Strategizing to Operationalize the Medicare Advantage and Part D Final Rule

by Anne W. Hance, Joel L. Michaels and Kate McDonald

CMS’s February 12, 2015 final rule further implements the last of the programmatic changes initially set out in the January 2014 proposed rule.  Prompt attention and advance planning will facilitate Medicare Advantage Organizations’ and Part D Plan Sponsors’ implementation of requirements effective for contract year 2016.

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CMS Creates Permanent Open Enrollment Period for High-Quality MA Plans

As part of its continued efforts to incentivize Medicare Advantage (MA) Organizations to achieve a 5-star quality rating, the Centers for Medicare and Medicaid Services (CMS) announced the creation of a special enrollment period (SEP) to permit enrollment into 5-star rated MA Plans at any time during the benefit year.

The SEP will be available beginning in calendar year (CY) 2012 to all Medicare beneficiaries who:

1)  Are enrolled in an MA Plan with a quality rating of 4.5 stars or less, or enrolled in traditional Medicare fee-for-service and eligible to enroll in an MA Plan, and
2)  Reside in the service area of a 5-star rated MA Plan. 

MA Plans with a quality rating of 4.5 stars or less seem to be limited to enrolling Medicare beneficiaries during the annual election period or a beneficiary’s initial enrollment period or another SEP.  Thus, in addition to competing for new members with 5-star MA Plans in the same service area, MA Plans with a 4.5-star or less rating will be vulnerable to potentially losing members during the year.

A copy of the Health Plan Management System (HPMS) memo regarding the SEP can be found here.  Additional guidance on this SEP is expected in the CY 2012 Call Letter. 

What This Means
This new SEP is one of several benefits for 5-star MA Plans in CY 2012, in addition to higher quality bonus payments and enhanced access to MA rebate dollars.  All MA Organizations, and particularly those serving areas in which other 5-star MA Plans are operating, need to be identifying and implementing changes to enhance their quality rating. 

Next Steps
CY 2012 star ratings, issued in Fall 2010, are based on data collected in 2009 and 2010.  Thus, MA Organizations should focus on quality improvement activities that will positively impact 2011 data elements, and thus CY 2013 and CY 2014 star-quality ratings, such as provider-driven elements and other beneficiary “touch points” evaluated under the surveys that contribute to star-quality ratings

Law Imposes Requirement to Report and Return Medicare and Medicaid Overpayments Within 60 Days

New requirements contained in the health care reform legislation increase the pressure on health care providers, suppliers, Medicare Advantage and Part D Plan sponsors, and others to return identified Medicare and Medicaid overpayments in a timely fashion, at risk of being alleged to have violated the False Claims Act. 

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Continuing Capitol Hill Debate on Medicare Advantage Proposals

The Facts

Medicare Advantage (MA) Program changes, among other Medicare-related provisions, have appeared in drafts of jobs legislation under development on Capitol Hill. Select proposals include the following:

  • The formula for calculating the CY 2011 national per capita MA growth rate, for purposes of updating CY 2011 benchmarks, would be amended to provide a 0 percent update to the physician fee schedule conversion factor.
  • The Centers for Medicare and Medicaid Services (CMS) would be authorized to extend to Direct Contract MA Organizations CMS’s waiver of service area requirements available to local coordinated care plans offering 800-Series MA Plans with Members residing outside of the service area
  • Special Needs Plans serving dual eligible individuals where the sponsoring MA Organization does not have a contract with the applicable state Medicaid agency, as required under § 1859(f)(3)(D) of the Social Security Act, would be permitted to operate through CY 2011, although the service areas of such plans would not be eligible for expansion.

Senate Majority Leader Harry Reid (D-NV), however, elected to move forward with draft legislation that excludes all health-related provisions. These proposed MA Program changes, among other health-related proposals, may be included in this bill, or another piece of legislation, later this month.

What’s at Stake

The proposal to modify the national per capita MA growth rate would neutralize the cut in the Medicare physician fee schedule that is statutorily required to be incorporated into MA Plan benchmarks.

Steps to Consider

MA Organizations should continue to monitor and analyze proposed changes to CY 2011 benchmarks as CY 2011 MA Plan bid submissions are developed in advance of the Monday, June 7, 2010 bid submission deadline.

House and Senate Bills Call for Medical Loss Ratios for Insurers

The Facts

Both the Senate and House health reform bills would impose Medical Loss Ratio (MLR) requirements on insurers. MLR measures the percentage of an insurer’s premium revenue spent on health care services. In the House bill, the Secretary of HHS would have to establish the MLR at or above 85 percent. Any issuer with a lower MLR would have to provide “rebates to enrollees of the amount by which the issuer’s medical loss ratio is less than the level so specified.” The House bill also would impose MLR requirements on Managed Care Organizations (MCOs) and Medicare Advantage Plans (MA Plans). The Senate bill is less onerous for insurers because the MLR is currently set at 80 percent and state taxes would be excluded from the MLR determination. Note, however, that potential revisions to the Senate bill reportedly include a 90 percent MLR. In the House bill, the MLR provision would expire January 1, 2013 (excepting the MA Plan and MCO requirements), while the Senate’s would remain in effect until December 31, 2013. 

What’s at Stake

Health insurance issuers could potentially be forced to provide significant rebates. The cost of these rebates will greatly depend on which costs are excluded from the MLR determination. Also, the MLR provisions in the House bill applicable to MA Plans and MCOs have no sunset provisions, thus increasing their potential long-term impact.

Steps to Consider

  • Follow the legislation closely because it is a very fluid process, and assess its impact.
  • Understand the impact of the proposed MLR requirements and be prepared to adapt quickly to their requirements.
  • Closely analyze which details are left to the Secretary of HHS to define by regulation. The rulemaking process will provide an opportunity for advocacy, should MLR provisions be enacted.

Medicare Advantage Plan Payments Remain a Target for Cuts

The Facts

The Senate’s Patient Protection and Affordable Care Act mirrors the Senate Finance Committee’s proposal to modify local Medicare Advantage (MA) Plan payments by moving to an enrollment-weighted average competitive bidding system.

Currently, local benchmarks reflect Adjusted Community Rate for each county, as updated annually over the past several years.  To calculate Plan payments, MA Organizations annually submit bids for their plan benefit packages that are compared to the benchmark for the county/counties in the Plan’s service area. 

Under the Senate bill, by CY 2015, benchmarks would equal enrollment-weighted averages of local MA Plan bids for the service area.  A ceiling would be established in each area so that local benchmarks could not exceed the levels that would have existed under current law.

What’s at Stake

The Senate proposal is markedly different from H.R. 3962, which would phase in benchmarks equal to the adjusted average per capita cost estimate payable under traditional Fee-For-Service Medicare.  Importantly, the House bill would initiate the transition beginning with the 2011 benefit year, as compared to the Senate proposal, which would initiate the transition with the 2012 benefit year.

Steps to Consider

The Senate bill is estimated to reduce MA Plan payments by $118 billion between 2010 and 2019, the traditional 10-year cost estimate period.  The Congressional Budget Office estimates that H.R. 3962 would reduce MA Plan payments by $170 billion in the same period.

In anticipation of these reforms, MA Organizations should begin to analyze their plan benefit packages, provider payment arrangements and member populations, and to discern the extent to which they can modify operations and/or develop and implement new initiatives.

House Reform Legislation Would Modify Medicare Advantage Benchmarks and Impose New Administrative Cost Standards for MAOs

The Facts
Among the proposals set out in the draft health reform legislation introduced by Democrats from three key committees of the U.S. House of Representatives are provisions to significantly modify the Medicare Advantage (MA) Program, including:

  • Benchmarks and Payment Rates: Beginning in 2011, the benchmark upon which MA Plan payment rates are calculated would be modified to reflect average per capita costs under traditional Medicare fee-for-service for the applicable service area. This would affect MA Plan payment rates as well as the potential scope of supplemental benefits MA Plans would offer.

    The legislation would provide up to 1% increases in the applicable benchmark for “high quality” MA Plans. Such “high quality” MA Plans would be identified based upon HEDIS data and consumer (CAHPS) surveys until the Secretary establishes a new metric to assess the quality of care available through MA Plans.

    The Secretary’s authority to implement coding intensity adjustments in the determination of MA Plan payment rates also would become permanent.
  • Administrative Costs: The Centers for Medicare and Medicaid Services (CMS) would be required to publish annually MA Plans’ medical loss ratios (MLRs), risk-adjusted per enrollee payment and average risk score.

    CMS also would be required to audit MA Organizations’ (MAOs) administrative costs to assess MAOs’ compliance with the applicable requirements of the Federal Acquisition Regulations that apply to other government contractors.

The House bill also would mandate that CMS create an office or program designed to improve the coordination of benefits for dual-eligible beneficiaries, modify components of the Medicare Part D Program, and enhance the Secretary’s and CMS’s authority sanction MAOs and Part D Plan Sponsors that engage in (or contract with an individual or entity that engages in) prohibited marketing activities, among other activities.

What’s at Stake
As part of the reform process, the Democratic majority within the U.S. House of Representatives appears determined to make quality of care offered to MA enrollees a focus through increased performance reporting and corresponding payment adjustments. Additional obligations – including public reporting of MLRs and compliance with the FAR administrative cost requirements – will increase MAOs’ costs to participate in the Program.

Steps to Consider
In addition to monitoring the potential downward adjustments to the MA benchmarks, MAOs should consider the potential implications associated with the proposed requirements, such as:

  • Competitive position in light of enhanced public reporting
  • Costs of complying with new reporting requirements
  • Potential risks of non-compliance with marketing and administrative cost provisions

Senate Health Care Reform Policy Options: Medicare Advantage

The Facts
On April 29, 2009, the Senate Finance Committee released the first of three anticipated health reform option papers. The Committee’s white paper includes four proposals to “promote quality, efficiency and care management” in the Medicare Advantage (MA) Program: modifying the MA Plan payment system, increasing payments for chronic care management, linking payment to quality and simplifying the supplemental benefits offered to Members.

What’s at Stake
The Committee sets out two alternate reform proposals for the MA Plan payment system that would take effect beginning in 2012. One approach would reduce the existing benchmarks to which MA Plan bids are compared, and the other would change the methodology by which the benchmarks are determined to that used in the Medicare Part D Program. The Committee also proposes to pay bonuses for evidence-based care management programs for chronic conditions. A Medicare Advantage Organization (MAO) that does not currently target chronic illnesses with care management activities should consider implementing such programs now so that it only has to incorporate adjustments to receive the bonus payment. Finally, the Committee proposes to tie a portion of MA Plan payment rates to quality performance. An MAO would need to ensure that its processes for collecting and submitting data are refined to capture all relevant data that may affect quality measures, and thus payment. 

Steps to Consider
The changes are proposed to take effect in 2012, meaning MAOs would have to position themselves to respond to the changes in time for the June 2011 bid submission deadline. In anticipation of these or similar reforms, an MAO should begin to analyze its plan benefit packages, provider payment arrangements and member population, and to discern the extent to which the MAO can modify its operations and/or develop and implement new initiatives. Health care providers can identify those MA Plans that represent a material portion of the providers’ patient population and initiate a dialogue to explore potential new areas of collaboration that will help improve quality outcomes while managing costs.