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Medicare Advantage Payment System

This article discusses the principles and implications of the Medicare Advantage payment system, highlighting the need for better coordination and quality of care. It explains how MA plans are paid a monthly capitated amount to provide Medicare benefits and the ability to coordinate care, target quality improvements, negotiate provider networks and rates. The article also illustrates the current benchmarks and bids system for MA plans and emphasizes the need for a more cost-efficient and coordinated approach.

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Medicare Advantage Payment System

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  1. Medicare Advantage Payment System Mark Miller, PhD Medicare Payment Advisory Commission May 4, 2009

  2. Principle of Medicare Advantage payments • FFS is a fragmented delivery system • No focus on coordination or quality • MA plans paid monthly capitated amount to provide Medicare benefits • Ability to coordinate care, target quality improvements, negotiate provider networks and rates • Underlying principle: savings from efficiency allow plans to provide extra benefits and increase enrollment • Original payments: 95% of FFS

  3. Bids and benchmarks • MA plans bid against county-level bidding targets, known as “benchmarks” • If a plan’s bid exceeds the benchmark: • Program pays benchmark • Enrollee pays the remainder as premium • If bid is less than the benchmark: • Program pays the bid + 75% of difference to plan for “extra benefits” to beneficiary • Program keeps 25% of difference

  4. Examples of bids in one county

  5. MA benchmarks and FFS spending • MA benchmarks are administratively set and related to a county’s FFS spending • Counties with high per beneficiary FFS costs (high utilization) have higher benchmarks • Greater ability to offer extra benefits • Conversely, counties with low per beneficiary FFS costs (low utilization) have lower benchmarks • Less ability to offer extra benefits • Led to exceptions, e.g., rural and urban “floors”

  6. Current MA benchmarks simplified High Current Benchmark Floor Benchmark Low Low High Local FFS spending

  7. Benchmarks, bids, and payments relative to FFS for 2009

  8. Implications of MA payment system • Non-neutrality: Payments 14 percent above FFS • Each enrollee in MA results in costs to Medicare relative to FFS • No incentive for efficiency: All extra benefits are subsidized on average $1.30 per $1.00 of extra benefits, or $3.26 per $1.00 of extra benefits in a PFFS plan • No incentive for care coordination: High benchmarks encourage plans that are not designed to coordinate care and improve quality • Costs subsidized by taxpayers and Part B premium higher for all beneficiaries in MA or not

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