Medicare Advantage Cuts May Shrink Physician Networks

March 03, 2014

More physicians could find themselves bounced from provider networks of Medicare Advantage (MA) plans if this program experiences another wave of cuts in 2015, according to a new study commissioned by the health insurance industry and released last week.

The study from the actuarial firm of Oliver Wyman estimated that a base rate reduction of 1.9% proposed on February 21 by the Centers for Medicare & Medicaid Services (CMS) and other factors would bring the total decrease to 5.9% in 2015. That compares with an estimated 4% reduction in 2014.

According to the study, MA plans would respond to the bash on their cash with "provider network changes," which is code language for dropping physicians not considered low cost and high quality. Such dismissals have embroiled one insurer offering MA plans — United Healthcare — in a federal lawsuit with Connecticut physicians.

"That's a trend I would expect with these rates," said Matt Eyles, executive vice president of the advisory firm Avalere Health. "The squeeze goes down to the providers."

MA represents a managed care version of fee-for-service Medicare. Seniors who choose this option receive all their regular Part A and Part B Medicare benefits — and often more — from a private insurer. The government pays these insurers a fixed amount per beneficiary, or a capitated rate. Almost 30% of Medicare beneficiaries, or 15 million individuals, now belong to a MA plan, and enrollment has increased nearly 33% since the Affordable Care Act's (ACA) passage in 2010, according to CMS.

Effect of Cuts Disputed

The CMS announcement last month on proposed funding for MA plans kicked up a cloud of statistical dust that just now appears to be settling. The government said the base payment rate would decline 1.9% in 2015, but MA analysts consider other factors in making their forecasts. Chief among them is a funding cut mandated by the ACA designed to bring spending on MA plans in line with traditional fee-for-service Medicare (the law's authors thought MA plans were overpaid). In 2015, that ACA-based cut will come to 2.4%, according to the Oliver Wyman study, prepared for the trade group America's Health Insurance Plans (AHIP).

Other pieces of the funding puzzle include an annual fee that the ACA imposes on health insurers, the elimination of bonuses to MA plans with "star" ratings of 3 and 3.5, and the disallowance of diagnoses identified during home assessment visits that are not confirmed by an office visit. Diagnoses help form the basis of patient risk scores, and higher scores bump up what CMS pays MA plans. In contrast, a few factors have the effect of boosting MA funding.

Oliver Wyman crunched all the numbers and came up with an overall 5.9% decrease. The insurer Humana put the decrease at 3.5% to 4%, a few percentage points less than what it anticipated. Avalere's Matt Eyles said Wall Street estimates have ranged from a 4% to a 6% drop.

A funding decrease of 5.9% next year combined with this year's cut, the Oliver Wyman report predicted, would cost MA beneficiaries $420 to $900 per year in terms of higher premiums and reduced benefits as health insurers attempt to cope. MA plans also would be likely to downsize their coverage area and provider networks. Some may simply exit certain markets.

Not everyone foresees such a dire outcome, given how MA has fared under earlier cutbacks.

"We have really overall had a rather calm year, so the 'sky is falling' predictions from the health insurance industry did not come true," said Joe Baker, president of the Medicare Rights Center, a consumer advocacy group, in a recent interview with Kaiser Health News.

Nevertheless, AHIP is urging CMS to keep MA payments flat next year lest seniors suffer. The agency will announce its final base payment rate on April 7. AHIP, however, is not lobbying to squash just the proposed 1.9% base rate reduction.

"We want the negative 5.9% reduced to zero," AHIP spokesperson Clare Krusing told Medscape Medical News. CMS, she said, can exercise its regulatory discretion to set a zero rate increase even when accounting for the ACA-mandated cut of 2.4%.

"We're not relitigating the ACA," she said.

If AHIP gets any kind of MA concession from CMS, it would not be the first time. In 2013, CMS proposed cutting the base rate for 2014 by 2.2%, only to increase it eventually by 3.3%.

Connecticut Physicians Buy Time to Arbitrate

While AHIP waits for the last word from the feds on MA rates, physicians continue to challenge their dismissal from MA provider networks in the name of cost-effectiveness.

AHIP contends that health plans have the right to choose its providers, and during a time of diminishing federal dollars, it is more important than ever to have physicians with a track record of high-quality, low-cost care. In theory, such "high value" networks — sometimes called narrow networks — consist of physicians who judiciously order tests, procedures, and referrals and who manage their chronically ill patients successfully enough to keep them out of the hospital.

"By having these networks in place, it ensures that consumers are getting the quality and the most value from providers," said Krusing.

This rhetoric has not sat well, however, with 2 county medical societies in Connecticut that sued United Healthcare in federal court last fall after their members were dropped from the insurer's MA networks. They contended that the action by United Healthcare was a breach of contract because, among other things, the insurer did not give physicians proper due notice. The terminations hurt physicians' reputations and forced their elderly patients to find new providers if they wanted to stay within the MA network, the 2 societies said. The physicians were not told why they were being dropped other than that their contract was being "amended."

Roy Breitenbach, an attorney representing the 2 county medical societies, said there was no indication how United Healthcare determined that the dismissed physicians flunked the standard of hiqh quality and low cost. "How do you measure that?" he said. "It's a pretty amorphous concept."

In December, a federal district judge in Bridgeport, Connecticut, issued a temporary injunction against United Healthcare that restored the physicians to the MA networks. The health insurer then went to a federal appellate court in New York City, which ordered the 2 parties in January to try to settle their differences in a special mediation program. After they failed to reach terms, the appellate court on February 7 gave the physicians 30 days to initiate individual arbitration proceedings to challenge their dismissals. The lower court injunction will expire after the 30-day period. However, the appellate court noted that the physicians could ask arbitrators to issue their own injunctions to keep them in-network while their cases were pending.

"We always knew we had to go into arbitration," Breitenbach told Medscape Medical News. "The court injunction preserved the status quo until we could commence arbitration."

Breitenbach said that some Connecticut physicians had started down the arbitration road, although the number was unknown. The odds were good, he said, that arbitrators would preserve the physicians' network status until they rendered a decision.

United Healthcare faces another legal battle in New York, where the state medical society has sued in a federal district court there to overturn the dismissal of its members from the insurer's MA provider networks. In January, the parties had agreed to put their case on hold until the federal appellate court reached a decision regarding the Connecticut physicians. Since then, court records do not reflect any change in the case's status.

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