MedPAC Calls on Congress to Modify Medicare Advantage Payment Policies

As Medicare Advantage enrollment grows, the Medicare Payment Advisory Commission (MedPAC) is calling on Congress to address payment and coding differences between Medicare Advantage and Medicare fee-for-service (FFS) and improve the quality bonus program.

The status report on the Medicare Advantage program, included in MedPAC’s March 2023 Report to Congress, analyzed Medicare Advantage enrollment trends, plan availability, and payments relative to FFS spending.

In 2022, Medicare Advantage enrollment grew by 8 percent (2.3 million beneficiaries). Almost half of all eligible Medicare beneficiaries are enrolled in a Medicare Advantage plan. In 2023, 99 percent of eligible Medicare beneficiaries have access to at least one open enrollment Medicare Advantage plan. The average beneficiary has access to 41 plans sponsored by eight organizations, up from 36 in 2022.

The average rebate for Medicare Advantage plans in 2023 is $196 per beneficiary per month, marking the highest in the program’s history. The rebates account for 17 percent of plan payments, up from 15 percent last year.

Plans project that 26 percent of rebates will go toward supplemental benefits, such as vision, hearing, or dental services. MedPAC noted that these benefits are typically tailored toward healthy beneficiaries instead of populations with the greatest social or medical needs.

Medicare Advantage plan payments were above what Medicare would have paid for similar FFS beneficiaries in 2023, according to the report. Medicare Advantage 2023 benchmarks are estimated to average 109 percent of projected FFS spending, while plan bids average an estimated 83 percent of FFS spending.

After accounting for coding differences between the two programs, Medicare payments to Medicare Advantage plans are estimated to be 106 percent of projected FFS spending, translating to $27 billion.

MedPAC conducted prospective and retrospective analyses, which found that Medicare payments to Medicare Advantage plans have always exceeded Medicare FFS spending.

Coding differences played a critical role in the high payments to Medicare Advantage plans.

Since payments to Medicare Advantage plans are risk-adjusted to account for differences in health status, there is an incentive for plans to use more diagnosis codes to raise risk scores, increasing monthly payments and rebates. Meanwhile, Medicare FFS uses procedure codes for payments, leading to higher coding intensity in the Medicare Advantage program.

In 2021, Medicare Advantage risk scores were 10.8 percent above FFS risk scores. After the 5.9 percent mandated reduction from CMS, the 4.9 percent increase in Medicare Advantage risk scores led to $17 billion in excess payments to plans.

Medicare Advantage plans have historically used health risk assessments and chart reviews to increase diagnosis coding, creating further imbalances between the private program and Medicare FFS.

MedPAC first recommended Congress address coding intensity in 2016 and has reinforced its suggestions in the 2023 report. The multipronged approach includes developing a risk-adjustment model that uses two years of FFS and Medicare Advantage diagnostic data.

In addition, CMS should exclude diagnoses that are documented only on health risk assessments from FFS and Medicare Advantage and apply a coding adjustment that accounts for the remaining coding differences between the two programs.

The Medicare Advantage risk adjustment data validation program has also led to overpayments, an issue CMS is aiming to fix with a January 2023 final rule.

The MedPAC report highlighted how assessing quality in the Medicare Advantage program is difficult. The quality bonus program rates plans on a five-star system and provides bonuses to plans that receive four stars or higher.

However, according to MedPAC, the program is flawed and does not provide a reliable basis for evaluating quality meaningfully. The Commission also said that plans have received unwarranted bonus payments under the program.

Specifically, the report noted how CMS relaxed quality reporting rules during the COVID-19 public health emergency, which boosted 2022 star ratings. However, star ratings fell in 2023 when the reporting returned to usual rules.

MedPAC recommended that Congress replace the quality bonus program with a value incentive program that uses population-based outcome and patient experience measures that align across all Medicare organizations and providers. These measures should be calculated by CMS using already reported data, such as claims and encounter data.

Additionally, the program should evaluate healthcare quality at the local market level, account for differences in beneficiaries’ social risk factors, and apply budget-neutral financing.