Monday, January 25, 2016

qotd: Insurance industry gearing up again for more Medicare Advantage overpayments

America's Health Insurance Plans (AHIP)
January 22, 2016
New Report: CMS' Changes to Medicare Advantage Undermine Care for
Beneficiaries Managing Chronic Conditions

With 17 million seniors and individuals with disabilities depending on
the Medicare Advantage program, a report from Avalere Health raises new
concerns about CMS' policies that undermine health plans' efforts to
care for beneficiaries managing multiple chronic conditions. After
assessing the accuracy of CMS' current risk adjustment model and the
cost of care for chronic health conditions, the Avalere analysis found
that the model under-predicts costs for individuals with multiple
chronic conditions by $2.6 billion on an annual basis. These findings
come just weeks before CMS releases its annual proposed payment notice
and call letter for Medicare Advantage and Part D plans, which may
include further changes to the program and seniors' benefits.

In the spring of 2015, CMS finalized changes to the risk adjustment
system, which directly targeted chronic disease prevention programs.
This latest Avalere analysis demonstrates that these changes
significantly limit health plans' early intervention efforts and
seniors' benefits.

"Further cuts to Medicare Advantage and seniors' benefits are
fundamentally at odds with the goal of delivering better care and better
value for beneficiaries," AHIP President and CEO Marilyn Tavenner said.
"Rather than relying on an antiquated fee-for-service approach as the
model for care delivery, CMS should focus on strengthening Medicare
Advantage and the innovative programs that improve seniors' health."

Last year, more than 340 members of Congress, lead by Sen. Chuck Schumer
(D-NY), Sen. Mike Crapo (R-ID), Rep. Patrick Murphy (FL-18), and Rep.
Brett Guthrie (KY-02), urged CMS to protect seniors' coverage and
provide stability to the program. Ahead of the upcoming February rate
notice, more than 2 million seniors from AHIP's Coalition for Medicare
Choices have mobilized, urging Washington to defend the Medicare
Advantage program from further payment cuts.


Avalere Health
January 2016
Analysis of the Accuracy of the CMS-Hierarchical Condition Category Model

From the Executive Summary

Since 2000, the Centers for Medicare & Medicaid Services (CMS) has
adjusted Medicare Advantage (MA) capitated payments for demographic
characteristics and health status (also known as "risk adjustment"). In
2004 CMS adopted the Hierarchical Condition Category (HCC) risk
adjustment model, which includes a series of patient diagnoses that
impact healthcare spending. In 2014, CMS introduced a new version of the
model that removed certain conditions, added others, and made additional
modifications (hereafter referred to as the "2014 model").

In this project, Avalere assessed the accuracy of the 2014 model for
beneficiaries in the traditional Medicare program with certain common
chronic conditions by using Medicare fee-for-service (FFS) claims data
to compare predicted healthcare costs with actual healthcare costs.

In summary, we estimate that the 2014 model under-predicts costs for
individuals with multiple chronic conditions by $2.6 billion on an
annual basis (see Table 1). As a result, because the model is "zero
sum"—that is, the values for each condition are relative to the average
cost across all individuals—under-prediction for individuals with
multiple chronic conditions is balanced by over-prediction of costs for
individuals with no chronic conditions.

On October 28, 2015, CMS announced proposed changes to the MA risk
adjustment model that the agency believes will improve its predictive
power for low-income beneficiaries. Specifically, CMS intends to further
refine the model by accounting for both dual eligible/low-income subsidy
(LIS) eligible and disabled status.

(W)e intentionally used a different disease classification system from
the HCC model groupings in order to independently assess how well the
model predicts costs for specific chronic diseases.

Table 1. Predictive Accuracy for Beneficiaries with Multiple Chronic

Total Estimated MA Over/Under- Prediction of Expenditures ($ millions)

Multiple Chronic Conditions (All) $ (2,613.7)
Multiple Chronic Conditions (Dual/LIS-eligibles) $ (401.8)

The purpose of risk adjustment is to anticipate systematic differences
in costs for groups of individuals so that plans are reasonably
compensated for the financial risks they bear. If plans are not
accurately compensated for taking on the risk associated with a
particular group, it creates a misalignment between payments and costs
for higher cost beneficiaries, and under-compensates plans that enroll
many chronically ill members. For any particular individual, the model
may over- or under-predict actual costs, in some cases by a wide margin;
every dollar of under-predicted cost is balanced by a dollar of
over-predicted cost.

From the Detailed Findings

Analysis for Multiple Chronic Conditions

We reviewed how well the model predicts expenditures for individuals
with multiple chronic conditions in order to determine how well payments
to MA plans would be risk adjusted for the clinical severity of their
patient populations under the 2014 model. As shown in Table 3, we find
that the model under-predicts costs by approximately $2.6 billion for
individuals with three or more chronic conditions. We also find that the
model over-predicts disease burden for individuals without chronic

Table 3. Predictive Accuracy for Members with Chronic Conditions; All
Members and Dual/LIS-Eligibles

Total Estimated MA Over/Under- Predictions ($ millions)

All Members

Multiple (3+) Chronic Conditions $ (2,613.7)

Few (1-2) Chronic Conditions $ 936.2

No Chronic Conditions $ 1,677.50


Multiple (3+) Chronic Conditions $ (401.8)

Few (1-2) Chronic Conditions $ 599.8

No Chronic Conditions $ 582.9

From the Conclusion

We reviewed the accuracy of the new CMS-HCC model at predicting costs
for individuals with multiple chronic conditions, and paid particular
attention to how well the model predicts costs for high cost
individuals. We find that the CMS-HCC model substantially under-predicts
costs for individuals with multiple chronic conditions, under-predicts
costs for several specific chronic conditions, and does not accurately
predict costs for high cost individuals within each chronic condition.

These findings suggest the model may need improvements and modifications
in order to appropriately pay for high cost members and individuals with
multiple and certain single chronic conditions. In other words, the
model may not be adequately compensating health plans for treating these


Comment by Don McCanne

For the past four years, the private insurance industry, led by their
lobby organization - AHIP, has been successful in offsetting the
reductions in overpayments that have been made to the private Medicare
Advantage plans - reductions that are required by the Affordable Care
Act. AHIP has now commissioned Avalere to produce a study that
purportedly shows that they will need higher capitation payments than
the CMS's risk adjustment program would allow. The release of this study
is the first step in their campaign to, once again, offset the decreases
required by ACA.

A program to authorize private Medicare Advantage plans (originally
Medicare + Choice plans) was authorized by Congress as a move to
eventually completely privatize Medicare once the private plans were
able to show that they could deliver higher quality at lower costs.
Early on the concept was proven a fraud when the plans successfully
marketed their plans selectively to healthy Medicare beneficiaries,
while being compensated at levels equivalent to the costs of those in
the traditional fee-for-service (FFS) Medicare program who had greater
health problems.

In response, CMS developed a risk adjustment program that would pay more
when the Medicare Advantage plans enrolled beneficiaries with greater
health care needs, based on their diagnoses. The private plans then
responded by upcoding the diagnoses of their enrollees, making them
appear much sicker than they were. They even went to the point of
sending out teams to make detective house calls so that they could add
more diagnoses that were not being itemized by the providers.

In 2004, CMS adopted the Hierarchical Condition Category (CMS-HCC) risk
adjustment model, which does adjust payments upward for those with
greater needs, but it still fails to prevent about four-fifths of the
excessive payments.

With pressure from AHIP, and with the support of Congress, CMS used
various innovative methods to boost the payment rates for these private
plans. This year, they seem to be headed towards a claim that they are
being paid much less for high cost patients than the actual costs entailed.

Look at Table 1 in the Executive Summary (the only part that legislators
read). Based on current CMS risk adjustment methods, they predict that
the calculated costs for beneficiaries with multiple chronic conditions
will fall short of actual costs by $2,614 million. They are now
campaigning to have those costs added to their reimbursement rates for

But look at Table 3 which is found in "Detailed Findings" (which most
will not read). It is the same as Table 1, but expanded to include the
predicted calculations for those who have few or no chronic conditions.
It shows that the CMS calculations predict $2,614 million in excess
estimates of costs.

For the dual eligible/low-income subsidy group (Dual/LIS), Table 1 shows
that the costs for those with multiple chronic conditions would be
underestimated by $402 million. But for the Dual/LIS with few or no
conditions, Table 3 shows that the predicted costs would be calculated
to be $1,183 million over the actual costs. The report indicates that
Dual/LIS patients have greater costs, so they plead to be compensated
for this $402 million underestimate. They remain silent on the $1,183
overestimate for the healthier sector.

Also the estimates are based on patients in the traditional FFS Medicare
program, a less healthy population than those in the Medicare Advantage
plans. Since the Medicare Advantage plans continue to be successful in
recruiting healthier patients, the overestimates by which they would be
reimbursed would be even greater.

The politics are ugly. Marilyn Tavenner, as head of CMS, participated in
the conspiracy to use devious innovations to overpay the Medicare
Advantage plans. She is now president and CEO of AHIP and will use her
cozy relationship with members of Congress to be sure that they put more
pressure on CMS to once again jack up the rates for Medicare Advantage
plans, in conflict with the intent of the ACA legislation.

This is a nefarious effort that is part of the conspiracy to completely
privatize Medicare. As Marilyn Tavenner said in the AHIP news release,
"Rather than relying on an antiquated fee-for-service approach as the
model for care delivery, CMS should focus on strengthening Medicare
Advantage and the innovative programs that improve seniors' health."
This statement is not ambiguous. It is a blatant call for total
privatization of Medicare.

The last thing we want is a privatized Medicare Advantage for all who
can afford it.

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