The Dangers to Traditional Medicare from Medicare Advantage and ACO-REACH

-Libby Earle 12/14/22

If you are a senior citizen on Medicare, you are probably getting bombarded by phone calls from telemarketers implying they represent Medicare and they want to tell you about additional benefits.   What they are really doing is promoting Medicare Advantage (MA) which is no advantage to seniors or the health care system. What is now being promoted at the Center for Medicare and Medicaid Innovation (CMMI), an agency within HHS that tests and implements health payment models without congressional approval, is the transformation by 2030 OF all Traditional Medicare (TM) to a Medicare Advantage (MA) inspired private insurance-publicly funded program administered through a middleman? The program was initially piloted during the Trump administration and called a Direct Contracting Entity (DCE). The Biden Administration has rebranded it as ACO-REACH (Accountable Care Organization Realizing Equity, Access, and Community Health) but it is still a direct contracting entity.

Originally Medicare Advantage promised to fill the gaps of Traditional Medicare: services not covered, monthly premiums, deductibles, and cost sharing. However MA plans are private for profit entities receiving public funding.  MA plans can offer additional benefits not offered by traditional Medicare; however, the insured has a limited choice of providers and once switched they have difficulty getting out of a MA plan. If they do switch back, it is difficult to get supplemental insurance to fill in the gaps of traditional Medicare. 

These programs enroll 45% of Medicare eligible persons. Medicare overpaid these private health plans by more than $106 billion from 2010 through 2019 because of the way the private plans charge for sicker patients (Richard Kronick, the University of California-San Diego). MA insurance companies maximize their profits by how they construct reimbursements and utilization.

While Traditional Medicare must spend 98% of its budget on patient care and Medicare Advantage must spend 85% of the money received from the government Medicare Trust Fund, DCE and REACH middlemen are only required to spend 60% of the government money on patients realizing 40% as income. Both MA and DCE are paid based on an estimate of their potential needs.  They inflate the projected need by up-coding—increasing the patient’s risk score, including every possible diagnosis at the highest level possible regardless of the care given.

A landmark paper in 2017 reported that “Medicare Advantage (MA) insurer revenues are 30 percent higher than their healthcare spending. Healthcare spending is 25 percent lower for MA enrollees than for enrollees in Traditional Medicare (TM) in the same county with the same risk score. Spending differences between MA and TM are similar across sub-populations of enrollees and subcategories of care, with similar reductions for “high value” and “low value” care. Spending differences primarily reflect differences in healthcare utilization [with the most aggressive adjustment, the spending deference between MA and TM was 8%].”  There is suggestive evidence that MA restricted utilization for sicker individuals by discharging to home rather than post-acute care facilities, substituting less expensive types of care such as specialist visits and higher outpatient surgery rates.  [Healthcare Spending and Utilization in Public and Private Medicare Vilsa Curto, Liran Einav, Amy Finkelstein, Jonathan D. Levin, and Jay Bhattacharya NBER Working Paper No. 23090 January 2017 JEL No. H11,H42,H51,I11,I13]

Medicare Advantage programs have not saved money nor are they superior to traditional Medicare.  A report in JAMA “found no meaningful differences in the characteristics of patients or the quality of care received between those enrolled in MA vs those enrolled in FFS Medicare” but cautioned that utilization management strategies should not become factors that  adversely affect care. [JAMA Cardiol. 2020;5(12):1349-1357. doi:10.1001/jamacardio.2020.3638]

Additionally, the Office of the Inspector General found that nearly one in seven (13 percent) Medicare Advantage prior authorization denials were inappropriate. Medicare Advantage plans frequently denied requests for care that met Medicare coverage rules. Of the claim-payment denials in the study sample, 18% met Medicare coverage rules and Medicare Advantage plan billing rules. [AMA]

While MA as an accountable care organization was supposed to save money, at best these entities have either lost money or only saved Medicare a few tenths of a percent. [Promise vs. Practice: the Actual Financial Performance of Accountable Care Organizations J Gen Intern Med DOI: 10.1007/s11606-021-07089-6 © Society of General Internal Medicine 2021]

There is a close association between the middlemen who administer the direct contracting entities and Medicare Advantage insurance organizations. Many of the DCE are investor-owned startups or commercial insurers who also run Medicare Advantage plans.

Part of the strategy to move traditional Medicare to DCE is to switch Traditional Medicare patients to Direct Contracting Entities. Medicare can automatically transfer a client to MA by searching two years of each senior’s claims history to see if the senior has gotten care from a primary care provider who is aligned with a DC or REACH middleman. 350,000 seniors were in DCE plans as of January 2022 — none of whom elected to sign up voluntarily (Rep. Pramila Jayapal). 

Rebranding DCE does not remove the incentive for Wall Street investors and insurance companies from profiteering. There are major conflicts of interest existing within the CMMI, the architect of direct contracting. The Center for Medicare and Medicaid Services is a department within the Department of Health and Human Services. The Center for Medicare and Medicaid Innovation ((CMMI) exists as an agency of the DHS charged with piloting new programs but is outside of congressional control. The CMMI leaderships’ connections with health care insurance, lobbying and venture capital is alarming:

CMMI Leadership:

Adam Boehler (2020)

  • 2020 Previous position: startup company, Landmark Health which was awarded contract to be a DCE under Boehler.
  • Former roommate of Jared Kushner.
  • 2021 left to form Rubicon Founders, a new firm based in Nashville, Tennessee, focused on growing “transformational” health care companies

Brad Smith, former Anthem Executive (2021)

  • 2021, leaves to be executive chairman of CareBridge, a home- and community-based services company.
  • 2021, Forms “Russell Street Ventures, “an innovative healthcare firm focused on launching and scaling companies that serve some of our nation’s most vulnerable patient populations” and “Main Street Health,” a new company “focused exclusively on delivering value-based healthcare in rural America.”

Liz Fowler, director  (2022)            

  • Past employment: Johnson & Johnson; Former Sp Asst to President-Health/Econ Policy, National Economic Council
  • She predicts Traditional Medicare will transition to payments through Direct Contracting Entities by 2030.    

Nor does direct contracting insure any cost saving, improvement in health outcomes or equitable access to care.  The current group of DC middle men, with all their entanglements with investors and insurance companies, do not have to re-apply for the new (rebranded) program. And REACH allows any company to apply, including private equity and commercial insurers.  Penalties for middlemen who increased costs or significantly reduced quality have been reduced.

The focus on improving health equity is encouraged by using incentives.   Middlemen receive financial bonuses simply for reporting enrollee’s demographic data, like race and income, giving a bonus of $360 per year for each senior that is considered underserved (based on residence and income), regardless of how much care that senior receives.  Also middlemen are allowed to use demographic factors like race and income to increase enrollees’ risk scores regardless of how much care provided.  These incentives provide invitations for profiteering as much as the practice of up-coding.

This is not a Republican or Democratic issue.  Both parties are heavily influenced by campaign donations.  “In 2020, the leadership of DCE contractor Clover Health donated $500,000 to the main super PAC for Senate Democrats, while the company’s financier Chamath Palihapitiya donated $750,000 to the same super PAC plus $250,000 to the Biden Victory Fund. ( Mar 24, 2022•Matthew Cunningham-Cook

Healthcare consumers are confronted with confusing information about health insurance.  If the cost of health care is going to be controlled, the driving force of an unregulated health care industry must become the responsibility of Congress backed by an informed electorate.

Author: lizwoedl


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