3 Things Every Post-Acute Provider Should Know About Medicare Advantage

Of all the major changes happening in post-acute care today, I believe none will be more important and more impactful in the long term than the rapid expansion of the Medicare Advantage program.

Medicare Advantage plans were initially created in the Balanced Budget Act of 1997 to allow private insurers to take on capitated Medicare patient care at a defined per patient/per month rate. And these plans have the flexibility to offer Medicare beneficiaries additional benefits like dental and vision insurance and even transportation or personal care. Partly due to these extra benefits, Medicare Advantage plans have grown significantly over the last 15 years, expanding from 5.3 million members in 2004 to 22.5 million in 2019 according to CMS filings. This represents more than $220 billion in Medicare spending that is now administered by large insurers who think and act very differently than governmental payers of the past.

For years, post-acute providers have largely relied on fee-for-service (FFS) Medicare — with its limited pressure on performance or payments — for the vast majority of their patients and profits. Even with the rise of private payers in post-acute care over the last 15 years, many providers have fought the trend and focused on maintaining an 85-90% Medicare patient census. With Medicare Advantage penetration at 37% this year and headed towards 40% in 2020 and 50% soon after, this is no longer a sustainable solution. In 2019, every post-acute care organization should be developing and implementing a Medicare Advantage strategy to set them up for success in 2020 and beyond.

Here are the main ways that Medicare Advantage plans differ from traditional Medicare and how your post-acute organization should shape your business and marketing strategy to successfully work with them.

Difference #1: Medicare Advantage plans are judged (and paid) on quality

Like providers, Medicare Advantage plans are measured for their clinical quality and patient satisfaction by CMS Star Ratings. Plans are measured across several dozen quality and satisfaction domains, and measured on a scale from 1 star to 5 stars. However, unlike providers, there are direct financial incentives tied to these star ratings for payers. Here are the major implications:

• Star Ratings are publicly published each year, with “Low Rated” or “High Rated” badges featured on the Medicare plan selection website.
• The 16 plans that were awarded 5-star rankings in 2019 will all have the ability to sign up clients throughout the year, giving them a big competitive advantage in gaining clients.
• All plans with 4 stars or above are given a 5% bonus on all of their Per Member Per Month (PMPM) payments, resulting in more than $7 billion in total bonuses for 2019.
• Higher rated plans are given a higher “rebate” payment on the difference between their “bid” and the Medicare benchmark rate, which they can use to invest in extra benefits that draw in members.

What this means for providers: You should define your unique value proposition based on patient outcomes.

Post-acute providers should focus on defining and building a unique value prop that is based on the key metrics that health plans are measured on, and that are highly applicable to post-acute providers, (e.g. 30-day and 60-day patient readmission). The focus for providers in working directly with payers should be to differentiate yourself from the payer’s traditional “commoditized” view of post-acute care by directly speaking the language of the plan and demonstrating that your organization is a strategic and high-quality care providing partner.

Difference #2: Medicare Advantage plans can direct patient referrals in network, and pay different amounts to different providers

Unlike the patient choice model of traditional Medicare, where each provider is eligible for patient referrals and will receive roughly equal reimbursement, Medicare Advantage plans can direct patients to their own chosen network of providers that they perceive as high quality and that often negotiate reimbursement rates per each provider.

In addition, they can play a big role in directing patient referrals by care settings, a very important issue for post-acute providers. A recent analysis by Avalere Health showed that Medicare Advantage patients had vastly different post-hospital discharge patterns than fee-for-service Medicare. Roughly 38% of patients who would have gone to a post-acute provider post-discharge are now going directly home with no additional care. As shown, this decline is significant for home health and skilled nursing providers (who drop to 11.1% from 16.3% and 16.4% respectively) but is absolutely drastic for inpatient rehab and long-term care hospitals. More than 75% of patients who would have been discharged to an IRF under Medicare are not for Medicare Advantage plans.

Many providers have already begun strategically working to increase their Medicare Advantage referrals and reimbursement rates. At the J.P. Morgan Healthcare Conference several weeks ago, the CFO of LHC Group, a large post-acute provider, announced that through robust data collection and an ability to tactically identify payer pain points, they were able to win a 17% increase on their per-patient payments in their Almost Family business unit and 7% increase in their legacy business. This will drop millions of dollars to the bottom line of LHC’s business, allowing them to invest more in technology and people.

What this means for post-acute care providers: Arm yourself with data, and define your value on the savings your care creates for payers.

This massive shift to payer involvement directing patient flow presents a big challenge to the post-acute care market, but it’s an even bigger opportunity for strategic providers that begin working now to define themselves by the amount their services save for payers and then negotiating additional payments based off of those savings. For a long time, payers viewed post-acute as a commoditized market with very little differentiation, and they contracted with the market based on who would accept the lowest rates, regardless of quality. This is already changing, and payers are looking for providers who measurably outperform the average provider of their kind. Smart post-acute organizations should think about their outcomes in the following formula:

Patients Served * (Average Hospitalization Rate - Your Hospitalization Rate) * Cost of Hospital Stay = Total Care Savings

Example: 1,000 Patients * (15.8% - 12.1% = 3.7%) * $15,734 = Savings of $582,158

As a provider, beginning discussions with payers armed with both data on payer performance (such as Star Ratings, readmission rates, and satisfaction scores), and the ability to clearly articulate the value you provide through their lens will set you apart and allow you to grow both your patient census and your reimbursement rates over time.

Difference #3: If payers can’t drive adequate performance as your partner, they may become your competitor

This final difference will be very interesting to watch in 2019. Over the last year, we’ve seen two landmark acquisitions by payers in the provider space: Humana purchased Kindred at Home (but intentionally separated out the LTCH and IRF businesses) and Curo Hospice and Anthem purchased palliative care provider Aspire. Both of these acquisitions, prompted by a desire to own and improve the delivery of home-based care, mark monumental changes in the payer-provider landscape, and this could result in other major payers following suit. It remains to be seen how this will affect patient flow, but my guess is that Humana will look to consolidate their post-acute discharges and hospice admissions across the Kindred at Home network and likely leave other providers with a gap in their census. For Anthem, there is a possibility that they may have a strategy to utilize self-managed palliative care as a fill-in for traditional home-based and hospice care, disinter-mediating established care providers completely and utilizing the traditional profit margin of providers towards investing in preventing negative patient outcomes.

In a way, these consolidatory moves by Anthem and Humana may be a reaction to Kaiser, who has long utilized a full-stack ownership approach in both insuring and delivering care and has been able to lead the Medicare Advantage space in 5-star rated health plans. While I don’t expect massive changes to happen overnight, I believe there is a significant chance other large Medicare Advantage payers (such as United, Aetna, BCBS) may explore either partnerships with or acquisitions of leading home-based platforms in 2019.

What this means for PAC providers: Make working with your organization the easier way for payers to achieve their goals than competing against you for talent and strategic execution.

While building or buying a provider has advantages for payers, I think it makes a lot more sense for payers to achieve their goals by partnering with strategic providers who have existing home-based talent, community relationships, and caregiving expertise. However, this requires providers to see the world through a payer’s eyes, and approach payers with an actionable plan to help their members get the most effective and efficient home-based care possible. This may necessitate providers thinking differently about their typical care plans and organizational structure, and trade the low-volume/high-profit model of Medicare for a high-volume/low-profit model of a tight Medicare Advantage partnership. In addition, providers should think about how they can actually take on patient outcome risk, and better align themselves with payers by earning payments for the savings they create.

Conclusion: Prepare for this changing landscape to succeed in the future

The world of post-acute care is changing faster than ever, but this change offers a significant opportunity for leading providers to set themselves apart and grow into the future. Providers should prioritize working with their teams in 2019 to change the way they think about payer-provider partnerships and better understand the goals and objectives of Medicare Advantage organizations. By successfully adopting a payer’s perspective towards outcomes and risk, I believe post-acute providers will be very well poised to succeed.