C-Suite Cheat Sheet: Medicare Part C (Medicare Advantage)

Educational briefing for suppliers and service providers

Executive summary

Medicare Advantage (MA), also known as Medicare Part C, is a type of insurance plan funded by the Centers for Medicare and Medicaid Services (CMS) but administered by a private payer. MA plans cover all traditional Medicare benefits (Parts A and B) and many include prescription drug benefits (Part D) as well.

MA plans are gaining popularity among both enrollees and providers. Between 2005 and 2015, the number of beneficiaries enrolled in MA plans tripled from 5.6 million to 16.8 million. By 2025, experts expect about 30 million, or about 40% of Medicare beneficiaries, to be enrolled in MA plans. While MA plans have historically been offered by commercial insurers, a growing number of health care providers are taking advantage of the expanding MA market either by negotiating a stake in existing plans or sponsoring their own plans.

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Why is Medicare Advantage a key issue for providers?

The growth of Medicare Advantage is pushing providers to reduce the cost and improve the quality of care delivered to Medicare populations. Regardless of whether the sponsoring organization is a provider or commercial payer, the organization receives a capitated payment from CMS and is responsible for covering any costs exceeding the target amount. Therefore, MA-sponsoring commercial insurers may negotiate risk-based contracts with providers to incentivize cost-containment and providers sponsoring their own plans are directly incentivized to manage costs.

In addition, providers that participate in and sponsor MA plans often take on some responsibilities traditionally held by health plan leadership. Finally, CMS’s Star Ratings program holds MA plans, and the providers within those plans, accountable for care quality by tying plans’ quality scores to their eligibility for bonus payments.

How does Medicare Advantage work?

CMS contracts with payers to offer a variety of Medicare Advantage plans, including Health Maintenance Organization Plans (HMOs), Preferred Provider Organization Plans (PPOs), Private Fee-for-Service Plans (PFFSs), and Special Needs Plans (SNPs). In 2016, HMOs accounted for the majority (64%) of total Medicare Advantage enrollment. Across all MA plans, the payment methodology is consistent: CMS offers the payer a lump sum, determined by county benchmarks, enrollees’ risk scores, and the plan’s quality rating, to cover Part A and B benefits.

In addition, Medicare makes a separate payment to plans providing prescription drug benefits under Medicare Part D. If beneficiaries’ health care costs exceed the capitated rate, the sponsoring organization must cover the difference. However, if costs fall below the target, the organization can share in the savings. Ultimately, as providers take on more performance and insurance risk, they typically gain more control over plan administration and earn the potential to share in a greater portion of the savings.

How does Medicare Advantage affect providers?

Clinical

As part of CMS’s efforts to reduce health care expenditures and improve the quality of care, CMS devised the Star Rating System. This system, which scores Medicare Advantage organizations (MAOs) on a 5-star scale, is used to determine organizations’ eligibility for bonus payments.

An organization’s quality score is based on the quality of services across five categories: outcomes, intermediate outcomes, patient experience, access, and process. Providers are evaluated on whether they were able to keep enrollees healthy through preventative services, and whether enrollees with chronic conditions received recommended care and managed their conditions. Thus, clinicians must manage MA patients’ care holistically, ensuring positive patient outcomes within and beyond the acute care setting.

Financial

Medicare Advantage’s capitated payment methodology incentivizes providers to deliver high-value, rather than high-volume care. Interestingly though, MA presents unique opportunities for providers to boost reimbursement in a world that’s otherwise putting downward pressure on revenue.

For one, MA reimbursement is expected to remain higher than fee-for-service costs over the next few years. MA providers can also increase total reimbursement by improving care quality and refining coding and documentation skills. This will help capture the full complexity of their patient populations, which directly impacts MA’s reimbursement rate. While risk coding is not unique to MA, better HCC coding often results in a higher per-member per-month (PMPM) payment from Medicare and incorrect coding may mean leaving thousands of dollars on the table.

Operational

The proliferation of MA is pushing provider organizations to improve existing and develop new capabilities. To succeed under the Star Rating System, providers must have the appropriate infrastructure and staff to track and report on various outcomes and process metrics. In addition, while providers must improve HCC coding to maximize potential reimbursement, risk coding poses technology, education, and time burdens on providers.

Finally, providers may also need to work closely with health plan leaders as they negotiate MA contract terms and take on responsibilities that have traditionally sat with health plan leadership, such as network design and plan development. Provider organizations sponsoring MA plans may also be tasked with raising capital investments, ensuring federal and state licensing, and securing adequate enrollment by marketing to patients.

How might Medicare Advantage impact provider-supplier sales relationships?

Medicare Advantage is an important component of provider risk strategy and as more seniors enroll in MA plans, providers will need to contend with this population. MA may impact provider-supplier relationships in the following three ways:

Providers want partners in care and risk management. To succeed under MA, providers must develop and improve care management strategies. They may look to invest in tools that help coordinate and/or ensure the cost-effective delivery of care, as well as engage patients across the continuum. In addition, as providers take on financial risk, consider how industry members can share in the financial burden through provider-supplier risk-sharing contracts.

To care for MA patients, providers will need to look beyond the inpatient space. MA organizations receive a fixed sum to cover beneficiaries’ hospital and physician costs across the care continuum, regardless of where and from whom they receive care. Many Medicare beneficiaries, particularly those with chronic conditions, receive care across multiple sites in the ambulatory and post-acute space. This makes coordination across sites a crucial component of delivering high quality and cost-efficient care.

Providers sponsoring MA plans may look for assistance in attracting and retaining enrollees. To ensure financial viability, providers launching MA plans must enroll around 5,000 lives. However, group and employer-sponsored plans are rare in MA, so providers must enroll these patients individually. Suppliers and service providers may be able to lend commercial expertise by assisting in outreach and retention efforts.

Conversation starters with the hospital C-suite

1. Has your organization considered taking on any performance or insurance risk through Medicare Advantage?

2. What clinical and administrative capabilities do you need to develop to improve your MA strategy and/or operations?

3. How has the growing popularity of Medicare Advantage affected care delivery at your organization?

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