Warren calls for end to Direct Contracting, reforms to Medicare Advantage risk adjustment

Sen. Elizabeth Warren, D-Massachusetts, called for the Biden administration to pull the direct contracting payment model over fears it would turn Medicare over to “corporate profiteers.”

Warren also called for reforms during a hearing Wednesday of the Senate Finance Committee to risk adjustment practices she said Medicare Advantage plans are using to get overpayments from Medicare. The senator’s remarks come amid higher scrutiny of the popular MA program that has become a lucrative market for insurers.

“It is completely baffling to me that the Biden administration wants to give the same bad actors in Medicare Advantage free rein in traditional Medicare,” Warren said during the hearing on the solvency of the Medicare hospital insurance trust fund expected to run out of money in 2026. “President Biden should not permit Medicare to be handed over to corporate profiteers. Doing so is going to increase costs and put more strain on the hospital insurance trust fund.”

Warren took aim at the Direct Contracting Model, which aims to give capitated and partially capitated payments to providers to move away from fee-for-service.

The senator was concerned that the direct contracting entity can pocket any money it doesn't spend on patient care, creating more incentives for squeezing money out of Medicare.

She said private investors and insurance companies have started to buy up providers in the hopes of using similar practices employed in MA, including up-coding to inflate beneficiary risk scores that can result in higher quality bonus payments.

“I appreciate the potential that coordinated care models have to lower the cost of quality of care, but give me a break,” Warren said. “Wall Street is not racing to buy up clinics because they want to expand coordinated care models. Private equity and insurance companies want the eye-popping profits that are possible when the federal government lets them pocket whatever it is they can avoid spending on seniors and people with disabilities who need healthcare.”

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Warren also called for changes to the risk adjustment system for MA plans, pointing out that over the past 12 years MA plans have cost the federal government $143 billion more than traditional Medicare.

An MA plan gets paid based on a benchmark, which is based on the traditional fee-for-service spending in a geographic area. But those payments can be adjusted based on a patient’s risk scores, with higher scores equaling larger payments due to the need for more healthcare services.

Some critics have charged that there are issues with how the risk adjustment system is calibrated, and having a higher risk score in MA doesn’t necessarily mean the patient gets more or better care.

“Medicare Advantage plans are not finding new diagnoses so they can help people find more care,” Warren said. “They are doing it so they can make more money from Medicare, because that is how the system is set up.”

Medicare already takes some money out to adjust for miscalibration, but the Medicare Payment Advisory Commission (MedPAC), an independent panel that advises the federal government and Congress on Medicare issues, has called for them to do more.

“If you took out another three to four percentage points, which is our estimate of the added payment, in 2021 you would have saved about $10 billion,” testified MedPAC Chairman Michael Chernew, Ph.D., during the hearing.

Warren said cracking down on MA could help shore up the hospital insurance trust fund and help fund lowering the Medicare eligibility age or adding dental benefits to traditional Medicare. Progressive lawmakers had originally called for the new benefits in a massive $3.5 trillion social spending package that has been abandoned after concerns from centrists.

RELATED: MedPAC: Majority of Medicare beneficiaries to be on MA by 2023, but coding issues remain rampant

MA traditionally has wide bipartisan support in Congress, but progressives have been ratcheting up scrutiny of the program.

Before the social spending package was abandoned, Sen. Bernie Sanders, I-Vermont, endorsed looking into cuts to MA to help pay for it.

MA advocacy group Better Medicare Alliance pushed back on Warren’s remarks, tweeting out a report that MA delivers $32.5 billion in additional value to seniors via lower out-of-pocket costs and provides key supplemental benefits not covered by traditional Medicare.