Editor's Note -
This recent report of health insurance experience by Mainers from Altarum is very interesting. Just click on the link.
- SPC
The fight for single-payer health care moves to the states
by Mike Bebernes - Yahoo News - January 19, 2022
California lawmakers advance universal, single-payer healthcare bill
The Assembly Health Committee voted 11-3 Tuesday to advance the measure, which would establish and create the CalCare program. It still faces many hurdles, including several deadlines and opposition from Republicans and some Democrats.
A proposal that would make California the first state in the U.S. with a single-payer health care system passed a significant legislative hurdle last week, setting up a crucial vote in the state Assembly later this month.
If enacted, the plan would eliminate private health insurance and move all California residents to a new, state-run insurance program called CalCare funded by new business and payroll taxes. CalCare would be similar to Medicare for All, a proposal for a nationwide single-payer that has gained support among progressive lawmakers in recent years and was a centerpiece of Vermont Sen. Bernie Sanders’s bid for the Democratic presidential nomination in 2020.
Single-payer — so named because a single entity, the government, would pay for all health care — has been promoted by advocates for decades, and public support for a national government-run system has increased over the past few years. But federal action on single-payer is close to unimaginable for the foreseeable future. President Biden, a significant share of congressional Democrats and every Republican member of Congress all oppose the idea.
That stalemate in Washington has shifted the debate to the states. In addition to California, lawmakers in New York, Massachusetts and more than a dozen other states have proposed bills to establish statewide single-payer. These efforts have looked promising at certain points, but no state has ever enacted its own single-payer system. Vermont’s Legislature actually passed a bill to do so in 2011, but the plan was abandoned three years later after the state government failed to find a way to fund the program.
Why there’s debate
The arguments for and against a national single-payer system are well established at this point: Supporters say ditching private insurance would save both lives and money, while opponents warn of massive tax increases and care rationing. Shifting the focus to the states, though, changes the parameters of the debate.
Advocates say states are an ideal place to start single-payer health care. They argue that progressive policies are more likely to pass through state legislatures in blue states, many of which are much further to the left than Congress and are free from procedural hurdles like the filibuster. Backers also point to a number of studies that suggest that though they would require tax increases, single-payer systems would ultimately be cheaper for a state’s residents than the current system.
Conservatives generally argue that the shortcomings of single-payer systems don’t disappear when shrunk to the state level. In fact, they say, smaller state budgets and limits on deficit spending make the idea even more untenable. Others point out that states have their own unique procedural roadblocks that may stifle single-payer efforts — California, for example, would have to have its funding plan approved by voters. There are also concerns among some progressives that the pursuit of state-level single-payer could undermine efforts to enact the system at the national level.
What’s next
It may be years before the fate of California’s single-payer proposal is known. If the state Legislature approves the plan, which is far from certain, the issue would then be put to voters, likely in 2024.
Perspectives
Optimists
There may finally be the political will to enact single-payer health care at the state level
“It’s well understood that the obstacles to enacting single-payer health coverage in California, as in the country as a whole, arise less from policy than from politics.” — Michael Hiltzik, Los Angeles Times
The pandemic has made the case for universal health care more potent
“If we want to protect people from the next disaster or pandemic and ensure that healthcare is a human right, our legislature has this unique opportunity to make history in our great state. Let’s not allow our traumas, sacrifices and losses to be in vain.” — Keriann Shalvoy and Judy Sheridan-Gonzalez, City Limits (New York)
States could create the pathway for a national single-payer system
“In short, small-scale policy innovations can kickstart widespread adoption on a national level. Enacting a single-payer system on the state level could overcome the legislative and political hurdles that currently impede its implementation on a national level.” — Casey Buchholz, Stephanie Attar and Gerald Friedman, Jacobin
The idea that voters are desperate to keep their private insurance is a myth
“If you’ve been part of the larger conversation, though, you are also likely to have heard a talking point along the lines of ‘But people love their health plans.’ … What Americans like, overwhelmingly, is their public health insurance. What they find inefficient and costly — and what the health care giants are desperate to keep propping up — is a megabillion dollar private insurance industry that consistently ranks below every public option available to consumers.” — Mark Kreidler, Sacramento News & Review
Some U.S. states have larger economies than countries that effectively run single-payer
“It sounds too good to be true but in fact, New York would be joining every other rich nation in the world, all of which already provide guaranteed health care regardless of employment status and whose systems protect public health, not insurance company profits.” — Lori DeBrowner, Daily News (New York)
Skeptics
States face many of the same barriers that hold back national health care reform
“Even with overwhelming Democratic majorities in both legislative houses, it may be difficult to advance the [single-payer plan], since they will face very stiff opposition from private employer groups … and much, if not most, of the current health care industry. There are, moreover, some serious practical hurdles.” — Dan Walters, CalMatters
Blue state lawmakers have no intention of actually enacting single-payer health care
“Democrats like to go on record supporting single-payer healthcare given that it’s a core demand of progressive groups, but even they aren’t about to pass a law that lacks an independent fiscal analysis or a non-laughable funding mechanism.” — Editorial, Los Angeles Daily News
States don’t have the capacity to run a massive health care system on their own
“The lawmakers will enjoy their press conferences and overdone speeches about the matter. But they need to ask themselves if the state is actually prepared to take on such a tall task. Anyone who has spent any time looking at the track record of Sacramento knows one thing for certain: this is a bridge too far.” — Editorial, the Sun (San Bernardino, Calif.)
Single-payer plans always fall apart when faced with the reality of what they would cost
“Still, give California progressives some credit for being open about what it will take to pay for such a system. In the past, support for state-level universal health care proposals has collapsed when the cost of the promised benefits became clear. … There’s no such thing as ‘free’ health care, after all.” — Eric Boehm, Reason
Democrats should put their energy into smaller, more realistic reforms
“Bold plans with no chance of passing are a waste of time. We applaud lawmakers who want expanded access to health care. But their energy is best spent on ideas with a chance of being enacted.” — Editorial, San Diego Union-Tribune
A national system is the only feasible way to achieve universal health care
“Some healthcare activists and their progressive allies, suffering from the frustration and disillusion brought on by the refusal of President Joe Biden and Congress to consider structural reform, have accepted this defeat and turned to state-based reform, jeopardizing Medicare across the country. Healthcare is a national responsibility. To palm it off to states is a step backwards.” — Ana Malinow and Kay Tillow, Common Dreams
https://news.yahoo.com/the-fight-for-single-payer-health-care-moves-to-the-states-160829656.html?guccounter=1An Obscure Agency Is Threatening to Hand Medicare Over to Wall Street
by Ana Malinow - Truthout - December 3, 2021
In the face of massive support for Medicare for All and the failure of the U.S.’s for-profit health care system, the inevitable fall of the medical-industrial complex can be predicted, if not with precision, with certainty. Everyone is aware of the impending demise, none more so than those in charge of the for-profit health care system and their supporters in Congress, as evidenced by the frenetic activity at the Centers for Medicare and Medicaid Services (CMS) to transfer the traditional Medicare program to the insurance industry as fast as humanly possible. Given this urgency, physicians representing Physicians for a National Health Program delivered a petition signed by 13,000 individuals, including 1,500 physicians, to Health and Human Services Secretary Xavier Becerra this week demanding the end to the privatization of Medicare.
Privatization, the transfer of a public good to private, for-profit entities, is already true for over 40 percent of Medicare in the form of Medicare Advantage, private insurance plans that have been persistently and pervasively overpaid by Medicare for decades. As Kip Sullivan recently described in “Single Payer Health Care Financing,” this fraud has been going on for decades.
In 1995, the U.S. General Accounting Office (GAO) warned Congress that Medicare was overpaying Health Maintenance Organizations (HMOs), the precursors to Medicare Advantage plans, by 6 to 28 percent compared to what it would have paid had all those HMO enrollees remained in traditional Medicare because most HMOs benefited from “favorable selection,” meaning, healthier patients enrolled in HMOs. In 1999, the GAO again warned Congress that Medicare spent more on beneficiaries enrolled in HMOs than it would have had those beneficiaries been enrolled in traditional Medicare. The following year, the GAO told Congress that it was largely excess Medicare payments to HMOs, not their efficiencies, that allowed plans to attract large numbers of beneficiaries, again exceeding costs expected under the traditional program, adding billions to Medicare spending.
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Twenty-six years later, in its 2021 report to Congress, the Medicare Payment Advisory Commission wrote, “The Commission estimates that Medicare currently spends 4 percent more for beneficiaries enrolled in MA [Medicare Advantage] than it spends for similar enrollees in traditional fee-for-service (FFS) Medicare.” This low number is difficult to square with the profit that insurance companies are making and the extra benefits that they offer. What has been clear to Congress for decades, is that Medicare Advantage, which inserts a middleman to “manage” care between CMS and doctors and hospitals, costs more than traditional Medicare, which does not require a middleman between the senior and the provider. From 1972 to 2004, overpayment by Medicare to HMOs was the rule and due mostly to favorable selection. After 2004, overpayment persisted for Medicare Advantage plans (formerly known as Medicare + Choice) for two reasons: favorable selection (“cherry picking,” or selecting healthy patients, as well as “lemon dropping,” or getting rid of sick patients, perfected by HMOs) and upcoding.
What is upcoding? When a doctor bills the insurance company or Medicare for a patient, the doctor uses a diagnosis code. For example, a patient who is seen for pneumonia will be billed with the diagnosis code for pneumonia. But what if instead of just billing for pneumonia, the physician also coded for shortness of breath, hypoxia (low oxygen level), productive cough and exposure to tuberculosis, some of which might or might not be accurate, but could certainly be present in someone with pneumonia? This would be upcoding and would be considered fraud, but in the Medicare Advantage world, upcoding is known as risk-score gaming, and it is perfectly legal.
Risk-score gaming is how Medicare Advantage has been drawing serious overpayments since its full implementation in 2006. Medicare Advantage does this by submitting diagnosis codes that create more CMS Hierarchical Condition Categories (HCCs) for each patient. For example, a 76-year-old female with obesity, type 2 diabetes, major depression and congestive heart failure has an HCC risk score of 1.03. For this patient, CMS pays a Medicare Advantage plan that does not upcode $9,000.
If however, the Medicare Advantage plan upcodes — same patient, same medical conditions but more codes: morbid obesity instead of obesity, diabetes with retinopathy instead of diabetes; a mild, single episode of major depression instead of unspecified major depression; chronic obstructive lung disease instead of asthma and a stage 3 ulcer instead of ulcer — her risk score jumps to 3.63, and CMS pays the Medicare Advantage plan for the same patient $32,000. The plan reaps obscene profits, some of which goes to marketing, some of which goes to improve benefits driving up the number of new members, but most of which go back into profits, all the while draining the Medicare trust fund, driving up Part B premiums (monthly payments made by beneficiaries to Medicare) and diverting taxpayer funds from other social services.
For each 0.1 increase in risk score at current enrollment levels, there are $15 billion in overpayments ($13 billion from CMS, and $2 billion from Part B beneficiaries) and the Medicare Advantage plan takes $3.5 billion in profits. Risk-score gaming is the business model for Medicare Advantage and creates a major transfer of wealth to Medicare Advantage from taxpayers and traditional Medicare recipients.
In addition to greater costs to the federal government, Medicare Advantage plans deny care for enrollees, create cost-related problems for enrollees, limit specialized care due to narrow networks (especially at the end-of-life), have worse health outcomes (including higher mortality), and unenroll high-cost beneficiaries (“lemon drop”) who are in poor health.
All evidence points against using the multibillion-dollar health insurance industry to improve outcomes and save money. But evidence is no match for profit. In 2019, the Medicare budget approached $800 billion, and by 2026, it is projected to be $1.35 trillion. This amount of taxpayer money keeps capitalists up at night, especially the medical-industrial complex types, scheming up ways to grab some for themselves. Lucky for these capitalists, CMS is continuing its march towards privatization, or what is known in the parlance of health economists, “de-risking” all of Medicare, meaning eliminating the risk of providing health insurance to seniors by having someone else bear the risk. But the truth is the exact opposite: These overpayments are allowing the insurance industry to pretend they bear risk when in fact it’s the taxpayer who is bearing risk.
There is much profit to be gained by “bearing the risk” for Medicare through favorable selection and upcoding, as evidenced by the outsized profits for insurers in Medicare Advantage compared to margins in the group or individual market. There should be little surprise, then, that the industry is chomping at the bit to “bear the risk,” that is, be overpaid to insure the remaining 60 percent of seniors who have deliberately chosen not to enroll in Medicare Advantage, those that are safely (or so they thought) enrolled in traditional Medicare.
But safe they are not, and every enrollee in traditional Medicare should take note: A program known as the Global and Professional Direct Contracting model in a little-known government agency known as the Center for Medicare and Medicaid Innovation (“The Innovation Center”) is already moving them, without their knowledge or consent, to “risk-bearing,” for-profit middlemen known as Direct Contracting Entities (DCEs). The goal: to end what’s left of traditional Medicare.
The Innovation Center was created under the Affordable Care Act (ACA) in 2010 with a mandate to test “innovative” payment and service delivery models for Medicare that would decrease costs, and if not improve, at least not worsen care. The ACA gave full authority to the Innovation Center to scale up any model it deemed fit, to all of Medicare without congressional approval. In the past 10 years, 54 models have been developed, 50 of which failed and all of which continue to use market-driven models of care. Not one model has been developed to test out single-payer, which actually would decrease costs and save lives. The latest demonstration project, created in the waning days of the Trump administration and greenlighted by the Biden administration, is the DCE model, which is being rolled out to traditional, fee-for-service Medicare beneficiaries without congressional approval or anyone’s vote.
What is a Direct Contracting Entity? Simply put, it is a “risk-bearing,” for-profit middleman to manage health care for traditional Medicare beneficiaries, just like Medicare Advantage plans are for seniors who have signed up for Medicare Advantage plans. The difference is that while 26 million seniors have voluntarily signed up for a middleman when they chose Medicare Advantage, the 38 million seniors in traditional Medicare have not.
How do you get seniors who have specifically chosen traditional Medicare to switch to a non-traditional Medicare-Advantage-like plan with a mysterious name like “Direct Contracting Entity”? You don’t tell them! You lure their primary care providers to participate in a DCE by promising the doctors much better Medicare reimbursement rates and more time with their patients, and once the doctors sign up with a DCE, all their patients are automatically “aligned” by CMS with the DCE the doctor has chosen. The DCE sends patients a letter they are likely not going to read or understand, and presto! Millions of seniors previously on traditional Medicare now belong to a DCE. That’s how DCEs leverage and monetize the doctor-patient relationship for the profit of corporations.
DCE middlemen accept capitated payments for seniors in traditional Medicare just like Medicare Advantage plans, “cherry pick and lemon drop,” deny care, upcode, spend as little as 60 percent on health care for beneficiaries (compared to Medicare Advantage’s 85 percent), and keep the rest as profit. The playbook is an old one, and it works.
There are 53 DCEs in 38 states and Washington, D.C., mostly owned by for-profit, private equity firms, investor-owned primary care practices, Accountable Care Organizations (a network of doctors and hospitals that is jointly accountable for the health of a group of Medicare patients and that receives financial incentives from Medicare to save money on patient care while meeting certain quality metrics) and Medicare Advantage plans. Many DCEs are owned by publicly traded corporations straight out of Wall Street. These are the corporations that will potentially manage the care of up to 30 million seniors who thought they were free of insurance companies. Instead, their health will be weighed against profit. And in a market-driven, for-profit health care system, the bottom line always wins.
But the most important question still remains: Why the urgency to “de-risk” (privatize) Medicare, no matter the cost? Enter Liz Fowler, architect behind the ACA, an industry darling who ensured health insurance companies would reap billions every year under the ACA, the new director of the Innovation Center brought in by the Biden administration to oversee the full privatization of Medicare. Industry giants and Washington insiders can read the writing on the wall as well as anyone else. They are acutely aware that a majority of Americans say it is the government’s responsibility to provide health care for all. They know that a pandemic has shined a light on the inefficiencies, inequities and indifference of our health care system. They know that Americans died in greater numbers and at increased rates compared to countries with universal health care systems in place. In the face of this inevitability, what would the medical-industrial complex and Congress do? Sell off Medicare, and fast, before Americans actually get Medicare for All.
Health and Human Services Secretary Becerra, a supporter of Medicare for All, and CMS Administrator Chiquita Brooks-Lasure have the authority to terminate the Direct Contracting model program. Congress has the power to hold hearings on the Innovation Center and pass legislation to provide congressional oversight to the Center’s pilot programs. The Innovation Center has put a hold on new DCE applications, to the consternation of industry, but all signs point to the continuation of using DCEs to privatize traditional Medicare. The Innovation Center will put a pretty bow around DCEs and talk about “equitable outcomes” and “person-centered care” but we should not be fooled: The end of Medicare is near. It is up to us to demand DCEs, not Medicare, be ended.
https://truthout.org/articles/an-obscure-agency-is-threatening-to-hand-medicare-over-to-wall-street/
Medicare Advantage, Direct Contracting, And The Medicare ‘Money Machine,’ Part 1: The Risk-Score Game | Health Affairs Forefront
Richard Gilfillan and Donald M. Berwick - Health Affairs - December 29, 2021
While the COVID-19 pandemic rages, the past two years have seen another epidemic of a far different type—in financing and acquisitions of firms focused on serving Medicare beneficiaries. These firms include physician practices, notably primary care practices (PCPs); management services organizations (MSOs) that aggregate practices; and Medicare Advantage (MA) insurers. In this arena, the combined activity of private equity and venture capital firms, initial public offerings, special purpose acquisition companies (SPACs), and insurance company purchases of MA-focused firms has soared: more than $50 billion in valuation has been created in the past 18 months, dwarfing the speculative bubble for physician practice management companies in the 1990s.
One indicator of the exuberance underlying this “Medicare Gold Rush” is the amount per covered life implicit in a firm’s overall valuation. Historically, per-life valuations in MA have ranged from $4,000 to $10,500. Exhibit 1 shows per-life valuations for a sample of recent transactions. The average is $87,000 per beneficiary. Most of the firms acquired or financed are PCPs or MSOs that typically produce no margins—just an average take-home income of $240,000 per physician. The first six are participants in the Centers for Medicare and Medicaid Services’ (CMS) new Direct Contracting Model, which we shall discuss further in Part Two of this post.
Exhibit 1: Recent valuations of Medicare-focused firms.
Source: Authors’ analysis of publicly available information
If these valuations for PCP Practices and MSOs look hard to believe, that is because they are. Annual Medicare Part A and B spending per individual is roughly $12,000. PCPs typically receive only 5 percent of that amount. By what logic would an investor pitch in at a rate equal to almost eight times the total annual health care expenditure per capita for PCPs with no margin? Investment at this level is smoke; what is the fire?
In this two-part post, we will attempt to explain the perverse MA business model that underlies this elevated level of investment, and we will explore its connection to the Direct Contracting model now being tested by CMS. The story is complex, but we think it is worth telling because the stakes for beneficiaries, the public treasury, and our health care system are very high. This business model is distorting health care delivery, creating excessive costs for taxpayers and Medicare beneficiaries, draining the Medicare Trust Fund, obstructing the badly needed value transformation of American health care, and diverting the money needed to fund other social services and goods.
Part one of this post focuses on MA. Part two, to be published tomorrow, will discuss Direct Contracting and suggest some reforms for both MA and Direct Contracting. We also offer a broader reform agenda that calls for expanding the accountable care organization (ACO) model by working directly with providers, rather than investors.
The Perverse Marketplace And Business Model Of Medicare Advantage
Four main business realities drive the interest in Medicare-related acquisitions. First is the expected doubling of Medicare spending from $800 billion in 2019 to $1.6 trillion in 2028 as Baby Boomers age. Second is the reality that MA harbors an arbitrage game in which CMS consistently overpays MA Plans with no demonstratable clinical benefit to patients. Third is the heavily subsidized and distorted market dynamics that result from these overpayments. Fourth is the Trump administration’s creation of the Direct Contracting Model as a vehicle for privatizing Medicare’s projected 2028 $1.6 trillion spend.
The Magnitude Of MA Overpayments:
As exhibit 2 shows, the Medicare Payment Advisory Committee (MedPAC) has documented approximately $140 billion in MA overpayments over the past 12 years. MedPAC further concludes that risk adjustment overpayments are currently increasing. Kronick and Chua have estimated savings at $355 billion over the next eight years if just risk-score related overpayments were eliminated. (Exhibit 3)
Exhibit 2: MA overpayments (in billions of $) due to quality system, benchmark policy, and risk adjustment scores (total = $143 billion).
Source: The MedPAC Blog, March 3, 2021 (authors’ conversion of MA overpayments to dollars from percent of FFS payments as calculated by MedPAC)
Exhibit 3: Potential Medicare annual risk adjustment savings (in billions of $), 2023-2030 (total=$355 billion).
Source: Estimating Impact of Coding Intensity Adjustment: Exhibit A.7, DECI (Demographic Estimate of Coding Intensity) p.28
MedPAC has documented MA plans’ ability to obtain overpayments by cherry picking counties with favorable benchmarks and escalating quality bonus payments through contract manipulation. These tactics add 8 percent in program costs in 2021, leading to MA payments 2 percent above fee-for-service (FFS) Medicare payments. MedPAC has made important recommendations to Congress to address these issues. We will focus primarily on the “risk-score gaming” that increases MA payments and the resulting marketplace dynamics impacting health care delivery across America.
The Dynamics And Worth Of MA Risk Adjustment System Overpayments For Plans: Risk-Score Gaming
The shortcomings of CMS’s Hierarchical Condition Category (HCC) risk adjustment system have been well described since its full implementation in 2006. Simply stated, MA plans can draw enormous overpayments by submitting diagnosis codes that create more HCCs per person. While the codes are, presumably, accurate, the dollar coefficients used in MA payment logic are inflated because they were modeled using markedly under-coded FFS data. “Risk-score gaming” overpayments come from inaccurate pricing of HCCs. Congress and every administration since 2006 have avoided fixing this inaccuracy, in part because of plans’ enormous political clout.
Exhibit 4 illustrates how the MA bid model rewards increased coding. (Part D costs are excluded). Total CMS Premium includes two pieces. One is the Plan bid to provide A and B services including profit and administration, multiplied by the risk score. The other is a rebate Medicare pays to the plan, calculated on average as 65 percent of the amount it bids below the risk adjustment benchmark; CMS retains the other 35 percent. Both pieces increase as the risk score goes up. The A and B Medical Expense in each column is unchanged since the population is the same.
Column A shows the resulting financials for a 2021 average plan described by MedPAC. Despite the 1.0 Risk Score, Medicare pays roughly 1 percent more than FFS, due to the benchmark and quality issues noted above. Column B illustrates the theoretical results for a very highly competitive market where the Plan uses most extra revenue to increase rebates, not profits. CMS overpayments increase by $58 million annually per 100,000 beneficiaries, with beneficiaries paying $12 million more in Part B Premiums.
Exhibit 4: Fundamentals of risk-score gaming: the impact of risk scores on plan financial outcomes.
Source: Authors’ model. MLR includes additional expense for code collection.
Researchers in multiple studies have demonstrated that MA markets are not so competitive, and that Plans tend to use additional revenue to improve profits more than member benefits. Plan bid documents are not public, so we cannot show this directly. Columns C and D in exhibit 4 result from our more conservative model based on MedPAC's 2021 Bid Analysis and Jacobs and Kronick’s empirical analysis. The resulting estimates are that for each 0.1 increase in risk score, an average plan would use roughly $11 PMPM for profit and $14 to improve premiums and benefits. For each 0.1 increase, estimated profits increase about 25 percent, Medicare overpayments for 100,000 beneficiaries increase by $58 million, of which $8 Million will be paid by Part B beneficiaries. Individual plans’ actual use of risk score revenue will vary widely depending on their strategic weighting of profitability vs. growth.
The Demographic Estimate of Coding Intensity (DECI) estimates in exhibit 3 include a 2021 MA coding intensity difference of approximately 0.13. Projected across the MA population of 26 million, each 0.1 increase in risk scores in our model results in an additional $15 billion in overpayments and $3.5 billion in additional MA plan profits at current enrollment levels. CMS would pay $13 billion of the overpayments and Medicare Part B beneficiaries would pay the other $2 billion in inflated Part B premiums. Risk-score gaming creates a major transfer of wealth from taxpayers and Medicare beneficiaries to MA plans, and it lies at the heart of the business model for most MA plans.
The Perverse Marketplace Of Medicare Advantage
Supporters of MA point to the program’s growth as evidence that the privatized model works. The reality is that MA grows because the structural and risk-score gaming overpayments subsidize MA plans to offer some improved benefits, lower Part D costs, an average $5,000 out-of-pocket cap, and underutilized supplemental benefits. Low-income beneficiaries remain underinsured and subject to significant copayments and deductibles. As plans code more, risk scores go up, CMS provides more subsidies, benefits and premiums get better, and buyers choose the improved plans that cost taxpayers more. This is one distorted dynamic in the MA marketplace: the costlier the plan is to the payer (CMS), the easier it is to sell it to the customer, and the greater the profit.
This subsidized marketplace is the major reason that over the past 15 years MA plans have been by far the most popular form of health insurance company start-ups. Firms that initially targeted other segments, such as the exchanges (viz. Bright and Oscar) or Medicaid (viz. Centene and Molina), have all found their way to MA as their preferred business opportunity. Most recently new MA startups have been prominent, including Clover Health, Devoted Health, and Alignment Health.
One potential restraint on risk-score gaming is that as risk scores go up plans begin approaching the 85 percent Minimum Loss Ratio requirement under the Affordable Care Act. Plans have found a solution for that, which we label the “MA Money Machine,” the next major component of the distorted MA Marketplace.
How The “MA Money Machine” Works
Given the dollar magnitude, risk-score gaming becomes a central part of every MA plan’s strategy. The starting point is to get as many diagnosis codes as possible. An entire industry been created to do just that, leading to billion dollar valuations for firms, like Signify Health, that provide analytical tools to enable coding efforts or make home visits for plans and providers. Most Plans now use Artificial Intelligence (AI) HCC Tools to identify coding opportunities.
In a recent investor call, United Health remarked on the importance of home visits, noting that, as the COVID pandemic waned, their HouseCalls nurses were back in the home collecting diagnoses that should lead to improved profits in their MA plans. MedPAC and the HHS Inspector General have identified these home visits as key drivers of overpayments. But MA plans know that the best sources of more codes are providers. They have developed three well-established schemes to get more codes directly from providers, which we call “Deal 1,” “Deal 2,” and Deal 3.”
Provider Coding Deal 1: Pay Providers For Submitting More Codes
Some plans pay providers to code more diagnoses by using pay for performance metrics like HCC Gaps Closure and Recapture Rates and using AI tools to direct their efforts. Clover Health simply pays MA (and now Direct Contracting) physicians $30 per visit to use its “Clover Assistant” AI platform, which identifies coding opportunities.
Provider Coding Deal 2: Share The Risk Premium With Providers
Many MA insurers distort the value-based care (VBC) contract model to make it a vehicle to drive more coding. Column A in exhibit 5 illustrates the results of a legitimate value-based contracting approach similar to that used in Medicare ACOs. A medical expense target is set based on historical experience. If actual costs are less than historical costs, the provider keeps a portion of savings, contingent on quality-of-care metrics. ACOs operating under VBC models have saved CMS $1.9 billion in 2020 and more than $4 billion over the past eight years.
Column B, C, and D in Exhibit 5 show how MA plans distort VBC contracts to increase CMS costs. These MA “non-value-based care” contracts sets the target based on a percentage of the premium the plan receives for a provider’s panel of patients. The provider has good reason to focus on increasing the risk score. In column B, the risk-score increase of 0.1 drives higher premium, the target goes up, and the resulting contrived “medical cost savings” of $56 PMPM, without any actual change in costs or care, “drop through” to become provider profits. Insurer profits increase as well, since insurers collect 15 percent of a larger premium. CMS ends up paying $120 million more and beneficiaries pay for $14 million in Part B premiums.
Columns C and D show how each 0.1 RAF increase creates $87 PMPM more in Part A and B revenue, with $71 going to the provider and $15 to the plan, which can use it as profit or to improve benefits. Rebates go up $14 PMPM as well, due to the benchmark increase. Column D also shows that, any decrease in medical costs just becomes additional profit. CMS shares in none of the savings, and costs still go up $370 M in total per 100,000 beneficiaries.
These MA Percentage of Premium contracts create a continuous “Money Machine,” that allows the provider firm and plan to harvest a financial windfall just by finding more codes. As a result, providers look hard for diagnoses using various AI-enabled platforms. A current popular tactic, for example, is to screen beneficiaries for peripheral vascular disease (HCC 108), which delivers an extra $2,800 per year per patient, by ordering carotid ultrasound studies, even though the US Preventive Services Task Force recommends against such screening for the general population.
Exhibit 5: Comparison of value-based care and MA percentage-of-premium contracts.
Source: Authors’ analysis
Key points comparing Deal 1 provider payment tactics (in exhibit 4) to Deal 2 Percentage of Premium contracts (in exhibit 5) include the following:
- CMS overpayments in Percentage of Premium contracts in exhibit 5 are almost double the overpayments in the risk-score gaming model in exhibit 4, because CMS does not share in the phantom “Medical Cost Savings” as they do with rebate calculations.
- Extrapolated across the entire MA population Percentage of Premium contracts increase costs by $30 billion, or 10 percent, for every 0.1 increase in RAF score.
- The financial returns for providers in Deal 2 are enormous. Providers can reach 400 percent or more of usual PCP payments, and provider profits can reach more than 200 percent of plan profits.
- Rebates under Deal 2, although not as high as in the Deal 1 risk-score gaming model, still increase, facilitating enrollment growth.
- Any medical cost savings simply drop through to become more provider incentive payments rather than savings to CMS.
- The 85 percent MLR requirement is enfeebled because the extra claims keep the MLR high.
Provider Deal 3: Own The Providers
Recognizing that the largest share of the MA Money Machine profits goes to providers, some insurers have decided to own the providers outright. This tactic ensures optimal use of their sophisticated AI coding by employed staff. The parent collects both the insurance profits and the Money Machine profits. MedPAC raised the issue of whether plans with Deal 3 arrangements may be inaccurately reporting related provider incentive payments in ways that overstate medical expenses. The final row in exhibit 5 demonstrates that if such claims, which could ultimately result in profits for the plan, were excluded, the actual MLR could be in the low 70s.
United Healthcare, the most profitable of the large national MA Plans, seems to have used Deal 3 for seven years following the purchase, through its OptumHealth subsidiary, of Monarch and Applecare PCP Networks in 2014. With over 50,000 physicians owned or in affiliated independent practice associations (IPAs), United may today be the largest employer of physicians in America, and it plans to add 10,000 more physicians in 2021. The Money Machine model was described as a core driver of profitability in a recent United Healthcare C-Suite fireside chat: “OptumHealth . . . revenue per consumer served increased 29 percent for 2020 driven by expansion . . . in value-based care arrangements and increasing acuity of the care services provided.”
The Current Status Of The MA Money Machine
Over the past 15 years, the MA Money Machine has been growing as an essential business model component for many prominent physician groups, IPAs, PCP/MSOs and even some integrated systems. United Healthcare and Humana today control 12 million MA lives, almost 50 percent of the national total. Both are rapidly expanding their use of the MA Money Machine. Humana reports that two-thirds, or 2.4 million, of its individual beneficiaries are in these models. They have relied on Deal 2 historically, but recently announced the creation of Centerwell as their new Money Machine Deal 3 vehicle. United Healthcare, with a particular focus on acquiring non-profit physician groups like Reliant and Atrius Health, has said that Optum now has 2 million of its MA lives in “Value-Based Contracts” and is rapidly increasing that number. Thus at least 4.4 million people, or 17 percent of all MA members, and almost $60 billion, are involved in Deal 2 or Deal 3 Money Machine contracts today, with rapid growth ahead.
Exhibit 6 (modeling a hypothetical physician’s panel of 400 MA patients) illustrates how these contracts turn break-even primary care practices into very profitable “assets” that have attracted the attention of private investors
Exhibit 6: Effects of risk scores on PCP profitability.
Source: Authors’ analysis
Over the past eight years a number of new start-up venture capital backed PCP firms have been created using the Money Machine as their core business model. They share many common features:
- Primary, if not exclusive, focus on MA patients, not traditional FFS patients.
- A business model driven by “Percentage of Premium” MA contracts (Deal 2).
- A high-touch clinical model focused on coding and decreasing medical costs.
- Easy PCP access using low patient-to-provider ratios, open appointments, and free transportation to the office.
- Proprietary AI-based digital platforms that drive high risk scores, in the 1.3 – 1.7 range (according to former employees).
- Deep relationships with one or more MA plans, some of which have funded new practice sites.
Recent PCP and MSO partnerships with Humana, for example, include Iora, Oak Street, Agilon, Cano Health, and Landmark. VillageMD has partnered with Aetna/Anthem, and ChenMed has partnered with Independence Blue Cross. As shown in Exhibit 1, financing for these firms has been extraordinary. Another set of PCPs and MSOs are following closely behind, including Miami Beach Family Practice and several other Direct Contracting Entities (DCEs). The primary business model for all is the MA Money Machine.
Why the rush of investors into MA primary care space? Because it is an MA Money Machine. While all can agree that we should improve compensation for primary care, these extraordinary profits are more likely to be captured by the for-profit parent entities rather than passed through to physicians delivering care.
The toll of the MA coding game, though high, has heretofore been confined to the MA portion of Medicare, that is 42 percent of all CMS beneficiaries. Under the Trump Administration, that changed. The Trump Administration avowed its intention to de-risk CMS by moving the 58 percent of Medicare beneficiaries who chose traditional coverage into MA-like full risk capitated arrangements. This full privatization of Medicare coverage would require new entities to act as financial intermediaries between CMS and non-MA beneficiaries. CMS officials decided that the same firms that benefited from risk-score gaming overpayments in MA—insurers and MA-focused Primary Care Firms (PCF’s)—should be given the opportunity to manage the $350 billion in Medicare spending for the majority of beneficiaries not in Medicare Advantage. They needed a new program to accomplish this overarching goal. The Direct Contracting Model was announced in April of 2019 as the vehicle.
https://www.healthaffairs.org/do/10.1377/forefront.20210927.6239/full/
Medicare Advantage, Direct Contracting, And The Medicare ‘Money Machine,’ Part 2: Building On The ACO Model
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