Risk Adjustment

Favorable selection associated with beneficiaries choosing Medicare Advantage — which now enrolls more than half of Medicare beneficiaries — in combination with more intense diagnostic coding by plans is leading to increased MA payments that may not accurately reflect the costs of providing care to those beneficiaries, asserts the Medicare Payment Advisory Commission (MedPAC) in its latest report to Congress. And the independent advisory body has some new takes on potential payment policies that aim to lessen the impact of favorable section by moving away from predictive-cost benchmarking that is based solely on fee-for-service (FFS) Medicare spending.

Friday Health Plans Management Services Company, Inc. is in the death throes of its life as an Affordable Care Act exchange insurer — regulators are stepping in to take over its operations, and it’s laying off all employees in its home state of Colorado. Meanwhile, Bright Health Group, Inc., which has already exited every ACA exchange in which it operated, reached a deal to sell its California Medicare Advantage plans to Molina Healthcare, Inc. in order to satisfy Bright’s creditors.

Experts tell AIS Health, a division of MMIT, that both insurers largely followed the same playbook: raising massive amounts of funding from venture capital (VC) investors and promising to delight customers with tech-driven, differentiated products. But those big plans fell apart when faced with the realities of an industry that is especially challenging to disrupt, and then capital infusions dried up when interest rates rose.

As Medicare Advantage organizations prepare for the next bid cycle, each year seems to bring its own set of factors that threaten their ability to stay competitive amid potential cost increases. For the 2023 plan year, the expiration of COVID-related adjustments and expected decline in quality bonus payments had plans considering modest benefit enhancements. For the 2024 plan year, maintaining stable benefits and premiums amid anticipated rate cuts and uncertainty around Medicare Part D trends is the name of the game, according to actuaries who helped plans submit bids that were due on June 5.

After proposing substantial revisions to the CMS-Hierarchical Condition Categories (HCC) risk adjustment model that insurers argued would result in rate reductions, CMS on April 3 opted to phase in the changes starting with 2024. CMS at the time estimated that plans would, on average, see a 3.32% increase in risk adjusted revenue, although that will vary broadly by plan. CMS also estimated the combined impact of the risk model revision and fee-for-service normalization could reduce payments by 2.16%. However, given that the agency will apply a blended method to calculate risk scores next year, plans could see a 4.44% overall risk score trend.

Over the next few years, Medicare Advantage organizations face a host of new requirements around the use of prior authorization (PA), including recently finalized policies that take effect next year. While some of the changes promulgated by CMS aim to curtail the use of PA, they’re not likely to satisfy lawmakers who are keeping a close watch on the MA industry, especially as the program serves more and more seniors.

For one, the proposed 2022 Interoperability and Patient Access Rule, which was first issued in 2020 and later updated to include MA organizations and new implementation timeframes, establishes various application programming interfaces (APIs) for the sharing of patient information. That rule also aims to automate certain PA functions with the implementation of a Fast Healthcare Interoperability Resources Prior Authorization Requirements, Documentation, and Decision API.

Whether Medicare Advantage insurers like it or not, a host of changes are coming their way that will impact risk adjusted revenue starting in 2024 and could have downstream effects on beneficiaries and providers. The forthcoming overhaul of the CMS-Hierarchical Condition Categories (HCC) risk adjustment model, which will be phased in over three years starting in 2024, was arguably the hottest topic over four days of sessions at last month’s Fourth National Medicare Advantage Summit, where industry experts’ views on the model ranged from supportive to reproving.

MA plans next year can expect to receive, on average, a 3.32% increase in risk adjusted revenue, driven in part by an underlying coding trend of 4.44%, CMS estimated in a fact sheet on the final 2024 MA and Part D rate notice. With that notice, CMS finalized plans to remove thousands of diagnosis codes mapped to HCCs for payment, transition to the use of ICD-10 codes and update the underlying fee-for-service (FFS) Medicare data years. CMS has explained that the new model is intended to reflect the cost of care more accurately by using the more commonly used ICD-10 system and addressing discretionary coding (i.e., upcoding) that leads to wasteful spending.

As the industry prepares for a comprehensive overhaul of the model used to determine Medicare Advantage insurers’ risk-adjusted pay, the three largest MA organizations signaled during recent earnings calls that they are well positioned for the changes.

Reporting first-quarter 2023 financial results on May 3, CVS Health Corp. beat Wall Street expectations of $2.09 per share with adjusted earnings per share (EPS) of $2.20, largely driven by better-than-expected membership in the health care benefits segment despite a year-over-year increase in medical loss ratio. Total revenues increased 11% from the first quarter of 2022 to reach $85.2 billion, fueled by growth across all segments, while the health care benefits segment (Aetna) generated revenues of $25.9 billion, up from $23.1 billion a year ago. Medical membership grew sequentially by 1.1 million members to a total of 25.5 million lives as of March 31, reflecting increases across all product lines including growth of 900,000 enrollees in the Affordable Care Act exchange business.

If the federal government decreased payments to Medicare Advantage plans — something of a boogeyman for insurers in recent years — would seniors see higher premiums and a reduction in the availability of supplemental benefits? That’s a question a new study published in the April 2023 issue of Health Affairs aimed to answer, to mixed results.

Using a nationally representative sample of both MA and traditional Medicare data from 2012 to 2019, researchers sought to estimate the impact of changes in MA benchmark payments on plan premiums, member cost sharing and supplemental benefit availability. (One of the study’s four co-authors is Harvard University’s Michael Chernew, Ph.D., chair of the Medicare Payment Advisory Commission, which has long argued that MA plans are overpaid relative to traditional Medicare.) The benchmark is an annual payment established by CMS to determine the maximum amount that Medicare will pay an MA plan for providing services to each member. The amount is calculated based on traditional Medicare costs in a given service area and is adjusted based on member health status and the plan’s individual offerings. If an MA plan's bid is below the benchmark in its county, the difference is returned to the plan and can be used to provide supplemental benefits and/or lower premiums. If the bid is above the benchmark, the plan must cover the additional cost or pass it on to members in the form of higher premiums or cost sharing.

On April 18, the U.S. Supreme Court will hear oral arguments in a case that has major implications for government contractors, including health insurers, which are generally subject to a host of complicated regulations and can face federal fraud allegations for knowingly violating those rules.

Major insurer trade group AHIP recently teamed up with the American Hospital Association (AHA) to file an amicus brief arguing that a ruling in favor of the government’s position in two consolidated cases — U.S. ex rel. Schutte v. SuperValu Inc. and U.S. ex rel. Proctor v. Safeway, Inc. — “would create a Wild West of ramifications for any well-intentioned and legitimate hospital or insurance provider that seeks to serve Americans in partnership with the government.” 

For payment year 2024, Medicare Advantage plans can expect to receive, on average, a 3.32% increase in risk adjusted revenue, compared with the 1.03% increase CMS projected in its Advance Notice released on Feb. 1. That’s largely because the agency opted to phase in its controversial changes to the CMS-Hierarchical Condition Categories (HCC) risk adjustment model, rather than fully implement it next year, after considering feedback from stakeholders. Still, some organizations remain concerned about the potential impact the new model will have on certain high-risk populations.

According to a fact sheet about the 2024 MA and Part D rate notice, which was released on March 31, two key components of the agency’s forecast changed: (1) a revenue decline stemming from the risk model revision and fee-for-service (FFS) normalization changed from -3.12% to -2.16%, and (2) the underlying coding trend is now expected to be 4.44%, compared with a previous estimate of 3.30%. CMS noted in the fact sheet that unlike in previous years’ estimates, it could not provide a separate update on the FFS normalization factor “because there is considerable interaction between the impact of the MA risk adjustment model updates and the normalization factor update.”

A recently introduced bipartisan bill seeks to reduce Medicare Advantage plan overpayments by eliminating financial incentives to “upcode,” or make beneficiaries appear sicker than they may be in the name of higher Medicare reimbursement. Introduced by Sens. Bill Cassidy, M.D. (R-La.) and Jeff Merkley (D-Ore.), the No Unreasonable Payments, Coding or Diagnoses for the Elderly (No UPCODE) Act would eliminate those incentives by: developing a risk adjustment model that uses two years of diagnostic data instead of just one year; excluding diagnoses collected from chart reviews and health risk assessments for risk adjustment purposes; and including an adjustment that fully accounts for the impact of coding pattern differences between traditional Medicare and MA.