A key advisory panel wants to redistribute a small amount of total spending for Medicare Advantage plans to make payments to insurers more accurate and help correct a problem with overspending in the increasingly popular program.
The Medicare Payment Advisory Commission, which advises Congress on Medicare payment issues, included in its biannual report to Congress (PDF) Wednesday recommendations on modifying outliers in MA payments. The recommendations come amid heightened scrutiny from the panel on risk adjustment and drivers of overspending in the MA program, which comprises nearly half of all beneficiaries in Medicare.
“Improving the accuracy of MA risk adjustment is a goal for the commission,” MedPAC wrote to Congress. “This approach would help accomplish that goal without any additional burden on plans or beneficiaries to provide additional data.”
The recommendation focuses on the risk adjustment process used by the Centers for Medicare & Medicaid Services (CMS) to help determine payments to MA plans.
MA plans get a monthly, capitated payment based on two parts: a rate based on the plan’s bid and benchmark rates based on average fee-for-service spending in an area and a risk score.
The risk score is increased or decreased based on an enrollee’s health compared to a national average.
“How well Medicare payments to MA plans match their enrollees’ costliness depends in large part on how well the risk scores predict the expected costs for the plans’ enrollees,” the report said.
CMS uses a risk adjustment model called the hierarchical condition category (HCC) that relies on a beneficiary’s demographics and medical conditions to predict how costly it is to treat them. The model is updated frequently to reflect new treatment costs.
MedPAC said that the HCC has been mostly successful at avoiding systemic underpayments and overpayments for most patient populations. However, there remains a key problem with outliers: beneficiaries that have a major gap between the actual costs for care and costs predicted by the HCC.
These outliers could cause plans to lose money as they could spark over- or underpayments from Medicare. They also could incentivize plans to avoid or attract certain beneficiaries that may lead to higher or lower payments.
MedPAC wants to address outliers by relying on reinsurance, which can give plans with sicker patients’ higher payments. The concept has been used in other types of insurance markets but not generally in MA because medical cost data that serve as the basis for determining repayments aren’t available.
Rather than adjusting the payments to the plans, MedPAC recommended redistributing the costs of the largest underpredictions and overpredictions for treating patients.
However, if too many costs are redistributed, it could potentially affect the accuracy of the model and may not “accurately reflect the cost of treating the conditions represented by some HCCs,” MedPAC wrote.
MedPAC found the number of enrollees that have their costs adjusted would be small as the adjustments would only trigger when the model underpredictions or overpredictions are very large.
MedPAC also emphasized that while its changes to the prediction model could address outliers, there are other drivers in MA overspending that are not affected. Chief among them is the issue of up-coding where medical conditions are coded more intensely relative to coding for a traditional Medicare beneficiary to inflate the risk scores of patients.
“While we encourage CMS to explore how outliers affect risk adjustment, addressing these issues will likely require more complex model methods than the approach we evaluated,” MedPAC’s report said.
The findings come amid increased scrutiny over higher spending on MA compared with traditional Medicare. A 2021 analysis from the Kaiser Family Foundation estimated MA spending outpaced traditional Medicare by $7 billion in 2019.
Health and Human Services Secretary Xavier Becerra has said that he wants to look further into MA to ensure the agency “gets its moneys worth” but so far has taken no action. The most recent payment rule for the MA program kept the risk adjustment method the same.
The advocacy group Better Medicare Alliance said in a statement that it appreciates MedPAC’s acknowledgment that risk adjustment in MA has been largely successful but shies away from endorsing the reinsurance approach.
“We and our partners across the Medicare Advantage community have long been committed to stable and accurate risk adjustment policies,” said President and CEO Mary Beth Donahue in a statement.