While Medicare Advantage plans were not mentioned often during last year's grueling presidential campaign, the $716 billion in Medicare savings partly obtained at their expense became a political football.
Seldom heard amidst the partisan noise was a quieter, more optimistic story.
For the second year in a row, provider-sponsored Medicare Advantage plans have garnered the lion's share of top-quality and patient-satisfaction rankings from the Centers for Medicare & Medicaid Services.
CMS rates Medicare Advantage — also known as Medicare Part C plans — on a 1- to 5-star ranking system, with the top-ranked plans claiming higher shares of the $8.2 billion allocated in quality bonuses over three years. CMS awarded $3.1 billion to plans in 2012.
The bonuses were intended to ease the pain of negotiated reimbursement cuts imposed by the Patient Protection and Affordable Care Act, while encouraging and rewarding quality performance. Five-star plans not only receive up to 5 percent of Medicare payments as bonuses, but also are permitted to recruit and enroll beneficiaries year-round. In addition, CMS contacts beneficiaries enrolled in lower-performing plans and urges them to switch to 4- and 5-star plans.
The 2013 star ratings, released in October and based on fiscal 2011 data, saw provider-owned plans collect 10 of the 11 5-star ratings CMS awarded. In the 2012 rankings, all nine of the 5-star rankings were awarded to Medicare Advantage health and pharmacy plans owned by hospitals, health systems or physician organizations.
That recognition occurred during a sluggish economy even as Medicare Advantage plans adjusted to reduced federal payments. America's Health Insurance Plans, the insurance industry group, estimated those negotiated Medicare Advantage plan payment reductions would directly cost Part C plans more than $136 billion over the next decade.
American Hospital Association President and CEO Richard Umbdenstock says the AHA supported those cuts because the plan payments had grown unaffordably excessive. Medicare Advantage plans were paid as much as14 percent more per member than CMS paid for fee-for-service beneficiaries.
"The Bush administration put those payments in place as a premium for MA plans, hoping they would speed up the privatization of Medicare," he recalls. "But back in the '90s, those plans were supposed to save money and were paid 95 percent of Medicare fee for service."
Umbdenstock says it's important that hospitals begin strategic internal discussions to explore long-term trends favoring capitation, pay for performance and tighter integration. He thinks the provider-sponsored model stands a better chance of success today than in its earlier iterations.
Today's health care market is more open to system integration, and incentives are better aligned than in the 1990s when hospitals were purchasing physician practices and launching their own health plans. Many health systems took a financial bath from those experiments.
"But the vision is changing and people understand that the payment system is changing as well and they aren't fighting it," Umbdenstock says, noting that publicly reported metrics also are available now.
"Performance is more quickly known because it's public," he says. "The industry knows what the right metrics are and how they need to perform. I think all hospitals will have to work up the ecological ladder to decide whether to partner with a health plan, buy one or start their own. We'll see a whole new era in partnering between providers and payers."
AHA Policy Director Ellen Pryga says large commercial plans will have a tougher time adjusting to the reduced Medicare Advantage reimbursements. While Pryga concedes that many plans still are paid at higher rates than fee for service, she says they carry significant administrative costs and higher medical-loss ratios and must produce profits to satisfy shareholders.
"They will have to scramble to restructure provider arrangements, but much of the sting from the Affordable Care Act-mandated cuts are offset by the star ratings bonuses," she says.
Pryga says many providers already are getting paid for whole episodes of care, putting them on the hook for the proper utilization of services, as well as costs, citing bundled and capitated payments for a range of services downstream from a health plan.
While neither Pryga nor Umbdenstock suggests that every hospital rush out and launch its own plan tomorrow, both agree that hospital leaders need to explore which arrangements make the most sense given their market dynamics.
"As hospitals and health systems move through this progression, everyone believes traditional fee for service is dying a slow death," Pryga says.
At the same time that the sector faces reimbursement cuts, provider-sponsored Medicare Advantage plans face growing competition from much larger and better funded for-profit insurers, such as Aetna, Cigna, Humana and United Healthcare. The largest plans continue to build their market share, primarily by mergers and acquisitions. While spokespersons for Aetna, Cigna and United Healthcare declined to comment for this story, Humana spokesman Tom Noland says the insurer is proud of its Medicare Advantage plans' performance and pointed out that Humana's Wisconsin plan was the only commercial plan to win a 5-star ranking. Noland says that Humana has cut costs and expanded its market reach by acquisitions of existing plans.
A Kaiser Family Foundation study found that 65 percent of all 13.7 million Medicare Advantage plan beneficiaries are covered by the six largest insurers. In 35 states and the District of Columbia, 75 percent of all Part C enrollees are in plans sponsored by just three companies.
So, how do the provider-sponsored Davids compete with these powerful, national Goliaths?
Providers and industry consultants say their plans may have a leg up on their bigger Part C competitors. With the exception of Kaiser Foundation and Group Health plans, they are typically smaller and serve only local or regional beneficiary populations, some as small as 7,000 people.
With closer ties to hospitals, and perhaps because they are more nimble, provider-sponsored health plans tend to marry coordination of care, benchmarking and quality metrics designed to incentivize provider performance with information technology and providers who already know their patients.
"Our members were focused on quality and performance before it was fashionable and before Medicare began paying incentives for it," says Patricia Smith, president and CEO of the trade group Alliance of Community Health Plans, adding that eight of the 5-star rated plans in 2012 were Alliance members.
For Jack Friedman, president and CEO of the 40,000 member Providence Health Plans, a key differentiator is building a primary care-centered model. "We don't do fee for service," he says. "We create a global budget for primary care, specialty care and hospital care, and our primary care physicians have good incentives to manage." The health plan is part of Providence Health & Services, which combined in 2012 with Swedish Health Services to create a 32-hospital, five-state network stretching from Montana to Alaska.
National insurers lack the alignment incentives developed by local provider-sponsored plans, which boast connections to existing delivery systems that often include employed physicians and experience in managing care and costs, Friedman says. "Federal reimbursement is tighter than it was 25 years ago, but if you line up all the options seniors have to purchase supplemental care, Medicare Advantage plans offer some of the best values and that's why they're growing. We dropped our premiums for 2013, but kept the benefits the same."
Among many commercial plans, the savings don't flow back to the physicians, Friedman says. "In our case, we have risk pools and some of the money flows back to the physicians. It gets their attention and we put a lot of focus on it," he explains. "Plans like ours with a strong local market presence are better at managing physician performance than national plans that don't have as much business in a market like Portland."
Success through innovation
Health care experts describe these provider-sponsored Part C plans as laboratories where treatment innovations are incubated.
Health New England, owned by Springfield, Mass.-based Baystate Health, covers only about 7,000 Medicare beneficiaries in western Massachusetts. President and CEO Peter Straley says his plan targeted a small number of sick patients who consume a disproportionately large share of health care resources and suffer higher rates of hospital readmissions. "We found [that] a large percentage of those rehospitalized patients never saw a physician between admissions."
He says one of the most vexing issues was medication reconciliation: updating and sorting out a patient's multiple drugs. "If a senior is on five or 10 drugs before he or she is hospitalized, I guarantee you those medications will change post-discharge. That's done best by a pharmacist, because that's what clinical pharmacists do."
Health New England now contracts with a firm that sends clinical pharmacists to educate patients and caregivers about their medications, routines and diets.
"We make sure family members know what needs to happen and we make sure the patients make doctor appointments and keep them," he explains. "This has demonstrably reduced readmissions — by 36 percent — and improved the quality of care."
Similarly, Network Health, owned by 15-hospital Ministry Health Care in Wisconsin, places case managers in its clinics, not just within Ministry hospitals. "We've also experimented with sending providers into nursing homes and members' homes," says President Sheila Jenkins. Network Health also has a popular feature called the Health Care Concierge program, in which every Medicare beneficiary is assigned a specific customer service representative. "Members always talk with the same person, which builds a sense of familiarity," she says. "Our members don't get stuck in voice mail. Some have even come in to visit their concierge reps."
Eyeing the Triple Aim
Provider-sponsored plan executives point to growing evidence that Part C plans are improving the health of Medicare beneficiaries while reducing the cost of care.
- A study in the February 2012 issue of the American Journal of Managed Care showed that between 2006 and 2008, 30-day hospital readmission rates were 22 percent lower for Part C plans than in traditional Medicare, before risk adjustments.
- A 2009 analysis of Agency for Healthcare Research and Quality data by AHIP found that Part C beneficiaries in California and Nevada spent 30 percent and 23 percent, respectively, fewer days in the hospital than beneficiaries enrolled in traditional Medicare. Readmission rates also were 15 percent lower in California and 33 lower in Nevada.
Medicare Advantage plans do more for their primarily lower income population, says Nathan Goldstein, president of health care consulting firm Gorman Health Group, noting that basic Medicare doesn't cover eyeglasses or dental and that Medigap policies leave many services uncovered.
"MA plans fill those gaps. They are able to do things that are not politically feasible for the government to mandate," Goldstein says. "No one from CMS will ever say it, but our government is outsourcing engagement to these plans that many believe is necessary for our health system."
Jeffrey Thompson, M.D., CEO of Gundersen Lutheran Health System, LaCrosse, Wis., says provider-sponsored plans like his 5-star-rated Senior Preferred may not be as big or profitable as the national insurers, but offer valuable intangibles. "We have a tight connection between the multiple components of patient care. Patients don't see a bunch of little pieces, but a system connected by information, common protocols, common educational activities and a discipline of not only following guidelines, but also producing quality outcomes."
Gundersen Lutheran began creating an integrated system 30 years ago and started working on electronic health records two decades ago. "We believe that connecting the dots and aiming for the best practices possible is what patients want to see," Thompson says.
A comprehensive end-of-life program has drawn international recognition with a 30-day hospital readmission rate of 9 percent, well below the average expected rate of 13 percent. One of Gundersen Lutheran's care coordination programs focuses on the sickest 1 percent of patients, who are disproportionately costly to treat. Thompson says 50 to 60 patients are assigned to a single nurse, whose only job is to work with their primary care physicians to coordinate care.
The Medicare Advantage plan also provides Gundersen Lutheran an opportunity to see how it would operate if the entire organization moved to a higher level of capitation.
"We've received offers to buy our health plan, but we believe it is an important tool for caring for our patients and preparing for the next iteration of health care," he says. "Strategically, it's important for our patients and staff, but also for our organization."
The ACO connection
Gundersen Lutheran has not yet formed an accountable care organization, although Thompson recognizes there is some overlap in goals. "We are accountable for 100,000 lives through a variety of different portals," he says. "We are already in the top 1 percentile, which doesn't leave us a lot of wiggle room in shared savings programs like ACOs. We believe we're a long way along the path to accepting more risk in a fully capitated system."
Jim Hinton, president and CEO of Presbyterian Healthcare Services in New Mexico and AHA chair-elect, says the system's 5-star ranked health plan shares many common goals with the health system's accountable care organization. Presbyterian is one of 32 Pioneer ACOs, part of a CMS Innovation Center initiative. ACOs are intended to reduce Medicare costs by coordinating care and providing efficient, appropriate care to reduce costly readmissions and ED visits and to improve health care outcomes.
"Our future is in managed and budgeted care and we see our Pioneer ACO and our Medicare Advantage plan as ways to move our Medicare beneficiaries to that," Hinton says.
He says it's difficult to separate the health plan from Presbyterian's system. "It is an absolutely fundamental component of Presbyterian today," Hinton says. "I can't imagine a scenario without it."
A hospital with significant relationships with other health plans, but lacking alignment with often voluntary physicians, is "at the end of the market channel and at the mercy of independent health plans and independent physicians. That's not a sustainable position for a hospital to be in," he adds.
Presbyterian's health plan allows the system to forge direct relationships with customers, employers and state and federal governments.
"We're a vertically integrated organization," he says. "Having our own health plan allows experimentation. Without it, it's hard to get the momentum you need to pursue innovation. For us, it's both a defensive and offensive strategy in new care model development and innovation. There are several things we do that only the Presbyterian Health plan is willing to pay for."
Presbyterian's plan achieved a 19 percent savings gleaned from shorter hospital stays and fewer laboratory and diagnostic tests through its Hospital At Home program.
"Today over half and closer to 60 percent of our revenue is capitated or predetermined," Hinton says. "We believe we're beyond that tipping point where the battle between capitation incentives and FFS incentives has been determined. The full effort of our organization is to respond to incentives that flow out of a capitated model."
— Mark Taylor is a freelance writer in Munster, Ind.
The ABCs of Part C
- Medicare+Choice was authorized by the 1997 Balanced Budget Act. The name was changed to Medicare Advantage in the 2003 Medicare Prescription Drug, Improvement and Modernization Act.
- Plans are paid a capitated, risk-adjusted rate.
- In 2012, Medicare Advantage plans covered 13.7 million enrollees, or 27 percent of all Medicare beneficiaries. Estimates suggest that enrollment will tail off to 17 percent of beneficiaries by 2020.
- Medicare Advantage accounts for 22 percent of total Medicare spending.
- Medicare Payment Advisory Commission estimates that plan payments were 7 to 14 percent higher than traditional fee for service. As a result, payments were cut by $200 billion between 2010 and 2020 under the Patient Protection and Affordable Care Act.
- The average Medicare beneficiary in 2012 could choose from 20 Medicare Advantage plans, down from 33 plans in 2010.
- In 2010, the average MA enrollee paid an average monthly premium of $44 per month, which dropped to $35 in 2012.
- In 14 states and the nation's capitol, a single plan controlled more than half the total local enrollment.
- 82 percent of Medicare Advantage plan enrollees are white, while 12 percent are black, 3 percent Hispanic and 2 percent Asian.
Sources: Centers for Medicare & Medicaid Services, America's Health Insurance Plans, Kaiser Family Foundation and Commonwealth Fund
'There's no place like home' for some Medicare Advantage patients
Mary Lasasso had been readmitted to Albuquerque hospitals four times and was a frequent visitor to local emergency departments in the last two years. Lasasso, 87, a widow, mother and grandmother, has severe anemia, venous stasis (a circulatory condition causing reduced blood flow in the veins, usually the legs) and skin ulcers prone to infection. Those infections frequently leave her in a weakened condition with a compromised immune system and low blood pressure. So when staff at her Medicare Advantage plan told her about Presbyterian Healthcare Services' Hospital at Home program, she and her daughter, Laurene Harris, leapt at the chance.
Karen Thompson, Presbyterian's director of hospice and home care, says that Hospital At Home was developed as an alternative to traditional, institutional hospitalization for less acute patients who nonetheless met the Centers for Medicare & Medicaid Services' definition for hospitalization. Presbyterian developed the program in partnership with Bruce Leff, M.D., of Johns Hopkins University School of Medicine. Not all patients qualify, though. The program is open to patients with congestive heart failure, COPD, certain kinds of pneumonia, urinary tract and other infections, and deep vein thrombosis. Currently, only Presbyterian's health plan pays for the service. Health system officials have discussed the concept with other insurers, but it has yet to be incorporated into any contracts.
"This has been a wonderful experience for our family," Harris says. "In the hospital she's incredibly susceptible to infections, but now she's in the comfort of her own home receiving excellent care with doctors and nurses coming to see her. The program has met 100 percent of our expectations. It's all about my mother's health."
Lasasso receives individual medical attention from a team of doctors and nurses who provide medical care, exams and education in her home. The team also educates family members and Lasasso about her nutritional, medical and care needs. "I was not educated about her condition before this," Harris concedes. "They [Presbyterian's Hospital At Home team] taught me things that I can do to help her, like raising her legs and reminding her to take her iron pills. It's been very helpful to both of us."
Lasasso says she's feeling stronger every day. "It means everything to be in my own home and have all these wonderful services. This has been a great opportunity to get myself back to normal again," she says. "In the hospital, I pick up other germs. It's depressing and sad to have to go back again and again. This program keeps me out of the hospital. And there's no place like home."
The program's average length of stay is 3.5 days. Thompson says it saves an average of $1,500 per care episode over traditional hospitalization and offers promise as a strategy for improving Medicare beneficiary outcomes while reducing the costs of care. The Hospital At Home program has treated 630 patients in the past four years with an average daily census of two. Patients must live within 25 miles of a Presbyterian emergency department.
ED doctors assess the conditions of patients who fit the program's criteria and who normally would have been hospitalized. They contact the Hospital At Home team, which is on call around the clock for consultations and which reviews the patients clinically to determine if they are appropriate for program admission. They obtain patient permission and transport them home. Patient Care Manager Darren Maestas says program nurses see patients within an hour of arrival at home and companies providing infusion, oxygen or other services agree to arrive within two hours.
Many Hospital At Home patients have histories of recidivism — frequent ED visits and hospital readmissions. By teaching and supporting patients in their homes, it has reduced rehospitalizations and empowered patients and caregivers. "Our doctors and nurses see patients daily, along with home health aides and our telehealth monitoring programs," he says. "We're taking patients whom home health agencies would not traditionally treat, unstable patients who would normally be hospitalized. Their acuity is much higher than home health patients. That's why we have an entirely different team enabling us to respond very quickly."
The Hospital At Home program has tracked patient data employing the same clinical and patient satisfaction indicators Presbyterian uses to assess outcomes. "We have exceeded the hospital's clinical outcomes and satisfaction ratings," he says.
Thompson and Maestas say the program is replicable. Presbyterian has asked for permission from CMS to include the program in its Pioneer Accountable Care Organization model. Thus far, the agency has been unwilling to do so. "We hope that Medicare will recognize this program and adopt it," Thompson says. — Mark Taylor
Earning a star
The Patient Protection and Affordable Care Act created a star rating system for Medicare Advantage plans. The incentive payments started in 2012 and are partially designed to offset significant payment cuts instituted under the law.
- Medicare Advantage plans will split $8.2 billion in bonus payments over three years.
- CMS awarded $3.1 billion in 2012.
- Scores are based on 53 performance measures collected from three different surveys.
- 91 percent of plans received bonuses for earning at least a 3-star rating on a 5-star scale.
- The four largest Medicare Advantage plans — United Healthcare, Blues plans and affiliates; Kaiser Permanente and Humana — received more than half (55 percent) of the total number of star rating bonuses in 2012.
- Among the large plans, Kaiser Permanente, which enrolls nearly 9 percent of all Medicare Advantage plan members, received the highest average quality rating (4.53 of 5 stars) and received 12 percent of all 2012 bonuses.
- Plans owned by nonprofit organizations, which account for 29 percent of enrollees, averaged higher star ratings (4.09 stars) than their for-profit counterparts (3.22 stars) in 2011 and will receive 2012 bonuses comprising 36 percent, or $1.1 billion, of the bonus pool.
Sources: Centers for Medicare & Medicaid Services and Kaiser Family Foundation
Do your homework
Hospital executives need to develop the core competencies required to manage care and manage risk because that demands two different skill sets. Hospitals must understand how they have to change to successfully manage their organizations. They can't just leap across a chasm to do this; they need to build the road brick by brick or they'll get hurt.
Don't underestimate the costs
Be sure to have a deep pocket of financial reserves, because you can run through them very quickly.
Hire insurance-savvy staff or consultants
Bring people into your organization who possess health insurance experience, actuarial skills and an understanding of risk and how to manage it. This is the most direct way to tapping the counsel of experienced insurance consultants.
Think outside the box
Talk to executives whose systems operated health plans and left the business. Ask them why. Hospital executives must have strategic conversations about how health plans will interface with their systems in a future of increased financial risk. Hospitals should explore options that include cooperating or affiliating with a reputable health plan, purchasing an existing insurer or starting their own health plan.
5 most chronic conditions among Medicare Advantage enrollees
- Diabetes without complications …13.0%
- Breast, prostate, colorectal and other cancers … 7.0%
- Diabetes with renal or peripheral circulatory manifestations … 3.8%
- Congestive heart failure … 3.0%
- Diabetes with neurological or other specified manifestations … 2.7%
Source: MedPAC, June 2012 data handbook