Radar on Medicare Advantage

Physician-administered drugs could catch some windfall due to the Inflation Reduction Act’s Medicare Part D redesign.

Much time and energy has been focused on thinking about how drug pricing, rebating and Part D plan design may shift due to changes set to finish taking effect in 2025, including new caps on enrollee out-of-pocket spend and more liability falling on plans rather than taxpayers.

But a “sleeper issue here is what all of this is going to mean for Medicare Part B drugs,” said Avalere’s Kesley Lang on a January webinar on the health policy outlook for the new year.

“Subpar” Medicare Advantage provider networks are costing the Medicare Advantage industry approximately $23 billion a year, according to Quest Analytics. That was just one of the staggering statistics shared at the 7th Annual Medicare Advantage Leadership Innovations forum, held Jan. 30 and 31 in Scottsdale, Arizona. As speakers discussed common industry themes of health equity, member engagement and quality improvement, the following percentages and dollar amounts helped to illustrate the impact of addressing (or failing to address) these and other health care issues. Click the quote icons below to see what presenters had to say about each one.

After reportedly vying with Elevance Health, Inc. for the purchase of The Cigna Group’s Medicare Advantage business, Health Care Service Corp. (HCSC) will buy Cigna’s MA, Medicare Supplemental, Medicare Part D and CareAllies assets for a total transaction value of $3.7 billion. HCSC has been aggressively growing its MA business through service area expansions; the addition of Cigna’s MA lives would boost its current share of the segment from 0.62% to 2.40%, according to AIS’s Directory of Health Plans.

In a press release unveiling the deal, the Chicago-based insurer said the acquisition will accelerate its growth in “an important market segment” and “bring many opportunities to HCSC and its members — including a wider range of product offerings, robust clinical programs and a larger geographic reach.” HCSC is customer-owned, meaning policyholders and not stockholders are the owners, and it is an independent licensee of the Blue Cross and Blue Shield Association. Its Blues plans currently enroll 204,638 members across five states: Illinois, Montana, New Mexico, Oklahoma and Texas.

For our annual series of outlook stories on the year ahead in Medicare Advantage, AIS Health, a division of MMIT, asked multiple experts what they view as MA organizations’ “keys to success” in 2024 and what critical investments will help them unlock their goals. Responses ranged from using artificial intelligence and other digital tools to improve the member experience to strategically striking value-based agreements with providers.

“If health plans don’t do a good job of educating or empowering the members with information, then the member effort increases, which frequently leads to member churn,” observes Srikanth Lakshminarayanan, senior vice president of the Center of Excellence for Healthcare Engagement Services at Sagility, a tech-enabled business process firm that supports payers and providers. “With MA membership increasing literally day by day, it’s important for health plans to make a conscious effort at doing a good job on member onboarding and retention. People who come out of their commercial plan into a Medicare plan need handholding of a different kind. They often need to know how Medicare works, what’s the supplemental spend, etc.”

Tensions were unusually high at a Jan. 12 meeting of the Medicare Payment Advisory Commission (MedPAC), which is preparing its annual March report to Congress on the state of Medicare Advantage, among other things. While the routine discussion of the commission’s January status report hit several familiar notes — MA is becoming increasingly popular in an industry plagued by consolidation, excessive coding is driving up program costs, and quality bonus payments don’t reflect high quality care — one commissioner called out the group’s perceived lack of neutrality as the industry prepared for CMS’s 2025 Advance Notice.

MedPAC projects that in 2024, the government will pay $88 billion more than it would pay if MA members were instead beneficiaries of fee-for-service (FFS) Medicare, continuing a trend that has proliferated in recent years. These overpayments, MedPAC analysts outlined for the commission, are driven by MA plans’ enrollment of a largely healthy risk pool, which is then subject to “coding intensity” (i.e., the higher coding patterns due to financial incentives that don’t exist in FFS Medicare).

As the first round of fourth-quarter and full-year 2023 financial results were reported by publicly traded insurers in January, modest enrollment growth during the recently concluded Annual Election Period (AEP) and continued utilization pressures were prominent Medicare Advantage themes during earnings calls. Although analysts were particularly concerned with results posted by Humana Inc., which notably moved up its earnings release date, some maintained that the MA-focused insurer remains poised for long-term growth in the sector.

Humana Inc. on Jan. 25 introduced 2024 adjusted earnings per share (EPS) guidance of “approximately $16” — compared with the Wall Street consensus of $29.14. But that was after a regulatory filing indicated that inpatient utilization was higher than expected in the fourth quarter of 2023, primarily during November and December, “as well as a further increase in non-inpatient trends, predominantly in the categories of physician, outpatient surgeries, and supplemental benefits, which emerged with the November and December paid claims data.” Humana’s stock plummeted after the disclosure, and the impact reverberated throughout the managed care sector, denting the share values of competitors including CVS Health Corp. and Elevance Health, Inc.

Medicare Advantage plans next year can expect to receive, on average, a 3.70% increase in risk adjusted revenue, according to the 2025 Advance Notice of payment changes for MA and Part D plans, released on Jan. 31. That’s when taking into account a 2.45% revenue decline stemming from CMS’s phased-in risk model revision and fee-for-service (FFS) normalization, an effective growth rate of 2.44% and an average increase in risk scores of 3.86%, according to a CMS fact sheet. CMS this time last year estimated that plans would see a modest rate increase of 1.03%, but revised that projection to 3.32% for 2024 after deciding to phase in changes to the CMS-Hierarchical Condition Categories risk adjustment model starting this year. CMS said it plans to proceed with the phase-in as described in last year’s rate notice and is “proposing updates to the Part D risk adjustment model to reflect the redesign of the Part D benefit as required by the IRA [Inflation Reduction Act].” CMS requested comments on the proposals by March 1; the final rate notice is expected to be released no later than April 1.

Since integrating physical and behavioral health into its managed Medicaid program beginning in 2016, the state of Washington has not seen significant changes in utilization, quality measures or health outcomes, according to a recent JAMA Health Forum study. Experts tell AIS Health, a division of MMIT, that the study illustrates the challenges associated with integrating behavioral and physical health care that may not be fully apparent until the process begins.

K. John McConnell, Ph.D., the study’s lead author, tells AIS Health that Washington is just one of many states that in recent years have moved away from so-called carve-out models in Medicaid, where one health plan handles physical health and a separate behavioral health organization manages behavioral health. Most states now have carve-in designs where states contract with managed care organizations (MCOs) that are responsible for payment for all health care services for their members.

While publicly traded insurers’ fourth-quarter and full-year 2023 earnings reported thus far have highlighted concerning trends in Medicare Advantage, a new report from Moody’s Investors Services suggests that the MA market even prior to the current climate is showing “signs of weakening.” Nevertheless, with per-member earnings far greater than in other sectors, MA can still be profitable when properly managed and will stay competitive, suggests an analyst with the credit ratings firm.

Among the 10 insurers rated by Moody’s — which account for approximately two-thirds of all MA members — aggregate earnings stemming from MA decreased by 2% from $10.8 billion in 2019 to $10.6 billion in 2022, the most recent year available. During that same period, the aggregate MA earnings margin fell from 4.9% to 3.4% and earnings per member dropped by 28% ($732 to $526). While those earnings remain higher compared to other segments, earnings per member in the Medicaid and commercial segments increased, leading to an overall decline of 2.7% to $216 per member, according to the Jan. 23 Moody’s report.

A recent status report on the Medicare Advantage program presented by analysts with the Medicare Payment Advisory Commission led one MedPAC member to accuse leadership of producing a negative report for partisan political purposes. According to a MedPage Today writeup of a recent MedPAC public meeting, Brian Miller, M.D., of Johns Hopkins University said the report “appears to be slanted to arrive at a foregone conclusion in order to set up and provide political cover” before CMS issues its annual rate notice and “reads like attack journalism.” The report, which was presented on Jan. 12, showed that national market concentration in MA is nearing the Herfindahl-Hirschman Index (HHI) “highly concentrated” threshold, which the Dept. of Justice and the Federal Trade Commission use to review mergers. According to the presentation, the three largest MA insurers combined enroll 58% of MA members and in a typical market enroll roughly 80% of beneficiaries. That report also suggested that MA coding continues to generate excess payments relative to fee-for-service Medicare. Specifically, the MedPAC analysis of CMS enrollment and risk score files estimated that coding intensity will drive payments to MA organizations of $54 billion this year, up from $47 billion in 2023. “It is not lost on me that this discussion is occurring immediately prior to the CMS Medicare Advantage rate notice,” stated Miller, according to a transcript of the meeting. “The Chair has noted that he is in regular communication with CMS leadership. This gives the appearance that MedPAC as an independent and thoughtful policy organization is being hijacked for partisan political aims.” CMS’s annual preliminary rate notice is due out by Feb. 1.