Challenges for providers taking on Medicare Part D risk

In January 2019, the Centers for Medicare and Medicaid Services (CMS) released Part II of the 2020 Advance Notice and Draft Call Letter, which contains the proposed methodological changes for the 2020 Medicare Advantage (MA) capitation rates along with Part C and Part D payment policies.

In the letter, CMS issued a request for comments on the potential use of risk-based arrangements for pharmacy benefits in contracts between MA plans and contracted providers. CMS noted that risk-based arrangements in contracting for pharmacy benefits may be another tool to drive down the cost of Part B drugs in MA and Part D drugs for MA and Part D plans. CMS requested information on the barriers, feasibility, benefits, and drawbacks for these types of arrangements between MA plans and contracted providers.

As part of its August 2018 proposed rule, CMS asked how accountable care organizations and Part D sponsors in the Medicare Shared Savings Program “could structure the financial terms of these arrangements to reward Part D sponsors’ contributions towards achieving program goals.” There was also a request for information in that rule regarding “barriers to developing these relationships.”

In this article, Milliman’s Matt Kramer, Simon Moody, and Michael Hunter provide a summary of the key issues providers need to consider before taking on Part D risk, an increasingly common ask from MA organizations, and highlight some of the complexities and common barriers observed when advising provider clients on their strategies for Part D risk.

What is your Medicare Supplement experience REALLY telling you?

Medicare Supplement (Med Supp) carriers often ask, “What’s going on with my Med Supp experience?” It’s a good question. And the answer isn’t always directly in front of you in a report or a chart.

In response to this question, my first question is, “What are you referring to: Loss ratio? Claims costs?” Loss ratio experience is impacted by both sides of the ledger, premium revenue and claims. There may be issues on both sides.

My second question is, “What were you expecting?”

It’s a difficult question to answer. Often, Med Supp carriers reply, “Our claims are going through the roof!” That may be so. But what is critically important to understand is the following:

1) Too high relative to what?
2) Where are claims too high?

Without answers to these questions, a carrier is left without a clue about the source, a potential solution, or a basis for future action.

The approach I often use includes measuring historical claims experience relative to benchmark (or expected) values at a refined level and then rolling up the results in total as well as by key risk characteristics. This type of actual-to-expected (A/E) analysis does two things to answer the questions above:

1) It provides an overall claims level measure (referred to here as morbidity level) together with the variation over time as well as specific risk characteristics (which we will expand on later).
2) It can provide the inherent underlying pure claims trend experienced after adjusting the measurements for other influences such as changes in the demographic and/or geographic mix, etc.

The hypothetical case study of InsureU Insurance Company provides a simple example.

Case study: InsureU Insurance Company

InsureU’s actuary, Cliff Diver, provides his boss, CEO Wanda Profits, with quarterly experience reports of among other things the new Med Supp line of business that InsureU has been selling for the last three years in the state of Bliss. InsureU has spent significant resources and capital to enter this market in order to expand membership base and hedge its risk in the commercial Patient Protection and Affordable Care Act (ACA) market. Given the lack of expertise in-house, InsureU turned to the support of consultant Sonny Days to price the product line. Premiums were priced based on various assumptions and expected to yield initial loss ratios in the low 70s. Projected financial results look something like Figure 1.

The launch of the product line had been seen as providing mixed results at best with regard to sales targets. Original sales targets were 800 policies in the first year but only 400 were issued. Competition has been fierce in the state of Bliss but InsureU weathered the storm and, on a bright note, the financial results were fantastic! So fantastic that Wanda convinced Cliff that rates were fine where they were and no rate increase in the first year was necessary. This was in spite of the recommendation by Sonny Days to file for a nominal rate increase equal to expected claims trend.

Fast-forward to year three. As sales have grown, Cliff nervously notices the quarterly reports showing financials going in the wrong direction. See Figure 2.

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Analyzing midyear drug list price reductions

In February, the U.S. Department of Health and Human Services issued a proposed rule that would eliminate the current safe harbor to the Anti-Kickback Statute, which allows manufacturers to provide rebates to plans and pharmacy benefit managers, and creates a new safe harbor that would force the rebates to be passed through to the point of sale.

Some manufacturers have preemptively decreased list prices on popular brand drugs. List price reductions can be effectuated in several ways, including the launch of an authorized generic, the release of a new package for an existing identical product, or a complete reduction in list price on an existing product. The structure of the Medicare Part D program produces interesting, and sometimes counterintuitive, financial outcomes when list prices are decreased and rebates are eliminated. Plan sponsors will want to consider these outcomes during bid preparation and when estimating Part D payment settlements.

In this paper, Milliman’s David Mike, Matthew Hayes, and Stephen Amend analyze the impact of midyear drug list price reductions coupled with a reduction in rebates resulting in identical net price. Their analysis addresses the impact to Part D plans, Part D beneficiaries, the federal government, and pharmaceutical manufacturer payments to plans through rebates and the coverage gap discount program.

Employer-led accountable care considerations for providers

Employers are becoming increasingly involved in the movement toward value-based reimbursement, particularly employers that self-fund the healthcare needs of their employees. Two common strategies currently used by providers to reach the employer market segment are:

• Aligning with a health plan to develop an accountable care product, which steers employees to participating providers in the accountable care network.
• Direct contracting with employers. Typically, an employer offers its employees a narrow or tiered network plan alongside a broader network product offering.

A full economic impact analysis is necessary for a provider to make an informed decision about entering a direct contract with an employer. A provider should consider the three main drivers of the contract:

• Potential revenue changes
• Opportunity to reduce cost
• Range of potential outcomes

An increasing number of employers are seeking accountable care-style solutions. This type of arrangement is still evolving, but will likely continue to proliferate, because it aligns the financial incentives of employers and providers. In this article, Milliman’s Simon Moody and Kim Hiemenz answer some key questions for providers as they consider employer-led accountable care.

Part D Payment Modernization Model Request for Application considerations

In February, the Center for Medicare and Medicaid Innovation released a Request for Applications (RFA) for the Part D Payment Modernization Model (PMM). The PMM is a voluntary program whose goal is to reduce Part D federal reinsurance costs by adding new program flexibilities and introducing a two-sided risk-sharing arrangement around federal reinsurance costs. Interested Part D plan sponsors were required to submit an application to the Centers for Medicare and Medicaid Services by March 15 in order to participate in the 2020 plan year.

There are many unknowns and questions regarding the PMM RFA. Some of these questions are:

• Who is eligible to participate (and who would want to)?
• What types of formulary or other program flexibility might be offered?
• What costs are associated with participating?
• Will this really result in Part D savings?
• How should plans determine information required for the application without insight on key program aspects?
• How would the benchmark be calculated?
• How could this be affected by the Department of Health and Human Services’ proposal to move drug rebates to point of sale?
• What are the financial implications to the bid?
• What are the potential risks with participating?

In this article, Milliman’s actuaries discuss the answers to these questions.

Regulatory roundup

More healthcare-related regulatory news for plan sponsors, including links to detailed information.

Q&A issued following final rule on association health plans case
The Department of Labor (DOL) released questions and answers (Q&As) regarding the federal district court case ruling in State of New York v United States Department of Labor concerning the department’s final rule on association health plans (AHP).

The DOL published the Q&A to address questions that may arise in relation to the District Court’s decision. The Q&A will be updated as this matter evolves. The questions are:

• I get my benefits through an AHP. Does the court decision mean that my health care claims will not be paid?
• Will the Department appeal the decision?
• Do state insurance departments still have regulatory oversight of AHPs?
• May I contact the Department of Labor if I have more questions or concerns about the impact of the court ruling on my AHP?

To read the entire Q&A, click here.

New resource to help employers understand mental health issues
The DOL, in coordination with the Office of Disability Employment Policy (ODEP) and its Employer Assistance and Resource Network on Disability Inclusion (EARN), has launched a new resource to help employers better understand mental health issues and to provide guidance on how to cultivate a supportive workplace.

The Mental Health Toolkit is an online resource providing background, tools, and resources for employers seeking to offer a mental health-friendly workplace. It presents a framework for fostering a supportive workplace built around awareness, accommodations, assistance, and access.

To read the toolkit, click here.

New report focuses on healthcare costs of untreated behavioral health conditions
The Government Accountability Office (GAO) released “Behavioral Health: Research on Health Care Costs of Untreated Conditions is Limited.” GAO was asked to describe what is known about adults with untreated behavioral health conditions. This report examines (1) reasons why some adults with behavioral health conditions do not receive treatment for their condition, and (2) what is known about the health care costs associated with untreated behavioral health conditions in adults.

To download the report, click here.