Heath Affairs Blog recently posted a two-part series by Drs. Richard Gilfillan and Donald Berwick, former Director of the Centers for Medicare and Medicaid Innovation (CMMI) and Administrator of the Centers for Medicare & Medicaid Services (CMS), respectively. The posts are available here: Medicare Advantage, Direct Contracting, And The Medicare ‘Money Machine,’ Part 1: The Risk-Score Game (Sept. 29, 2021) and Medicare Advantage, Direct Contracting, And The Medicare ‘Money Machine,’ Part 2: Building On The ACO Model (Sept. 30, 2021).
In the posts, the authors explore the disturbing “epidemic” of “financing and acquisitions of firms focused on serving Medicare beneficiaries,” including “the combined activity of private equity and venture capital firms, initial public offerings, special purpose acquisition companies (SPACs), and insurance company purchases of MA-focused firms.” They explain that through the two-part post, they would:
…attempt to explain the perverse MA business model that underlies this elevated level of investment, and we will explore its connection to the Direct Contracting model now being tested by CMS. The story is complex, but we think it is worth telling because the stakes for beneficiaries, the public treasury, and our health care system are very high. This business model is distorting health care delivery, creating excessive costs for taxpayers and Medicare beneficiaries, draining the Medicare Trust Fund, obstructing the badly needed value transformation of American health care, and diverting the money needed to fund other social services and goods.
Part 1 – Medicare Advantage (MA)
In their first Blog post, the authors outline “[f]our main business realities” that
drive the interest in Medicare-related acquisitions. First is the expected doubling of Medicare spending from $800 billion in 2019 to $1.6 trillion in 2028 as Baby Boomers age. Second is the reality that MA harbors an arbitrage game in which CMS consistently overpays MA Plans with no demonstratable clinical benefit to patients. Third is the heavily subsidized and distorted market dynamics that result from these overpayments. Fourth is the Trump administration’s creation of the Direct Contracting Model as a vehicle for privatizing Medicare’s projected 2028 $1.6 trillion spend. [links omitted]”
Drs. Gilfillan and Berwick provide a damning indictment of MA plan risk-score gaming, which “creates a major transfer of wealth from taxpayers and Medicare beneficiaries to MA plans, and it lies at the heart of the business model for most MA plans.” Despite considerable evidence of such gaming, they note that “Congress and every administration since 2006 have avoided fixing this inaccuracy, in part because of plans’ enormous political clout.”
In short, in Part 1, the authors “explored the reasons for surging growth and profits in the Medicare Advantage (MA) program and the dynamics, largely related to risk-coding games, that make MA a costly form of transfer of public and beneficiary dollars into private hands.” In a set-up to Part 2, they note that while the “MA coding game … has heretofore been confined to the MA portion of Medicare”, the Trump Administration introduced the Direct Contracting demonstration models through the Centers for Medicare and Medicaid Innovation (CMMI) as a vehicle to achieve its “avowed […] intention to de-risk CMS by moving the 58 percent of Medicare beneficiaries who chose traditional coverage into MA-like full risk capitated arrangements [link omitted].”
Part 2 – Direct Contracting Demonstrations
Part 2 of the Medicare “Money Machine” series explores how some of the same dynamics behind the surging growth and profits in MA are being implanted into traditional Medicare via the Direct Contracting model.
The authors describe the structure of and rationale behind the Direct Contracting demonstrations that would allow “non-provider-controlled ‘Direct Contracting Entities (DCEs)’ to become the fiscal intermediaries between patients and providers.” They note that the “most extreme” model – the Geographic (or “Geo”) demo – would have been a “straightforward privatization of traditional Medicare, differing from MA only in that GEO Direct Contracting beneficiaries retained the right to see any Medicare provider under standard Medicare coverage.” (Note that the Center for Medicare Advocacy strongly opposed the “Geo” model, as discussed in this February 2021 CMA Alert.) In March 2021, the Biden Administration announced that the “Geo” model was suspended, but it remains “currently under review,” according to the CMMI website.
Drs. Gilfillan and Berwick outline the dangers of the remaining Global and Professional Direct Contracting (“GloPro”) models, and claim that, “[i]n short, millions of traditional Medicare beneficiaries, who made a specific choice not to enroll in MA, will find themselves in an MA-like managed care environment.” They also warn that “even if Direct Contracting does not prove profitable, it provides a perfect pathway for wholesale movement of beneficiaries into MA at a much lower cost of sales.”
In discussing the Direct Contracting models, the authors state:
Ironically, this is all reminiscent of the original, well-intended strategy for privatized Medicare: to bring health maintenance organization (HMO) savings and care improvements to Medicare. But the Direct Contracting model seems to have ignored the lessons learned from the experience of MA and its predecessors at a cost to CMS and taxpayers of hundreds of billions of dollars. As MedPAC confirmed recently, over 35 years, privatized Medicare has always cost more than traditional Medicare, not less [links omitted]. (Emphasis added.)
In conclusion, the authors outline recommendations to reform the MA program which is “fundamentally flawed,” including instructing CMS to replace the current Hierarchical Condition Category (HCC) risk-adjustment scoring system and “fixing the structural overpayments related to benchmarks and the Quality Bonus Program.” With respect to the Direct Contracting model, the authors state that the “best way to mitigate [its] undesirable effects […] would be to stop the program” and replace it with a new Medicare Shared Savings Program (MSSP) model. Alternatively, they suggest that CMS make it clear that the Direct Contracting model “is a small experiment,” limit the number of beneficiaries involved, and call for eliminating all insurers from the model. They further promote building upon the experience with Accountable Care Organizations (ACOs).
October 7, 2021 – D. Lipschutz