By GEORGE HALVORSON
MedPac has just released a report on Medicare Advantage that’s incorrect on multiple key points that need to be corrected.
Medicare Advantage currently enrolls the majority of Medicare members in the country, and it’s now the new basic plan for the Medicare program because of that majority enrollment level.
That’s very good news for Medicare because the average cost for those members is significantly less than those members would’ve cost under fee-for-service Medicare — and we can be comfortable and know that the lower cost is permanent because of the way we pay for the program.
The plans are paid a capitation for each member, and they’re not paid a fee for each piece of care that’s delivered to Medicare patients.
The capitation is an excellent purchasing approach for the program because it limits the amount paid for the enrollees, and when that amount, paid in capitation, is lower than the average cost of care for the traditional Medicare members, it guarantees that those lower costs will be paid for those members for the Medicare program, and that those costs will continue to be lower for Medicare.
The program that’s used to set the bids for the plans annually calculates the average cost of the traditional Medicare program in every county, and then lets the plans bid for the amount they will be paid for their members for the next year.
Those average costs for Medicare members are accurately calculated, and they’re based on consistent information that Medicare records, computes, and then reports on actual spending in every county by fee-for-service Medicare for the members every year.
The plans look at the information from the fee-for-service Medicare program in every county each year and then they each bid a capitation that’s always lower than that average cost, because those average Medicare costs are actually higher than the Plans need to provide the full set of required care for their members.
That bidding process guarantees that the plans will cost less than fee-for-service Medicare because it’s legitimately, appropriately and accurately based on the actual costs of that program in every county as the starting points for the bids each year.
We know that’s how much Medicare costs in every county using those numbers — and when the plans submit bids that are lower than that average cost, we know that the lower amount in those bids represents actual savings to the Medicare program.
In the world of insurance, having a bid that sets and determines the payment level for the coverage from every plan is a competent, appropriate, intellectually sound, financially legitimate, accurate, and fully functional payment approach and price for Medicare to spend on that coverage as a buyer.
Medicare is a buyer for Medicare Advantage and not just a payer as it is for the rest of the fee-for-service Medicare program.
Once the bid is set, all of the concerns, worries, risks, and uncertainties of the payment process that people used to have about the payments disappear, because that bid amount is exactly how much the plans will be paid for their members and it can’t be modified or changed in any way by the plans.
There are no possible upcoding approaches or risk pool manipulation processes or any possible subsequent plan fudging on the right cost for payments based on the risk levels of the patients that can happen for those payments because the capitation payment is the only one that Medicare will give to the plans, and that locks the cost in place.
That protection against future up coding problems is clear and true because the bids are the final payment to the plans, and there’s no way of doing any kind of risk-pool manipulation after the fact to create any level of overpayment after that capitation payment is made to each plan.
CMS Uses Good Encounter Data to Get that Risk-Level Information
CMS now has very good information about the actual risk levels of the members because they competently, appropriately, effectively and completely eliminated all of the old coding systems that were using estimates from the plans that they previously used to get the patient risk-level information to create the payments.
They replaced that old data flow from the plans with actual encounter data from the care delivered to each patient with information about each actual encounter, and that encounter data at the point of care ties back to the actual medical records that exist and that are used in the care settings for each patient.
The risk levels of the members in the plans are now determined and set by an extremely accurate process that uses the actual care encounter reports for each patient that are filed with the Medicare program to get each diagnosis for each piece of care.
There were some earlier systems for paying the plans that were built on plans filing data about the risk levels of the members, and there were some instances where some plans did filings in ways that upcoded and increased their payment levels, but CMS has actually completely eliminated and cancelled those old processes and reports, and now gets the needed diagnosis data for the payment system from the actual encounters that are filed by the providers for each piece of care.
We now have very current data about the patients, and the reporting process is extremely accurate in its information flow.
The people who say that the plans are overpaid today because they have somehow managed to inflate the patient diagnosis information in inappropriate, are clearly wrong, because there is no link in the current payment model that CMS has put in place that would allow that inflation of data or information to happen and the bids all start with the average cost of fee-for-service Medicare in every county as their starting point for the process.
So, the 18% discount bids from the plans are real, and they are tied to the actual costs of Medicare in direct and appropriate ways that guarantee savings for the program.
We know from the current MedPac report that the plans now bid 18% below the average cost of fee-for-service Medicare.
We know that when the plans manage to make a profit from that lower bid amount, we know that the profit is free money to Medicare because the plans are paid 18% below what those sets of patients would cost if they were still enrolled in fee-for-service Medicare.
Better Care Costs Less Money
The plans can and do bid 18% lower costs than fee-for-service Medicare and they are able to do that lower bid because the plans provide much better care in key areas.
That’s an extremely important thing that we need everyone to understand. The financial, fiscal, and functional reality that we need everyone looking at Medicare to know and understand is that better care for those sets of patients really does cost less money.
The plans know that you can reduce Medicare blindness by 60% with blood sugar control for the patient — and that’s why blood sugar control is the first goal of the Medicare Advantage quality performance Five Star plan and program.
That goal is a major part of the Medicare Advantage quality program because the care outcomes are so much better for patients when that care level happens.
The plans also know that you can reduce hospital admissions for congestive heart failure patients by more than 40% by identifying which patients are at high risk of those crises admissions for heart failure — and the plans focus on those patients to make sure they have fewer crises. They do that in very practical ways by responding to each crisis for each patient before it gets to the emergency room or hospital setting.
People’s lives are far better when that happens. The reality is that congestive heart failure crises are painful and frightening and crippling, and sometimes fatal — and the Medicare Advantage plans put their patients on much better care trajectories for that condition, and the Medicare Advantage members clearly have better lives and much lower hospital expenses because that happens.
Amputations are a major problem and a significant expense for fee-for-service Medicare, and they cost fee-for-service Medicare billions of dollars every year.
The plans know that 90% of the amputations are caused by foot ulcers. The plans know that you can reduce foot ulcers by more than 60% with dry feet and clean socks, so the plans do exactly that — and the plans have taken foot ulcers and amputations down to much lower levels.
That’s an extremely important and beneficial achievement and reality that we need people to understand and appreciate.
Foot ulcers are extremely painful. They damage people’s legs, and they ruin many people’s lives.
Foot ulcers put people into intense pain, and they can get people to the point where they sometimes feel like they want to die — and the truth is that fee-for-service Medicare coverage for low-income patients results in far too many of those amputations today because far too many foot ulcers exist for those patients who are not in plans and who don’t get that care.
Medicare Advantage plans have those amputations down to much lower levels for their members and that lower rate of those procedures for those patients allows the plans to bid 18% below the average cost of Medicare in those counties and still make a surplus on the cashflow for care for the plans.
Those functional realities are why the Plans all bid below the average cost of fee-for-service Medicare and they’re why the current MedPac accusation that Medicare Advantage plans pay 22% too much money are stupid, wrong, incorrect, and functionally impossible — and those massive mistakes and errors are why MedPac should immediately retract those numbers, apologize to the country, and use the right numbers based on actual costs for their next report.
The plans don’t pay 22% more.
They currently pay 18% less — and that lower price is built into the capitation amount in a permanent lower cash flow for the plans.
George Halvorson is Chair and CEO of the Institute for InterGroup Understanding and was CEO of Kaiser Permanente from 2002-14. Part 2 of this piece will be on THCB later this week
