The Apixio Blog

Healthcare Reform Lessons from Medicare Advantage

With replacement or adjustment for the Affordable Care Act (ACA) back on the administration’s agenda, Medicare Advantage continues to emerge as a bright spot of bipartisan agreement; earlier this year, 65 Senators signed a letter in support of the program. So what makes Medicare Advantage the poster child for healthcare reform? In a nutshell: It works.

CMS created Medicare Advantage in 2003; under the program, private insurers connect patients with individual medical groups and preferred provider networks to provide services and coverage that aren’t always available under the original Medicare plans, such as hearing, vision, dental care and prescription drug coverage. Within Medicare, the payment structure of the program is unique in that insurers are provided a lump sum for each patient’s care, instead of fees for each service they provide— a reimbursement model that empowers providers to deliver value-based care.

To date, more than 18 million Americans are enrolled in Medicare Advantage plans and nearly one of every three Medicare beneficiaries has chosen a Medicare Advantage plan. Not only are Americans increasingly enrolling in these plans, but they are also satisfied with them. In 2015, a KPMG report found that 75 percent of Medicare Advantage enrollees were very or somewhat satisfied with their current plan, compared to only 68 percent of those enrolled in traditional fee-for-service Medicare.

So what’s the draw? Medicare Advantage has successfully devised a plan that offers enrollees affordable, high-quality, patient-centered care with extensive options, while incentivizing providers to keep people well.

While the program is not all sunshine and rainbows, its success is something that the healthcare industry can learn from. Here are a couple lessons we can take from the pages of Medicare Advantage’s playbook.

Lesson 1: Keep Care Affordable with Accurate Compensation for Insurers

First, Medicare Advantage has struck upon an incentive system that fairly rewards insurers for providing value-based care. This wasn’t always the case, though.

In its early years, Medicare Advantage insurers were paid the same amount for every person enrolled in their health plan – whether they were relatively healthy or suffered from complicated chronic conditions. Consequently, the government seemed to overpay plans for healthier enrollees and underpay them for sicker enrollees. As a result, insurers were incentivized to enroll healthier patients and avoid sicker patients – a roadblock to delivering high-quality and affordable care to those who needed it.

To solve this problem, the Centers for Medicare & Medicaid Services (CMS) implemented risk adjustment for Medicare Advantage plans in 2004. Generally, risk adjustment defines the health and well-being of a specific individual, aggregates the health of all individuals across a plan and then sets how much a particular insurance company or healthcare provider will get paid per-patient. These payments are based on how sick or healthy their particular membership is, ensuring sick patients get the care they need and providers get reimbursed for providing that care.

Since Medicare Advantage plans are paid the average cost of caring for the average person, it ultimately incentivizes organizations to deliver cost-effective care across a population.

The introduction of risk adjustment has resulted in lower costs to taxpayers for maintaining Medicare Advantage, as well as improved coverage and care for high-cost patients. According to a KPMG report, providers under Medicare Advantage reported savings of $86.68 per member per month in the first year and $47.03 in the second year, compared with patients in non-Medicare Advantage-affiliated practices.

With results like that, it’s easy to see why Medicare Advantage’s use of risk adjustment is an important lesson as the government looks for ways to bend the cost curve of Medicare and healthcare in general, while maintaining access and quality.

Lesson 2: Incentivize Comprehensive Care Coordination for Better Care Outcomes

A health plan doesn’t become successful just through managing costs— it must also deliver quality outcomes. Medicare Advantage directly impacts and improves chronic disease management and care coordination. According to research from Elsevier Clinical Solutions: “Medicare Advantage plans, which are required to make chronic disease management a core plan function, produce better outcomes on a number of quality measures than are seen within the fee-for-service program.”

In fee-for-service models, individual physicians are paid based on the services they provide to beneficiaries such as an office visit, a test or a procedure. As a result, less emphasis and attention may be paid toward the documentation, analysis and long-term care coordination of a patient’s health and wellness. Instead, the focus may be placed on documenting every procedure or test given in order to receive reimbursement.l.

Under Medicare Advantage models, however, provider networks operate with a global budget that is tied to their ability to measure and report on care coordination, clinical outcomes and beneficiary satisfaction. This encourages practitioners to accurately document clinical diagnoses to ensure that beneficiaries receive the appropriate care management and related services based on their condition. It’s proven that effective documentation and diagnosis result in earlier treatment interventions, higher treatment rates and consequently better health outcomes.

Additionally, since the global budget is calibrated based on the diseases that patients have — not the number of procedures performed — incentives are aligned for all parties. Medicare Advantage programs perform best when the physicians and hospitals provide comprehensive preventive services, intervene early for patients with chronic illnesses and avoid complications.

A Path Forward

Surely, Medicare Advantage has its share of thorny issues, including the recent block of Aetna’s acquisition of Humana and widespread inaccuracies found in Medicare Advantage provider directories. However, it’s clear that it is a successful part of the healthcare system that has given both enrollees and the government better value for each healthcare dollar spent.

As government officials and the industry navigate the healthcare changes, take a look at Medicare Advantage and its value-based approach to managing it, and learn from what works.