What Health Tech Leaders Need to Know About Medicare Advantage
If you are building any kind of product or service targeted at the US healthcare industry, or are already competing there, you need to raise your awareness of how Medicare Advantage market is evolving.
Why Medicare Advantage is Important
One reason to pay attention to Medicare Advantage (MA) is the sheer size of the market. MA plans have become widely popular, where in the last five years enrollment has grown from 37% to approximately 51% of all eligible Medicare beneficiaries are now enrolled in MA plans. According to CMS enrollment data, thirty-one million people in the US are now enrolled, and assuming a population of 330 million, that’s almost 10% of all US citizens. Moreover, payments to MA plans in 2023 are approximately $473 Billion. For more facts, see “Medicare Advantage in 2023: Enrollment Update and Key Trends” over at the Kaiser Family Fund.
Center for Medicare and Medicaid (CMS) Definitions and Jargon for MA
Medicare Advantage (MA) is known as Medicare Part C, which combines traditional Medicare Part A (hospital care) and Part B (outpatient and physician services) together in one plan. There is also Part D which is prescription drug coverage, which is sold as a standalone plan, or increasingly as a component of an overall MA plan. In fact, the thing that makes MA plans to appealing for beneficiaries is that they combine many benefits such as drugs, dental and vision care into one plan.
Figure 1. Definition of Medicare Parts (source: 65medicare.org).
If there is one thing to take away from this blog, it's this: MA differs from traditional Medicare because it is a capitated program built on the premise of value-based care where quality of care is rewarded. In plain language, this means plans receive a fixed amount from CMS per member per month (PMPM) to cover all health care and treatments for members. Anything left over the plans keep as profits, and in fact as discussed next, plans can earn up to a 5% bonus payment on top of the PMPM based on their 5-Star Rating.
This payment scheme contrasts with traditional Medicare which is fee-for-service and pays providers a fixed amount for procedures according to a rate book. This topic alone is worthy of a bblog, so I won't go into more detail.
The MA plans also calculate a risk score adjustment for their patient populations, which adjusts the PMPM rate they receive from CMS. This in theory levels the playing field and allows plans to take on more patients with complex health conditions who are expected to spend more on healthcare services. Again risk adjustment is a complex topic and will be covered in a future blog.
5-Star Rating Program and Shift to Patients' Experience
CMS uses a 5-Star rating system for MA plans in a similar way as done for long term care facilities and hospitals. For all markets, the 5-Star program is intended to empower consumers to comparison shop by viewing the ratings of facilities and health plans in their community. For MA plans, CMS also uses the ratings to determine bonus payments for high performing plans. These bonus payments are codified in law, where sections 1853(n) and 1853(o) of the Social Security Act require CMS to make quality bonus payments (QBPs) to Medicare Advantage (MA) organizations that achieve at least 4 stars in a 5-star quality rating system.
What is new for the 5-Star rating is that it now places an emphasis on patient experience which started for the 2023 rating period and continues in 2024. In addition to health outcomes and quality measures, MA plans are rated on their ability to facilitate their members getting care, making appointments, delivering great customer service, and handling complaints among other measures.
The table below summarizes all the elements of the 5-Star rating and the relative weights for each. Note the weighting of 1 for most "process measures" and 4 for patients' experience.
Figure 2. Part C and D Weights for 2024 Star Ratings (March 2023 Update, CMS).
Impact of 5-Star Ratings on Plans
How has the shift impacted plans? The average star rating for all Medicare Advantage plans decreased for 2023 to 4.15 from 4.37 in 2022. A total of 57 Medicare Advantage contracts received five-star ratings, down from 74 in 2022. There were 67 plans in the 4.5 star category, down from 96 in 2022, and a big jump in the 3 Star rating with 90 contracts compared to only 25 prior. See the table below for more year-over-year comparisons.
Figure 3. Table of Overall 5-Star ratings provided by CMS.
These scores are important for plans competing for members and bonus payments. However, it doesn't tell us much about where these plans were underperforming to cause such a drop. This is where healthcare technology product and service leaders should be looking for an opportunity to help these plans and the providers, they contract with to raise these scores.
For that analysis, I examined data sets published by CMS on details of the 5-Star scores. I summarize the findings in the following Figure 4.
Figure 4. The Star Rating Domains and Scores from 2023 (Authors analysis of CMS data)
As seen in Figure 4, on average all plans decreased in all domains in 2023 vs 2022. Most remained the same, and some gained or lost stars as one might expect. The largest decline was in the Member Complaints domain, which measures the number of complaints, quality improvement, and importantly the number of members leaving the plan. Even if a plan were to score high in all other domains, if a significant number of members leave for whatever reason it impacts this score. This is why MA plans are keenly interested in member retention.
Member experience was the second largest decline, to be expected with increased weighting on this category as shown in Figure 2. Plans are working hard to bolster these ratings, which are a combination of member surveys and data they report back to CMS.
Opportunity for Health Tech Vendors
Value-based care (VBC) has been discussed for many years in the industry. Speakers at national conferences talked about this is the future, but at the same time there was mixed feelings on whether is was "real" given the US market still operated in a fee-for-service payment model.
The fast growth of MA has shifted the timeline for VBC, it is here now and significant dollars are being spent. Plans will be increasing their investments in areas that support member experience, including how grievances and complaints are handled. Moreover plan determinations such as prior authorizations and coverage denials processes will need to be further streamlined and even automated given the growth expected in the number of Medicare beneficiaries in the coming years.
Instead of relying on human processing this is an area ripe for disruption by AI. Revenue cycle management (RCM) is an area already benefiting from applying AI technology in the provider space by companies like Waystar and FinThrive.
The same opportunity exists to support member experience. Given the staffing challenges in the healthcare, payers and providers will be looking for ways to automate processes tied to directly to access and administrative tasks. Access is a long standing issue, the effort required to locate a provider and obtain care is often daunting for patients. Given the incentives CMS has placed on a patient-centric approach, plans will be looking to drive better experiences for members and to arm their provider networks with tools.
If you would like to dig into the Star rating data in further details, please let me know. There is a lot to discover!
