By John Wasik
Medicare NewsGroup, May 21, 2013

The debate on whether Medicare Advantage (MA) is reducing health care costs is intensifying.

A recently released analysis of government data by America’s Health Insurance Plans (AHIP), the main health insurance lobby, found that seniors enrolled in MA plans in California and Nevada had better health outcomes than patients enrolled in Traditional Medicare.

The group, in examining data from the Agency for Healthcare Research and Quality (AHRQ), claims that MA patients had fewer readmissions and overall days in the hospital and better control of diabetes and dehydration than Traditional Medicare patients. AHIP said their study revealed that, as compared to Traditional Medicare:

* Hospital days were reduced by 30 percent in California and 23 percent in Nevada for Medicare Advantage beneficiaries;
* MA readmissions in the same quarter for the same condition were 15 percent less in California and 33 percent less in Nevada;
* In both states, MA seniors were 6 percent less likely to be admitted to the hospital for conditions described by AHRQ as “potentially avoidable,” such as dehydration, urinary tract infection, or uncontrolled diabetes;
* MA patients spent an average of 18 percent fewer days in the hospital and had an average of 27 percent fewer visits to the emergency room;
* MA beneficiaries experienced a 42 percent lower rate of hospital readmissions; and
* MA beneficiaries had 13 percent fewer avoidable admissions.

The AHIP study comes on the heels of several government findings that MA is actually proving to be more expensive than Congress intended. In March, a MedPAC report stated that MA cost about 14 percent more person than Traditional Medicare. The Congressional Budget Office has estimated that Medicare will spend more than $54 billion more for MA payments than what it spends for fee-for-service care.

Private insurers currently serve about 27 percent of Medicare recipients. Instead of running a fee-for-service model, they employ managed care and often offer more covered services than Traditional Medicare. The current MA program started in 2003 with the Medicare Modernization Act; before that law, there were Medicare HMOs. The theory behind introducing managed care to Medicare was that closer attention to patients with chronic diseases and a capping of provider expenses would lower overall costs.

GAO Report Found Overpayments

Earlier this year, Bloomberg reported that Medicare was considering an $11 billion cut in MA payments but that it was rebuffed after an intense, faux grassroots lobbying effort by the health insurance industry. That was after the Government Accountability Office (GAO) discovered that MA providers were overpaid by up to $5 billion from 2010 to 2012. The GAO, criticizing Medicare’s “risk scores” for calculating payments, presented the findings to the Centers for Medicare & Medicaid (CMS), which did not comment.

The health insurance industry, represented by AHIP, welcomed the rate-cut rescission. In a statement, Karen Ignani, AHIP president, said:

“By being responsive to the more than 160 members of Congress from both parties who raised concerns about the impact of the proposed payment rate on seniors, CMS has taken an important step to help stabilize Medicare Advantage at a time when the program is facing significant challenges. We are currently reviewing the final rate announcement and will continue to work with policymakers in both parties to strengthen this critically important part of Medicare that provides high-quality, affordable coverage to more than 14 million   seniors and people with disabilities.”

AHIP had argued that trimming MA subsidies would have hurt beneficiaries by cutting benefits and raising premiums from $50 to $90 per month. In mounting a multistate, multimedia campaign, AHIP persuaded more than 40,000 MA recipients to call Congress to oppose the cuts.

New Study Charges Overbilling

On the other side of the MA debate, a physicians’ group is charging that MA providers are overbilling. According to a recent study by Physicians for a National Health Program (PNHP), a Chicago-based group advocating for a single-payer health system, Medicare overpaid private carriers $282 billion between 1985 and 2012. The group studied payments to Medicare Advantage insurers and predecessors.

The PNHP study claims that managed care has resulted in excessive billing to Medicare that pays private insurers based on estimated annual costs per patient, which was around $10,000 in 2012. But the study’s authors assert that the insurers have consistently found ways to game the system, including:

* The selective enrollment of healthier beneficiaries before 2004, or what PNHP calls “old cherry-picking.” Under the previous payment formula that was in effect until 2004, Medicare paid private plans a premium that was risk-adjusted only for a few demographic factors, such as age, gender, disability, Medicaid eligibility (a proxy for poverty), and whether an enrollee resided in a nursing home. Hence a healthy 70-year-old man would be charged the same premium as his sicker 70-year-old neighbor. Private plans used marketing, benefit design, enrollment office location, and other techniques to recruit the healthier and discourage  the sicker seniors from enrolling.
* Gaming of Medicare’s more complex risk-adjustment scheme, known as Hierarchical Condition Categories (HCCs). Since 2004, private plans have been selectively enrolling beneficiaries with very mild cases of the medical conditions included in the HCC risk-adjustment formula. Such patients have, on average, substantially lower costs than the risk-adjusted premium payment that Traditional Medicare pays the private plan on their behalf. PNHP refers to this as “new cherry-picking.”
* Congressionally mandated overpayments included in the 2003 Medicare Modernization Act (MMA), such as duplicate payments for indirect medical education. The provisions that generated these overpayments were tacked onto the MMA after heavy lobbying by the private insurance industry.
* Bonus payments from the $8.3 billion CMS Medicare Advantage Quality Bonus Payment Demonstration, an expansion of the $3 billion in quality bonuses contained in the Affordable Care Act (ACA). This demonstration awards bonuses to plans covering more than 90 percent of MA beneficiaries and offsets more than one-third of the cuts to MA overpayments mandated by the ACA between 2012 and 2014. According to the GAO, the demonstration is so poorly designed that it will generate almost no useful findings to improve quality.
* Duplicate payments for private plan members who receive all or part of their care at Veterans Health Administration facilities. Medicare pays the private plan a full premium payment no matter how much of a patient’s care is delivered (and paid for) by the Veterans Affairs (VA). In an extreme case, a senior might receive all care at a VA, making the premium given to the private plan pure profit. In 2009, 8.3 percent of all MA enrollees were enrolled in the VA.

How will the CMS act on the GAO and PNHP reports? Will it seek a further revision in its MA payment program? Or will it defer action indefinitely? At the very least, the Department of Health and Human Services Office of Inspector General should examine the payments and provide another level of oversight.

If government auditors verify the PNHP’s claims, it may undermine calls to further privatize the system. What if insurers are deliberately recruiting younger, healthier recipients into their plans? How then do MA beneficiaries compare to the general Medicare population? What do these MA plans spend on marketing?

Given the growing toxic environment in Washington and the fact that MA has become a political football, it’s unlikely t
hat the CMS or Congress will act before the 2014 elections, delaying a closer look.

John Wasik writes for The Medicare NewsGroup.

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