Report Examines High Spending on Medicare Advantage Plans
This week, the Kaiser Family Foundation (KFF) released a report entitled “Higher and Faster Growing Spending Per Medicare Advantage Enrollee Adds to Medicare’s Solvency and Affordability Challenges” (August 2021).
As noted in the Report:
“Medicare spending is higher and growing faster per person for beneficiaries in Medicare Advantage than in traditional Medicare. As enrollment in Medicare Advantage continues to grow, these trends have important implications for total Medicare spending, and costs incurred by beneficiaries.”
The Report outlines its findings as follows:
- Medicare spending for Medicare Advantage enrollees was $321 higher per person in 2019 than if enrollees had instead been covered by traditional Medicare. The Medicare Advantage spending amount includes the cost of extra benefits, funded by rebates, not available to traditional Medicare beneficiaries.
- The higher Medicare spending per Medicare Advantage enrollee, compared to spending for similar beneficiaries under traditional Medicare, contributed an estimated $7 billion in additional spending in 2019.
- Growth in Medicare Advantage enrollment explains half of the projected increase in total Medicare Advantage spending between 2021 and 2029 and half is attributable to growth in Medicare payments per Medicare Advantage enrollee, after accounting for inflation.
- If spending per Medicare Advantage enrollee was 2% less each year than projected by the Medicare actuaries, similar to the projected impact of a recommendation made by MedPAC, total Medicare spending would be $82 billion lower between 2021 and 2029.
- If Medicare payments per Medicare Advantage enrollee grew at the same rate as is projected for spending per person in traditional Medicare (4.4% vs 5.3%), total Medicare spending would be $183 billion lower between 2021 and 2029.”
The conclusion to the Report notes that “Historically, one goal of the Medicare Advantage program was to leverage the efficiencies of managed care to reduce Medicare spending. However, the program has never generated savings relative to traditional Medicare. In fact, the opposite is true.” While higher payments have led to coverage of some limited extra benefits for plan enrollees, “the higher payments have also led to higher Medicare spending than would have occurred under traditional Medicare and higher Medicare Part B premiums paid by all beneficiaries, including those in traditional Medicare.”
We quote the final paragraph of the report’s conclusion in full:
“Over the next decade, Medicare Advantage enrollment is expected to continue to grow. As more Medicare beneficiaries enroll in private plans, differences in Medicare payments across Medicare Advantage and traditional Medicare will lead to even higher Medicare spending, and more generous benefits for beneficiaries in Medicare Advantage than traditional Medicare. That higher spending increases Part B premiums paid by all Medicare beneficiaries, including those who are not in a Medicare Advantage plan, and contribute to the financing challenges facing the Medicare HI Trust Fund. Further, these projections raise questions of equity between Medicare Advantage and traditional Medicare because the faster growth in spending per Medicare Advantage enrollee, compared to traditional Medicare beneficiaries, is in part due to rising rebates to private plans, which cover the cost of benefits not available to traditional Medicare beneficiaries. Although taking steps to address the fiscal challenges facing Medicare are not front and center in current Medicare policy discussions, policymakers may soon be on the lookout for options to achieve Medicare savings to fund other spending priorities or extend the solvency of the Medicare HI Trust Fund. This analysis suggests that reducing the difference in payments between Medicare Advantage and traditional Medicare would generate savings, with the potential for reductions in extra benefits for Medicare Advantage enrollees.
NEW | Durable Medical Equipment Resources
Medicare defines “Durable Medical Equipment” (DME) as items that are:
- Durable (Covered items must be able to withstand repeated use. Items that are “single-use” in nature are not covered as DME); and
- Appropriate for use in the “home” (Primarily used at home, but not exclusively); and
- Primarily and customarily needed for a medical purpose (generally the DME is not useful to someone who is not sick or injured); and
- Necessary and reasonable for treatment of a condition or injury. (Comfort/convenience items, physical fitness or self-help equipment, and devices and equipment used for environmental control are not covered.)
Medicare’s definitions and coverage of DME can be complicated. The Center for Medicare Advocacy has created a Beneficiary Guide and Checklist of questions to ask suppliers (also included in the Guide) to help understand and obtain DME coverage. Download them at the links below.
- Beneficiary Guide to Medicare Coverage for Durable Medical Equipment (DME)
- Checklist: Questions to Ask When Looking for DME Suppliers
Report Documents Private Equity’s Role in Ownership of Nursing Facilities
The Private Equity Stakeholder Project documents the ownership of nursing facilities by private equity companies, tracing the ownership histories of some of the largest private equity firms, by name, and describing their quality of care and COVID-19 case and death rates. Eileen O’Grady (Private Equity Stakeholder Project), Pulling Back the Veil on Today’s Private Equity Ownership of Nursing Homes (Jul. 21, 2021).
The Report describes concerns about private equity’s investment in nursing homes:
Private equity investors’ outsized return expectations over short time horizons may lead to profit-seeking tactics that hurt patient care. High levels of debt left over from leveraged buyouts can leave nursing homes with less capital available for operations as more money is diverted to interest payments. Sale-leaseback transactions, where a company is made to sell its real estate to a third party and lease it back, can leave nursing homes with fewer assets and increased liabilities in the form of rent payments. Management fees and shareholder dividends can further bleed nursing home companies of money that could be invested into patient care. [Report, page 3.]
In addition,
The complex business structures used by many nursing home companies can obfuscate ownership and make it difficult to track quality and compliance across nursing homes with the same owner. These structures also allow owners to reap excessive profits while limiting financial transparency, primarily through use of related party services.
Nursing home companies often contract with third party entities that have the same owner to provide services and goods, such as management services, staffing, supplies, and lease agreements. These structures legally allow nursing home owners to siphon money out of nursing facilities and hide profits. Nursing home owners can further boost profits by overpaying related parties. [Report, page 4.]
The Report concludes:
Decades-worth of stories and data have revealed the devastating impacts of private equity ownership of nursing homes. Investors’ outsized return expectations over short time horizons can lead to cost-cutting and risk-taking that endanger patients. The firms profiting off of the elderly are often secretive and escape liability for their activities.
In an industry that provides care to some of the most vulnerable communities and receives hundreds of billions of dollars of government money each year, it is critical that private equity cannot be allowed to continue to siphon money out of nursing homes at the expense of patients and health care workers.
The full text of Pulling Back the Veil on Today’s Private Equity Ownership of Nursing Homes is available at https://pestakeholder.org/wp-content/uploads/2021/07/PESP_Report_NursingHomes_July2021.pdf.
Free Webinar | COVID 19 and Health Equity
A discussion of issues in health equity, with a focus on some that have arisen as a result of the COVID 19 pandemic.
Presented by Center for Medicare Advocacy Policy Attorney Kata Kertesz and Chiplin Medicare & Health Policy Fellow, Cinnamon St. John with special guest Dr. David Smith, author of The Power to Heal.
- Register now at https://attendee.gotowebinar.com/register/1150241310831689230.
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