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The Keckley Report

Is the Honeymoon Over for Medicare Advantage?

By October 10, 2022March 1st, 2023No Comments

Last week was a bad week for Medicare Advantage plans:

·        Overpayment allegation: Monday, a New York district judge handed down a ruling unfavorable to Anthem related to its defense against charges of overbilling vis a vis its risk adjustment practices (aka RADV audits). The Justice Department is using its False Claims authority to pursue Anthem’s business practice and recover more than $600 million in Medicare overpayment dating back to 2011. And the DOJ is proposing a change to how audits are conducted by removing Medicare Advantage insurers’ “fee-for-service adjuster.” comparison to traditional Medicare that could reduce the per enrollee monthly payment from Medicare to plans.  The implication is that alleged Medicare overpayments are likely to be recouped through more zealous regulatory scrutiny and technical changes to Medicare’s payment methodology. Margins will shrink and compliance costs will increase for MA plans.

·        Star Ratings slip: Thursday, CMS released its latest report on Star Ratings used to award bonuses to those to plans receiving 4 stars or higher: 260 MA plans with Part D coverage received four stars or more for 2023 (51%) –down from 322 plans (68%) the year before. of plans. 57 contracts received five-star ratings, down from 74 last year; 67 plans received 4.5 stars, down from 96 last year. And in 2023, only 72% of Medicare Advantage enrollees will be in contracts with four or more stars–down from 90% in 2022. The implication is that operating complexities and pent-up demand from post-pandemic healthcare needs have eroded the pre-Covid rosy future for MA.  

·        Quality of care questions: Friday, JAMA published a study that showed those enrolled in MA had lower rates of hospital stays, emergency department visits, and 30-day readmissions. The largest relative differences were observed for hospital stays, which ranged from −9.3% to −11.9% across different cohorts of beneficiaries with complex care needs. The researchers concluded: “Among Medicare beneficiaries with complex care needs, those enrolled in MA had lower rates of acute care utilization, suggesting that managed care activities in MA may influence the nature and quality of care provided to these beneficiaries.” It follows an April 2022 report by the OIG that found 13% of MA plans denied coverage for Medicare-authorized services. The implication is that the profitability in MA might be partially due to coverage denials harmful to enrollee (patient) care– a popular target of MA criticism.  

Not a good week for Medicare Advantage!

The issues are not new to MA sponsors and industry watchers: Medicare Advantage has been a huge financial success for insurers, but increasingly suspect for business practices. Healthcare journalists, policymakers, disgruntled providers and dissatisfied enrollees are “making more noise” and regulators are re-examining the MA value proposition: better care coordination for enrollees and lower spending for Medicare. Veteran industry journalist Bob Herman frames the issue this way: “The health insurance industry is continuing its campaign to convince the public that Medicare Advantage saves taxpayers money, but experts say federal data still concludes the exact opposite — and that the program as currently designed is a drain on Medicare’s trust fund.”

Dueling studies illustrate the growing tension between MA proponents and antagonists: The March Medicare Advisory Payment Commission Report to Congress advised that for every $1 the government spends on traditional Medicare, it spends $1.04 on Medicare Advantage. But America’s Health Insurance Plans counter that if out of pocket limits ($6700 for MA enrollees) were the same for traditional Medicare fee-for-service, costs would actually be 3.5% higher.  And a KFF report last year found the government (Medicare) spent “$321 more per person for Medicare Advantage enrollees than it would have spent for the same beneficiaries had they been covered under traditional Medicare in 2019” but an April analysis by the Department of Health and Human Services’ inspector general found that nursing home coverage was frequently denied by the private plans and though covered under traditional Medicare. Thus, conflicting data and differences in coverage obfuscate comparisons between MA and traditional fee for service Medicare and fuel a growing debate about the future for MA.

With open enrollment starting this Saturday (October 15), there’s much at stake. The question about Medicare Advantage’ cost effectiveness and overpayments by Medicare are the most immediate challenge, but others of consequence also elicit growing attention:

·        Equitable access: Medicare Advantage enrollees are slightly healthier and disparities in care management persist in MA plan offerings.

·        Coverage limits: Medicare Advantage plans are inclined to limit enrollee access to hospital and nursing home care more so than care provided Medicare Fee for Service enrollees.

·        Star Rating Methodology: The Medicare Advantage star rating system is constantly changing and some allege methodologically flawed. There’s much at stake: this year, 4-star plans are eligible for $10 billion bonus payments from Medicare.

·        Marketing practices: Regulators are keen to understand how plans influence enrollee choices vis a vis marketing, advertising, influencer incentives et al.

The bottom line: in the next 2-3 years, regulatory scrutiny of Medicare Advantage will increase and funding by Medicare will decrease. Congress will press for a clear correlation between Medicare’s solvency and MA cost-savings. Thus, it’s likely Medicare Advantage plans will charge higher premiums, limit benefits, intensify medical management activities, share more financial risk with high-performing provider organizations and offer services to new populations. Their margins will shrink, access to capital and enrollment growth will be imperatives, and innovation in holistic cost-effective care management and affordability key differentiators.  

My take:

This year, Medicare Advantage celebrates its 25th anniversary. It traces its roots to 1997 as ‘Medicare Choice’ in the Balanced Budget Act. In 2003, Medicare Part D (Prescription Drug Discount Program) was added and Medicare Part C aka Medicare Choice renamed as Medicare Advantage. Then, as now, its central feature was the alternative of enhanced coverage through private insurers vs. traditional Medicare Fee-for-Service. To compete for enrollees, MA plans today offer value-added services including telehealth (94%), eye exams/glasses (79%), 74% dental services (74%) and more. And half allow enrollees to bundle their prescription drugs (Part D) as part of their Part C coverage.

As of last month, Medicare Advantage enrolled 29,351,876 in its plans—48% of the entire Medicare population. That’s up from 25% in 2010 and 39% in 2019 (pre-pandemic) and is projected to reach 61% by 2032 (per CBO). Two-thirds are in individual plans (thus the avalanche of TV ads); 18% are in MA plans sponsored by their employer or union and 17% are in “special needs plans” largely composed of dual eligible and enrollees with severe chronic conditions. And the average Medicare enrollee will have a choice from 39 local MA plans as open enrollment starts this Saturday.

The MA industry is dominated by 3 mega-players (United, Humana, and CVS-Aetna) who enroll 57% of total enrollment in the US. Their enrollments are growing faster than their competitors threatening the viability of smaller plans that lack significant enrollment in their markets. Akin to concerns about deep-pocketed players in many sectors of healthcare, community-focused plans and provider organizations are threatened their dominance.

MA is popular with seniors but member complaints have doubled during the pandemic per CMS. As a result, it is testing Medicare Advantage 2.0 (Medicare Advantage (MA) Value-Based Insurance Design (VBID) Model) with 52 “High Performing” organizations starting next year adding wellness services, hospice care, reduced cost sharing and increased incentives to enhance the program’s long-term goal of lowering Medicare spending and improving senior health.

So, the honeymoon for Medicare Advantage is not over, despite misgivings about ‘managed care’ still prominent in many circles. Proponents see it as the necessary solution to affordability, equitable access, appropriate care and Medicare solvency. It’s far from perfect, and bad actors have been drawn to its profit-allure. But its potential outweighs its flaws.



Anthem Must Face U.S. Government Lawsuit Alleging Medicare Advantage Fraud URNWR October 3, 2022

Medicare Advantage in 2022: Enrollment Update and Key Trends KFF August 22, 2022.

Higher and Faster Growing Spending Per Medicare Advantage Enrollee Adds to Medicare’s Solvency and Affordability Challenges KFF August 17, 2021

Bob Herman Health insurers are painting a misleading picture of Medicare Advantage savings, experts say STAT News Sept. 26, 2022

Some Medicare Advantage Organization Denials of Prior Authorization Requests Raise Concerns About Beneficiary Access to Medically Necessary Care Office of the Inspector General April 2022

Nursing Home Surprise: Advantage Plans May Shorten Stays to Less Time Than Medicare Covers KHN October 4, 2022

Bob Herman Medicare Advantage quality ratings plunge as government resets to pre-pandemic standards Stat News October 7, 2022

2023 Medicare Advantage and Part D Star Ratings CMS October 6, 2022

Antol Comparison of Health Care Utilization by Medicare Advantage and Traditional Medicare Beneficiaries with Complex Care Needs JAMA Health Forum October 7, 2022;3(10):e223451. doi:10.1001/jamahealthforum.2022.3451

Some Medicare Advantage Organization Denials of Prior Authorization Requests Raise Concerns About Beneficiary Access to Medically Necessary Care Report in Brief April 2022, OEI-09-18-00260

Health costs, Affordability

CBO Report: Price caps on providers more effective than price transparency in lowering insurance premiums: “The prices that commercial health insurers in the United States pay for hospital and physician services are much higher, on average, and have been rising more quickly than the prices paid by public health insurance programs. Those rising prices—rather than growth in the per-person use of health care services—are an important driver of recent increases in premiums for commercial health plans. Higher premiums in turn increase the amount that individuals and employers pay for health insurance coverage and increase total federal subsidies for commercial health insurance… The prices that providers negotiate with commercial insurers are high because of several factors, including hospitals’ and physicians’ market power and consumers’ and employers’ lack of sensitivity to those prices…capping the prices that hospitals, doctors, and other providers charge private health insurers would lower health care prices significantly more than making providers reveal their prices or bulking up antitrust enforcement — cuts to the chase on how to make a dent in health care spending.

Policy Approaches to Reduce What Commercial Insurers Pay for Hospitals’ and Physicians’ Services Congressional Budget Office September 2022

Report: Administrative waste responsible for 7-15% of avoidable health spending in US: Administrative costs (non-clinical activity) accounts for 15-30% of U.S. health spending ($1055/capita in 2019)—double the % in other developed systems of the world. Potential savings from standardization of administrative activity would yield these annual savings: centralized claims clearinghouse ($300 mil), electronic prior authorization $417 million), harmonized quality reporting ($7 billion) and standardization of provider directories ($1.1 billion).

The Role of Administrative Waste in Excess US Health Spending Health Affairs October 6, 2022 10.1377/hpb20220909.830296

Economy, Workforce

Jobs Report: U.S. Economy Adds 263,000 Jobs in September, Labor Market Cooling:  The labor market slowed from August’s increase of 315,000 and the monthly average gain of over 400,000 during the first half of the year. Average hourly earnings rose by 10 cents/ 0.3%, or 3.8% on an annualized basis. The unemployment rate fell to 3.5% from 3.7%, returning to a multidecade low. In response, the Dow fell 2% and the Nasdaq dropped 4% as investors anticipate the Fed to raise interest-rates again for the 6th time this year resulting in higher interest costs for borrowed funds. Also of concern are prices: price decreases for other than fuel have slowed and the announcement of OPEC oil cuts could drive gas prices higher.  

Dow Falls More Than 600 Points Following Jobs Report WSJ October 7, 2022 Dow-Falls-More-Than-600-Points-Following-Jobs-Report

September’s Stock-Market Woes May Bode Well for October WSJ October 8, 2022


Study: Covid vaccination-booster uptake would save 90,000 lives: Per the Commonwealth-Yale study: 90,000 lives would be saved and more than 936,000 hospitalizations prevented if 80% of Americans eligible for the latest COVID-19 boosters get vaccinated by year’s end. Getting 80% of eligible Americans boosted could save $56.3 billion in direct medical costs, including $13.5 billion in Medicare spending and $4.5 billion in Medicaid spending.

Private markets are bigger than you think—and gaining ground on public equities James Thorne Pitchbook October 3, 2022

Covid Care Management: Japan vs. US: Veteran industry watcher extrapolate data comparing the Covid management in Japan to the US:

·        Population 65+: Japan 25% vs. US 15%

·        Primary vaccination: Japan 83% vs. US 68%

·        Boosters: Japan 95% vs. US 40.8%

·        Death rate: Japan 1 in 2758 vs. 1 in 315 US

Topol concludes: “Bottom line: In the United States we are not protecting our population anywhere near as well as Japan, as grossly evident by the fatalities among people at the highest risk. There needs to be far better uptake of boosters and use of Paxlovid in the age 65+ age group, but the need for amped up protection is not at all restricted to this age subgroup. Across all age groups age 18+ there is an 81% reduction of hospitalizations with 2 boosters with the most updated CDC data available, through the Omicron BA.5 wave.”

Ground Truths: a Substack by Eric Topol October 8, 2022

Risk factors, Social Determinants

Study: Loneliness linked to Type 2 diabetes: 24,024 participants were included in the analyses, of whom 1179 (4.9%) developed type 2 diabetes during the study period of 1995 to 2019. Participants with type 2 diabetes were most often men (59.3%) and had a higher mean age (47.9 years vs 43.3 years) compared with those without type 2 diabetes. Patients with type 2 diabetes were more often married (73.1% vs 67.5%) and had the lowest education level (34.8% vs 23.3%).

Various degrees of loneliness were reported by 12.6% of the participants. Participants who reported higher levels of loneliness had higher odds of type 2 diabetes (adjusted odds ratio [OR], 1.13; 95% CI, 1.00-1.28). Participants who had responded to the loneliness survey with “very much” had 2 times the risk of type 2 diabetes in a 20-year follow-up found in HUNT4 (adjusted OR, 2.19; 95% CI, 1.16-4.15).

The researchers concluded that a 20-year follow-up survey found that a 2-fold increased risk of type 2 diabetes was associated with a high degree of loneliness.

Henriksen RE, Nilsen RM, Strandberg RB. Loneliness increases the risk of type 2 diabetes: a 20-year follow-up–results from the HUNT study. Diabetologia. Published online September 28, 2022. doi:10.1007/s00125-022-05791-6


FDA issues final rule on clinical decision support software: On September 27, 2022, the Food and Drug Administration (FDA) issued its final guidance for Clinical Decision Support Software long-awaited by developers seek clarity for software functions that utilize algorithms to either support or provide clinical decisions for use by health care providers (HCPs). The final guidance clarifies four criteria used by the agency in defining its regulatory scope for software “intended to support HCP decision-making regarding the diagnosis, treatment, prevention, cure, or mitigation of diseases or other conditions, otherwise known as CDA.”  In its guidance, FDA clarifies types of CDS software functions that are excluded from the definition of a medical device and includes examples of device and non-device CDS, which should be carefully reviewed by developers when inking an FDA regulatory strategy.

Developers Take Note: FDA Issues Clinical Decision Support Software Final Guidance National Law Review September 28, 2022

Quality, Safety

NAHQ Study: Quality professionals’ competency expanding, wide variance reported: The National Association for Healthcare Quality (NAHQ) released results of its competency survey of 2,523 healthcare quality professionals and other individuals within healthcare organizations who have responsibility for quality and safety. Results:

·        Respondents consistently report working at higher levels of the competency spectrum in the following three domains: quality leadership and integration, regulatory and accreditation, patient safety

·        Respondents report working less often or at lower levels of the competency spectrum in the following domains: population health and care transitions, performance and process improvement, health data analytics, professional engagement, quality review and accountability