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Why payers are flocking to the Medicare Advantage market

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https://www.healthcaredive.com/news/why-payers-are-flocking-to-the-medicare-advantage-market/510589/

Medicare Advantage (MA) and the Affordable Care Act (ACA) exchanges are both federal programs, but they couldn’t be more different in payers’ eyes. Insurance companies are entering or expanding their footprints in the MA market, while simultaneously pulling back or out of the ACA exchanges. They’ve found success in MA. Not so much in the ACA exchanges.

Payers see MA as a stable market. That’s evident in the fact that MA premiums are expected to decrease by 6% next year. Insurance companies like stability. Insurers increase premiums by double digits when there isn’t stability, which is the case with the ACA exchanges.

A large part of the ACA exchanges’ problems is linked to actions and inaction in Washington, D.C. President Donald Trump’s administration stopped paying cost-sharing reduction payments to insurers, cut the exchanges’ open enrollment in half, reduced the exchanges’ advertising budget by 90%, offered proposed rules and executive orders that hurt the ACA and threatened not to enforce the individual mandate that requires almost all Americans to have health insurance.

Congress, meanwhile, has tried and failed to repeal the ACA this year. All of this created an unstable exchanges market, which resulted in payers leaving the exchanges or jacking up premiums by 20% or more for 2018.

Meanwhile, the MA market is a picture of stability and payer success.

  • There is a steady stream of new people eligible for Medicare daily, and many choose MA.
  • People usually don’t switch back from MA plans after leaving traditional Medicare.
  • Payers can easily convert members from traditional Medicare to MA via marketing campaigns.
  • The MA demographics are usually people who once had an employer-based plan, so they know insurance and how healthcare works. That also means they usually don’t have pent-up healthcare needs.
  • The CMS pays MA plans upfront for covering people with high healthcare costs and payers have enjoyed stable MA payments from the CMS.

So, MA members are easier to get and keep, they usually have fewer health needs and payers like the MA payment structure better than the exchanges, which get compensated at the end of the year. All of that equals a stable market for payers.

One-third of Medicare beneficiaries are enrolled in an MA plan this year compared to 25% just six years ago. Enrollment grew by 8% between 2016 and 2017 and the CMS recently announced that MA membership will grow by 9% to 20.4 million members in 2018.

Gretchen Jacobson, associate director with the Kaiser Family Foundation’s (KFF) Program on Medicare Policy, told Healthcare Dive that more than half of those in Medicare will have MA plans in many counties next year.

That growth isn’t expected to slow — especially with Republicans controlling both houses of Congress and the White House, according to Steve Wiggins, founder and chairman of Remedy Partners.

“With Republican control of the federal government, it is conceivable that Medicare Advantage will become a centerpiece of CMS’ strategy to control spending growth,” Wiggins told Healthcare Dive.

What more MA members and payers mean for hospitals and providers

With more MA members expected next year, the continual shift to MA will have mixed benefits for providers. Jacobson said it’s not entirely clear how more MA members will affect hospitals and providers. “One of our studies recently showed that the provider networks for Medicare Advantage plans greatly varies and these networks will become even more important as enrollment in Medicare Advantage plans grows,” she said.

Fred Bentley, vice president at Avalere Health, told Healthcare Dive that MA’s growth will present a whole new set of challenges for hospitals and health systems.

Bentley listed two issues:

  • Narrow networks
  • Tighter utilization management compared to Medicare’s fee-for-service model

A recent KFF report found that 35% of MA enrollees were in narrow-network plans in 2015. Payers have increasingly turned to narrow networks to control costs and improve quality of care. To take part in the narrower networks, physicians usually have to agree to payer demands concerning cost and quality.

“Differences across plans, including provider networks, pose challenges for Medicare beneficiaries in choosing among plans and in seeking care, and raise questions for policymakers about the potential for wide variations in the healthcare experience of Medicare Advantage enrollees across the country,” KFF said.

Another issue for hospitals and providers is that more payers involved in capitated plans like MA will result in more pressure on providers and hospitals to focus on the cost of care, Michael Abrams, partner at Numerof & Associates, told Healthcare Dive.

“With Republican control of the federal government, it is conceivable that Medicare Advantage will become a centerpiece of CMS’ strategy to control spending growth.”

There’s also the issue of having too few MA payers in some regions. Aneesh Krishna, partner in McKinsey & Company’s Silicon Valley office, told Healthcare Dive the concentration of MA plans in certain markets is a worry for providers. “This concern would be magnified in markets where there is a similarly high concentration in commercial segments from the same payers, and where overall MA penetration is high,” he said.

There’s also a potential payment issue. MA generally reimburses at a slightly higher level than traditional Medicare, but utilization is managed more tightly. Krishna said providers willing and capable of sharing medical cost savings are “likely to see more benefit from the shift to Medicare Advantage plans.” However, MA networks are often narrow, which means providers will need to weigh the relative price/volume trade-offs of accepting MA.

More MA growth in the coming years

MA will have more payers and members than ever next year and the two largest payers, UnitedHealth and Humana, are expected to increase their footprint. Despite new payers showing interest in the market, Jacobson expects the market break down will look similar in 2018. She said small payers entering the market will offset the plans exiting MA next year.

The Congressional Budget Office (CBO) and HHS both project MA enrollment will continue to grow over the next decade. The CBO estimated that about 41% of Medicare beneficiaries will have an MA plan in 2027. UnitedHealth even predicted half of Medicare beneficiaries will eventually have an MA plan.

MA’s popularity with payers is easy to understand — 10,000 people turn 65 every day. The CBO expects 80 million Americans will be eligible for Medicare by 2035.

There’s also an opportunity in the MA market to sign up members quickly. Rachel Sokol, practice manager of research at Advisory Board, told Healthcare Dive that utilizing a strong marketing engine allows payers to grow MA membership. This is quite different from the employer-based market, which relies on payers working with companies.

Potential MA barriers

The MA market is largely positive for payers, but it does face challenges, including:

  • A small number of payers dominate the market
  • The CMS expects improved efficiency and savings
  • There is increased federal oversight, especially concerning possible overpayments to MA insurers

CMS is all in supporting MA plans and its marketspace. The agency last week proposed a rule with an aim toward improving quality and affordability in contract year 2019. According to the agency, the number of plans available to individuals will increase from about 2,700 to more than 3,100.

The agency is proposing to expand the definition of quality improvement activity to include fraud reduction activities, changing the medical loss ratio (MLR) requirements for Medicare Advantage plans. This change should excite payers because they can add the administrative service to the MLR ratio they are required to spend on healthcare, which is at least 85%. CMS states it believes the service will help combat fraud.

For now, the MA market is consolidated around only a handful of payers. UnitedHealth and Humana have more than 40% of the market. UnitedHealth has one-quarter on its own. KFF said UnitedHealth, Humana and Blue Cross Blue Shield affiliates make up 57% of MA enrollment and the top eight MA payers constitute three-quarters of the market.

Also, CMS is imposing improved efficiency in the traditional Medicare program. This could ultimately affect MA. Accountable care organizations (ACO) and bundled payments will “put downward pressure on the benchmarks used to set payment rates for Medicare Advantage plans,” Wiggins said.

This pressure will result in MA payers needing to either cut costs or trim benefits. “The former is difficult, except through narrow networks, and the latter will diminish the attractiveness of Medicare Advantage plans,” he said.

Then there’s the 800-pound gorilla in the market — potential overpayments. The Department of Justice (DOJ) has joined whistleblower lawsuits against UnitedHealth Group concerning MA overpayments. The lawsuits allege that UnitedHealth changed diagnosis codes to make patients seem sicker, which resulted in higher reimbursements to the insurer. A federal judge threw out one of the lawsuits in October.

The DOJ is investigating other MA payers for the same reason, and Congress is also interested. Sen. Charles Grassley (R-Iowa), chairman of the Senate Judiciary Committee, sent a letter to CMS Administrator Seema Verma in April questioning what CMS is doing to “implement safeguards to reduce score fraud, waste and abuse.” Grassley said there was about $70 billion in improper Medicare Advantage payments between 2008 and 2013 because of “risk score gaming.”

It’s understandable that investigators and Congress have grown interested in MA payers. The federal government paid $160 billion to MA payers in 2014. The CMS estimated about 9.5% of those payments were improper.

The combination of billions being paid to insurers, the potential for fraud and growing membership numbers make MA ripe for oversight. The stability of the market, particularly compared to other options for payers, however, will mean growth continues.

 

Sutter Health destroyed 192 boxes of evidence in antitrust case, judge says

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https://www.healthcaredive.com/news/sutter-health-destroyed-192-boxes-of-evidence-in-antitrust-case-judge-says/511300/

Dive Brief:

  • A California superior court judge ruled that Sutter Health intentionally destroyed 192 boxes of documents that were involved in a lawsuit involving employers and labor unions that alleged the health system abused its market power and charged inflated prices, reported California Healthline.
  • The United Food and Commercial Workers and its Employers Benefit Trust initially filed the case in 2014 alleging that Sutter Health required health plans to include all Sutter hospitals in networks.
  • San Francisco County Superior Court Judge Curtis E.A. Karnow said that Sutter knew the evidence “was relevant to antitrust issues” and the company was “grossly reckless.” A Sutter spokeswoman told California Healthline that the incident was a “mistake made as part of a routine destruction of old paper records.”

Dive Insight:

The recent ruling doesn’t put Sutter Health in a great light. The nonprofit system of 24 hospitals based in Sacramento reportedly destroyed documents related to the case —  and its actions miffed the judge in the case.

Of course, this issue goes beyond destroying records, Sutter Health and California. The case involves a growing health system that allegedly increased prices to employers and employees while gaining a larger market foothold.

Mergers and acquisitions continue to become a common way for health systems to reduce costs, resolve inefficiencies and gain a larger market share. However, having one system own a large part of the healthcare market also inflates healthcare prices. Brent Fulton, assistant adjunct professor at Petris Center in the School of Public Health, University of California, Berkeley, recently wrote in a Health Affairs article “reviews of studies of hospital markets have found that concentrated markets are associated with higher hospital prices, with price increases often exceeding 20% when mergers occur in such markets.”

Sutter Health holds more than 45% of the healthcare market share in six Northern California counties. That gives the system leverage over employers. If employers don’t come to an agreement with Sutter Health, employees have limited options in those counties. Sutter Health charges about 25% higher than other California hospitals, according to the University of Southern California.

Those costs are higher if that care is considered out-of-network. Last year, Sutter Health allegedly asked employers to waive their rights to sue and to agree to arbitration following a court ruling that employers and health plans can seek class-action status in a lawsuit pertaining overcharges against Sutter Health. Those who didn’t agree were threatened to lose access to discounted in-network prices and pay higher out-of-network costs.

The court filing states the parties should not expect further orders in the case until after mid-December. Industry experts are awaiting the results as the trend of M&A continues and stakeholders question who the activity is benefiting: the companies or the patient?

 

CBO Projects 13 Million More Nonelderly Uninsured by 2025 if the Individual Mandate is Repealed

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CBO Projects 13 Million More Nonelderly Uninsured by 2025 if the Individual Mandate is Repealed

 

 

Podcast: ‘What The Health?’ Tax Bill Or Health Bill?

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https://khn.org/news/podcast-what-the-health-tax-bill-or-health-bill/?utm_campaign=KFF-2017-The-Latest&utm_source=hs_email&utm_medium=email&utm_content=58570997&_hsenc=p2ANqtz-90FnDooDrGIdtTTHP8VfZovw1vS_Y_js4RdDwCCIwslKGDgrqu1yZ6bbcLJ5AbWfyJaM2B3HhQ9fR9txLD5dY-TnO3HA&_hsmi=58570997

Image result for kaiser podcast what the health?

 

Republican efforts to alter the health law, left for dead in September, came roaring back to life this week as the Senate Finance Committee added a repeal of the “individual mandate” fines for not maintaining health insurance to their tax bill.

In this episode of “What the Health?” Julie Rovner of Kaiser Health News, Sarah Kliff of Vox.com, Joanne Kenen of Politico and Alice Ollstein of Talking Points Memo discuss the other health implications of the tax bill, as well as the current state of the Affordable Care Act.

Among the takeaways from this week’s podcast:

  • The tax bill debate proves that Republicans’ zeal to repeal the Affordable Care Act is never dead. The new congressional efforts to kill the penalties for the health law’s individual mandate could seriously wound the ACA since the mandate helps drive healthy people to buy insurance.
  • One of the most overlooked consequences of the tax debate is that it could trigger a substantial cut in federal spending on Medicare.
  • A $25,000 MRI? That’s what one family paid to go out of their plan’s network to get the hospital they wanted for the procedure for their 3-year-old. Such choices are again drawing complaints about narrow networks of doctors and hospitals available in some health plans.
  • Although they don’t likely say it in front of cameras, many Democrats are relieved at President Donald Trump’s choice to head the Department of Health and Human Services, former HHS official Alex Azar.
  • Federal officials have given 10 states and four territories extra money to keep their Children’s Health Insurance Programs running but it’s not clear what couch they found the money hidden in.
  • And in remembrance of Uwe Reinhardt, a reminder that he always stressed that a health care debate was about more than money — it was about real people.

Plus, for “extra credit,” the panelists recommend their favorite health stories of the week they think you should read, too.

Why Major Hospitals Are Losing Money By The Millions

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https://www.forbes.com/sites/robertpearl/2017/11/07/hospitals-losing-millions/#67f501c67b50

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A strange thing happened last year in some the nation’s most established hospitals and health systems. Hundreds of millions of dollars in income suddenly disappeared.

This article, part two of a series that began with a look at primary care disruption, examines the economic struggles of inpatient facilities, the even harsher realities in front of them, and why hospitals are likely to aggravate, not address, healthcare’s rising cost issues.

According to the Harvard Business Review, several big-name hospitals reported significant declines and, in some cases, net losses to their FY 2016 operating margins. Among them, Partners HealthCare, New England’s largest hospital network, lost $108 million; the Cleveland Clinic witnessed a 71% decline in operating income; and MD Anderson, the nation’s largest cancer center, dropped $266 million.

How did some of the biggest brands in care delivery lose this much money? The problem isn’t declining revenue. Since 2009, hospitals have accounted for half of the $240 billion spending increase among private U.S. insurers. It’s not that increased competition is driving price wars, either. On the contrary, 1,412 hospitals have merged since 1998, primarily to increase their clout with insurers and raise prices. Nor is it a consequence of people needing less medical care. The prevalence of chronic illness continues to escalate, accounting for 75% of U.S. healthcare costs, according to the CDC.

Part Of The Problem Is Rooted In The Past

From the late 19th century to the early 20th, hospitals were places the sick went to die. For practically everyone else, healthcare was delivered by house call. With the introduction of general anesthesia and the discovery of powerful antibiotics, medical care began moving from people’s homes to inpatient facilities. And by the 1950s, some 6,000 hospitals had sprouted throughout the country. For all that expansion, hospital costs remained relatively low. By the time Medicare rolled out in 1965, healthcare consumed just 5% of the Gross Domestic Product (GDP). Today, that number is 18%.

Hospitals have contributed to the cost hike in recent decades by: (1) purchasing redundant, expensive medical equipment and generating excess demand, (2) hiring highly paid specialists to perform ever-more complex procedures with diminishing value, rather than right-sizing their work forces, and (3) tolerating massive inefficiencies in care delivery (see “the weekend effect”).

How Hospital CEOs See It

Most hospital leaders acknowledge the need to course correct, but very few have been able to deliver care that’s significantly more efficient or cost-effective than before. Instead, hospitals in most communities have focused on reducing and eliminating competition. As a result, a recent study found that 90% of large U.S. cities were “highly concentrated for hospitals,” allowing those that remain to increase their market power and prices.

Historically, such consolidation (and price escalation) has enabled hospitals to offset higher expenses. As of late, however, this strategy is proving difficult. Here’s how some leaders explain their recent financial struggles:

“Our expenses continue to rise, while constraints by government and payers are keeping our revenues flat.”

Brigham Health president Dr. Betsy Nabel offered this explanation in a letter to employees this May, adding that the hospital will “need to work differently in order to sustain our mission for the future.”

A founding member of Partners HealthCare in Boston, Brigham & Women’s Hospital (BWH) is the second-largest research hospital in the nation, with over $640 million in funding. Its storied history dates back more than a century. But after a difficult FY 2016, BWH offered retirement buyouts to 1,600 employees, nearly 10% of its workforce.

Three factors contributed to the need for layoffs: (1) reduced reimbursements from payers, including the Massachusetts government, which limits annual growth in healthcare spending to 3.6%, a number that will drop to 3.1% next year, (2) high capital costs, both for new buildings and for the hospital’s electronic health record (EHR) system, and (3) high labor expenses among its largely unionized workforce.

“The patients are older, they’re sicker … and it’s more expensive to look after them.”

That, along with higher labor and drug costs, explained the Cleveland Clinic’s economic headwinds, according to outgoing CEO Dr. Toby Cosgrove. And though he did not specifically reference Medicare, years of flat reimbursement levels have resulted in the program paying only 90% of hospital costs for the “older,” “sicker” and “more expensive” patients.

Of note, these operating losses occurred despite the Clinic’s increase in year-over-year revenue. Operating income is on the upswing in 2017, but it remains to be seen whether the health system’s new CEO can continue to make the same assurances to employees as his predecessor that, “We have no plans for workforce reduction.”

“Salaries and wages and … and increased consulting expenses primarily related to the Epic EHR project.”

Leaders at MD Anderson, the largest of three comprehensive cancer centers in the United States, blamed these three factors for the institution’s operational losses. In a statement, executives attributed a 77% drop in adjusted income last August to “a decrease in patient revenues as a result of the implementation of the new Epic Electronic Health Record system.”

Following a reduction of nearly 1,000 jobs (5% of its workforce) in January 2017, and the resignation of MD Anderson’s president this March, a glimmer of hope emerged. The institution’s operating margins were in the black in the first quarter of 2017, according to the Houston Chronicle.

Making Sense Of Hospital Struggles

The challenges confronting these hospital giants mirror the difficulties nearly all community hospitals face. Relatively flat Medicare payments are constraining revenues. The payer mix is shifting to lower-priced patients, including those on Medicaid. Many once-profitable services are moving to outpatient venues, including physician-owned “surgicenters” and diagnostic facilities. And as one of the most unionized industries, hospitals continue to increase wages while drug companies continue raising prices – at three times the rate of healthcare inflation.

Though these factors should inspire hospital leaders to exercise caution when investing, many are spending millions in capital to expand their buildings and infrastructure with hopes of attracting more business from competitors. And despite a $44,000 federal nudge to install EHRs, hospitals are finding it difficult to justify the investment. Digital records are proven to improve patient outcomes, but they also slow down doctors and nurses. According to the annual Deloitte “Survey of US Physicians,” 7 out of 10 physicians report that EHRs reduce productivity, thereby raising costs.

Harsh Realities Ahead For Hospitals

Although nearly every hospital talks about becoming leaner and more efficient, few are fulfilling that vision. Given the opportunity to start over, our nation would build fewer hospitals, eliminate the redundancy of high-priced machines, and consolidate operating volume to achieve superior quality and lower costs.

Instead, hospitals are pursuing strategies of market concentration. As part of that approach, they’re purchasing physician practices at record rates, hoping to ensure continued referral volume, regardless of the cost.

Today, commercial payers bear the financial brunt of hospital inefficiencies and high costs but, at some point, large purchasers will say “no more.” These insurers may soon get help from the nation’s largest purchaser, the federal government. Last month, President Donald Trump issued an executive order with language suggesting the administration and federal agencies may seek to limit provider consolidation, lower barriers to entry and prevent “abuses of market power.”

With pressure mounting, hospital administrators find themselves wedged deeper between a rock and a hard place. They know doctors, nurses, and staff will fight the changes required to boost efficiency, especially those that involve increasing productivity or lowering headcount. But at the same time, their bargaining power is diminishing as health-plan consolidation continues. The four largest insurance companies now own 83% of the national market.

What’s more, the Centers for Medicare & Medicaid Services (CMS) announced last week a $1.6 billion cut to certain Medicare Part B drug payments along with reduced reimbursements for off-campus hospital outpatient departments in 2018. CMS said these moves will “provide a more level playing field for competition between hospitals and physician practices by promoting greater payment alignment.”

The American healthcare system is stuck with investments that made sense decades ago but that now result in hundreds of billions of dollars wasted each year. Hospitals are a prime example. That’s why we shouldn’t count on hospital administrators to solve America’s cost challenges.

Change will need to come from outside the traditional healthcare system. The final part of this series explores three potential solutions and highlights the innovative companies leading the effort.