MedPAC supports changes to the development of MA plan payment benchmarks

Medicare Advantage
The Medicare Payment Advisory Commission is evaluating changes to how Medicare Advantage plans are paid in order to rein in spending. (Getty/designer491)

A key Medicare advisory panel showed support for overhauling how Medicare Advantage (MA) plans are paid to bring payments more in line with traditional Medicare fee-for-service.

The Medicare Payment Advisory Commission, which develops recommendations to Congress on Medicare policy, discussed the issue during its Thursday meeting. The group was largely in favor of creating a new payment approach that calculates MA payments based on a blend of local and national spending as opposed to the current methodology, which sets benchmarks on a county-by-county basis.

The panel did not decide on how exactly to blend the Medicare benchmarks and has yet to formalize a recommendation to Congress. But the meeting underscored the panel’s desire to make reforms to the MA payment structure. MedPAC data show that MA plan payments are on average 2% higher than traditional Medicare.

“I believe this begins to correct issues with cliffs and geographic variation while putting more fiscal pressure on the plans,” said David Grabowski, a commission member and Harvard Medical School professor of healthcare policy.

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MA plans submit a bid that details the estimated revenue the plan will need to cover the basic Medicare benefit in Parts A and B. That bid is compared against a benchmark, which is based on the fee-for-service spending in the counties in the plan’s area. That benchmark can be increased if the plan quality reaches a certain level.

But the system has created benchmark “cliffs” in certain counties where a $1 difference in fee-for-service spending between counties could result in a $54 difference in the benchmark, a MedPAC staff report said.

If the benchmark is greater than the bid, which is usually the case, then the plan gets a base payment plus a rebate to make up the difference.

MedPAC staff reported that the current system hasn’t yielded “aggregate savings to Medicare.” Commission staff recommended a new benchmark that would include both local area and national historic healthcare spending.

The staff looked at how much weight should be given to local and national spending trends when developing the benchmark. It found that a blend based on 50% of local and 50% of national spending was the most promising option.

“Overall, a 50-50 blend was the only option that moved benchmarks in the lowest spending areas much closer to fee-for-service while also applying some additional pressure on the highest spending areas,” said MedPAC staffer Luis Serna during the meeting.

Other scenarios include a 70% local and 30% national split, and a 90% local to 10% national blend.

MedPAC’s report to Congress in June highlighted that MA has the potential to help address the growth in Medicare spending. MA plans have also grown in popularity in recent years despite payment reductions imposed by the Affordable Care Act, MedPAC found.

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Serna also noted that a change to the benchmarks could be applied more quickly than a larger payment overhaul.

Some members questioned about how aggressive any recommendation for new benchmarks should be. Paul Ginsburg suggested that the commission be more aggressive in its recommendation to Congress in order to get the changes needed to overhaul the program.

"I think it is a very effective way of getting at a long-festering problem,” Ginsburg, a professor of health policy at the University of Southern California, said in response to benchmarking.

But Karen DeSalvo, chief health officer at Google Health, pressed for caution.

She said she understands the need to be more aggressive in savings, but “we need to be balancing that with quality as we understand more about the quality of [MA] and how to compare that to fee-for-service.”