Client Briefing: Highlights of the 2015 CMS Advance Notice and Call Letter

In late February, the Centers for Medicare & Medicaid Services (CMS) released its advance notice of methodological changes for Medicare Advantage for 2015, a very significant document for MA plans. This page provides links to documents, analysis, and advice MA plans can use in planning how to respond.

They include: the Advance Notice itself; an analysis by our team of the key features of the letter and recommendations; a report prepared by Oliver Wyman actuaries for America’s Health Insurance Plans; and the testimony of Oliver Wyman’s Glenn Giese before the House Energy and Commerce Committee Subcommittee on Health.

THE BITE FOR 2015: PLANS FACE A 5.9 PERCENT REDUCTION

Estimates on how much CMS’s methodological changes will affect reimbursement range from 3 to 6 percent. Our own estimate is at the higher end of the range. Significant components of the reduction include shifts in how the benchmark rates are calculated (which will reduce reimbursement by 2.4 percent), the elimination of the quality bonus for 3- and 3.5-star plans (1.9 percent), and the elimination of diagnoses obtained in home visit assessments from risk scores (2.0 percent).

1What seems to be front-of-mind for CMS in the Advance Notice?

There’s a lot of focus on risk and risk adjustment. CMS has increased its coding intensity adjustment (which will reduce reimbursements) and adjusted its methodology for calculating the risk adjustment normalization factor (which will raise them by more than 3 percent). But at the same time, the agency has decided to disallow diagnoses obtained in home assessment visits, unless the diagnosis is confirmed in an office visit. We think that single factor will reduce reimbursements by 2 percent if it is enacted through the Final Call Letter.
2Quality bonuses for 3- and 3.5-star plans end this year. How important is that?

The impact this year will be on the order of 1.9 percent of revenue. But over the long run, we see large plans losing tens to hundreds of millions of dollars if they cannot reach the 4-star level. Stars may represent a new kind of death spiral: If you don’t get the stars, you have to cut benefits and raise prices, which means you have fewer resources to devote to quality.
3What’s the bottom line for MA plans?

In terms of per capita revenue, this year should be a lot like last year — we estimate a reduction of just under 6 percent. We expect most plans to take a near term / long term approach: increased risk coding to drive reimbursement in the near term, and some real focus on building value-based provider partnerships to reduce underlying cost of care in the long term.