Panelists Discuss Implications of Rapid Growth of Medicare Advantage

Medicare Advantage plans now insure more than half of eligible Medicare beneficiaries. A panel of experts recently convened by the Leonard Davis Institute of Health Economics at the University of Pennsylvania addressed some questions about the costs of the program, the value it brings to consumers and payers, and how well it serves the increasingly diverse group of enrollees who receive their Medicare coverage from MA plans.

The talk was moderated by David Grande, M.D., M.P.A., director of policy at Penn LDI and associate professor of medicine at the Perelman School of Medicine, who set up the discussion.

Grande said that although Medicare Advantage (MA) now serves more than half of all Medicare beneficiaries, we see wide variation of Medicare Advantage enrollment across states, with some states in the single digits and some as high as 60 percent. Looking across U.S. counties, there are very high Medicare Advantage penetration rates mostly in large urban areas. Enrollment in the program is also highly concentrated among a relatively small number of managed care companies. 

Enrollment trends vary by racial groups, he added, with Black, Asian and Hispanic enrollees signing up at higher rates than white enrollees. But members of racial and ethnic minority groups also tend to be in plans with lower quality ratings. “So as the program takes on this very large role in the delivery of healthcare to millions of Americans, there are a lot of questions about whether it's fulfilling its original goal of delivering quality care at lower costs compared to traditional fee for service Medicare,” Grande said, as he asked the panelists to weigh in on what needs to be studied to have a better understanding for policymakers. 

Tricia Neuman, Sc.D., senior vice president and executive director of the Program on Medicare Policy, and senior advisor to the president at KFF, said people who are Black or Hispanic or from other racial or ethnic groups are enrolling in Medicare Advantage in rapid numbers, in part because they feel a financial imperative to do so, because Medicare Advantage plans don't have a supplemental premium, and offer these extra benefits, or they may be passively enrolled because they're also on Medicaid. “But it would be great to know more about their experiences in Medicare Advantage plans,” she said. “For example, we don't know who's using these extra benefits and whether they get value. We don't know very much about outcomes and how that varies by race and ethnicity. We don't know about prior authorization and denials and whether that differs among people based on race and ethnicity. So as more and more people of color are moving into Medicare Advantage plans, I think it's really important to collect better information so we understand how well these programs are really working for people, including those with the lowest incomes and the greatest needs.”

Zirui Song, M.D., Ph.D., associate professor of health care policy and medicine in the Department of Health Care Policy at Harvard Medical School, was asked about the impact of vertical integration in the Medicare Advantage space. 

He said we are seeing quite diverging paths among providers. There are health systems starting MA plans of their own. There are also primary care physician groups that have become MA plans or purchased the risk from the plans to manage the care of that population of patients, where the plan gets a cut off the top and the provider group keeps the remainder under the capitation, he explained. Insurers that have large books of business in MA have increasingly acquired providers directly. Examples include the United Healthcare ownership of 70,000 doctors in America, as they report, or the CVS Aetna acquisition of Oak Street and Signify Health, which is a home health company, or the Amazon acquisition of One Medical recently, which is another primary care practice that previously acquired Iora. 

"These are all examples of this type of consolidation or corporatization, so to speak, of primary care delivery, but also in general, this merging of both the insurance function and direct healthcare provision,” Song said. 

“At the same time this is happening, the diverging path in parallel is that we also have emerging news of health systems dropping MA plans, and indeed other health systems discouraging patients from enrolling in MA in the first place,” he said. “Rather than embracing MA, there are many examples in California, Oregon, South Dakota, Oklahoma, Montana, Kentucky, Georgia, Ohio that I can think of where hospitals have decided to walk away from MA and actively push patients or nudge patients to not enroll in MA plans,” he said. “This is largely due to the prior authorizations and denials. What distinguishes these two diverging paths? Well, one factor may be that the physician groups that are embracing MA tend to have a primary care function, where they have the attribution of the covered lives and where they get to keep the savings from the capitation and where they can also largely control the coding of diagnoses and the management of the care, whereas hospital systems that have decided to shun MA are those that don't have a primary care base and rely on referrals, where denials and prior auth really matter for people's access to them. So it's not yet clear whether these two diverging paths will go and whether one will outlive the other. Neither path has been rigorously evaluated to date and frankly, it’s too early to tell what the implications are for providers or patients on a large scale.”

Richard Frank, Ph.D., senior fellow in economic studies and director of the USC-Brookings Schaeffer Initiative on Health Policy, and a professor of health economics, emeritus, in the Department of Health Care Policy at Harvard Medical School, followed up on Song’s observations on vertical integration. 

“He's absolutely right about where the market seems to be going. And there's a tension. When we think about vertical integration, on one hand, you would think that health plans owning physician practices, hospitals, other kinds of services could potentially lead to better coordination of care, more continuity. That would be the plus side,” Frank said. “The minus side is that you're creating market power that drives the market toward higher prices and higher profits. We don't know exactly how that sorts out. But there are opportunities, and the evidence that exists certainly doesn't make it clear that there's a huge efficiency gain from this, although it's early days.”

One other aspects of vertical integration is that it creates new opportunities to end-run some of the price regulations like the medical loss ratios, Frank added, because when you own a subsidiary, you can charge yourself a higher price and take your profits in a different form that's not regulated. “So the physician practice can charge the health plan more money. That helps them on their medical loss ratio calculation. It moves the profits into this other sphere. To some extent, there are ways to address that through the regulation of transfer prices, but we don't do that. I think that's another thing to consider.”

Addressing the impact of the shift to MA on the sustainability of the Medicare system overall, Mark E. Miller, Ph.D., executive vice president, health care, for Arnold Ventures, said, “My motivation is always: pay what you need to pay in order to assure that the beneficiary gets access to quality of care. There are many places where, as taxpayers, we're paying more than we should be.”

He stressed that the beneficiary is also paying to support the program. “If we're unnecessarily paying because there's upcoding on the risk scores, the beneficiaries are also carrying that cost, and to the extent that it's happening on the MA side, all of the beneficiaries in the program are paying for it because it gets ground into the premium that they pay,” Miller said. “So the taxpayer issue is also a beneficiary issue.”

The program needs to be thought about in terms of its long-run sustainability — how to restructure the fee-for-service benefit, the MA benefit, how we set the rates throughout that, Miller said. The immediate question, he said, is what's going on in MA where this is not a value to the taxpayer or the beneficiary. “There has been a tremendous amount of upcoding in the program in the risk system. I think some of the latest estimates out of MedPAC are north of $20 billion annually, which I don't see as a value to the taxpayer or to the patient. There is a recent round of research that suggests that there are selection effects that are being reflected here, which, depending on how they play out relative to the coding, may mean an additional amount of overpayment. The quality program, in my view, is an add-on payment. There are measurement issues and gaming issues in the quality measurement and payment process that I would completely reform if it were up to me.”

Grande asked the panelists to think about the next two years, and put themselves in the position of policymakers who are wrestling with budgetary issues. Looking at this rapid growth of Medicare Advantage, he asked: What’s the most important thing the federal government could do over the next couple of years to lay the groundwork for future reform that sets us on a better path than where we are today?

Neuman responded that there are very tangible things that can be done to make the marketplace more transparent. ‘What are people actually using and getting for all the advertising that we are seeing? We have no idea. I think it would be very helpful for people to know about denials across plans, and network accuracy and some kind of monitoring across plans. There's a lot of work that could be done to improve what policymakers and researchers know, and what beneficiaries can know in understanding how well the system is working and how to make choices.”

Frank said his suggestion would be to do a variety of things to promote competition. “If you want to bet on competition, do everything you can to make it real. One thing would be get away from using the county as a market definition. There are lots of ways to reorganize markets so that you can actually get enough plans in to compete. A second thing would be make it harder for plans with a lot of market power to do things like vertically integrate and game the regulatory system. The third thing is to be honest about the information, and make people understand what they're really paying and getting and then finally, make traditional Medicare a viable alternative.”

Song said he would suggest trying to make the traditional Medicare program stronger. “Currently, the system is performing the way that it is set up to perform,” he said. “The substantial subsidies to MA make it so much more attractive relative to traditional Medicare. There are plenty of explanations for why beneficiaries have voted with their feet to move to MA, but there are many ways in which we can make traditional Medicare a more viable option that disciplines the MA market.”

He also stressed that “since we know that more Black beneficiaries and disadvantaged beneficiaries now increasingly through dual and special needs plans are enrolling in the MA program, it’s even more important that there's a viable competitor to discipline and serve as a counterweight to this MA program, which is caring for increasingly disadvantaged beneficiaries. “Obviously, there are many ways to do this,” he said. “One is to maintain that viable alternative and retain the administrative ability of CMS to set benchmarks and payment rates in a way that makes both programs viable rather than losing one.

Miller said that if he were asked to name one thing that should be done, he would recommend recapturing all of the upcoding. “Don’t leave that $20 billion overpayment out there. Recapture it.”