Health plans will receive the largest increase to their capitated payments since the Affordable Care Act went into effect five years ago, and several other policy measures will ensure the private Medicare program for seniors becomes a larger focus of insurers' revenues.
“It's the gentle puff of a tailwind for this industry after a long stretch,” said John Gorman, a former CMS official who founded consulting firm Gorman Health Group. “This was a series of lobbying wins for the industry that really shows the muscle it has now.”
At the same time, though, the CMS stood its ground on a few proposals that drew the ire of health insurers—including the move to a new risk-adjustment model, more aggressive regulations around provider directories, and the omission of a policy that would have changed star ratings to account for low-income members.
The average rate increase for Medicare Advantage plans next year is 1.25% and rises to 3.25% when factoring in how health plans code the risk scores for their members. Most financial analysts expected Medicare Advantage rates would go up for 2016, since payment reductions mandated by the Affordable Care Act are largely over. But the large uptick from the preliminary rates was a “pleasant surprise” for managed-care companies, David Windley, an analyst at the investment bank Jefferies, said in a research note.
CMS officials emphasized that the 2016 rates are much higher than the original predictions because actuaries underestimated changes in Medicare data. Medicare Advantage payments are tied to the per-capita spending growth rate in the Medicare fee-for-service program. The CMS discovered higher-than-expected spending on hospitalizations and other areas such as rural health clinics and federally qualified health centers, and consequently, raised the baseline rates.
Even though the updated growth rate was a data-driven decision, industry observers still view the final figures as a way to placate an industry that has become entrenched in the Medicare program. More than 17.3 million people are enrolled in a Medicare Advantage plan, or about one-third of all Medicare beneficiaries.
“CMS clearly is attempting to claim credit for improvements to a popular program, as opposed to trying to undermine the funding for a program closely associated with the opposing political party,” Windley said.
Insurers also benefited from the CMS' decision to not touch in-home assessments. Medicare Advantage plans routinely send practitioners who aren't physicians to collect and record diagnoses of patients during home visits, but those risk assessments are not always confirmed by a visit to a physician's office. Home visits have been associated with a process called upcoding, where insurers fraudulently code higher-risk diagnoses to gain higher payments.
The CMS said Monday that it will not require follow-up clinical encounters for home visits, as it indicated in the proposed regulation, and instead will encourage plans to adopt “best practices” for in-home risk assessments.
Despite the generally rosy news, the stocks of every publicly traded insurer traded down Tuesday. Humana, which has almost 3.2 million Medicare Advantage members, said in a financial filing that its average Medicare payments will increase 0.8% for 2016 before accounting for risk adjustments. Humana expects a lower overall increase than the CMS' estimates because of the new risk model that will be used.
The new risk model is one of a few battles the health insurance industry lost, but critics argue insurers still scored a minor win even on that issue since many changes were years in the making. Starting in 2016, for example, Medicare Advantage plans will have to use a risk-scoring model that incorporates new hierarchical condition categories—a model that was first proposed in 2013. The CMS said it will lead to more accurate risk scores of beneficiaries.
“We have been using the new model to some degree for two years and believe the industry should be ready for a full transition,” the CMS said in the final rate letter.
America's Health Insurance Plans—which spent more than $11.7 million on lobbying in 2013, according to the Modern Healthcare Lobbying database—cheered the higher overall rates. But the trade group was less than enthusiastic that the CMS moved forward with the updated risk model.
“The final rate notice took a notable step to provide stable funding for the Medicare Advantage program,” AHIP CEO Karen Ignagni said in a statement. “However, the lack of action to address policy concerns around providing care for the chronically ill and vulnerable populations could undermine health plans' efforts to address the needs of these beneficiaries.”
Insurers will also be under more pressure to verify their online provider directories are up-to-date and accurate. The CMS said those lists must be updated in real time—whenever a doctor or hospital drops out of network or whenever a plan voluntarily makes changes to its network. Companies like UnitedHealth Group have been criticized for weeding out providers in their networks without passing that information along to members.
Now, plans with inaccurate provider directories could be fined or sanctioned. “It's about time. We're no longer in the era of printed provider directories than we are printed Yellow Pages,” Gorman said. “These things can easily be used to misinform beneficiaries to misrepresent the size of their network.”
Health plans argued unsuccessfully that these types of changes will be an administrative burden. At the very least, insurers will have to contact providers monthly to see if they are accepting new patients.
“Consider what that means for a large regional plan or a large national plan. They have thousands of providers in their network,” said Anne Hance, a partner at McDermott Will & Emery who works in the firm's health insurance group. “They are supposed to be engaging in monthly contact with these providers? That strikes me as being an operationally challenging obligation to fulfill.”
The same burden applies to providers, Hance said. If a medical group contracts with six Medicare Advantage plans, they'll be receiving different communications from all six, potentially creating a black hole of information. “That's not an insignificant burden for providers,” Hance said.
Insurers were also unable to convince the CMS to cement a policy that would have helped the star ratings of plans with high numbers of low-income members. The CMS proposed in February to reduce the weight of seven measures by 50% to “provide relief” to plans that serve a high number of poor, elderly patients, who generally require more medical care. The CMS backtracked this week, saying the issue needs to be studied further.
The Special Needs Plan Alliance—an industry group funded by Anthem, Centene Corp., UnitedHealth and other insurers with large numbers of dual-eligible members—touted a study that said Medicare Advantage plans with large numbers of poor, sick patients “may provide higher quality care than their ratings reflect.”
But consumer advocates said reducing the rigor of star ratings would only serve to boost payments and reduce quality of care. “Adjusting scores for healthcare units with significant proportions of disadvantaged patient populations would in effect lower the bar,” according to the Center for Medicare Advocacy, a consumer group. “This type of adjustment would allow distinct and unequal quality standards for poor patients and wealthy patients.”