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CHAPTER 24 Health Plans and Medicare JOHN K. GORMAN, JEAN D. LEMASURIER, WILLIAM A. MACBAIN, STEPHEN J. BALCERZAK, WENDY K. BURGER, AND AMY HUANG

STUDY OBJECTIVES

• Understand the impact of both the Medicare Modernization Act and the Patient Protection and Affordable Care Act on Medicare managed care plans

• Understand the different types of Medicare D and Medicare Advantage programs • Understand what the ongoing contract requirements are for organizations that have entered into contracts • Understand the factors the government uses in determining payments to Medicare Advantage organizations, including the

STARS program • Understand the rights and responsibilities of Medicare enrollees of health plans • Understand some of the issues related to how an organization administers a Medicare contract • Understand how the government monitors and tracks Medicare Advantage and Part D plans

DISCUSSION TOPICS

1. Discuss state licensure requirements that an organization must comply with to become a Medicare Advantage plan, any exceptions to the state licensure requirement, and any cases in which special consideration is given to particular types of entities.

2. Discuss the different types of Medicare Advantage plans, the key differences between them, and why such differences exist. 3. Discuss the impact of the Medicare D drug bene�it and how that bene�it affects the market. 4. Discuss the kinds of consumer rights and protections available to enrollees, or prospective enrollees, of Medicare Advantage

plans. 5. Discuss how Medicare Advantage plans have been paid in the past, are paid now, and how they may be paid in the future.

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INTRODUCTION

On March 23, 2010, President Barack Obama signed sweeping health care reform legislation into law. The bill represented the biggest expansion of federal health care guarantees in more than four decades, and its enactment was a giant victory for the President and Democrats after a brutal legislative battle dating back to the start of his presidency. Not a single Republican supported the measure, and when Republicans gained a majority in the House in the 2010 mid-term elections, they vowed to “repeal and replace” the Patient Protection and Affordable Care Act (ACA). At the time of publication, no signi�icant element of the ACA has been repealed or blocked, but readers should note that every single major federal law has been amended, over and over again. Whether or not the ACA will be overturned is unknown, but the odds are very high that it will be amended in ways that cannot comfortably be predicted as of August 2011.

The ACA, with a near $1 trillion price tag and fundamental changes to health care �inancing and delivery, also made dramatic changes to Medicare Advantage (MA), the program in which Medicare contracts with private insurance companies, health service plans, and health maintenance organizations (HMOs) to provide bene�its to seniors and the disabled. MA plans suffered signi�icant cuts ($136 billion over 10 years), saw the introduction of a new payment methodology, witnessed the advent of performance-based bonuses, and had their enrollment season cut in half. In the wake of the largesse of the Bush administration and the Medicare Modernization Act (MMA) of 2003, with its payment increases and the introduction of the Medicare Part D drug bene�it, the ACA felt like a cold shower for many MA stakeholders. Yet the program continues to grow.

This chapter provides a summary of MA and Part D contracting provisions for all types of health plans, as modi�ied by the ACA and subsequent regulations and guidance. It starts with an explanation of the various types of health plans that can contract with Medicare, then to a discussion of how payment works in MA and Part D plans (PDPs). Following that is a discussion about how the Centers for Medicare and Medicaid Services (CMS) contracts with these companies, how the agency regulates virtually every aspect of plan operations, and how bene�iciaries’ and providers’ rights are protected.

One way of thinking about this chapter is that it describes the “farm team” of health reform. In MA and Part D, the government created subsidized individual and group markets for insurance, and through a tight framework of regulation and guidance, it delivered a public good with great value to one in four Medicare bene�iciaries. Health reformers have much to learn from this experience.

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24.1 BACKGROUND

For the last 30 years, a political “pendulum effect” has characterized the relationship between the Medicare program and the health plans contracting with it to provide bene�its to older adults and individuals with disabilities. The core of enrollment in Medicare plans is disproportionately lower-income and minority bene�iciaries—a typically Democratic constituency that trades some reduced choice of providers in exchange for less costly bene�its. But free-market Republicans remain the program’s staunchest supporters, while most Democrats rail against pro�iteering insurance companies and seek greater accountability for their performance. The increase in publicly traded health plans participating in the program in the 1990s and rising to prominence in the 2000s fanned partisan passions. For the past two decades, usually in conjunction with a change of leadership in either the White House or the Congress, legislation has been enacted that re�lects Washington’s mixed feelings about private companies organizing all health care services for those in Medicare. As a result, every several years the pendulum swings from free markets and competition to regulation and accountability.

Chapter 1 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i9#ch01) provided background on the early days of Medicare and managed health care. Recall that the origins of the HMO Act of 1973 were initially aimed at controlling the rising cost of traditional fee-for-service (FFS) Medicare, but when it came time to act, Congress passed the law but focused it on the employer-based sector, and provisions applicable to Medicare failed to accomplish much. It took until 1982, when Congress passed the Tax Equity and Fiscal Responsibility Act (TEFRA), to authorize the Medicare program to pay HMOs on a capitated basis, provided that they met Medicare’s participation requirements; regulations were not �inalized until 1985, however. The hope was that Medicare HMOs would lower costs and use the savings to offer more comprehensive bene�its than FFS Medicare, for example, less cost-sharing and coverage of prescription drugs, something that FFS Medicare didn’t cover at all. For the most part, that is exactly what happened.

Plan participation and enrollment in Medicare Risk and Cost (Section 1876) programs grew steadily until the late 1990s, propelled by investments made in the program by publicly traded companies such as Humana and United Healthcare. The trend was halted when President Bill Clinton signed the Balanced Budget Act (BBA) of 1997, which made signi�icant changes to Medicare health plan payments and instituted a number of aggressive operating requirements. Dozens of plans and approximately half of the bene�iciaries in the program (then called Medicare + Choice) exited over the ensuing 4 years.

The signing of the MMA of 2003 by President George W. Bush reignited enrollment with:

• The new Medicare Part D drug bene�it, administered entirely by the private sector through either free-standing PDPs or Medicare Advantage Part D Plans (MA-PDPs); • Renaming Medicare’s managed health care program Medicare Advantage; • Creating new regional MA preferred provider organization (PPO) plans; • Creating new special needs plans (SNPs); • Dramatically increasing payment for MA plans; and • Introducing competitive bidding and risk-adjusted payments.

The MMA was successful in that it made Medicare plans available to almost all bene�iciaries and signi�icantly increased enrollment. As of August 2011, out of 47.7 million Medicare bene�iciaries, enrollment in some type of private health plan, not counting Medicare supplemental insurance or MediGap, is as follows:

• Part D plans: 27.9 million enrollees Stand-alone PDPs: 18.3 million enrollees MA-PDPs: 9.7 million enrollees

• Other MA plans: 11.5 million enrollees • SNPs: 1.2 million enrollees1 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i297#ch24en1)

Medicare Part D has proven to be an unquali�ied success, with over 85% of enrolled bene�iciaries stating they are satis�ied or very satis�ied with their plan, and with the overall program costs coming in at $100 billion less than projected.

The pendulum swung back again when Congressional Democrats balanced much of the cost of health care reform in the ACA on to MA. Much of the cost of the ACA was paid for by Medicare payment reductions, with health plans taking $136 billion in payment cuts over 10 years. The ACA also ushered in a new era of value-based purchasing of health care by government: a data- driven rush to the highest-rated MA and PDP products at the lowest price. By 2017, the average MA plan will see payments cut by 17% relative to projections under the MMA, and will face unprecedented scrutiny of most aspects of their Medicare

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operations in near real-time. Furthermore, plans will see growing proportions of their revenues contingent on performance against dozens of quality and satisfaction measures.

Still, plan participation remains steady because MA and Part D have become staple products for many regional and local insurers like Blue Cross and Blue Shield plans, and the publicly traded companies now dominating the program. These large private payers derive an average of 26% of their revenues from Medicare—double the share of revenue in 1997. Medicare and private insurers are now codependent—the plans are in too deep to withdraw, and politicians are reliant on the private sector to “bend the cost curve” of Medicare’s unsustainable expenditures, especially on chronic diseases. Private health plans are entrenched in Medicare, and policymakers may always be ambivalent about that reality.

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24.2 TYPES OF MEDICARE ADVANTAGE PLANS

The Medicare law de�ines three categories of MA plans that private health companies can offer to Medicare bene�iciaries: Coordinated care plans that have contracted provider networks; medical savings account (MSA) plans that are Medicare’s version of consumer-directed plans; and private FFS (PFFS) plans that are a model unique to Medicare. Since the inception of Medicare managed care in 1972, Congress has amended the program by adding plan types to increase the choices available to Medicare bene�iciaries. Organizations that have an MA contract may offer different types of plans in a given service area; for example, a payer may offer an HMO-based plan and a PPO-based plan. As noted already, Part D plans are offered by private plans including stand-alone PDPs and MA-PDs. Approximately two-thirds of Medicare bene�iciaries enrolled in Part D plans are enrolled in PDPs and one-third in MA-PDs.

Coordinated Care Plans

Coordinated care plans use a network of providers to deliver the bene�it package approved by Medicare. CMS must approve the provider network to ensure that enrolled Medicare bene�iciaries will have suf�icient access to covered services. Coordinated care plans may use �inancial incentives or utilization review to control the use of services and must meet quality requirements. Other than in an emergency or urgently needed situation, a coordinated care plan has no obligation to cover the cost of care if a non-network provider is used, even if the care would have been covered under FFS Medicare. Coordinated care plans include HMOs, regional and local PPOs, and SNPs, all of which are discussed brie�ly below. Other types of coordinated care plans such as Religious and Fraternal Bene�it Society plans and senior housing facility plans are not discussed due to their limited availability.

Health Maintenance Organizations

Medicare HMOs are similar to HMOs in the commercial market; for example, they offer more controlled and limited networks. Medicare HMOs are the oldest coordinated care plan type and have the highest enrollment (65% of all MA enrollments in 2010). Medicare offers a point-of-service (POS) option where HMOs can cover services out-of-network.

Preferred Provider Organizations

Medicare PPOs are similar to PPOs in the private sector, in that they do not use primary care physician “gatekeepers,” typically have larger networks and provide some coverage for noncontracting providers. Unlike many purely commercial PPOs, MA-PPOs must meet MA quality requirements but only for services provided in-network. PPOs must have a maximum out-of-pocket limit for in-network services and a catastrophic limit on in and out-of-network services.

Medicare offers two types of PPOs: local PPOs and regional PPOs (RPPOs). Local PPOs have the �lexibility to choose the service area where they will operate (e.g., one or multiple counties). Regional PPOs were added to Medicare by the MMA to provide increased access to private plans, particularly in rural counties. RPPOs must serve all counties in one or more of 26 statewide or multiple state regions designated by CMS. Because of the dif�iculty in setting up networks in broader geographic areas, RPPOs have more �lexibility; for example, they can meet access standards by paying FFS rates and Medicare will pay for “essential” hospitals in rural areas if providers refuse to contract with the RPPO. RPPOs also have other requirements that are different than local PPOs; for example, if they chose to impose a deductible, it must be a single deductible for Part A and Part B services (unlike Medicare FFS). The single deductible may be different for in-network and non-network services.

Under the MMA, a moratorium was placed on new MA plans other than RPPOs during 2006 and 2007, in order to support their creation and growth. Since then, local MA PPOs also appeared, and by 2010 PPOs had increased their market share, with local PPOs enrolling 12% of the market and RPPOs enrolling 7%.

Special Needs Plans

SNPs are coordinated care plans (usually offered by HMOs) that limit enrollment to individuals with special needs. There are three types of SNPs:

• D-SNPs—Dual-eligible SNPs enroll bene�iciaries that are eligible for both Medicare and Medicaid (“dual eligibles”). There are different types of D-SNPs based on Medicaid eligibility criteria. New and expanding D-SNPs must have a contract with the state Medicaid agency that meets a number of requirements intended to ensure that Medicare and Medicaid bene�its and requirements are coordinated.

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• I-SNPs—Institutional SNPs enroll bene�iciaries who are institutionalized in a SNF, NF, ICF/MR, or psychiatric facility for 90 days as assessed through CMS-approved assessment tools. I-SNPs may also enroll a person with similar needs living in the community as assessed by a state assessment tool administered by an independent party. I-SNPs may also restrict enrollment to individuals that reside in a contracted assisted-living facility. • C-SNPs—Chronic care SNPs enroll bene�iciaries with one or more severe or disabling chronic conditions. The bene�it plans

offered by C-SNPs must include bene�its beyond Part A and B services and the minimum care coordination requirements for other types of MA plans, including supplemental health bene�its related to the chronic condition, specialized provider networks, and appropriate cost-sharing.

The SNP authority was enacted in the MMA for a limited period of time to allow SNPs to improve care for vulnerable groups through improved coordination and continuity of care. The SNP program has been extended through December 2013 with new requirements. For example, the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) required a speci�ic de�inition of “severe or disabling” chronic conditions for C-SNPs. Based on the recommendations of a panel of clinical providers, CMS speci�ied 15 chronic conditions:

1. Chronic alcohol and other drug dependence; 2. Certain auto-immune disorders; 3. Cancer, but excluding precancer conditions; 4. Certain cardiovascular disorders; 5. Chronic heart failure; 6. Dementia; 7. Diabetes mellitus; 8. End-stage liver disease; 9. End-stage renal disease requiring dialysis; 10. Certain hematological disorders; 11. Human immunode�iciency virus/acquired immunode�iciency syndrome (HIV/AIDS); 12. Certain chronic lung disorders; 13. Certain mental health disorders; 14. Certain neurological disorders; and 15. Stroke.

A C-SNP can target multiple chronic conditions that are clinically linked and comorbid in one of �ive speci�ied CMS groupings (e.g., diabetes and chronic heart failure) or customized into groupings of the 15 conditions. Bene�iciaries only need to have one qualifying condition to enroll.

CMS has contracted with the National Committee for Quality Assurance (NCQA; see Chapter 15 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i199#ch15) ) to develop speci�ic quality measures for the Healthcare Effectiveness Data Information Set (HEDIS®; see Chapter 15 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i199#ch15) ) and structure and process measures that evaluate the quality of care provided by SNPs. SNPs began reporting on the �irst phase of these measures in 2009. The measures will be re�ined over time and will eventually include outcomes measures. Beginning in 2012, SNPs are required to be certi�ied by NCQA.

By 2010, 1.3 million bene�iciaries were enrolled in SNPs, with most enrolled in dual-eligible SNPs.

Private Fee-for-Service Plans

PFFS plans were authorized in 1997 and are a model unique to Medicare. Enrollees are permitted to self-refer to any Medicare provider willing to accept the individual as a patient (known as “deemed providers”) consistent with the rules of the plan regarding coverage. The PFFS plans pay providers on a FFS basis at Medicare fee schedule rates, do not place the provider at �inancial risk, and do not vary rates by utilization. A PFFS plan is permitted to vary the payment rates based on the provider specialty, location, or other factors not related to utilization. PFFS plans may increase payment rates to a provider based on increased utilization of speci�ied preventive or screening services.

PFFS plans and enrollment grew very rapidly beginning in 2006 when MMA payment rates went into effect. Because there was no cost in establishing provider networks, there was little barrier to entry and by 2008 PFFS plans were available to almost all Medicare bene�iciaries. Bene�iciaries were attracted to PFFS plans because they were cheaper than MediGap policies, which

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most bene�iciaries buy to supplement FFS Medicare. Often PFFS plans were the only choice in rural counties and this rapid expansion accomplished the goal of the MMA to expand choices, especially in rural areas.

However, Congress became concerned about the performance of many of the PFFS plans; for example, the failure to pay providers correctly or in a timely manner, marketing abuses, and bene�iciary confusion. PFFS plans also received a high payment rate, despite not having a requirement to add value; for example, there were no quality improvement or care coordination requirements for PFFS plans. Congress amended the authority beginning in 2011 to require PFFS plans to operate as full network plans in areas with at least two coordinated care plans. This amendment preserved the open access model in rural counties where it was dif�icult for plans to contract with suf�icient providers to meet Medicare access requirements. In response to this new network requirement, many PFFS plans chose to exit the market. As a result, PFFS enrollment, which had peaked at 2.3 million in 2009, declined to 1.5 million enrollees in 2010.

Special Rules for Group Retiree Plans

CMS has historically offered MA plans wide latitude to negotiate with employers and unions for retiree coverage under MA. The MMA went farther by including a very broad waiver provision to encourage employer- or union-sponsored plans to offer retiree coverage through MA plans and PDPs, and added a new option where employers or unions could directly contract with CMS as MA plans or Part D plans. By 2010, one-sixth of MA enrollees were in employer group plans and 8% of PDP enrollees were in employer group plans.

CMS waivers allow group retiree MA plans to:

• Enroll only retirees in MA plans following the employer or union’s eligibility rules; • Group enroll and disenroll retirees; • Disregard the minimum enrollment requirement; • Extend service areas to where retirees reside; • Enroll bene�iciaries with end-stage renal disease (ESRD) and Part B-only retirees; • Modify websites, call centers, and marketing; • Vary cost-sharing levels and premiums (e.g., by markets and different employer subsidy levels); • Offer noncalendar year plans; • No requirement to submit a Part D bid; and • Provide �lexibility on state licensure and administrative and management requirements for employer-direct contracting

plans.* (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i297#ch24fn1)

Medical Savings Account Plans

Medicare MSA plans combine a high-deductible MA plan and a medical savings account, which is an account established in conjunction with an MSA plan for the purpose of paying the quali�ied medical expenses of the account holder on a pretax basis. These plans offer a high-deductible insurance plan similar to commercial health payment accounts (HRAs) and health savings accounts (HSAs) described in Chapter 2 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i18#ch02) . The primary difference is that only Medicare, and not the bene�iciary or another party on their behalf, may make a deposit into the account.

MSAs have not had much success in the Medicare market. As of January 2011, CMS had approved only two contracts and there were only around 1,000 bene�iciaries enrolled in MSA plans. The plans are confusing to bene�iciaries and the insurers and the plan design do not allow bene�iciaries to contribute to their tax-free accounts.

Medicare Cost Plans

A Medicare Cost Plan is not an MA plan, and its roots go back decades. It is a type of Medicare HMO that works in much the same way, and has some of the same rules, as an MA-HMO, with two key differences. First, it is paid based on the actual costs incurred by the plan, not through the payment methodology described later in the chapter. Second, Medicare bene�iciaries enrolled in a Medicare Cost Plan may go to a non-network provider, and the services are covered under traditional FFS Medicare. They are only included here for the sake of completeness since there are still enrollees, but are not discussed any further except in the section to follow that provides background to how MA plans are paid.

Trends in Medicare Advantage Enrollment and Plan Availability

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The year 2010 saw an all-time high for the number of Medicare bene�iciaries enrolled in an MA plan when 24% of all Medicare bene�iciaries chose these private plans. This steady rise in MA enrollment from 2005, when 4.6% of Medicare bene�iciaries were enrolled in MA plans, can be attributed to the MMA. The MMA increased payments to private plans, leading to a dramatic increase in enrollment. Figure 24-1 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i286#ch24�ig1) displays the enrollment in MA plans from 1994 to 2010.2 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i297#ch24en2)

Note: MA (Medicare Advantage).

FIGURE 24-1 Enrollment in MA plans, 1994–2010 Source: Data from Medicare Payment Advisory Commission, “A Data Book: Healthcare spending and the Medicare program, June 2010,” p. 159.

The number of MA plans has also increased since the enactment of the MMA. From 2006 on, all Medicare bene�iciaries had access to an MA plan. A drop in PFFS plans and CMS rules encouraging consolidation of low enrollment and duplicative plans decreased the number of total MA plans available nationwide in 2011 by 13%. However despite the decline in total number of plans nationwide, Medicare bene�iciaries in 2011 have on average 24 plans to choose from. The distribution of MA enrollees by plan type as of February 2011 can be seen in Figure 1-2 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i16#ch1�ig2) in Chapter 1 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i9#ch01) .

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24.3 MEDICARE ADVANTAGE BENEFITS

MA plans can offer multiple “bene�it plans” such as a high option and low option. Each bene�it plan must have a uniform premium and bene�it structure and with the exception of SNPs, must be available to all residents of the service area of the plan. MA plans must offer at a minimum the FFS level of Medicare services and cost-sharing, and with the exceptions noted below, they must also offer at least one bene�it plan with Medicare Part D drug coverage throughout their service area.

PFFS plans have the option of including Part D drug coverage, but MSA plans are not permitted to include Part D coverage as part of the plan. All bene�it plans offered by SNPs, a type of coordinated care plan that serves the most vulnerable bene�iciaries, must include Part D drug coverage. Most MA coordinated care plans also offer bene�it plans that do not include drug coverage to serve bene�iciaries that decline Part D coverage or obtain it elsewhere; for example, bene�iciaries who receive drug coverage from their employer can elect an MA-only plan.

Bene�iciaries who are enrolled in a coordinated care MA plan can only get Part D drug coverage from the MA plan. If they enroll in an MA plan without Part D, they cannot enroll in a stand-alone PDP. Bene�iciaries who enroll in a PFFS plan without Part D or an MSA plan may enroll in a stand-alone PDP for drug coverage.

The Medicare Part D Bene�it Design

The statute speci�ies the basic Medicare Part D drug bene�it design that plans use to submit competitive bids. Most MAPDs do not use the standardized basic bene�it design (other than as the basis for submitting Part D bids, as discussed below). MA-PDs typically offer an actuarially equivalent bene�it design (e.g., copayments in lieu of cost-sharing). Many MA-PDs offer an enhanced bene�it design that �ills in the deductible and/or the “donut hole” (described below), or use rebate dollars (described earlier in this chapter) to buy down the Part D premium.

Under the basic Part D plan, drugs are covered after the enrollee pays an annual deductible (see Figure 24-2 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i287#ch24�ig2) ). In the �irst phase of coverage the enrollee pays 25% coinsurance and the government pays 75% up to an initial coverage limit. In the second phase between the initial coverage limit and a catastrophic limit, there is a coverage gap referred to as “the gap” or the “donut hole,” where the enrollee had been responsible for 100% of the costs of the drugs. In the third or catastrophic phase after the out-of-pocket threshold is met, the bene�iciary pays 5%, the government pays 80%, and the Part D plan pays 15%. The reason for this unusual bene�it design is that at the time the MMA was enacted, there was insuf�icient funding to offer a comprehensive drug bene�it design that was typical in the commercial market. Plus, it mimicked the consumer-directed health plan (CDHP; see Chapters 1 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i9#ch01) and 2 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i18#ch02) ) design that was becoming popular.

FIGURE 24-2 Standard Bene�it Design, 2011

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Source: Modi�ied from “Standard Medicare Prescription Drug Bene�it, 2011.” Kaiser Slides, The Henry J. Kaiser Family, January 2011. http://facts.kff.org/chart.aspx?ch=1929 (http://facts.kff.org/chart.aspx?ch=1929) .

The primary difference between an MA-PD and a PDP drug bene�it is that the MA-PD plan can use savings from their Part C bid to make the Part D drug more attractive to bene�iciaries, for example, by offering better drug coverage or lower cost-sharing. MA-PDs can meet Part D access standards through pharmacies that they own and operate.

As part of health reform, the ACA begins to close the coverage gap between 2011 and 2020. If a bene�iciary without a low- income subsidy (LIS) reaches the coverage gap beginning January 1, 2011, he or she will have a 50% discount on brand name drugs at the point of sale. Cost-sharing will be phased down for generic drugs beginning in 2011 and for brand name drugs in 2014. Cost-sharing will be reduced each year until bene�iciaries pay only 25% of the cost of covered Part D drugs by 2020. Figure 24-2 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i287#ch24�ig2) shows the standard bene�it design for 2011. Table 24-1 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i287#ch24tab1) shows enrollee cost sharing as phased down under the ACA.

Formularies

Part D plans are allowed to develop formularies that limit the number of drugs that are covered under the plan. The formularies are developed by a Pharmacy and Therapeutics (P&T) Committee that includes pharmacists and practicing physicians. Part D formularies must include drug categories and classes that cover all disease states. Each category or class must include at least two drugs (unless only one drug is available for a particular category or class, or only two drugs are available but one drug is clinically superior to the other for a particular category or class). Part D formularies must include all or substantially all drugs in the following classes: immunosuppressant (for prophylaxis of organ transplant rejection), antidepressant, antipsychotic, anticonvulsant, antiretroviral, and antineoplastic. The formularies are submitted to CMS in April and are reviewed to ensure that they are “adequate” and include a range of drugs in a broad distribution of therapeutic categories and classes. CMS also reviews the formulary to ensure that it does not substantially discourage enrollment by any group of bene�iciaries. Part D plans typically have four or �ive tier formularies, where the �ifth tier is a specialty tier.

TABLE 24-1 Enrollee Cost-Sharing in the Coverage Gap under the ACA

Year Generic drugs Brand name drugs 2010 100% 100% 2011 93% 50% 2012 86% 50% 2013 79% 47.5% 2014 72% 47.5% 2015 65% 45% 2016 58% 45% 2017 51% 40% 2018 44% 35% 2019 37% 30% 2020 25% 25%

Source: HHS FY 2012 budget. Availaible at www.hhs.gov/about/hhsbudget.html#HHSBudgetinBriefandPerformanceHighlights (http://www.hhs.gov/about/hhsbudget.html#HHSBudgetinBriefandPerformanceHighlights) .

The P&T Committee also recommends formulary management activities that limit bene�iciary access to drugs including prior authorizations, step therapies, quantity limitations, generic substitutions, and other drug utilization review.

Medication Therapy Management Programs

Part D plan sponsors also are required to offer a medication therapy management (MTM) program that targets bene�iciaries with multiple chronic diseases and high drug costs. Currently, MTM programs must target four of seven speci�ied chronic conditions such as hypertension, heart failure, or diabetes. In addition, MTM programs must target bene�iciaries who incur

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annual drug costs of $3,000 or more. MTM programs include a comprehensive medication review, ongoing monitoring, and bene�iciary or prescriber interventions, if necessary.

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24.4 MEDICARE ADVANTAGE PAYMENT

The MMA laid the groundwork for signi�icant changes in how private Medicare managed health care plans are paid. It is useful to know the background about payment of Medicare plans, which was only brie�ly touched upon in Chapter 1 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i9#ch01) .

Background

Recapping from Chapter 1 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i9#ch01) , the original Medicare program as enacted in 1965 was based on the Blue Cross and Blue Shield plans as they operated in the mid-1960s. Medicare bene�its provided under Part A of the Medicare act cover hospital claims and claims for services from a number of other institutional providers of care, like the original Blue Cross plans; while Part B of the act covers claims from physicians and other individual health care providers, like the original Blue Shield plans. Part A paid providers on the basis of “reasonable cost,” while Part B paid on the basis of historical charges.

From the beginning, Medicare paid the few HMO-like organizations then in existence for the reasonable cost of caring for Medicare bene�iciaries. Since these organizations provided care either through a salaried physician staff or a capitated medical group, there was no claim history on which to base payment, and Medicare followed the established path of part cost-based payment. This is the origin of the Medicare Cost Plans brie�ly noted earlier.

In 1972 and actually preceding the HMO Act of 1973, amendments to the Social Security Act authorized per capita payments to HMOs either on a risk basis or a cost basis.

The amendments allowed for continuation of the cost-based payment model. Two cost-based models emerged. Prepaid group practice plans (PPGP) were paid for the professional services provided by the medical group’s physicians, while Medicare paid all other services under the standard FFS payment methodology. As of 2011, both models still exist, with a combined enrollment of about 400,000, less than 3.4% of total Medicare enrollment in private health plans. However, beginning in 2010 cost plans located in areas where there is adequate competition from other organization types, as de�ined in 42 CFR 417.402, will not be renewed by CMS.

Risk plans envisioned in the 1972 amendments were to be fully at risk for any amount by which their costs exceeded their payments. However, they were required to share any pro�its with the Medicare program. Plans could retain 50% of the pro�it up to 20% of the estimated amount that Medicare would have paid for bene�iciaries in the same counties on an FFS basis. Savings in excess of 20% were retained by Medicare. The local county-based estimate of FFS costs was dubbed the adjusted average per capita cost (AAPCC) and, as will be seen later in this chapter, that estimate still plays a major role in determining how Medicare health plans are compensated today.3 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i297#ch24en3)

This asymmetrical risk, with unlimited potential for loss and limited potential for gain,* (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i297#ch24fn2) was not successful in attracting health plans, and cost-based contracts continued to be the norm until the enactment of TEFRA in 1982.

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24.5 TEFRA AND MMA

When regulations under TEFRA were published in 1985, health plans had the opportunity to contract with Medicare for risk- based monthly payments under new rules. Payment would be set equal to 95% of the AAPCC, and plans were fully at risk. Medicare assumed a guaranteed savings by retaining 5% of the AAPCC. In addition, plans were allowed to earn the same pro�it margin they earned on their commercial business. If a plan’s projected per capita costs, including the allowed pro�it margin, were less than 95% of the AAPCC, the excess had to be used to subsidize other bene�its, or to be returned to the Medicare program.

The AAPCC was calculated as a 5-year average, trended to the contract year using estimates developed by Medicare. The rate paid to health plans was further adjusted by the age and sex of enrolled bene�iciaries, with an additional adjustment for SNF residents and dual eligibles; there were 142 rate cells in all, although not every category of Medicare bene�iciary was eligible to enroll in a Medicare HMO.

Two problems with the AAPCC became apparent in the years following the enactment of TEFRA. First, the risk adjustments for age, sex, institutional status, and Medicaid proved to be poor predictors of cost variation among bene�iciaries, although an additional adjuster for bene�iciaries who originally quali�ied for Medicare due to disability was added later. But these risk adjusters only accounted for about 1% of the variation in bene�iciary costs.4 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i297#ch24en4) Additionally, large variations were observed in the AAPCC values from year to year within certain counties, and between neighboring counties, making long-term commitments to the program unpredictable.5 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i297#ch24en5) Still, during the TEFRA years Medicare experienced a measure of success in contracting with private plans, and private plan enrollment grew to 1.4 million by 1991, and 6.8 million by 2000.

The BBA introduced several reforms in the program, including reforms in the payment methodology. It would be an understatement to say that the BBA reforms failed to promote further growth of the new Medicare + Choice program and, as noted earlier, enrollment dropped from the 2000 high of 6.8 million to 5.3 million by 2003.

The MMA once again made substantial changes to the Medicare program. The most dramatic change was the establishment of Part D of Medicare, the prescription drug bene�it, which was discussed earlier in the chapter. To the point of this section, the MMA also introduced a better risk adjustment methodology for the new “Medicare Advantage” program. The new risk adjustments began in 2004, and were fully phased in by 2007. The new methodology added hierarchical condition categories (HCCs) to the other risk adjustments used since the passage of TEFRA. The MMA also established a new approach to determining the payment to MA plans, based on bids submitted by each plan and the relationship of that bid to a county benchmark. The benchmark was based on the old AAPCC, although a number of legislative changes resulted in benchmarks in many counties that exceeded the county AAPCC.

Payment Calculation and Bidding Process

The calculation of payments and the bidding process for MA and PDP plans is complex compared to the commercial market. A summary of the key elements follows.

The Bid

In June of each year, MA plans are required to submit bids to CMS. These bids represent the average per capita projected cost for Part A and B services net of cost-sharing, plus the plan’s administrative costs to provide those bene�its, plus a pro�it. Generally health plans will cover additional bene�its, such as some or all of the bene�iciaries’ cost-sharing amounts, but the cost of these added bene�its is not included in calculating the bid.

For plans with a prior claim history, bids are based on prior experience, adjusted for anticipated changes in utilization and unit costs of services. Since plan bids are due at the beginning of June, plans will be calculating their bids in April and May. This means that a plan is required to forecast claims expense for next year based primarily on last year’s data, with relatively complete current-year data only for January and perhaps February. This requires estimating trends in utilization and unit costs for 2 years into the future.

Plans without suf�icient claims history—such as new plans, plans that have been in operation only a short time, and plans entering new service areas—will need to substitute a manual rate, based on average Medicare cost data, for actual claim experience. Common sources of these average cost data are 5% claim samples available from Medicare and proprietary data bases maintained by actuarial �irms.

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The bid is normalized to a risk score of 1.0. This means that the claim history upon which the bid is based needs to be adjusted by the risk score of the population that generated the data, so that the bid represents the anticipated cost for a bene�iciary of average risk, where a score of 1.0 is average. For instance, assume that a plan projects next year’s revenue requirement, including projected claim costs, administrative cost, and pro�it, to be $1,000 per member per month, and the average risk score of the population that generated the claim data upon which that projection is based is 1.1. Then a normalized bid, normalized to a risk score of 1.0, would equal $1,000 ÷ 1.1 = $909.09. The normalized bid would be $909.09. Risk scores are discussed in more detail below. Benchmarks as published by CMS are already normalized to a 1.0 risk score.

The bid is then compared to the benchmark. If the bid exceeds the benchmark, the plan must charge bene�iciaries the difference in the form of a monthly premium. Since the bid represents the cost of providing only Part A and Part B bene�its, this situation would require bene�iciaries to pay to the plan an extra amount that they would not pay under traditional Medicare FFS, in order to receive the same bene�its. Not surprisingly, MA plans seek to achieve bids that are less than the benchmark to avoid this �inancial disincentive for bene�iciaries.

If the bid is less than the benchmark, the difference is referred to as “savings.” Plans receive a percentage of the savings as a rebate, and CMS retains the rest. Through 2011, the percent of savings paid to plans was 75%. The ACA reduces this rebate percentage in future years, as described below. Plans must use rebates to provide additional bene�its, such as covering part of the bene�iciary cost share or providing dental or vision bene�its. Plans may also use rebate dollars to pay bene�iciaries’ Part B premiums or to subsidize their Part D drug bene�it premiums if the plan offers the Medicare prescription drug bene�it as part of the bene�it package. See Figure 24-3 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i289#ch24�ig3) .

When a plan bid covers more than one county, the bid and the benchmark are both calculated as the weighted average of the county-speci�ic amounts, weighted by projected enrollment in each county.

RPPOs calculate their benchmark somewhat differently. After bids are submitted, CMS determines the average RPPO bid and calculates a blended benchmark. The blend is weighted by the relative percentages of Medicare bene�iciaries in the FFS program and in MA, as follows:

FIGURE 24-3 Bids and Benchmarks

(Weighted average RPPO bid × percentage of bene�iciaries in MA plans) + (Weighted average county benchmarks × percentage of bene�iciaries in FFS Medicare) = RPPO Benchmark

Bids are not automatically accepted by CMS. Plans may be required to submit revised bids if CMS determines that their year-to- year total bene�iciary cost (premium plus cost-sharing) would increase by an unacceptable amount, or if the proposed pro�it margin exceeds what CMS considers reasonable. Also, plans must avoid bene�it designs that are discriminatory, for instance by imposing unusually high copayments on certain service categories with the effect of discouraging enrollment of sicker bene�iciaries. Plans must also present cost-sharing designs that are no less generous than FFS Medicare, from an actuarial standpoint. Plans may have cost sharing that differs in the speci�ics, compared with FFS Medicare, but the aggregate value must be actuarially equivalent or better. To use a simpli�ied example, consider Medicare’s 20% coinsurance on physician fees. A health plan may have a $15 copayment on physician fees. If the projected weighted average of all physicians’ fees is $75, then the $15 copayment is actuarially equivalent to the FFS Medicare bene�it, since $15 is 20% of $75. Failure to meet these standards may result in rejection of a bid by CMS.

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Risk Adjustment

As noted earlier, the original attempt to risk-adjust payments from Medicare to private plans based on the AAPCC was little better than no adjustment at all, and at best had a predictive value of about 1%.6 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i297#ch24en6) Under the MMA, CMS began in 2004 to phase in a more sophisticated risk adjustment system, adding diagnosis information to the other adjusters.

CMS now uses what is known as the CMS Hierarchical Condition Category model, or CMS-HCC. The CMS-HCC model maps ICD-9 diagnosis codes to groups of diagnoses called condition categories. The condition categories are ranked in a hierarchy, in which a higher category trumps a lower category for a patient whose diagnoses map to both categories. Each category is assigned a value (risk adjustment factor, or RAF) based on the statistical relationship between that category and the following year’s claim costs. The risk factors are based on the coef�icients in a multiple regression calculation that expresses the statistical relationship between the presence and absence of a given condition category for a patient, and that patient’s claim cost the following year. Over 13,000 ICD-9 codes are mapped to 189 condition categories.

For instance, a diagnosis of a sprained ankle in Year 1 would have no association with claim costs in Year 2. A diagnosis of diabetes would have some association with the following year’s claims, and diabetes with complications would be associated with higher costs than uncomplicated diabetes. So the sprained ankle would have no risk score attached to it. Uncomplicated diabetes has a risk score of 0.162. There are several categories for diabetes with various complications, ranging as high as 0.508.7 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i297#ch24en7) For a patient with diabetes diagnoses that mapped to both uncomplicated and complicated condition categories, the complicated category would trump the uncomplicated category on the hierarchy.

Figure 24-4 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i289#ch24�ig4) shows in more detail how the CMS-HCC model assigns risk scores.

The CMS-HCC model explains about 10% of the variation in medical costs among Medicare bene�iciaries.8 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i297#ch24en8) While this is a ten-fold improvement over the prior methodology, 10% is still a low correlation. There are several problems with the CMS-HCC model that result in the improved but low correlation.

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Note: AMI, acute myocardial infarction; CC, condition category; COPD, chronic obstructive pulmonary disease; DXG, diagnostic group; HCC, hierarchical condition category; ICD-9-CM, International Classi�ication of Diseases, Ninth Revision, Clinical Modi�ication.

FIGURE 24-4 Clinical Vignette of CMS-HCC Model Assigning Risk Scores Source: Evaluation of the CMS-HCC Risk Adjustment Model, Final Report. March 2011. Prepared for Melissa A. Evans, PhD, Centers for Medicare & Medicaid Services, Medicare Plan Payment Group, Division of Risk Adjustment and Payment Policy, Prepared by Gregory C. Pope, MS, John Kautter, PhD, Melvin J. Ingber, PhD, Sara Freeman, MS, Rishi Sekar, BA, Cordon Newhart, MA, RTI International; CMS Contract No. HHSM-500-2005-00029I; www.cms.gov/MedicareAdvtgSpecRateStats/06_Risk_adjustment.asp#TopOfPage (http://www.cms.gov/MedicareAdvtgSpecRateStats/06_Risk_adjustment.asp#TopOfPage) . Accessed August 19, 2011.

The �irst is the nature of the diagnosis data in the sample of Medicare claims that are used to determine the risk coef�icients. With the exception of inpatient claims that are paid on the basis of diagnosis-related groups (DRGs), the diagnosis codes on Medicare claims have little effect on payment. Hence, there is no incentive to be complete and accurate for most of the claims submitted to Medicare. For instance, in the year that a patient has a heart attack, that diagnosis will be present on a hospital DRG claim. But in the following year, the diagnosis may or may not appear on physician claims. Since the risk scores are based only on prior year data, each member, in effect, begins each year in perfect health, as far as the risk adjustment model is concerned. The lack of persistence in the data from year to year hinders the predictive power of the model.

Additionally, the standard professional claim form, the CMS-1500, collects a maximum of four diagnosis codes. A patient may have more coexisting conditions and, even if a physician uses all four positions to report diagnoses, those that are more germane to risk adjustment may be omitted from the claim form. So a diabetic with complications may appear to be an uncomplicated diabetic based on the claim data. Unlike the paper-based CMS-1500, the 837 Professional standardized electronic claim (see Chapters 18 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i222#ch18) and 23 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i276#ch23) ) can accept up to eight diagnoses, but until physician payment is affected by the accuracy of diagnostic coding, there is no incentive to use all the �ields.

Similar data problems exist for health plans when they collect diagnostic data for the purpose of risk-adjusting their payments from CMS. Claim forms may or may not have complete and accurate information. Furthermore, even though the risk coef�icients in the CMS-HCC model are determined from error-prone claim data, health plans are expected to be able to substantiate the risk adjustment data they submit with information from patients’ medical records. Arguably, the most accurate system would use plan data that contains the same degree of error as the data used to calibrate the model. However, there is no way to determine this, since the FFS claim data used to set the risk coef�icients are not audited.

It is not clear whether this requirement to substantiate diagnostic data from medical records increases or decreases risk scores and payments. Many health plans screen their claim data for indications of missing or inaccurate diagnosis codes, using software and logic rules to correlate claims by member. For instance, a member who has claims for a beta blocker may have had a heart attack in the past. If the current year’s record doesn’t include a code for the heart attack, the plan may review that member’s medical record to determine whether the member is being reported correctly for risk adjustment purposes. Plans that do this report signi�icant increases in revenue per member as a result of correcting coding errors. However, this is a search for missing and underreported diagnoses, and does not include the impact of unsubstantiated codes that would increase payment. On the other hand, CMS has conducted risk adjustment data validation (RADV) audits, looking at a sample of members in the audited plan for unsubstantiated claims, speci�ically looking for overpayments. Although CMS has not published the results of these audits as of this writing, anecdotal reports indicate that the error rate is signi�icant. CMS has also proposed to extrapolate the audit �indings to the entire plan. If the sample shows an overpayment rate of 10%, extrapolation of that �inding to the whole plan would mean that the plan would have to refund to CMS 10% of the payments it received from CMS in the audited year. Since MA plans generally have a �inancial margin in the range of 3.6 to 4.5%,9 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i297#ch24en9) a refund of that magnitude could wipe out several years’ margins and could erode �inancial reserves below the levels required by state regulators (see Chapters 21 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i262#ch21) and 28 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i324#ch28) ).

These two audit activities, one undertaken by health plans looking for missing or incorrect codes that result in underpayments and the other undertaken by CMS to �ind unsubstantiated overpayments, may cancel each other out, but there are not suf�icient data at present to know what the net impact will be on health plans. However, the high error rates that appear to be identi�ied in both types of audits point out a weakness in the current CMS-HCC calibration methodology, and its reliance on unaudited FFS claim data.

Another challenge for health plans that are subject to a RADV audit is the need to produce the one best medical record to substantiate their risk score reports. For many patients, the information needed to substantiate all of their diagnoses may be scattered across several records maintained by several different providers of care. Nor is it clear how health plans can respond when a record is not available because a physician had died, or closed his or her practice, or when a record has been destroyed.

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Some health plans are responding to this audit requirement by conducting annual risk assessments for those members who appear to be most likely to have diagnoses that map to HCCs, using physicians and mid-level practitioners who have been trained to record medical conditions to CMS standards. In this way, the health plan is assured of possessing the one best record, since it directs its creation each year. More signi�icantly, the annual risk assessments ensure that the plan has an up-to-date register of high-risk members, so it can provide appropriate care management and support services to reduce the incidence of high-cost complications of chronic illness. This one approach can improve the accuracy and audit readiness of the risk adjustment data, contribute to a reduction in claim costs, and improve the quality of life of high-risk members.

A related approach is to �lag claims that contain diagnostic codes that map to HCCs, for members who have not had a risk assessment, so that the plan can obtain the necessary medical record information to substantiate the diagnostic code.

As noted above, health plans are becoming adept at reducing errors in diagnostic coding, to avoid being under-paid through the CMS-HCC model. CMS studies indicate that, by reducing the error rate relative to the error rate implicit in the FFS data that are used to calibrate the HCC model, health plans have increased their average risk scores above what they would have been using uncorrected data. CMS contends that this results in increased payments that are not related to increased risk, but to increased coding accuracy. To offset this, CMS introduced a coding intensity adjustment in 2010. This adjustment reduced payments to all health plans by 3.41%. The ACA mandates CMS to increase this adjustment to at least 5.71% in gradual annual steps through 2018. This mandatory payment reduction makes it even more important for health plans to ensure that the data they submit to CMS for risk adjustment are complete and accurate since they are being paid less on the assumption that they are making these corrections, and that the corrections have the effect of increasing risk scores.

Impact of the ACA on Payment

The ACA makes substantial changes to MA payments, as has already been shown in earlier sections. In this section, the most signi�icant changes are summarized in one place. The need for change arose as a result of Congressional actions between 1997 and 2003 that increased the county payment rates. Through the mid-1990s, health plans were paid 95% of the county average FFS cost (95% of the AAPCC). The Congressional increases in county payment rates following 1996 resulted in a patchwork of rates. By 2010, rates ranged from just slightly better than the AAPCC, to more than 150% of local FFS in a few counties (and over 200% of local FFS in some Puerto Rican municipios). The Medicare Payment Advisory Commission (MedPAC) calculated that, nationwide, the average payment to MA plans exceeded the average FFS cost by about 12%.10 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i297#ch24en10)

Congress sought to correct this through provisions in the ACA, and return the average payment to health plans to something close to the average FFS cost. However, the approach adopted by Congress in the ACA recognized that some counties appear to have more ef�icient patterns of medical care than others, and the benchmark payments set by the ACA vary by county based on a measure of ef�iciency. Counties are ranked by quartile, based on their average FFS cost. The cost estimate is adjusted for risk, so that all counties’ costs are projected at a theoretical risk score of 1.0. Benchmarks in counties in the lowest cost quartile will be set at 115% of local FFS, while payments in the highest cost quartile will be reduced to 95% of local FFS. The quartiles for 2011, based on 2009 FFS costs, are presented Table 24-2 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i289#ch24tab2) .11 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i297#ch24en11)

Only $103 separates counties at the top of the �irst quartile, with the best payment rates, from the bottom of the fourth quartile, with the worst rates, relative to local FFS costs. Relatively small variations in local cost will have substantial impacts on benchmark payments. The new payment rates will be phased in over a number of years, and will be completely phased in by 2017. The phase-in schedule will vary from one county to another. Counties that will incur the greatest payment reductions, relative to what they would have expected under the pre-ACA payment formula, will see the new rates phased in over 6 years. Counties with smaller reductions will be phased in over 2 or 4 years, depending on the size of the reduction. The weighted average payment, weighted by MA enrollment in each county, will be approximately 100% of FFS. While this represents a 12% reduction from the rates analyzed by MedPAC in 2010, it is still an improvement over the pre-1997 rates, which were set at 95% of the local FFS cost.

TABLE 24-2 Quartiles for 2011

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Source: Author’s calculation, based on the methodology described in the CMS publication “Advance Notice of Methodological Changes for Calendar Year (CY) 2012 for Medicare Advantage (MA) Capitation Rates, Part C and Part D Payment Policies for 2012 Call Letter,” February 18, 2011.

The ACA also introduces a bonus payment for MA plans that meet certain quality standards. Starting in 2014, under the ACA, high-quality health plans will receive a bonus of 5% of the benchmark payment speci�ied under the ACA. This bonus is calculated only for the ACA rate, so counties where the new ACA rate is still being phased in will receive a lower bonus, until the phase-in is complete. For instance, in a county with a 6-year phase-in schedule, the ACA “speci�ied amount” will account for only one-half of the payment rate in 2012. The other half will be based on the “applicable amount” that would have been paid under the pre-ACA rules. The bonus in such a county would be 5% of the ACA rate, not 5% of the total rate. Table 24-3 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i289#ch24tab3) illustrates the 2014 calculation for a county on a 6-year phase-in schedule.

The ACA also provides for double bonuses for counties that meet the following criteria:

• Paid at the urban �loor rate in 2004 (the urban �loor is one of the steps that Congress took to improve payment rates for certain counties, by setting a minimum payment in excess of 95% of the AAPCC) • MA penetration of a least 25% of all Medicare bene�iciaries in the county • Average FFS costs below the national average

The bonuses will be paid to health plans that achieve a quality score of at least four stars on a scale of one to �ive (the Star Rating system is discussed later in this chapter). CMS has proposed to use its demonstration authority to start the bonus program in 2012, instead of waiting until 2014. The CMS demonstration would also expand the bonuses to plans with three stars or higher as an incentive to improve quality.

Bonus payments must be used to provide additional bene�its, reduce cost-sharing, or reduce bene�iciary premiums. They will not contribute directly to pro�it, although improvements in bene�its and reductions in cost are expected to give bonus-eligible plans a market advantage.

It is not yet clear at the time of publication how loss of a bonus will affect the CMS review of bids that show signi�icant increases in total bene�iciary cost (TBC). For instance, if a plan has received a 5% bonus worth $40 for the current year, and uses this bonus to reduce total bene�iciary cost, how will CMS view a bid for the following year, if the plan has lost its bonus? Loss of the $40 will mean an increase in TBC. It is not yet clear whether that will trigger CMS criteria that seek to limit large increases in TBC.

TABLE 24-3 2014 Calculation on a Six-Year Phase-in Schedule

The ACA rewards health plans in another way for high-quality ratings. Under prior law, a health plan was allowed to retain 75% of the savings that were attributable to a bid that was less than the plan’s benchmark payment. These “rebates” are used to provide additional bene�its, or to reduce bene�iciary costs. Under the ACA, the rebate will be reduced to 50% by 2014, with the reductions being phased in at one-third each year starting in 2012. However, plans with high-quality ratings will receive a greater rebate. Plans with a rating of 4.5 or 5 stars will receive a 70% rebate. Plans with ratings between 3.5 and 4 will receive 65%. Plans below 3.5 stars will receive the 50% rebate.

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The ACA also imposes a minimum medical loss ratio (MLR) standard on MA plans. While the Medicare Advantage MLR provision does not speci�ically reference the requirements for commercial plans (see Chapters 21 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i262#ch21) and 30 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i346#ch30) ), at present it appears likely that CMS will apply the same MLR regulations and de�inition to MA as applied to commercial insurance. This will mean that MA plans will probably be allowed to count activities that improve the quality of care as medical costs rather than administrative costs and be able to deduct certain tax payments from revenues; all of these are described in Chapter 21 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i262#ch21) , including Table 21-2 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i265#ch21tab2) . On average, MA plans operated in the range of the new 85% �loor prior to passage of the ACA.12 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i297#ch24en12) However, approximately one-third of bene�iciaries in 2010 were in plans with loss ratios less than 85%.13 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i297#ch24en13) In addition to the adjustments to the MLR calculation allowed for commercial insurance, the payment reductions mandated by the ACA should drive loss ratios up, as revenues increase more slowly than health care costs while the new rates are phased in.

Medicare Prescription Drug Payment

Payment under Medicare Part D has some super�icial similarities to the MA payment, but there are critical differences in how the payments are calculated. Part D plans may be free-standing PDPs, or may be offered by MA plans as MAPDs. Both types of sponsors are paid under the same rules.

PDPs submit bids to CMS to provide the standard Part D package of bene�its for the coming year. The bids are due at the same time as MA bids. Bids are based on historical data, or manual rates for new plans, and include administrative costs and a reasonable pro�it. CMS calculates the weighted national average monthly bid. This is the average of all PDP bids received, weighted by the current enrollment of each bidder. Consequently, the large PDPs with the greatest number of members have the greatest in�luence on the national average bid. CMS then calculates the base bene�iciary premium. This is the national average monthly bid multiplied by 25.5%, and divided by 1 minus the ratio of projected average reinsurance payments to Part D plans to the total payments received by PDPs. Reinsurance is a payment from CMS for bene�iciaries whose total out-of-pocket cost in a given calendar year exceeds a maximum out-of-pocket threshold calculated by CMS each year. Figure 24-5 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i289#ch24�ig5) illustrates the calculation of the base premium.

FIGURE 24-5 Calculation of the Base Premium

FIGURE 24-6 Calculation of Member Premium

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FIGURE 24-7 Risk Corridors

Each PDP receives a direct subsidy toward the cost of bene�its that is equal to the national average monthly bid minus the base bene�iciary premium. The plan then must charge bene�iciaries a premium that equals the difference between the plan’s bid and the base bene�iciary premium. Figure 24-6 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i289#ch24�ig6) illustrates the calculation of the member premium for a PDP whose bid is greater than the national average monthly bid.

Payments to PDPs are risk-adjusted, using a variant of the CMS-HCC model known as the RxHCC model. Like the HCC model used for MA plans, the RxHCCs are calibrated by a multiple regression analysis of the relationship between diagnoses on medical and hospital claims and prescription drug costs in the following year. Since prescriptions don’t include diagnosis codes, medical claims are used as a proxy source of the diagnosis information. Since there is less inherent variability in drug costs than in medical costs, the RxHCC model is a better predictor of the following year’s costs than the CMS-HCC model, with a predictive power (R2 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i297#ch24en2) ) of 25%.

The Part D program includes a risk-sharing provision that is not part of the MA program. An allowable cost per capita is calculated from the plan’s bid and represents the expected cost for covered prescription drugs, less reinsurance payments and other nonpremium subsidies. If a plan’s actual adjusted costs for a given year exceed the projected cost by more than 5%, CMS will pay the plan 50% of the amount in excess of 5%. If the plan’s costs exceed 10% of the expected amount, CMS will pay 80% of the amount in excess of 10%. Conversely, the plan must pay CMS 50% or 80% of any amount by which costs are less than 5% or 10% of the expected cost. These corridors reduce both a plan’s potential pro�it and potential loss on prescription drugs. Figure 24-7 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i289#ch24�ig7) illustrates the risk corridors.

In calculating gains or losses for purposes of the risk corridor payments, CMS will disallow any prescription claims (known as prescription drug events, or PDEs) for members whose enrollment is not recorded correctly on the PDP’s records. This places a premium on regular reconciliation of enrollment records with CMS, to ensure that the plan is being paid properly for its members, that it is not paying claims for people who are not its members, and that all valid claims will be counted when it reconciles the risk corridors with CMS.

CMS also pays PDPs for bene�iciaries who qualify for “extra help,” whose income is below stated levels. The extra help consists of low-income premium subsidies (LIPS) and low-income cost-sharing subsidies (LICS). LIPS pay most or all of the low-income bene�iciary’s premium, up to a maximum amount that equals the weighted average premium in each Part D region. Regions may be a single state or multiple contiguous states, depending on population. LICS pay all but a few dollars of the 25% coinsurance for covered prescriptions that is part of the standard bene�it package, and pay for prescriptions in the coverage gap (the “donut hole”).

CMS also pays PDPs a reinsurance amount, to cover 80% of the cost of bene�its for members whose total out-of-pocket costs exceed the current year’s threshold.

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24.6 APPLICATION AND CONTRACTING PROCESS

The process for an MA or PDP plan to apply for a contract with CMS follows de�ined rules. The most important elements are described next.

Eligibility Requirements for a Medicare Contract

An organization must meet certain basic requirements to be eligible for a Medicare contract. These requirements are related to the organization’s licensure and �inancial solvency, premiums, provider network, and administration and operations. In particular:

• All organizations must be licensed as risk-bearing entities to offer health insurance or health bene�its in the state(s) in which they will operate, or hold a certi�icate of authority or operation in states that do not license such entities. RPPOs can obtain a temporary waiver of the requirement. • All organizations must demonstrate �inancial solvency and a positive net worth. • Plan premiums may not exceed the actuarial value of Medicare cost-sharing, although the organization can offer

supplemental bene�its at an additional cost to the member. Plan bene�its and premiums must be uniform throughout the contracted service area to prevent discrimination. • Organizations must use Medicare-certi�ied providers to provide health care services to members. These organizations must

demonstrate network adequacy within the contracted service area. This means that within the MA plan network, services must be made available to members through staff providers or providers under contract with the organization, the organization must be capable of providing 24-hour emergency care and paying for out-of-area emergency and urgently needed services, and the plan must meet CMS access standards for medical and pharmacy services. • MA organizations must meet speci�ic minimum enrollment requirements. The organization must have at least 5,000

members or, in rural areas, at least 1,500 members. • All organizations must demonstrate an ability to administer the contract. This includes adequate staf�ing and management,

meeting Medicare quality and care coordination requirements, and having a compliance plan that ensures the organization can meet Medicare requirements and avoid and/or correct fraud and abuse.

The Application

The process for obtaining any type of MA or Part D contract begins almost 13 months before the effective date of the contract. It begins when applicants �ile a required Notice of Intent to Apply. While CMS does not require the organization �iling the notice to complete an application, it allows CMS to begin preparation for processing the steps necessary for managing the application throughout each step of the application process.

For the most part applicants must make substantial preparations for �iling the contract in late February. This means that both strategy and operational details along with contracting for provider and administrative services has been completed by the applicant well before an application is submitted to CMS.

Applications are completed through the Health Plan Management System (HPMS). This is a fully electronic submission process that every initial applicant and current contractor seeking to expand their service area or add an SNP must use. Applications that are not �iled by the deadline date are not reviewed.

The application is a series of attestations or questions that re�lect requirements that the applicant must meet. These are supported by required uploads of documentation that provide evidence of compliance. These cover state licensure, organization structure and management, �inancial solvency, service area, provider and administration contracting, and a quality improvement plan. A second set of attestations cover requirements for compliant Medicare operations. These include marketing, eligibility and enrollment, working aged, claims, grievances and appeals, and communication with CMS.

An applicant that wishes to provide a prescription drug bene�it must submit additional materials that are unique to the requirements for the Part D program. This addendum requires attestations and uploaded material that address the requirements for operation of a Part D bene�it program. These include 25 additional areas unique to prescription drug regulations that focus on bene�it design, pharmacy access, and bene�iciary protections.

For both Part C and Part D, CMS has also developed sophisticated methods for evaluating access to contracted provider services that are proposed in each application. For Part C, applicants are required to upload provider contracts and CMS compares this

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information to information collected in the FFS system. Networks must meet two critical adequacy criteria: minimum number of providers/beds and time/distance requirements. Criteria vary by specialty type. With a geo-mapping tool, CMS identi�ies any areas where access standards are not met. For Part D, CMS will use information gathered from the pharmacy list uploaded by the applicant to identify pharmacy addresses. With this information, CMS can geo-code the street-level locations of the pharmacies to determine retail pharmacy access.

CMS reviews the information that is submitted and identi�ies any de�iciencies. When CMS identi�ies de�iciencies, applicants receive a Notice of Intent to Deny. Applicants have 10 days to provide information necessary to address the de�iciency. If it is not corrected, CMS will issue a denial notice to the applicant. Applicants who receive a denial can appeal this determination by �iling a request for a hearing within 15 days. The hearing will be held within 30 days and allows the applicant to present evidence that CMS made an incorrect determination. If the hearing of�icer upholds the CMS decision, the applicant can appeal to the CMS Administrator. The timing of these processes is critical to ensure that all approved contracts meet each step needed to publish information for the Annual Election Period beginning on October 15.

After CMS releases a formulary submission tool in late March for Part D, applicants must submit a formulary by mid-April. CMS releases information necessary for completion of bid pricing in April with the annual payment notice. By late May, CMS noti�ies all applicants who have submitted acceptable applications. Following the approval, applicants and all contracted health plans complete their bids and bene�it packages and submit them on the �irst Monday of June. Bids are reviewed and approved, and CMS executes contracts by mid-September.

CMS may verify an applicant’s readiness and compliance with Medicare requirements through onsite visits at the applicant’s facilities as well as through other program monitoring techniques throughout the application process. During this period, applicants prepare operations and marketing information and submit it as necessary to CMS for review and approval.

The Contracting Cycle

The majority of health plans choose to renew their contracts. Renewing contractors must still submit acceptable bids and meet all required timelines for updates to bene�it packages and marketing materials. However, CMS reviews performance measures and makes a determination that allows the renewal to occur.

Health plans that choose to not renew their contract must send notice in June, approximately 6 months before the termination date, to allow for appropriate steps to remove the health plan as an option in the CMS systems and to notify bene�iciaries about their options for coverage in other plans. Health plans that do not renew are prohibited from applying for a contract or expansion in the service area for a 2-year period unless CMS determines that there are extenuating circumstances.

CMS may also choose to not renew a health plan consequent to performance or failure to reach minimal enrollment. CMS has also announced its intention to evaluate plans for nonrenewal if they maintain a 2.5 star rating for 3 consecutive years (star rating is described later in the chapter). CMS noti�ies plans of its intention to not renew their contract by August 1 of each year.

Contracts can be terminated by mutual consent or involuntarily by CMS. Generally, mutual consent occurs when an organization ceases to exist, a contract is modi�ied, or a new organization has been approved to provide services to the enrolled bene�iciaries. There are required notice procedures that the health plan must follow to inform bene�iciaries of any changes or modi�ications. As in nonrenewals, health plans are prohibited from applying for a service area expansion in the area for 2 years.

Involuntary terminations occur when CMS determines that a health plan failed to meet one or more of 13 regulatory requirements that are cause for termination. Termination can be expedited if there is a determination that there is an imminent and serious risk to the health of the enrolled bene�iciaries, or if there are �inancial dif�iculties so severe that services to bene�iciaries could be curtailed. In any CMS termination action, the health plan has the ability to appeal the determination. As in any adversarial action taken by CMS, the health plan must prove that the determination made by CMS was in error.

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24.7 ENROLLMENT OF MEDICARE BENEFICIARIES INTO MA PLANS

There are speci�ic rules that MA plans must follow with respect to enrollment and disenrollment of Medicare bene�iciaries.

Who May Enroll

The BBA established some very speci�ic rules regarding who may enroll in an MA plan. With some exceptions, any Medicare bene�iciary permanently residing in the MA plan’s service area may enroll in the plan as long as the person has both Medicare Part A and Part B, and as long as the request to enroll is received by the plan during an election period. Medicare bene�iciaries who are also Medicaid recipients may also enroll in an MA plan. Medicare bene�iciaries who do not have Medicare Part D cannot enroll in MA-PD plans, but they can enroll in MA-only plans (i.e., plans that do not cover Part D).

There are some exceptions to the eligibility rules that prevent individuals from enrolling in MA plans. If the plan is not open for enrollment, because it has a capacity waiver or has been closed by CMS, for example, then the Medicare bene�iciary may not enroll in the plan. In addition, if enrollment in the plan is limited to special needs individuals or to employer group members, then the Medicare bene�iciary may only enroll in the plan if the individual meets the special needs or employer group requirements for the plan.

The only Medicare bene�iciaries not entitled to enroll in MA plans are bene�iciaries who have ESRD, but there are exceptions to this rule. If the plan is a special needs plan offered to individuals with ESRD, then enrollment is allowed as long as the individual meets all other eligibility requirements. Enrollees who acquire ESRD after enrollment in a plan may not be disenrolled from the plan because they have ESRD. In addition, individuals who have ESRD and who were enrolled as non-Medicare members of a plan may be retained as Medicare enrollees on becoming eligible for Medicare.

Enrollment and Election Periods

Prior to the BBA, Medicare bene�iciaries could enroll in Medicare managed care plans at any time during the year. The BBA began a trend toward structuring enrollment and disenrollment periods to more closely (but not completely) resemble the more limited enrollment periods that employers tend to offer to their employees and retirees. The ACA further limited enrollment periods, cutting the enrollment season in half.

There are several election periods during which a Medicare bene�iciary may enroll in or disenroll from a plan. These include the Annual Election Period, the Medicare Advantage Disenrollment Period, Special Election Periods, Initial Coverage Election Periods, and an Open-Enrollment Period for Institutionalized Individuals.

Annual Election Period

The Annual Election Period runs from October 15 through December 7, for enrollments effective on January 1 of the following year. This is the election period most widely advertised by CMS and the MA plans as it is open to all eligible Medicare bene�iciaries, involves allowing individuals to choose to join or switch plans based on how bene�its and cost-sharing will change in the coming year, and most closely mimics an “open season” offered by employers and unions.

Medicare Advantage Disenrollment Period

During the Medicare Advantage Disenrollment Period, MA plan members can disenroll from an MA plan and return to Medicare FFS between January 1 and February 15 of each year. Note that this election period does not allow for enrollment in a new MA plan. Individuals who switch to Medicare FFS during this time period have the option to join a PDP to add drug coverage.

Special Election Periods

MA plans are required to be open during Special Election Periods. As with most private health insurance election periods, Special Election Periods tend to center around certain events, such as when an individual changes residence, loses employer/union health coverage, loses MA coverage because another organization in the service area terminates a Medicare contract, or gets Medicaid. CMS has the authority to de�ine additional Special Election Periods for “exceptional conditions” on an as-needed basis. These Special Election Periods tend to be unique to Medicare, such as periods when individuals want to leave MA plans as a result of sanctions imposed by CMS on the plan or when individuals lose their eligibility for Medicaid or other low-income subsidy programs.

Initial Coverage Election Periods

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The Initial Coverage Election Period is intended to allow individuals newly eligible for MA to join an MA plan. The period begins 3 months before an individual’s �irst entitlement to Medicare Part A and B and ends the later of the last day of the month before entitlement to Parts A and B, or the last day of the individual’s Part B initial enrollment period. There is an additional Initial Coverage Election Period for Part D that allows individuals newly eligible for Part D to join a Part D plan.

Open-Enrollment Period for Institutionalized Individuals

The Open-Enrollment Period for Institutionalized Individuals is continuous. It only applies to individuals who move into, reside in, or move out of certain institutions such as skilled nursing facilities, nursing facilities, long-term care hospitals, and so forth. It ends 2 months after the individual moves out of the institution. MA plans are not required to be open for this enrollment period.

Involuntary Disenrollment

An MA organization must involuntarily disenroll a Medicare bene�iciary if the person leaves the service area permanently (de�ined by regulations as an absence lasting more than 12 months), is incarcerated, or loses entitlement to either Medicare Part A or B. An MA organization has the option to involuntarily disenroll a Medicare bene�iciary if the person has committed fraud in enrolling in a plan or permits others to use his or her enrollment card to obtain care; for failure to pay premiums in a timely manner including optional supplemental premiums unless there is a demonstration of good cause; or because of disruptive or abusive behavior, subject to CMS approval.

Capacity Limits and Age-Ins

While a plan is ordinarily required to be open for enrollment during the election periods described above, a plan may limit or close its enrollment if it does not have the capacity to accept new members. In such a case, a plan may discontinue or limit enrollment with CMS approval, but may still set aside a speci�ied number of vacancies to enroll members who “age-in” from the plan’s commercial product into its Medicare product. Capacity limits may be based on several different reasons and the limit may apply to speci�ic plan bene�it packages or counties in different con�igurations, for example by plan or by county.

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24.8 MARKETING AND SALES RULES

The scope of marketing in the MA program goes well beyond the public’s general understanding of advertising, and re�lects the government’s desire to maintain a level of control over MA plan marketing practices. In addition to advertising, MA marketing requirements cover all informational materials and activities targeted to Medicare bene�iciaries, including sales activities, member communications, and any other activities or materials that are intended to attract Medicare bene�iciaries to enroll in private plans. Serious marketing abuses by plans that used agents or brokers without suf�icient oversight resulted in even more enhancement of marketing requirements; for example, for the �irst time Medicare introduced regulation of commission structures and required training for brokers and agents.

Prohibited Marketing

Prohibited marketing activities include door-to-door solicitation, discriminatory marketing (avoiding low-income areas, for example), and misleading marketing or misrepresentation. These activities are subject to sanctions, including suspension of enrollment, suspension of payment for new enrollees, or civil monetary penalties. MA plans are prohibited from giving monetary incentives as an inducement to enroll and from completing any portion of the enrollment application for a prospective enrollee.

Prior Approval

All marketing and enrollment material, including enrollment forms, must have CMS approval prior to public use. CMS has 45 days to review materials. If 45 days pass without CMS comments on the material, it is deemed approved. If an MA plan’s marketing materials were approved for one service area, they are deemed approved in all of the plan’s service areas, except with regard to area-speci�ic information. For certain marketing and enrollment documents, CMS has developed optional model language. Use of the model language reduces the approval time period to 10 days. Under certain circumstances, CMS also allows a “�ile and use” approach, whereby no prior approval is required.

Required Noti�ications to Prospective Enrollees

Prospective enrollees must be given descriptive material suf�icient for them to make an informed choice. One of the required pre-enrollment marketing documents is a Summary of Bene�its form that uses standard bene�it de�initions and a standardized format to allow bene�iciaries to make “apples to apples” comparisons among MA offerings and between MA and FFS; it is similar in concept to the Summary of Coverage document now required under the ACA for commercial coverage. Plans must also provide information about their plan star ratings to current and prospective enrollees by referring them to www.medicare.gov (http://www.medicare.gov) in all enrollment kits. They must also provide enrollment instructions and forms, customer service contact information, and an explanation of the plan’s appeals and grievances process.

Required Noti�ications to Enrollees

MA plan enrollees must be noti�ied at least 30 days in advance of changes in plan membership rules, which must be approved by CMS. However, for the change in bene�its and cost-sharing occurring from one year to the next, an Annual Notice of Change must be sent to enrollees by September 30.

The statute speci�ies the kind of information an MA member must receive on enrollment and annually thereafter. The document containing this descriptive information, like its counterpart for commercial coverage, is called the Evidence of Coverage (EOC). The EOC includes information on bene�its and exclusions; the number, mix, and distribution of plan providers; out-of-network and out-of-area coverage; emergency coverage—how it is de�ined and how to gain access to emergency care, including use of 911 services; prior authorization or other review requirements; grievances and appeals; and a description of the plan’s quality assurance program. On request, the organization must provide information on utilization control practices, the number and disposition of appeals and grievances, and a summary description of physician compensation. The organization must also provide all members annually with provider directories and member identi�ication cards, and MA plans offering Part D coverage must provide pharmacy directories and drug formulary information.

Sales

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Plans or their subcontractors are allowed to conduct “marketing or sales events” to promote the bene�its and services of the plan. At these events, sponsors distribute brochures and pre-enrollment materials such as a Summary of Bene�its and approved sales materials. Sponsors may also accept enrollment application forms. Plan sponsors are responsible for overseeing all marketing activities used by their sub-contractors including agents and brokers and must approve materials they use, including sales scripts.

Plans and other entities may also conduct “educational events” provided there are no sales activities such as distribution of marketing materials or distribution or collection of enrollment applications.

Agents and Brokers and Commissions

An organization may employ or contract with agents or brokers to market and sell its plans. Agents and brokers must be appointed according to the laws of the state(s) in which the agent or broker operates. The organization must train and test all of its agents and brokers annually on Medicare rules and regulations and on details speci�ic to the plans they are selling. CMS has established rules on agent or broker compensation to prevent agents and brokers from steering Medicare bene�iciaries into plans providing higher payment.

Website and Call Center Requirements

All organizations must have a website or web page dedicated to each product they offer. The website or web page must include certain information, such as a plan description, contact information, and links to member materials.

CMS speci�ies a variety of call center operations that the organization must operate. All organizations must also operate a toll- free call center for current and prospective enrollees. If the organization offers plans that cover Medicare Part D, it must also operate a pharmacy technical help call center to respond to inquiries from pharmacies and providers. The organization must also provide a call center available to providers inquiring about coverage determinations and Part D appeals.

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24.9 CONSUMER PROTECTIONS

MA plans are subject to certain requirements relating to access to services for bene�iciaries and appeal rights that must be provided to Medicare members.

Access Standards

With regard to access to care standards, the regulations have a number of requirements, including:

• Maintaining an adequate provider network, including minimum provider-to-enrollee ratios and maximum travel times and distances as speci�ied by CMS; • Using the “prudent layperson” de�inition of what constitutes an emergency, the liability of the MA organization for the cost

of such care, and a requirement to cover appropriate maintenance and poststabilization care after an emergency; • Limiting copayments for emergency services to amounts speci�ied by CMS, for example $65 in 2011; • Covering out-of-area dialysis during an enrollee’s temporary absence from the service area; • Specifying that the decision of the examining physician treating the individual enrollee prevails regarding when the

enrollee may be considered stabilized for discharge or transfer; and • Requiring plans to permit female enrollees to choose direct access to an in-network women’s health specialist for women’s

routine and preventive health services.

Member Appeals and Grievances

MA enrollees have the right to an administrative and judicial appeals process and a grievance process. These rights are similar to the appeal rights under ERISA and the ACA for commercial coverage (Chapter 20 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i250#ch20) ), but have shorter time-frames and more avenues for pursuit. Medicare appeals (referred to in regulations as “organization determinations”) pertain to adverse decisions regarding coverage or cost of an item or service included in the Medicare contract (Medicare-covered items and services and additional and supplemental bene�its). Grievances are complaints or disputes falling outside the de�inition of “appeal” related to a member’s dissatisfaction with provision of health care services, including the way the service was provided, or the appropriateness, timeliness, or setting of the health service.

Appeals

The steps of the appeals process include:

• The determination by the organization (or a subcontracted entity); • Reconsideration by the organization, or, if the organization proposes a reconsideration decision adverse to the enrollee,

review of that decision by an independent review entity under contract to CMS; • Review by an administrative law judge (ALJ) for claims valued at $130 or more (for 2011) if the independent review

entity’s decision is adverse to the enrollee (the MA organization is not entitled to appeal a decision by the independent review entity when the decision is in favor of the enrollee); • Review of the ALJ’s decision by the HHS’s Medicare appeals council, a right available both to members and to the MA

organization; and • Judicial review in federal court for claims valued at $1,300 or more (for 2011).

The �irst-level determination is to be made by the MA organization within 14 days (or “as expeditiously as the enrollee’s health condition requires” but no later than 14 days), and a reconsideration decision (by the organization or the review entity) is to be made within 30 days (with the same requirement for expeditious processing). For expedited appeals, the standard is that a decision must be rendered within 72 hours.

Quality improvement organizations (QIOs) under contract with CMS also review enrollee complaints, including appeals, about the appropriateness of a hospital discharge. Expedited timeframes similar to those of Medicare FFS apply in such a case. QIOs are described later in the chapter.

Grievances

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Grievances against a plan, as opposed to Medicare appeals, are subject to different standards. Enrollees must currently be afforded a “meaningful” grievance right, which includes requiring the MA plan to respond to grievances on a timely basis and provide appropriate noti�ication of investigation results to all concerned parties. The statute requires organizations to provide data on the number of grievances and their disposition in the aggregate on an enrollee’s request.

Prescription Drug Coverage Determinations and Exceptions

Enrollees with prescription drug coverage have the right to take certain steps to ensure coverage of a particular drug even before they �ill their prescription. In particular, they can get a “coverage determination” by their plan to determine whether a particular drug will be covered. The enrollee or the prescriber may request an exception to have the drug covered if the plan states that it will not cover the drug or if the drug is not on the plan’s formulary. The enrollee or prescriber may also ask for an exception to have the enrollee pay less for the drug if the drug is in a higher (i.e., more expensive tier) but the enrollee or prescriber believes the enrollee cannot take the lower tier drugs for the same condition. If the enrollee disagrees with the plan’s coverage determination or exception decision, then the enrollee can follow the appeals process described above.

Cultural Competence

MA plans are required to ensure that services are provided in a “culturally competent” manner (i.e., with sensitivity toward cultural, ethnic, and language differences) to all members. This includes members with limited English pro�iciency or reading skills, hearing incapacity, or those with diverse cultural and ethnic backgrounds. Translator services, interpreter services, or TTY connections are all examples of services that would help MA plans meet this requirement.

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24.10 PROVIDER PROTECTIONS AND RIGHTS

MA organizations are required to afford certain rights to contracting providers, and plans are required to make timely payment on claims from noncontracting providers.

Basic Provider Rights

The MA statute contains provider protections, including:

• Prohibition of discrimination against particular providers, in selection of providers or payment or indemni�ication provisions, solely on the basis of the provider’s licensure status; • Appeal rights afforded to providers in the event of suspension, termination, or nonrenewal of a contract; and • A requirement that MA organizations consult with plan physicians regarding medical policy, quality assurance programs,

medical management procedures, and credentialing policies.

Provider Payment

Providers are afforded a number of rights and protections related to payment. All contracting providers must receive reasonable payment for covered services. Also, MA plans are required to meet the same prompt payment standards that apply to FFS Medicare carriers and �iscal intermediaries with respect to the timeliness of payments made to noncontracted providers. The standards apply to “clean” claims; that is, claims having no “defect or impropriety” as the law says and not lacking “substantiating documentation” or “requiring special treatment.” The standard is that 95% of clean claims must be paid within 30 days, and that interest must be paid on clean claims not paid within 30 days.

By regulation a physician incentive plan is “any compensation arrangement to pay a physician or physician group that may directly or indirectly have the effect of reducing or limiting the services provided to any plan enrollee.” If a plan has a physician incentive plan that places physicians at substantial �inancial risk (SFR; de�ined in Medicare regulations) for the care of Medicare or Medicaid enrollees, then it must provide for continuous monitoring of the potential effects of the incentive plan on access or quality of care. According to CMS, monitoring should include the review of utilization data to identify patterns of possible under- utilization of services that may be related to the incentive plan. Organizations should consider concerns identi�ied as a result of this monitoring when developing focus areas for quality improvement projects. SFR and its associated requirements are described in detail in Chapter 5 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i48#ch05) .

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24.11 QUALITY AND PLAN PERFORMANCE

MA plans have speci�ic quality and performance requirements that have evolved over time. As discussed below, CMS uses quality and performance data to monitor plans, to administratively reward plans, and to provide information to bene�iciaries to facilitate plan choice. As provided by the ACA, beginning in 2012 high-performing plans will receive a quality bonus and enrollees in high-performing plans will receive extra bene�its. CMS uses quality and performance data as part of its performance assessment system and CMS denies new applications or service area expansions for poor-performing plans. CMS will soon use quality metrics to terminate poor-performing plans from the program, but has not begun to do so at the time of publication.

Quality Requirements

MA coordinated care plans must have a quality improvement program that measures performance under the program and that includes the following:

• Chronic Care Improvement Program (CCIP)—CCIP programs focus on bene�iciaries with multiple or severe chronic conditions and include measures to assess performance such as clinical, cost, and bene�iciary satisfaction. An example of a CCIP is a disease management program. Plans must monitor enrollee participation in the program. • Quality Improvement Projects (QIPs)—QIPs are focused on improving health outcomes and enrollee satisfaction and

include both clinical and nonclinical projects. Projects include an intervention with quality indicators and performance measurement, and periodic follow-up on the effect of the interventions. MA plans are responsible for selecting QIPs that are relevant to their populations. An example of a clinical QIP is a project that focuses on improving the rate of eye exams and blood sugar control in enrollees with diabetes. An example of a nonclinical project is a project that focuses on reducing health disparities. • Plans must have a health information system that collects, analyzes, and reports data. • Plans must have and follow written policies and procedures that re�lect current standards of medical practice and

mechanisms to detect both underutilization and overutilization of services.

The plan must perform a formal evaluation at least annually of the impact and effectiveness of its program and all problems that are revealed through internal surveillance, complaints, or other mechanisms must be corrected.

CMS requires the annual submission of the QIP and the CCIP from all except new plans in July. Since regulations vary according to contract type, each program is reviewed according to the requirements that apply. Projects are reviewed at the contract level to identify those that show some level of improvement. Health plans receive feedback and technical assistance based on the outcomes of the review. CMS receives reports about the information received and makes any determination about compliance with the requirements. Failure to make these submissions may result in compliance or enforcement action.

Plan Reporting

MA plans report the following speci�ic data sets to CMS:

• HEDIS: Measures reported by MA plans are built off of the measures reported by commercial plans and have been adapted for the characteristics of the Medicare population. Most of the measures are process measures or intermediate outcomes measures. MA plans report HEDIS measures at the contract level. PPOs report on a subset of HEDIS measures that rely on a review of claims; however, they have the option to report on certain measures using medical records to be consistent with HMOs. • The Consumer Assessment of Healthcare Providers and Systems (CAHPS®): Measures enrollee and disenrollee satisfaction

with MA plans and provides the bene�iciary perception of the quality of care. The MA plan selects a vendor to conduct the survey. Samples are selected to reach 300 completed surveys. CAHPS originally stood for Consumer Assessment of Health Plan Survey, and this initial version was related to Medicare + Choice (today’s MA plans) with physician payment models that met the de�inition of SFR. It has since branched out into versions applicable to MA plans, managed Medicaid plans, commercial plans, hospitals, and physicians. CAHPS is maintained by the federal Agency for Healthcare Research and Quality (AHRQ). It comes in several versions besides the version applicable to MA plans (e.g., CAHPS Hospital). • Health Outcomes Survey (HOS)* (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i297#ch24fn3) : Measures a random sample of 1,200 MA

enrollees enrolled for at least 6 months and resurveys the same sample 2 years later. The survey focuses on health status and use of services and is intended to measure improvement or declining physical and mental health from the enrollee’s perspective.

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• Plan Information: Plans report on contract performance measures (e.g., call center performance, appeals, and grievances rates).

As discussed in the next section, CMS summarizes the data from these data sets and ranks plans according to a �ive-star rating system. There are fairly wide variations in plan performance based on quality reporting. For example, high-performing plans may have HEDIS scores that are �ive times higher for outcomes measures than low-performing plans. However, there may be underlying reasons beyond quality differences that explain this variation (e.g., different geographic areas served by the plans or a higher rate of disabled bene�iciaries enrolled in RPPOs).

CMS also expects plans to use the data, including HOS data, for internal quality improvement. The data should help plans identify some of the areas where their quality improvement efforts need to be targeted and may be used as the baseline data for quality improvement projects.

Health plans are required to submit additional reports about bene�it utilization and plan operations. There is some overlap between these reports and data collected for star ratings (discussed in the next section), but these reports are somewhat less detailed and are generally aimed at providing overall rates by membership. Reported data are used for comparative purposes both between health plans as well as with the greater FFS system. Part D reports are required by statute while Part C reports are governed by regulation. Although some reports are made on a quarterly basis, most reports are due on an annual basis. In 2011 there are 13 reports for Part C (such as Bene�it Utilization, Provider Network Adequacy, and Grievances) and 16 reports for Part D (such as Enrollment, Medication Therapy Management Programs, and Long-Term Care [LTC] Utilization).

For 2011, CMS has initiated data validation audits. This new regulatory requirement ensures that health plans provide Part C and Part D data to CMS according to a standardized methodology that will ensure comparability. Data validation requires health plans to obtain the services of an external data validation auditor. The validation auditors conduct the required audit yearly by evaluating data programming inputs along with the processes and programming used to query databases and develop reports provided to CMS.

Star Ratings

Plans report required quality and performance measures to CMS and CMS creates a Part C and Part D Report Card using a �ive- star rating (one star is a poor-performing plan while �ive stars is an excellent-performing plan). Medicare displays Plan Ratings in the Medicare Plan Finder used by bene�iciaries to select health plans on www.medicare.gov (http://www.medicare.gov) . The data are displayed prior to the open-enrollment period every year in a star format similar to Consumer Reports.

For 2011, Part C Plan Ratings are reported at four levels, which allow the bene�iciary to drill-down and get more detailed information:

• Overall rating for MA-PD contracts—average of Part C and D stars • Summary level—star rating for a contract • Domain—nine groups of similar measures assigned a star rating based on an average of each of the individual measures • Individual measures—53 quality and performance measures (36 MA and 17 Part D of which one-third are contract

performance measures)

In addition, in the Medicare Plan Finder CMS includes a warning symbol for low-performing contracts that have a 3-year average summary rating of 2.5 stars or lower. The star assignment methodology adjusts for minimum time in the MA program, missing data, and mean and variation of individual measures.

Table 24-4 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i295#ch24tab4) displays an example of a domain and measures with data sources for 2011.

The other domains for 2011 include Managing Chronic Care Conditions; Health Plan Responsiveness and Care; Member Complaints, Appeals, and Disenrollment; and Telephone Customer Service.

CMS considers organizations that fail to achieve at least a three-star summary rating on Part C or D for 3 straight years to have ignored their obligation to meet program requirements and to be substantially out of compliance with their Medicare contracts. In 2011 CMS has announced that it expects to initiate action to terminate these contracts in 2012 once they publish the third consecutive summary rating of less than three stars and after con�irming that the star data re�lect the health plan’s substantial noncompliance.

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TABLE 24-4 Domain 1 Measures and Data Sources, 2011

Domain 1: Prevention—Staying Healthy: Screenings, Test, and Vaccines Measure Data source Breast cancer screening HEDIS Colorectal cancer screening HEDIS Cardiovascular care cholesterol screening HEDIS Diabetes care—cholesterol screening HEDIS Glaucoma testing HEDIS Appropriate monitoring for patients taking long-term medication HEDIS Annual flu vaccine HEDIS Pneumonia vaccine CAHPS Improving or maintaining physical health HOS Improving or maintaining mental health HOS Osteoporosis testing HEDIS/HOS Monitoring physical activity HEDIS/HOS At least one primary care doctor visit in the last year HEDIS

Source: CMS.

With regard to future measures, more emphasis will be placed on outcomes measures and new measures will be developed for older bene�iciaries.

External Quality Review

The QIOs that are under contract to CMS to review the quality of care of hospitals in Medicare FFS also review the quality of care among MA enrollees. QIOs review complaints by MA enrollees about the quality of care in an MA plan. As in Medicare FFS, QIOs process bene�iciary requests for review of hospital discharge decisions. Generally, QIOs review care to ensure that it meets the general standard for professional services and that appropriate services were delivered in an appropriate setting.

Finally, QIOs play a signi�icant role in the appeals process. QIOs review a determination by a health plan whenever a bene�iciary disputes the health plan’s denial for continued services in an acute care hospital, skilled nursing facility, home health agency, or comprehensive rehabilitation facility.

Performance Assessment

CMS monitors a plan’s compliance with regulatory requirements through data analysis, audits, bene�iciary appeals, and complaints. In recent years CMS has moved from a plan oversight process that relies on routine onsite audits of all plans to a performance assessment system that is quantitative in nature. The Performance Assessment System arrays information from HEDIS, HOS, CAHPS, bene�iciary complaints, audits, sanctions, and other sources to identify outliers and organizations whose performance is very poor compared to the rest of industry. CMS may target areas that warrant further review based on the data, prohibit an organization from expanding its service area, or deny a new application for a new contract.

Annual Performance Assessment

Each year CMS performs a review of all contracts’ past performance covering a 14-month period. Each plan is provided a rating based on a weighted scale related to the seriousness of the �inding. For example, a notice of noncompliance is the mildest with a weight of negative 1 while a corrective action plan (CAP)–ad hoc compliance event based on continuing and severe systemic problems is weighted at a negative 6. A plan with a CMS-imposed termination is weighted at a negative 8. Overall, CMS considers a poor-performing MA plan as one with a negative score of 4 points and Part D plan with a negative score of 5 points.

In 2011, CMS reviewed the following performance categories:

• Compliance Letters; • Performance Metrics; • Multiple Ad Hoc CAPs;

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• Ad Hoc CAPs with Bene�iciary Impact; • Financial Watch List; • One-Third Financial Audits; • Performance Audits; • Exclusions; • Enforcement Actions; • Terminations; and • Outstanding Compliance Concerns Not Otherwise Captured.

Contracts in good standing have certain privileges, for example, inclusion in the Medicare & You Handbook, participation in the online enrollment center, allowing formulary updates, and receiving LIS enrollee reassignments and auto-enrollment.

Plan Performance Data

MA plans must report operational data, and CMS monitors and tracks several types of performance data from external sources. These different data are described next.

Operational Data

CMS uses a number of performance data points for purposes of conducting an annual performance assessment to track plan operations. With this data, CMS conducts outlier analysis by reviewing performance across all contracting organizations, which results in the identi�ication of potential noncompliance and the need for further investigation. This tracking process is ongoing. Whenever a plan demonstrates that it is outside of expected performance, CMS institutes an inquiry and potentially initiates a compliance action such as a compliance letter, an audit that results in an ad hoc compliance action, or an outstanding compliance concern. Generally, this occurs when CMS identi�ies outliers in plan operations or receives information from day-to- day operational interactions with the health plans. CMS tracks data submissions from health plans on a monthly basis; for example, failure to provide proper secondary payer information and failure to match enrollment with proper LIS rates (indicating an inability to ensure that bene�iciaries do not pay higher copayments than they should pay).

Active Monitoring

CMS takes a more active role in the receipt of information from bene�iciaries and from contracted resources that actively monitor how health plans communicate with bene�iciaries. These are complaint tracking, sales surveillance activities, and customer service monitoring.

Complaint Tracking

With the implementation of Part D, CMS noted that bene�iciaries’ calls to CMS about obtaining prescribed medication required immediate action from health plans. The Complaint Tracking Module (CTM) process evolved as CMS received complaints and raised them to plans for action. The process now considers all types of complaints including marketing misrepresentation, enrollment errors, copayment for prescribed medications, and so on. The CTM process classi�ies complaints and assigns a range of time-required responses up to immediate need, which must be resolved within 2 calendar days. With the enactment of the ACA, the CTM process was formalized to require a complaint system that allows for the collection and maintenance of complaints against PDPs and MA-PD plans. As opposed to other types of information and data that takes time to accumulate, CTM information is current and CMS takes action to ensure that health plans are taking corrective action.

Sales Surveillance

CMS conducts ongoing surveillance of health plan sales and marketing functions, including observations of sales presentations, secret shopping calls, and reviews of marketing materials. Health plans receiving information about surveillance activities are expected to review their results and implement any corrective action plans to address any issue of noncompliance before CMS issues a compliance letter to the plan about the �indings.

Call Center Surveillance

CMS monitors hold times, disconnect rates, and the time it takes for an interactive voice response (IVR) or live customer service representative (CSR) to answer the phone. Monitoring mostly occurs during the Annual Election Period and the 60 days following. While this is especially important to the ability of bene�iciaries to resolve issues related to receipt of prescription

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drugs, CMS also requires the timely response to bene�iciaries with questions regarding any bene�it or question they could have about their health plan membership. Call centers or contact centers are discussed in detail in Chapter 20 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i250#ch20) .

Audits

CMS conducts �inancial, actuarial, and performance audits using both CMS personnel and contracted resources. By law, CMS must conduct �inancial and actuarial audits of one-third of the plans each year. This review includes �inancial records, including documentation used to develop plan bids, administrative costs, and provider payment. CMS uses a Financial Watch List to track organizations with actual or potential �inancial solvency problems.

A performance audit is an in-depth review of a health plan’s documentation related to the operation of their Medicare contracts. CMS conducts performance audits during which reviewers assess whether the health plan is complying with regulatory requirements in such areas as legal, quality of care, marketing practices, enrollment/disenrollment, claims payment, and grievance and appeals procedures.

CMS uses risk analysis to select plans for audits. The risk assessment is based on the performance categories and combines a number of factors, including each organization’s compliance history, enrollment levels, and the rate of growth of plan enrollment. If the audit has �indings, the organization is required to submit a corrective action plan to correct any de�iciencies. Close monitoring of the plan continues until CMS is satis�ied that the problems have been resolved. Contracts with audit scores in the worst 25th percentile are subject to further compliance and enforcement actions.

Prevention and Detection of Fraud, Waste, and Abuse

CMS regulations speci�ically direct health plans to implement a program that prevents, detects, and corrects fraud, waste, and abuse. While misbehavior may be committed by providers (e.g., billing for services that were not provided), bene�iciaries (e.g., misuse of a plan ID card), or employees (e.g., paying claims that are known to be false), it has not been as prevalent in health plans as in the traditional Medicare FFS system. In addition, the use of periodic �inancial and actuarial audits of health plans have provided a sentinel system for ensuring that health plan cost estimates and bids closely follow requirements. However, with full risk adjustment and Part D, opportunities for fraud, waste, and abuse have signi�icantly increased. These opportunities exist at each level within the health plan organization and warrant increased vigilance within health plans so that all actions necessary can be taken by the health plan as well as government agencies. Fraud and abuse are discussed more fully in Chapter 19 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i240#ch19) .

Compliance Program

All health plans must operate a compliance program for oversight of the MA and Part D programs. By regulation, the program must consist of seven elements:

1. Written Policies and Procedures; 2. Compliance Of�icer and Compliance Committee; 3. Training and Education; 4. Effective Lines of Communication; 5. Enforcement of Standards through well-publicized disciplinary guidelines; 6. Monitoring and Auditing; and 7. Corrective Action Procedures.

The regulations for the compliance program are explicitly detailed, having evolved from their initial introduction as a regulatory requirement in 1998. The program must describe the health plan’s commitment to compliance with regulatory standards, include a code of conduct, provide guidance to employees and others on processes to communicate compliance issues, and include procedures to investigate and resolve them. Finally, it must state a policy of nonintimidation and nonretaliation for good faith participation in any aspect of the compliance program or reporting potential issues.

The compliance of�icer must be an employee of the contracted organization, its parent, or a corporate af�iliate and must report to the CEO or other senior management. In addition, periodic reports must be made by the compliance committee to the health plan’s governing body, usually the Board of Directors, who must exercise reasonable oversight. The regulation cites the types of personnel who must receive compliance training as well as those who serve in downstream entities. Processes must ensure that communication of compliance issues is con�idential and can be anonymous. Disciplinary standards must be effectively applied to all levels within the health plan. Audit and monitoring programs must be effective in identifying compliance issues.

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CMS expects regular monitoring activities as well as periodic audits of all operations, including delegated �irst-tier operations. Audits can be conducted by outside auditors if necessary. The compliance program must also demonstrate that compliance issues are promptly investigated and corrective actions are undertaken to quickly resolve any non-compliant issue. This includes repayment of overpayments and disciplinary actions against responsible employees in response to the potential violation. While self-reporting is not a required process, the health plan must have processes to voluntarily self-report potential fraud or misconduct related to the MA program to CMS, the Of�ice of the Inspector General, or other federal agencies.

To emphasize its interest in the proper operation of compliance programs, CMS has conducted audits of each health plan’s compliance program in 2010 to evaluate their effectiveness. Audits focused on the examination of the evidence of compliance program operations. These included records of compliance committee meetings, reports to the governing body, audits, investigations, and corrective and disciplinary actions.

Enforcement

Over the last several years, CMS has implemented a graduated system of compliance notices to make organizations aware of when they are not in compliance. These notices use an outlier-based standard for the lower-level notices. These notices re�lect the earlier stages of CMS compliance efforts and afford organizations reasonable opportunities to take corrective action.

Whenever noncompliance is identi�ied, the notice generally allows for an opportunity for corrective action. The health plan is solely responsible for the identi�ication, development, and implementation of a CAP and for demonstrating that the underlying de�iciencies have been corrected. Health plans have at least 30 calendar days to develop and implement a CAP. However, in some cases where the corrective action might take more time, CMS can allow a longer period for corrective action to be completed. CMS does not approve the corrective action but will focus only on determining that the noncompliance has been corrected. The health plan must develop and implement the corrective action prior to CMS issuing a notice of intent to terminate or nonrenew.

Administrative and Intermediate Sanctions

CMS can use other enforcement options short of termination and nonrenewal to address health plans that are non-compliant. First, CMS can reject applications from health plans who have demonstrated a pattern of noncompliance. CMS believes that a pattern of noncompliance indicates operational dif�iculties and that the health plan should focus on improving its existing operations before expanding into new types of plan offerings or additional service areas. This action would be based on the most recent 14-month period and would apply even if the applicant currently meets all of the application requirements. For 2012 applications, CMS provided a point system based on the performance categories that would be used to determine if a health plan demonstrated noncompliance that would warrant rejection of an application. Health plans that had a score of four points for Part C or �ive points for Part D could see their application for expansion rejected. CMS would also apply this rule to any plans that withdrew bids after the benchmark was announced as well as ones that terminate a contract for an upcoming bene�it year after the organization had executed the contract.

Second, CMS can implement three intermediate sanctions when issues of noncompliance have risen to a serious and signi�icant level. They are: (1) suspension of acceptance of applications for enrollment, (2) suspension of marketing activities to Medicare bene�iciaries, and (3) suspension of payment for new Medicare bene�iciaries during the sanction period.

Most frequently, CMS imposes intermediate sanctions that suspend marketing and enrollment. CMS keeps sanctions in place until the health plan has corrected its de�iciencies and they are not likely to recur. Health plans can rebut CMS �indings and can also request a hearing to demonstrate that CMS made an incorrect determination, but these actions do not affect the effective date of the sanction.

Between 2008 and 2010 CMS cited numerous reasons for enforcement actions. They included denial of critical prescription drugs, marketing misrepresentation, inappropriate enrollment and/or disenrollment, and insuf�icient improvement despite warnings.

Termination

For the ultimate sanction, CMS can terminate or nonrenew a contract. CMS takes into account the nature and extent of the failure of the noncompliant regulatory requirements and their materiality in relation to all other requirements. As noted above, CMS allows at least 30 days following a notice of noncompliance for correction of the de�iciency before the notice of termination or nonrenewal is issued to the health plan.

For termination, CMS can cite any one of 13 regulatory reasons for termination. These range from very general failure to carry out the terms of the contract to 11 other speci�ic operational requirements, such as the failure to comply with the prompt

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payment rules. CMS can expedite a termination when there is an imminent and serious risk to the health of enrollees or evidence exists that fraud has been committed. As in an intermediate sanction, the health plans can request a hearing where the health plan must provide the preponderance of the evidence that CMS has made an incorrect determination. The process for the hearing does not delay the termination action.

Civil Monetary Penalties

CMS and the HHS Of�ice of the Inspector General (OIG) can impose civil money penalties on health plans based on non- compliance with the regulations. The basis for these penalties is the same as the reasons for imposing an intermediate sanction on the health plan. CMS imposes all civil money penalties except for cases that involve creditable evidence that the health plan has committed or participated in false, fraudulent, or abusive activities.

There are four different types of civil money penalties:

• $25,000 for each CMS �inding where one or more bene�iciaries was adversely affected or could have been of adversely affected; • $25,000 for each bene�iciary who was adversely affected or could have been of adversely affected by a de�iciency; • Up to $10,000 for each week that a de�iciency remains uncorrected after CMS notice of noncompliance; and • $250 per Medicare enrollee or $100,000, whichever is greater, from when a health plan has failed to follow proper

procedures for terminating its contract with CMS.

In its capacity to address fraud, waste, and abuse, the OIG levies all civil money penalties whenever there is credible evidence that a health plan has committed or participated in false, fraudulent, or abusive activities. In addition, to a civil money penalty, health plans can be required to agree to a corporate integrity agreement that will detail additional requirements for continued participation in federal programs.

Exclusion from all Federal Programs

Health plans and individuals can be excluded from federal programs. The HHS OIG is mandated to operate the program to exclude individuals and entities from participating in federal programs. The OIG conducts these activities under various legal authorities, contained in sections 1128 and 1156 of the Social Security Act. In addition, the OIG maintains a list of all currently excluded parties, called the List of Excluded Individuals/Entities.

Generally, exclusion from federal programs follows conviction of a felony, misdemeanor, license revocation, or similar offense. However, it could also include defaults on health education loans or scholarship obligations. Conviction of a crime can result in imprisonment. The nature of each violation drives the period of exclusion. Exclusions have minimal periods that must be applied or can be permanent.

Of particular note is that exclusions of corporate of�icers have been upheld since prosecutors have demonstrated that an executive has a duty to know about the actions of subordinates and that the executive must move to stop any wrongdoing upon learning of it.

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24.12 SUBREGULATORY GUIDANCE

The operation of the Part C and Part D programs requires the development of additional requirements and guidance. This guidance is used to explain the letter and intent of a requirement and to provide information necessary for the proper management of the program. With this guidance, health plans can conduct day-to-day operations as well as communicate with CMS about required processes, formats, timeframes needed to maintain compliant operations for enrollment, payment, risk adjustment, marketing approvals, and so on.

CMS uses the HPMS as the vehicle for communicating with and sending information to contracted health plans. CMS provides additional guidance and information that clari�ies regulatory requirements in the form of manuals, notices, monitoring guides, an annual call letter, and updates to requirements. The subregulatory guidance further explains how CMS will regulate speci�ic regulation that is the basis for the guidance.

Separate Part C and Part D manuals are used as the basis for subregulatory guidance and re�lect the current CMS interpretation of the requirements and related provisions. Manuals evolve over time as regulators and health plans address questions and new circumstances. Each manual has multiple chapters that de�ine terms discussed in the chapter and provide direction on the application of any regulation.

CMS provides periodic updates to the provisions in the manual via HPMS. These periodic notices become the operational understanding for the subject of the HPMS notice. Generally, these notices are annual updates to a process for timeframes, de�initions, category, revised standards, and so on. An example of this type of notice is the annual announcement of calendar year payment rates, which announces changes to payment rates as well as annual due dates and effective dates for new requirements. Typically, CMS obtains comments from health plans before implementing a new subregulatory requirement.

CMS follows a process for updating manual chapters by soliciting comments to draft changes from health plans and other interested parties. This process allows for the development of common understanding about the application of requirements to the operation of the Part C and Part D programs.

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CONCLUSION

This chapter is, in effect, only a �leeting snapshot of MA and Part D. These two programs—consistent with their history—are bound to change and likely dramatically so. At the time of publication:

• Baby Boomers are enrolling in Medicare at a rate of 3,600 per day. They will double Medicare’s enrollment over the next 25 years, and double its expenditures in the next decade. The steady drumbeat of demographics will force Congress to reform the program further. • Boomers are familiar with health plans from their employer-sponsored health care coverage—over 90% of the working

insured are in HMOs, PPOs, or POS plans. Most will want to continue their coverage into their retirement, and therefore will seek to enroll in MA in growing numbers. Indeed, in both 2010 and 2011, over 40% of bene�iciaries aging-in to Medicare have chosen health plans over the traditional FFS program. And let’s not forget the two truisms of Medicare bene�iciaries: if they’re not sick today, they will be and they vote in overwhelming numbers in defense of the program. • Some publicly traded health insurance companies have grown dependent on Medicare revenues and will continue to play a

major role in administering the program. When the BBA passed, publicly traded companies derived, on average, 13% of their revenues from Medicare. Today that number has doubled to 26%, with several companies seeing more than half of their revenues from Medicare. Said another way, health plans are here to stay in Medicare. • There is broad consensus that Medicare is unsustainable in its current form. Medicare’s Trustees point out the program will

become insolvent in the next decade without structural reforms. The program is literally dying under its own weight. The aging of the population only accounts for 2% of that doubling in Medicare’s expenditures this decade. The other 98% is due to the costs of chronic disease and the proliferation of medical technology and procedures, as described in Chapter 7 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i79#ch07) . Today 1 in 4 Medicare dollars is spent on diabetes, 1 in 4 on cardiovascular disease, and 1 in 4 on end-of-life care. CMS will continue to “raise the bar” on plans to deliver more cost-effective chronic care. • The federal debt is issue #1 in Washington and Medicare is at the center of that debate. How this will play out is, as is

always the case with politics, nearly impossible to predict. Sooner or later it will be addressed, whether we like it or not.

For the life of this version of the book, MA and Part D will continue to be a political football tossed between the two parties as they battle for their respective visions of the future for this massive and essential entitlement program. Don’t blink or you might miss the latest in the annals of Medicare reform.

Endnotes 1 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i285#ch24-en1) Kaiser Family Foundation Medicare

Plan Tracking data, available at http://healthplantracker.kff.org/georesults.jsp?r=1 (http://healthplantracker.kff.org/georesults.jsp?r=1) . Accessed August 19, 2011.

2 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i286#ch24-en2) Medicare Payment Advisory Commission. A Data Book: Healthcare Spending and the Medicare Program. June 2010, p. 159.

3 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i288#ch24-en3) Zarabozo C. Milestones in Medicare Managed Care – Statistical Data Included. Health Care Financ R. Fall 2000; 61–67.

4 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i289#ch24-en4) Pope GC, Kautter J, Ellis RP, et al. Risk Adjustment of Medicare Capitation Payments Using the CMS-HCC Model. Health Care Financ R. 2004;25(4):119–141.

5 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i289#ch24-en5) McBride TD, Penrod J, Mueller K. Volatility in Medicare AAPCC rates: 1990–1997. Health Affairs. 1997;16(5): 172–180.

6 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i289#ch24-en6) Pope GC, Kautter J, Ellis RP, et al. Risk Adjustment of Medicare Capitation Payments Using the CMS-HCC Model. Health Care Financ R. 2004;25(4):119–141.

7 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i289#ch24-en7) Risk scores are those in effect in 2011, from the CMS �ile “HCC_Coef�icients_2011.csv” included in the CMS 2011 Ratebook at: www.cms.gov/MedicareAdvtgSpecRateStats/RSD/itemdetail.asp? �ilterType=none&�ilterByDID=.99&sortByDID=1&sortOrder=descending&itemID=CMS1237871&intNumPerPage=10 (http://www.cms.gov/MedicareAdvtgSpecRateStats/RSD/itemdetail.asp? �ilterType=none&�ilterByDID=.99&sortByDID=1&sortOrder=descending&itemID=CMS1237871&intNumPerPage=10) .

8 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i289#ch24-en8) Pope GC, Kautter J, Ellis RP, et al. Risk Adjustment of Medicare Capitation Payments Using the CMS-HCC Model. Health Care Financ R. 2004;25(4):119–141.

9 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i289#ch24-en9) Government Accountability Of�ice. Medicare Advantage: Comparison of Plan Bids to Fee-for-Service Spending by Plan and Market Characteristics. February 4,

3/13/2019 Print

https://content.ashford.edu/print/Kongstvedt.2332.17.1?sections=i283,i284,i285,i286,i287,i288,i289,i290,i291,i292,i293,i294,i295,i296,i297&content… 39/39

2011. 10 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i289#ch24-en10) Medicare Payment Advisory

Commission. A Data Book: Healthcare Spending and the Medicare Program. June 2010, p. 157. 11 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i289#ch24-en11) Author’s calculation, based on the

methodology described in the CMS publication: “Advance Notice of Methodological Changes for Calendar Year (CY) 2012 for Medicare Advantage (MA) Capitation Rates, Part C and Part D Payment Policies and 2012 Call Letter.” February 18, 2011.

12 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i289#ch24-en12) Government Accountability Of�ice. Medicare Advantage: Comparison of Plan Bids to Fee-for-Service Spending by Plan and Market Characteristics. February 4, 2011.

13 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i289#ch24-en13) Government Accountability Of�ice. Medicare Advantage: Comparison of Plan Bids to Fee-for-Service Spending by Plan and Market Characteristics. February 4, 2011.

* (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i286#ch24-fn1) As noted in Chapter 30 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i346#ch30) , the Employee Retirement Income Security Act (ERISA) allows single-employer bene�its plans to operate without state licensure.

* (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i288#ch24-fn2) This concept is echoed in the limits the ACA now places on the medical loss ratio for commercially insured business, as described in Chapter 21 (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i262#ch21) .

* (http://content.thuzelearning.com/books/Kongstvedt.2332.17.1/sections/i295#ch24-fn3) It was initially named the Health of Seniors survey, but was renamed in 1999, one year after its launch.