oversight

Medicare Private Health Plans: Selected Current Issues

Published by the Government Accountability Office on 2012-09-21.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                             United States Government Accountability Office

GAO                          Testimony
                             Before the Subcommittee on Health,
                             Committee on Ways and Means, House
                             of Representatives

                             MEDICARE PRIVATE
For Release on Delivery
Expected at 9:30 a.m. EDT
Friday, September 21, 2012

                             HEALTH PLANS
                             Selected Current Issues
                             Statement of James Cosgrove
                             Director, Health Care




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GAO-12-1045T
                                              September 2012

                                              MEDICARE PRIVATE HEALTH PLANS
                                              Selected Current Issues

Highlights of GAO-12-1045T, a testimony
before the Subcommittee on Health,
Committee on Ways and Means, House of
Representatives



Why GAO Did This Study                        What GAO Found
As of August 2012, approximately              In March 2012, GAO issued a report on the Centers for Medicare & Medicaid
13.6 million Medicare beneficiaries           Services’ (CMS) Medicare Advantage (MA) quality bonus payment
were enrolled in MA plans or Medicare         demonstration—a demonstration CMS initiated rather than implementing the
cost plans—two private health plan            quality bonus program established under the Patient Protection and Affordable
alternatives to the original Medicare         Care Act (PPACA). Compared to the PPACA quality bonus program, CMS’s
fee-for-service program. This testimony       demonstration increases the number of plans eligible for a bonus, enlarges the
discusses work GAO has done that              size of payments for some plans, and accelerates payment phase-in. CMS stated
may help inform the Congress as it            that the demonstration’s research goal is to test whether scaling bonus payments
examines the status of the MA
                                              to quality scores MA plans receive increases the speed and degree of annual
program and the private health plans
                                              quality improvements for plans compared with what would have occurred under
that serve Medicare beneficiaries. It is
based on key background and findings
                                              PPACA. GAO reported that CMS’s Office of the Actuary estimated that the
from three previously issued GAO              demonstration would cost $8.35 billion over 10 years—an amount greater than
reports on (1) the MA quality bonus           the combined budgetary impact of all Medicare demonstrations conducted since
payment demonstration,                        1995. In addition, GAO also found several shortcomings of the demonstration
(2) D-SNPs, and (3) Medicare cost             design that preclude a credible evaluation of its effectiveness in achieving CMS’s
plans. This information on cost plans         stated research goal. In July 2012, GAO sent a letter to the Secretary of Health
was updated, based on information             and Human Services (HHS), the head of the agency of which CMS is a part,
supplied by CMS, to reflect the status        stating that CMS had not established that its demonstration met the criteria in the
of cost plans in March 2012.                  Social Security Act of 1967, as amended, under which the demonstration is being
                                              performed.
What GAO Recommends
In a March 2012 report on the MA
                                              In September 2012, GAO issued a report on Medicare dual-eligible special needs
quality bonus payment demonstration,          plans (D-SNP), a type of MA plan exclusively for beneficiaries that are eligible for
GAO recommended that HHS cancel               Medicare and Medicaid. Dual-eligible beneficiaries are costly to Medicare and
the MA quality bonus demonstration.           Medicaid in part because they are more likely than other beneficiaries to be
HHS did not concur with this                  disabled, report poor health status, and have limitations in activities of daily living.
recommendation. In a September 2012           GAO found that two-thirds of 2012 D-SNP contracts with state Medicaid agencies
report on D-SNPs, GAO recommended             that it reviewed did not expressly provide for the integration of Medicare and
that D-SNPs improve their reporting of        Medicaid benefits. Additionally, GAO found that compared to other MA plans,
services provided to beneficiaries and        D-SNPs provided fewer, but more comprehensive supplemental benefits, such
that this information be made public.         as vision, and were less likely to use rebates—additional Medicare payments
HHS agreed with these                         received by many MA plans—for reducing beneficiary cost-sharing. GAO could
recommendations.                              not report on the extent to which benefits specific to D-SNPs were actually
                                              provided to beneficiaries because CMS did not collect the information. GAO also
                                              found that plans did not use standardized performance measures, limiting the
                                              amount of comparable information available to CMS.

                                              In December 2009, GAO issued a report on Medicare cost plans, which, unlike
                                              MA plans, are paid based on their reasonable costs incurred delivering Medicare-
                                              covered services and allow beneficiaries to disenroll at any time. GAO found that
                                              the approximately 288,000 Medicare beneficiaries enrolled in cost plans as of
                                              June 2009 had multiple MA options available to them. GAO updated this work
                                              using March 2012 data and found that enrollment in cost plans had increased to
                                              approximately 392,000 and that 99 percent of Medicare beneficiaries enrolled in
                                              cost plans had at least one MA option available to them, although generally fewer
View GAO-12-1045T. For more information,      options than in 2009.
contact James Cosgrove at (202) 512-7114 or
cosgrovej@gao.gov.

                                                                                         United States Government Accountability Office
Chairman Herger, Ranking Member Stark, and Members of the
Subcommittee:

I appreciate the opportunity to participate in today’s hearing on the status
of the Medicare Advantage (MA) program and Medicare cost plans—two
private health plan alternatives to the original Medicare fee-for-service
(FFS) program. 1 As of August 2012, approximately 13.6 million Medicare
beneficiaries—or about 1 of every 4—were enrolled in these Medicare
private health plan options. Expenditures for Medicare private health
plans reached approximately $123.7 billion in 2011.

In an effort to contain costs and encourage Medicare private health plans
to utilize resources effectively, the Patient Protection and Affordable Care
Act (PPACA) made changes to how MA plans are paid and introduced
bonus payments linked to the quality of care that they provide. In
November 2010, the Centers for Medicare & Medicaid Services (CMS),
the agency that administers Medicare, announced that instead of
implementing the PPACA quality bonus payment provisions, it would
conduct a demonstration of an alternative bonus payment system from
2012 through 2014 in which all plans would participate unless they
affirmatively opt out.

PPACA also included provisions that extended the availability of certain
types of Medicare private health plan options for beneficiaries.
Specifically, PPACA extended the authorization of special needs plans
(SNP)—a type of MA plan intended for beneficiaries with special needs,
such as those dually eligible for Medicare and Medicaid—through
December 31, 2013. PPACA also extended until January 1, 2013, the
deadline after which Medicare cost plans in service areas with sufficient
MA competition may no longer be renewed. Medicare cost plans differ
from MA plans in that they are paid on the basis of their reasonable costs
incurred delivering Medicare-covered services. In comparison, MA plans
are paid a fixed monthly payment per beneficiary and bear financial risk if
their costs exceed Medicare payments.



1
 Both MA plans and Medicare cost plans—the term we use to refer to Social Security Act
§1876 Medicare cost contracts—are generally required to provide the same benefits as
Medicare FFS. In addition, MA plans may offer benefits not provided under Medicare FFS,
such as reduced cost sharing or vision and dental coverage. Medicare cost plans may
also offer optional additional benefits to beneficiaries, but beneficiaries who opt for these
additional benefits would be responsible for their entire cost.




Page 1                                                                         GAO-12-1045T
                   We have conducted several analyses that may help inform the Congress
                   as it examines the status of the MA program and the private health plans
                   that serve Medicare beneficiaries. My remarks today will focus on three of
                   these analyses. Specifically, I will discuss key background information
                   and findings from our recent work on (1) the MA quality bonus payment
                   demonstration, (2) SNPs for dual-eligible beneficiaries, and (3) Medicare
                   cost plans. My remarks are based largely on our previously issued work. 2
                   We updated our prior work on Medicare cost plans by including more
                   recent data supplied by CMS on the number of Medicare cost contracts,
                   enrollment in cost plans, and the number of MA options available to
                   beneficiaries enrolled in cost plans. We conducted this performance audit
                   in accordance with generally accepted government auditing standards.
                   Those standards require that we plan and perform the audit to obtain
                   sufficient, appropriate evidence to provide a reasonable basis for our
                   findings and conclusions based on our audit objectives. We believe that
                   the evidence obtained provides a reasonable basis for our findings and
                   conclusions based on our audit objectives. In addition to these three
                   reports, my statement includes information from a legal analysis we
                   recently issued on the MA Quality Bonus Payment Demonstration. 3


                   CMS’s quality bonus payment demonstration includes several key
MA Quality Bonus   changes from the quality bonus system established by PPACA.
Payment            Specifically, PPACA required CMS to provide quality bonus payments to
                   MA plans that achieve 4, 4.5, or 5 stars on a 5-star quality rating system
Demonstration      developed by CMS. 4 In contrast, the demonstration significantly increases
                   the number of plans eligible for a bonus, enlarges the size of payments
                   for some plans, and accelerates payment phase-in. In announcing the


                   2
                    See GAO, Medicare Managed Care: Observations about Medicare Cost Plans,
                   GAO-10-185 (Washington, D.C.: Dec. 28, 2009); Medicare Advantage: Quality Bonus
                   Payment Demonstration Undermined by High Estimated Costs and Design Shortcomings,
                   GAO-12-409R (Washington, D.C.: Mar. 21, 2012); and Medicare Special Needs Plans:
                   CMS Should Improve Information Available about Dual-Eligible Plans’ Performance,
                   GAO-12-864 (Washington, D.C.: Sept. 14, 2012). See individual reports for details on the
                   objectives, scopes, and methodologies.
                   3
                    See GAO, Medicare Advantage Quality Bonus Payment Demonstration, B-323170,
                   July 11, 2012.
                   4
                    Patient Protection and Affordable Care Act, Pub. L. No. 111-148, §§ 3201-02, 124 Stat.
                   119, 442, 454 (Mar. 23, 2010), as amended by the Health Care and Education
                   Reconciliation Act of 2010, Pub. L. No. 111-152, § 1102, 124 Stat. 1029, 1040 (Mar. 30,
                   2010) (hereafter, “PPACA”).




                   Page 2                                                                     GAO-12-1045T
demonstration, CMS stated that the demonstration’s research goal is to
test whether scaling bonus payments to the number of stars MA plans
receive under the quality rating system leads to larger and faster annual
quality improvement for plans at various star rating levels compared with
what would have occurred under PPACA.

In March 2012, we reported that CMS’s Office of the Actuary (OACT)
estimated that the demonstration would cost $8.35 billion over 10 years—
an amount that is at least seven times larger than that of any other
Medicare demonstration conducted since 1995 and greater than the
combined budgetary effect of all those demonstrations. 5 The cost is
largely for quality bonus payments more generous than those prescribed
in PPACA. Plans are required to use these payments to provide their
enrollees enhanced benefits, lower premiums, or reduced cost-sharing. 6
We also found that the additional Medicare spending will mainly benefit
average-performing plans—those receiving 3 and 3.5-star ratings—and
that about 90 percent of MA enrollees in 2012 and 2013 would be in plans
eligible for a bonus payment. As we noted in our report, while a reduction
in MA payments was projected to occur as a result of PPACA’s payment
reforms, OACT estimated that the demonstration would offset more than
70 percent of these payment reductions projected for 2012 alone and
more than one-third of the reductions for 2012 through 2014.

Our March 2012 report also identified several shortcomings of the
demonstration’s design that preclude a credible evaluation of its
effectiveness in achieving CMS’s stated research goal. Notably, the
bonus payments are based largely on plan performance that predates the
demonstration. In particular, all of the performance data used to
determine the 2012 bonus payments and nearly all of the data used to
determine the 2013 bonus payments were collected before the
demonstration’s final specifications were published. In addition, under the
demonstration’s design, the bonus percentages are not continuously
scaled. For example, in 2014, plans with 4, 4.5, and 5 stars will all receive
the same bonus percentage. Finally, since all plans may participate in the
demonstration, there is no adequate comparison group for determining
whether the demonstration’s bonus structure provided better incentives


5
GAO-12-409R.
6
 Bonuses under the demonstration increase the size of plan rebates, which are additional
payments received by many plans.




Page 3                                                                     GAO-12-1045T
for improving quality than PPACA’s bonus structure. We therefore
concluded that it is unlikely that the demonstration will produce
meaningful results.

Given the findings from our program review of the demonstration’s
features, we recommended in our March 2012 report that the Secretary of
Health and Human Services (HHS), who heads the agency of which CMS
is a part, cancel the demonstration and allow the MA quality bonus
payment system authorized by PPACA to take effect. We further
recommended that if that bonus payment system does not adequately
promote quality improvement, HHS should determine ways to modify it,
which could include conducting an appropriately designed demonstration.
HHS did not agree. It stated that, in contrast to PPACA, the
demonstration establishes immediate incentives for quality improvement
throughout the range of quality ratings. Regarding their proposed
evaluation of the demonstration, HHS did not consider the timing of data
collection to be a problem and said that the comparison group it would
use would enable them to determine the demonstration’s impact. We
continue to believe that, given the problems we cited, the demonstration
should be canceled.

In addition to our March 2012 report, we sent a letter on July 11, 2012, to
HHS regarding CMS’s authority to conduct the demonstration. 7 In our
letter, we stated that CMS had not established that the demonstration met
the criteria set forth in the Social Security Amendments of 1967, as
amended—the statute under which CMS is conducting the demonstration.
Specifically, the statute authorizes the Secretary to conduct
demonstration projects to determine whether changes in payment
methods would increase the efficiency and economy of Medicare services
through the creation of additional incentives, without adversely affecting
quality. 8 However, features of the demonstration, particularly those



7
GAO, Medicare Advantage Quality Bonus Payment Demonstration.
8
 Section 402(a)(1)(A) authorizes the Secretary to develop and engage in experiments and
demonstration projects “to determine whether, and if so which, changes in methods of
payment or reimbursement for health care and services under health programs
established by the Social Security Act … would have the effect of increasing the efficiency
and economy of health services under such programs through the creation of additional
incentives to these ends without adversely affecting the quality of such services.”
Relatedly, section 402(b) authorizes the Secretary to waive Medicare payment
requirements to carry out such demonstrations.




Page 4                                                                       GAO-12-1045T
                         regarding the timing of data collection for plan star ratings, call into
                         question whether the demonstration includes additional incentives to
                         increase the efficiency and economy of Medicare services and raise
                         concerns about the agency’s ability to determine whether the payment
                         changes under the demonstration result in increased efficiency and
                         economy compared to the payment methods in place under PPACA.


                         In 2003, Congress authorized the establishment of three types of MA
SNPs for Dual-Eligible   coordinated care plans for individuals with special needs: dual-eligible
Beneficiaries            special needs plans (D-SNP), which are exclusively for beneficiaries
                         eligible for both Medicare and Medicaid; institutional special needs plans
                         for individuals in nursing homes, and chronic condition special needs
                         plans for individuals with severe or disabling chronic conditions. Of the
                         three types of SNPs, D-SNPs are by far the most common, accounting for
                         about 80 percent of SNP enrollment as of September 2012.

                         The approximately 9 million dual-eligible beneficiaries are particularly
                         costly to both Medicare and Medicaid in part because they are more likely
                         than other Medicare beneficiaries to be disabled, report poor health
                         status, and have limitations in activities of daily living. Furthermore, their
                         care must be coordinated across Medicare and Medicaid, and each
                         program has its own set of covered services and requirements.

                         In September 2012, we reported that the 2012 D-SNP contracts with state
                         Medicaid agencies that we reviewed varied considerably in their
                         provisions for integration of benefits. 9 Two-thirds of the 124 contracts
                         between D-SNPs and state Medicaid agencies that were submitted to
                         CMS for 2012 did not expressly provide for the integration of any benefits.
                         To carry out the requirement in the Medicare Improvements for Patients
                         and Providers Act of 2008 that each D-SNP contract provide or arrange
                         for Medicaid benefits to be provided, 10 CMS guidance required that, at a
                         minimum, contracts list the Medicaid benefits that dual-eligible




                         9
                         GAO-12-864
                         10
                             Pub. L. No. 110-275, §164, 122 Stat. 2494, 2571.




                         Page 5                                                            GAO-12-1045T
beneficiaries could receive directly from the state Medicaid agency or the
state’s Medicaid managed care contractor(s). 11

Like other MA plans, D-SNPs must cover all the benefits of fee-for-
service, with the exception of hospice, and may offer supplemental
benefits, such as vision and dental care. In addition, they must develop a
model of care that describes their approach to caring for their enrollees.
The model of care describes how the plan will address 11 elements,
including tracking measureable goals, performing health risk
assessments, providing care management for the most vulnerable
beneficiaries, and measuring plan performance and outcomes; and
D-SNPs must offer the benefits that allow them to actualize these
elements.

In our September 2012 report, we examined the supplemental benefits
offered by D-SNPs and found that D-SNPs provided fewer supplemental
benefits than other MA plans. However, the individual services covered
under vision and dental benefits were generally more comprehensive
than in other MA plans. Despite offering these supplemental benefits
somewhat less often than other MA plans, D-SNPs allocated a larger
percentage of their rebates—additional Medicare payments received by
many plans—to these benefits than other MA plans. They were able to do
so largely because they allocated a smaller percentage of rebates to
reducing cost-sharing.

We could not report on the extent to which benefits specific to D-SNPs
and described in the model of care were actually provided to beneficiaries
because CMS did not collect the information. For the 15 models of care
we reviewed, most did not report—and were not required by CMS to
report—the number of beneficiaries who received a risk assessment, for
example, or the number or proportion of beneficiaries who would be
targeted as “most vulnerable.” However, of the models of care we
reviewed, past completion rates for risk assessment varied widely among
the 4 plans that provided this information. None of the models of care we
reviewed reported the number of beneficiaries that were expected to
receive add-on services, such as social support services, that were
intended for the most-vulnerable beneficiaries.


11
  Only new and expanding D-SNPs are required to contract with state Medicaid agencies
in 2012. Beginning in 2013, all D-SNPs must contract with state Medicaid agencies. CMS
stated in its 2013 training materials that contracts must specify how Medicare and
Medicaid benefits are integrated and coordinated.




Page 6                                                                   GAO-12-1045T
                      We found that plans do not use standardized performance measures in
                      their models of care, limiting the amount of comparable information
                      available to CMS. Although the D-SNPs are required to report how they
                      intend to evaluate their performance and measure outcomes, CMS does
                      not stipulate the use of standard outcome or performance measures,
                      making it difficult to use any data it might collect to compare D-SNPs’
                      effectiveness or evaluate how well they have done in meeting their goals.
                      Furthermore, without standard measures, it would not be possible for
                      CMS to fully evaluate the relative performance of D-SNPs.

                      We concluded that there was little evidence available on how well
                      D-SNPs are meeting their goals of helping dual-eligible beneficiaries to
                      navigate two different health care systems and receive services that meet
                      their individual needs. Consequently, we recommended in our September
                      2012 report that CMS require D-SNPs to state explicitly in their models of
                      care the extent of services they expect to provide, require D-SNPs to
                      collect and report to CMS standard performance and outcome measures,
                      systematically analyze these data and make the results routinely
                      available to the public, and conduct an evaluation of the extent to which
                      D-SNPs have provided sufficient and appropriate care to their enrollees.
                      HHS agreed with our recommendations and in its comments on a draft of
                      our report, said that it plans to obtain more information from D-SNPs.

                      CMS is embarking on a new demonstration in up to 26 states with as
                      many as 2 million beneficiaries to financially realign Medicare and
                      Medicaid services so as to serve dual-eligible beneficiaries more
                      effectively. CMS has approved one state demonstration—
                      Massachusetts—and continues to work with other states. If CMS
                      systematically evaluates D-SNP performance, it can use information from
                      the evaluation to inform the implementation and reporting requirements of
                      this major new initiative.


                      In contrast to MA plans, which have a financial incentive to control their
Medicare Cost Plans   costs, a small number of Medicare private health plans—called cost
                      plans—are paid on the basis of their reasonable costs incurred delivering
                      Medicare-covered services. Medicare cost plans also differ structurally
                      from MA plans in several ways. For example, cost plans, unlike MA plans,
                      allow beneficiaries to disenroll at any time. Despite their enrollment only
                      totaling under 3 percent of Medicare private health plan enrollment,
                      industry representatives stated that cost plans fill a unique niche by
                      providing a Medicare private health plan option in rural and other areas
                      that traditionally have had few or no MA plans. Under current law, new


                      Page 7                                                         GAO-12-1045T
cost contracts are not being entered into and contracts with existing cost
plans cannot be extended or renewed after January 1, 2013 if sufficient
MA competition exists in the service area. 12 Additionally, in general,
organizations that offer cost plans and MA plans in the same area must
close their cost plan to new enrollment.

In our December 2009 report on cost plans, we examined the MA options
available to beneficiaries in these plans and found that all of the
approximately 288,000 Medicare beneficiaries enrolled in cost plans as of
June 2009 had multiple MA options available to them. 13 We also found
that, of the 22 cost plan contracts, 7 were closed to new enrollment in
2009. We recently updated this work with March 2012 data and found that
the number of cost plan contracts decreased from 22 in 2009 to 20 in
2012, with 6 of the 20 contracts being closed to enrollment. 14 Despite this
slight reduction in the number of contracts, enrollment in cost plans
increased by 36 percent during this time. 15 Of the approximately 392,000
Medicare beneficiaries enrolled in cost plans in March 2012, we found
that over 99 percent of cost plan enrollees continue to have at least one
MA option in March 2012; however, they generally have fewer MA options
than in June 2009 (see table 1). 16 This decrease in MA options for
beneficiaries enrolled in cost plans is consistent with the overall decrease
in MA plans over this period, as well as with CMS’s efforts to simplify MA




12
 Social Security Act, §1876(h)(5).
13
 GAO-10-185
14
  Between 2009 and March 2012, 1 new cost contract was closed to new enrollment. Of
the 7 cost plans contracts that were closed to enrollment in 2009, 5 remain closed to
enrollment, 1 contract is no longer in operation, and 1 has since become open to new
enrollment. All 7 of the cost plan contracts that were closed to enrollment in 2009—
including 1 contract that has since become open to enrollment—had lower enrollment in
March 2012 than they did at the end of 2009.
15
  This increase in enrollment was primarily due to increases in two plans in the Midwest—
one operated by Blue Cross Blue Shield of Minnesota, which exclusively serves enrollees
in Minnesota and gained over 65,000 enrollees, and another operated by Medica
Insurance Company, which primarily serves enrollees in Minnesota, North Dakota, South
Dakota, and Wisconsin and gained 54,000 enrollees.
16
  We conducted our analysis of MA options at the contract level. Within each contract, an
organization may offer one or more plans with different benefit packages. The percentage
of beneficiaries enrolled in cost plans with access to a given number of MA options would
be greater if we conducted the analysis at the plan level.




Page 8                                                                      GAO-12-1045T
                  plan offerings by eliminating potentially duplicative plans and those with
                  low enrollment.

                  Table 1: Medicare Cost Plan Summary Statistics, June 2009 and March 2012

                                                                                       June 2009         March 2012
                   Number of contracts                                                           22                  20
                   Enrollment                                                             287,796             392,048
                   Number of contracts closed to new enrollment                                   7                      6
                   Percentage of beneficiaries enrolled in cost plans
                   with access to at least
                         1 Medicare Advantage (MA) option                                    100%                 99%
                         5 MA options                                                         99%                 80%
                         10 MA options                                                        89%                 25%
                         15 MA options                                                        57%                   1%
                  Source: GAO analysis of CMS data.

                  Note: We conducted our analysis of MA options at the contract level. Within each contract, an
                  organization may offer one or more plans with different benefit packages. The percentage of
                  beneficiaries enrolled in cost plans with access to a given number of MA options would be greater if
                  we conducted the analysis at the plan level.


                  As part of our 2009 report on cost plans we also described the concerns
                  of officials from Medicare cost plans about converting to MA plans. We
                  found that the most-common concerns cited by these officials from
                  organizations that offered Medicare cost plans were potential future
                  changes to MA payments that may then necessitate closing the plan,
                  difficulty assuming financial risk given their small enrollment, and potential
                  disruption to beneficiaries during the transition.


                  For future contacts regarding this testimony, please call James Cosgrove
Contact and       at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our Offices
Acknowledgments   of Congressional Relations and Public Affairs may be found on the last
                  page of this statement. Other individuals who made key contributions
                  include Phyllis Thorburn, Assistant Director; Alison Binkowski;
                  Krister Friday; Gregory Giusto; and Eric Wedum.




(291084)
                  Page 9                                                                                GAO-12-1045T
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