State Licensure RequirementsIn preparing for this discussion, read Chapter 24 of the course text. For your initial post, address the following in the discussion forum:Compose the organization's eli
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CHAPTER 24
Health Plans and Medicare
JOH N K. G ORMA N , JEA N D . L EM ASU RIE R , W IL LIA M A. M AC B A IN , S T EPH EN J. B A LC E R ZA K , W EN DY K. B U RG ER , A N D A MY H UA N G
STUD Y OBJE CTIVES
• Understand the impact of both the Medicar e Modernization Act and the Patient Pr otection and Aff ordable Car e Act on
Medicar e managed care plans
• Understand the diff erent types of Medicar e D and Medicare Advantage pr ogr ams
• Understand what the ongoing contr act requir ements are for or ganizations that ha ve ent ered int o contr acts
• Understand the fact ors the government uses in det ermining payments to Medicar e Advantage or ganizations, including the
ST AR S progr am
• Understand the rights and responsibilities of Medicar e enrollees of health plans
• Understand some of the issues relat ed to ho w an organization administ ers a Medicare contract
• Understand how the government monit ors and track s Medicar e Advantage and P art D plans
DISCUSSION T OPIC S
1. Discuss state licensur e requir ements that an organization must compl y with to become a Medicar e Advantage plan, an y
exceptions t o the stat e licensur e requir ement , and any cases in which special consider ation is given t o particular types of
entities.
2. Discuss the diff erent types of Medicar e Advantage plans, the k ey diff erences betw een them, and why such diff erences exist .
3. Discuss the impact of the Medicar e D drug beneit and how that beneit aff ects the mar ket .
4. Discuss the kinds of consumer rig hts and protections available t o enr ollees, or prospecti ve enr ollees, of Medicar e Advantage
plans.
5. Discuss ho w Medicar e Advantage plans ha ve been paid in the past , are paid no w, and ho w the y may be paid in the futur e.
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INTRODUCTION
On March 23, 2010, President Bar ack Obama signed sw eeping health car e ref orm legislation int o law. The bill repr esent ed the
biggest expansion of feder al health care guar antees in mor e than four decades, and its enactment w as a giant vict ory for the
Pr esident and Democr ats after a brutal legislati ve battle dating back t o the start of his pr esidency . Not a single Republican
support ed the measur e, and when Republicans gained a majority in the House in the 2010 mid-t erm elections, they vow ed to
“r epeal and replace” the P atient Pr otection and Aff ordable Car e Act (A CA). At the time of publication, no signiicant element of
the ACA has been repealed or block ed, but readers should not e that every sing le major feder al law has been amended, over and
o ver ag ain. Whether or not the ACA will be overturned is unkno wn, but the odds are very hig h that it will be amended in way s
that cannot comf ortabl y be predict ed as of August 2011.
The ACA, with a near $1 trillion price tag and fundamental changes to health car e inancing and deli very , also made dramatic
changes to Medicar e Advantage (MA), the pr ogr am in which Medicar e contracts with privat e insur ance companies, health
service plans, and health maint enance organizations (HMOs) t o pr ovide beneits t o seniors and the disabled. MA plans suff ered
signiicant cuts ($136 billion over 10 y ears), sa w the intr oduction of a new payment methodology , witnessed the advent of
perf ormance-based bonuses, and had their enrollment season cut in half. In the wak e of the lar gesse of the Bush administr ation
and the Medicare Modernization Act (MMA) of 2003, with its pa yment incr eases and the introduction of the Medicar e Part D
drug beneit , the ACA felt lik e a cold sho wer for man y MA stakeholders. Yet the pr ogr am continues to gr ow .
This chapt er provides a summary of MA and P art D contr acting provisions for all types of health plans, as modiied b y the A CA
and subsequent regulations and guidance. It starts with an e xplanation of the v arious types of health plans that can contr act
with Medicar e, then to a discussion of ho w payment works in MA and P art D plans (PDP s). Follo wing that is a discussion about
how the Cent ers for Medicar e and Medicaid Services (CMS) contracts with these companies, how the agency regulat es virtuall y
ev ery aspect of plan oper ations, and how beneiciaries’ and providers’ rig hts are pr otect ed.
One way of thinking about this chapt er is that it describes the “farm team ” of health ref orm. In MA and Part D , the go vernment
cr eat ed subsidized indi vidual and group mar kets f or insur ance, and throug h a tight framew ork of regulation and guidance, it
deli ver ed a public good with gr eat value to one in four Medicar e beneiciaries. Health ref ormers ha ve much t o learn fr om this
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24.1 BACK GR OUND
For the last 30 y ears, a political “pendulum eff ect” has char acterized the relationship betw een the Medicar e progr am and the
health plans contr acting with it to pr ovide beneits t o older adults and indi viduals with disabilities. The core of enr ollment in
Medicar e plans is disproportionat ely lo wer-income and minority beneiciaries—a typicall y Democr atic constituency that trades
some reduced choice of pr oviders in e xchange f or less costl y beneits. But free-mar ket R epublicans remain the pr ogr am’s
staunchest support ers, while most Democr ats rail ag ainst proit eering insur ance companies and seek great er accountability for
their perf ormance. The increase in publicl y traded health plans participating in the pr ogr am in the 1990s and rising to
pr ominence in the 2000s fanned partisan passions. F or the past tw o decades, usuall y in conjunction with a change of leadership
in either the White House or the Congr ess, legislation has been enacted that relects W ashingt on’s mix ed feelings about pri vat e
companies or ganizing all health car e services for those in Medicar e. As a result , every se ver al years the pendulum swings fr om
free mar kets and competition t o r egulation and accountability .
Chapter 1 ( h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 9#ch 01) pr ovided back ground on the ear ly da ys
of Medicar e and managed health care. Recall that the origins of the HMO A ct of 1973 w ere initiall y aimed at controlling the
rising cost of traditional fee-f or-service (FFS) Medicar e, but when it came time to act , Congr ess passed the law but focused it on
the emplo yer-based sect or, and pr ovisions applicable t o Medicar e failed t o accomplish much. It took until 1982, w hen Congr ess
passed the Tax E quity and Fiscal R esponsibility A ct (TEFRA), to authorize the Medicar e progr am to pa y HMOs on a capitat ed
basis, provided that the y met Medicar e’s participation requir ements; regulations w ere not inalized until 1985, ho wev er . The
hope w as that Medicar e HMOs would lo wer costs and use the sa vings to off er mor e compr ehensive beneits than FFS Medicar e,
for e xample, less cost-sharing and co ver age of pr escription drugs, something that FFS Medicar e didn’t cover at all. F or the most
part , that is exactl y what happened.
Plan participation and enr ollment in Medicar e Risk and Cost (Section 1876) progr ams grew steadil y until the late 1990s,
propelled by in vestments made in the pr ogr am by publicl y traded companies such as Humana and Unit ed Healthcar e. The trend
was halt ed when Pr esident Bill Clint on signed the Balanced Budget Act (BB A) of 1997, which made signiicant changes to
Medicar e health plan payments and institut ed a number of aggressive oper ating requir ements. Dozens of plans and
approximat ely half of the beneiciaries in the pr ogr am (then called Medicar e + Choice) exit ed over the ensuing 4 y ears.
The signing of the MMA of 2003 b y Pr esident Geor ge W. Bush reignit ed enrollment with:
• The new Medicar e P art D drug beneit , administ ered entir ely b y the pri vat e sect or thr oug h either fr ee-standing PDP s or
Medicar e Advantage P art D Plans (MA -PDP s);
• Renaming Medicar e’s managed health care progr am Medicar e Advantage;
• Cr eating new regional MA pr eferr ed provider or ganization (PPO) plans;
• Cr eating new special needs plans (SNP s);
• Dramaticall y increasing payment for MA plans; and
• Intr oducing competiti ve bidding and risk -adjust ed payments.
The MMA was successful in that it made Medicar e plans available t o almost all beneiciaries and signiicantl y increased
enrollment . As of August 2011, out of 47.7 million Medicar e beneiciaries, enrollment in some type of privat e health plan, not
counting Medicar e supplemental insurance or MediGap, is as follo ws:
• P art D plans: 27.9 million enr ollees
Stand-alone PDP s: 18.3 million enrollees
MA-PDP s: 9.7 million enrollees
• Other MA plans: 11.5 million enrollees
• SNP s: 1.2 million enrollees 1 ( h ttp :/ /co n te n t.t hu ze le a rn in g.c om /b ook s/ K on gstv e d t.2 332.1 7.1 /se ctio n s/ i2 97# ch 24en 1)
Medicar e Part D has pr oven t o be an unqualiied success, with o ver 85% of enr olled beneiciaries stating they are satisied or
very satisied with their plan, and with the o ver all pr ogr am costs coming in at $100 billion less than project ed.
The pendulum swung back ag ain when Congr essional Democr ats balanced much of the cost of health care ref orm in the A CA on
to MA. Much of the cost of the A CA w as paid for b y Medicar e payment reductions, with health plans taking $136 billion in
pa yment cuts over 10 y ears. The A CA also usher ed in a new era of value-based pur chasing of health care by go vernment: a data-
dri ven rush t o the hig hest-r ated MA and PDP pr oducts at the lowest price. B y 2017, the aver age MA plan will see pa yments cut
by 17% r elati ve t o pr ojections under the MMA, and will face unpr ecedent ed scrutiny of most aspects of their Medicar e 3/13/2019 Print
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operations in near real-time. F urthermor e, plans will see growing pr oportions of their rev enues contingent on perf ormance
against dozens of quality and satisf action measur es.
Still, plan participation remains st ead y because MA and Part D ha ve become staple pr oducts for man y regional and local
insur ers like Blue Cross and Blue Shield plans, and the publicl y traded companies no w dominating the progr am. These large
privat e pa yers deri ve an a ver age of 26% of their rev enues fr om Medicar e—double the share of rev enue in 1997. Medicar e and
privat e insur ers are no w codependent—the plans are in too deep to withdr aw , and politicians ar e reliant on the pri vat e sect or to
“bend the cost curv e” of Medicar e’s unsustainable expenditur es, especially on chronic diseases. Privat e health plans ar e
entr enched in Medicar e, and policymak ers may alway s be ambi valent about that r eality . 3/13/2019 Print
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24.2 TYPES OF MEDICARE ADVANT AGE PLANS
The Medicar e law deines thr ee categories of MA plans that privat e health companies can off er to Medicar e beneiciaries:
Coordinat ed care plans that have contr acted provider netw orks; medical sa vings account (MS A) plans that are Medicar e’s
version of consumer-dir ected plans; and pri vat e FFS (PFFS) plans that ar e a model unique to Medicar e. Since the inception of
Medicare managed care in 1972, Congr ess has amended the progr am by adding plan types to incr ease the choices available t o
Medicar e beneiciaries. Organizations that ha ve an MA contr act may offer diff erent types of plans in a gi ven service ar ea; for
example, a pa yer ma y offer an HMO-based plan and a PPO-based plan. As not ed alread y, P art D plans ar e off ered by pri vat e plans
including stand-alone PDP s and MA-PDs. Appr oximat ely tw o-thir ds of Medicar e beneiciaries enrolled in Part D plans ar e
enr olled in PDP s and one-thir d in MA-PDs.
Coor dinat ed Care Plans
Coordinat ed care plans use a netw ork of pr oviders t o deli ver the beneit pack age approved b y Medicar e. CMS must approve the
pr ovider netw ork to ensur e that enrolled Medicar e beneiciaries will have suficient access t o co ver ed services. Coor dinated
care plans ma y use inancial incenti ves or utilization r eview t o contr ol the use of services and must meet quality requir ements.
Other than in an emer gency or urgentl y needed situation, a coordinat ed care plan has no oblig ation to co ver the cost of car e if a
non-netw ork pr ovider is used, e ven if the car e would ha ve been co ver ed under FFS Medicar e. Coordinated care plans include
HMOs, regional and local PPOs, and SNP s, all of which ar e discussed briel y below. Other types of coor dinat ed care plans such as
Religious and F rat ernal Beneit Society plans and senior housing facility plans ar e not discussed due to their limit ed availability .
Health Maintenance Organizations
Medicar e HMOs are similar to HMOs in the commer cial market; f or e xample, the y offer mor e contr olled and limited netw orks.
Medicar e HMOs are the oldest coor dinat ed care plan type and have the hig hest enr ollment (65% of all MA enrollments in 2010).
Medicar e offers a point-of-service (POS) option wher e HMOs can cover services out-of-netw ork.
Pr eferr ed Provider Or ganizations
Medicar e PPOs are similar to PPOs in the pri vat e sect or, in that the y do not use primary care physician “g atek eepers, ” typicall y
have lar ger netw orks and pr ovide some co ver age for noncontr acting providers. Unlik e many purely commer cial PPOs, MA-PPOs
must meet MA quality requir ements but only for services pr ovided in-netw ork. PPOs must ha ve a maximum out-of-pock et limit
for in-netw ork services and a catastr ophic limit on in and out-of-netw ork services.
Medicar e offers two types of PPOs: local PPOs and regional PPOs (RPPOs). Loc al PPOs have the le xibility to choose the service
ar ea w her e the y will oper ate (e.g., one or multiple counties). Regional PP Os were added to Medicar e by the MMA to pr ovide
incr eased access to pri vat e plans, particular ly in rur al counties. RPPOs must serv e all counties in one or more of 26 statewide or
multiple state regions designat ed by CMS. Because of the dificulty in setting up netw orks in br oader geogr aphic areas, RPPOs
have mor e lexibility; for e xample, the y can meet access standar ds by pa ying FFS rat es and Medicar e will pay for “essential”
hospitals in rur al areas if pr oviders r efuse to contr act with the RPPO . RPPOs also have other r equir ements that are diff erent
than local PPOs; for e xample, if the y chose to impose a deductible, it must be a sing le deductible for P art A and Part B services
(unlik e Medicar e FFS). The single deductible may be diff erent for in-netw ork and non-netw ork services.
Under the MMA, a mor atorium w as placed on new MA plans other than RPPOs during 2006 and 2007, in or der to support their
cr eation and gr owth. Since then, local MA PPOs also appear ed, and by 2010 PPOs had incr eased their mar ket shar e, with local
PPOs enrolling 12% of the mar ket and RPPOs enr olling 7%.
Special Needs Plans
SNP s are coor dinat ed care plans (usuall y offered by HMOs) that limit enr ollment to indi viduals with special needs. Ther e are
thr ee types of SNP s:
• D- SNP s—Dual-eligible SNP s enr oll beneiciaries that ar e eligible f or both Medicar e and Medicaid (“dual eligibles”). Ther e
are diff erent types of D- SNP s based on Medicaid eligibility crit eria. New and e xpanding D- SNP s must ha ve a contr act with
the stat e Medicaid agency that meets a number of r equir ements int ended to ensur e that Medicar e and Medicaid beneits
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• I-SNP s—Institutional SNP s enroll beneiciaries who ar e institutionalized in a SNF , NF , ICF/MR, or ps ychiatric f acility f or 90
da ys as assessed thr oug h CMS-appr oved assessment t ools. I- SNP s ma y also enr oll a person with similar needs li ving in the
community as assessed b y a stat e assessment tool administ ered b y an independent party . I- SNP s ma y also restrict
enr ollment to indi viduals that reside in a contr acted assist ed-living facility .
• C-SNP s—Chr onic care SNP s enroll beneiciaries with one or mor e se ver e or disabling chr onic conditions. The beneit plans
off ered b y C- SNP s must include beneits be yond P art A and B services and the minimum car e coor dination r equir ements
for other types of MA plans, including supplemental health beneits r elat ed t o the chr onic condition, specialized pr ovider
netw orks, and appr opriat e cost-sharing.
The SNP authority was enact ed in the MMA for a limit ed period of time to allo w SNP s to impr ove car e for vulner able groups
thr oug h impr oved coor dination and continuity of care. The SNP progr am has been ext ended thr oug h December 2013 with new
requir ements. For example, the Medicar e Improvements f or P atients and Pr oviders A ct of 2008 (MIPP A) requir ed a speciic
deinition of “sever e or disabling” chr onic conditions for C- SNP s. Based on the recommendations of a panel of clinical pr oviders,
CMS speciied 15 chr onic conditions:
1. Chr onic alcohol and other drug dependence;
2. Certain auto-immune disor ders;
3. Cancer , but excluding pr ecancer conditions;
4. Certain car diovascular disor ders;
5. Chronic heart failur e;
6. Dementia;
7. Diabet es mellitus;
8. End-stage liver disease;
9. End-stage r enal disease requiring dial ysis;
10. Certain hemat ological disorders;
11. Human immunodeiciency virus/acquir ed immunodeiciency syndr ome (HIV/AIDS);
12. Certain chronic lung disor ders;
13. Certain mental health disorders;
14. Certain neurological disor ders; and
15. Stroke.
A C- SNP can tar get multiple chr onic conditions that are clinicall y linked and comor bid in one of ive speciied CMS gr oupings
(e.g., diabet es and chronic heart failur e) or customized into groupings of the 15 conditions. Beneiciaries onl y need to ha ve one
qualifying condition t o enr oll.
CMS has contr acted with the National Committ ee for Quality Assur ance (NCQA; see Chapt er 15
(h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 199#ch 15) ) t o de velop speciic quality measur es for the
Healthcar e Effecti veness Data Inf ormation Set (HEDIS ®; see Chapt er 15
(h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 199#ch 15) ) and structur e and process measur es that
ev aluat e the quality of care provided b y SNP s. SNPs began reporting on the irst phase of these measur es in 2009. The measures
will be reined o ver time and will e ventuall y include outcomes measur es. Beginning in 2012, SNPs are requir ed to be certiied b y
NC QA.
By 2010, 1.3 million beneiciaries w ere enr olled in SNP s, with most enrolled in dual-eligible SNP s.
Privat e Fee-for- Servic e Plans
PFFS plans were authorized in 1997 and ar e a model unique to Medicar e. Enrollees are permitt ed to self-r efer to an y Medicar e
provider willing t o accept the indi vidual as a patient (kno wn as “deemed providers”) consist ent with the rules of the plan
reg arding co ver age. The PFFS plans pa y providers on a FFS basis at Medicar e fee schedule r at es, do not place the pr ovider at
inancial risk, and do not v ary rat es by utilization. A PFFS plan is permitt ed to v ary the pa yment rat es based on the pr ovider
specialty , location, or other fact ors not relat ed to utilization. PFFS plans ma y incr ease payment rat es to a pr ovider based on
incr eased utilization of speciied prev enti ve or scr eening services.
PFFS plans and enr ollment grew very rapidl y beginning in 2006 when MMA pa yment rat es w ent int o effect. Because ther e was
no cost in establishing pr ovider netw orks, ther e was little barrier to entry and b y 2008 PFFS plans w ere available t o almost all
Medicar e beneiciaries. Beneiciaries were attr acted to PFFS plans because the y were cheaper than MediGap policies, w hich 3/13/2019 Print
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most beneiciaries buy to supplement FFS Medicar e. Often PFFS plans were the onl y choice in rur al counties and this rapid
expansion accomplished the goal of the MMA t o e xpand choices, especiall y in rural areas.
Ho wev er , Congr ess became concerned about the performance of man y of the PFFS plans; for e xample, the f ailur e to pa y
providers corr ectly or in a timel y manner , marketing abuses, and beneiciary confusion. PFFS plans also r ecei ved a hig h payment
rat e, despit e not having a requir ement to add v alue; for e xample, ther e were no quality impr ovement or car e coor dination
requir ements for PFFS plans. Congr ess amended the authority beginning in 2011 to r equir e PFFS plans to oper ate as full
netw ork plans in ar eas with at least tw o coor dinat ed care plans. This amendment preserv ed the open access model in rural
counties wher e it was dificult for plans t o contr act with suficient providers t o meet Medicar e access requir ements. In response
to this new netw ork requir ement , many PFFS plans chose to e xit the mar ket . As a result , PFFS enrollment , which had peak ed at
2.3 million in 2009, declined to 1.5 million enr ollees in 2010.
Special Rules for Gr oup Retir ee Plans
CMS has historicall y offered MA plans wide latitude to negotiat e with employers and unions f or r etir ee cover age under MA. The
MMA w ent farther b y including a very br oad waiver pr ovision t o encour age employer- or union-sponsor ed plans to off er retir ee
cover age thr oug h MA plans and PDP s, and added a new option wher e emplo yers or unions could dir ectl y contr act with CMS as
MA plans or Part D plans. B y 2010, one-sixth of MA enr ollees were in emplo yer gr oup plans and 8% of PDP enr ollees were in
emplo yer gr oup plans.
CMS waivers allo w group retir ee MA plans to:
• Enr oll only retir ees in MA plans follo wing the emplo yer or union ’s eligibility rules;
• Group enr oll and disenr oll retir ees;
• Disr egard the minimum enr ollment requir ement;
• Extend service areas to w her e retir ees reside;
• Enr oll beneiciaries with end-stage renal disease (ESRD) and P art B-onl y retir ees;
• Modify websit es, call centers, and marketing;
• V ary cost-sharing le vels and pr emiums (e.g., by mar kets and diff erent emplo yer subsid y levels);
• Off er noncalendar year plans;
• No requir ement to submit a P art D bid; and
• Pr ovide le xibility on stat e licensur e and administr ative and management r equir ements for emplo yer-dir ect contr acting
plans. * ( h ttp :/ /co n te n t.t hu ze le a rn in g.c om /b ook s/ K on gstv e d t.2 332.1 7.1 /se ctio n s/ i2 97# ch 24fn 1)
Medical S avings A ccount Plans
Medicar e MSA plans combine a hig h-deductible MA plan and a medical savings account , which is an account established in
conjunction with an MS A plan for the purpose of pa ying the qualiied medical expenses of the account holder on a pr etax basis.
These plans off er a hig h-deductible insur ance plan similar to commer cial health payment accounts (HRAs) and health savings
accounts (HS As) described in Chapt er 2 ( h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 18#ch 02) . The
primary diff erence is that onl y Medicar e, and not the beneiciary or another party on their behalf, may mak e a deposit into the
account .
MSAs have not had much success in the Medicar e market . As of January 2011, CMS had appr oved onl y two contr acts and there
wer e onl y around 1,000 beneiciaries enr olled in MSA plans. The plans are confusing to beneiciaries and the insur ers and the
plan design do not allow beneiciaries to contribut e to their tax -free accounts.
Medicar e Cost Plans
A Medicar e Cost Plan is not an MA plan, and its roots go back decades. It is a type of Medicar e HMO that works in much the same
w ay, and has some of the same rules, as an MA -HMO , with two key diff erences. First , it is paid based on the actual costs incurr ed
by the plan, not thr oug h the payment methodology described lat er in the chapt er. Second, Medicar e beneiciaries enrolled in a
Medicar e Cost Plan may go to a non-netw ork pr ovider , and the services are co ver ed under tr aditional FFS Medicar e. They are
onl y included her e for the sak e of complet eness since there are still enr ollees, but are not discussed an y further except in the
section t o follo w that provides back ground to ho w MA plans are paid.
Trends in Medicar e Advantage Enr ollment and Plan Availability 3/13/2019 Print
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The year 2010 sa w an all-time hig h for the number of Medicar e beneiciaries enrolled in an MA plan when 24% of all Medicar e
beneiciaries chose these privat e plans. This st ead y rise in MA enr ollment from 2005, w hen 4.6% of Medicar e beneiciaries were
enr olled in MA plans, can be attribut ed to the MMA. The MMA incr eased payments to pri vat e plans, leading to a dr amatic
incr ease in enrollment . Figure 24-1 ( h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 286#ch 24ig1 )
displa ys the enr ollment in MA plans from 1994 to 2010. 2 ( h ttp :/ /co n te n t.t hu ze le a rn in g.c om /b ook s/ K on gstv e d t.2 332.1 7.1 /se ctio n s/ i2 97# ch 24en 2)
Not e: MA (Medicar e Advantage).
FIGURE 24-1 Enr ollment in MA plans, 1994–2010
Sour ce: Data fr om Medicar e Payment A dvisory Commission, “A Data Book: Healthcar e spending and the Medicare progr am, June 2010, ” p. 159.
The number of MA plans has also increased since the enactment of the MMA. From 2006 on, all Medicar e beneiciaries had
access to an MA plan. A dr op in PFFS plans and CMS rules encour aging consolidation of low enr ollment and duplicati ve plans
decr eased the number of total MA plans a vailable nation wide in 2011 by 13%. Ho wev er despit e the decline in total number of
plans nation wide, Medicar e beneiciaries in 2011 have on a ver age 24 plans to choose fr om. The distribution of MA enr ollees by
plan type as of February 2011 can be seen in Figur e 1-2
(h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 16#ch 1ig2 ) in Chapt er 1
(h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 9#ch 01) . 3/13/2019 Print
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24.3 MEDICARE ADVANT AGE BENEFIT S
MA plans can offer multiple “beneit plans” such as a hig h option and low option. Each beneit plan must ha ve a unif orm
premium and beneit structur e and with the exception of SNP s, must be available t o all r esidents of the service ar ea of the plan.
MA plans must off er at a minimum the FFS level of Medicar e services and cost-sharing, and with the exceptions not ed belo w,
the y must also offer at least one beneit plan with Medicar e Part D drug co ver age thr oug hout their service area.
PFFS plans ha ve the option of including P art D drug co ver age, but MS A plans are not permitt ed to include P art D co ver age as
part of the plan. All beneit plans off ered by SNP s, a type of coor dinat ed care plan that serv es the most vulner able beneiciaries,
must include Part D drug co ver age. Most MA coor dinat ed care plans also offer beneit plans that do not include drug cover age to
serv e beneiciaries that decline Part D co ver age or obtain it elsew here; for e xample, beneiciaries w ho recei ve drug co ver age
from their emplo yer can elect an MA -onl y plan.
Beneiciaries who ar e enr olled in a coor dinat ed care MA plan can onl y get Part D drug co ver age fr om the MA plan. If the y enr oll
in an MA plan without Part D , the y cannot enr oll in a stand-alone PDP . Beneiciaries who enr oll in a PFFS plan without Part D or
an MS A plan may enr oll in a stand-alone PDP for drug co ver age.
The Medicar e Part D Beneit Design
The statut e speciies the basic Medicar e Part D drug beneit design that plans use to submit competiti ve bids. Most MAPDs do
not use the standar dized basic beneit design (other than as the basis for submitting P art D bids, as discussed belo w). MA-PDs
typicall y offer an actuariall y equivalent beneit design (e.g., copa yments in lieu of cost-sharing). Many MA-PDs offer an enhanced
beneit design that ills in the deductible and/or the “donut hole” (described belo w), or use rebat e dollars (described earlier in
this chapt er) to bu y do wn the Part D pr emium.
Under the basic Part D plan, drugs ar e co ver ed aft er the enr ollee pays an annual deductible (see Figur e 24-2
(h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 287#ch 24ig2 ) ). In the irst phase of co ver age the enr ollee
pays 25% coinsur ance and the government pa ys 75% up t o an initial co ver age limit . In the second phase betw een the initial
cover age limit and a catastr ophic limit, there is a cover age gap ref err ed to as “the g ap ” or the “donut hole, ” wher e the enr ollee
had been responsible for 100% of the costs of the drugs. In the thir d or catastr ophic phase after the out-of-pock et threshold is
met , the beneiciary pays 5%, the go vernment pa ys 80%, and the P art D plan pa ys 15%. The r eason for this unusual beneit
design is that at the time the MMA w as enact ed, there was insuficient funding to off er a compr ehensive drug beneit design that
w as typical in the commer cial market . Plus, it mimick ed the consumer-dir ected health plan (CDHP; see Chapt ers 1
(h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 9#ch 01) and 2
(h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 18#ch 02) ) design that w as becoming popular .
FIGURE 24-2 Standard Beneit Design, 2011 3/13/2019 Print
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Source: Modiied fr om “Standar d Medicar e Pr escription Drug Beneit , 2011. ” Kaiser Slides, The Henry J. Kaiser Famil y, January 2011.
http://facts.kff.or g/chart.aspx?ch=1929 ( h ttp ://f act s.k ff.o rg/ch art .asp x?ch =1929) .
The primary diff erence betw een an MA-PD and a PDP drug beneit is that the MA-PD plan can use savings from their Part C bid
to mak e the Part D drug mor e attractive t o beneiciaries, for e xample, b y off ering bett er drug cover age or lo wer cost-sharing.
MA -PDs can meet Part D access standar ds throug h pharmacies that the y own and oper ate.
As part of health ref orm, the A CA begins to close the co ver age gap betw een 2011 and 2020. If a beneiciary without a low-
income subsid y (LIS) reaches the co ver age gap beginning January 1, 2011, he or she will ha ve a 50% discount on br and name
drugs at the point of sale. Cost-sharing will be phased do wn for generic drugs beginning in 2011 and for br and name drugs in
2014. Cost-sharing will be reduced each y ear until beneiciaries pa y onl y 25% of the cost of cover ed Part D drugs by 2020.
Figur e 24-2 ( h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 287#ch 24ig2 ) sho ws the standar d beneit
design for 2011. T able 24-1 ( h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 287#ch 24ta b 1 ) sho ws enr ollee
cost sharing as phased down under the ACA.
Formularies
Part D plans ar e allo wed to de velop f ormularies that limit the number of drugs that ar e co ver ed under the plan. The formularies
ar e de veloped b y a Pharmacy and Ther apeutics (P&T) Committ ee that includes pharmacists and practicing ph ysicians. P art D
formularies must include drug cat egories and classes that cover all disease stat es. Each category or class must include at least
two drugs (unless onl y one drug is available f or a particular cat egory or class, or onl y two drugs are available but one drug is
clinicall y superior to the other for a particular cat egory or class). Part D formularies must include all or substantiall y all drugs in
the follo wing classes: immunosuppr essant (for pr oph ylaxis of or gan tr ansplant rejection), antidepr essant, antips ychotic,
anticon vulsant, antiretrovir al, and antineoplastic. The formularies ar e submitt ed to CMS in April and ar e review ed to ensur e that
they are “adequat e” and include a range of drugs in a br oad distribution of ther apeutic categories and classes. CMS also review s
the formulary t o ensur e that it does not substantiall y discourage enrollment by an y group of beneiciaries. Part D plans typicall y
have f our or i ve tier f ormularies, w her e the ifth tier is a specialty tier .
TABLE 24-1 Enr ollee Cost- Sharing in the Cover age Gap under the ACA
Year Generic drugs Brand name drugs
2010 100% 100%
201 1 93% 50%
2012 86% 50%
2013 79% 47.5%
2014 72% 47.5%
2015 65% 45%
2016 58% 45%
2017 51% 40%
2018 44% 35%
2019 37% 30%
2020 25% 25%
Sour ce: HHS FY 2012 budget . Availaible at
www .hhs.go v/about/hhsbudget .html#HHSBudgetinBriefandP erformanceHighlights
(h ttp ://www .hhs.go v/a bou t/h hsb udge t.h tm l#H HSB udge tin B ri efa n dPerf orm an ce H ig h li g h ts) .
The P&T Committ ee also recommends formulary management acti vities that limit beneiciary access to drugs including prior
authorizations, st ep ther apies, quantity limitations, generic substitutions, and other drug utilization review .
Medication Ther apy Management Pr ogr ams
Part D plan sponsors also ar e requir ed to off er a medication ther apy management (MTM) pr ogr am that tar gets beneiciaries
with multiple chr onic diseases and high drug costs. Curr entl y, MTM pr ogr ams must tar get four of se ven speciied chr onic
conditions such as hypert ension, heart failur e, or diabet es. In addition, MTM progr ams must tar get beneiciaries who incur 3/13/2019 Print
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annual drug costs of $3,000 or mor e. MTM progr ams include a compr ehensive medication r eview , ongoing monit oring, and
beneiciary or prescriber int erventions, if necessary . 3/13/2019 Print
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24.4 MEDICARE ADVANT AGE P AYMENT
The MMA laid the gr ound wor k for signiicant changes in ho w pri vat e Medicar e managed health care plans are paid. It is useful to
kno w the back ground about pa yment of Medicar e plans, which was onl y briel y touched upon in Chapt er 1
(h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 9#ch 01) .
Back ground
Recapping fr om Chapt er 1 ( h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 9#ch 01) , the original Medicar e
progr am as enact ed in 1965 was based on the Blue Cr oss and Blue Shield plans as the y oper ated in the mid-1960s. Medicar e
beneits provided under P art A of the Medicar e act cover hospital claims and claims f or services fr om a number of other
institutional pr oviders of car e, like the original Blue Cross plans; while Part B of the act co vers claims fr om ph ysicians and other
indi vidual health care providers, lik e the original Blue Shield plans. Part A paid pr oviders on the basis of “r easonable cost ,” w hile
Part B paid on the basis of hist orical char ges.
From the beginning, Medicar e paid the few HMO-lik e organizations then in e xist ence for the r easonable cost of caring for
Medicar e beneiciaries. Since these organizations pr ovided car e either throug h a salaried physician staff or a capitat ed medical
group, ther e was no claim hist ory on which to base pa yment , and Medicar e follo wed the established path of part cost-based
pa yment . This is the origin of the Medicar e Cost Plans briely noted earlier.
In 1972 and actuall y preceding the HMO Act of 1973, amendments to the Social Security A ct authorized per capita pa yments to
HMOs either on a risk basis or a cost basis.
The amendments allo wed for continuation of the cost-based pa yment model. Two cost-based models emer ged. Prepaid group
practice plans (PPGP) w ere paid for the pr ofessional services pr ovided b y the medical gr oup ’s physicians, w hile Medicar e paid
all other services under the standard FFS payment methodology . As of 2011, both models still exist , with a combined enr ollment
of about 400,000, less than 3.4% of total Medicar e enrollment in privat e health plans. Ho wev er , beginning in 2010 cost plans
locat ed in areas wher e ther e is adequat e competition from other or ganization types, as deined in 42 CFR 417.402, will not be
renew ed by CMS.
Risk plans en visioned in the 1972 amendments were to be full y at risk for an y amount by w hich their costs exceeded their
pa yments. Ho wev er , the y were requir ed to shar e any proits with the Medicar e progr am. Plans could retain 50% of the pr oit up
to 20% of the estimat ed amount that Medicar e would ha ve paid f or beneiciaries in the same counties on an FFS basis. Sa vings
in excess of 20% w ere retained b y Medicar e. The local county-based estimat e of FFS costs was dubbed the adjust ed aver age per
capita cost (AAPC C) and, as will be seen later in this chapt er, that estimat e still plays a major r ole in det ermining how Medicar e
health plans are compensat ed toda y. 3 ( h ttp :/ /co n te n t.t hu ze le a rn in g.c om /b ook s/ K on gstv e d t.2 332.1 7.1 /se ctio n s/ i2 97# ch 24en 3)
This as ymmetrical risk, with unlimit ed potential for loss and limit ed potential for g ain, *
(h ttp :/ /co n te n t.t hu ze le a rn in g.c om /b ook s/ K on gstv e d t.2 332.1 7.1 /se ctio n s/ i2 97# ch 24fn 2) w as not successful in attr acting health plans, and cost-based contr acts
continued to be the norm until the enactment of TEFRA in 1982. 3/13/2019 Print
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24.5 TEFRA AND MMA
When regulations under TEFRA w ere published in 1985, health plans had the opportunity to contr act with Medicar e for risk -
based monthl y payments under new rules. Payment w ould be set equal to 95% of the AAPC C, and plans were full y at risk.
Medicar e assumed a guaranteed savings by retaining 5% of the AAPC C. In addition, plans were allo wed to earn the same pr oit
mar gin they earned on their commer cial business. If a plan’s project ed per capita costs, including the allowed pr oit mar gin,
wer e less than 95% of the AAPC C, the excess had t o be used to subsidize other beneits, or to be r eturned to the Medicar e
progr am.
The AAPC C was calculat ed as a 5-year aver age, tr ended to the contr act year using estimat es developed b y Medicar e. The rat e
paid to health plans w as further adjust ed by the age and se x of enr olled beneiciaries, with an additional adjustment for SNF
residents and dual eligibles; ther e were 142 rat e cells in all, althoug h not every cat egory of Medicar e beneiciary was eligible to
enr oll in a Medicar e HMO.
Tw o pr oblems with the AAPC C became appar ent in the years follo wing the enactment of TEFRA. First , the risk adjustments for
age, se x, institutional status, and Medicaid pr oved t o be poor pr edict ors of cost variation among beneiciaries, althoug h an
additional adjuster for beneiciaries w ho originall y qualiied for Medicar e due to disability w as added lat er. But these risk
adjust ers only account ed for about 1% of the v ariation in beneiciary costs. 4 ( h ttp :/ /co n te n t.t hu ze le a rn in g.c om /b ook s/ K on gstv e d t.2 332.1 7.1 /se ctio n s/ i2 97# ch 24en 4)
A dditionall y, lar ge variations w ere observ ed in the AAPCC values fr om year to y ear within certain counties, and betw een
neighboring counties, making long-t erm commitments to the pr ogr am unpr edictable. 5
(h ttp :/ /co n te n t.t hu ze le a rn in g.c om /b ook s/ K on gstv e d t.2 332.1 7.1 /se ctio n s/ i2 97# ch 24en 5) Still, during the TEFRA y ears Medicar e experienced a measur e of success in
contracting with privat e plans, and pri vat e plan enr ollment grew to 1.4 million b y 1991, and 6.8 million by 2000.
The BB A intr oduced sever al ref orms in the pr ogr am, including ref orms in the pa yment methodology . It would be an
understat ement to sa y that the BB A ref orms failed t o pr omot e further growth of the new Medicar e + Choice progr am and, as
noted ear lier, enr ollment dropped from the 2000 hig h of 6.8 million to 5.3 million b y 2003.
The MMA once ag ain made substantial changes to the Medicar e progr am. The most dramatic change was the establishment of
Part D of Medicar e, the prescription drug beneit , which was discussed ear lier in the chapt er. To the point of this section, the
MMA also intr oduced a bett er risk adjustment methodology for the new “Medicar e Advantage” pr ogr am. The new risk
adjustments beg an in 2004, and were full y phased in by 2007. The new methodology added hier archical condition cat egories
(HC Cs) to the other risk adjustments used since the passage of TEFRA. The MMA also established a new appr oach to
det ermining the payment to MA plans, based on bids submitt ed by each plan and the relationship of that bid to a county
benchmar k. The benchmar k was based on the old AAPC C, althoug h a number of legislati ve changes r esult ed in benchmar ks in
man y counties that exceeded the county AAPC C.
Payment Calculation and Bidding Pr ocess
The calculation of payments and the bidding process for MA and PDP plans is comple x compar ed to the commer cial market . A
summary of the key elements f ollo ws.
The Bid
In June of each year , MA plans are requir ed to submit bids to CMS. These bids r epr esent the aver age per capita pr oject ed cost for
P art A and B services net of cost-sharing, plus the plan ’s administr ative costs t o pr ovide those beneits, plus a pr oit . Gener ally
health plans will co ver additional beneits, such as some or all of the beneiciaries’ cost-sharing amounts, but the cost of these
added beneits is not included in calculating the bid.
F or plans with a prior claim hist ory, bids are based on prior experience, adjust ed for anticipat ed changes in utilization and unit
costs of services. Since plan bids are due at the beginning of June, plans will be calculating their bids in April and Ma y. This
means that a plan is r equir ed to for ecast claims expense for ne xt year based primaril y on last year’s data, with relati vel y
complet e current-y ear data only for January and per haps February . This requir es estimating trends in utilization and unit costs
for 2 y ears int o the futur e.
Plans without suficient claims history—such as new plans, plans that have been in oper ation only a short time, and plans
entering new service areas—will need to substitut e a manual rat e, based on aver age Medicar e cost data, for actual claim
experience. Common sour ces of these aver age cost data ar e 5% claim samples available fr om Medicar e and proprietary data
bases maintained by actuarial irms. 3/13/2019 Print
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The bid is normalized to a risk scor e of 1.0. This means that the claim history upon which the bid is based needs to be adjust ed
by the risk scor e of the population that gener ated the data, so that the bid repr esents the anticipat ed cost for a beneiciary of
av er age risk, w her e a scor e of 1.0 is aver age. For instance, assume that a plan pr ojects ne xt year’s rev enue r equir ement ,
including project ed claim costs, administr ative cost , and proit , to be $1,000 per member per month, and the a ver age risk scor e
of the population that gener ated the claim data upon w hich that pr ojection is based is 1.1. Then a normalized bid, normalized to
a risk scor e of 1.0, would equal $1,000 ÷ 1.1 = $909.09. The normalized bid would be $909.09. Risk scor es are discussed in mor e
detail belo w. Benchmar ks as published b y CMS ar e alr ead y normalized to a 1.0 risk scor e.
The bid is then compar ed to the benchmar k. If the bid exceeds the benchmar k, the plan must charge beneiciaries the difference
in the form of a monthl y premium. Since the bid repr esents the cost of providing onl y Part A and Part B beneits, this situation
would requir e beneiciaries to pa y to the plan an e xtr a amount that the y would not pa y under traditional Medicar e FFS, in order
to r ecei ve the same beneits. Not surprising ly , MA plans seek t o achie ve bids that ar e less than the benchmar k to a void this
inancial disincenti ve f or beneiciaries.
If the bid is less than the benchmar k, the difference is ref err ed to as “sa vings. ” Plans recei ve a per centage of the savings as a
rebat e, and CMS retains the rest . Thr ough 2011, the per cent of savings paid to plans w as 75%. The ACA reduces this rebat e
percentage in futur e years, as described belo w. Plans must use rebat es to pr ovide additional beneits, such as co vering part of
the beneiciary cost shar e or providing dental or vision beneits. Plans ma y also use rebat e dollars to pa y beneiciaries’ Part B
pr emiums or to subsidize their P art D drug beneit pr emiums if the plan off ers the Medicar e prescription drug beneit as part of
the beneit pack age. See Figur e 24-3 ( h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 289#ch 24ig3 ) .
When a plan bid co vers mor e than one county , the bid and the benchmar k are both calculat ed as the weig hted aver age of the
county -speciic amounts, weig hted by pr oject ed enrollment in each county .
RPPOs calculat e their benchmar k somewhat differentl y. Aft er bids are submitt ed, CMS determines the aver age RPPO bid and
calculat es a blended benchmar k. The blend is weig hted by the relati ve per centages of Medicar e beneiciaries in the FFS progr am
and in MA, as follo ws:
FIGURE 24-3 Bids and Benchmar ks
(W eig hted aver age RPPO bid × per centage of beneiciaries in MA plans) +
(Weig hted aver age county benchmar ks × per centage of beneiciaries in FFS Medicar e) =
RPPO Benchmar k
Bids are not aut omaticall y accepted by CMS. Plans ma y be requir ed to submit r evised bids if CMS det ermines that their year-t o-
year t otal beneiciary cost (pr emium plus cost-sharing) would incr ease by an unacceptable amount , or if the proposed proit
mar gin exceeds w hat CMS considers reasonable. Also, plans must a void beneit designs that ar e discriminat ory, for instance b y
imposing unusuall y high copa yments on certain service categories with the effect of discour aging enrollment of sick er
beneiciaries. Plans must also present cost-sharing designs that are no less gener ous than FFS Medicar e, from an actuarial
standpoint . Plans may have cost sharing that diff ers in the speciics, compar ed with FFS Medicar e, but the aggregate value must
be actuariall y equivalent or bett er. To use a simpliied example, consider Medicar e’s 20% coinsurance on physician f ees. A health
plan ma y have a $15 copa yment on physician f ees. If the pr oject ed weig hted aver age of all ph ysicians’ f ees is $75, then the $15
copa yment is actuariall y equivalent t o the FFS Medicar e beneit, since $15 is 20% of $75. Failur e to meet these standar ds may
result in r ejection of a bid b y CMS. 3/13/2019 Print
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Risk A djustment
As not ed earlier, the original att empt to risk -adjust payments from Medicar e to pri vat e plans based on the AAPC C was little
bett er than no adjustment at all, and at best had a predicti ve v alue of about 1%. 6
(h ttp :/ /co n te n t.t hu ze le a rn in g.c om /b ook s/ K on gstv e d t.2 332.1 7.1 /se ctio n s/ i2 97# ch 24en 6) Under the MMA, CMS beg an in 2004 to phase in a mor e sophisticat ed risk
adjustment syst em, adding diagnosis inf ormation to the other adjust ers.
CMS now uses what is kno wn as the CMS Hier archical Condition Cat egory model, or CMS-HC C. The CMS-HCC model maps ICD-9
diagnosis codes to gr oups of diagnoses called condition cat egories. The condition categories are rank ed in a hier arch y, in w hich
a hig her category trumps a lower cat egory for a patient w hose diagnoses map to both cat egories. Each category is assigned a
value (risk adjustment f act or, or RAF) based on the statistical relationship betw een that category and the follo wing year’s claim
costs. The risk fact ors are based on the coeficients in a multiple regr ession calculation that expr esses the statistical relationship
betw een the presence and absence of a given condition cat egory for a patient , and that patient’s claim cost the follo wing year .
Over 13,000 ICD-9 codes are mapped to 189 condition cat egories.
For instance, a diagnosis of a spr ained ankle in Year 1 w ould ha ve no association with claim costs in Y ear 2. A diagnosis of
diabet es would ha ve some association with the f ollo wing year’s claims, and diabet es with complications would be associat ed
with higher costs than uncomplicat ed diabetes. So the sprained ankle would ha ve no risk scor e attached to it . Uncomplicat ed
diabetes has a risk score of 0.162. Ther e are se ver al cat egories for diabet es with various complications, ranging as hig h as
0.508. 7 ( h ttp :/ /co n te n t.t hu ze le a rn in g.c om /b ook s/ K on gstv e d t.2 332.1 7.1 /se ctio n s/ i2 97# ch 24en 7) F or a patient with diabet es diagnoses that mapped to both
uncomplicat ed and complicated condition categories, the complicat ed category would trump the uncomplicat ed category on the
hier arch y.
Figur e 24-4 ( h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 289#ch 24ig4 ) sho ws in mor e detail how the
CMS-HC C model assigns risk scores.
The CMS-HC C model explains about 10% of the v ariation in medical costs among Medicar e beneiciaries. 8
(h ttp :/ /co n te n t.t hu ze le a rn in g.c om /b ook s/ K on gstv e d t.2 332.1 7.1 /se ctio n s/ i2 97# ch 24en 8) While this is a t en-f old impr ovement o ver the prior methodology , 10% is still
a low corr elation. Ther e are se ver al pr oblems with the CMS-HC C model that result in the impr oved but lo w corr elation. 3/13/2019 Print
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Note: AMI, acut e myocar dial infarction; CC, condition cat egory; COPD , chronic obstructi ve pulmonary disease; D XG, diagnostic gr oup; HC C,
hier archical condition cat egory; ICD-9-CM, International Classiic ation of Diseases , Ninth Revision, Clinical Modiication.
FIGURE 24-4 Clinical Vignett e of CMS-HC C Model Assigning Risk Scores
Source: E valuation of the CMS-HC C Risk Adjustment Model, Final Report . March 2011. Pr epar ed for Melissa A. E vans, PhD , Cent ers for Medicar e &
Medicaid Services, Medicar e Plan Payment Gr oup, Division of Risk Adjustment and Payment P olicy , Prepar ed by Gr egory C. P ope, MS, John Kautt er,
PhD , Mel vin J. Ingber, PhD , Sara Freeman, MS, Rishi Sek ar, B A, Cor don New hart, MA, R TI Int ernational; CMS Contr act No. HHSM-500-2005-00029I;
www .cms.go v/Medicar eAdvt gSpecRat eStats/06_Risk_adjustment .asp#TopOfPage
(h ttp ://www .cms.go v/M ed ica re A dvtgS pecR ate Sta ts/0 6_R isk _a d ju st m en t.a sp #T op O fP age ) . A ccessed August 19, 2011.
The irst is the natur e of the diagnosis data in the sample of Medicar e claims that are used to det ermine the risk coeficients.
With the exception of inpatient claims that ar e paid on the basis of diagnosis-r elated groups (DR Gs), the diagnosis codes on
Medicar e claims have little eff ect on payment . Hence, there is no incenti ve t o be complet e and accurate for most of the claims
submitt ed to Medicar e. For instance, in the year that a patient has a heart attack, that diagnosis will be pr esent on a hospital
DR G claim. But in the follo wing year , the diagnosis ma y or may not appear on physician claims. Since the risk scor es are based
onl y on prior year data, each member , in effect, begins each year in perf ect health, as far as the risk adjustment model is
concerned. The lack of persist ence in the data from year to y ear hinders the pr edicti ve po wer of the model.
Additionall y, the standar d professional claim form, the CMS-1500, collects a maximum of four diagnosis codes. A patient ma y
have mor e coexisting conditions and, even if a ph ysician uses all f our positions t o r eport diagnoses, those that ar e mor e germane
to risk adjustment ma y be omitt ed from the claim form. So a diabetic with complications ma y appear to be an uncomplicat ed
diabetic based on the claim data. Unlike the paper-based CMS-1500, the 837 Professional standar dized electronic claim (see
Chapt ers 18 ( h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 222#ch 18) and 23
(h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 276#ch 23) ) can accept up t o eig ht diagnoses, but until
physician pa yment is aff ected by the accur acy of diagnostic coding, there is no incenti ve t o use all the ields.
Similar data pr oblems exist for health plans w hen the y collect diagnostic data for the purpose of risk -adjusting their payments
from CMS. Claim forms ma y or may not have complet e and accurate inf ormation. Furthermor e, even thoug h the risk coeficients
in the CMS-HC C model are det ermined from err or-pr one claim data, health plans are expect ed to be able to substantiat e the risk
adjustment data they submit with information from patients’ medical recor ds. Arguabl y, the most accur ate syst em w ould use
plan data that contains the same degr ee of error as the data used to calibr ate the model. Ho wev er , ther e is no way t o det ermine
this, since the FFS claim data used to set the risk coeficients ar e not audit ed.
It is not clear whether this requir ement to substantiat e diagnostic data from medical recor ds incr eases or decr eases risk scores
and payments. Man y health plans screen their claim data for indications of missing or inaccur ate diagnosis codes, using
softw are and logic rules to corr elate claims by member . For instance, a member w ho has claims for a beta block er may have had
a heart attack in the past . If the current year’s recor d doesn ’t include a code for the heart attack, the plan ma y review that
member’s medical r ecor d to det ermine whether the member is being report ed correctly for risk adjustment purposes. Plans
that do this r eport signiicant incr eases in rev enue per member as a r esult of corr ecting coding errors. Howev er , this is a sear ch
for missing and underr eported diagnoses, and does not include the impact of unsubstantiat ed codes that would incr ease
payment . On the other hand, CMS has conduct ed risk adjustment data validation (RAD V) audits, looking at a sample of members
in the audited plan for unsubstantiat ed claims, speciically looking for o verpa yments. Althoug h CMS has not published the
results of these audits as of this writing, anecdotal r eports indicat e that the error rat e is signiicant . CMS has also proposed to
extr apolat e the audit indings to the entir e plan. If the sample shows an overpa yment rat e of 10%, extr apolation of that inding
to the w hole plan would mean that the plan would ha ve t o r efund to CMS 10% of the pa yments it recei ved fr om CMS in the
audit ed year . Since MA plans gener ally ha ve a inancial mar gin in the range of 3.6 to 4.5%, 9
(h ttp :/ /co n te n t.t hu ze le a rn in g.c om /b ook s/ K on gstv e d t.2 332.1 7.1 /se ctio n s/ i2 97# ch 24en 9) a r efund of that magnitude could wipe out se ver al years’ mar gins and could
erode inancial reserv es below the levels r equir ed by stat e regulat ors (see Chapt ers 21
(h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 262#ch 21) and 28
(h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 324#ch 28) ).
These tw o audit acti vities, one undertak en by health plans looking for missing or incorr ect codes that result in underpa yments
and the other undertak en by CMS to ind unsubstantiat ed overpa yments, may cancel each other out , but ther e are not suficient
data at pr esent to kno w what the net impact will be on health plans. Ho wev er , the hig h error rat es that appear to be identiied in
both types of audits point out a w eakness in the curr ent CMS-HC C calibration methodology , and its reliance on unaudit ed FFS
claim data.
Another challenge for health plans that ar e subject to a RAD V audit is the need to pr oduce the one best medical recor d to
substantiat e their risk score reports. F or man y patients, the information needed to substantiat e all of their diagnoses may be
scatt ered acr oss sever al recor ds maintained by se ver al diff erent pr oviders of car e. Nor is it clear how health plans can respond
w hen a recor d is not available because a ph ysician had died, or closed his or her pr actice, or when a recor d has been destr oyed. 3/13/2019 Print
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Some health plans are responding to this audit r equir ement by conducting annual risk assessments for those members w ho
appear to be most lik ely to ha ve diagnoses that map t o HC Cs, using physicians and mid-le vel pr actitioners who ha ve been
tr ained to r ecor d medical conditions to CMS standar ds. In this way, the health plan is assur ed of possessing the one best recor d,
since it directs its creation each year . Mor e signiicantl y, the annual risk assessments ensur e that the plan has an up-to-dat e
regist er of high-risk members, so it can provide appr opriat e care management and support services to r educe the incidence of
hig h-cost complications of chr onic illness. This one appr oach can impr ove the accur acy and audit readiness of the risk
adjustment data, contribut e to a r eduction in claim costs, and impr ove the quality of lif e of hig h-risk members.
A relat ed appr oach is to lag claims that contain diagnostic codes that map to HC Cs, for members w ho ha ve not had a risk
assessment , so that the plan can obtain the necessary medical recor d information to substantiat e the diagnostic code.
As noted abo ve, health plans ar e becoming adept at reducing err ors in diagnostic coding, to a void being under-paid thr oug h the
CMS-HC C model. CMS studies indicate that, by reducing the err or rat e relati ve t o the err or rat e implicit in the FFS data that ar e
used to calibr ate the HC C model, health plans have incr eased their aver age risk scor es above w hat the y would ha ve been using
uncorr ected data. CMS cont ends that this results in incr eased payments that are not relat ed to incr eased risk, but to incr eased
coding accur acy. To off set this, CMS intr oduced a coding intensity adjustment in 2010. This adjustment reduced pa yments to all
health plans b y 3.41%. The A CA mandat es CMS to incr ease this adjustment to at least 5.71% in gr adual annual steps thr oug h
2018. This mandat ory payment reduction mak es it even mor e important for health plans t o ensur e that the data they submit to
CMS for risk adjustment ar e complet e and accurate since the y are being paid less on the assumption that the y are making these
corr ections, and that the corr ections have the eff ect of incr easing risk scor es.
Impact of the ACA on Payment
The A CA mak es substantial changes to MA pa yments, as has alr ead y been sho wn in earlier sections. In this section, the most
signiicant changes are summarized in one place. The need for change ar ose as a result of Congr essional actions between 1997
and 2003 that increased the county payment rat es. Thr ough the mid-1990s, health plans were paid 95% of the county aver age
FFS cost (95% of the AAPC C). The Congr essional increases in county payment rat es follo wing 1996 result ed in a patchwor k of
rat es. B y 2010, rat es ranged fr om just slig htly bett er than the AAPC C, to mor e than 150% of local FFS in a few counties (and o ver
200% of local FFS in some Puert o Rican municipios ). The Medicar e Payment A dvisory Commission (MedP AC) calculat ed that,
nation wide, the aver age pa yment to MA plans e xceeded the a ver age FFS cost by about 12%. 10
(h ttp :/ /co n te n t.t hu ze le a rn in g.c om /b ook s/ K on gstv e d t.2 332.1 7.1 /se ctio n s/ i2 97# ch 24en 10)
Congr ess sought to corr ect this throug h provisions in the A CA, and return the a ver age pa yment to health plans to something
close to the a ver age FFS cost . Howev er , the appr oach adopt ed by Congr ess in the ACA recognized that some counties appear to
ha ve mor e eficient patterns of medical care than others, and the benchmar k payments set by the A CA vary b y county based on a
measur e of eficiency . Counties are rank ed by quartile, based on their aver age FFS cost . The cost estimat e is adjusted for risk, so
that all counties’ costs ar e pr oject ed at a theor etical risk score of 1.0. Benchmar ks in counties in the lo west cost quartile will be
set at 115% of local FFS, w hile pa yments in the hig hest cost quartile will be reduced to 95% of local FFS. The quartiles for 2011,
based on 2009 FFS costs, ar e pr esent ed Table 24-2
(h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 289#ch 24ta b 2 ) .1 1
(h ttp :/ /co n te n t.t hu ze le a rn in g.c om /b ook s/ K on gstv e d t.2 332.1 7.1 /se ctio n s/ i2 97# ch 24en 11)
Onl y $103 separ ates counties at the top of the irst quartile, with the best pa yment rat es, fr om the bott om of the fourth quartile,
with the w orst rat es, relati ve t o local FFS costs. R elati vel y small variations in local cost will ha ve substantial impacts on
benchmar k payments. The new payment rat es will be phased in over a number of y ears, and will be complet ely phased in b y
2017. The phase-in schedule will vary fr om one county to another . Counties that will incur the great est payment reductions,
relati ve t o w hat the y would ha ve e xpect ed under the pre-ACA pa yment formula, will see the new r at es phased in over 6 y ears.
Counties with smaller reductions will be phased in o ver 2 or 4 y ears, depending on the size of the reduction. The w eig hted
av er age pa yment , weig hted by MA enr ollment in each county , will be approximat ely 100% of FFS. While this repr esents a 12%
reduction fr om the rat es anal yzed by MedP AC in 2010, it is still an impr ovement o ver the pr e-1997 rat es, w hich were set at 95%
of the local FFS cost .
TABLE 24-2 Quartiles for 2011 3/13/2019 Print
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Source: A uthor’s calculation, based on the methodology described in the CMS publication “A dvance Notice of Methodological Changes f or
Calendar Y ear (CY) 2012 for Medicar e Advantage (MA) Capitation R ates, Part C and Part D Payment P olicies for 2012 Call Lett er,” F ebruary 18,
2011.
The A CA also intr oduces a bonus payment for MA plans that meet certain quality standar ds. Starting in 2014, under the ACA,
hig h-quality health plans will recei ve a bonus of 5% of the benchmar k payment speciied under the ACA. This bonus is
calculat ed only for the A CA rat e, so counties w her e the new ACA rat e is still being phased in will recei ve a lo wer bonus, until the
phase-in is complet e. For instance, in a county with a 6-y ear phase-in schedule, the ACA “speciied amount” will account for onl y
one-half of the payment rat e in 2012. The other half will be based on the “applicable amount” that w ould ha ve been paid under
the pr e-ACA rules. The bonus in such a county w ould be 5% of the ACA rat e, not 5% of the total r at e. Table 24-3
(h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 289#ch 24ta b 3 ) illustr ates the 2014 calculation for a county
on a 6-y ear phase-in schedule.
The ACA also pr ovides for double bonuses for counties that meet the follo wing crit eria:
• P aid at the ur ban loor r at e in 2004 (the ur ban loor is one of the st eps that Congr ess took to impr ove pa yment r at es for
certain counties, b y setting a minimum pa yment in excess of 95% of the AAPC C)
• MA penetr ation of a least 25% of all Medicar e beneiciaries in the county
• Aver age FFS costs belo w the national aver age
The bonuses will be paid to health plans that achie ve a quality scor e of at least four stars on a scale of one t o i ve (the Star R ating
sy st em is discussed lat er in this chapt er). CMS has proposed to use its demonstr ation authority to start the bonus pr ogr am in
2012, inst ead of waiting until 2014. The CMS demonstr ation would also expand the bonuses to plans with thr ee stars or hig her
as an incenti ve t o impr ove quality .
Bonus payments must be used to pr ovide additional beneits, r educe cost-sharing, or reduce beneiciary pr emiums. The y will
not contribut e directl y to pr oit , althoug h improvements in beneits and r eductions in cost ar e expect ed to gi ve bonus-eligible
plans a mar ket ad vantage.
It is not y et clear at the time of publication ho w loss of a bonus will aff ect the CMS review of bids that sho w signiicant incr eases
in total beneiciary cost (TBC). F or instance, if a plan has recei ved a 5% bonus w orth $40 for the curr ent year , and uses this
bonus to r educe total beneiciary cost , how will CMS view a bid for the follo wing year , if the plan has lost its bonus? Loss of the
$40 will mean an incr ease in TBC. It is not yet clear w hether that will trigger CMS crit eria that seek to limit lar ge incr eases in
TBC.
TABLE 24-3 2014 Calculation on a Six -Y ear Phase-in S chedule
The A CA rew ards health plans in another w ay f or hig h-quality ratings. Under prior la w, a health plan w as allo wed to r etain 75%
of the sa vings that were attributable to a bid that w as less than the plan ’s benchmar k payment . These “rebat es” are used to
pr ovide additional beneits, or t o r educe beneiciary costs. Under the A CA, the rebat e will be reduced to 50% b y 2014, with the
reductions being phased in at one-thir d each year starting in 2012. Ho wev er , plans with hig h-quality ratings will r ecei ve a
gr eat er rebat e. Plans with a rating of 4.5 or 5 stars will r ecei ve a 70% r ebat e. Plans with ratings betw een 3.5 and 4 will recei ve
65%. Plans belo w 3.5 stars will recei ve the 50% r ebat e. 3/13/2019 Print
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The ACA also imposes a minimum medical loss ratio (MLR) standar d on MA plans. While the Medicar e Advantage MLR pr ovision
does not speciicall y ref er ence the requir ements for commer cial plans (see Chapters 21
(h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 262#ch 21) and 30
(h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 346#ch 30) ), at pr esent it appears lik ely that CMS will
appl y the same MLR regulations and deinition to MA as applied to commer cial insurance. This will mean that MA plans will
probabl y be allowed to count acti vities that impr ove the quality of car e as medical costs rather than administr ative costs and be
able t o deduct certain tax pa yments from rev enues; all of these ar e described in Chapt er 21
(h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 262#ch 21) , including T able 21-2
(h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 265#ch 21ta b 2 ) . On a ver age, MA plans oper ated in the
range of the new 85% loor prior t o passage of the A CA. 12 ( h ttp :/ /co n te n t.t hu ze le a rn in g.c om /b ook s/ K on gstv e d t.2 332.1 7.1 /se ctio n s/ i2 97# ch 24en 12) Ho wev er ,
appr oximat ely one-thir d of beneiciaries in 2010 were in plans with loss ratios less than 85%. 13
(h ttp :/ /co n te n t.t hu ze le a rn in g.c om /b ook s/ K on gstv e d t.2 332.1 7.1 /se ctio n s/ i2 97# ch 24en 13) In addition t o the adjustments to the MLR calculation allo wed for commer cial
insurance, the payment reductions mandat ed by the A CA should dri ve loss r atios up, as r ev enues incr ease mor e slowly than
health car e costs while the new rat es ar e phased in.
Medicar e Prescription Drug Payment
Payment under Medicar e Part D has some supericial similarities to the MA pa yment , but there are critical diff erences in ho w
the payments are calculat ed. Part D plans ma y be free-standing PDP s, or may be offered by MA plans as MAPDs. Both types of
sponsors ar e paid under the same rules.
PDP s submit bids to CMS to pr ovide the standar d Part D pack age of beneits for the coming y ear . The bids are due at the same
time as MA bids. Bids are based on hist orical data, or manual rat es for new plans, and include administr ative costs and a
reasonable pr oit . CMS calculat es the weig hted national aver age monthl y bid. This is the aver age of all PDP bids recei ved,
w eig hted by the curr ent enrollment of each bidder . Consequentl y, the lar ge PDP s with the great est number of members have the
gr eat est inluence on the national aver age bid. CMS then calculat es the base beneiciary premium. This is the national aver age
monthl y bid multiplied by 25.5%, and di vided by 1 minus the ratio of pr oject ed aver age reinsur ance payments to P art D plans to
the total pa yments recei ved b y PDP s. Reinsur ance is a payment from CMS for beneiciaries w hose total out-of-pock et cost in a
given calendar y ear exceeds a maximum out-of-pock et threshold calculat ed by CMS each year . Figur e 24-5
(h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 289#ch 24ig5 ) illustr ates the calculation of the base
pr emium.
FIGURE 24-5 Calculation of the Base Pr emium
FIGURE 24-6 Calculation of Member Premium 3/13/2019 Print
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FIGURE 24-7 Risk Corridors
Each PDP recei ves a dir ect subsid y tow ar d the cost of beneits that is equal to the national a ver age monthl y bid minus the base
beneiciary premium. The plan then must char ge beneiciaries a premium that equals the diff erence betw een the plan’s bid and
the base beneiciary premium. Figur e 24-6 ( h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 289#ch 24ig6 )
illustr ates the calculation of the member pr emium for a PDP w hose bid is gr eat er than the national aver age monthl y bid.
Payments t o PDP s are risk -adjust ed, using a variant of the CMS-HC C model known as the RxHC C model. Like the HCC model used
for MA plans, the RxHC Cs are calibr ated by a multiple regr ession anal ysis of the r elationship betw een diagnoses on medical and
hospital claims and prescription drug costs in the follo wing year . Since prescriptions don ’t include diagnosis codes, medical
claims are used as a pr oxy sour ce of the diagnosis information. Since ther e is less inher ent variability in drug costs than in
medical costs, the RxHC C model is a better predict or of the follo wing year’s costs than the CMS-HC C model, with a predicti ve
po wer (R 2 ( h ttp :/ /co n te n t.t hu ze le a rn in g.c om /b ook s/ K on gstv e d t.2 332.1 7.1 /se ctio n s/ i2 97# ch 24en 2) ) of 25%.
The P art D pr ogr am includes a risk -sharing provision that is not part of the MA pr ogr am. An allo wable cost per capita is
calculat ed from the plan ’s bid and repr esents the expect ed cost for co ver ed pr escription drugs, less reinsur ance payments and
other nonpr emium subsidies. If a plan’s actual adjust ed costs for a gi ven y ear exceed the pr oject ed cost by mor e than 5%, CMS
will pay the plan 50% of the amount in excess of 5%. If the plan ’s costs exceed 10% of the e xpect ed amount , CMS will pay 80%
of the amount in excess of 10%. Con versel y, the plan must pa y CMS 50% or 80% of an y amount by w hich costs ar e less than 5%
or 10% of the expect ed cost. These corridors reduce both a plan ’s potential proit and pot ential loss on prescription drugs.
Figur e 24-7 ( h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 289#ch 24ig7 ) illustr ates the risk corridors.
In calculating gains or losses for purposes of the risk corridor pa yments, CMS will disallo w any prescription claims (kno wn as
prescription drug events, or PDEs) f or members w hose enr ollment is not recor ded corr ectly on the PDP’s recor ds. This places a
premium on regular reconciliation of enr ollment recor ds with CMS, to ensur e that the plan is being paid proper ly f or its
members, that it is not pa ying claims for people w ho ar e not its members, and that all valid claims will be count ed when it
reconciles the risk corridors with CMS.
CMS also pa ys PDP s for beneiciaries w ho qualify for “e xtr a help, ” whose income is belo w stated levels. The e xtr a help consists of
low-income pr emium subsidies (LIPS) and low-income cost-sharing subsidies (LIC S). LIPS pay most or all of the low-income
beneiciary ’s premium, up to a maximum amount that equals the w eig hted aver age pr emium in each Part D region. R egions ma y
be a sing le state or multiple contiguous states, depending on population. LICS pay all but a few dollars of the 25% coinsur ance
for co ver ed pr escriptions that is part of the standar d beneit package, and pay for pr escriptions in the co ver age gap (the “donut
hole”).
CMS also pa ys PDP s a reinsur ance amount , to co ver 80% of the cost of beneits f or members w hose total out-of-pock et costs
exceed the curr ent year’s thr eshold. 3/13/2019 Print
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24.6 APPLICATION AND CONTRA CTING PROCESS
The process for an MA or PDP plan t o appl y for a contr act with CMS follo ws deined rules. The most important elements ar e
described ne xt.
Eligibility R equir ements for a Medicar e Contr act
An organization must meet certain basic r equir ements to be eligible for a Medicar e contract. These requir ements are relat ed to
the or ganization ’s licensure and inancial solvency , premiums, provider netw ork, and administr ation and operations. In
particular:
• All or ganizations must be licensed as risk -bearing entities to off er health insur ance or health beneits in the stat e(s) in
w hich the y will oper ate, or hold a certiicat e of authority or operation in stat es that do not license such entities. RPPOs can
obtain a t empor ary waiver of the r equir ement .
• All organizations must demonstr ate inancial sol vency and a positi ve net w orth.
• Plan pr emiums ma y not exceed the actuarial value of Medicar e cost-sharing, althoug h the or ganization can off er
supplemental beneits at an additional cost t o the member . Plan beneits and pr emiums must be unif orm thr oug hout the
contr acted service area to pr ev ent discrimination.
• Or ganizations must use Medicar e-certiied providers t o pr ovide health car e services to members. These or ganizations must
demonstr ate netw ork adequacy within the contr acted service ar ea. This means that within the MA plan netw ork, services
must be made av ailable to members thr oug h staff pr oviders or pr oviders under contr act with the or ganization, the
or ganization must be capable of pr oviding 24-hour emer gency car e and pa ying for out-of-ar ea emer gency and ur gentl y
needed services, and the plan must meet CMS access standar ds for medical and pharmacy services.
• MA or ganizations must meet speciic minimum enr ollment requir ements. The or ganization must ha ve at least 5,000
members or , in rur al areas, at least 1,500 members.
• All or ganizations must demonstr ate an ability to administ er the contract. This includes adequat e stafing and management ,
meeting Medicare quality and care coor dination requir ements, and having a compliance plan that ensur es the or ganization
can meet Medicar e requir ements and avoid and/or corr ect fraud and abuse.
The A pplication
The pr ocess for obtaining an y type of MA or Part D contr act begins almost 13 months before the eff ecti ve dat e of the contr act. It
begins when applicants ile a requir ed Notice of Intent to Appl y. While CMS does not r equir e the organization iling the notice t o
complet e an application, it allows CMS to begin pr epar ation for pr ocessing the steps necessary for managing the application
thr oug hout each step of the application pr ocess.
For the most part applicants must mak e substantial prepar ations for iling the contr act in late February . This means that both
strategy and oper ational details along with contr acting for pr ovider and administr ative services has been complet ed by the
applicant w ell bef ore an application is submitt ed to CMS.
Applications ar e complet ed throug h the Health Plan Management Syst em (HPMS). This is a full y electr onic submission process
that every initial applicant and curr ent contr actor seeking to e xpand their service ar ea or add an SNP must use. Applications
that are not iled by the deadline dat e are not review ed.
The application is a series of attestations or questions that relect requir ements that the applicant must meet . These are
support ed by requir ed uploads of documentation that provide e vidence of compliance. These co ver stat e licensur e, organization
structur e and management , inancial solvency , service area, pr ovider and administr ation contracting, and a quality
improvement plan. A second set of att estations cover r equir ements for compliant Medicar e operations. These include
marketing, eligibility and enr ollment , working aged, claims, grie vances and appeals, and communication with CMS.
An applicant that wishes t o pr ovide a pr escription drug beneit must submit additional mat erials that are unique to the
requir ements for the P art D pr ogr am. This addendum requir es attestations and uploaded mat erial that addr ess the
requir ements for oper ation of a Part D beneit pr ogr am. These include 25 additional areas unique to pr escription drug
regulations that f ocus on beneit design, pharmacy access, and beneiciary pr otections.
For both P art C and Part D , CMS has also de veloped sophisticat ed methods for e valuating access t o contr acted provider services
that ar e pr oposed in each application. For P art C, applicants ar e requir ed to upload pr ovider contr acts and CMS compar es this 3/13/2019 Print
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information to inf ormation collect ed in the FFS syst em. Netw orks must meet tw o critical adequacy crit eria: minimum number of
providers/beds and time/distance r equir ements. Criteria vary b y specialty type. With a geo-mapping tool, CMS identiies an y
areas w her e access standar ds are not met . For P art D , CMS will use inf ormation gather ed from the pharmacy list uploaded by
the applicant to identify pharmacy addr esses. With this information, CMS can geo-code the str eet-le vel locations of the
pharmacies t o det ermine retail pharmacy access.
CMS review s the information that is submitt ed and identiies any deiciencies. When CMS identiies deiciencies, applicants
recei ve a Notice of Int ent to Den y. Applicants ha ve 10 da ys t o pr ovide inf ormation necessary to addr ess the deiciency . If it is not
corrected, CMS will issue a denial notice to the applicant . Applicants who recei ve a denial can appeal this det ermination by iling
a request for a hearing within 15 da ys. The hearing will be held within 30 da ys and allo ws the applicant to pr esent evidence that
CMS made an incorr ect determination. If the hearing oficer upholds the CMS decision, the applicant can appeal to the CMS
A dministr ator . The timing of these pr ocesses is critical to ensur e that all approved contr acts meet each step needed to publish
inf ormation for the Annual Election P eriod beginning on Oct ober 15.
After CMS releases a formulary submission t ool in lat e Mar ch for P art D , applicants must submit a formulary b y mid- April. CMS
releases inf ormation necessary for completion of bid pricing in April with the annual pa yment notice. By lat e Ma y, CMS notiies
all applicants w ho ha ve submitt ed acceptable applications. Follo wing the appr oval, applicants and all contr acted health plans
complet e their bids and beneit packages and submit them on the irst Monda y of June. Bids are review ed and appr oved, and
CMS e xecut es contr acts by mid- September .
CMS may verify an applicant’s readiness and compliance with Medicar e requir ements throug h onsit e visits at the applicant’s
facilities as w ell as thr oug h other progr am monit oring techniques thr oug hout the application process. During this period,
applicants prepar e oper ations and marketing inf ormation and submit it as necessary to CMS for r eview and appr oval.
The C ontr acting Cycle
The majority of health plans choose to r enew their contr acts. Renewing contr actors must still submit acceptable bids and meet
all requir ed timelines for updat es to beneit pack ages and marketing mat erials. Howev er , CMS review s performance measur es
and makes a determination that allo ws the renew al to occur .
Health plans that choose to not r enew their contr act must send notice in June, approximat ely 6 months bef ore the termination
dat e, to allo w for appr opriat e steps to r emo ve the health plan as an option in the CMS s yst ems and to notify beneiciaries about
their options for co ver age in other plans. Health plans that do not renew ar e pr ohibit ed from appl ying for a contr act or
expansion in the service ar ea for a 2-y ear period unless CMS det ermines that ther e are ext enuating cir cumstances.
CMS ma y also choose to not r enew a health plan consequent to perf ormance or failur e to r each minimal enr ollment . CMS has
also announced its intention to e valuat e plans for nonr enew al if they maintain a 2.5 star rating for 3 consecuti ve y ears (star
rating is described lat er in the chapt er). CMS notiies plans of its intention to not r enew their contr act by A ugust 1 of each year .
Contr acts can be terminat ed by mutual consent or in voluntaril y by CMS. Gener ally, mutual consent occurs w hen an or ganization
ceases t o e xist , a contr act is modiied, or a new organization has been appr oved t o pr ovide services t o the enr olled beneiciaries.
Ther e are requir ed notice procedur es that the health plan must follo w to inf orm beneiciaries of any changes or modiications.
As in nonr enew als, health plans are pr ohibit ed from appl ying for a service ar ea expansion in the ar ea for 2 y ears.
In voluntary t erminations occur w hen CMS det ermines that a health plan failed t o meet one or mor e of 13 regulat ory
requir ements that are cause for t ermination. T ermination can be expedit ed if there is a determination that ther e is an imminent
and serious risk to the health of the enr olled beneiciaries, or if ther e are inancial dificulties so se ver e that services to
beneiciaries could be curtailed. In an y CMS termination action, the health plan has the ability to appeal the det ermination. As in
any ad versarial action tak en by CMS, the health plan must pr ove that the det ermination made by CMS w as in err or. 3/13/2019 Print
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24.7 ENROLLMENT OF MEDICARE BENEFICIARIES INTO MA PLANS
There are speciic rules that MA plans must follo w with respect to enr ollment and disenr ollment of Medicar e beneiciaries.
Who May Enr oll
The BBA established some very speciic rules reg arding w ho ma y enr oll in an MA plan. With some exceptions, an y Medicar e
beneiciary permanentl y residing in the MA plan ’s service area ma y enr oll in the plan as long as the person has both Medicar e
Part A and P art B, and as long as the request to enr oll is recei ved b y the plan during an election period. Medicar e beneiciaries
who ar e also Medicaid recipients ma y also enr oll in an MA plan. Medicar e beneiciaries who do not ha ve Medicar e Part D cannot
enr oll in MA -PD plans, but they can enr oll in MA-onl y plans (i.e., plans that do not cover P art D).
Ther e are some exceptions t o the eligibility rules that pr ev ent indi viduals from enr olling in MA plans. If the plan is not open for
enr ollment , because it has a capacity waiver or has been closed b y CMS, for e xample, then the Medicar e beneiciary may not
enroll in the plan. In addition, if enr ollment in the plan is limit ed to special needs indi viduals or to emplo yer gr oup members,
then the Medicar e beneiciary may onl y enr oll in the plan if the indi vidual meets the special needs or emplo yer gr oup
requir ements for the plan.
The onl y Medicar e beneiciaries not entitled to enr oll in MA plans are beneiciaries who ha ve ESRD , but there are exceptions t o
this rule. If the plan is a special needs plan off ered to indi viduals with ESRD , then enrollment is allo wed as long as the indi vidual
meets all other eligibility requir ements. Enrollees who acquir e ESRD after enr ollment in a plan may not be disenr olled from the
plan because the y have ESRD . In addition, individuals who ha ve ESRD and w ho were enr olled as non-Medicar e members of a
plan may be retained as Medicar e enrollees on becoming eligible for Medicar e.
Enrollment and Election Periods
Prior to the BB A, Medicar e beneiciaries could enroll in Medicar e managed care plans at any time during the year . The BB A
beg an a trend tow ar d structuring enr ollment and disenr ollment periods to mor e closel y (but not complet ely) resemble the mor e
limit ed enrollment periods that emplo yers t end to off er to their emplo yees and r etir ees. The ACA further limit ed enrollment
periods, cutting the enrollment season in half.
Ther e are se ver al election periods during w hich a Medicar e beneiciary may enr oll in or disenr oll from a plan. These include the
Annual Election Period, the Medicar e Advantage Disenr ollment Period, Special Election Periods, Initial Co ver age Election
Periods, and an Open-Enr ollment Period for Institutionalized Indi viduals.
Annual Election P eriod
The Annual Election Period runs fr om Oct ober 15 throug h December 7, for enr ollments effecti ve on January 1 of the f ollo wing
year . This is the election period most widel y advertised b y CMS and the MA plans as it is open to all eligible Medicar e
beneiciaries, invol ves allo wing indi viduals to choose to join or s wit ch plans based on how beneits and cost-sharing will change
in the coming year , and most closel y mimics an “open season ” offered by emplo yers and unions.
Medic are Advant age Disenr ollment Period
During the Medicar e Advantage Disenr ollment Period, MA plan members can disenr oll from an MA plan and return to Medicar e
FFS between January 1 and February 15 of each year . Not e that this election period does not allo w for enr ollment in a new MA
plan. Indi viduals who swit ch to Medicar e FFS during this time period have the option t o join a PDP to add drug co ver age.
Special Election P eriods
MA plans ar e requir ed to be open during Special Election P eriods. As with most pri vat e health insur ance election periods,
Special Election Periods tend to cent er around certain events, such as w hen an indi vidual changes residence, loses
emplo yer/union health co ver age, loses MA co ver age because another or ganization in the service ar ea terminat es a Medicar e
contract, or gets Medicaid. CMS has the authority to deine additional Special Election P eriods for “e xceptional conditions” on an
as-needed basis. These Special Election P eriods tend to be unique to Medicar e, such as periods when indi viduals want to lea ve
MA plans as a r esult of sanctions imposed b y CMS on the plan or w hen indi viduals lose their eligibility for Medicaid or other
lo w-income subsid y progr ams.
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The Initial Cover age Election Period is int ended to allo w indi viduals new ly eligible f or MA t o join an MA plan. The period begins
3 months bef ore an indi vidual’s irst entitlement to Medicar e Part A and B and ends the lat er of the last day of the month bef ore
entitlement to P arts A and B, or the last da y of the indi vidual’s Part B initial enr ollment period. Ther e is an additional Initial
Cover age Election Period for P art D that allo ws indi viduals new ly eligible f or P art D to join a P art D plan.
Open-Enr ollment Period for Institutionaliz ed Individuals
The Open-Enr ollment Period for Institutionalized Indi viduals is continuous. It only applies to indi viduals who mo ve int o, reside
in, or mo ve out of certain institutions such as skilled nursing f acilities, nursing facilities, long-t erm care hospitals, and so forth. It
ends 2 months aft er the indi vidual moves out of the institution. MA plans ar e not requir ed to be open for this enr ollment period.
Involuntary Disenr ollment
An MA organization must in voluntaril y disenroll a Medicar e beneiciary if the person leaves the service ar ea permanentl y
(deined by regulations as an absence lasting mor e than 12 months), is incar cerated, or loses entitlement to either Medicar e Part
A or B. An MA or ganization has the option t o in voluntaril y disenroll a Medicar e beneiciary if the person has committ ed fraud in
enr olling in a plan or permits others to use his or her enr ollment card to obtain car e; for f ailur e to pa y premiums in a timel y
manner including optional supplemental premiums unless ther e is a demonstr ation of good cause; or because of disruptive or
abusi ve beha vior, subject to CMS appr oval.
Capacity Limits and Age-Ins
While a plan is or dinaril y requir ed to be open for enr ollment during the election periods described abo ve, a plan ma y limit or
close its enr ollment if it does not have the capacity t o accept new members. In such a case, a plan ma y discontinue or limit
enrollment with CMS appr oval, but ma y still set aside a speciied number of vacancies to enr oll members who “age-in ” from the
plan ’s commer cial product int o its Medicar e product . Capacity limits may be based on sever al diff erent reasons and the limit
ma y appl y to speciic plan beneit pack ages or counties in different conigur ations, for e xample b y plan or by county . 3/13/2019 Print
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24.8 MARKETING AND SALES R ULES
The scope of mar keting in the MA pr ogr am goes well be yond the public’s gener al understanding of advertising, and relects the
go vernment’s desir e to maintain a le vel of contr ol over MA plan mar keting pr actices. In addition to ad vertising, MA mar keting
requir ements cover all inf ormational mat erials and activities targeted to Medicar e beneiciaries, including sales activities,
member communications, and any other acti vities or mat erials that are int ended to attr act Medicar e beneiciaries to enr oll in
privat e plans. Serious mar keting abuses b y plans that used agents or br okers without suficient oversig ht result ed in even mor e
enhancement of marketing r equir ements; for e xample, f or the irst time Medicar e introduced regulation of commission
structur es and requir ed training for br okers and agents.
Pr ohibit ed Marketing
Pr ohibit ed marketing acti vities include door-t o-door solicitation, discriminat ory marketing (a voiding lo w-income ar eas, for
example), and misleading mar keting or misr epresentation. These acti vities are subject to sanctions, including suspension of
enr ollment , suspension of payment for new enr ollees, or civil monetary penalties. MA plans ar e pr ohibit ed from gi ving
monetary incenti ves as an inducement t o enr oll and from completing an y portion of the enr ollment application for a pr ospecti ve
enr ollee.
Prior Appr oval
All mar keting and enr ollment mat erial, including enrollment forms, must ha ve CMS appr oval prior t o public use. CMS has 45
da ys t o r eview mat erials. If 45 days pass without CMS comments on the mat erial, it is deemed appr oved. If an MA plan ’s
marketing mat erials were appr oved f or one service ar ea, the y are deemed appr oved in all of the plan ’s service areas, except with
reg ard to ar ea-speciic inf ormation. For certain mar keting and enr ollment documents, CMS has developed optional model
language. Use of the model language r educes the appr oval time period t o 10 da ys. Under certain cir cumstances, CMS also allo ws
a “ile and use” appr oach, wher eby no prior appr oval is r equir ed.
Requir ed Notiications to Pr ospecti ve Enr ollees
Prospecti ve enr ollees must be given descripti ve mat erial suficient for them t o mak e an informed choice. One of the requir ed
pre-enr ollment marketing documents is a Summary of Beneits f orm that uses standar d beneit deinitions and a standardized
format t o allo w beneiciaries to mak e “apples to apples” comparisons among MA off erings and betw een MA and FFS; it is similar
in concept to the Summary of Co ver age document no w requir ed under the ACA for commer cial cover age. Plans must also
pr ovide inf ormation about their plan star ratings to curr ent and prospecti ve enr ollees by ref erring them to www .medicar e.go v
(h ttp ://www .med ica re .go v) in all enr ollment kits. The y must also provide enr ollment instructions and forms, cust omer service
contact information, and an explanation of the plan ’s appeals and grievances pr ocess.
Requir ed Notiications to Enr ollees
MA plan enrollees must be notiied at least 30 days in ad vance of changes in plan membership rules, w hich must be appr oved b y
CMS. Ho wev er , for the change in beneits and cost-sharing occurring fr om one year to the ne xt, an Annual Notice of Change must
be sent to enr ollees by Sept ember 30.
The statut e speciies the kind of information an MA member must recei ve on enr ollment and annuall y thereafter. The document
containing this descripti ve inf ormation, like its count erpart for commer cial cover age, is called the Evidence of Co ver age (EOC).
The EOC includes inf ormation on beneits and exclusions; the number , mix, and distribution of plan providers; out-of-netw ork
and out-of-ar ea cover age; emer gency cover age—ho w it is deined and how to g ain access to emer gency care, including use of
911 services; prior authorization or other review r equir ements; grievances and appeals; and a description of the plan ’s quality
assur ance progr am. On request , the organization must pr ovide inf ormation on utilization contr ol practices, the number and
disposition of appeals and grie vances, and a summary description of ph ysician compensation. The or ganization must also
pr ovide all members annuall y with provider dir ectories and member identiication car ds, and MA plans offering Part D co ver age
must pr ovide pharmacy dir ectories and drug formulary inf ormation.
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Plans or their subcontractors are allo wed to conduct “mar keting or sales e vents” t o pr omot e the beneits and services of the
plan. At these events, sponsors distribut e brochur es and pre-enr ollment materials such as a Summary of Beneits and appr oved
sales mat erials. Sponsors may also accept enr ollment application forms. Plan sponsors ar e responsible for o verseeing all
mar keting acti vities used by their sub-contr actors including agents and brokers and must appr ove mat erials they use, including
sales scripts.
Plans and other entities may also conduct “educational events” pr ovided ther e are no sales acti vities such as distribution of
marketing mat erials or distribution or collection of enrollment applications.
Agents and Brokers and Commissions
An or ganization ma y emplo y or contract with agents or brokers to mar ket and sell its plans. Agents and br okers must be
appoint ed according to the la ws of the stat e(s) in which the agent or br oker oper ates. The or ganization must tr ain and test all of
its agents and br okers annuall y on Medicar e rules and regulations and on details speciic to the plans the y are selling. CMS has
established rules on agent or br oker compensation to pr ev ent agents and br okers from st eering Medicar e beneiciaries into
plans providing hig her payment .
Websit e and Call Cent er Requir ements
All organizations must ha ve a w ebsit e or web page dedicat ed to each pr oduct the y offer. The w ebsit e or web page must include
certain inf ormation, such as a plan description, contact information, and link s to member mat erials.
CMS speciies a variety of call cent er oper ations that the organization must oper ate. All or ganizations must also oper ate a toll-
fr ee call cent er for curr ent and prospecti ve enr ollees. If the organization off ers plans that cover Medicar e Part D , it must also
oper ate a pharmacy technical help call cent er to r espond to inquiries fr om pharmacies and pr oviders. The or ganization must
also pr ovide a call cent er available t o pr oviders inquiring about co ver age det erminations and Part D appeals. 3/13/2019 Print
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24.9 CONSUMER PR OTE CTIONS
MA plans are subject to certain r equir ements relating to access to services for beneiciaries and appeal rig hts that must be
provided t o Medicar e members.
Access Standar ds
With reg ard to access to car e standar ds, the regulations ha ve a number of r equir ements, including:
• Maintaining an adequat e provider netw ork, including minimum pr ovider-t o-enrollee r atios and maximum tr av el times and
distances as speciied b y CMS;
• Using the “prudent la yperson ” deinition of what constitut es an emer gency , the liability of the MA or ganization f or the cost
of such car e, and a requir ement to co ver appr opriat e maint enance and poststabilization care after an emer gency;
• Limiting copayments for emer gency services to amounts speciied b y CMS, for e xample $65 in 2011;
• Co vering out-of-ar ea dialysis during an enr ollee’s tempor ary absence from the service ar ea;
• Specifying that the decision of the e xamining ph ysician tr eating the indi vidual enr ollee pr ev ails reg arding w hen the
enr ollee ma y be consider ed stabilized for dischar ge or transf er; and
• Requiring plans to permit female enr ollees to choose dir ect access t o an in-netw ork w omen ’s health specialist f or w omen ’s
routine and pr ev enti ve health services.
Member A ppeals and Grie vanc es
MA enrollees have the rig ht to an administr ative and judicial appeals pr ocess and a grie vance pr ocess. These rig hts are similar
to the appeal rig hts under ERIS A and the ACA for commer cial cover age (Chapt er 20
(h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 250#ch 20) ), but ha ve short er time-fr ames and more
av enues f or pursuit . Medicar e appeals (referr ed to in r egulations as “or ganization det erminations”) pertain to ad verse decisions
reg arding co ver age or cost of an item or service included in the Medicar e contract (Medicar e-cover ed items and services and
additional and supplemental beneits). Grie vances ar e complaints or disput es falling outside the deinition of “appeal” r elat ed to
a member’s dissatisf action with provision of health car e services, including the way the service w as pr ovided, or the
appr opriat eness, timeliness, or setting of the health service.
Appeals
The st eps of the appeals pr ocess include:
• The det ermination by the or ganization (or a subcontr acted entity);
• R econsider ation b y the or ganization, or , if the or ganization pr oposes a r econsider ation decision ad verse to the enr ollee,
re view of that decision b y an independent review entity under contr act to CMS;
• R eview b y an administr ative la w judge (ALJ) for claims v alued at $130 or mor e (f or 2011) if the independent re view
entity ’s decision is ad verse to the enr ollee (the MA or ganization is not entitled to appeal a decision b y the independent
r e view entity w hen the decision is in fav or of the enr ollee);
• R eview of the ALJ’s decision b y the HHS’s Medicar e appeals council, a rig ht a v ailable both to members and to the MA
or ganization; and
• Judicial r eview in f eder al court for claims v alued at $1,300 or mor e (for 2011).
The irst-le vel det ermination is to be made b y the MA or ganization within 14 da ys (or “as e xpeditiousl y as the enrollee’s health
condition requir es” but no later than 14 days), and a r econsider ation decision (by the or ganization or the r eview entity) is t o be
made within 30 da ys (with the same r equir ement for e xpeditious pr ocessing). For expedit ed appeals, the standar d is that a
decision must be render ed within 72 hours.
Quality improvement or ganizations (QIOs) under contr act with CMS also review enr ollee complaints, including appeals, about
the appr opriat eness of a hospital dischar ge. Expedit ed timeframes similar to those of Medicar e FFS apply in such a case. QIOs
are described lat er in the chapt er.
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Grievances ag ainst a plan, as opposed to Medicar e appeals, are subject to diff erent standar ds. Enrollees must curr ently be
afforded a “meaningful” grie vance rig ht, w hich includes requiring the MA plan to r espond to grie vances on a timel y basis and
provide appr opriat e notiication of investig ation results to all concerned parties. The statut e requir es organizations t o pr ovide
data on the number of grie vances and their disposition in the aggr egate on an enr ollee’s request .
Prescription Drug C over ag e Det erminations and Exceptions
Enr ollees with prescription drug co ver age ha ve the rig ht to tak e certain steps to ensur e cover age of a particular drug even
bef ore the y ill their prescription. In particular , they can get a “cover age det ermination ” by their plan to det ermine whether a
particular drug will be co ver ed. The enr ollee or the prescriber ma y request an e xception t o ha ve the drug co ver ed if the plan
stat es that it will not cover the drug or if the drug is not on the plan ’s formulary . The enrollee or prescriber ma y also ask for an
exception t o ha ve the enr ollee pay less for the drug if the drug is in a hig her (i.e., mor e expensi ve tier) but the enr ollee or
prescriber belie ves the enr ollee cannot take the lower tier drugs for the same condition. If the enr ollee disagr ees with the plan’s
cover age det ermination or exception decision, then the enr ollee can follo w the appeals process described abo ve.
C ultur al Compet ence
MA plans are requir ed to ensur e that services are pr ovided in a “cultur ally compet ent” manner (i.e., with sensitivity tow ar d
cultur al, ethnic, and language differences) to all members. This includes members with limit ed English proiciency or reading
skills, hearing incapacity , or those with diverse cultur al and ethnic backgrounds. Translat or services, interpr eter services, or
TTY connections ar e all examples of services that w ould help MA plans meet this requir ement . 3/13/2019 Print
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24.10 PROVIDER PR OTE CTIONS AND RIGHT S
MA organizations ar e requir ed to aff ord certain rig hts to contr acting providers, and plans ar e requir ed to mak e timel y payment
on claims from noncontr acting providers.
Basic Pr ovider Rig hts
The MA statut e contains provider pr otections, including:
• Pr ohibition of discrimination ag ainst particular pr oviders, in selection of pr oviders or pa yment or indemniication
pr ovisions, solel y on the basis of the provider’s licensur e status;
• Appeal rights afforded to pr oviders in the e vent of suspension, t ermination, or nonr enew al of a contr act; and
• A r equir ement that MA or ganizations consult with plan ph ysicians r eg arding medical policy , quality assur ance pr ogr ams,
medical management procedur es, and credentialing policies.
Pr ovider P ayment
Pr oviders ar e aff orded a number of rig hts and protections relat ed to pa yment . All contracting providers must r ecei ve r easonable
pa yment for co ver ed services. Also, MA plans ar e requir ed to meet the same pr ompt pa yment standar ds that apply to FFS
Medicar e carriers and iscal intermediaries with respect to the timeliness of pa yments made to noncontr acted providers. The
standar ds apply to “clean ” claims; that is, claims having no “def ect or impr opriety ” as the law sa ys and not lacking
“substantiating documentation ” or “requiring special treatment .” The standar d is that 95% of clean claims must be paid within
30 days, and that int erest must be paid on clean claims not paid within 30 da ys.
B y r egulation a ph ysician incenti ve plan is “an y compensation arrangement to pa y a ph ysician or ph ysician gr oup that ma y
directl y or indir ectly have the eff ect of reducing or limiting the services pr ovided t o an y plan enr ollee. ” If a plan has a physician
incenti ve plan that places ph ysicians at substantial inancial risk (SFR; deined in Medicar e regulations) for the car e of Medicar e
or Medicaid enrollees, then it must provide for continuous monit oring of the potential effects of the incenti ve plan on access or
quality of car e. Accor ding to CMS, monit oring should include the review of utilization data t o identify patt erns of possible under-
utilization of services that may be relat ed to the incenti ve plan. Or ganizations should consider concerns identiied as a r esult of
this monit oring when de veloping f ocus ar eas for quality impr ovement pr ojects. SFR and its associat ed requir ements are
described in detail in Chapt er 5 ( h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 48#ch 05) . 3/13/2019 Print
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24.11 QUALITY AND PLAN PERF ORMANCE
MA plans have speciic quality and perf ormance requir ements that have e vol ved o ver time. As discussed belo w, CMS uses quality
and perf ormance data to monit or plans, to administr ativel y rew ard plans, and to pr ovide inf ormation to beneiciaries to
facilitat e plan choice. As provided b y the A CA, beginning in 2012 hig h-perf orming plans will recei ve a quality bonus and
enr ollees in hig h-perf orming plans will recei ve e xtr a beneits. CMS uses quality and perf ormance data as part of its performance
assessment syst em and CMS denies new applications or service ar ea expansions for poor-perf orming plans. CMS will soon use
quality metrics to terminat e poor-perf orming plans from the pr ogr am, but has not begun to do so at the time of publication.
Quality R equir ements
MA coordinat ed care plans must have a quality impr ovement pr ogr am that measur es performance under the progr am and that
includes the follo wing:
• Chr onic Car e Impr ovement Pr ogr am (C CIP)—C CIP pr ogr ams focus on beneiciaries with multiple or se ver e chr onic
conditions and include measur es to assess perf ormance such as clinical, cost , and beneiciary satisf action. An e xample of a
C CIP is a disease management pr ogr am. Plans must monit or enrollee participation in the progr am.
• Quality Impr ovement Pr ojects (QIP s)—QIP s ar e focused on impr oving health out comes and enr ollee satisf action and
include both clinical and nonclinical pr ojects. Pr ojects include an int erv ention with quality indicat ors and perf ormance
measur ement, and periodic follo w-up on the eff ect of the int erventions. MA plans are responsible for selecting QIP s that ar e
rele vant t o their populations. An e xample of a clinical QIP is a pr oject that f ocuses on impr oving the r at e of e y e e xams and
blood sug ar contr ol in enr ollees with diabet es. An e xample of a nonclinical pr oject is a pr oject that focuses on r educing
health disparities.
• Plans must ha ve a health inf ormation syst em that collects, anal yzes, and reports data.
• Plans must ha ve and follo w writt en policies and pr ocedur es that relect curr ent standar ds of medical pr actice and
mechanisms t o det ect both underutilization and overutilization of services.
The plan must perf orm a formal e valuation at least annuall y of the impact and effecti veness of its pr ogr am and all problems that
are rev ealed thr oug h internal surv eillance, complaints, or other mechanisms must be corrected.
CMS requir es the annual submission of the QIP and the CCIP fr om all except new plans in Jul y. Since r egulations v ary accor ding
to contr act type, each progr am is review ed accor ding to the r equir ements that apply. Pr ojects are review ed at the contr act level
to identify those that sho w some level of impr ovement . Health plans recei ve f eedback and t echnical assistance based on the
out comes of the review . CMS recei ves r eports about the inf ormation recei ved and mak es any det ermination about compliance
with the requir ements. Failur e to mak e these submissions may result in compliance or enf orcement action.
Plan R eporting
MA plans report the follo wing speciic data sets to CMS:
• HEDIS: Measur es report ed by MA plans ar e built off of the measur es r eport ed b y commer cial plans and ha ve been adapt ed
for the char acteristics of the Medicar e population. Most of the measur es ar e pr ocess measur es or int ermediat e out comes
measur es. MA plans report HEDIS measur es at the contract level. PPOs r eport on a subset of HEDIS measur es that r el y on a
r e view of claims; ho wev er , the y have the option t o r eport on certain measur es using medical r ecor ds t o be consist ent with
HMOs.
• The Consumer Assessment of Healthcar e Pr oviders and S y st ems (CAHPS ®): Measur es enr ollee and disenr ollee satisf action
with MA plans and provides the beneiciary per ception of the quality of car e. The MA plan selects a v endor t o conduct the
surv ey. Samples ar e select ed t o r each 300 complet ed surv ey s. CAHPS originall y st ood f or Consumer Assessment of Health
Plan Surv ey, and this initial v ersion w as r elat ed t o Medicar e + Choice (t oda y’s MA plans) with ph ysician pa yment models
that met the deinition of SFR. It has since br anched out int o v ersions applicable to MA plans, managed Medicaid plans,
commer cial plans, hospitals, and ph ysicians. CAHPS is maintained b y the feder al Agency for Healthcar e R esear ch and
Quality (AHR Q). It comes in sever al versions besides the version applicable to MA plans (e.g., CAHPS Hospital).
• Health Out comes Surv ey (HOS) * ( h ttp :/ /co n te n t.t hu ze le a rn in g.c om /b ook s/ K on gstv e d t.2 332.1 7.1 /se ctio n s/ i2 97# ch 24fn 3) : Measur es a random sample of 1,200 MA
enr ollees enr olled f or at least 6 months and r esurv ey s the same sample 2 y ears lat er. The surv ey f ocuses on health status
and use of services and is int ended t o measur e impr ovement or declining ph ysical and mental health fr om the enr ollee’s
perspecti ve. 3/13/2019 Print
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• Plan Inf ormation: Plans r eport on contr act perf ormance measur es (e.g., call cent er perf ormance, appeals, and grie vances
rat es).
As discussed in the ne xt section, CMS summarizes the data from these data sets and rank s plans accor ding to a i ve-star r ating
sy st em. Ther e are fair ly wide v ariations in plan perf ormance based on quality reporting. F or example, hig h-perf orming plans
may have HEDIS scor es that are ive times hig her for out comes measur es than low-perf orming plans. Howev er , ther e may be
under lying r easons be yond quality diff erences that explain this v ariation (e.g., diff erent geogr aphic areas serv ed by the plans or
a hig her rat e of disabled beneiciaries enr olled in RPPOs).
CMS also expects plans to use the data, including HOS data, for int ernal quality impr ovement . The data should help plans
identify some of the areas wher e their quality impr ovement eff orts need to be tar geted and ma y be used as the baseline data for
quality impr ovement pr ojects.
Health plans are requir ed to submit additional r eports about beneit utilization and plan oper ations. Ther e is some over lap
betw een these reports and data collect ed for star r atings (discussed in the ne xt section), but these reports ar e somew hat less
detailed and are gener ally aimed at pr oviding o ver all rat es by membership. R eport ed data are used for compar ative purposes
both betw een health plans as well as with the gr eat er FFS syst em. P art D reports ar e requir ed by statut e while Part C reports ar e
governed b y regulation. Althoug h some reports ar e made on a quart erly basis, most r eports ar e due on an annual basis. In 2011
ther e are 13 reports for P art C (such as Beneit Utilization, Pr ovider Netw ork Adequacy , and Grievances) and 16 r eports for P art
D (such as Enr ollment , Medication Therapy Management Pr ogr ams, and Long- Term Car e [LTC] Utilization).
For 2011, CMS has initiat ed data validation audits. This new regulat ory requir ement ensur es that health plans provide P art C
and Part D data to CMS accor ding to a standar dized methodology that will ensure compar ability. Data validation requir es health
plans to obtain the services of an e xt ernal data validation audit or. The validation audit ors conduct the requir ed audit year ly b y
ev aluating data pr ogr amming inputs along with the processes and progr amming used to query databases and de velop r eports
pr ovided t o CMS.
Star Ratings
Plans r eport requir ed quality and performance measur es to CMS and CMS cr eat es a Part C and Part D R eport Car d using a ive-
star r ating (one star is a poor-perf orming plan while ive stars is an e xcellent-perf orming plan). Medicare displays Plan R atings
in the Medicar e Plan Finder used by beneiciaries to select health plans on www .medicar e.go v ( h ttp ://www .med ica re .go v) . The
data ar e displa yed prior t o the open-enr ollment period every y ear in a star format similar t o Consumer R eports .
For 2011, P art C Plan R atings ar e report ed at four le vels, w hich allo w the beneiciary to drill-do wn and get more detailed
information:
• Ov erall rating for MA -PD contr acts—a ver age of Part C and D stars
• Summary le vel—star r ating for a contr act
• Domain—nine groups of similar measur es assigned a star rating based on an a ver age of each of the indi vidual measur es
• Indi vidual measur es—53 quality and perf ormance measur es (36 MA and 17 P art D of w hich one-thir d ar e contr act
performance measur es)
In addition, in the Medicar e Plan Finder CMS includes a warning symbol for lo w-perf orming contr acts that have a 3-y ear aver age
summary rating of 2.5 stars or lo wer . The star assignment methodology adjusts for minimum time in the MA pr ogr am, missing
data, and mean and variation of indi vidual measur es.
Table 24-4 ( h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 295#ch 24ta b 4 ) displa ys an e xample of a
domain and measur es with data sources for 2011.
The other domains for 2011 include Managing Chr onic Care Conditions; Health Plan Responsi veness and Car e; Member
Complaints, Appeals, and Disenr ollment; and Telephone C ust omer Service.
CMS considers organizations that f ail t o achie ve at least a thr ee-star summary rating on P art C or D for 3 str aight years to ha ve
ignor ed their oblig ation to meet pr ogr am requir ements and to be substantiall y out of compliance with their Medicare contracts.
In 2011 CMS has announced that it expects to initiat e action to terminat e these contracts in 2012 once they publish the thir d
consecuti ve summary r ating of less than thr ee stars and after conirming that the star data relect the health plan ’s substantial
noncompliance. 3/13/2019 Print
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TABLE 24-4 Domain 1 Measur es and Data Sour ces, 2011
Domain 1: Pr evention—Sta ying Healthy: Scr eenings, Test , and Vac cines
Measur e Data source
Breast cancer screening HEDIS
Colorectal cancer screening HEDIS
Cardiovascular care cholesterol screening HEDIS
Diabetes care—cholesterol screening HEDIS
Glaucoma testing HEDIS
Appropriate monitoring for patients taking long-term medication HEDIS
Annual flu vaccine HEDIS
Pneumonia vaccine CAHPS
Improving or maintaining physical health HOS
Improving or maintaining mental health HOS
Osteoporosis testing HEDIS/HOS
Monitoring physical activity HEDIS/HOS
At least one primary care doctor visit in the last year HEDIS
Source: CMS.
With r eg ard to futur e measur es, more emphasis will be placed on outcomes measur es and new measures will be developed f or
older beneiciaries.
Ext ernal Quality Revie w
The QIOs that are under contr act to CMS to r eview the quality of car e of hospitals in Medicar e FFS also review the quality of car e
among MA enr ollees. QIOs review complaints b y MA enr ollees about the quality of care in an MA plan. As in Medicar e FFS, QIOs
process beneiciary requests for r eview of hospital dischar ge decisions. Generally, QIOs r eview car e to ensur e that it meets the
general standar d for pr ofessional services and that appr opriat e services were deli ver ed in an appr opriat e setting.
Finally, QIOs pla y a signiicant role in the appeals pr ocess. QIOs review a det ermination by a health plan w hene ver a beneiciary
disput es the health plan’s denial for continued services in an acut e care hospital, skilled nursing facility , home health agency , or
comprehensi ve r ehabilitation facility .
Performanc e Assessment
CMS monitors a plan’s compliance with regulat ory requir ements throug h data anal ysis, audits, beneiciary appeals, and
complaints. In r ecent y ears CMS has mo ved fr om a plan oversig ht process that relies on routine onsit e audits of all plans to a
perf ormance assessment syst em that is quantitati ve in natur e. The Perf ormance Assessment Syst em arr ay s inf ormation from
HEDIS, HOS, CAHPS, beneiciary complaints, audits, sanctions, and other sour ces to identify outliers and or ganizations w hose
perf ormance is very poor compar ed to the r est of industry . CMS may target areas that warr ant further review based on the data,
pr ohibit an or ganization fr om expanding its service ar ea, or den y a new application for a new contr act.
Annual P erformanc e Assessment
Each year CMS perf orms a review of all contr acts’ past performance covering a 14-month period. Each plan is pr ovided a r ating
based on a w eig hted scale relat ed to the seriousness of the inding. F or example, a notice of noncompliance is the mildest with a
w eig ht of neg ative 1 w hile a corr ective action plan (CAP)–ad hoc compliance e vent based on continuing and se ver e syst emic
pr oblems is w eig hted at a neg ative 6. A plan with a CMS-imposed t ermination is w eig hted at a neg ative 8. Ov erall, CMS considers
a poor-perf orming MA plan as one with a negative scor e of 4 points and Part D plan with a neg ative scor e of 5 points.
In 2011, CMS review ed the follo wing perf ormance categories:
• Compliance Lett ers;
• Perf ormance Metrics;
• Multiple Ad Hoc CAP s; 3/13/2019 Print
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• Ad Hoc CAP s with Beneiciary Impact;
• Financial Watch List;
• One- Third Financial Audits;
• Perf ormance Audits;
• Ex clusions;
• Enf orcement Actions;
• Terminations; and
• Outstanding Compliance Concerns Not Otherwise Captur ed.
Contracts in good standing have certain pri vileges, for e xample, inclusion in the Medic are & You Handbook , participation in the
online enr ollment cent er, allo wing formulary updat es, and recei ving LIS enrollee reassignments and aut o-enr ollment .
Plan Performanc e Data
MA plans must report oper ational data, and CMS monit ors and track s sever al types of perf ormance data from ext ernal sour ces.
These different data ar e described ne xt.
Oper ational Data
CMS uses a number of performance data points for purposes of conducting an annual perf ormance assessment to tr ack plan
oper ations. With this data, CMS conducts outlier anal ysis b y reviewing perf ormance across all contr acting organizations, w hich
results in the identiication of pot ential noncompliance and the need for further in vestig ation. This tracking pr ocess is ongoing.
Whene ver a plan demonstr ates that it is outside of expect ed performance, CMS institut es an inquiry and potentiall y initiat es a
compliance action such as a compliance letter, an audit that results in an ad hoc compliance action, or an outstanding
compliance concern. Gener ally, this occurs w hen CMS identiies outliers in plan oper ations or recei ves inf ormation from da y-t o-
da y oper ational interactions with the health plans. CMS tr ack s data submissions from health plans on a monthl y basis; for
example, f ailur e to pr ovide pr oper secondary pa yer inf ormation and failur e to mat ch enrollment with proper LIS rat es
(indicating an inability to ensur e that beneiciaries do not pay hig her copa yments than they should pay).
Acti ve Monit oring
CMS takes a mor e active r ole in the receipt of inf ormation from beneiciaries and from contr acted resour ces that activel y
monit or how health plans communicat e with beneiciaries. These are complaint tracking, sales surv eillance activities, and
cust omer service monit oring.
Complaint T racking
With the implementation of P art D , CMS not ed that beneiciaries’ calls to CMS about obtaining pr escribed medication requir ed
immediat e action from health plans. The Complaint Tracking Module (CTM) pr ocess evol ved as CMS r ecei ved complaints and
raised them t o plans for action. The pr ocess no w considers all types of complaints including mar keting misr epresentation,
enr ollment err ors, copa yment for pr escribed medications, and so on. The CTM process classiies complaints and assigns a range
of time-r equired responses up to immediat e need, which must be resol ved within 2 calendar da ys. With the enactment of the
A CA, the CTM pr ocess was formalized t o r equir e a complaint syst em that allo ws for the collection and maint enance of
complaints against PDP s and MA-PD plans. As opposed to other types of inf ormation and data that tak es time to accumulat e,
CTM information is curr ent and CMS takes action to ensur e that health plans are taking corr ective action.
S ales Surv eillanc e
CMS conducts ongoing surveillance of health plan sales and marketing functions, including observ ations of sales presentations,
secr et shopping calls, and review s of marketing mat erials. Health plans recei ving information about surv eillance activities are
expect ed to r eview their r esults and implement an y corr ective action plans t o addr ess any issue of noncompliance bef ore CMS
issues a compliance lett er to the plan about the indings.
Call C ent er Surv eillanc e
CMS monitors hold times, disconnect rat es, and the time it tak es for an int eracti ve v oice response (IVR) or li ve cust omer service
repr esentati ve (C SR) to ans wer the phone. Monit oring mostly occurs during the Annual Election Period and the 60 da ys
follo wing. While this is especiall y important to the ability of beneiciaries to r esol ve issues r elat ed to r eceipt of pr escription 3/13/2019 Print
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drugs, CMS also requir es the timel y response to beneiciaries with questions r eg arding an y beneit or question the y could have
about their health plan membership. Call cent ers or contact centers are discussed in detail in Chapt er 20
(h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 250#ch 20) .
A udits
CMS conducts inancial, actuarial, and perf ormance audits using both CMS personnel and contr acted resour ces. By la w, CMS
must conduct inancial and actuarial audits of one-thir d of the plans each year . This review includes inancial r ecor ds, including
documentation used to de velop plan bids, administr ative costs, and pr ovider pa yment . CMS uses a Financial Watch List to tr ack
organizations with actual or pot ential inancial solvency pr oblems.
A perf ormance audit is an in-depth review of a health plan ’s documentation relat ed to the oper ation of their Medicar e contracts.
CMS conducts performance audits during which review ers assess whether the health plan is compl ying with regulat ory
requir ements in such areas as leg al, quality of car e, mar keting pr actices, enr ollment/disenr ollment, claims payment , and
grievance and appeals pr ocedur es.
CMS uses risk analysis t o select plans for audits. The risk assessment is based on the perf ormance categories and combines a
number of fact ors, including each organization ’s compliance history, enr ollment levels, and the r at e of gr owth of plan
enr ollment . If the audit has indings, the organization is r equir ed to submit a corr ective action plan t o corr ect any deiciencies.
Close monit oring of the plan continues until CMS is satisied that the problems ha ve been r esol ved. Contr acts with audit scores
in the worst 25th per centile are subject to further compliance and enf orcement actions.
Pr evention and Det ection of Fraud, W ast e, and Abuse
CMS regulations speciicall y direct health plans to implement a pr ogr am that prev ents, det ects, and corr ects fraud, w ast e, and
abuse. While misbeha vior may be committ ed by pr oviders (e.g., billing for services that w ere not pr ovided), beneiciaries (e.g.,
misuse of a plan ID car d), or emplo yees (e.g., pa ying claims that are kno wn to be false), it has not been as pr ev alent in health
plans as in the tr aditional Medicar e FFS syst em. In addition, the use of periodic inancial and actuarial audits of health plans
ha ve pr ovided a sentinel s yst em for ensuring that health plan cost estimat es and bids closely follo w requir ements. Howev er ,
with full risk adjustment and Part D , opportunities for fr aud, w ast e, and abuse have signiicantl y increased. These opportunities
exist at each le vel within the health plan or ganization and w arr ant incr eased vigilance within health plans so that all actions
necessary can be taken by the health plan as w ell as go vernment agencies. F raud and abuse ar e discussed mor e fully in Chapt er
19 ( h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 240#ch 19) .
C omplianc e Progr am
All health plans must oper ate a compliance pr ogr am for o versig ht of the MA and Part D pr ogr ams. By regulation, the pr ogr am
must consist of seven elements:
1. W ritt en Policies and Pr ocedur es;
2. Compliance Oficer and Compliance Committ ee;
3. Training and E ducation;
4. Eff ecti ve Lines of Communication;
5. Enf orcement of Standar ds throug h well-publicized disciplinary guidelines;
6. Monit oring and Auditing; and
7. Corr ective A ction Pr ocedur es.
The regulations for the compliance pr ogr am are explicitl y detailed, having evol ved fr om their initial intr oduction as a regulat ory
requir ement in 1998. The progr am must describe the health plan ’s commitment to compliance with r egulat ory standar ds,
include a code of conduct , provide guidance t o emplo yees and others on pr ocesses to communicat e compliance issues, and
include procedur es to in vestig ate and resol ve them. Finall y, it must stat e a policy of nonintimidation and nonr etaliation for good
faith participation in an y aspect of the compliance progr am or reporting pot ential issues.
The compliance oficer must be an emplo yee of the contr acted organization, its par ent, or a corpor ate afiliat e and must report
to the CEO or other senior management . In addition, periodic reports must be made b y the compliance committ ee to the health
plan ’s governing bod y, usuall y the Board of Directors, who must exer cise reasonable o versig ht. The regulation cit es the types of
personnel who must recei ve compliance tr aining as w ell as those w ho serv e in downstr eam entities. Processes must ensur e that
communication of compliance issues is conidential and can be anonymous. Disciplinary standar ds must be effecti vel y applied
to all le vels within the health plan. A udit and monit oring progr ams must be effecti ve in identifying compliance issues. 3/13/2019 Print
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CMS expects regular monit oring activities as well as periodic audits of all oper ations, including deleg ated irst-tier oper ations.
Audits can be conduct ed by outside audit ors if necessary . The compliance progr am must also demonstr ate that compliance
issues ar e pr omptl y investig ated and corr ective actions ar e undertak en to quickl y resol ve an y non-compliant issue. This
includes repa yment of overpa yments and disciplinary actions against responsible emplo yees in r esponse to the pot ential
violation. While self-r eporting is not a requir ed process, the health plan must ha ve pr ocesses to v oluntaril y self-report potential
fraud or misconduct relat ed to the MA pr ogr am to CMS, the Ofice of the Inspect or General, or other feder al agencies.
To emphasize its int erest in the pr oper oper ation of compliance progr ams, CMS has conduct ed audits of each health plan’s
compliance progr am in 2010 to e valuat e their effecti veness. A udits focused on the e xamination of the e vidence of compliance
pr ogr am oper ations. These included recor ds of compliance committ ee meetings, reports to the go verning bod y, audits,
in vestig ations, and corrective and disciplinary actions.
Enfor cement
Ov er the last sever al years, CMS has implement ed a graduat ed syst em of compliance notices to mak e organizations a w ar e of
when the y are not in compliance. These notices use an outlier-based standar d for the lo wer-le vel notices. These notices r elect
the ear lier stages of CMS compliance efforts and aff ord or ganizations r easonable opportunities to tak e corr ective action.
Whene ver noncompliance is identiied, the notice gener ally allo ws for an opportunity for corr ective action. The health plan is
solel y responsible for the identiication, de velopment , and implementation of a CAP and for demonstr ating that the underlying
deiciencies ha ve been corr ected. Health plans have at least 30 calendar da ys t o de velop and implement a CAP . Howev er , in some
cases w her e the corr ective action mig ht take mor e time, CMS can allow a longer period for corr ective action t o be complet ed.
CMS does not approve the corr ective action but will f ocus onl y on det ermining that the noncompliance has been corr ected. The
health plan must develop and implement the corr ective action prior t o CMS issuing a notice of int ent to terminat e or nonrenew.
Administr ative and Int ermediat e Sanctions
CMS can use other enforcement options short of termination and nonr enew al to addr ess health plans that are non-compliant .
First, CMS can reject applications fr om health plans w ho ha ve demonstr ated a patt ern of noncompliance. CMS belie ves that a
patt ern of noncompliance indicat es operational dificulties and that the health plan should focus on impr oving its e xisting
oper ations before expanding int o new types of plan offerings or additional service areas. This action would be based on the
most recent 14-month period and w ould appl y even if the applicant curr ently meets all of the application requir ements. For
2012 applications, CMS pr ovided a point s yst em based on the perf ormance categories that would be used to det ermine if a
health plan demonstr ated noncompliance that w ould warr ant rejection of an application. Health plans that had a scor e of four
points for P art C or i ve points f or P art D could see their application for e xpansion reject ed. CMS would also appl y this rule to
an y plans that withdr ew bids after the benchmar k was announced as w ell as ones that terminat e a contract for an upcoming
beneit y ear aft er the organization had e xecut ed the contr act.
Second, CMS can implement thr ee intermediat e sanctions when issues of noncompliance ha ve risen t o a serious and signiicant
le vel. The y are: (1) suspension of acceptance of applications for enr ollment , (2) suspension of marketing acti vities to Medicar e
beneiciaries, and (3) suspension of payment for new Medicar e beneiciaries during the sanction period.
Most frequentl y, CMS imposes int ermediat e sanctions that suspend marketing and enr ollment . CMS keeps sanctions in place
until the health plan has corr ected its deiciencies and the y are not lik ely to r ecur . Health plans can rebut CMS indings and can
also request a hearing to demonstr ate that CMS made an incorr ect determination, but these actions do not affect the effecti ve
dat e of the sanction.
Betw een 2008 and 2010 CMS cited numer ous reasons for enf orcement actions. The y included denial of critical prescription
drugs, mar keting misr epresentation, inappr opriate enrollment and/or disenr ollment , and insuficient improvement despit e
warnings.
Termination
For the ultimat e sanction, CMS can terminat e or nonrenew a contr act. CMS tak es into account the natur e and ext ent of the
failur e of the noncompliant regulat ory requir ements and their materiality in relation to all other r equir ements. As noted abo ve,
CMS allo ws at least 30 da ys f ollo wing a notice of noncompliance for corr ection of the deiciency before the notice of termination
or nonr enew al is issued to the health plan.
For t ermination, CMS can cit e any one of 13 regulat ory reasons for t ermination. These r ange fr om very gener al failur e to carry
out the terms of the contr act to 11 other speciic oper ational requir ements, such as the failur e to compl y with the prompt 3/13/2019 Print
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payment rules. CMS can expedit e a termination w hen ther e is an imminent and serious risk to the health of enr ollees or
evidence e xists that fr aud has been committ ed. As in an intermediat e sanction, the health plans can request a hearing w her e the
health plan must provide the pr eponder ance of the evidence that CMS has made an incorr ect determination. The process for the
hearing does not dela y the termination action.
Ci vil Monet ary Penaltie s
CMS and the HHS Ofice of the Inspector General (OIG) can impose civil mone y penalties on health plans based on non-
compliance with the regulations. The basis for these penalties is the same as the r easons for imposing an int ermediat e sanction
on the health plan. CMS imposes all civil mone y penalties except f or cases that in vol ve cr editable evidence that the health plan
has committ ed or participat ed in false, fr audulent , or abusive acti vities.
Ther e are four diff erent types of ci vil mone y penalties:
• $25,000 for each CMS inding w her e one or mor e beneiciaries w as ad versel y aff ect ed or could ha ve been of ad versel y
affect ed;
• $25,000 for each beneiciary w ho was ad versel y affected or could have been of ad versel y affected by a deiciency;
• Up to $10,000 for each w eek that a deiciency remains uncorr ected aft er CMS notice of noncompliance; and
• $250 per Medicar e enr ollee or $100,000, w hiche ver is gr eat er, fr om w hen a health plan has failed to follo w pr oper
procedur es for t erminating its contr act with CMS.
In its capacity to addr ess fraud, w ast e, and abuse, the OIG levies all civil mone y penalties whene ver ther e is credible evidence
that a health plan has committ ed or participat ed in false, fr audulent , or abusive acti vities. In addition, to a ci vil mone y penalty ,
health plans can be requir ed to agr ee to a corpor ate int egrity agr eement that will detail additional requir ements for continued
participation in feder al progr ams.
Exclusion fr om all Feder al Progr ams
Health plans and indi viduals can be excluded fr om feder al progr ams. The HHS OIG is mandat ed to oper ate the pr ogr am to
exclude indi viduals and entities from participating in feder al progr ams. The OIG conducts these acti vities under various leg al
authorities, contained in sections 1128 and 1156 of the Social Security Act. In addition, the OIG maintains a list of all curr ently
excluded parties, called the List of Ex cluded Indi viduals/Entities.
Gener ally, e xclusion fr om feder al progr ams follo ws con viction of a felon y, misdemeanor , license rev ocation, or similar off ense.
Howev er , it could also include def aults on health education loans or scholarship oblig ations. Conviction of a crime can result in
imprisonment . The nature of each violation drives the period of e xclusion. Ex clusions have minimal periods that must be
applied or can be permanent .
Of particular note is that exclusions of corpor ate oficers ha ve been upheld since pr osecut ors have demonstr ated that an
executi ve has a duty t o kno w about the actions of subor dinates and that the executi ve must mo ve t o st op an y wr ongdoing upon
learning of it. 3/13/2019 Print
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24.12 SUBREGULATOR Y GUID ANCE
The operation of the Part C and Part D pr ogr ams requir es the development of additional r equir ements and guidance. This
guidance is used to e xplain the lett er and intent of a requir ement and to pr ovide inf ormation necessary for the pr oper
management of the progr am. With this guidance, health plans can conduct day-t o-da y oper ations as well as communicat e with
CMS about requir ed processes, formats, timefr ames needed to maintain compliant oper ations for enr ollment , payment , risk
adjustment , marketing appr ovals, and so on.
CMS uses the HPMS as the v ehicle for communicating with and sending inf ormation to contr acted health plans. CMS provides
additional guidance and inf ormation that clariies regulat ory requir ements in the form of manuals, notices, monit oring guides,
an annual call letter, and updat es to r equir ements. The subregulat ory guidance further explains ho w CMS will regulat e speciic
regulation that is the basis f or the guidance.
Separ ate Part C and Part D manuals ar e used as the basis for subr egulat ory guidance and relect the curr ent CMS interpr etation
of the requir ements and relat ed provisions. Manuals e vol ve o ver time as r egulat ors and health plans address questions and new
circumstances. Each manual has multiple chapt ers that deine terms discussed in the chapt er and provide dir ection on the
application of any regulation.
CMS pr ovides periodic updat es to the pr ovisions in the manual via HPMS. These periodic notices become the oper ational
understanding for the subject of the HPMS notice. Gener ally, these notices ar e annual updat es to a pr ocess for timefr ames,
deinitions, category , revised standar ds, and so on. An example of this type of notice is the annual announcement of calendar
y ear pa yment rat es, w hich announces changes to pa yment rat es as w ell as annual due dat es and effecti ve dat es for new
requir ements. Typicall y, CMS obtains comments fr om health plans bef ore implementing a new subr egulat ory requir ement .
CMS follo ws a pr ocess for updating manual chapt ers by soliciting comments to dr aft changes from health plans and other
int erest ed parties. This process allo ws for the de velopment of common understanding about the application of r equir ements to
the oper ation of the Part C and Part D pr ogr ams. 3/13/2019 Print
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CONCL USION
This chapter is, in effect, onl y a leeting snapshot of MA and Part D . These tw o progr ams—consist ent with their history—ar e
bound to change and lik ely dr amaticall y so. At the time of publication:
• Bab y Boomers are enr olling in Medicar e at a rat e of 3,600 per da y . The y will double Medicar e’s enr ollment o ver the ne xt 25
y ears, and double its e xpenditur es in the next decade. The st ead y drumbeat of demogr aphics will f or ce Congr ess t o r ef orm
the pr ogr am further .
• Boomers ar e f amiliar with health plans fr om their emplo yer-sponsor ed health car e co ver age—o ver 90% of the w or king
insur ed are in HMOs, PPOs, or POS plans. Most will want to continue their co ver age int o their retir ement , and ther efor e will
seek t o enr oll in MA in gr owing numbers. Indeed, in both 2010 and 2011, o ver 40% of beneiciaries aging-in to Medicar e
have chosen health plans o ver the tr aditional FFS pr ogr am. And let’s not for get the tw o truisms of Medicar e beneiciaries: if
the y’r e not sick toda y, the y will be and they vot e in overw helming numbers in defense of the progr am.
• Some publicl y traded health insur ance companies have gr own dependent on Medicar e rev enues and will continue t o pla y a
major r ole in administ ering the pr ogr am. When the BB A passed, publicl y tr aded companies deri ved, on a v er age, 13% of
their r e v enues fr om Medicar e. T oda y that number has doubled to 26%, with se ver al companies seeing mor e than half of
their r ev enues fr om Medicar e. Said another way, health plans ar e her e to sta y in Medicar e.
• There is broad consensus that Medicar e is unsustainable in its current form. Medicar e’s Trust ees point out the progr am will
become insol vent in the ne xt decade without structur al r ef orms. The pr ogr am is lit er all y d ying under its o wn w eig ht. The
aging of the population onl y accounts for 2% of that doubling in Medicar e’s expenditur es this decade. The other 98% is due
t o the costs of chr onic disease and the pr olif eration of medical technology and pr ocedur es, as described in Chapt er 7
(h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 79#ch 07) . T oda y 1 in 4 Medicar e dollars is spent on
diabet es, 1 in 4 on car dio vascular disease, and 1 in 4 on end-of-lif e car e. CMS will continue to “r aise the bar” on plans to
deli ver mor e cost-eff ective chr onic care.
• The f eder al debt is issue #1 in W ashingt on and Medicar e is at the cent er of that debat e. Ho w this will pla y out is, as is
al w ay s the case with politics, near ly impossible t o pr edict . Sooner or later it will be addr essed, whether we lik e it or not .
For the lif e of this version of the book, MA and P art D will continue to be a political foot ball tossed betw een the two parties as
the y battle for their r especti ve visions of the futur e for this massi ve and essential entitlement pr ogr am. Don ’t blink or you mig ht
miss the latest in the annals of Medicar e ref orm.
Endnot es
1 (h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 285#ch 24-e n1) Kaiser F amil y F oundation Medicar e
Plan Tracking data, av ailable at http://healthplantr acker.kff.or g/geor esults.jsp?r=1
(h ttp ://h ea lt h p la n tr a ck er.k ff.o rg/ge ore su lt s.j sp ?r= 1) . A ccessed August 19, 2011.
2 (h ttp ://c on te n t.t hu ze le a rn in g.c om /b oo k s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 286#ch 24-e n2) Medicar e Payment Advisory
Commission. A Dat a Book: Healthc are Spending and the Medic are Pr ogr am . June 2010, p. 159.
3 (h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 288#ch 24-e n3) Zar abozo C. Milest ones in Medicar e
Managed Care – Statistical Data Included. Health Car e Financ R . Fall 2000; 61–67.
4 ( h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 289#ch 24-e n4) P ope GC, Kautt er J, Ellis RP , et al. Risk
A djustment of Medicar e Capitation Payments Using the CMS-HC C Model. Health Car e Financ R. 2004;25(4):119–141.
5 (h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 289#ch 24-e n5) McBride TD , P enr od J, Mueller K.
V olatility in Medicar e AAPCC rat es: 1990–1997. Health Affairs . 1997;16(5): 172–180.
6 ( h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 289#ch 24-e n6) P ope GC, Kautt er J, Ellis RP , et al. Risk
A djustment of Medicar e Capitation Payments Using the CMS-HC C Model. Health Car e Financ R . 2004;25(4):119–141.
7 ( h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 289#ch 24-e n7) Risk scor es ar e those in eff ect in 2011,
fr om the CMS ile “HCC_Coeficients_2011.cs v” included in the CMS 2011 Rat ebook at:
www .cms.go v/Medicar eAdvt gSpecRat eStats/RSD/itemdetail.asp?
ilterT ype=none&ilt erByDID=.99&sortB yDID=1&sortOrder=descending&it emID=CMS1237871&intNumP erPage=10
(h ttp ://www .cms.go v/M ed ica re A dvtgS pecRa te Sta ts/R SD /i te m deta il.a sp ?
ilt e rT yp e= n on e& ilt e rB yD ID =.9 9&so rtByD ID =1&so rtOrd er= desc en din g&i te m ID =CM S1 237871&i ntN um PerP age =10) .
8 ( h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 289#ch 24-e n8) P ope GC, Kautt er J, Ellis RP , et al. Risk
A djustment of Medicar e Capitation Payments Using the CMS-HC C Model. Health Car e Financ R . 2004;25(4):119–141.
9 (h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 289#ch 24-e n9) Go vernment A ccountability Ofice.
Medicar e A dvantage: Comparison of Plan Bids t o F ee-f or-Service Spending b y Plan and Mar ket Char acteristics. F ebruary 4, 3/13/2019 Print
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2011.
10 (h ttp ://c on te n t.t hu ze le a rn in g.c om /b oo k s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 289#ch 24-e n10) Medicar e Payment Advisory
Commission. A Dat a Book: Healthc are Spending and the Medic are Pr ogr am . June 2010, p. 157.
11 (h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 289#ch 24-e n11) A uthor’s calculation, based on the
methodology described in the CMS publication: “ A dvance Notice of Methodological Changes f or Calendar Y ear (CY) 2012 f or
Medicar e Advantage (MA) Capitation R ates, Part C and Part D Payment P olicies and 2012 Call Lett er.” F ebruary 18, 2011.
12 (h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 289#ch 24-e n12) Go vernment A ccountability Ofice.
Medicar e A dvantage: Comparison of Plan Bids t o F ee-f or-Service Spending b y Plan and Mar ket Char acteristics. F ebruary 4,
2011.
13 (h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 289#ch 24-e n13) Go vernment A ccountability Ofice.
Medicar e A dvantage: Comparison of Plan Bids t o F ee-f or-Service Spending b y Plan and Mar ket Char acteristics. F ebruary 4,
2011.
* ( h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 286#ch 24-f n1) As not ed in Chapt er 30
(http://c ontent.thuzelearning .com/books/K ongstvedt.2332.17.1/sections/i346#ch30) , the Emplo yee R etir ement Income Security Act
(ERIS A) allows sing le-emplo yer beneits plans t o oper ate without stat e licensur e.
* ( h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 288#ch 24-f n2) This concept is echoed in the limits the A CA no w places on the medical loss ratio
for commer cially insur ed business, as described in Chapt er 21
(http://c ontent.thuzelearning .com/books/K ongstvedt.2332.17.1/sections/i262#ch21) .
* ( h ttp ://c on te n t.t hu ze le a rn in g.c om /b ook s/K on gst ve d t.2 332.1 7.1 /se ctio n s/i 295#ch 24-f n3) It w as initiall y named the Health of Seniors survey, but w as renamed in 1999, one
year aft er its launch.
