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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 million individuals will become eligible for Medicare during the next 17 years.1 Approximately 30% of all Medicare-eligible consumers, or 15 million members, 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 | february 2014

MAPD Challenges and Approaches
Adverse effects on accountable care organizations from ACA benefit mandates. Cost Pressures. Rate/Pricing Risks are Growing. Quality ratings will affect plan benchmarks and financial performance.



• Increase renewals and improve conversion rate. • Reduce acquisition costs. • Reduce process complexity. • Use analytics to create better member experience and wellness programs.

• Process controls to drive quality. • Moving to value-based care. • Better risk adjustment – capture risk codes. • Intensive intervention – medical management. • Improve star ratings.

Regulations, cost pressures and demands for higher quality add up to increased business and financial risk for payers 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


benchmark payment rates are set to decrease relative to Medicare fee-for-service (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

Projected Change in Medicare Enrollment 2000-2050
10% 8% 6% 4% 2.4% 0.9% 2000 2010 2020 2030 2040 0.5% 0% 2050 2%
— Medicare enrollment

100 80.8 80 63.9 60 40 20 0 1.8% 47.5 3.0%



(in millions)

■ Average annual growth

in enrollment

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

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Fee-for-Service Reimbursement Rates
108% 106% 104% 102% 100% 98% 96% 94% 92% 90% 88% 107%

105.90% 103.60% 101.60% 96.60%










Fee for Service (FFS) Reimbursement Rates by Year

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


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 participating in the MAPD market.

insufficient rates, resulting in an underfunded plan.

• The financial consequences of an inaccurate

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 notoriously difficult to predict, and the margin of error rapidly grows wider the farther into the future the predictions must go. 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

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

• Federal

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.

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MAPD Members in High-Cost Counties
Distribution of Counties, Total Medicare Beneficiaries and Medicare Advantage Enrollees by Counties’ Costs, 2013

■ Lowest-cost counties ■ Second quartile ■ Third quartile ■ Highest-cost counties


Total Medicare Beneficiaries

Medicare Advantage Enrollment

If trends continue, most Medicare Advantage enrollees will be in the highest-cost counties. When all ACA payment reduction requirements are complete, benchmarks for MAPD plans serving these counties will be at approximately 95% of Medicare FFS costs. Achieving optimal operating efficiencies and high CMS star ratings that boost benchmark payments will be critical to maintaining viable margins for MAPD plans. Figure 4

• CMS has indicated it will encourage MAPD-

eligible consumers, as well as members of lower rated plans, to seek out highly rated plans.6 Plan members may switch to Five-Star plans in their service area at any time. The CMS may terminate MAPD plans failing to meet a minimum of a 2.5 star rating for several consecutive years.

Achieving Sustainable Profitability in the MAPD Market
Payers can mitigate the pricing, risk, compliance and consumerism pressures outlined earlier to operate competitively in the MAPD marketplace with certain technological and operational capabilities (See next page).

Adverse Effects from ACA Benefit Mandates on Accountable Care Organizations

CMS Five-Star Rating CMS 5-Star Rating

• Advantage plan member co-payments must

be equal or lower to FFS Medicare charges for certain services, and there are no applicable beneficiary rebates for prescription drugs through decreasing drug costs and member cost sharing. Further, payers are left out of gain-sharing arrangements that ACOs enter into directly with CMS. 2013, the business risk of operating Special Needs Population (SNP) plans will increase because payers lose the authority to change the types of members enrolling in those plans. What’s more, such plans must be certified by the NCQA, adding to compliance requirements. Payers must be ready to react to new changes from CMS about how risk scores are handled for SNP populations, which may include a frailty adjustment in the CMS payment methodology for members eligible for both Medicare and Medicaid.

23.20% 7.20% 1.00%


• After

< 3.0 3.0-3.5

4.0- 4.5 > 4.5

Most payers are not realizing the full benefits of the CMS quality bonus payment program, with almost 70% of MAPD plans failing to reach the Four-Star rating required to achieve a benchmark bonus. Rebates increase as well for higher rated plans. Figure 5

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• Analytics.

Payers must mine the data they collect for more insights about serving populations, pricing products and improving operations.

>> Predictive analytics can transform commu-

nity health population data into insights that will help payers efficiently prepare accurate, data-driven bids and responses to CMS audit queries. The analytics can help payers create a comprehensive model for better risk management through more accurate risk scores and pricing estimates, mitigating some of the risk inherent in the CMS bidding timelines. process improvement, from internal clinical and administrative functions, to provider performance issues, to patient engagement and member health maintenance initiatives. These will be key to meeting CMS quality rating criteria.

mitigate the business risk built into making bids for care that will be delivered two years into the future. Increasing business process automation nets payers additional value by improving accuracy, making employees more productive and supporting enhanced member services.

>> Member-facing activities, such as patient en-

>> Analytics can also pinpoint areas requiring

gagement and health programs, deliver true competitive advantage in the MAPD marketplace and should be priorities. Non-core “commodity” administrative and claims processing activities can be entrusted to experienced service providers using industry best practices and a variable, volume-based operating cost model to make these expenses predictable. lower-cost, highly trained and experienced globally based clinical and administrative labor can help payers develop a cost structure appropriate to the extremely costsensitive MAPD market. ties can reduce the cost of service, improve STAR ratings and support member incentive programs.

>> Using

• Integrated systems. MAPD plans must increase

their bottom line results. Accomplishing this requires the ability to integrate the administrative and clinical data now locked in separate silos to gain greater visibility into processes and assess their impact on financial results.

>> World-class delivery and operations capabili-

>> Integrating medical management with claims

processing operations increases financial forecasting accuracy. Payers can then confirm a claim was properly preauthorized and that all appropriate services were rendered to the member before the claim reaches the adjudication process. Visibility into the medical management decisions and the services rendered enables the payer to monitor for accurate CMS reimbursement and use the data to increase financial forecasting accuracy on future rate filings. such as sales and marketing and enrollment, to gain 360-degree views of members. A comprehensive view of member health and resource use helps support personalized member health and patient engagement programs that enhance customer experiences and improve quality rankings. These create a strong marketing story for retaining existing members and attracting new ones, including converting current members to MAPD plans as they become eligible for them.

• A

robust, compliance-centered platform. MAPD platforms must connect processes, increase efficiencies, and create more comprehensive views of members from clinical and financial perspectives so payers are better equipped to manage their business.

>> CMS

>> Plans must holistically integrate processes,

frequently adjusts and enhances its highly specific requirements for payers offering MADP plans. An MAPD platform must be based on industry-leading components or a single strong Medicare platform that offers the flexibility to support the resulting new benefit plan configurations and provider network management. It must have a compliance model at its core and incorporate business objects and rules so that adjusting one object propagates the required updates throughout all affected systems. Fast compliance with new regulations and procedures helps reduce vulnerabilities. platforms should incorporate a repeatable change implementation framework and asset set to ensure fast, reliable change management. platform must support industrialstrength integration with CMS for filings, responses to queries and to better prepare for


• Process optimization. Eliminating waste and

unnecessary costs with streamlined workflows and processes creates the financial flexibility required to meet MLR requirements and cognizant 20-20 insights

>> The


compliance with laws and regulations. This level of integration also helps streamline enrollment functions, reimbursements and billing reconciliation.

>> Build

process flexibility to support unique MAPD needs, including fast compliance with frequent changes requested by CMS. a clear process for enacting plan changes and new enrollment applications, including those submitted on paper or faxed. that consistently delivers reliable and well integrated data entry, data validation, and data communications functions. entire enrollment workflow.

>> The platform must offer visibility into all func-

>> Define

tions to support an integrated, comprehensive view of members and member-centric services. It should integrate with analytics data to inform wellness, disease management and patient engagement programs. actively flag indicators, including when members don’t take their prescriptions or follow dietary requirements. To that end, the platform must support digital health tools, such as in-home monitors and mobile health apps.

>> Implement an enrollment processing system

>> The platform must have the capability to pro-

>> Make information accessible throughout the >> Execute process controls that drive quality
and enable monitoring of daily work activities and results. 4. Improved cost management.

Gaining an Advantage in the MAPD Marketplace
With risks and how to mitigate them made clear, payers must evaluate whether they have the necessary capabilities to compete successfully in the MAPD market. Systems, processes and technology must all be integrated if payers are to achieve these advantages: 1. Greater focus on members/custom plans for seniors.

>> Reduce

member acquisition costs even as revenues and market share increase, potentially to top-tier MAPD provider levels. and on-boarding processes for Medicare individual consumers — boosting sales while driving down sales costs.

>> Streamline and tailor end-to-end acquisition

5. Greater collaboration with providers.

>> Develop analytics-based wellness and caremanagement programs, as well as custom offerings. rates.

>> Improve coding of risk parameters. >> Identify areas for streamlining revenue management and medical management functions. and resulting data and reporting.

>> Increase >> Reduce

renewals and improve conversion

>> Create clear visibility into entire workflows
6. Proactive risk management.

process complexity by implementing a customer relationship management platform with a multi-channel sales and enrollment solution supporting both Medicare individual telesales and agent-driven activities.

>> Speed compliance and reduce business risk

by decoupling the business process from the targeted core administrative system and applying a consistent set of quality controls and data validations.

2. Targeted member outreach programs.

>> Utilize

outbound telemarketing campaigns to consult on products, up-sell and cross-sell products, generate sales leads and complete sales from an “over-65” (O65) individuals prospect list. customer consultations, answer questions and complete sales on in-bound calls for O65 individual members.

>> Perform

3. Simplify and drive value across the entire supply chain.

>> Streamline

processes by channeling all sources of new enrollment information into a common entry point. cognizant 20-20 insights

In the MAPD market, IT investment has not been a priority because profits have been capped. But now, managing MLR and quality requirements calls for IT solutions that break down data silos, create single, integrated views of members and streamline marketing, enrollment, compliance and financial capabilities. Payers must evaluate the financial implications of buying or building these systems versus partnering with an experienced provider that offers a bundled, turnkey solution with end-to-end visibility, enhanced capabilities, and a single point of accountability for all MAPD processes and services.


Succeeding in the MAPD market
Payers in the MAPD market must appreciate the increasing business and financial risk of serving this market, even as they reach out to potentially millions of new members. The keys to success will be integrating and streamlining processes, from sales and marketing through claims processing, on a flexible platform; using data more effectively in bid submissions

and risk mitigation; and realigning resources to high-value, member-centric activities. Offering preventive care, enabling better collaboration with providers and proactively detecting health risks with analytics will help payers better manage business risk and control costs. These abilities will also permit payers to meet the quality and service demands of CMS and health consumers, and thus grow a sustainable MAPD business.


A Data Book: Health care spending and the Medicare Program,” Medicare Payment Advisory Commission, June 2013, pp. 24. Medicare Advantage 2014 Spotlight: Plan Availability and Premiums, Henry J. Kaiser Family Foundation, Nov 25, 2013 | Marsha Gold, Gretchen Jacobson, Anthony Damico and Patricia Neuman, http://kff.org/medicare/issue-brief/medicare-advantage-2014-spotlight-plan-availability-andpremiums/#MarketDynamicsTurnover, accessed 11/26/13. Total Medicare Advantage Enrollment figures, Total Medicare Beneficiary figures, Kaiser Family Foundation, kff.org/state-category/medicare, accessed 11/26/13. Realizing Health Reform’s Potential. The Impact of Health Reform on the Medicare Advantage Program: Realigning Payment with Performance. Brian Biles, Giselle Casillas, Grace Arnold, and Stuart Guterman; October 2012, The Commonwealth Fund, pp. 1. Ibid, pp. 8. http://www.managedcaremag.com/archives/1301/1301.medicareadvantage.html, accessed 11/26/13.




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About the Author
Kamesh Somanchi is a Healthcare Market Leader for Business Process Services, Global Growth Markets within Cognizant’s Business Process Services Practice. His experience spans both U.S. and International Healthcare, as well as Life Sciences. During his career, he has assisted those industries in areas that include product filings; sales and marketing launch strategies; product launches; and post-launch stabilization and performance improvement. He has helped clients set up shared service centers — consolidating and optimizing operations to improve the customer experience. His expertise includes management consulting, end-to-end process consulting; systems integration, and business process outsourcing. Kamesh can be reached at Kamesh.Somanchi@cognizant.com.

About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process outsourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered in Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50 delivery centers worldwide and approximately 171,400 employees as of December 31, 2013, Cognizant is a member of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing and fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant.

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