CMS released its 2020 plan year Medicare Advantage rates last night, as scheduled. Total Medicare Advantage outlays are expected to increase 2.53% over 2019. The advanced notice in January had forecast an increase of 1.59% so CMS won the expectations game. However, the 2.53% increase is lower than the 3.4% increase for 2019.
The better than expected rate is still below our model assumption of 3%.
The middling rate adjustment may be exacerbated by a move to greater use of encounter data in calculating risk scores. CMS has been slowly phasing in the use of encounter data from 10% of the risk calculation in 2016 to 25% in 2019. In 2020, encounter data will leap to 50% of the mix. Barring some intervention or major data problem, CMS will likely propose a 75-25 encounter data mix in 2021.
The industry has always hated this idea. While physicians who are paid on a fee for service basis assiduously record each diagnosis and procedure to ensure accurate payment, doctors paid on a capitated basis are less diligent. The industry has argued that encounter data collected for MA plan participants is, therefore, not accurate.
If they are right MA plans may see some decline in risk scores and payment. We doubt the impact will be extreme as the industry has had four years to mitigate. The greater effect will probably be on the reduced flexibility by plans to exaggerate patient characteristics for the purpose of higher risk scores, going forward.
The rest of the rate announcement was largely expected. CMS is permitting payment of non-medical items such as food delivery to enhance nutrition for the chronically ill as a supplemental benefit. They are also making changes to star rating to discourage inappropriate use of opioid prescriptions. CMS did not finalize a proposal to prohibit plans from putting generic drugs in their branded formulary and instead opted to continue to study the issue.
Federal policy remains largely supportive of MA plans, consistent with the Trump administration’s goal of encouraging cost containment through greater enrollment in private plans. However, as we pointed out in our presentation on March 28th, there are limits to that effort, barring Congressional action. Enrollment projections remain overly enthusiastic and not likely to overcome modest rate increases.
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Thomas Tobin
Managing Director
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Emily Evans
Managing Director – Health Policy
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