Radar on Medicare Advantage

Confirming a tie-up that had been rumored for months, CVS Health Corp. on Feb. 8 revealed that it struck a $10.6 billion deal to buy Oak Street Health, which owns primary care centers catering to Medicare-eligible patients. Executives of the two firms say the benefits of the proposed transaction abound for both CVS Health and Oak Street — including having the potential to help CVS Health-owned Aetna retain Medicare Advantage members — but industry observers say the acquiring firm still faces a bevy of risks as it seeks to incorporate multiple new care delivery assets.

During CVS Health’s conference call to discuss fourth-quarter and full-year 2022 financial results, CEO Karen Lynch and Mike Pykosz, Oak Street’s president, discussed the merits of the deal at length.

Each year, Deft Research surveys a panel of Medicare beneficiaries to better understand consumer decision making during the Medicare Annual Election Period (AEP) and help carriers and their partners strategize for the next plan year. Deft’s 2023 Medicare Shopping and Switching Study, the latest in the firm’s Senior Market Insights Service series, features responses from more than 3,000 seniors who were surveyed immediately after the AEP and an additional 1,800 individuals who were surveyed regularly during the October-December period.

While the overall switching rate among seniors shopping during the AEP was relatively unchanged from prior years at 11%, Deft observed that switching by Medicare Advantage beneficiaries reached 15%, up from 12% seen in the prior two periods. That wasn’t surprising given that Deft’s AEP Gut Check Study from July 2022 suggested seniors’ frustration with plan-offered flex cards and interest in Part B giveback benefits might inspire them to shop around.

Two weeks ago, CMS in its 2024 Advance Notice projected that Medicare Advantage organizations can expect an average estimated change in revenue of 1.03%, when accounting for underlying factors. Although the industry had been bracing for a much smaller rate increase than the robust 8% CMS predicted this time last year, a deeper dive into the notice has plan sponsors and providers understandably concerned about potential rate reductions. That’s largely because the annual rate notice, which often includes proposed changes to the risk adjustment model used to determine plan payments, proposes a substantial redesign of the model.

“This is the most radical change to the risk adjustment model since it started,” asserts risk adjustment consultant Richard Lieberman, who estimates that the Part C CMS-Hierarchical Condition Categories (HCC) model has gone through “four major iterations” since it was first used to adjust plan payments in 2004. One significant change in the proposed 2024 CMS-HCC model is that it has 115 payment HCCs, up from 86 in the current model, which was updated in 2020. In addition, CMS proposed moving from using ICD-9 diagnoses codes to the “more commonly used” ICD-10, as well as shifting to more recent underlying fee-for-service (FFS) Medicare data years to reflect 2018 diagnoses and 2019 expenditures (from 2014 diagnoses and 2015 expenditures).

The U.S. will likely save billions of dollars in the first few years of Medicare drug price negotiation — a provision of the Inflation Reduction Act (IRA) — suggests a recent study published in JAMA Health Forum. Acting as though the IRA had been implemented from 2018 to 2020, researchers from Harvard Medical School and Brigham and Women’s Hospital created a simulation of the drug selection process, and found that Part D and Part B drug spending would have been reduced by 5% — $26.5 billion — over those three years.

Overall, 40 drugs were selected. CMS’s criteria are strict — spending on each drug must exceed $200 million in the year prior to its selection, and products must have been on the market for at least nine years (or 13, if the drug is a biologic). Selected therapies cannot have any generic or biosimilar alternatives, and orphan drugs and plasma-derived products are also ineligible. Then, the negotiated price must fall below a drug’s “ceiling price,” which is determined by the lesser of two figures: the average net price of a drug after its existing rebates and discounts, or between 40%-75% of the drug’s nonfederal average manufacturer (non-FAMP) price, depending on the drug’s age.

Medicaid beneficiaries of different races and ethnic backgrounds may not have equal access to non-emergency medical transportation (NEMT), suggests a new study from the Medical Transportation Access Coalition (MTAC). While only a small number of Medicaid beneficiaries use NEMT, it is more common among beneficiaries with complex, costly medical needs. When breaking down NEMT utilization by race and ethnicity, MTAC (staffed by Faegre Drinker Consulting, in partnership with the National Opinion Research Center) found that the number of riders was not proportionate to overall enrollment distribution, which “indicates that NEMT is not serving beneficiaries of different races and ethnicities equally and may suggest a need for focused education about NEMT to certain groups.” Researchers and policymakers should focus on finding and addressing the root causes of these differences, the authors asserted. American Indian and Alaska Native beneficiaries had the highest utilization rates, followed by Black enrollees, then white enrollees.

Medicare Advantage organizations may not have gotten the outcome they were hoping for in CMS’s recently finalized Risk Adjustment Data Validation rule, but industry experts say they weren’t surprised by the position CMS ultimately took after years of pressure to close out RADV audits and recover identified overpayments. And while one aspect of the rule could expose it to litigation and further delay CMS’s attempts to collect overpayments from MAOs, experts say plans still would be wise to sharpen their risk adjustment practices in order to limit their audit exposure.

Issued on Jan. 30, the final rule (88 Fed. Reg. 6643, Feb. 1, 2023) pertains to contract-level audits that CMS began conducting more than a decade ago to verify the accuracy of payments made to MA organizations and recover improper payments. The agency in 2012 said it planned to adopt a “fee-for-service adjuster” to account for any impact from unaudited diagnosis codes in FFS data that are used to calibrate the MA risk adjustment model. But in a November 2018 proposed rule (83 Fed. Reg. 54982, Nov. 1, 2018), CMS said its plans to recoup improper payments would not involve an FFS adjuster and that it may apply an extrapolation methodology when finalizing audits dating back to payment year 2011. The RADV provisions of the 2018 proposed rule received pushback from insurers and were never finalized by the Trump administration.

Three years after states’ annual efforts to verify enrollees’ Medicaid eligibility were paused because of the COVID-19 public health emergency (PHE), states as of April 1 may begin terminating Medicaid coverage for individuals who no longer qualify. States and their managed care partners have been working to update beneficiary contact information for the inevitable return of redeterminations, and Medicaid managed care organizations can play a big role in raising awareness about the process, according to industry experts.

“I think that many members, probably 60% to 70% of folks, are just completely unaware that this is happening, and a lot of other folks just don’t realize the rigmarole they have to go through in order to maintain eligibility,” remarks Jerry Vitti, founder and CEO of Healthcare Financial, Inc., a firm that connects low-income, elderly, and disabled populations with Medicaid and other public benefit programs. “But plans can do mailings, do outreach, and be a connection point to Medicaid agencies where they can get enrolled.” Unfortunately, “they have uneven demographic information on these folks since the population is so transient, but they can reach out to members…and I think plans can do a really good job to build awareness of what’s happening and the implications.”

CMS in its 2024 Advance Notice projected that Medicare Advantage organizations can expect an average estimated change in revenue of 1.03%, when taking into account an average increase in risk scores of 3.3%. Even though analysts expected that rate to fall well below the robust 8% CMS predicted in its preliminary rate notice for 2023, they characterized it as low when excluding the risk scoring trend. The 2024 projection is also based on an effective growth rate of 2.09%, which CMS this time last year estimated would be 4.75%. Additionally, CMS will continue to apply the statutory minimum coding intensity adjustment of 5.9% to offset the effects of higher levels of coding intensity in MA relative to fee-for-service (FFS) Medicare. That coding intensity adjustment generated much discussion in comment letters on the Advance Notice last year. When asked during a Feb. 1 call with reporters why CMS again opted for the minimum adjustment, CMS Deputy Administrator and Center for Medicare Director Meena Seshamani, M.D., Ph.D., told AIS Health: “We continue to analyze and evaluate MA coding patterns, and 5.9% we feel is adequate at this time, and we continue to look at coding pattern differences, how we set that pattern adjustment [and] how that’s applied…in future years as well.” The preliminary rate notice also included technical updates to the risk adjustment model, including a reliance on condition categories from the ICD-10 classification system (instead of the ICD-9 system) and a shift to more recent underlying FFS data years to reflect 2018 diagnoses and 2019 expenditures.

Medicaid managed care organizations this year will have their hands full as they support state efforts to resume eligibility redeterminations and try to help members avoid gaps in coverage, or “churn” historically associated with failing to meet cumbersome paperwork requirements. At the same time, MCOs may have more opportunities to address health-related social needs (HRSNs) as CMS encourages states to pursue new funding flexibilities around items like food and housing, industry experts tell AIS Health, a division of MMIT.

As a condition of receiving enhanced federal matching funds during the COVID-19 public health emergency —which will end on May 11 — states had to maintain continuous coverage for Medicaid enrollees. But the Consolidated Appropriations Act of 2023 (CAA) decoupled that requirement from the expiration of the PHE. Per the CAA, the temporary 6.2 percentage-point increase in the Federal Medical Assistance Percentage will phase down over three quarters starting on April 1, when states may begin terminating Medicaid coverage for individuals who no longer qualify. States have up to 12 months to begin — and 14 months to complete — eligibility redeterminations for all individuals enrolled in Medicaid.

After a lackluster 2022 open enrollment season characterized by churn associated with its external marketing channels, Humana Inc. is touting above-industry growth after the 2023 Annual Election Period (AEP) that concluded last month. Presenting at the 41st Annual J.P. Morgan (JPM) Healthcare Conference in San Francisco, Humana Chief Financial Officer Susan Diamond said investments in the company’s products, sales channels and other aspects of its Medicare Advantage business are helping it “get back to an industry leading position” and achieve double-digit percentage enrollment gains this year.

According to the latest monthly enrollment data posted by CMS, MA now enrolls more than 30.6 million individuals, including more than 25 million in individual MA plans. That data reflects enrollment as of the Jan. 1, 2023, payment date (i.e., enrollment accepted through Dec. 2, 2022). Those figures do not reflect the full outcome of the AEP, which ran from Oct. 15 through Dec. 7, and are lower than CMS’s projection of 31.8 million for 2023, pointed out Citi’s Jason Cassorla in a Jan. 17 investor note. “[W]e expect enrollment to rise in the final 5 days of AEP and subsequently grow throughout 2023 considering both age-ins” and the Open Enrollment Period that runs from Jan. 1 through March 31, he wrote.