MLR Floors Are Misguided

Enforcing the medical loss ratio (MLR) provision of the Health Reform law means that health insurers must spend 80% to 85% of premiums on medical care. In my November 2010 post regarding MLRs, I noted that preliminary CMS regulations deemed that cost control efforts would not count as “medical care” – even those activities designed to detect inappropriate services .

MLR is a basic ratio. The premium (money the health insurer is paid) is the denominator and medical care (claims, case management etc.) is the numerator. Under the law, administrative activities are not counted in the numerator. As such, efforts to reduce inappropriate childhood tube insertions or unnecessary coronary artery bypass graft (CABG) surgeries are counted against the insurer in the calculation of MLR. These activities, instead, are counted in the “other non-claims costs” category. 

From a regulator’s point of view, this makes sense. How would a state insurance department be able to sort out whether an activity was a) restricting access to appropriate care to profit or b) controlling inappropriate services by profit-seeking providers? 

Unfortunately, by classifying all direct medical services as “value to the consumer,” the law fails to recognize what the Dartmouth Atlas of Health Care research has been telling us for decades: more healthcare is not necessarily good healthcare. The failure to distinguish necessary medical care from inappropriate care makes the MLR provision wholly misguided.

The MLR floor is an understandable reaction to the abuses by some health insurers who have blatantly (or incompetently) restricted access to needed care to fatten their coffers. With the new MLR law, policymakers hope that insurers:  1) increase medical care costs, or 2) decrease administrative expenses (including marketing costs and profits). 

Instead what will probably happen is that health insurers will increase premiums (while keeping administrative costs the same). This will make the MLR floor easier to obtain. They could also lobby to categorize some administrative costs (call centers, etc.) as medical care. Lobbyists are trying to convince CMS of this now. Worst case scenario, the health insurers will engage in unethical/fraudulent shell games to meet the MLR floor requirement.

Instead of a basic MLR floor, regulators should hold health insurers accountable for measurable quality standards, such as morbidity and mortality. The MLR rule sets a minimum for spending of the premium with medical providers, but, as Robinson (1997) pointed out, “Neither premiums nor expenditures by themselves indicate quality of care.”

Health insurance and healthcare delivery are complicated. In my opinion, the regulating MLR is an over-simplified solution that will not effectively reduce costs or improve quality of our healthcare system. But perhaps that policy horse has already left the barn.

The ACO Paradox

As of today, we are still awaiting the CMS regulations on Health Reform’s Accountable Care Organizations. I’ve made a couple of postings on ACOs in the past. I reiterated the importance of process measures in pay-for-performance schemes, and I scoffed at investor-owned hospitals’ proposal of cherry-picking patients for ACO membership. Here, I’d like to discuss what I’ll call the ACO Paradox.

There are two main components of the Medicare pay-for-performance program (Sec. 3022) for qualified Accountable Care Organizations (ACO), according to the Health Reform Law. First, the Medicare Shared Savings program is designed to reward ACOs for decreasing Medicare fee-for-service costs of their assigned members. If the ACO’s adjusted costs for Medicare parts A & B in the measurement year are less than the benchmark (a 3 year per-beneficiary average), then the ACO and Medicare will share in that cost difference. Second, to qualify for Shared Savings bonus, the ACO must meet quality performance standards (soon to be proposed by CMS).

It makes sense for Medicare to join the costs savings with improved quality. Both are key aims of Health Reform (expanded coverage being another). However, will the ACOs be able to achieve both cost savings and improved quality simultaneously in the measurement year?

The conventional wisdom in healthcare states that increased quality of care will save money in the short-term by reducing high-cost services, such as inpatient care. However, some QOC measures have been shown to be statistically related to increased near-term healthcare costs. For example, a recent study found that improved adherence to antiretroviral regimens used to fight HIV was associated with an increase in total medical costs. Riegal et al. (2000) have posited that the positive relationship of QOC measures to increased near-term future costs is probably due to improved access to needed services.

This isn’t to say that cost savings are not possible with improved quality. It may be that some measures do actually save in the short-term, while others do not. Or maybe it is that some (or all) quality measures save money in the long-term – 5, 10 or 20 years in the future.

So, what if the quality measures that CMS chooses are actually related to increased costs in the measurement period? What if some quality measures are not worth the investment for ACOs? In other words, will there be any Medicare cost savings to be shared in the short-term? Is there an ACO Paradox?

Perhaps Medicare should consider extending the ACO quality measurement and shared savings period to reflect the near-term investment required to produce decreased healthcare cost in the long-term.

Investor-owned hospitals want to cherry pick patients for the Medicare ACO program

Medicare pay-for-performance is a part of the Patient Protection and Affordable Care Act (PPACA) legislation. The health reform law requires the Centers for Medicare and Medicaid (CMS) to create entities that will share in any cost savings for treating Medicare patients. The bonuses would be distributed to these “Accountable Care Organizations” based on healthcare quality performance criteria, such as reduced hospitalization infections.

In a letter to CMS regarding PPACA’s Accountable Care Organizations, the Federation of American Hospitals recommended that ACOs be able to “bring to the agency a list of at least 5,000 Medicare patients that they wish to be assigned to their ACOs.” Among the reasons for this recommendation, FAH writes, is that providers know better than CMS which patients “incongruously bounce from provider to provider, irrespective of the ACO physician’s recommendations (i.e., not a good ACO fit if the patient is unable or unwilling to follow the physician’s advice or remain within the ACO provider network).”

Essentially, FAH, an industry group for a 1,000 investor-owned hospitals, is recommending that they “cherry pick” the best patients. In other words, FAH wants CMS to allow ACOs to behave in ways that lower the likelihood of attracting the unprofitable members.

In my posting last month, I discussed the concept of “cherry picking” in terms of managed care. (This problem is also called risk selection, selection bias or “cream skimming.”) This is a significant problem for the insurance marketplace for which risk-adjusted capitation payment methods are being employed.

With risk selection in mind, CMS must be careful when promulgating the final ACO regulations so as to not inadvertently encourage the discrimination of certain patients (mentally ill, minorities, transient, etc.) that may not score well in performance assessment schemes.

It has already been shown that incentive-based programs exacerbate risk selection problems. Evidence from Mehta et al. (2008) on hospital incentive-based programs studies shows that case mix can exert powerful influence on performance rankings. For example, one study by Karve, et al. (2008) showed that the proportion of African-Americans patients treated by a hospital was inversely associated with performance for certain process-related performance measures. Blatant risk selection policies for the ACO program will make this problem even worse.

If CMS accepts FAHs recommendation for the ACO pay-for-performance scheme, there will be negative unintended consequences.  In my earlier posting about ACOs, I commented that the CMS staff responsible regulations for the ACO program may have an anti-managed care bias. Even if the regulators at CMS dislike managed care, surely they’re aware of the “cherry picking” problem. Hopefully, they will view FAHs recommendation with skepticism.

GOP Governors request ability to restrict Medicaid eligibility

This weekend’s shooting tragedy of Rep. Gabrielle Giffords (D-AZ) and her colleagues and constituents in Arizona shocks us all. The accused assailant isn’t speaking, but pundits are already assigning blame for his actions. The sheriff in Tucson faults the right-wing rhetoric. Others assign political motives, such as the lax gun laws, Giffords’s support for the health reform legislation, or her denunciation Arizona Medicaid reduction in transplant benefits for the gunman’s rampage. (I posted about the Arizona’s decision to limit transplants last month.)

Sadly, I think the event was simply a horrible act of mentally ill individual.

It is hard to say whether access to mental health services to address the attacker’s paranoia and drug use would have prevented the event. However, restricting eligibility for Medicaid would certainly reduce the availability to mental health services to many poor and disabled people without insurance. But, limiting eligibility to Medicaid is what Republican Governors of 33 states want. In a wrote a letter to President Obama on January 7, the GOP governors requested the ability to reduce eligibility for Medicaid in order “responsibly manage our state budgets on behalf of our citizens.”

According to the new federal health reform law, states cannot lower their eligibility thresholds or implement barriers to enrollment in Medicaid or the Children’s Health Insurance Plans. This provision is called “maintenance of effort.” States that violate this provision are in danger of losing Medicaid funding.

If the governors don’t get relief from MOE provisions, it is likely that many will move to reduce optional benefits for Medicaid recipients. From a mental health perspective, this means eliminated many optional services now offered by state Medicaid programs. Such optional services including physical, occupational and/or speech therapy, home and community-based services, case management services, and rehabilitative and habilitative services. State Medicaid programs may also reduce provider payments, which, in effect, reduce access to care after providers refuse to accept Medicaid patients.

Nevertheless, the governors have a point. Medicaid’s mental health spending is projected to increase rise by 49.7% due to federal health reform law’s expanded Medicaid coverage. Does this mean that the costs will be born solely by the state’s budgets. The answer is probably not.

Currently, these services are provided at the state and local levels. According to a report by the Urban Institute, by making these people eligible for federal Medicaid dollars, states and localities can potentially save between $19.9 billion and $39.7 billion on mental health services by shifting part of the responsibility to the federal government.  The report from the Urban Institute adds that, “Throughout Medicaid’s history, smart and creative state officials have responded to changes in federal law by reconfiguring their programs to maximize fiscal gains and minimize losses. This pattern will surely continue under the Affordable Care Act.”

Let’s hope this is the case, because there are many sick people that need mental health service interventions.

Fraud detection would change under statewide Florida Medicaid Reform

In my recent blog posting, I explained the likely motivation for Governor Scott to move to statewide Medicaid Reform expansion. It remains to be seen whether the Florida will follow this path. However, if mandatory managed care enrollment for Medicaid recipients does happen, the government’s approach to Medicaid fraud detection and prosecution will change. Florida’s new Attorney General, Pam Bondi, acknowledged this challenge in a recent news conference.

Under Medicaid Reform, a Jeb Bush era policy, most Medicaid recipients are required to enroll into a privately-run managed care company or provider services network. In theory, this means that the current fee-for-service system would all but disappear. Mandatory enrollment in managed care means that a middleman will be required to operate between the patient and healthcare provider. These organizations - not the state of Florida - must pay the healthcare provider claims for approved services.

According to the St. Petersburg Times article, Ms. Bondi said that the Florida A.G. office will “have to go to a different policing system. We'll need to have more auditors and forensic accountants involved.” Why? This is because Medicaid managed care makes reviewing claims for fraud more complicated.

According to Roberta K. Bradford, the Deputy Secretary for Medicaid, the Florida Agency for Health Care Administration (AHCA) Medicaid Program Integrity unit “concluded that 97% of [fraud] cases were fee-for-service related and 3% were [managed care] related.” She admits that these numbers should not be taken “to purport to represent the level of fraud and abuse in any particular arena [i.e., fee-for-service vs. managed care],” but that the agency’s “current detection methodologies” uncover vastly more fraud cases in the fee-for-service system.

If Medicaid managed care becomes mandatory, then the Attorney General’s office and AHCA may lose the opportunity to boast that they saved Florida $134 million in 2007, $124 million in improper payments and more than $56 million in fraud and abuse in 2008, and $287 million in Medicaid overpayments and ... more than $18.9 in improper payments in 2009. These announcements are designed to promote the idea that government fraud, waste and abuse fight is “not a giant money drain” but an actual money-maker, as U.S. Attorney Patrick Fitzgerald told the Chicago Sun-Times recently.

If Medicaid Reform goes statewide, profound pressure will be placed on the private managed care companies to help the new A.G. find millions in healthcare fraud.

First, the AHCA contract with managed care companies requires that Medicaid managed care companies “report all suspected or confirmed instances of provider or enrollee fraud and abuse under state and/or federal law to MPI within fifteen days.” Yes, the AHCA contract requires reporting of SUSPECTED fraud.

Next, if Medicaid fee-for-service system changes to mandatory managed care, then the recently touted federal waiver for the Florida government “to review Medicaid’s fee-for-services program and identify any outliers, anomalies, or other indicators of fraud” will be severely undermined. It remains to be seen if the waiver can be applied to managed care claims data, or if this would violate federal law, as written in the Houston Chronicle. Nonetheless, the Florida A.G.’s office will need for their forensics review. As of March of 2010, the managed care healthcare claims encounter data reporting was not sufficient for AHCA to detect fraud. (Uh oh.)

Statewide Medicaid Reform expansion will bring additional scrutiny to private managed care companies’ fraud and abuse efforts. Added government auditors will certainly bring additional legal and technology expense to managed care companies. It is unclear if this will make the Florida Medicaid program less fraudulent and more efficient. It will be interesting to follow, though.

Why is Florida Considering Medicaid Reform Expansion?

Florida’s Governor-elect Rick Scott faces a $3.5 billion state budget shortfall with few savings options more attractive than the $20.2 billion Medicaid program. Scott's healthcare transition team leader, Alan Levine, proposed in his policy recommendations that “the fastest way to achieve savings … is by expanding [Medicaid Reform] statewide.” This means requiring most Medicaid recipients to enroll in a privately-run managed care organizations or provider services networks.

Of course, Levine’s assumption on savings of Medicaid Reform is overly ambitious. The researchers from University of Florida did find slight savings - on average - for recipients enrolled in Medicaid Reform plans, but Georgetown points to the added program complexity and care access challenges that may actually nullify this financial gain.

Even without analytical support, Alan Levine’s recommendation is not a surprise. Levine supported Medicaid Reform as Gov. Jeb Bush’s Secretary of AHCA – the agency that runs the insurance program for financially disadvantaged citizens. Still, fervent opposition to Medicaid Reform continues from physicians and consumer advocates.

So, why is Levine so supportive of statewide expansion of Medicaid Reform? Succinctly put … to stop the private managed care companies from cherry-picking healthy patients. (Alan Levine acknowledged as much in a statement about the private managed care company, WellCare, leaving the Medicaid Reform program.)

Private managed care organizations are hired by Medicaid in Florida already, and similar organizations provide services to 70% of Medicaid recipients in the United States. These companies, in turn, pay physicians and hospitals for the delivery of healthcare to members enrolled in their plans. Private managed care is different than the traditional fee-for-service Medicaid program. With fee-for-service, no middleman is between the doctor and the patient. To "manage" healthcare, the managed care companies receive per-member-per-month average payments for their enrolled members, called “capitation.” Managed care plans discourage the sick (and costly) patients and attract healthy (and less costly) patients in order to increase profits – called cherry-picking.

Florida Medicaid Reform is unique in that recipients do not have the option to enroll in traditional fee-for-service. This eliminates the problem of the healthy joining managed care and the sick going to the state-run Medicaid fee-for-service program. Furthermore, in Florida Medicaid Reform, the managed care companies are paid a lower rate for healthy members and a higher rate for sicker members. The managed care capitation payments are adjusted to account for certain diagnoses that predict future healthcare expenditures. These “risk-adjusted rates” help solve cherry picking to a certain extent. The more accurately the risk adjustment payment model predicts the future healthcare costs of a member, the less incentive the managed care company has to cherry pick.

The current payment system (non-reform) in Florida is designed in such a way that health plans are still incentivized to attract the healthy Medicaid recipients. What ends up happening is that the sicker members go to the traditional Medicaid fee-for-service. This eventually increases the fees paid managed care by the state, because the capitation rates are paid based on the fee-for-service average cost that includes those very sick members. Statewide risk-adjustment with mandatory enrollment in managed care breaks this cycle.

In part at least, Levine recommends statewide Medicaid Reform expansion in order control private managed care industry’s ability to cherry-pick the healthy Medicaid patients. Certainly, this is a major problem in the insurance market for which risk-adjustment is a potential solution. Considering the lack of evidence to support Medicaid Reform’s improved efficiency, it seems that the recommendation may be driven more by conservative philosophy to privatize healthcare than actual Medicaid Reform results.

Maybe state-wide Medicaid Reform with risk-adjusted will just create new problems. As health economist, Dr. Etienne Pracht, suggested to me: maybe we should all learn about the Theory of Second Best. Then again, would be rather go back to all traditional fee-for-service Medicaid and just hope unnecessary billing by healthcare providers stops all by itself?