As MAOs Consider Benefit Cuts, Risk-Bearing Providers Should Take Heed

As Medicare Advantage and Part D sponsors prepare their bids for 2025 amid revenue challenges, benefit cuts and other changes that plans are contemplating to maintain margins will undoubtedly trickle down to Accountable Care Organizations (ACOs) and other entities that take risk in MA. As a result, risk-bearing providers should be asking tough questions of their plan partners and conducting internal analyses to understand where their revenue stands to be impacted, according to value-based care experts.

From the transition to v28 — the new version of the Part C CMS-Hierarchical Condition Categories (HCC) model that will make it harder for plans and providers to apply more codes for risk adjustment — to increased inpatient utilization, a -0.16% drop in MA plans’ base pay and other changes, risk-bearing providers are bracing for a “perfect storm” of events in MA that will require preparation, said Zach Davis, a Wakely actuary who helps ACOs manage insurance risk, during a LinkedIn Live session recorded on April 24.

While MA plans will not be impacted equally by changes to the HCC model or the effective growth rate (one component of plans’ projected MA revenue increase next year), “growth rates pretty directly influence plan revenue,” observed Kelsey Stevens, principal and senior consulting actuary with Wakely. “It’s not 1 to 1, but the implication here — when you have a low growth rate — is we believe trends are going to be higher than that revenue increase, so it’s just unfortunately a headwind…and all indications are that these headwinds are going to continue.”

CMS for the 2025 plan year projected a net revenue increase of 3.70%, which assumed that MA risk scores will increase by 3.86% on average and did not improve from CMS’s preliminary rate projection, despite insurers reporting higher-than-expected medical expense in the fourth quarter of 2023.

For “MA risk-bearing providers, maybe in the past it was OK to kind of hope for the best, code well, [and] agree to the standard contracts that are presented to them by payer partners,” she said. “Now is the time to stop settling for that. You need to start having conversations with your plan partners to make sure you understand what their plan is moving forward…where is the 1.0 bid moving.”

One question for providers to consider, she added, is: what were plans’ medical loss ratios (MLRs) prior to their provider settlements? That’s because plans must price the expected impact of provider risk sharing and capitation arrangements into their bids.

“Let’s say, for example, that a plan expects costs to be really high and MLRs to be really high, but they have global/full risk contracts with all of their providers where they pass off 85% of revenue. Then, they would price in the expected receivables they plan to get from the provider partners and the results would look like they expect to perform at exactly 85%,” Stevens explains to AIS Health, a division of MMIT. She recommends that ACOs inquire about expected MLRs prior to assuming those receivables. “This would tell the provider more about their expectations as the risk bearing entity,” she says.

Meanwhile, select national insurers during recent earnings calls have hinted at reducing benefits in 2025 to strike a balance between growth and margins. As plans contemplate those changes, “I would just urge…MA risk-bearing ACOs to be having these conversations with your payer partners, talk to them about what are they doing for 2025 pricing season. Do you understand what’s in the benefit package for the 2024 pricing season and how has your percent of premium changed or not as a result of different benefit packages being offered?” Stevens asked during the webinar.

That may be easier said than done, however, as plans don’t readily give up such information. “Plans should be very open and transparent with providers because that is how great partnerships work,” argues Stevens in a follow-up interview. “The more providers understand what is going on, the better questions they can ask, and the better they can understand the risk they are taking on. It is not in the best interest [of] plans to just pass risk at an unfair target as that could lead to provider burnout/network disruption.”

Jason Silberberg, a partner with Frier Levitt’s health care litigation section and co-chair of the firm’s value-based care litigation group, recommends that all risk bearing providers perform an internal audit. In full risk arrangements, for example, there’s usually a “reserve fund that’s a percentage of the capitation payments,” he explains to AIS Health. “Take a look at what [MA organizations] have been drawing down upon, and if they see any unusual activity…they should have a discussion with their MAO liaison…or contact their health care counsel to see whether or not they have any sort of audit rights under their agreement.”

Another headwind facing MAOs, Silberberg points out, is the extrapolation of audit results to determine recovery amounts in Risk Adjustment Data Validation (RADV) audits, which controversially will not include a fee-for-service adjuster that CMS had once promised would be used. “All of this is just sort of a guess based on my experience, but to the extent MAOs are tightening their belts, and they’re looking for ways to, for the lack of a better term, nickel and dime providers to gird the MAO’s reserves against contemplated future RADV clawbacks…there’s more reason, I would say, for providers to be vigilant about all of the chargebacks and drawdowns from the reserve funds under these full risk contracts,” he said. “It’s a good time for them to really scrutinize their books and to ask some hard questions of the MAOs if they see something amiss.”

From a contract renewal perspective, “it kind of stands to reason that those MAOs who are concerned about being in the crosshairs of these large audits would seek to reduce…from a payment model perspective, the percentage of premium they may be paying the providers,” he adds. “Unfortunately for providers, even very large providers, consolidation is such within the Medicare Advantage market space that leverage is difficult to come by. So, that’s definitely something that could be coming down the pike as well for the same reasons.”

ACOs Should Watch Interplay Between Parts C, D

Risk-bearing entities should also consider the pressures MA insurers are experiencing in Part D, the Wakely speakers pointed out. Next year is a pivotal year for Part D redesign resulting from the Inflation Reduction Act. Beneficiaries will have their annual Part D out-of-pocket expenses capped at $2,000 and plans’ share of catastrophic coverage phase costs will increase from 20% in 2024 to 60% in 2025. With that plan liability increasing, “your liability as an ACO, if you take Part D risk, is going up a lot,” said Stevens. “But CMS understands this and is going to pay more to plans a result of the increased liability” through the direct subsidy, which will be determined after plans submit their bids, she explained. While more liability could mean more revenue for risk-bearing providers, “the flipside of that is there’s going to be winners and losers. The [Part D] risk adjustment model will change, and risk adjustment models are never perfect; they don’t do a perfect job of predicting plan liability.”

Even for ACOs that don’t take risk in Part D, it will be critical for them to understand the impact of that increased liability. “Because the Part C and the Part D bid interact, there will be implications on your health plans’ Part C revenue because of this whole IRA shift in plan liability and government subsidies, so just understanding how all of this is impacting your percent of premium…will be a really important question to ask your payer partners,” Stevens said.

Davis emphasized the importance of performing a member-level or cohort analysis, especially on the Part D side. ACOs have no control over the formulary, which plans can use to steer members toward more cost-effective therapies, but a cohort analysis would allow them to assess their profit and loss for each RxHCC, he said, referring to the model used to adjust Part D plans’ risk scores based on the relative health of their members.

“Where one [condition category] may show a big loss, if they drill into what’s causing that loss and it’s three drugs — [e.g.] two of which are generic and one is brand, and that brand drug just doesn’t get compensated correctly…after incorporating revenue from the risk adjustment model,” the ACO could dig into the data further, he suggested. And if it finds out which clinics, for example, are prescribing the brand drug, it can provide them with actionable and clinically relevant information to facilitate switching to the generic.

Contact Silberberg at jsilberberg@frierlevitt.com or Stevens at kelseys@wakely.com.

© 2024 MMIT
Lauren Flynn Kelly

Lauren Flynn Kelly Managing Editor, Radar on Medicare Advantage

Lauren has been covering health business issues since the early 2000s and specializes in in-depth reporting on Medicare Advantage, managed Medicaid and Medicare Part D. She also possesses a deep understanding of the complex world of pharmacy benefit management, having written AIS Health’s Radar on Drug Benefits from 2004 to 2005 and again from 2011 to 2016. In addition to her role as managing editor of Radar on Medicare Advantage, she oversees AIS Health’s publications and manages the health editorial staff. She graduated from Vassar College with a B.A. in English.

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