The GAO Reports: Medicare Advantage Incentives

April 24th, 2012 | Healthcare Reform

Let me add some perspective on the GAO’s report last week that the Medicare Advantage (MA) Quality Bonus Payment Demonstration project was not paying for quality in MA Plans but rather paying to “offset more than one-third of the reduction in MA payments projected to occur under PPACA during the demonstration years.” The PPACA is, of course, better known as the Healthcare Reform Act, or Obamacare, that made dramatic cutbacks in the rates paid by Medicare to the private health plans who participate in MA.  The President railed against MA plans during the run-up to the Reform legislation and the CMS Office of the Actuary predicted of Reform: “We estimate that in 2017, when the MA provisions will be fully phased in, enrollment in MA plans will be lower by about 50 percent (from its projected level of 14.8 million under the prior law to 7.4 million under the new law).”[1]  This, while the President chanted: “If you like your health plan, you can keep your health plan.”

Read it yourself here:

CMS moved independently of Obamacare to mitigate this impact on MA, which is what the GAO was investigating.  

Meanwhile, back at the ranch, for the last 6 to 9 months, the Obama Administration through HHS Secretary Sebelius has been trumpeting the fact that MA enrollment has not declined as predicted by the CMS Actuary but rather increased!

Read it yourself here:

However, the CMS Actuary’s analysis of Obamacare did NOT factor in the Quality Bonus Payment Demonstration that mitigated Obamacare’s decimation of MA. 

Read it for yourself here:

All of this is discussed in Chapter 4 of my forthcoming book on the Reform legislation:
See for yourself this May here:

The GAO Report Summary (OACT is the CMS Office of the Actuary)

“OACT has estimated that the MA Quality Bonus Payment Demonstration will cost $8.35 billion over 10 years, most of which will be paid to 3-star and 3.5-star plans. About $5.34 billion of OACT’s cost estimate is attributed to quality bonus payments more generous than those prescribed in PPACA, specifically to (1) higher bonuses for 4-star and 5-star plans, (2) new bonuses for 3-star and 3.5-star plans, (3) applying bonuses to plans’ entire blended benchmarks, and (4) allowing plans’ benchmarks to exceed their pre-PPACA levels. Most of the remaining projected demonstration spending stems from higher MA enrollment because the bonuses enable MA plans to offer beneficiaries more benefits or lower premiums. Taken together, the expanded bonuses and higher MA enrollment mainly benefit average performing plans—those receiving 3-star and 3.5-star ratings. In addition, OACT estimated that the demonstration will offset more than one-third of the reduction in MA payments projected to occur under PPACA during the demonstration years. The largest annual offset will occur in 2012—71 percent—followed by 32 percent in 2013 and 16 percent in 2014.”

 “The MA Quality Bonus Payment Demonstration does not—and is not required by law to—conform to the principles of budget neutrality. OMB officials told us that they considered the costs of the demonstration in the context of other administrative actions in the Medicare program that are expected to generate savings. However, they did not confirm whether specific offsets were identified to account for the total costs of the demonstration.”

 “The MA Quality Bonus Payment Demonstration dwarfs all other Medicare demonstrations—both mandatory and discretionary—conducted since 1995 in its estimated budgetary impact and is larger in size and scope than many of them. Our review of CMS and OMB data shows that the estimated budgetary impact of the demonstration, adjusted for inflation, is at least seven times larger than that of any other Medicare demonstration conducted since 1995 and is greater than the combined budgetary impact of all of those demonstrations. While the demonstration is similar in size and scope to some Part D demonstrations, it is unlike many Medicare pay-for-performance demonstrations in that it is implemented nationwide and allows all eligible plans or providers to participate.”

 “The design of the demonstration precludes a credible evaluation of its effectiveness in achieving CMS’s stated research goal—to test whether a scaled bonus structure leads to larger and faster annual quality improvement compared with what would have occurred under PPACA. Because of the timing of data collection—all of the performance data used to determine the 2012 bonus payments and nearly all of the data used to determine the 2013 bonus payments were collected before the demonstration’s final specifications were published—the demonstration’s incentives to improve quality can have a full impact only in 2014. In addition, the demonstration’s bonus percentages are not continuously scaled—in 2014, plans with 4, 4.5, and 5 stars will all receive the same 5 percent bonus—and its bonus payments do not consistently offer better incentives than PPACA to achieve high star ratings in 2013 and 2014. Moreover, because the demonstration lacks a direct comparison group, it may not be possible to isolate its effects, and any effects that are observed could be attributable, at least in part, to other MA payment and policy changes.”

Read it yourself here:

[1] “Estimated Financial Effects of the ‘Patient Protection and Affordable Care Act,’ as Amended”, April 22, 2010, Richard Foster, CMS Chief Actuary; curiously, the CBO estimated the enrollment reduction at only 35%.

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