For the past few years, U.S. health plans that cover Medicare Advantage (MA) beneficiaries have been struggling to hold out against a string of reimbursement cuts. Now, as these rate cuts finally begin to stabilize, plans are faced with a new challenge: further improving the quality of the care they deliver.
These trends have played out over the past several years. In 2013, we predicted that Medicare would not be for the faint-hearted and that plans would need to take dramatic action to survive. Since then, the federal government has steadily ratcheted down the reimbursement rates for MA plans, leading to what we described last year as a “survival of the fittest” type of market.
In that light, the latest advance notice from the Centers for Medicare and Medicaid Services (CMS) brings one bit of good news for plans: reimbursement rates are now stabilizing, in-line with traditional fee-for-service Medicare. Yet, the government’s announcement also brought a new challenge: the quality rating system for MA—which grades plans on a five-star scale—will soon get harder.
As of 2016, star ratings will no longer be awarded in absolute terms against some predetermined scale; rather, they will be awarded relative to the best performers. (It’s akin to school teachers grading a test on a curve.) That means that top-performing plans will continue to raise the stakes for everyone else — leading to a “quality arms race” of sorts.
What’s At Stake?
There is a clear prize at stake: greater market share in an expanding market. The overall MA market is growing — and is projected to continue doing so for the next 10 to 15 years. Demographic shifts mean that more people are eligible for Medicare, and an increasing percentage of them are opting for MA coverage (rather than traditional fee-for-service Medicare).
Who wins in this market? Large plans that have already invested to improve their Star ratings, reduce their administrative costs, and consistently meet CMS’s compliance standards. These plans—along with those joint ventures developed by regional players to compete against national plans—are now in a unique position to capitalize on the opportunity.
As rate cuts begin to ease, these plans can reinvest to continue designing new benefit arrangements and improving the experience for members. In turn, they will earn higher quality ratings and claim beneficiaries from weaker plans that can no longer keep up on the quality game. We predict that consolidation will accelerate in Medicare, and that 30-50 percent of all beneficiaries will change plans in the next several years.
In this environment, plans need to focus on a few specific capabilities (similar to those we identified in the past):
1. Innovation In The Way That Patients Receive Care
The best performing plans have long focused on the total cost of care for a particular health issue, rather than just on individual procedures. Now, plans are shifting to more advanced models in which they collaborate more directly with a smaller subset of physicians and providers. Under such arrangements, physicians can help identify ways to reduce total costs—while still delivering quality care—and potentially share in the savings. To get there, plans need to align incentives and identify the right physicians and providers to engage for this kind of collaboration.
Similarly, some plans are building more comprehensive “whole-person care models,” particularly for populations with complex ailments like diabetes and obesity, where clinical conditions are often exacerbated by personal, social, and behavioral factors. In this model, plans work not only with doctors but also with a network of care collaborators, including behavioral health specialists, long-term care facilities, and social support resources such as government agencies, churches, and the patient’s family and friends. The result is more coordinated care — and better results for patients.
2. Analytics To Help Choose Markets And Create Engaging Patient Experiences
In the past, winning plans used data and analytics to determine the right patient mix (through market segmentation) and to determine the right level of benefits to offer for specific conditions. Today, plans are applying analytics to the way they interact with patients. For example, a plan may want to engage with all of its type-2 diabetes patients and give them advice on diet, exercise, and medications. There are a range of ways to get these messages out, such as via mobile apps, email alerts, and a care coordinator who calls the patient directly to follow up after doctor visits. By employing analytics, plans can determine which channels and which messages are most effective.
3. Nimble Operations And A Mindset Of Continuous Improvement
Many of the tools and processes that have worked well in private-sector health insurance can also apply to public-sector care. Plans with multiple lines of business need to become more nimble and bring their best ideas to the MA market. For example, plans should leverage existing provider engagement capabilities such as those offered via sophisticated web portals to enable robust reporting, real-time connectivity, direct messaging, and scheduling support. In this way, plans can also increase the payoff for their investment in these technologies.
Plans can also take steps to ensure they are developing a culture of continuous improvement, to increase the quality of their operations and reduce flaws. Methodologies such as Six Sigma have already made the leap from process-heavy manufacturing industries to service businesses; health care is the logical next application of these ideas.
4. Gaining Scale Through Acquisitions And Mergers
Plans that invest in these capabilities will start taking share from their weaker competitors through the organic flow of members, but mergers and acquisitions (M&A) is a factor as well. The next several years will be a period of intense consolidation in the Medicare Advantage industry. Smaller plans that cannot keep up with the required investments to improve quality and cost standards—both administrative and clinical—will stand to benefit from the investment scale and experience of the leaders.
Such was the case with UnitedHealth Group’s acquisition of Medica HealthCare Plans, and Wellcare Health Plans’ acquisition of Windsor Health Group and Easy Choice Health Plan. Leaders need to be able to scout potential candidates, quickly close deals, and get their new assets integrated seamlessly.
Conversely, smaller plans that are behind the curve will need to invest aggressively in order to improve their quality ratings and cost performance; lacking the capital to make such investments, they should prepare themselves to potentially be acquired or seek to join forces with other plans of similar scale to create a stronger and larger organization.
In sum, the next few years will see a clear shake-out in the MA market. Plans with the highest quality ratings, lowest administrative and medical costs, and those with operations that are fine-tuned to meet compliance standards will build on their momentum and claim a bigger share of the expanding member base. However, the remaining plans—particularly those that are not willing or able to invest in the right set of capabilities—will continue to lose ground.
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