Damea Medicare Sustainability

This might be a flash of the obvious for some, and perhaps new insight for others. The dozen folks that have previewed this have been genuinely surprised by the amount of change already occurring and the acceleration we are about to face. We have all heard that the health care system is unsustainable, I will try to answer the questions of by how much and how quickly?

Let me catch you up a bit, simple unmanaged/uncoordinated Medicare Fee-for-Service is now terminally ill and is in quick decline. Yes, it is. Most likely it was camouflaged to you, but it is now on some sort of palliative plan, ease the pain a bit, but it will indeed die soon. Nationally, there are more beneficiaries treated as enrolled or assigned into systems which get more by doing better than by simply doing more.

With the built-in progression in CMS Pathways regulation for the Medicare Shared Savings Program (MSSP) and even a tepid growth in Medicare ACOs/Medicare Advantage, the day in which a super majority of beneficiaries are in some sort of risk system is indeed soon; as little as 3 years.

Most people didn’t notice that the 7/1/2019 MSSP assigned beneficiaries jumped by over 20% (2018 CMS published results and 7/1/2019 CMS announced ACOs). I even saw a headline that there are fewer ACOs... but more beneficiaries are in the segment. While some organizations merged and a few stopped, the coverage of MSSP in Medicare has continued to grow with no end in sight. Recall that 2022 is the year that all the existing ACOs have to be rolled into at least Level C at 30% downside.

Let that sink in. For effectively all the urban and suburban markets, the last bastion of “do more/get more” ( i.e. unmanaged) FFS Medicare will cease. In roughly a decade (2012-2022), a super majority of Medicare beneficiaries, and certainly spending, will be served through an intermediary that is at financial downside risk. Some markets (Pittsburg, Greensboro) have been at the very pointy end of the spear, but most communities are just now accelerating into this status. Just to complete the table above, the population of completely unmanaged/uncoordinated Medicare FFS actually shrank from 36.4 million in 2012 to 30.0 million (an 18% reduction) in 2019. (This might explain why all the questionable FFS activity marketing types have been in hyper overdrive the last couple of years)

If you didn’t notice, don’t be too hard on yourself, there has been plenty of noise, or camouflage, to disguise this signal. Over the same time period, the entire Medicare population grew by 34.8%, the non-Medicare Advantage population grew by 19.6%. Depending on your market, you may have experienced a 3-4% annual growth in Medicare FFS. Meanwhile, Medicare Advantage has exploded and grew by 77.8% in some markets. A truly breathtaking example is Chicago which grew 330%! As the larger provider groups in Chicago are launching their own MA plans, it is plausible that this market will quickly catch up and perhaps even pass Pittsburgh in the number and concentration of risk beneficiaries.

Most large delivery systems didn’t subdivide Medicare FFS between Medicare ACO and unassigned Medicare FFS, and certainly the smaller ones do not. Now, as the Medicare ACOs are transitioning to risk, there is good reason to make the subdivision, and walking the numbers out a few years is nothing short of startling.

This all translates to changes in utilization patterns, both in place of service (SNF, Ambulatory, etc) as well as an absolute reduction of higher intensity services as the benefits of care coordination and protocols are expanded through the population. Management metrics change, too. For example, the measure of market share shifts from procedural counts to population aligned with you, your share of their care, how much care leaks from your system and why. In a risk environment, leakage costs a full DRG vs. just variable cost.

There are simple forecasts (see Medicare Trustee projections below) pointing to some interesting developments. Taking the Trustee projections at face value leads to some very dramatic circumstances. No doubt, CMS will try several more projects and programs in their attempt to blunt the curve beyond the nearly 50 programs that CMMI has pushed out already (a measure of their urgency to reduce costs). CMS will continue to twist the dials on both MA Premiums and ACO benchmarks.

Figure II.D2.—Medicare Sources of Non-Interest Income and Expenditures as a Percentage of the Gross Domestic Product

Let me answer the per capita question asked in the table - $1,960 per wage earner is the tax increase needed to fund Medicare A&B from current levels when Part A goes bankrupt in 2026. The math on 2036 is truly breathtaking. Yes, that is the tax increase missing from the Trustee Report that will be needed under even the optimistic GDP forecasts and current program savings forecast by CMS. The underlying reason is the demographic that become the undeniable force. Not so much the baby boom finishing the age into Medicare, rather, it is the impact of the boomers in Medicare now and their aging progression that is driving most of the increase and becomes even more extreme in a few years. As you know, there will be fewer wage earners to shoulder the burden as well. Even if CMS/CMMI are wildly successful in MA, ACO, Direct Contracting Entities, etc., the tax increase needed is beyond any political reality. Let that sink in for a moment.

Healthcare providers chasing FFS solutions are not facing a double whammy as commercial populations age into Medicare and the 240% of Medicare many have been charging commercial payers becomes 100%... bad enough, there is more, it is more akin to a triple whammy. It is highly unlikely that there will be a successful politician running on a platform of tax increases, Mondale was the last one and it didn’t go well (carried only Minnesota and DC). The politicians and budget types are looking at that 240% of Medicare commercial insurers pay for hospital reimbursement as a source of smoke and mirror funding for the entire system. Their solution won’t be simple Medicare FFS for all, it will be Medicare Advantage/Matured ACO for all. I know it is a bit of a harsh segue, but; employers want out, unions can negotiate a decent transition for their current Taft/Hartley plans, and the employer’s will be making contribution to the giant IRS section 125 plan that is coming….and it won’t be called a tax.

To drive this stake just a bit further into the ground. Take a look at the National Health Expenditure data tracked by CMS and the transitions become yet more compelling. As a percent of total dollars in the system, commercial payment sources are 4th place behind, Medicare, Medicaid, and voter – err patient out of pocket. Yep, that is correct, Joe and Mary Q Public provide more dollars – out of pocket – to the entire health care system than all the payments from commercial insurers combined. Transfer, the employee contribution and consumer paid premium to the out of pocket column and it gets really lopsided. As the voters, err taxpayers, are the ones really footing the vast majority of the bill, getting prepared for their awakening might not be a bad idea. One can see the political gain and math of having coinsurance out of pocket payments being reduced for the average voter. It doesn’t take much algebra to measure the out of pocket for the commercial population (middle class) per event i.e. 20% of 240 vs. 20% of 100. Positioned as economic relief, it becomes a middle-class motivator. The under 65 voters coinsurance of a typical hospitalization is reduced from $8k to as low as $3k, a $5k reduction! What voter could pass on that as a benefit?

We see snippets of this future – North Carolina, Colorado, and Washington State have begun to move in this direction, Maryland is already an all payer state. Race to the bottom? Hardly, recent headlines point to 25% of expenditures are complete waste. Personal experience creating high performing systems suggest that this is very conservative. Hearing hospital administrators use terms like “Demand Destruction” explains that the paradigm has not shifted, even though it is looming.

The payer community is not without its challenges. Only a modest simplification begs the question that if all the CIN, IDN, ACO, OWAs are in effect risk wholesalers, what is their barrier to entrance as a payer. In short, not much and the benefits can easily overtake the challenges. First, provider sponsored health plans, particularly in the retail setting of Medicare Advantage (and the suspected evolution toward Medicare Advantage for all) have a substantive marketing and beneficiary engagement advantage. A few years ago, the then CEO of HealthNet at an AHIP meeting in Utah expressed the goal of the payer community is for the member to call them first when illness strikes. We are still a long way from “gosh doc, I have dread disease #57? I guess I need to call my health insurance company to find out how I should be treated…” I don’t care what nurse line, phon-a-doc you might have, if my PCP offers 24/7 access by a clinician to my records supervised by my PCP I am using that service…. (CPC+, Primary Care First, and initiatives from CMMI have this requirement).

The historical vexations of provider sponsored health plans where sourced out of the economic conflict of unmanaged FFS vs. population-based payment/risk/VBC. As outlined above, those days are drawing rapidly to a close, the vexations are evaporating even as we watch.

As often is the case, it is the transition that must be carefully managed. And to be succinct, very few contracts offered by the payer/provider VBC, risk, gain sharing, MLR target, etc. that I have reviewed in the last two years are anything but fair to the provider. This perspective is very short term as it pulls disproportionate value from the local market that will come to light in 2 or 3 years. The caution to the payer is while you can make a few percentage points now, when the provider entities fully understand what has transpired plan on network instability.

There is real risk as the health care financing system moves toward what I call a true retail environment and employers exit from the mix, that national networks lose their value very quickly and effective local operations overtakes the small efficiencies of the uber scale. I am pretty comfortable with the assumption that no programmer is some cubicle can direct care better than an engaged team of local providers.

Conclusion:

Declarations of the decline of the Medicare ACO program aren’t premature, they are wrong.

Medicare Advantage and Medicare ACO (MSSP, DCE, Next Gen) programs will converge.·

Even with Medicare completely converted to a risk/per capita program, a funding change is required.

Provider organizations will be acquiring the payer skill sets as the economic model shifts to risk.

Provider integration must include the paradigm that the only costs that matter are variable costs vs. just market share of care transactions.

Scale (efficiency) will become important AFTER effectiveness is achieved, highly scaled organizations will struggle to maintain relative effectiveness.Failing to plan, is planning to fail.