What Does Medicare Actually Cover?

What Does Medicare Actually Cover?

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If it followed the path of traditional Medicare, it would end up paying for a lot of coverage that has little medical value.

In the first congressional hearing held on “Medicare for all” in April, Michael Burgess, a Republican congressman from Texas and a physician, called such a proposal “frightening” because it could limit the treatments available to patients.

The debate over Medicare for all has largely focused on access and taxpayer cost, but this raises a question that hasn’t gotten much attention: What treatments would it cover?

A good starting place for answers is to look at how traditional Medicare currently handles things. In one sense, there are some important elements that Medicare does not cover — and  arguably should. But a little digging into the rules governing treatments also reveals that Medicare allows a lot of low-value care — which it arguably should not.

Many countries don’t cover procedures or treatments that have little medical value or that are considered too expensive relative to the benefits. American Medicare has also wrestled with the challenge of how to keep out low-value care, but for political reasons has never squarely faced it.

You might remember the factually misguided “death panel” attack on the Affordable Care Act, which preyed on discomfort with a governmental role in deciding what health care would or would not be paid for. (This discomfort also extends to private plans, exemplified by the backlash against managed care in the 1990s.)

Perhaps as a result, Americans don’t often talk about what treatments and services provide enough value to warrant coverage.

You can divide current Medicare coverage into two layers.

The first is relatively transparent. Traditional Medicare does not cover certain classes of care, including eyeglasses, hearing aids, dental or long-term care. When the classes of things it covers changes, or is under debate, there’s a big, bruising fight with a lot of public comment. The most recent battle added prescription drug coverage through legislation that passed in 2003.

Over the years, there have also been legislative efforts to add coverage for eyeglasses, hearing aids, dental and long-term care — none of them successful. Some of these are available through private plans. So a Medicare for all program that excluded all private insurance coverage and that resembled today’s traditional Medicare would leave Americans with significant coverage gaps. Most likely, debate over what Medicare for all would cover would center on this issue.

But there is a second layer of coverage that receives less attention. Which specific treatments does Medicare pay for within its classes of coverage? For instance, Medicare covers hospital and doctor visits associated with cancer care — but which specific cancer treatments?

This second layer is far more opaque than the first. By law, treatments must be reasonable and necessary” to be approved for Medicare coverage, but what that means is not very clear.

We think of Medicare as a uniform program, but some coverage decisions are local. What people are covered for in, say, Miami can be different from what people are covered for in Seattle.

Many treatments and services are covered automatically because they already have standard billing codes that Medicare recognizes and accepts. For treatments lacking such codes, Medicare makes coverage determinations in one of two ways: nationally or locally.

Although Medicare is a federal (national) program, most coverage determinations are local. Private contractors authorized to process Medicare claims decide what treatments to reimburse in each of 16 regions of the country.

In theory, this could allow for lots of variation across the country in what Medicare pays for. But most local coverage determinations are nearly identical. For example, four regional contractors have independently made local coverage determinations for allergen immunotherapy, but they all approve the same treatments for seasonal allergy sufferers.

There are more than 2,000 local coverage determinations like these. National coverage decisions, which apply to the entire country, are rarer, with only about 300 on the books.

When Medicare makes national coverage decisions, sometimes it does so while requiring people to enter clinical trials.

It has been doing this for over a decade. The program is called coverage with evidence development, and its use is rare. Fewer than two dozen therapies have entered the program since it was introduced in 2006. But it allows Medicare to gather additional clinical data before determining if the treatment should be covered outside of a trial. To be considered, the treatment must already be deemed safe, and it must already be effective in some population. The aim is to test if the treatment “meaningfully improves” the health of Medicare beneficiaries.

Only one therapy (CPAP, for sleep apnea) that entered this process has ever emerged to be covered as a routine part of Medicare. The others are in a perpetual state of limbo, neither fully covered nor definitively not covered. CAR-T cell therapy, a type of cancer immunotherapy, which appears to be very successful but is also very expensive, is one of the most recent to enter this process.

Despite the complexity of all these coverage determination methods — local, national, contingent on clinical trials — the bottom line is that very few treatments are fully excluded from Medicare, so long as they are of any clinical value. And this suggests that it’s not very likely that Medicare for all would deny coverage for needed care.

A 2018 study in Health Affairs found only 3 percent of Medicare claims were denied in 2015. And traditional Medicare doesn’t limit access to doctors or hospitals either, as it is accepted by nearly every one. (This is in contrast with Medicare Advantage.)

Medicare has a troubled history in considering cost-effectiveness in its coverage decisions. Past efforts to incorporate it have failed. For example, regulations proposed in 1989 were withdrawn after a decade of internal review.

As a result, Medicare covers some treatments that are extremely expensive for the program and that offer little benefit to patients. The Medicare Payment Advisory Commission recently studied this in detail. In a 2018 report to Congress, it noted that up to one-third of Medicare beneficiaries received some kind of low-value treatment in 2014, costing the program billions of dollars. If Medicare for all followed in traditional Medicare’s path, it could be wastefully expensive.

The United States has had a historical unwillingness to face cost-effectiveness questions in health care decisions, something many other countries tackle head-on. Some Americans favor Medicare for all because it would make the system more like some overseas. And yet, in choosing not to consider the value of the care it covers, Medicare remains uniquely American.



As HHS muses more MA flexibility, payers see roadblocks to nonmedical benefits


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New regulatory flexibility letting Medicare Advantage plans sell supplemental benefits has opened up a new world of services, from transportation to nutrition, for tens of millions of beneficiaries. But implementation challenges, uncertain return on investment and a lack of clarity on what benefits are allowed may be giving payers, especially the smaller ones, pause on offering the options, experts say.

CMS expanded supplemental benefits in the popular privately-run Medicare plans in an April final rule. Now, Medicare Advantage plans can offer a host of non-traditional benefits, such as at-home grocery delivery, non-emergency medical transportation to doctor appointments or home modifications like installing air conditioning for beneficiaries with asthma and home renovations for fall-prone elderly.

And the department wants to go further than the MA supplemental benefits introduced in April, HHS Secretary Alex Azar said this week at a Better Medicare Alliance annual conference. Because MA plans have budgetary restrictions and a higher risk appetite, the government is comfortable granting them more leeway if it lowers costs and boosts health outcomes.

“We want to open up more opportunities for MA plans and entities they work with, including creative value-based insurance design arrangements, moving care to the home and community and new ways for MA plans to improve a patients’ health over the long term,” Azar said Tuesday.

A number of payers have increased their MA offerings recently to till the fertile ground set up by CMS, including startups Bright Health and Oscar along with heftier players like Centene and UnitedHealthcare.

Currently, MA plans enroll more than one-third of all Medicare beneficiaries, and enrollment is rising steadily every year. At least 40% of those plans offered non-medical benefits in the current plan year at no additional cost to beneficiaries, according to consultancy Avalere.

But further flexibility could present a problem for payers already struggling to assimilate to the increased flexibility and the administrative burden it entails.

Not enough time, money or guidance

Though it approved of the flexible benefit options, payer lobby America’s Health Insurance Plans was concerned in April about the regulatory changes coming just two months before the submission deadline for plan offerings for the 2020 plan year.

That’s because shaping a new benefit can take two to three years, Robert Saunders, research director at the Duke-Margolis Center for Health Policy, told Healthcare Dive. Plans have to work with their actuaries to price what a potential benefit is worth and then incorporate that into their bid.

“Just because you have policy flexibility doesn’t mean you can just now, tomorrow, offer new services,” Saunders said.

While the April rule also increased MA payment rates by 2.5% in 2019 (and rates are expected to hike another 1.6% for 2020), payers also have only a finite amount of funds they can pay back toward medical care. Medicare reimburses MA plans a fixed amount each month, so to provide auxiliary benefits payers have to trim down in other areas.

“If you’re paying for groceries, what else is getting cut?” Jennifer Callahan, executive director of MA product strategy and implementation for Aetna, said. “Is groceries more important than dental coverage? We don’t know.”

Under the CMS regulatory guidance, MA organizations can only develop and offer non-traditional medical benefits if they have a reasonable expectation the services will boost health. That has injected a lot of confusion into the system for payers that may not know what that means, how to measure it and whether they’ll be penalized for slipping up.

“Health plans, especially the small ones, are still looking for clarification on what’s actually allowed,” Nick Johnson, principal at actuarial and consulting firm Milliman, said. Smaller payers often don’t have a large enough sample size to draw conclusions about the positives and negatives of offering specific supplemental benefits, especially in light of substandard quality measures issued from CMS.

A subset of the expanded nonmedical benefits that address social determinants of health factors are officially called “Special Supplemental Benefits for the Chronically Ill” (SSBCI) and can only be offered to an “eligible chronically ill enrollee”: those who have at least one chronic condition and a high risk of hospitalization or adverse health outcomes and require coordinated care.

MA plans can currently offer nonmedical benefits to enrollees for a limited duration of time — typically four weeks, a CMS spokesperson told Healthcare Dive. But only under SSBCI can plans provide these benefits over the long term.

That pigeonholes MA plans from providing additional benefits for a wider spectrum of patients — for example, a person recuperating with serious injuries following a fall who can’t go out and get groceries themselves might appreciate getting them delivered.

However, “just because you were perfectly healthy before, you by definition don’t qualify,” Aetna’s Callahan said. “For me that’s one of the biggest gaps.”

More flexibility unlikely to help rural enrollees

Another concern is that the supplemental benefits could potentially exacerbate health disparities, including the divide between services offered in rural versus urban areas. Non-metropolitan markets tend to be highly concentrated, meaning just one or two insurers dominate the space.

MA is no different. In 619 U.S. counties that account for 4% of overall Medicare beneficiaries, no more than 10% of beneficiaries are enrolled in the privately-run Medicare plans, according to the Kaiser Family Foundation. Many of these low-penetration counties are in rural areas, and less competition means less reason to offer diversified, comprehensive coverage.

“At a national level, what we’re seeing is other places in the country where there’s at least one new benefit offered tend to be urban,” Saunders said.

Many of the add-on services require a specialty workforce — for example, at-home caregivers for long-term services and supports or drivers for non-emergency medical transportation. That makes it harder for plans to introduce them in rural areas that may already be suffering from workforce shortages, a lack of primary care physicians or health facilities, experts said.

For non-emergency medical transportation, companies like Uber and Lyft are combating lower use in rural areas with scheduled rides. Larger NEMT brokers will also partner with transportation companies in the community.

But offering supplemental benefits such as NEMT must be profitable for the insurer and its local partners, experts said. Initiatives that don’t yield a strong return on investment will likely be phased out for the next plan year.

“It’s a really difficult space to be in terms of scalability right now,” Callahan said. “It’s going to take some time.”




Why have Medicare costs per person slowed down?


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The 65+ population now makes up 16% of the US population, up from 11% in 1980. In response to an aging population, Medicare costs are going up. Benefits totaled $713 billion in 2018, 25% higher than in 2009, and Medicare spending accounts for a fifth of all healthcare spending as of the latest year of data.

However, while program costs are increasing, there is an interesting counter-trend – the per person cost for insuring someone through Medicare has actually decreased.

In 2018, the overall cost of Medicare per enrollee was $13,339 per year, about $30 less than it was in 2009, adjusting for inflation. That’s even as benefits across Medicare totaled $713.4 billion, $144.4 billion more than in 2009.

Why are the costs of insuring someone through Medicare going down? A combination of demographics and policy changes may point to an answer.


The average age fell from 76 to 75 between 2007 and 2017Enrollment in all types of Medicare increased 29% during that period from 44.4 million to 58.5 million.

That one year drop in average age is significant for Medicare costs.

An influx of Baby Boomers enrolling in Medicare is playing a role in slowing down an increase in costs for Medicare Part A, which funds hospital stays, skilled nurse facilities, hospice and parts of home health care. In 2008, the share of Original Medicare (Part A or B) beneficiaries who were 65 to 74 years old was 43%. In 2017, 65- to 74-year-olds made up 48% of beneficiaries, the group’s highest share in the 21st century.

A 2015 Congressional Budget Office study showed that we spend 73% more on an enrollee in the 75 to 84 bracket than we do on those in the 65 to 74 bracket.

Our analysis below show how demographics factor into Medicare costs, especially age.

In 2017, there were 38,347,556 Medicare Part A enrollees, making up 100.0% of total enrollees. The federal government spent $188,093,274,340 on program payments for this group, 100.0% of the total Total Part A program payments for this type of enrollee changed from $5,052 in 2013 to $4,905 in 2017, a -2.9% change.

With Medicare Part B there were 33,562,359 enrollees, making up 100.0% of total enrollees. The federal government spent $188,886,121,627 on program payments for this group, 100.0% of the total Total Part B program payments for this type of enrollee changed from $5,287 in 2013 to $5,628 in 2017, a 6.4% change.


Why is healthcare such an attractive target for private equity?


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Thanks to TV shows and movies, we tend to think of
private equity bidding wars as involving fast-growing
Silicon Valley companies. But when Oak Street Health,
a Chicago-based network of seven primary care clinics,
began looking for investors last year, more than a dozen
firms flew to Chicago to court the physicians and most of
them ended up bidding for the group of seven primary care clinics, according to a report in Modern Healthcare.

Oak Street is not alone — almost any independent
physician group of scale these days is likely to be an
attractive target for so-called “smart money,” investors
and their advisers.

Increased regulatory requirements and complexity has led
many independent small groups to “throw up their hands
and decide to sell to or join larger entities,” says Andrew
Kadar, a managing director in L.E.K. Consulting’s healthcare
services practice, which advises private equity groups.
While many such physicians sell to a health system and
become salaried employees, investor-backed practice management groups may have certain advantages, Kadar says. “Each private equity firm has its own approach, but in general they tend to give physicians a continued degree of independence and are willing to invest in new tools and technology.”

What is private equity up to? What attracts these
titans of capitalism to one of the most bureaucratic,
heavily regulated industries in the United States? And
what does the acquisition spree mean for physicians?

Here are five things to know about private equity and
healthcare in 2019.

1. The feeding frenzy is just ramping up

The driving force behind investors’ interest in healthcare
is the amount of “dry powder” in the industry — the term
market watchers use for funds sitting idle and ready to
invest, which McKinsey estimates at around $1.8 trillion

Investors are hungry for deals, and healthcare providers
are an attractive target for multiple reasons:

• The healthcare industry is growing faster than the
GDP. Healthcare is a relatively recession-proof industry
(demand remains constant even during downturns).

Many providers are currently not professionally
managed, and many specialties remain fragmented.

Investors see an opportunity to create value by
increasing efficiencies and consolidating market power.

Thus, with many independent providers still competing
on their own, there remains ample opportunity to
roll up practices into a single practice-management
organization owned by investors. “A lot of deals are
making the headlines, but when you look closely you’ll
see that most specialties aren’t highly penetrated yet by
investors,” says Bill Frack, a former managing director at
L.E.K. Consulting who is now leading a new healthcare
delivery venture. “We are still at the beginning.”

2. Investors have various strategies for creating value

Far from the leveraged-buyout days of the 1980s, which
relied primarily on financial engineering to generate
returns, almost all private equity deals today require
investors to find ways to add value to organizations over
the course of their holding period (typically around five
to seven years). By and large, in healthcare they follow
two strategies for doing so.

The most prevalent play is to buy high-volume, high margin specialist groups such as anesthesiologists,
dermatologists, and orthopedic surgeons. The PE
group then looks to maximize fee-for-service revenue
in the group by ensuring that the team is correctly
and exhaustively coding patient encounters (via ICD10) and encouraging physicians to see more patients.

Simultaneously, they work to improve revenue-cycle
management and drive efficiencies of scale into sales
and back-office administration.

Private equity firms may also look to vertically integrate
by acquiring providers of services for which their
specialists were previously referring out. For instance, oncologist groups might buy radiation treatment centers;
orthopedic surgeons might acquire rehab centers;
dermatologists might acquire pathology labs to process
biopsies, and so on.

Investors exit either through a sale to a larger PE group or,
for the largest groups, through an initial public offering.
Consolidating fee-for-service providers “is a very mature
strategy, and there’s not a single specialty you could
name where an investor wouldn’t have an incentive to
[form a roll-up],” says Brandon Hull, who serves on the
advisory council of New Mountain Capital, a private
equity firm that is investing in healthcare, and is a longtime board member at athenahealth.

Hull says investors are starting to take another approach
to creating value — which he argues “is more virtuous
and aligned with social goals.” In this strategy, investors buy up general medicine specialists — such as internal
medicine, pediatrics, or ob-gyns — and then negotiate
value-based contracts from payers.

To succeed under these contracts, investor-backed medical
groups identify the most cost-effective proceduralists
and diagnosticians in their network and instruct general
practitioners to refer only to them; and they work hard
to play a larger role in patients’ health and thus keep
healthcare utilization down. Groups that employ this
approach include Privia and Iora Health. In this strategy,
investors typically exit by selling the organization to a
larger PE group, a payer, or a health system.

Interestingly, groups that pursue the first strategy often
transition to the second – for instance, an efficiently run
orthopedic group might start with a focus on growing
revenue by maximizing fee-for-service opportunities,
but then consider pursuing bundled payments for hip
replacements. Or an investor-backed oncology group
confident in its treatment protocols and ability to keep
operational costs down might accept capitated payments
for treating patients recently diagnosed with cancer.

3. Private equity can be a great deal for physicians

How these deals are structured depends on whether a
specialty group is the first group acquired by investors —

what is known in private-equity lingo as “the platform”—
or whether it’s being added to an existing group, what is
known as a “tuck-in.”

Physicians in the platform practice are often offered
substantial equity and can benefit from the group’s
appreciation — while, of course, being exposed to the risk that
their share-value may decrease if the group fails to deliver on
its intended value proposition. Physicians in subsequent tuckin groups tend to have simpler contracts with a salary base
and added incentives tied to productivity and other measures.
L.E.K.’s Frack says both models can be attractive, but
that a more simple employment model is probably best
suited to most physicians. “I would tell docs that if they
have a strong group of doctors, they don’t have much to
lose. Even if the deal falls flat for investors, the doctors
will likely just be acquired by another investor, and they
won’t be left holding the bag.”

4. Technology underpins it all

A similar private-equity healthcare frenzy in the 1990s failed
spectacularly. One reason for the collapse was that the
technology did not exist for investors to realize back-office
efficiencies and handle the complexity of value-based contracts.

Today, cloud-based EHR and revenue-cycle management
systems harness the power of network effects to help
provider organizations handle complex and unique
payer contracts, improve back-office efficiency through
automation and machine-learning, implement best practices
for care, and quickly onboard the new practices they acquire.

Technology is particularly important for the general
medicine specialist groups looking to win under fee-for-value contracts. “The moment you start to care about
a patient’s entire episode of care, you need a massive
upgrade of your back-end systems, including full
visibility into what’s happening to your patient outside
your office. Now the technology exists to truly achieve
care coordination,” New Mountain Capital’s Hull says.

5. Public perception can be a problem

Even if physicians believe a private equity deal is their
best option, there’s a public relations risk in tying a medical practice to capitalists whose ultimate goal is to earn a return. Most coverage of private equity in mainstream media outlets questions whether investors’ profit motive is bad for patients. Physician associations and medical journals have also raised concerns in a very public way.

Such public skepticism should worry anyone who
remembers the crash of the first private-equity wave in
the 1990s, says New Mountain Capital’s Hull, who ties
that crash to the failure of managed care. “The American
consumer perceived that doctors were getting bonuses
for denying them care; this became the grim punchline
of late-night talk shows, and the whole thing fell apart.”
Frack advises investors and physicians to “monitor
quality data like a hawk, so that the group can counter
anecdotal accounts of bad care.”

Hull adds that savvy investors should take a page from
the many healthcare startups that are laser-focused on building trust with patients, particularly when it comes
to end-of-life decisions and hospice care. “They know
that success in healthcare depends on patients trusting
their doctors to help them make the best medical
decisions,” Hull says.

Positioned to accommodate uncertainty L.E.K.’s Kadar argues out that whatever direction Washington decides to take healthcare, an efficient, professionally managed group practice with advantages
of scale is well-positioned to succeed — and private
equity is one way for physician groups to reach that goal.

“These groups can adapt more quickly than smaller,
independent practices, whether progressives or
conservatives are in power,” he says. As an example,
Kadar imagines a scenario in which Medicare-for-all
comes to pass. “It turns out that most [PE-backed] groups
do very well on Medicare Advantage contracts. If your
group is focused on delivering more efficient, effective care, with strong operations, you’re in a good position no matter what happens.”






UPMC halts prepayment plan for Highmark Medicare Advantage members


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The plan would have required those members to pay in full for out-of-network visits to UPMC hospitals and physician offices.

Highmark Medicare Advantage members will not have to pay in advance for medical services at UPMC hospitals and physician offices that will be out of network if the UPMC-Highmark consent decrees are allowed to expire June 30.

UPMC officials informed the Pennsylvania Insurance Department of the change Wednesday, according to a news release on UPMC’s website. They had said in late 2018 that UPMC would require patients with out-of-network Medicare Advantage plans to pay in advance for any nonemergency treatment and then seek reimbursement from their insurer.

In addition, UPMC will accept direct payment from Highmark for out-of-network emergency care at the same rate UPMC Health Plan now pays Highmark’s Allegheny Health Network hospitals, including Saint Vincent Hospital.

“As the consent decrees near their end on June 30, our intent is to ensure that Highmark members can receive emergency and other care that they need without being caught in the middle of billing issues created by their insurer,” UPMC spokesman Paul Wood said in the news release.

UPMC’s decision came after federal officials said they might be taking a closer look at UPMC’s prepayment policy, the Pittsburgh Post-Gazette reported.

UPMC will bill Highmark directly for its Medicare Advantage members who use out-of-network services and will accept reimbursement at the Medicare fee schedule amount, UPMC said in the news release.

The announcement comes about a week before a Pennsylvania Commonwealth Court judge will hold a hearing in Harrisburg regarding the state attorney general’s office’s attempt to modify and extend the consent decrees past June 30. The hearing is scheduled for Tuesday and Wednesday.