Health Care Law Reform : Health Care Lawyer & Attorney : McDermott Will & Emery Law Firm : Managed Care, Product Regulations

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.

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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

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