The 2019 Medicare Advantage (MA) plan year began on Jan. 1, and once again, more Americans are enrolling in MA plans than the year before. Fueled by an aging baby boomer population and attractive financial incentives to join, more than 22.3 million beneficiariesthis year enrolled in an MA plan, an increase of 6.6% over 2018.
With MA penetration currently at about 36% of the total Medicare-eligible population, Kaiser Family Foundation recently reported that the Congressional Budget Office is projecting that this number will reach 42% by 2028. Leaders have even stated that there is a potential to reach 50% penetration.
Even though 10,000 people age into Medicare per day, most health systems still draw their entire operating margin from commercial business, whereas Medicare at best breaks even. With this continuing demographic shift, and the need for health systems to find ways to profitably serve the Medicare population, MA provides a platform to do so.
Four keys to developing a Medicare Advantage strategy
While some healthcare organizations may be exploring whether there is a viable pathway to launch co-branded MA products with health plans or third-party administrators, given the Centers for Medicare and Medicaid Services’ (CMS) relatively strict network-adequacy requirements, it could be difficult for many to succeed. Still, health systems can improve their financial and operational performance on MA payer products with a focus on four key strategies described below.
Optimize the MA payment process. CMS adjusts its MA payment—up or down—for each member based on anticipated clinical costs through a risk adjustment factor (RAF). The implication for providers is to focus on their hierarchal condition coding (HCC) strategies and align MA plans with those efforts for opportunities to receive payments that most accurately reflect the clinical complexity of every patient.
This process also could positively influence the benchmark payment rate that CMS uses to pay accountable care organizations (ACOs) participating in its Medicare Shared Savings Programs (MSSPs). CMS also provides additional revenue—up to 5% of total MA plan premium—based on annual star-rating attainment, which rewards MA plans for performance on specific quality measures. The coupled influence of star-rating bonuses and effective risk adjustments can be the difference between a positive or negative margin. This is also why it is so important for health systems to negotiate aligned incentive sharing contractual terms with their MA health plan partners.
Unlock the value of population health management investments. According to a white paper by The Chartis Group, “Managing Medicare to Break Even: Better Patient Outcomes at Lower Costs,” realizing a positive operating margin in this segment requires pivoting the organization to more effectively manage the Medicare population by recognizing its unique needs and characteristics. The good news for health systems is they can improve performance by developing and deploying care models that integrate support services as well as disease prevention and healthy living strategies to delay progression to frailty and improve the lives of beneficiaries.
Through a collaborative strategy with MA plans, health systems can develop and fund foundational population health and clinical management competencies with senior populations. For example, in concert with clinical management improvements, health systems can work with MA plans to influence plan design, network design, and pharmacy benefits to align and enable a financial return on their population health management efforts.
Build claims-based data analytics and business intelligence competencies. With increased risk exposure—either through a value-based payer contracting strategy or a co-branded product—health systems must be able to collect, manage, and leverage new sources of data to drive better clinical and financial performance. In many cases, payer partners will offer health systems claims and socioeconomic data to engage better management of attributed MA lives, which is vitally important to understanding patient spend patterns across the care continuum, key clinical variation opportunities, and referral patterns. These factors also may be informative for other payer populations. As health systems look to advance their business intelligence capabilities, an MA product strategy, when negotiated properly, can provide access to much needed data to deepen health system business intelligence competencies.
Develop contracts tied to the premium dollar. There are many different approaches that health systems are taking to move “upstream” and obtain revenue outside and above traditional fee-for-service payment. Many health systems that are beginning their value-based care journey will participate in pay-for-performance arrangements with payers, which compensates systems with additional revenue for achieving improvements in quality, access or patient experience-related metrics, or a shared savings arrangement, which compensates systems for helping to lower the medical expenditures of a population of members or beneficiaries against an agreed upon baseline.
The next two models discussed below are not advisable for health systems that have not yet built population health and risk contract management capabilities and are still in the early stages of their value-based care journey. Many of these models would be more appropriate for systems that have been in shared savings arrangements with payors for at least three years.
One is a co-branded model, where a system and plan create a joint-venture product that shares margin among two organizations. Care Partners of Connecticut, a JV between Tufts Health Plan and Hartford HealthCare, is one such example that launched for the 2019 plan year. This approach, which is beginning to draw more and more interest, creates more economic alignment between the health system and plan than pay for performance or shared savings arrangements.
Another more common model is a more advanced and integrated contractual arrangement than shared savings or pay for performance, where a health system negotiates a set payment amount that is a percent of the total premium collected by the payer for the members that are attributed to the system. In this arrangement, the payer and the provider are mutually incented to capture enrollment, build capabilities to improve risk and STAR ratings, which increases per-member per-month payments from CMS, and lowers the total cost of care because the health system is being paid on a partially capitated basis.
Forward-looking Medicare Advantage strategies
As more and more of the population ages into Medicare and commercial revenue pressures continue to rise, health systems, regardless of whether they are early or advanced in their value-based care journey, should consider a more forward-looking, intentional, and thoughtful approach to their MA strategy. Those looking to relieve the pressure of declining commercial margins will find that it not only requires the deployment of new population health competencies and capabilities including advanced data analytics and care management but that it requires a shift in the traditional health system aversion to taking on financial risk in order to achieve more perfect alignment with health plan partners and achieve a strategically and financially advantageous position in the market.
This content originally appeared in a The Chartis Group whitepaper, “How Health Systems Can Thrive with Medicare Advantage.”