The Frosted Mini-Wheats of Healthcare

Making heads or tails of Medicare Advantage

Medicare Advantage has become inescapable. Enrollment now rivals Traditional Medicare. Ads are everywhere. MA has increasingly become the point of entry and emphasis for Big Retailers, healthcare startups, and community health plans. Yet the program has experienced its fair share of controversy and critics (as well as critics of the critics). Former CMS administrator Don Berwick, one of Medicare Advantage’s harshest detractors, recently suggested that the program should be slowed or stopped. Dr. Berwick and Richard Gilfillan wrote an unflattering appraisal of Medicare Advantage in Health Affairs a few years ago that was met with a stern rebuttal by Donald Crane, CEO of America’s Physician Groups (APG) — an organization that supports physician groups participating in accountable care. APG members include well-known and widely celebrated Alternative Primary Care companies such as Oak Street Health and ChenMed. In a recent blog post, staunch MA defender George Halvorson (one-time CEO of Kaiser Permanente) passionately defended the program and chastised naysayers for misinterpreting and misrepresenting data for their own purposes. At the same time, MA headwinds are growing as companies like CVS (who bet big on the program) are wringing their hands over proposed 2025 payment rate changes. And there’s still the pesky matter of lawsuits over fraud allegations and increasing government scrutiny over false MA claims.

Given the growing popularity and prevalence of the program, what’s a simple bone fixer to make of Medicare Advantage? As someone with an interest in healthcare delivery innovation and creating value through collaboration and coordination, MA is a fascinating case study in everything that’s right, wrong, and in-between in healthcare. As a practicing Orthopaedic Surgeon, my relationship with Medicare Advantage is a bit different — something I’ll touch on later. I can’t help but think that Medicare Advantage is the Frosted Mini-Wheat of healthcare: the kid in me likes the frosted-side (better care delivery, VBC component), but the adult in me is skeptical of just how nutritious the whole biscuit is (increased costs to taxpayers, unclear clinical benefits, complexity-hacking).

In this analogy, those selling their MA businesses are represented by the biscuit on the left that has clearly achieved escape velocity. Those sticking it out are represented by the biscuit on the right — smiling on the outside but clearly concerned.

I make no claim to being a Medicare Advantage expert. But it’s clear that the program and its future are important to understanding the state of VBC, healthcare innovation, and the future of accountable care. The goal here is to gain a better understanding of the program by touching on its pros and cons with the hope of finding some clarity. I welcome thoughts from others as MA is a topic that generates passionate opinions. The way forward always benefits from discussion on how we can achieve sustainable healthcare innovation that’s good for everyone (without resorting to profiteering, upcoding, care denials, etc.).

Background

There are many facets and nuances to Medicare Advantage. An exhaustive deep dive into the program could be the subject of a master’s dissertation. If you’re reading this, you probably have some familiarity with MA how it differs from Traditional Medicare (TM) — (also, thanks for reading!). However, for the purposes of a broader discussion, it’s helpful to outline what the program represents in relation to the concept of high-quality, value-based care. The following refresher is based heavily on the Commonwealth Fund MA Policy Primer (complete with 2024 update) with my own added thoughts.

There are several components to MA represent some flavor of VBC:

• Prior Authorization — In theory, requiring approval for care avoids unnecessary testing and treatment and ensures that providers follow evidence-based medicine and established guidelines. Doing so ostensibly avoids low value care. The dark side of PA is that it may lead to denial of necessary care and creates administrative burden not seen in TM. Some MA plans may inappropriately abuse denials as a cost savings tool. In short, PA is a double-edged sword. TM does not require — yet.

• Add-on benefits — MA plans often provide additional benefits not covered by TM such as vision, dental, and long-term care. Most also cover Medicare Part D, prescription drug benefits. While these things aren’t necessarily thought of as VBC, they certainly provide value for plan members.

• Quality of care — This is a big point of contention. MA advocates point to the program’s emphasis on preventative care and capitation model to drive care quality. Studies, however, are mixed. MA is at least equivalent to TM. Whether or not it’s better will remain a matter of debate. The CMS star ratings system awards bonuses to plans who achieve at least 4 stars, but this system too has become embroiled in controversy. Sigh.

• Capitation — TM still largely exists as a fee-for-service model with some notable exceptions (e.g., BPCI and CJR). In contrast, MA is a cost-controlled, risk-based model in which the government (and the taxpayer) pays plans a set rate per person, per year. Capitation models are felt to incentivize high value care while disincentivizing wasteful or unnecessary treatment — in essence, healthcare on a budget or value-based care). Controversy exists here too as capitation rates are influenced by risk adjustments and bonus payments that account for care complexity. The goal is to avoid lemon-dropping of costly patients with chronic conditions by punishing plans who enroll such members. However, as referenced above, several plans have been accused of "co-morbidity hacking” — making patients seem sicker and harder to manage than they truly are with the goal of generating higher risk adjusted payments. (I’ve said it before, and I’ll say it again: no payment model is inherently good or bad nor is any model unexploitable.)

The Good

From a high-level view, there is a lot to like about Medicare Advantage, especially as it pertains to the concept of value-based care. You have capitation which (theoretically) incentivizes high value care and “punishes” excessive testing, specialist referrals, and low-yield care. Proponents of prior authorization and utilization management argue that they serve as checks and balances to overtreatment and straying afield from evidence-based care. Capitation and PA/UM can drive high value care, and both are missing from Traditional Medicare. TM also lacks proper risk stratification mechanisms and does little to reward quality (the popular volume over value argument). Through star ratings and risk-adjusted payments, MA further rewards quality care and disincentivizes cherry-picking and lemon-dropping.

There are other aspects of the Medicare Advantage program that fall on the VBC spectrum including a moderately complex system of benchmarks, bids, rebates, and quality/risk adjustments that impacts how CMS pays MA plans. (This is all expertly outlined in the Commonwealth Fund article, and I won’t rehash it here in great detail.) The key point here is that MA plans place bids every year to enroll beneficiaries in their plans with upwards of 90% of bids coming in below Traditional Medicare spending. Based on this fact alone, MA should be a win for CMS when compared to TM. By definition, if most MA plan bids are below TM costs, CMS is guaranteed to save money. In a sense, Medicare Advantage experiences free market forces that are otherwise elusive in healthcare. Score another one for MA. With so many feathers in the Medicare Advantage cap, what gives? Why is the program so controversial? Is MA a VBC success story or another failed experiment?

The Bad

The controversy with Medicare Advantage stems in part from accusations that plans and insurers have engaged in complexity-hacking and in part from concern that the program actually costs CMS (and taxpayers) more money than TM. As linked above, the New York Times wrote a damning story in 2022 noting that 5 out of the top 10 MA providers have been accused of fraud in qui tam lawsuits and/or by the US government. Furthermore, the OIG found that 8 out of the top 10 plans engaged in overbilling. United, Cigna, and Scan Group scored the hat trick and were accused of all 3 infractions. Only Centene came away unscathed. According to the National Law Review, government scrutiny of MA plans is expected to continue this year.

The primary bone of contention (Ortho humor) is that plans make members appear sicker and more complex by over coding. Doing so generates higher risk-adjusted payments for patients who aren’t as complicated or expensive as they're made to seem. Upcoding is itself a complex issue. There is a fine line between capturing all a patient’s relevant diagnoses to accurately reflect their overall health and making a healthcare mountain out of a molehill. For instance, an elevated BUN/Cr test could be a marker of kidney disease (a chronic condition) or could simply be indicative of dehydration (easily correctable). Though not necessarily related to MA, this phenomenon also exists with hospital DRG coding. Making patients appear more complex can lead to an “MCC” designation (with Major Complications and Comorbid Conditions) and a higher reimbursement rate. Hospitals and health systems have employed coding experts to review charts and look for opportunities to capture more diagnoses to justify an MCC designation.

Again, much of this is open to interpretation, and hospitals and MA plans should get credit for the work of caring for complex patients. However, gray areas exist. Coding expert review of post-surgical patient charts can lead to an increase in apparent complication rates even if nothing seems different clinically). Why? Codes get added to patient charts for typical postop occurrences like orthostasis (drop in BP when standing), urinary retention, and acute blood loss anemia. Such conditions happen with relative frequency, and a vast majority of time they are transient, self-limited, and clinically insignificant. Is coding them worthy of increased payment or gaming the system for higher reimbursement? As a final note on the topic of upcoding, there are relatively poor mechanisms in place to reward specialists for increased complexity of care. To most of these programs, a total knee is a total knee, whether the patient is 65, active, and healthy or 85, high risk, and debilitated.

Another point of disagreement is whether MA saves or costs CMS money. The prevailing opinion is that Medicare Advantage is more expensive than TM and costs taxpayers billions — largely due to the aforementioned overpayments. According to the Washington Post, “independent researchers have found that insurers make more than double per patient in the program compared with individual or employer-sponsored plans.” Advertising for MA plans is ubiquitous and inescapable, and the program became one of the major sources of revenue growth for insurance companies. Increased costs might be worth it if MA plans delivered better outcomes and downstream savings. However, that too is debatable. A 2021 systematic review published in the American Journal of Managed Care (AJMC) found that 52% of papers favored MA regarding care quality compared to only 13% favoring TM. Stated another way, TM was as good or better than MA almost 50% of the time. Not an overwhelming endorsement, and it should be noted that the study’s authors may have been conflicted — both are consultants for MA plans. There are a lot of confounding variables here that make direct comparison difficult including the claim that MA patients are overall healthier than TM patients. MA does emphasize care coordination and preventative measures to reduce ER visits and improve outcomes in ways TM doesn’t. Sucess in a capitated model means keeping close tabs on healthcare expenditures.

In his “The Healthcare Blog” article, George Halvorson pushes back hard against the idea that Medicare Advantage costs money and delivers underwhelming results and poor bang for the buck. Again, there are a lot of moving pieces that make it exceedingly difficult to suss out exactly what is going on here. Halvorson argues, based on the 2023 Medicare Trustee report, that Medicare Advantage is now a profit center for CMS — not the financial black hole others accuse it of being. One potential confounder, the report is based on data from calendar year 2022 where utilization may still have been affected by the pandemic. In fact, increased utilization of Medicare Advantage services in 2023 has hurt some insurance company stock prices — a trend that is expected to continue in 2024. Cigna is selling its Medicare Advantage business for $3-4 billion. These developments indicate headwinds and a realization on the part of insurers that the golden goose is laying fewer eggs. Increased utilization, an end to pandemic-era star ratings concessions, and growing scrutiny of overbilling and upcoding practices have suddenly made MA a less attractive business. Furthermore, MA plans are displeased with the 2025 rates proposed by CMS claiming that they don’t do enough to cover rising costs. (As an ironic aside — welcome to what providers have been experiencing for years. CMS rate cuts that don’t keep up with inflation or rising practice costs are nothing new to doctors). The point here is that the findings highlighted by Halvorson on the 2023 Trustee report (reflecting 2022 data) may not hold up in next year’s report and beyond.

Halvorson argues that Medicare Advantage bids come in 17% below TM benchmarks leading to lower costs — contra to the arguments that MA costs taxpayers too much money and is, on average, more expensive than TM. He argues that MA saves money by delivering better care by using amputations and foot ulcer care as examples of MA superiority. Halvorson touts an EpicResearch article that places the 2023 MA lower limb amputation rate at 1.3%. The amputation rate for TM? 1.4%. Rates of diabetic retinopathy? 4.8% for TM and 4.7% for MA. Finally, the study found that average Hemoglobin A1c levels decreased more for TM v. MA patients in 4 out of the 5 years studied. Not exactly overwhelming results. The claim that “plans save billions of dollars with those lower amputation rates” doesn’t seem to be borne out by this data. If a 0.1% difference in amputation rates equates to billions of dollars, something is definitely wrong. Another recent study found that 30-day mortality rates among patients with acute myocardial infarction were similar between MA and TM patients . Finally, this study found that MA episode of care costs were about $2000 higher than TM despite similar short-term outcomes.

Are MA costs lower due to better care? The bidding process and “free market” forces? (For the record, it’s not clear to me how the bidding process ties into rebates and risk-adjustments. Maybe someone who understands this can weigh in). The dark side of MA is that it includes some features found in commercial insurance, but not in TM, which may reduce costs but don’t necessarily lead to better care including prior authorization, utilization management, and care denials. I appreciate Halvorson’s passion for Medicare Advantage and the theoretical advantages the program brings as outlined above. But the situation just seems more complex and murkier than he makes it out to be.

A Specialist’s Perspective

Medicare Advantage, through its capitated model, incentivizes reduced utilization of costly specialist care. As an Orthopedic Surgeon, I see quite a few MA patients. As a corollary, I seem to be seeing fewer and fewer TM patients. For me, MA is still largely an FFS program. I am not aware of any value-based aspects of the program when it comes to hip and knee arthritis care (including replacement surgery). In fact, MA pays me about $200 less than TM for total hips and knees. This reduction is right around the 17% cost savings highlighted in the Halvorson piece — do MA cost reductions come from paying doctors less? This study supports the notion that MA reimburses physicians at a lower rate than TM while this study found that MA pays hospitals about 5.6% less than TM. Along with this reduced payment comes the need to perform peer-to-peer reviews and submit treatment for prior authorization. Increased administrative burden coupled with lower reimbursement makes MA an unattractive proposition for specialists (and probably hospitals too). MA rates are anchored to TM rates (and usually come in lower) at a time when CMS keeps cutting reimbursement to doctors. There is some suggestion that declining TM reimbursement rates for hip and knee replacement are unsustainable and could threaten access to care. Rising MA enrollment could exacerbate this problem further.

A Way Forward?

The basic principles and goals of the Medicare Advantage Program are, on the whole, laudable and worth pursuing. Care coordination, preventative care, a ratings-based bonus system, risk-stratification mechanisms, and capitation are elements of value-based care that should, in theory, be effective in driving higher quality and better outcomes. It’s unfortunate that bad actors figured out how to game the system. The headwinds facing MA including crackdowns on upcoding and complexity-hacking as well as expiring star ratings exemptions and proposed rate cuts have some opportunists jumping ship. Getting rid of the charlatans is for the best. However, the question is whether it’s possible to have financial success in Medicare Advantage without resorting to shady tactics. Delivering highly coordinated, integrated care is hard, expensive work. Without proper mechanisms to reward doing things the right way, many could decide the juice isn’t worth the squeeze.

Medicare Advantage should continue to evolve. Perhaps it will dovetail with the Making Care Primary Program. Perhaps worthwhile elements of other failed or underwhelming VBC programs (such as CJR, BPCI, or various ACOs) will make their way into the next phase of MA. There are entities trying to administer the program the right way and, in doing so, are delivering better care and a better experience to their members. Integrating primary care, specialty care, outpatient care, and inpatient care into a cohesive, well-coordinated, evidence-based, and high-quality experience is the Holy Grail of healthcare. The kid in me loves the potential here while the adult in me realizes there are a lot of hurdles. The murkiness of the Medicare Advantage program is hard to sort through. As good as the frosted side tastes, you still have to swallow the unfrosted side too. Oh, biscuits.