Integrated approach to Medicare Advantage may spell difference between profit and loss

September 1, 2007

Leaders of Medicare Advantage (MA) organizations are concerned about maintaining the profitability of their MA products. To be successful, organizations should develop internal profitability best practices.

Leaders of Medicare Advantage (MA) organizations are concerned about maintaining the profitability of their MA products. To be successful, organizations should develop internal profitability best practices.

Many organizations have not achieved the necessary balance of actuarial, operational and marketing influence. So how does an MA organization adopt an integrated approach to maximize profitability? One recommendation is a two-phased profitability assessment. Beginning with a high-level assessment of MA plan operations, identify areas with large gaps between current and best practices and/or those potentially at significant risk of not meeting regulatory requirements. Follow this with a comprehensive assessment of specific operational areas that not only identifies the gaps between best practices and current operations but also makes specific recommendations for change.

1. Create competitive and sustainable benefits

From a pure revenue perspective, raising premiums or decreasing benefits is the simplest change to make. An organization's reputation and the competitive environment determine whether decreasing benefits or increasing premiums are viable options.

Understanding the CMS constraints and latitude relative to benefit design and pricing is key to developing competitive products. Marketing experts should work hand in hand with actuaries and benefit-design experts to understand their specific benefit and pricing limitations and latitude, and to determine where focus is needed to achieve optimum results.

2. Manage healthcare effectively

With the basic healthcare management program in place, the next step to reducing medical costs lies in customizing healthcare management programs to address the unique aspects of the MA product and the Medicare population. Most everyone recognizes that a typical Medicare beneficiary is older and/or has more disease burden than a commercial or Medicaid population. Blending those population differences with different benefits, different provider networks, and different provider reimbursement calls for a very different healthcare management approach.

3. Optimize revenue

Due to underreporting, there is tremendous opportunity to increase MA population risk scores-so much that CMS has begun to plan for the increase and adjust capitation dollars accordingly each year. That means MA plans need to increase risk scores just to maintain revenue. If MA plans can exceed CMS's planned adjustments, increased risk scores will translate to increased revenue for the same population.

An MA plan's operational approach to obtaining optimal risk scores must address the individual rate factors and disease burden. Rate factor tracking and management assure that the plan gets timely and accurate payment for each member relative to the county, age, end-stage renal disease status, etc. Disease burden is reflected in each member's hierarchical condition category (HCC) based on the diagnosis codes submitted to CMS. The process typically requires an organized and disciplined plan involving virtually every internal department that deals with members and providers.

Optimize data to achieve the highest level of reimbursement. This three-part process includes: (1) assuring members' appropriate encounters with their physicians according to their specific condition, (2) making sure physicians provide the most accurate coding possible for each beneficiary, and (3) submitting all the data to CMS to receive appropriate payment.

Risk score management is probably the biggest concern in revenue optimization, but not the only one. Overall, the focus must be on using effective operational processes for tracking down information, ensuring correct and complete information, and submitting it to CMS in a timely manner.

Because there is a limit to the retroactivity of CMS payments, retroactive rate factor adjustments and risk score adjustments must be requested and made within the time frames specified by CMS. Failure to comply with CMS time frames could result in loss of revenue for the plan. Ideally, an organization should stay up to date with its adjustments because from an operational and administrative standpoint, retroactivity is risky, resource-intensive, and complex to track and manage.

4. Achieve enrollment goals through effective marketing and sales

Potential enrollment is based on a complex formula that includes staff and budget considerations, approach and product, brand recognition and market penetration, provider network, and competitive status. Without the right components, increasing enrollment to increase MA profitability may not be a viable strategic option.