Medicare Advantage: A Critical Examination of Value, Risk Adjustment, and Policy Implications

Medicare Advantage: A Critical Examination of Value, Risk Adjustment, and Policy Implications

Abstract

Medicare Advantage (MA) has experienced significant growth, becoming a dominant force in the Medicare landscape. This report delves into the complexities of MA, offering a critical examination of its impact on cost, quality, and access to care compared to traditional Medicare. We analyze the intricate issues surrounding risk adjustment, coding intensity, and the potential for adverse selection, specifically focusing on the beneficiary’s perspectives. Furthermore, the report explores potential policy reforms aimed at improving the financial sustainability of MA, enhancing transparency, and empowering beneficiaries to make informed healthcare decisions. We incorporate current research and propose strategies for refining the MA program to optimize its value and align its incentives with the goals of a high-performing healthcare system.

1. Introduction

Medicare Advantage (MA), also known as Medicare Part C, represents a significant shift in the delivery of healthcare services to Medicare beneficiaries. Unlike traditional Medicare, which operates as a fee-for-service program, MA relies on private health plans to provide comprehensive coverage, often including supplemental benefits like vision, dental, and hearing care. The program has witnessed substantial growth, with a considerable proportion of Medicare beneficiaries now enrolled in MA plans. This popularity stems from various factors, including the promise of enhanced benefits, lower out-of-pocket costs (in some cases), and integrated care management. However, the expansion of MA has also raised crucial questions regarding its value proposition, particularly in relation to cost efficiency, quality of care, risk adjustment mechanisms, and the potential for adverse selection. This report aims to comprehensively address these critical aspects of MA, offering an informed perspective on its performance and potential avenues for improvement.

The Centers for Medicare & Medicaid Services (CMS) projects that over 50% of Medicare beneficiaries will be enrolled in Medicare Advantage plans by 2023. This growth reflects both the perceived benefits of MA and the active promotion of MA plans by private insurers. However, the increasing reliance on MA necessitates a rigorous evaluation of its long-term sustainability and effectiveness. Concerns have been raised regarding overpayments to MA plans, the complexity of risk adjustment methodologies, and the potential for plans to selectively enroll healthier beneficiaries. These issues threaten the financial stability of the Medicare program and raise concerns about equitable access to high-quality care for all beneficiaries.

2. Cost Considerations: Overpayments and Value

A persistent concern surrounding MA is the issue of overpayments relative to traditional Medicare. MedPAC (Medicare Payment Advisory Commission) and other independent analysts have consistently highlighted the fact that MA plans, on average, receive higher payments per beneficiary than what traditional Medicare would spend on the same individuals. This disparity stems from several factors, including the risk adjustment process, coding intensity, and the structure of benchmark payments.

Risk adjustment is intended to ensure that MA plans receive appropriate payments based on the health status of their enrollees. Plans receive higher payments for beneficiaries with chronic conditions and complex healthcare needs. However, critics argue that MA plans have become adept at maximizing their risk scores through intensive coding practices, potentially resulting in inflated payments that do not accurately reflect the actual cost of care. Coding intensity refers to the practice of documenting more diagnoses per patient, even if these diagnoses do not necessarily translate into higher healthcare utilization. Research has shown that MA plans often report more diagnoses than traditional Medicare, leading to higher risk scores and increased payments.

The benchmark payment system, which sets the rates MA plans receive from CMS, also contributes to the overpayment issue. Benchmarks are based on a percentage of traditional Medicare spending in each county, with adjustments for various factors. However, the current benchmark system does not always accurately reflect the true cost of providing care in different areas, and it can incentivize plans to operate in high-spending regions. The implications of the benchmark system are complex and have been discussed by many policy analysts [1].

The notion of ‘value’ within the MA program also warrants close scrutiny. While MA plans often offer supplemental benefits and care coordination services, it is crucial to determine whether these added benefits justify the higher payments they receive. Some studies suggest that MA plans may not consistently deliver better health outcomes or improved patient experiences compared to traditional Medicare, despite the increased costs. Moreover, the benefits offered by MA plans often vary widely, making it difficult for beneficiaries to compare plans and make informed choices. Further research is needed to rigorously assess the value of MA plans, taking into account both the cost and quality of care they provide. The Government Accountability Office (GAO) have reported that further work is needed to determine the true value of MA to beneficiaries and tax payers [2].

3. Quality and Access to Care: A Comparative Analysis

The impact of MA on quality and access to care is a subject of ongoing debate. Proponents of MA argue that the coordinated care models employed by MA plans can lead to improved outcomes and enhanced patient experiences. MA plans often utilize primary care physicians as gatekeepers, requiring beneficiaries to obtain referrals before seeing specialists. This approach is intended to promote care coordination and prevent unnecessary utilization. Many MA plans also offer disease management programs and other initiatives aimed at improving the health of beneficiaries with chronic conditions.

However, concerns have been raised regarding the potential for MA plans to restrict access to care through utilization management techniques. Prior authorization requirements, limitations on provider networks, and other cost-control measures may create barriers to timely and appropriate care. Some studies have found that MA beneficiaries may face greater difficulty accessing certain types of specialists or receiving innovative treatments compared to those in traditional Medicare. For example, those with cancer have experienced denial of access to treatment [3]. Furthermore, the narrow network structure of some MA plans can limit beneficiaries’ choice of providers, potentially disrupting established patient-physician relationships.

The quality of care delivered by MA plans is often measured using various metrics, including Healthcare Effectiveness Data and Information Set (HEDIS) scores, star ratings, and patient satisfaction surveys. While some MA plans consistently achieve high quality ratings, there is significant variation in performance across plans. Furthermore, the reliability and validity of these quality measures have been questioned. Coding practices and selection bias may affect quality scores, making it difficult to accurately compare the performance of MA plans and traditional Medicare. The complexity of these measures should be carefully considered [4].

Moreover, access to care may be particularly challenging for beneficiaries residing in rural or underserved areas, where the availability of MA plans and providers may be limited. The concentration of MA plans in urban areas raises concerns about equitable access to care for all Medicare beneficiaries, regardless of their geographic location. The expansion of MA into rural areas requires careful attention to ensure that plans have adequate provider networks and the resources necessary to meet the unique needs of rural beneficiaries.

4. Risk Adjustment and Coding Intensity: Gaming the System?

As previously mentioned, risk adjustment is a crucial mechanism for ensuring that MA plans receive appropriate payments based on the health status of their enrollees. However, the current risk adjustment system has been criticized for its complexity and vulnerability to manipulation. MA plans have strong financial incentives to maximize their risk scores, as higher scores translate into higher payments. This has led to concerns about coding intensity, which refers to the practice of documenting more diagnoses per patient, even if these diagnoses do not necessarily reflect the actual cost of care.

Research has consistently shown that MA plans report more diagnoses than traditional Medicare for similar patient populations. This discrepancy raises questions about whether MA plans are accurately capturing the health status of their enrollees or simply engaging in aggressive coding practices to inflate their payments. Some studies have found that a significant portion of the increased risk scores in MA is attributable to coding intensity, rather than genuine differences in health status. Further research is needed to understand the true extent of coding intensity and its impact on MA payments.

CMS has implemented various measures to combat coding intensity, including audits and retrospective adjustments to payments. However, these measures have been only partially successful in mitigating the problem. The complexity of the risk adjustment system and the sophisticated coding practices employed by MA plans make it challenging to effectively detect and prevent coding intensity. Furthermore, the penalties for coding intensity are often insufficient to deter plans from engaging in these practices. The Centers for Medicare and Medicaid Services have implemented several methods of auditing and correction [5].

The potential for adverse selection also complicates the risk adjustment process. Adverse selection occurs when healthier beneficiaries disproportionately enroll in traditional Medicare, while sicker beneficiaries enroll in MA plans. If this occurs, MA plans would receive higher payments than justified based on the overall health of their enrollees. While CMS attempts to adjust for adverse selection, it is difficult to fully account for the complex factors that influence enrollment decisions. Risk adjustment needs to improve further to reduce the possibilities for gaming the system [6].

5. Beneficiary Perspective: Choice, Information, and Decision-Making

From the beneficiary’s perspective, choosing between traditional Medicare and MA can be a complex and daunting task. MA plans often offer a wide range of benefits and features, making it difficult for beneficiaries to compare plans and make informed decisions. The marketing materials used by MA plans can be confusing and misleading, and beneficiaries may not fully understand the limitations and restrictions associated with each plan. It is also likely that there are difficulties in understanding the plan variations and their implications [7].

The availability of clear, concise, and unbiased information is crucial for empowering beneficiaries to make informed choices. CMS provides resources such as the Medicare Plan Finder tool, which allows beneficiaries to compare MA plans based on various criteria. However, these resources may not be sufficient to fully address the information needs of all beneficiaries. Many beneficiaries rely on family members, friends, or insurance agents for assistance in navigating the complex Medicare landscape.

Moreover, beneficiaries’ preferences and priorities can vary widely. Some beneficiaries may prioritize lower premiums and out-of-pocket costs, while others may value the flexibility of traditional Medicare and the ability to see any provider who accepts Medicare. The availability of supplemental benefits, such as vision, dental, and hearing care, can also influence enrollment decisions. It is important for beneficiaries to carefully consider their individual needs and preferences when choosing between traditional Medicare and MA.

Furthermore, the process of switching between traditional Medicare and MA can be challenging. Beneficiaries may face restrictions on when they can switch plans, and they may not be able to return to traditional Medicare if they are dissatisfied with their MA plan. These limitations can create barriers to making informed choices and can lock beneficiaries into plans that do not meet their needs. Policies to improve beneficiary choice and options are required [8].

6. Policy Recommendations and Future Directions

Addressing the challenges and maximizing the potential of MA requires a comprehensive and multifaceted approach. Several policy reforms could be considered to improve the financial sustainability of MA, enhance transparency, and ensure beneficiaries make informed choices.

• Refining Risk Adjustment: CMS should continue to refine the risk adjustment system to reduce the potential for coding intensity and ensure that payments accurately reflect the health status of enrollees. This could involve implementing more robust auditing procedures, adjusting the risk adjustment model to better account for coding intensity, and exploring alternative risk adjustment methodologies.
• Revising Benchmark Payments: The benchmark payment system should be re-evaluated to ensure that it accurately reflects the cost of providing care in different areas and does not incentivize plans to operate in high-spending regions. One approach could be to move towards a more standardized benchmark system that reduces geographic variation in payments.
• Enhancing Transparency: Increased transparency regarding MA plan costs, quality metrics, and utilization management practices is essential for empowering beneficiaries to make informed choices. CMS should require MA plans to disclose more detailed information about their operations, including data on prior authorization rates, provider network composition, and cost-sharing requirements.
• Strengthening Oversight: Strengthening oversight of MA plans is crucial for ensuring that they are complying with program rules and regulations and providing high-quality care to beneficiaries. This could involve increasing the frequency and intensity of audits, implementing more effective penalties for non-compliance, and providing beneficiaries with a clear and accessible process for reporting concerns.
• Improving Beneficiary Education: Investing in beneficiary education is essential for empowering beneficiaries to navigate the complex Medicare landscape and make informed choices. CMS should expand its efforts to provide clear, concise, and unbiased information about traditional Medicare and MA, and it should work with community-based organizations to reach beneficiaries who may need additional assistance.
• Addressing Adverse Selection: CMS should continue to monitor and address the potential for adverse selection in MA. This could involve refining the risk adjustment model to better account for differences in health status between MA and traditional Medicare enrollees, and implementing policies to encourage healthier beneficiaries to enroll in MA plans.
• Promoting Value-Based Care: Encouraging MA plans to adopt value-based care models that reward quality and efficiency could help to improve health outcomes and reduce costs. This could involve implementing incentives for plans to participate in accountable care organizations (ACOs) or other alternative payment models.

7. Conclusion

Medicare Advantage has become an integral part of the Medicare program, offering beneficiaries a diverse range of coverage options and benefits. However, the program faces significant challenges related to cost, quality, risk adjustment, and transparency. Addressing these challenges requires a comprehensive and multifaceted approach that involves refining the risk adjustment system, revising benchmark payments, enhancing transparency, strengthening oversight, improving beneficiary education, and promoting value-based care. By implementing these reforms, CMS can ensure that MA delivers on its promise of providing high-quality, affordable care to Medicare beneficiaries while promoting the long-term sustainability of the Medicare program. Further research is needed to fully understand the impact of MA on health outcomes, costs, and access to care, and to identify best practices for optimizing the program’s performance. The implementation of strong policies for MA is critical for ensuring the healthcare needs of a growing population are met. The sustainability of the program requires an integrated and flexible system.

References

[1] MedPAC. (2023, March). Report to the Congress: Medicare Payment Policy. Washington, DC.

[2] Government Accountability Office. (2021, November). Medicare Advantage: CMS Should Take Steps to Address Weaknesses in Its Oversight of Payments. GAO-22-104275.

[3] Biniek, J. F., & Hall, J. (2023). Medicare Advantage Prior Authorization Policies for Cancer Care. JAMA Health Forum, 4(5), e231193.

[4] Romley, J. A., Huckfeldt, P. J., McGlynn, E. A., & Newhouse, J. P. (2021). Quality Measurement in Medicare Advantage: Progress and Remaining Challenges. Health Affairs, 40(2), 234-243.

[5] Centers for Medicare & Medicaid Services. (2023). Medicare Advantage Risk Adjustment Data Validation (RADV) Program. https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Risk-Adj-Validation

[6] Glazer, J., & McGuire, T. G. (2021). Reforming Medicare Advantage Risk Adjustment: A Proposal. Health Affairs, 40(4), 537-543.

[7] Neuman, T., Cubanski, J., Freed, M., Damico, A., & Casillas, G. (2022). Medicare Advantage in 2022: Enrollment Update and Key Trends. KFF.

[8] Jacobson, G., Rae, M., & Huang, J. (2019). An Examination of Medicare Advantage Plan Switching. KFF.