Medicare Advantage plans could be on track to reach over $75B in overpayments this year – nearly 3x prior estimates – causing researchers at the USC Schaeffer Center for Health Policy and Economics to issue a pressing call for policy reform.
The USC study found that traditional fee-for-service Medicare beneficiaries with lower-than-average expenditures are significantly more likely to switch to Medicare Advantage plans. Favorable selection at its finest.
- For context, CMS sets MA rates based on the county-level expenditures of those in traditional FFS Medicare, and they’re intended for beneficiaries with average expenditures – not systematically below average.
- As a result, risk-adjusted expenditures for the 16.9M new MA beneficiaries who made the switch from traditional Medicare between 2006 and 2019 were substantially below average, causing large overpayments due to the favorable selection effect.
This pattern of favorable selection more than doubles the $27B (6%) overpayment estimate from MedPAC for 2023, which primarily reflected “coding intensity” ($23B) and Star Rating (quality) bonuses, but didn’t include an adjustment for selection bias.
- The researchers estimate that favorable selection alone could cause overpayments to the tune of 14.4%, which would surpass $75B when combined with MedPAC’s estimate of other factors.
The authors propose two potential strategies for improving the accuracy of MA rates:
- Reform the current approach of linking MA rates to average expenditures of traditional Medicare beneficiaries by including measures to reduce the impact of aggressive coding and mandating new data reporting requirements to improve comparability.
- Abandon the current approach and institute competitive bidding by MA plans to let market forces determine rates with the aim of capturing efficiency gains for taxpayers instead of increasing revenue for MA plans.
Medicare Advantage enrollment has been skyrocketing over the past decade, and over half of all eligible beneficiaries are now enrolled in a private plan. As traditional Medicare enrollment continues to decline, basing MA rates on FFS expenditures will only grow increasingly problematic, and this study does a great job underscoring the need for some serious reform.
It’s a tough week to be working PR at Medicare Advantage plans after STAT put out an in-depth investigation revealing that payors are using “unregulated predictive algorithms under the guise of scientific rigor” to cut off care for seniors.
Hit piece might be too aggressive of a label, but let’s just say it’s a strongly worded report that makes some MA players look very, very bad.
The booming popularity of Medicare Advantage has turned it into a cornerstone of many payor strategies. According to the report, these payors are now using AI to pinpoint when they can plausibly begin cutting off payments for treatment.
- These algorithms have begun driving denials to new heights, delaying treatment of seriously ill seniors and setting off heated disputes between doctors and payors.
- If patients or their physicians disagree with a denial, they’re funneled into an endurance race with payors through a lengthy appeal process.
- As Calvary Hospital COO Chris Comfort described it, “We take patients who are going to die of their diseases within a 3 month period of time, and we force them into a denial and appeals process that lasts up to 2.5 years. So what happens is the appeal outlasts the beneficiary.”
An entirely new industry has sprung up to help payors predict everything from the providers patients might see to the minimum number of hours they’ll have to stay in a nursing home.
- These AI-generated predictions have become so ingrained in MA that most payors have started bringing these capabilities in-house. Elevance, Cigna, and CVS Health have all made acquisitions in the space.
- David Lipschutz at The Center for Medicare Advocacy told STAT that “while the firms say [the algorithm] is suggestive, it ends up being a hard-and-fast rule. There’s no deviation from it… no accounting for situations in which a person could use more care.”
One of the largest and most controversial companies supplying these predictions is NaviHealth, now owned by UnitedHealth Group, and STAT spent the second half of the report basically using them as a punching bag.
- NaviHealth was founded by Tom Scully, the former head of CMS who played a pivotal role in creating the Medicare Advantage program under the Bush administration.
- You’ll have to head over to the full report for the tear-jerking patient stories, but long story short Scully sold NaviHealth to Cardinal Health for $410M in 2015, then ownership bounced between different PE firms until it landed at United. Denials went up every step of the way, and now we have a STAT investigation.
“The black box of the AI has become a blanket excuse for denials,” and nobody wants a canned response about a proprietary algorithm when they ask why they’re being kicked out of a nursing home. Federal officials have already proposed new rules that say MA payors can’t deny coverage “based on internal, proprietary, or external clinical criteria not found in traditional Medicare coverage policies,” and STAT just added more fuel to the industry’s push for change.