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Perhaps I was wrong


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Jun 20, 2010
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New England
About a quarter of Medicare beneficiaries are in managed care plans offered by private insurance companies. Under this program, Medicare Advantage, the private insurers submit bids reflecting how much money they think they'll need to offer benefits over the course of the year. If their bids come in below a certain benchmark value, they're given extra money by the federal government--effectively a subsidy. Obviously if the benchmark value is too high, more bids will come in below it and more subsidies will be paid out to the private insurers. For most of Medicare Advantage's 15-year history those benchmarks have indeed been too high, to the delight of participating private insurers. And so the value of the extra subsidies has been substantial.

Obamacare is bringing the benchmarks back down, reducing the extra subsidies to the private insurers. But it included provisions that lowered them less for higher quality plans, as identified by plan rating on a 5-star scale. The higher quality--4 or 5 star--Medicare Advantage plans would get special bonuses by which they wouldn't see their benchmarks fall as far as other plans.

Back in April, there was an unflattering GAO report on a 3-year, nationwide demonstration project in which the feds accelerated and expanded the bonus program. Under the demonstration, Medicare Advantage plans getting 3 or more stars (instead of the 4 or more specified in the statute) would be eligible for bonuses. The stated goal of the so-called MA Quality Bonus Payment Demonstration was to "test whether a scaled bonus structure would lead to larger and faster annual quality improvement for plans at various star rating levels compared with what would have occurred under PPACA."

At the time I suspected it was yet another of the boondoggles for the advantage of participating private insurers that Medicare Advantage has become famous for and I advocated terminating the demonstration:

Indeed, that experiment with privatization [Medicare Advantage] has been a money pit for the last decade. How many ways is administration after administration going to find to prop up these private insurers to make their service and product look as appealing to seniors as fee-for-service Medicare?

Quality bonuses are a nice idea until they become a tool for papering over the deficiencies of privatization. The GAO is correct, this should be canceled. And if the administration is correct that overpaying private insurers is the only way to ensure quality, then perhaps we ought to re-examine the entire Medicare Advantage program. Before the Ryans of the world double down on it.
It turns out I might have been a little too hasty in agreeing with GAO that the bonus demonstration should be ended. It does seem to be rather quickly encouraging quality improvement along all of the metrics used to evaluate the quality of the plans and across plans of all star ratings.

Medicare Advantage Bonus Payment System Is Effective, Reports Find - California Healthline
Medicare Advantage Bonus Payment System Is Effective, Reports Find

The Medicare Advantage bonus payment system created by the Affordable Care Act and updated last year is effective, according to separate analyses released Tuesday by Avalere Health and the Commonwealth Fund, Bloomberg Businessweek reports (Wayne, Bloomberg Businessweek, 10/16).

The Affordable Care Act authorized bonus payments to MA plans that receive a quality score of at least four stars on a five-star scale. In November 2010, CMS expanded the program to provide bonuses to plans that receive at least three stars.

The program encountered criticism from the start. Critics have said the $8 billion bonus program amounts to a "slush fund" that would partially offset $145 billion in cuts to the plans over the next decade. Some Republicans also have argued that the program is a political move to win votes in November's election.

In April, a Government Accountability Office Government Accountability Office report found that the program was unlikely to "produce meaningful results" and advised that it be canceled. The report said that most of the bonuses went to "average-performing plans" and that researchers were unable to determine whether the increased payments led to improved care (California Healthline, 8/10).

Avalere Analysis

However, the Avalere analysis found that the average rating for an MA plan with drug coverage in 2013 increased to 3.66 stars on a five-star scale, up from 3.44 stars in 2012 and 3.18 stars in 2011 (Bloomberg Businessweek, 10/16). The report also found that from 2012 to 2013, 28% of MA plans and 49% of stand-alone Medicare prescription drug plans gained at least a half a star (Viebeck, "Healthwatch," The Hill, 10/16).

The analysis also found that MA plans improved on all measurement categories, including process, patient experience and access, and outcomes (Avalere release, 10/16).

The 99 plans that improved will be rewarded with higher bonus payments applied to their 2014 benchmarks and special markers on the CMS plan-finder website, the Avalere report notes ("Healthwatch," The Hill, 10/16).

Commonwealth Fund Report

Meanwhile, the Commonwealth Fund report found that the bonus payment program improved quality of care for Medicare beneficiaries, while reducing overpayments to Medicare Advantage plans by $12.7 billion annually.
At the very least, it's an interesting new wrinkle to the story.

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