Innovation in Health Care Delivery and Benefits

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1 Innovation in Health Care Delivery and Benefits L ESSONS FROM MEDICARE A DVANTAGE Lanhee J. Chen, Ph.D. Hoover Institution, Stanford University National Coalition on Health Care Partnership for the Future of Medicare Capitol Hill Roundtable November 13, 2013

2 Overview Medicare Advantage (MA) demonstrates the value of choice and competition in improving the Medicare program Innovations in MA have resulted in quality improvements, better outcomes, and cost savings for patients Beneficiaries will bear the cost and inconvenience of continued cuts to MA, while continued innovation will be threatened Policymakers should consider ways of applying and extending innovations from MA rather than further cuts to the program

3 Why Do MA Plans Succeed? Incentives: FFS rewards providers for delivering more services, whereas MA s capitation system rewards plans for keeping costs down Competition and Choice: Plans want to appeal to consumers to gain market share and remain in marketplace Opportunity to Innovate: MA plans can implement changes quickly and in response to market demand; traditional Medicare can only make changes through the political process Innovations in care and delivery models often lead to greater patient satisfaction and, therefore, market share

4 MA Plan Enrollment Strong and Increasing Since 2007

5 MA Serves Some of the Sickest and Lowest-Income Beneficiaries For no or low additional monthly premium, Medicare Advantage plans provide critical supplemental coverage to low-income beneficiaries 41% of Medicare Advantage beneficiaries have annual incomes below $20,000 By comparison, about 21% of Medicare FFS beneficiaries buy Supplement plans with additional, higher monthly premiums to cover cost sharing and gaps in coverage 20% of Medicare Advantage members are minorities 31% of African American beneficiaries in private Medicare Advantage plans 38% of Hispanic beneficiaries in private Medicare Advantage plans

6 MA Plans Have Innovated Ahead Of Traditional Medicare Decades Before Medicare FFS Clinical Management Prescription Drug Coverage Home and Community Based Services Institutional Care Management Coverage for Preventive Services Currently Available only in Some MA Plans Wellness, Fitness, Dental Benefits Out-of-Pocket Maximums House Calls/Home Visits

7 MA Plans Can Improve Quality of Care In 2007, MA outperformed FFS on 9 of 11 care-delivery measures from the Healthcare Effectiveness Data and Information Set (HEDIS) e.g., Breast cancer screening, LDL cholesterol testing in patients with diabetes or cardiovascular disease, and eye exams in patients with diabetes 30-day readmission rates for MA patients were approximately 13% to 20% lower than those for fee-for-service patients (Lemieux et al 2012) Lower readmission rates across the Medicare program could result in huge cost savings MA enrollment leads to lower rates of hospitalization and lower rates of mortality (Afendulis et al 2013)

8 MA Plans Have Positive Spillover Effects When more seniors enroll in Medicare Advantage plans, hospital costs decline for all seniors and commercially insured younger populations (Baicker et al 2013) Greater managed care penetration associated with lower costs and shorter stays per hospitalization Spillover effects suggest higher optimal MA payments (offsetting more than 10% of increased payments to MA plans)

9 MA Plans Are A Good Model For Treating Sickest and Most Vulnerable Populations Chronic Condition Special Needs Plans (C-SNPs) provide great examples of models of care that work for sick and vulnerable populations and are key partners in state-level efforts to offer truly integrated care for dual-eligible beneficiaries C-SNPs produce better outcomes at lower cost (Cohen et al 2012): Inpatient Days: 20% Lower than FFS Inpatient Admissions: 11% Lower than FFS Readmissions: 39% Lower than FFS ER Visits: 24% Lower than FFS Office Visits: 25% Higher than FFS Savings from reduced hospitalization likely to more than offset the additional costs of enhanced primary care programs

10 Average MA-PD Monthly Premiums Have Declined Since 2010

11 MA Cuts Total Over $250 Billion Over Ten Years

12 Seniors Will Feel Impacts of MA Cuts Exit of plans from certain markets and areas Limits in plan offerings Reduction in benefits Increase in out-of-pocket costs Tightening of provider networks

13 Policy Priorities and Opportunities Transition away from the unsustainable FFS model Further support for innovative payment and/or care delivery models Competitive Bidding: Force traditional Medicare to compete on a level playing field with private plans Apply the administrative services model common in self-insured private plans to traditional Medicare (bridge between MA and FFS)