CRS Issues Medicare Reform Summary and Timeline

The Congressional Research Service (”CRS”) released a November 3, 2010 report entitled Medicare Provisions in the Patient Protection and Affordable Care Act (PPACA): Summary and Timeline.  It outlines and summarizes the significant changes made to the Medicare program by the Patient Protection and Affordable Care Act (”PPACA”; P.L. 111-148), as amended by the Health Care and Education Affordability Reconciliation Act of 2010 (”the Reconciliation Act”; P.L. 111-152).

Prior to the enactment of PPACA and the Reconciliation Act (”the Reform Acts”), the Congressional Budget Office predicted that total mandatory annual expenditures would increase “from $501 billion in 2009 to $943 billion in 2019.”  Under these health reform measures, the average annual rate of spending growth will reduce from 8 - 6%, resulting in approximately $390 billion in savings over the next ten years.

Medicare Changes by Provider Type and Program

The Reform Acts will have three primary affects on Medicare Part A coverage.  It will: 1) constrain payment increases, 2) restructure payments, and 3) reduce payments to disproportionate share hospitals by $22.1 billion from FY2015 to FY2019.

The Reform Acts are expected to directly and indirectly change the way Part B Providers organize, practice, and deliver care.  Medicare Physician Quality and Reporting Initiative (PQRI) incentive payments will be extended through 2014 and “an incentive (penalty) for providers who do not report quality measures” will be implemented in 2015.  The Reform Acts create other programs, including the National Pilot Program on Payment Bundling, the shared savings program (including the accountable care organization, or ACO, model), or the value-based payment modifier under the physician fee schedule.  Additionally, the Reform Acts will save approximately $196.3 billion over 10 years by constraining annual payment increases for certain non-physician providers.

The Reform acts will save $135.6 billion over 10 years by changing Medicare Advantage (Medicare Part C) plan payments.  PPACA will decrease many benchmark amounts by tying them to the per capita fee-for-service Medicare spending amounts.  At the same time, PPACA will increase benchmarks for certain high quality plans.  By 2011, coding intensity adjustments will be applied to plan payments.

PPACA will improve coverage under the Medicare prescription drug program (Medicare Part D) by closing the coverage gap between $2,830 in total covered drug spending and the catastrophic threshold of $6,440 (the “doughnut hole”).  “Enrollees will receive a 50% discount off the price of brand-name drugs during the coverage gap starting in 2011, and the coverage gap will be phased out by 2020.”  Access to and availability of low-income subsidies will be improved through increased funding.

Efficiency and Quality of Health Care Services

To increase the efficiency and quality of Medicare services PPACA requires “the establishment of a national, voluntary pilot program that will bundle payments for physician, hospital, and post-acute care services with the goal of improving patient care and reducing spending.”  This shared savings program is expected to save $4.9 billion over ten years.  Another provision establishing payment adjustment to hospitals for “readmissions related to certain potentially preventable conditions,” will likely save $7.1 billion over the next ten years.  Approximately $1.4 billion should also be saved through the institution of a payment penalty for certain common, high-cost hospital-acquired health conditions.

Finally, the creation of a Center for Medicare and Medicaid Innovation within CMS is expected to save $1.3 billion over the next 10 years.  Its purpose will be “to research, develop, test, and expand innovative payment and delivery arrangements to improve the quality and reduce the cost of care provided to patients.”

Medicare Sustainability

To address financing challenges, the Reform Acts have established several revenue producing mechanisms.  First, a new Hospital Insurance tax of 0.9% on high-wage earners (”over $200,000 for single filers and $250,000 for joint filers effective for taxable years after December 31, 2012″) and a new Medicare tax on net investment income will together raise $210 billion between 2013 and 2019.

Second, Part B and Part D beneficiaries will face increased premiums.  Part D premium increases will save approximately $11 billion over 10 years and adjustments to the high-income threshold for Part B premiums will save $25 billion over 10 years.

Finally, to reduce spending growth, PPACA establishes an Independent Payment Advisory Board empowered to adjust payment rates.  This Board is expected to save $15.5 billion between 2015 and 2019.

Fraud, Waste and Abuse

The amount of money lost to fraud is estimated to be between 3-10% of all health care expenditures.  To combat this problem, the Reform Acts allocate $260 million in increased funding for anti-fraud activities over the next ten years.

In Conclusion

Despite the projected savings resulting from PPACA and the Reconciliation Act, “the rising cost of health care, the impact of the aging baby boomer generation, and declining revenues in a weakened economy” will continue to challenge the quality and sustainability of the Medicare Program.  The report cautions that savings estimates are based on questionable assumptions.  Furthermore, such savings can either be used to defer solvency issues or expand health insurance coverage, not both.  Meanwhile, the practice of medicine is expected to undergo significant changes.

Despite the uncertainty in coming years, the CRS report will serve as a helpful guide and benchmark.  The appendices provide detailed tables of spending adjustments by provider and by year, against which continuing surveillance of spending growth can be monitored.

CMS Protects Seniors from Renegade Marketers

By Samantha B. Lansdowne, MSJ, CCMEP

People's Home Journal Advertisement, Oct. 1899

On December 8, 2003, the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) was enacted creating the Medicare Prescription Drug Benefit Program, better known as Part D, while revising the Medicare Advantage (MA) program, or Part C.  Since Medicare’s establishment by the Social Security Act of 1965, the creation of Part D is considered to be the most significant change to Medicare.  With the new regulations also came new rules relating to contracts, applications, bidding processes, and marketing.  The initial set of rules became effective March 22, 2005, and as the Centers for Medicare & Medicaid Services (CMS) gained more experience with the Part D program, a necessary revision was made to some existing marketing policies utilized by plans and their representatives in attracting seniors to their program.  On May 16, 2008, by way of its authority to establish marketing rules through rulemaking, CMS proposed new marketing regulations.

Subsequently, Congress passed the Medicare Improvements for Patients and Providers Act (MIPPA) on July 15, 2008, establishing new statutory marketing regulations for both the MA and Part D plans, which were similar or in some cases identical to the CMS regulations of May 16, 2008.  The MIPPA provisions enacted into statute the provisions that CMS had previously proposed, superseding the CMS regulatory proposals.  The new MIPPA regulations were to begin on January 1, 2009; however, CMS felt that some of the rules provided important protections for Medicare beneficiaries and should instead be in effect before the 2009 plan year marketing campaign began on October 1, 2008.  So in its authority to establish rules, CMS finalized on September 18, 2008 six new marketing provisions, in addition to modifying the disclosure and dissemination of Part D information provisions, and the file and use provision.

At the same time each year, senior citizens are barraged with information on which Medicare program they should enroll in.  They have several options to choose from: 1) the Original Medicare — a fee-for-service plan managed by the Federal Government, 2) Medicare Health Plans — health plan options that are approved by Medicare but run by private companies, 3) Medicare Prescription Drug Plans — plans that add prescription drug coverage to Original Medicare, some Medicare Cost Plans, some Medicare Private Fee-for-Service Plans, and Medicare Medical Savings Account Plans, and 4) Medigap (Medicare Supplement Insurance) Policies — health insurance policies sold by private insurance companies to fill “gaps” in Original Medicare coverage.  All of these options are “sold” through representatives of the various Medicare health plans.

During Senate hearings held in February 2008 on the topic “Selling to Seniors: The Need for Accountability and Oversight of Marketing and Sales by Medicare Private Plans,” state and federal regulators, plan sponsors, and consumers testified to “overly-aggressive, inappropriate, and sometimes deceptive practices used to market, sell, and enroll seniors into Medicare private plans.”  Therefore, CMS was concerned that plan representatives were engaging in sales and marketing activities that pressured beneficiaries to make plan selections for reasons other than those that best meet their healthcare needs.

The September 18, 2008 rule (CMS-4131-F) prohibited plans and their representatives from using the following “pressure techniques”: 1) contacting potential enrollees directly without the potential enrollee first initiating contact (examples include door to door solicitation, outbound telemarketing, or approaching an individual in a parking lot); 2) cross-selling of non-healthcare related products during Medicare sales or marketing activities; 3) providing of meals to prospective enrollees at promotional and sales events; 4) conducting sales presentations or distributing and accepting plan applications in provider offices or other places where healthcare is delivered, except in the case where such activities are conducted in common areas such as a conference room or cafeteria, and 5) conducting sales presentations or distributing and accepting plan applications at educational events, such as health information fairs or state or community-sponsored events.

In addition to the above changes in marketing, plans were now to hire and use only state-licensed representatives to conduct marketing activities in accordance with applicable State appointment laws.  This requirement helps to ensure that beneficiaries do not fall prey to under-educated, unscrupulous and or otherwise substandard representatives.  Further, plans are now to disclose certain beneficiary information at the time of enrollment, and fifteen days before the annual coordinated election period.  Disclosure of plan information continues to be an important feature that gives beneficiaries the necessary information in order for them to make an informed decision about their healthcare plan.

Lastly, CMS would no longer allow plans to file and use marketing materials within 5 days of submission (instead of the normally required 45 day period) based on their previous track record of consistently meeting all of the marketing standards set forth by CMS.  Instead, a uniform file and use policy will be applied to marketing materials that either use model language without substantive modification, or materials that are indentified by CMS as not containing substantive content warranting CMS review.  This will allow CMS to focus resources on materials that contain content that warrants further scrutiny.

As part of the rulemaking process, CMS received comments from managed care organizations and other insurance industry representatives, members of Congress, representatives of health care providers, beneficiaries, and many others.  While most comments were supportive, some of the proposed rulemaking was greeted with great opposition.  One concern was the time frame for implementation of certain provisions prior to the 2009 open enrollment period.  Critics wanted the new rules to go into effect after the 2009 period and others even argued for no sooner than 2010.  Another area that drew concern was the new uniform application of the file and use policy.  Opponents asked for additional clarification and even commented that there would be additional burden on CMS.  The new marketing rules attracted the most resistance.  CMS received many comments that the rules were overly restrictive, would prevent beneficiaries from learning about the full range of healthcare options available to them, and that further clarification was needed.  It is clear from reading the final rule though that CMS put a lot of thought into the changes being made.  Plans and their representatives will have no choice but to comply with the new regulations as both Congress and CMS favor the change.

Low Income Benchmark Methodology for Drug Plans Under Medicare

By Jason Halpin

Photo by Genbug via Flickr

Each year, Prescription Drug Plans (PDPs) and Medicare Advantage Prescription Drug (MA-PD) plans submit bids to the Centers for Medicare and Medicaid Services to determine what their beneficiary premia will be. And each year, Medicare calculates the Part D premium low-income subsidy (LIS or the “benchmark premium”) for low-income beneficiaries based on the new premiums.

The upshot of the annual change in both the beneficiary premium and the LIS is that one year, the subsidy could pay for a low-income beneficiary’s premium in its entirety, but the next year, the premium could increase or the subsidy could decrease, leaving the beneficiary with the possibility they could have to pay a monthly premium equal to the difference between the premium and the subsidy.

Fortunately for low-income beneficiaries, Medicare seeks to avoid this scenario. If full-benefit dual eligible beneficiaries do not actively choose a plan when they first enroll in Medicare, they are enrolled into a PDP plan where they would not pay a premium. If, in the following year, they would have to pay a premium, LIS-eligible beneficiaries may “elect,” by doing nothing, to be reassigned to a PDP with no premium. LIS-eligible beneficiaries can also choose to stay in their plan and pay a premium or pick another plan with or without a premium.

Unfortunately for low-income beneficiaries, those who are subject to reassignment may also be subject to the complexity and hassle of having to change their pharmacy and their medications, and perhaps having to get new prescriptions from their doctors. Congress and CMS, therefore, have adopted a policy of seeking mechanisms to avoid reassignment.

When establishing the guidelines for determining the LIS, Congress mandated, in 42 U.S.C. § 1395w-114(b), that weighted averages should be used, presumably to ensure that the benchmark premium accurately reflects the actual average premium for an individual PDP or MA-PD beneficiary in the region and is not skewed by outliers, such as a comparatively lightly subscribed PDP with abnormally low premiums. Maintaining stability in the benchmark premium helps to promote continuity for beneficiaries and cost predictability for the government.

Figuring out the precise formula for the benchmark premium is in the hands of CMS, pursuant to its authority to administer the Medicare program under 42 U.S.C. § 1395hh. Accordingly, on April 3, 2008, CMS issued a final rule, Modification to the Weighting Methodology Used to Calculate the Low-Income Benchmark Amount.

While 42 U.S.C. § 1395w-114(b) states that Part D premium amounts must be “weighted,” to calculate the benchmark premiums, it says nothing about what that weight should be. Prior to the promulgation of the rule the weight given a particular PDP or MA-PD plan equaled a percentage, with the numerator being the number of Part D eligible beneficiaries enrolled in the plan and the denominator being the number of Part D eligible beneficiaries enrolled in all PDP and MA-PD plans in the PDP region.

The new regulations change the formula such that the weight given a particular PDP or MA-PD plan now equals a percentage, with the numerator being the number of Part D LIS-eligible beneficiaries enrolled in the plan and the denominator being the number of Part D LIS-eligible beneficiaries enrolled in all PDP and MA-PD plans in the PDP region.

By changing the formula to reference only LIS-eligible beneficiaries, the rule gives more weight to the premiums of plans that serve more low-income beneficiaries. Proponents of this formulation argue that it stabilizes and, in general, increases the benchmark premium, thereby reducing the risk of reassignment.

As CMS suggested in its response to comments on the rule, PDPs typically support a greater share of LIS enrollment, thanks to auto and facilitated enrollment. PDPs also typically have higher premiums than MA-PDs because MA-PDs can apply Part A and B rebates to lower their Part D premiums. The rule’s proponents argued that giving more weight to the higher PDP premiums–due to their higher LIS enrollment–would push the benchmark higher, bring more plans under the line, and protect more beneficiaries from reassignment. CMS estimated that if  LIS-enrollment weighting were used in 2008, reassignments would have been reduced by 850,000 from 2.1 million.

Critics still cried foul. Because the rule, and its predecessor regulations, dictated that MA-PD post-rebate premiums (which are about $20 less than PDP premiums on average) be factored into the benchmark formula, MA-PD premiums exerted downward pressure on the benchmark regardless of the weight given PDPs, leaving more PDP plans than necessary above the line and forcing more reassignments than the critics would tolerate.

In 2009, the critics’ views were largely borne out. The predicted benchmark increases were less dramatic than anticipated; though 28 out of 34 regions experienced increases (CMS predicted 27 out of 34), the increases in six of these regions were negligible (50 cents or less). Six regions saw decreased benchmarks. In addition, 1.6 million LIS-eligible beneficiaries were reassigned to new PDPs, and 620,000 were notified they would need to either pick a new plan or start paying a premium; the anticipated reduction was not as large as CMS expected.

To its credit, however, CMS responded appropriately in 2009, establishing a Medicare Demonstration to use pre-rebate MA-PD premiums in the benchmark formula. This greatly reduces the skewing effect of low post-rebate MA-PD premiums. According to the Kaiser Family Foundation, the pre-rebate MA-PD premiums  are actually slightly higher than PDP premiums. The weight of LIS-heavy PDP premiums thus pushed benchmark premiums up in all but one region for 2010, and 1.1 million beneficiaries were reassigned.

While some critics maintain that CMS could do more to reduce reassignments, the methods they suggest have rightly been rejected by CMS. Critics suggest the similar options of either allowing plans to waive the difference between their premiums and the benchmark, or reinstituting CMS’ de minimis policy, whereby an LIS-eligible beneficiary left with a premium that is less than a de minimis amount after recalcuation and application of the subsidy would not have to pay that de minimis amount.

CMS rejected both ideas because both provide a disincentive to plans keeping their bids low. If plans knew they could reduce their premiums for LIS-eligible premiums regardless of the premium their bids produced, they would not even try to keep their bids low. Also, if a plan had to write off a large amount of its premium, the revenue estimates in its bid would be undermined.

While recrafting the benchmark formula has not eliminated all reassignments, it has been very successful in reducing them. The new formula has reduced reassignments by half since 2008 and assured that less than 10 percent of LIS-eligible beneficiaries are reassigned. While CMS must work on reducing this number further, the reformulation of the benchmark premium is a good start.

HHS OIG Report Finds Part D Private Insurers Overcharged for Billions, Lack of CMS Oversight

Christopher Crumpet's Playmate (1955 UPA), Courtesy of Cartoonmoderntumblr.com

According to a recent report by the Department of Health & Human Services, Office of Inspector General, private insurance companies that operate plans under the Medicare prescription drug benefit have overcharged Medicare beneficiaries and the program by several billion dollars since the program began in 2006.

According to the report, 80% of health insurers that operate plans under the Medicare prescription drug benefit overcharged the program by about $4.4 billion in 2006 alone. In addition, The McClatchy/Raleigh News & Observer reports that the Centers for Medicare & Medicaid Services (CMS) remains unaware of the total impact of the practice because of its failure to perform required audits.

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