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Managing Risk: Maximizing Opportunities in the MAPD Market

Managing Risk: Maximizing Opportunities in the MAPD Market

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Published by Cognizant
The Medicare Advantage (MAPD) marketplace is growing as memberships and revenue potential increase. At the same time, it is marked by risks associated with healthcare reform, continuing cost pressures, and healthcare consumerism. To operate and compete successfully, payers will have to find new and better ways to sharpen their strategies, integrate systems, increase collaboration and optimize processes.
The Medicare Advantage (MAPD) marketplace is growing as memberships and revenue potential increase. At the same time, it is marked by risks associated with healthcare reform, continuing cost pressures, and healthcare consumerism. To operate and compete successfully, payers will have to find new and better ways to sharpen their strategies, integrate systems, increase collaboration and optimize processes.

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Published by: Cognizant on Feb 21, 2014
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02/21/2014

 
Managing Risk: Maximizing Opportunities in the MAPD Market
The impending rise in enrollment makes the Medicare Advantage market an attractive growth opportunity. However, payers will need more tightly integrated systems and highly optimized business processes to operate profitably in this market.
Executive Summary
New revenue potential from a steadily growing member base makes the Medicare Advantage (MAPD) marketplace very attractive to payers. Yet it is also a market fraught with new business risks emerging from the confluence of healthcare reform, continued cost pressures and the rise of healthcare consumerism. Payers must be prepared to mitigate these risks with powerful analytics and reporting capabilities; streamlined, consumer-centric processes; and cost-effective yet flexible platforms (See Figure 1, next page). Lacking these abilities, they will be challenged to make accurate cost projections and implement the process improvements necessary to operate profitably in today’s MAPD market. This white paper details the business risks in the MAPD market, discusses their causes, then examines the strategies and business processes payers require to reduce risk and win in this market.
The MADP Market: Opportunity Laced with Risk
The MADP market is an important growth area for many payers due to the sheer volume of potential plan members (see Figure 2). More than 30 mil-lion individuals will become eligible for Medicare during the next 17 years.
1
 Approximately 30% of all Medicare-eligible consumers, or 15 million mem-bers, were enrolled in Medicare Advantage plans as of September 2013.
2
 That’s up from 5.1 million members in 2003, when the Medicare Advantage program was introduced in its current form.
3
Although the growth opportunities are attractive, operating competitively and sustainably in this market is challenging for numerous reasons.
Increasing Cost Pressures
The Affordable Care Act (ACA) requires the Centers for Medicare and Medicaid (CMS) to reduce reimbursements to MADP payers.
 Though the reduction percentage is in flux and politically sensitive, it could be as much as 3%.
 
Cognizant 20-20 Insights
cognizant 20-20 insights | february 2014
 
2
CMS benchmark payment rates are set to decrease relative to Medicare fee-for-ser-vice (FFS) costs under the ACA (Figure 3, page 3).
 These rate reductions will vary as CMS phases in the new benchmarks. From 2013 to 2016, CMS will base the benchmarks on a percentage of new FFS Medicare rates in each county blended with pre-ACA payment levels. At least one study has shown that when these new benchmarks are in place, overall MAPD plan payments will be reduced from 114% of spending in traditional Medicare to 102%.
4
 That said, benchmarks and reimbursements will fluctuate from county to county, from 5% less than Medicare FFS costs to 15% more than those costs.
5
 cognizant 20-20 insights
The growth in Medicare enrollees represents prospective growth for MAPD plans. Payers must understand the increased business risks that come in tandem with the MAPD market’s growth potential and how to mitigate them.
Source: Based on CMS.gov data.
Figure 2
Projected Change in Medicare Enrollment 2000-2050
10080604020010%8%6%4%2%0%2000
47.563.980.888.3 92.81.8%3.0%2.4%0.9%0.5%
20102020203020402050
 
Medicare enrollment (in millions)
 
Average annual growth in enrollment
Regulations, cost pressures and demands for higher quality add up to increased business and financial risk for pay-ers operating MAPD plans. Payers must deploy member-facing strategies and revamp business processes to create competitive advantages while also mitigating MAPD market risks. Figure 1
MAPD Challenges and Approaches
 
Adverse effects on accountable care organizations from ACA benefit mandates.Cost Pressures.
Approaches
 Increase renewals and improve conversion rate.
 Reduce acquisition costs.
 Reduce process complexity.
 Use analytics to create better member experience and wellness programs.
Rate/Pricing Risks are Growing.Quality ratings will affect plan benchmarks and financial performance.
MAPD
Cllen
 Process controls to drive quality.
 Moving to value-based care.
 Better risk adjustment – capture risk codes.
 Intensive intervention – medical management.
 Improve star ratings.
 
3
cognizant 20-20 insights
MAPD plans must meet a retrospective 85/15 medical loss ratio (MLR).
 CMS requires plans to return any reimbursement amounts exceeding the 15% limit on administrative spending and profit levels. CMS can prohibit plans failing to meet MLR requirements in multiple years from enrolling new members and potentially disqualify them from participat-ing in the MAPD market.
Rate/Pricing Risks are Growing
CMS generally releases regulatory informa-tion in the spring and requires filings by June.
 This results in payers filing premium rates and benefits designs for the coming plan year many months ahead of plans’ autumn open enrollment periods. Payers are then locked into the rates, regardless of the health conditions of newly enrolled members. This makes managing risk scores critical. Plans essentially rely on historical data to make population health and rate predictions. Medical costs are notorious-ly difficult to predict, and the margin of error rapidly grows wider the farther into the future the predictions must go.
Federal desk reviews are also becoming more comprehensive and sophisticated.
 CMS requires payers to respond quickly to audit issues. It’s crucial that payers support their rates, or make rate corrections swiftly and with accurate data. Otherwise, they risk quoting insufficient rates, resulting in an underfunded plan.
The financial consequences of an inaccurate bid are substantial.
 The bottom line is that plan reimbursements are likely to decrease while the health demographics of MAPD members indicate they will need additional services. Controlling the costs of service delivery while ensuring the highest quality member experience will be a challenging balancing act. Failing to accurately forecast these expenses will negate a plan’s earning potential, even with increased membership (see Figure 4, next page).
Quality Ratings’ Effect on Plan Benchmarks and Financial Performance
The CMS Five-Star Rating system for MAPD enables plans to achieve bonus payments when scoring a “4” or greater (see Figure 5, next page).
 These scores are based on a wide range of criteria, from chronic condition management to member satisfaction, to customer service. In 2013 and beyond, quality scores also determine what portion of plan savings may be returned as rebates to plan members. These rebates are now set at 50% of the difference between a county benchmark and a plan’s bid (down from 75%). Plans with high-quality scores can receive greater rebates.
CMS is reducing its benchmark payment rates so that MAPD reimbursement rates will be close to — and sometimes under — Medicare fee–for-service reimbursement rates in many service areas.
Source: Based on CMS.gov data.
Figure 3
Fee-for-Service Reimbursement Rates
88%90%92%94%96%98%100%102%104%106%108%2011201220132014201520162017
Fee for Service (FFS) Reimbursement Rates by Year
107%105.90%103.60%101.60%96.60%95.60%94.50%

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