The new, revamped Medicare Advantage program has proven surprisingly popular with the public–and with plan sponsors. As of July 1, 2006, nearly 7 million Americans had signed up for an MA plan and 20 million had enrolled in the separate Part D drug benefit. The number of individual health plans participating in the MA program has also increased this year. According to a recent Kaiser Family Foundation report, as of July 1, there are 512 separate MA plans, up from 292 in July 2005.
As the number of beneficiaries and the number of plans grow, the potential rewards and risks for each plan also grow. Many new contractors are smaller, regional health plans, competing in a market that is dominated by large, publicly traded plans.
UnitedHealth, Humana and Wellpoint, the “big 3,” have more than 40% of the enrollment in MA and more than 60% of the membership in the new Part D program.
Given the projected MA growth, there is still plenty of room for new entrants. However, small, regional plans, with relatively tight margins, need to be very careful in managing their risk.
From our experience in dealing with health plans from all parts of the country, we have identified 4 key risk areas that could create financial issues for MA plans in coming years.
1. Provider contracts. Too many health plans entering the new MA program have fashioned their provider contracts along the lines of their existing commercial network. This can result from leverage existing provider networks use to garner richer terms on commercial business as barter for more competitive Medicare terms. Or, for a new MA-only plan, lack of membership leverage and the Center for Medicare Services’ (CMS) requirement of an existing network leaves them vulnerable to commercial-like contracts.
Faulty assumptions relative to the underlying cost of non-emergency, out-of-network referral claims can also be made.
For example, take the case of an MA member who is referred to a major medical center for a solid organ transplant. The center is highly qualified, but out-of-network. Even though the member is in Medicare, the medical center can bill the health plan for fees comparable to commercial plans, not traditional “Medicare allowable” rates. In such cases, it is not uncommon for the hospital to invoice the plan for billed charges, ultimately agreeing to a 20-30% discount. For a major procedure, such as a heart or lung transplant, this invoice could easily top $500,000.
One way for MA plans to protect themselves is to obtain access to national transplant networks for deeper discounts through case fees. Another strategy is to obtain specialized case management and UR assistance in managing potential transplant candidates. With these programs, their members have access to a range of highly qualified transplant providers and these difficult-to-predict medical costs are much more tightly managed.
2. High-cost procedures. Advancement of medical science, introductions of new technology and applications of biotechnology have dramatically changed the cost landscape. Advancements in immunosuppressant drug treatment, driven largely by research done for AIDS patient treatment, have enabled very expensive transplant procedures. One example is small bowel transplants, which can easily cost a plan $800,000. Considered experimental 4 years ago, there were 178 such transplants last year.
And while Medicare organ transplant incidence is historically much below a typical commercial membership, we predict a narrowing as the baby boomer bubble moves into Medicare membership. Again, advancement in science combined with an insatiable demand for the newest and most effective life-extending treatments will lead to increased incidence and severity.