Medicare Advantage Plans Adapting to New Payment Models Under Health Reform

The U.S. health care reform law included major payment reductions from the federal government to private Medicare Advantage health plans for seniors. Plans are trying to figure out if and how they can operate in the post-reform world under new payment models announced by the Centers for Medicare and Medicaid Services, experts say.

The recent payment changes are required by the Affordable Care Act, said Bonnie Washington, senior vice president at Avalere Health, a health care advisory firm, in an e-mail.

Congress made major changes to the program in order to help finance reform, and the Congressional Budget Office has estimated total savings from Medicare Advantage of $206 billion over 10 years, she said.

Several changes in 2012 will impact Medicare Advantage county rates, upon which payment to plans is based, Washington said.

The new methodology will be phased in by blending pre-ACA rates with the new ACA rates, established by ranking counties based on the underlying fee-for-service costs in a county, she said.

In February, CMS also issued its preliminary estimate of a 0.7% increase in the national per capita Medicare Advantage growth percentage for 2012. That's a key figure that helps determine how much plans will be reimbursed from the federal government next year.

It represents the projected percentage growth in per capita fee-for-service payments for aged and disabled beneficiaries in the traditional Medicare fee-for-service program, said William MacBain, senior vice president of finance for Gorman Health Group, a managed care consulting firm, in an e-mail.

The figure reflects the projected 29.5% reduction in payments to physicians that take effect Jan. 1, 2012, MacBain said.

In December, President Barack Obama signed a law that delayed for one year a 25% payment cut from the federal government to doctors who provide medical care to seniors in Medicare (BestWire, Dec. 16, 2010).

CMS has estimated that MA plans will see an average payment increase of 1.6% in 2012, which is based on several factors, Washington said.

CMS is scheduled to release final rates on April 4. Bids from plans are due by June 6.

Initial rates won't likely vary much from final rates, although CMS is open to a change if Congress comes up with a multiyear doctor fix over the next 45 days, which is unlikely, wrote Carl McDonald, an equity analyst with Citigroup Investment Research, in a research note.

Health reform also added quality bonus payments to rates depending on a Medicare Advantage plan's star rating, Washington said.

These serve as the basis for a quality bonus payment in a three-year demonstration for plans that starts next year (BestWire, Dec. 20, 2010). CMS uses the five-star rating system to monitor plans to ensure they meet Medicare quality standards.

Plans will take quality ratings seriously because the size of the bonus payment is related to their quality score, said MacBain.

Health reform contains $202 billion in cuts in payments to Medicare Advantage, according to America's Health Insurance Plans. Payments to MA plans this year are frozen at 2010 levels, with major cuts starting in 2012 and continuing through 2017.

Two of the biggest sellers of Medicare Advantage and Part D drug plans are UnitedHealth Group Inc. (NYSE: UNH) and Humana Inc. (NYSE: HUM). Plans with the most exposure to Medicare include Universal American, HealthSpring, Humana and WellCare, McDonald wrote.

(By Fran Matso Lysiak, senior associate editor, BestWeek: [email protected])