Budget Neutrality and Medicare Advantage Risk Management

Generally, the phrase budget neutrality (BN) means that a change to a government program (such as Medicare Advantage) should cost the same as the program without the change. In the case of Medicare Advantage, it means that risk-adjusted MA should cost the same as demographic-based MA. To quote CMS from the 2007 Rate Announcement (PDF):

[In 2007] As in prior years, the BN factor was calculated as the difference between the calculation of payments to plans using 100 percent demographic
payments and the calculation of payments to plans using 100 percent risk
adjustment payments, expressed as a percent of risk adjusted payments.
(page 15)

For CY 2007, the full BN factor is 7.1%, meaning that 100% demographic-based payment would have been 7.1% greater than payments under 100% risk-adjustment.

In 2003 – 2006, CMS would apply 100% of the BN factor to the risk-adjusted portion of payments (which was being phased in), effectively increasing the payments to MA plans. BUT…the BN factor is being phased out between 2006 and 2010, as follows

2006........... 100 %
2007............. 55 %
2008............. 40 %
2009............. 25 %
2010.............. 5 %

This phase-out means that 7.1% difference for 2007 is multiplied by 55% (.55) to arrive at a 2007 BN factor of 3.9%. Historically, BN factors have been much higher:

In 2005, the BN factor was 8.65% (applied to 50% of payment, as risk-based payment phased in)
In 2006, the BN factor was 13.05% (applied to 75% of payment)
In 2007, the BN factor is 3.9%t (applied to 100% of payment)

Here’s what that means:

Let’s say that last year (2006), 100% demographic-based payment to your plan would have been X. The BN factor of 13.05% tells us that you would have been paid 1.1305X under 100% risk-adjustment. Due to the phase-in of risk-adjustment, you got 25% of X (.25X), and 75% of 1.1305X (.848X), for a total of 1.098X in 2006..

Assume that nothing changes. This year, 100% demographic payment to your plan is again X, and the BN factor tells us that you would have been paid 1.071X under 100% risk-adjustment, except that 45% of that 7.1% has been phased out this year. So this year, you get 100% (no more 75/25 split – risk-adjustment is fully phased-in this year) of 1.039X for 2007.

That means, all things being equal, your plan would see a decrease in 2007 payments of about 5.4% based on changes to budget neutrality (from 1.098X to 1.039X), as a result of both a lower BN factor and the phase-out of its contribution. Of course, there are other factors that influence (and increase) X from year to year, but the impact of budget neutrality is yet another challenge to your plan’s finances. And since the BN factor is based on the difference between risk-adjustment and demographics, comprehensive HCC-based risk management programs are more and more critical to every MA plan’s future.

Additional information:

BN factors for 2008 will be announced on April 2, 2007 (they can’t be announced sooner, as they depend on the 2008 US Budget).

2007 Rate Fact Sheet: http://www.cms.hhs.gov/MedicareAdvtgSpecRateStats/Downloads/factsheet2007.pdf

2008 Advance Notice: http://www.cms.hhs.gov/MedicareAdvtgSpecRateStats/Downloads/Advance2008.pdf

Current and historical rate information here: http://www.cms.hhs.gov/MedicareAdvtgSpecRateStats/AD/list.asp#TopOfPage

Physician Quality Report Initiative (PQRI) update

CMS Posts Information on the Physician Quality Reporting Initiative is a thorough post on the current status pf PQRI from Michael Apolskis's excellent Medicare Update blog.

For Medicare Advantage (MA) plans, the good news/bad news is that PQRI (use of G-codes to provide information to CMS about quality of care) is limited to Medicare Fee-For-Service (FFS). Good news because the negative impact of G-codes (using up the typically-limited number of ICD-9s which accompany a claim for information which does not affect MA risk adjustment scores) doesn't apply. Bad news because MA plans won't get information about quality of care, which is contrary to the one of the basic notions of health maintenance organizations.

If you're involved with Medicare, I recommend you subscribe to Medicare Update.

If you're interested in PQRI, please visit the CMS PQRI Web page.

One Percent

Can your plan get by on a one percent increase in payments? According to CMS,

Assuming that plans’ risk scores in 2007 are approximately the same as in 2006, we expect plan payments will increase, on average, by approximately
1.1%.

This is why risk management, in the form of retrospective and prospective programs to correctly assess the risk scores of your membership, is a key strategic determinant of your plan's future success.

(The rest of the linked-to CMS document is worth reading as well.)

Medicare Advantage Payments Demystified

One element of Medicare Risk Management success is simply understanding the timetable.

During the first half of each year (January through June) payments from CMS to your plan are an estimate, based on your member's risk adjustment scores from data submitted by the previous September, covering dates of service for 12 months ending the previous June.

Example: your January, 2007 payment was based on risk adjustment scores from data submitted by September 1, 2006 (the previous September) covering dates of service from July 1, 2005 through June 30, 2006 (the previous June).

On July first each year, you begin receiving the "correct" payment for the current year, based on dates of service in the previous year. At that time (actually in August), you also receive a payment to correct what you should have been paid in January through June.

Example: your July, 2007 payment will be based on risk information from dates of service between January 1, 2006 and December 31, 2006, submitted by March 2, 2007 (about 2 weeks from now).

If you are paid X dollars per month from January through June as an estimate, and the correct monthly payment to your plan is Y (based on the prior year's dates of service), you will be paid 6X (January through June), plus 6Y (July through December) plus a check for 6(Y-X) in August, which all adds up to 12Y (or 12 months of the "correct" monthly amount) over the course of the year.

Note that 6(Y-X) can be negative, which means you have to pay money back to CMS.

Finally, you can submit codes for 2006 dates of service (affecting payment in 2007) up until January 31, 2008. If the correct monthly payment to your plan should have been Z (based on these additional ICD-9 codes), then in September of 2008 you will receive a check for 12(Z - Y), representing the amount your plan was underpaid.

Note again that 12(Z-Y) can also be negative, indicating an overpayment by CMS.

If this all seems like old news, congratulations - you have a good basic understanding of Medicare Advantage payment methodology!

Your HCC Risk Management Personality Test

Assume, for a moment, you run a 20,000 member health plan. There are two options for you to manage HCC-based risk adjustment:

Option 1: you spend $480,000 on retrospective chart review for 2006 dates of service, and recover $6 million ($30 pmpm). Net recovery is $5.52 million

Option 2: you spend $1.2 million on retrospective chart review for 2006 dates of service, and recover $15 million ($63 pmpm). Net recovery is $13.80 million.

Which do you pick: cost or net recovery?

Your answer says a lot about which HCC management outsourcing solution you will be most comfortable with.