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The news media and blogging world devoted considerable time to analyzing President Obama's first 100 days in office as President of the United States.  While there were discussions about President Obama's foreign and economic policies, including his efforts to extend health care coverage to all Americans, there was not a lot of discussion about policy changes in specific domestic programs, including Medicare.  

Yet there is some evidence of a significant shift in thinking about Medicare and how the program will be administered. This Alert discusses two documents issued by the Centers for Medicare & Medicaid Services (CMS) during the first 100 days of the Obama administration, the Call Letter and Announcement of CY 2010 Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies, and what changes they may indicate for the private insurance plans that operate under Medicare Part C and Part D.

THE PART C AND PART D CALL LETTER[1]

Background: Companies that want to sponsor Medicare Advantage (MA) plans under Medicare Part C and/or Prescription Drug Plans (PDP) under Medicare Part D must enter into a new contract with CMS each year.[2]  The contracting process is long and complex.  Plans must submit their applications, which include their pricing bids and their plan benefit packages (PBPs), within strict time frames.  CMS must review the information, send comments to the sponsors, approve the applications, establish premium amounts, and review marketing materials within an equally tight time frame. The goal is to have the entire process completed by the end of September so that Medicare beneficiaries have the information they need to make health care choices at the start of the Parts C and D annual enrollment period on November 15 of the same year.[3]  New contract years, referred to as plan years, begin on January 1. 

The contracting process commences early in the new plan year with the issuance by CMS of the Call Letter.  The Call Letter functions as a request for proposals to act as Medicare Advantage plans and PDPs for the following year. Hence, the Call Letter issued in 2009 is called the 2010 Call Letter.  It provides current and potential plan sponsors with information to assist them in submitting their bids.  The Call Letter discusses legislative and regulatory changes that have recently gone into effect or will go into effect for the next plan year as well as CMS policies to help implement statutory and regulatory requirements.[4]  CMS uses the Call Letter to highlight problem areas from the previous year, to express its expectation of plan sponsors for the upcoming year, and, in effect, to describe its priorities for monitoring plan compliance with statutory, regulatory, and contractual obligations.

CMS initially releases the Call Letter in draft form.  This provides interested parties the opportunity to comment on the Call Letter, its requirements for plans, and the agenda CMS sets out for itself in terms of oversight and enforcement.  Parties are given a limited time frame in which to submit comments.  CMS said in the final 2010 Call Letter issued on March 30, 2009, that it received approximately 190 comments on the draft document from a wide range of interested parties, including health plans, consumer groups, states, pharmacists, health care providers, and members of Congress.[5]

Differences between the 2009 and 2010 Call Letters:  In the 2009 Call Letter, the cover memo described the Call Letter as "a catalyst in strengthening our partnership so that together we may design and provide a variety of high quality health care products to help people with Medicare meet their health care needs."[6]

The cover memo of the 2010 Call Letter no longer mentions partnership, nor is partnership discussed in the Call Letter itself. Instead, the cover memo identifies three areas in which CMS will continue to evaluate its policies with an eye towards issuing proposed regulations: methodologies for calculation and dissemination of information about plans' medical loss ratios[7]; improvements to the reassignment process of low-income subsidy eligible individuals whose Part D plan no longer qualities for the low-income subsidy; and appropriate methods, for plans that are losing members due to  reassignment, for discussing with members how they may remain in their current plan and their premium obligations if they choose to remain.

Thus, the 2010 Call Letter appears to place a greater emphasis than previous ones on enforcement of rules and evaluation of possible new rules, particularly in regard to accountability, informed choice among beneficiaries, and other beneficiary protections.  Changes in these areas include: 

            Accountability

·         Sponsors that file incomplete and inaccurate plan applications, bids, and formularies could be subject to a range of corrective actions.[8]

·         Plans that fail to meet standards for timely resolution of complaints recorded through the Health Plan Management System Complaints Tracking Module will be considered to be out of compliance with regulatory and contractual requirements.

·         Plans will be subject to targeted, data-driven and risk-based audits focused on enrollment processes, appeals and utilization management criteria in formularies.

·         Sponsors will be subject to stricter rules for marketing their plans. 

Promoting Informed Health Plan Choices For Beneficiaries

·         Medicare Advantage (MA) sponsors are encouraged to eliminate plans with low enrollment or duplicative benefit structures, and limit their offerings to no more than three MA plans by plan type in a region, in an effort to ease beneficiary confusion.

·         Plans are required to use standardized descriptions of the extent of drug coverage in the coverage gap, or donut hole, to facilitate comparisons across plans.

·         Plans are required to publish drug formulary utilization management requirements and use standard plan types in plan names to inform beneficiaries and promote transparency

Increasing Beneficiary Protections

·         Plans with high cost-sharing requirements for services associated with chronic and acute conditions will be reviewed by CMS and will not automatically be accepted for 2010, even if they were approved for 2009.

·         Plans with out-of-pocket expenses capped at more than $3,400, or with cost-sharing for certain services higher than Medicare cost-sharing, would be subject to greater scrutiny for discriminatory practices.

·         Chronic condition special needs plans will have stricter enrollment eligibility criteria and be subject to new standards for their benefit packages.

·         Private fee-for-service plans will be required to make their cost-sharing requirements more transparent, particularly in situations when beneficiaries fail to notify a plan prior to receiving treatment; failure by plans to comply could result in sanctions or civil monetary penalties.

·         Medication Therapy Management programs will have more detailed requirements that address enrollment, targeting, intervention and outcomes-reporting and are based on what CMS identified as best practices in these areas.

·         Plans will no longer be permitted to use reference-based pricing in their formularies, whereby plans add a surcharge to cost-sharing of certain prescription drugs.

ANNOUNCEMENT OF CY 2010 MEDICARE ADVANTAGE CAPITATION RATES AND MEDICARE ADVANTAGE AND PART D PAYMENT POLICIES

Background:  The second CMS issuance that reflects possible changes in policy toward MA plans and PDPs is the Announcement of Calendar Year 2010 Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies (Announcement of Capitation Rates). CMS must announce by the first Monday in April each year the capitation (payment) rates for Medicare Advantage plans for the following year.[9]  The rate information is provided before the June deadline for submission of applications so that plan sponsors can structure their benefit packages based on the amounts they are projected to receive. 

As with the Call Letter, CMS issues an Advance Notice of changes in methodologies for calculating the rate so that interested parties may comment on the changes.  The Advance Notice must be issued 45 days before the capitation rates are announced.[10]  CMS received 66 comments on its Advance Notice issued in February 2009, including three from advocacy groups.

Differences for 2010: The 2010 Announcement of Capitation Rates issued on April 6, 2009,[11] included changes that will result in reduction in plan payments.

Lower payment rate increase:  CMS announced that MA plan payment rates would increase by a lower percent (0.81 percent) than had been projected in 2008 (3.8 percent).  The difference is due, in part, to the use of different economic assumptions, and in part to the projected reduction in traditional Medicare's payments to physicians in 2010.[12] Further, as a result of modifications to the Medicare statute that became effective in 2007,[13] CMS no longer has to authorize a minimum increase of 2 percent per year. 

Adjustment for differences in coding patterns:  Payments to MA plans are risk adjusted to take into account the health of plan enrollees.  Plans that enroll beneficiaries with greater health care needs receive higher payments. In determining risk adjustment, CMS is required to look at differences in coding patterns between Medicare Advantage plans and traditional Medicare.[14]  CMS has found for the first time a difference in disease coding. Even after taking into account age and mortality rates, change in disease score coding based on reporting of diagnosis by MA plans increased faster in MA plans than in traditional Medicare.  As a result, CMS is reducing MA plan payments to account for the differences.  The 3.42 percent adjustment will be applied uniformly in 2010.

Other payment adjustments:  The Announcement of Capitation Rates included other changes. The rates reflect the phase-out of costs for indirect medical education that was enacted into law in 2008.[15] Risk adjustments to Part D payments will take into account beneficiaries who have enrolled in a Part D plan, rather than all beneficiaries who are eligible to enroll. CMS indicates that this change, while potentially resulting in minimal increases to Part D premiums, will ensure that premiums remain about 25.5% of the costs as required by statute, and should not discourage enrollment by healthier beneficiaries.[16]

WHAT DO THESE CHANGES SIGNIFY?

It is too early to determine fully what the Obama Administration has in store for Part C and Part D plans.  However, the 2010 Call Letter and the 2010 Announcement of Capitation Rates may be indicative of an era of closer scrutiny of the private insurance plans that contract with Medicare.  If coding patterns grow at a rate greater than the average growth in traditional Medicare, then payments will be reduced.  Plan sponsors that do not file timely and complete applications may not have their applications renewed or may be sanctioned.  Benefit packages, including cost-sharing, will be reviewed more closely to ensure that they do not discriminate against certain beneficiaries.  Information about benefit structures, including utilization management tools, will need to be more easily available to Medicare beneficiaries.

It looks like the Obama Administration intends to oversee private Medicare plans far more than in recent years. This perception was underscored as recently as today, May 7, when the Department of  Health and Human Services issued a press release that included the following statement about HHS provisions in the President’s budget:

Enhancing Medicare and Medicaid Integrity:  Reducing fraud, waste and abuse in government spending is a top priority for the Administration. The FY 2010 budget invests $311 million in discretionary resources to strengthen program integrity activities within the Medicare and Medicaid programs, with particular emphasis on greater oversight of Medicare Advantage and the Medicare Prescription Drug program.  This investment represents the first year of a multi-year strategy which the budget estimates will bring $2.7 billion in savings.  [Emphasis added.]