Summary: Private investors have devised and exploit clever mechanisms to obtain massive payments and outlandish profits from Medicare. These manipulations started with Medicare Advantage, and now threaten traditional Medicare via Direct Contracting Entities. DCEs must be stopped.
Medicare Advantage, Direct Contracting, and The Medicare āMoney Machineā Part 1 & Part 2, Health Affairs Blog, September 27 & 28, 2021, by Richard Gilfillan Donald M. Berwick
In this two-part post, we ā¦ explain the perverse MA business model that underlies this elevated level of investment, and we will explore its connection to the Direct Contracting model now being tested by CMS. The story is complex, but we think it is worth telling because the stakes for beneficiaries, the public treasury, and our health care system are very high. This business model is distorting health care delivery, creating excessive costs for taxpayers and Medicare beneficiaries, draining the Medicare Trust Fund, obstructing the badly needed value transformation of American health care, and diverting the money needed to fund other social services and goods. ā¦
The Medicare Payment Advisory Committee (MedPAC) has documented approximately $140 billion in MA overpayments over the past 12 years. MedPAC further concludes that risk adjustment overpayments are currently increasing [and may rise to $355 billion over the next eight years]. ā¦
Given an Orwellian title, Direct Contracting, launched by Center for Medicare and Medicaid Innovation (CMMI), was anything but direct. āIndirect Contractingā would have been a far more accurate name, since the cornerstone of the program was CMSās opening the door to non-provider-controlled āDirect Contracting Entities (DCEs)ā to become the fiscal intermediaries between patients and providers.
Comment:
By Jim Kahn, M.D., M.P.H.
Why are investors paying $87,000 per ācovered lifeā for Medicare-focused health companies? Thatās more than seven years of care costs for one beneficiary. Whereās the profit to justify those prices?
Thatās the question that this very important Health Affairs blog addresses. It lays out in gory detail just how cleverly corporate investors have refined techniques to influence and manipulate Medicare rules to massively profit, thereby threatening the principles and finances of this valued program. My comment today is long, to provide a proper tour of the blogās major points.
Part 1 focuses on Medicare Advantage. Thatās the part of Medicare in which private insurance companies set up care networks and serve as financial intermediaries.
āUpcodingā is the name of the game. The secret to high profits is to exploit the diagnostic coding system set up to adjust for differences in clinical severity (and costs) between traditional fee-for-service Medicare and Medicare Advantage. The diagnosis codes used to design this system years ago relied on sparse coding practices, mainly of more severe disease instances. Now codes have multiplied. Medicare Advantage companies actively seek and add diagnoses ā even minor or equivocal ones ā to gain the high payments. And thus they earn much higher premium payments from Medicare, even several times higher.
This strategy has three versions: (1) Pay Providers for Submitting More Codes, (2) Share the Risk Premium with Providers, and (3) Own the Providers. Option 3 is the most profitable, but requires buying up providers. Thatās exactly whatās happening. And thatās why the valuations are so high.
Part 2 focuses on āDirect Contracting Entitiesā or DCEs. DCEs are the mechanism devised by the Center for Medicare and Medicaid Services (CMS) to bring private insurers and investor-controlled provider firms ā those driving Medicare Advantage profiteering ā into traditional Medicare. CMS structured DCEs very similarly to Medicare Advantage, to ease the transition.
And, indeed, DCEs provide several routes for participating companies to manipulate clinical severity coding to raise payments and profits. These include changing the codes prior to DCE entry and allowing re-coding for several years for a large category of DCE entrants.
The scope is huge. Initial DCE contracts with investor (not provider) owners will reach 60% of traditional Medicare beneficiaries.
The effects for beneficiaries will be hassles. Payment arrangements will be more complicated, with a role for the DCE, CMS, and Medigap.
Thus, magically, seniors who chose traditional Medicare will find themselves in a Medicare Advantage-like situation.
And maybe headed to Medicare Advantage. DCE enrollees may be recruited into Medicare Advantage owned by the same company. The company has a huge incentive to make life in the DCE less attractive.
All of these contractual details are complicated and confusing. Iām confused, and I think about this for a living. The complexity is not a bug, itās a feature ā provide lots of room to maneuver, and obscure whatās really going on.
Who wins? Investors. āFrom early April, 2010 through the end of August, 2021, the average stock price for five MA-focused insurersāUnited Health, Humana, Cigna, Anthem, and CVS/Aetnaāincreased 825 percent (compared to 280 percent for the entire S&P 500).ā
The authors offer a long list of policy solutions. As readers of HJM know, Iām not a big fan of ACOs. But their other suggestions resonate. For example:
- Replace the defective risk adjustment system, so that it canāt be manipulated through upcoding to shift tens of billions of dollars in profits to investors and deplete the Medicare Trust Fund. There are alternatives, such as the Medicare Beneficiary Survey.
- End DCEs. Or, if they must continue, drastically lower the scale to just enough for testing, and then use the results to decide what to do. And limit DCEs to provider-owned, not insurer-owned, companies.
The huge Medicare health insurance ship is headed in the wrong direction. Letās turn the rudder toward traditional Medicare, traditionally implemented, and then on to an improved Medicare for All.
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