Category Archives: Medicare

Yearly shared-risk arrangement check-up considerations

Providers should review contract provisions with Medicare Advantage organizations (MAOs) as well as the Centers for Medicare and Medicaid Services (CMS) revenue adjustments yearly to understand the financial implications of their shared-risk arrangements. Milliman’s Simon Moody and Kim Hiemenz offer perspective in their article “Providers should do annual check-ups on Medicare Advantage risk-sharing contracts.”

Here’s an excerpt:

Many providers enter into shared-risk arrangements with MAOs. The most common method used in MA shared-risk arrangements is a medical loss ratio (MLR) target, i.e., claims divided by revenue. This type of arrangement is often referred to as a “Percentage of Premium.” Revenue includes both member premium and CMS revenue. This approach is often used for MA risk deals because it aligns the carrier’s and provider’s incentives, particularly the incentive to ensure accurate coding. An MAO’s revenue from CMS is directly tied to its risk score; that is, if an MAO’s risk score improves, then its revenue increases. All else equal, as revenue improves, the medical loss ratio also improves. Thus, MA coding improvement creates a win-win situation for both plan and provider in MLR target arrangements.

Significant revenue components are outside the control of MAOs

Cost targets based on revenue introduce additional considerations because there are a number of factors that affect the revenue an MAO will receive from CMS. Many of these factors are beyond the control of both the MAO and the provider because they are set by CMS. Changes in these “external” factors will directly affect the MLR and significant changes in these factors from one year to the next could inadvertently make the target MLR stated in the shared risk arrangement inconsistent with the parties’ goals.

Figure 1 includes key factors set by CMS that influence an MAO’s revenue.

Transition from RAPS to EDS data decreases Medicare Advantage risk scores

Milliman consultants Deana Bell, David Koenig, and Charlie Mills performed a study of how the transition from Risk Adjustment Processing System (RAPS) data to Encounter Data System (EDS) data is affecting payment year (PY) 2016 risk scores and revenue for Medicare Advantage organizations (MAOs). Fifteen MAOs participated in the study, reflecting a cross section of small- and medium-sized organizations and representing over 900,000 members in 154 plans. The consultants offer perspective in their article “Impact of the transition from RAPS to EDS on Medicare Advantage risk scores.”

Overall, the study found that the median percentage difference between PY 2016 risk scores based on RAPS and the EDS-based risk scores is 4.0%. The percentage difference is larger for special needs plans (SNPs) and smaller for general enrollment plans as shown in Figure 1. The prior year’s diagnoses make up a larger component of SNP members’ risk scores, compared to general enrollment plans, so the risk score impact for SNP plans is larger.

[The authors] have not attempted to quantify what portion of the difference between RAPS and EDS is due to incompleteness of the EDS submissions, issues with CMS’s return files (revised MAO-004 files), changes to filtering logic, and the effect of claims coding errors.

As an illustration, the potential Part C PY 2016 revenue using the median difference of -4% between RAPS and EDS results in a reduction of approximately $40 per member per year, assuming approximately $800 in Part C risk-adjusted revenue and a 1.0 RAPS-only risk score. To the extent that this -4% gap persists in future years, the revenue impact will grow because the EDS-based risk score will make up an increasing portion of the final risk score (e.g., with the 25% EDS weight in PY 2017, the per member reduction would be about $100 per year).

This article is the second in a series of articles on the transition to EDS. For more information about the EDS and RAPS data used in MA risk scores, read “Medicare Advantage and the Encounter Data Processing System: Be prepared.”

MedPAC’s proposed changes to Medicare Part D: Considerations for Part D plan sponsors

The Medicare Payment Advisory Commission’s proposed modifications to the Part D federal reinsurance program could change the financial dynamics for Plan D plan sponsors, particularly if appropriate updates are not made to the risk score model. This paper by  Milliman consultants David Liner and Nicholas Johnson outlines key considerations for plan sponsors as they prepare for proposed changes to the Part D program.

This article is part two of a two paper series. Read paper one about considerations for Part D stakeholders.

MedPAC’s proposed changes to Medicare Part D: Impacts on various Part D stakeholders

The Medicare Payment Advisory Commission (MedPAC) proposed several changes to the Medicare Part D program in a June 2016 report. MedPAC advises Congress on policies related to Medicare and its recommendations could potentially be enacted by Congress. This paper by Milliman’s Katie Holcomb and Julia Friedman discusses the impact that MedPAC’s proposed changes could have on plan sponsors, Part D members, and pharmaceutical manufacturers.

Encounter data submission consideration for Medicare Advantage organizations

The Centers for Medicare and Medicaid Services (CMS) is shifting to the Encounter Data System (EDS) as the sole basis for risk scores of Medicare Advantage organizations (MAOs). EDS data will have a substantial influence on risk scores and revenue as early as payment year (PY) 2016.

In this article, Milliman consultants offer perspective on several analyses MAOs should consider to prepare data submissions for CMS. The authors also discuss some challenges MAOs may face when verifying that the data submitted through the EDS are complete and accurate and that all appropriate diagnosis codes are being accepted for risk adjustment by CMS.

Here’s an excerpt:

To provide an effective review of an MAO’s diagnosis code submissions, the following analytics can be undertaken:

• Calculation of risk scores from each diagnosis source: RAPS, EDS, and source claims/ chart review data
• Plan-level and member-level comparisons of risk scores based on each diagnosis source
• Analysis of submission gaps
• Analysis of coding gaps

To perform the EDS submission review, a possible first step is to create a “plan report card,” which summarizes the risk scores under accepted RAPS and EDS submissions and the risk scores based on all diagnosis sources (claims and chart review data) after applying the MAO’s specific RAPS filtering logic and the EDS filtering logic released by CMS.

Figure 1 provides an example of a potential Plan Report Card for PY 2016 EDS submission review. In this example, there is a 4.1% gap between the EDS risk scores and the risk scores after the MAO applied the EDS filtering logic to the source claims data. Also, based on the CMS return data, the EDS risk scores are four points lower than the RAPS scores. This indicates that the EDS submissions may be incomplete and that there are diagnoses in the source claims data that the CMS filtering logic has rejected.


If submissions to CMS contain all necessary data elements to successfully pass the filtering logic, the risk scores based on RAPS and EDS return data should match the risk scores calculated from the source claims and chart review data. In addition, if the RAPS and EDS filtering logic are the same, the RAPS and EDS risk scores should also be the same. However, there can be gaps between what is submitted and accepted by CMS and the claims and chart review data because of:

• Incomplete data submissions (e.g., claims being inadvertently filtered out or dropped, missing chart review data)
• Inaccurate data submissions (e.g., the wrong medical codes, such as incorrect bill type, being used in the submissions)
• CMS system errors (e.g., failure to match diagnosis data with the correct member)
• Other potential process errors

Furthermore, comparison of the RAPS and EDS risk scores will indicate whether the MAO’s revenue is being adversely affected by the move from RAPS to EDS. A focused look at the MAO’s own coding practices as they compare to Medicare FFS coding standards and EDS filter criteria can identify the coding gaps that may drive lower risk scores under EDS.

How will MACRA affect the Medicare Supplement market?

Clark_L_KennethWhat does recently passed legislation referred to as MACRA (Medicare Access and CHIP Reauthorization Act of 2015 ) mean for the Medicare Supplement industry? While the impact on Medicare Supplement doesn’t occur until 2020, individual carriers are in a position now to plan a course to proactively mitigate risks or exploit opportunities.

The Medicare Supplement market will split into two distinct markets
There will be those that are newly eligible for Medicare in 2020 and later (NE group) who don’t have access to Plans C/F and the non-newly eligible (NNE group) that will still have access to Plans C/F. Why is this important? While the NNE group will shrink over time, it will still comprise a significant segment of the market in the early 2020s.

Overall loss ratio experience should be better for a few years following MACRA implementation
How is this possible? Consider that for new business sold in the early 2020s, the NNE group that purchases Plans C/F will no longer consist of 65-year-olds who qualify for open enrollment without medical underwriting. Plan C/F morbidity will improve while Plan D/G morbidity will increase. For as long as Plans C/F make up a significant volume (and keep in mind this is older individuals at the higher rate levels), the overall loss ratio levels should be lower, all else being equal.

In spite of more favorable experience, however, retention dollars are expected to be lower for all years following MACRA implementation
While overall loss ratio experience may improve, the amount of retention dollars (premium less claims) will be lower, given an increased exposure to lower benefit Plan D/G coverage that doesn’t include the Part B deductible. The overall impact through 2025 is likely to be in the billions of dollars.

To learn more about how MACRA will impact the Medicare Supplement market, read my article “Will the Medicare Supplement market have “2020” vision in the world of MACRA?