. enactment in the ACA, albeit by granting much Separately, all these alternatives treat the stronger federal regulatory oversight over Medicare population as individual enrollees, i.e. insurers (in partnership with states). Yet there as an “individual market” as defined by health has been notable reluctance to go further into a insurers with all the selection factors, premium competition model in the Medicare setting. setting, financial uncertainty and other issues that implies. What if Medicare beneficiaries Most Republican Governor-led states chose were pooled into groups by sub-state, state- to not take control of ACA operations in their level, or regional levels and plans competed to states and defaulted to the national exchange provide group coverage for all beneficiaries at instead of creating a state-based exchange. the chosen pooled group levels? This is an idea This has likely enhanced federal power over that received some attention in the Congress in the ACA’s competition model. Now, more states the past. It has very different implications for are considering, or are actively in the process of, abandoning their state-based exchanges in THE PHYSICIANS FOUNDATION favor of defaulting to the (initially troubled, but increasingly functioning) federal exchange.78
This may be a structurally and politically Terms for private plan participation, benefitimportant development under the ACA. What offerings, and market conduct and consumermight the reversion to an increasingly federal, protections are defined,centrally-directed competition model implyfor the future of the ACA, and for Medicare Beneficiaries’ plan selection and enrollmentcompetition models? processes are facilitated (a de facto exchangeFederal Learning on the ACA’s Dime—Regardless or marketplace),of one’s perspective on the merits of the ACA,the federal government is rapidly gaining Income-related premium subsidies forexperience and lessons in implementing lower-income beneficiaries, and premiumthe ACA. Growing private insurance market surcharges or other adjustments for higher-oversight responsibilities and expertise, income beneficiaries are calculated anddeepened relationships with State insurance administered,regulators and laws, and major investments inexchange technologies theoretically pave the Supplemental insurance plans and duallyway for also administering Medicare under eligible individuals (Medicare and Medicaid)a more truly competitive private health plan are addressed, andmodel than exists today in Parts C and D.The ACA’s initially steep learning curve and Mechanisms are considered for moderatingoperational challenges, now being addressed excess risks (or profits) for PHPs, such asby federal civil servants, could be viewed as an government reinsurance for exceptionallyessential “boot-camp” in developing their future high-cost cases or other policies.ability to execute successfully on a more robustMedicare competition model. Is the ACA health First, all of the above elements are addressedplan competition model effectively paving the in some fashion under the Medicare Part Cway for a federal “Medicare Exchange” system? and Part D plan competition models. TheyIf yes, political ironies abound. also exist as part of the private insurance competition framework under the ACA. TheHouse of Representatives 2015 Budget Republican Majority in the Congress in 2003Resolution—On April 1, 2014, House Budget was largely responsible for changes to theCommittee Chairman Paul Ryan (R-WI) released Medicare Advantage model, and the creationa report entitled The Path to Prosperity: Fiscal of the Part D drug benefit competition modelYear 2015 Budget Resolution, which outlined his (with some bipartisan support). The Democratbudgetary and accompanying policy objectives. Majority in 2010 was responsible for the ACA’sThis report accompanied the Chairman’s Mark, private insurance plan competition model,a budget resolution that, with modifications, the exchange rules and requirements, thepassed the House of Representatives as H.Con. reference benefit packages and plans’ marketRes. 96 on April 10, 2014. There are a number conduct obligations, borrowing heavily fromof significant, but not very detailed, proposals these earlier ideas and programs. Can therelating to the ACA and Medicaid. Importantly, political parties really be so far apart on thesebeginning in 2024, the 2015 House of ideas and how they might be adapted to extendRepresentatives’ budget resolution assumes competition in Medicare?the conversion of Medicare to a fixed federalcontribution (“premium support”) program, When one considers the likely federali.e., a competing private plan system. underpinnings for a premium support model,House Budget Committee Chairman Ryan’s the optics of the House of Representatives’private plan competition model for Medicare, 2024 Medicare proposal could look remarkablyby definition, might require a federal oversight like the key elements of the ACA competitionstructure under which, at a minimum: model now being employed to offer private health plans to non-Medicare individuals. Yet Medicare benefits are defined (a standard the same House budget resolution provides“reference” plan), for full repeal of the ACA’s health insurance exchanges. Conclusion—Having noted these confusing political cross-currents and messages, it is less The Medicare Program: An Instrument and Target of Health Care Reform 79
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