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Managing Medicare's Costs

Medicare Advantage plans and the standards of care

Medicare Advantage plans recently received two notable boosts to their reputation. The more significant one was last week’s State of Health Care Quality 2012 Report by the National Committee on Quality Assurance, or NCQA. The 230-page study found that over the past year Advantage plans have improved their performance almost all of the 40 measures that were tracked.

NCQA is considered an even-handed arbiter of medical quality, and its findings have credibility. Its exacting measures are used by virtually all health insurance companies and by Medicare as they write the fine-print rules about the types and frequencies of health services they will cover.

Also, in early October Medicare released the 2013 Advantage plan quality ratings, which indicated that there had been meaningful improvement in the past year. In 2013 there will be 127 Advantage plans that have ratings of four or more stars, compared to 106 plans this year. Medicare uses 53 measures, including a number of the same criteria that NCQA uses, in rating each plan from one to five stars (with five stars being best).

The two announcements mean that people in Advantage plans are getting better care than they used to, a trend that began two years ago. Over time that will reduce costs for everyone in those plans as well as for insurance companies and the government. The findings may gently nudge managed care’s longstanding negative image in a more favorable direction.

Consumers do not have sufficient information to know if their doctors are adhering to the recommended standards of care. People usually they like their doctors, and they can observe how efficiently the doctors’ offices are being run. They know if their physicians clearly explain symptoms and treatments. And they can read other patients’ opinions about their doctors on several web sites.

That’s about all they can do, though. Judging the medical quality that a doctor provides is too complex a task. As one example, there are almost 50 clinical criteria that physicians should follow in the prevention, recognition, and treatment of diabetes. Some of these are widely known and well understood. Others are more subtle and might depend on whether a doctor notices a certain trace chemical in the lab results or detects early signs of neuropathy.

Diabetes is a case in point. It is a complex disease whose pervasiveness makes it a a major driver of Medicare’s costs. Almost one in five people 65 and older has diabetes, and almost one in four if you include pre-diabetes. Yet according to a study published earlier this year in the American Journal of Medicine, in 35 percent of cases involving 254,000 newly diagnosed diabetes patients, doctors did not adhere to the consensus guidelines for treatment recommended by the American Diabetes Association and the European Association for the Study of Diabetes.

Instead of the clinically recommended generic drug, the non-compliant doctors in the study prescribed a more expensive and less effective brand-name drug. Probably no patients were aware of the error, even though it likely meant they had higher co-payments and perhaps less successful management of their diabetes.

It’s not fair to place the responsibility for following every clinical guideline entirely on physicians’ shoulders. There are at least a couple of hundred diseases (depending on how you classify them). Following every clinical guideline or standard is an overwhelming task. At some point doctors have to rely on their own experience and judgment.

That’s one reason it’s helpful that Medicare Advantage and other managed-care plans are now monitoring care more closely. Primary care doctors may see between 350 and 700 patients a month in 15- and 20-minute increments, and a plan’s oversight may help them to find the best treatments.

The tradition in the United States has been that the government does not actively manage the quality of healthcare. Its role has been narrowly defined — make sure food and drugs are safe, gather data, issue health guidelines, and fund medical research. But because the federal government is a huge stakeholder – it now pays 40% of the country’s annual healthcare bill — it is taking a more active role in managing quality as a way to trim costs.

Probably the best example of this is that, beginning this year, Medicare is giving bonuses to plans based on their quality ratings – $1.3 billion in total. If an Advantage plan has a 3-star rating, it receives a 3% added monthly payment from Medicare for each enrollee. If it has a 4-star rating, it gets a 4% bonus and with 5 stars, a 5% bonus.

Ideally, people would use the ratings to choose plans, which increases plan enrollment and profits. But it appears that few seniors use the ratings. A Kaiser Permanente survey two years ago found that only 15% of seniors considered an Advantage plan’s quality rating when they selected a plan to enroll in.

Retirees’ focus has been on costs, with more than one-half of the 13 million Advantage plan enrollees in zero-premium plans. Because as a group they are healthier than people who have fee-for-service Medicare, Advantage plan members have been less attentive to quality and ratings. But if quality is at some point recognized as being excellent and costs remain low, enrollment may continue to expand at the same 12% annual rate that it has for the last seven years.

If these enrollment trends persist, it could put pressure on fee-for-service supplemental plans like Medigap policies to develop better quality controls. Now, though, the only alternatives to managed-care are fee-for-service plans in which there is no quality control besides that provided by physicians and hospitals, neither of whom has strong incentives to limit care. Often patients choose to their own care, selecting specialists and even treatments — the exact opposite of the way an HMO operates.

Seniors like the flexibility that fee-for-service offers, but they pay for it. A handful of insurance companies have talked about creating a new type of Medigap Select plan in which policyholders pay lower premiums but must use one of Medicare’s newly formed accountable care organizations (ACO’s).

If that happens, policyholders would be required to use doctors who belong to the ACO’s, although they would have the flexibility to choose the specific doctors. If they leave the ACO group for treatment, they would not be covered by the Medigap policy (except for emergencies), although they’d still have Medicare’s underlying coverage.

That means they would entrust their care to a new form of managed care plan in which doctors’ incentives are to provide good care, not necessarily more services. The ACO’s physicians would share any savings with Medicare, but they would have to maintain quality, similar in some ways to the ways Advantage plans have to qualify for bonuses. ◊◊

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