On Monday, the Centers for Medicare and Medicaid Service (CMS) announced that benchmark payments to insurers for Medicare Advantage plans would increase by an average of 1.25% in 2016, a departure from the 0.95% cut proposed in February. "Growth rates reflect the actuary's best estimate of Medicare spending, and don't reflect any change in our policies," Sean Cavanaugh, director of the Center for Medicare, said during a press conference. Actual reimbursement will vary based on star ratings and other factors, but CMS expects average revenue to insurers to increase by around 3.25%.
One of the most notable changes for 2016 is that CMS is fully transitioning to a new risk-adjustment model after using a mixture of the old and new models in 2015. Risk adjustment allows CMS to pay plans for the risk of the beneficiaries they enroll, instead of paying an average amount for Medicare beneficiaries. Payments are adjusted based on the health status and demographic characteristics of an enrollee. Risk scores are used to measure individual beneficiaries' relative risk and to adjust payments for each beneficiary's expected expenditures.
Industry response
Insurers have been lobbying against the transition to the new model. A report prepared by Oliver Wyman on behalf of America's Health Insurance Plans (AHIP) says the new model "will significantly impact Medicare Advantage plans' population-based approach to care that has resulted in fewer preventable hospitalizations, better access to primary and preventive care, and more appropriate utilization of services as documented in recent studies." The report also said the new model would result in a 23% reduction in plan payments for people with chronic kidney disease.
CMS received several comments from insurers opposing the full transition to the newer model. Some requested a continued delay or a more gradual transition; others asked that the new model not be implemented at all. CMS responded, "While we appreciate the comments, we have been using the new model to some degree for two years and believe the industry should be ready for a full transition to the 2014-CMS-HCC model."
The risk-adjustment model has been widely criticized due to reports that healthcare organizations have inflated risk scores in order to reap higher payments from Medicare. "I am not surprised that the agency stuck to its guns on the new risk model," Ipsita Smolinski, managing director of consulting firm Capitol Street and a former healthcare analyst on Wall Street told Modern Healthcare. "Payment accuracy is of utmost importance to CMS, and Congress for that matter. Whether it's hospitals or plans or post-acute providers, the Medicare program has an obligation to make sure that federal dollars are not being spent wastefully or in a fraudulent manner."
In a related statement, AHIP President and CEO Karen Ignagni said AHIP is still assessing the final rate notice released by CMS. "The final rate notice took a notable step to provide stable funding for the Medicare Advantage program," she said. "However, the lack of action to address policy concerns around providing care for the chronically ill and vulnerable populations could undermine health plans' efforts to address the needs of these beneficiaries."