An inability to adapt to developing dynamics shaping the future of medical payment poses a threat to physician livelihoods. Whether it’s the consolidation trend of the last 20 years, the HMO movements of the 1990s, or the evolution of capital-intensive technology or high-cost facility components for care delivery, physicians have long faced a variety of direct existential threats to the way they perform and deliver optimal care — and get paid for their services. The physician has been and will continue to be the center of care delivery. As such, they also ultimately sit at the center of undulations in healthcare cost and payment tides.
So it seems appropriate for physicians to note a rising wave related to Medicare Advantage (MA). Medicare Advantage healthcare plans are an alternate way for eligible individuals to receive Medicare Part A, Part B, and often Part D (prescription) coverage that is “all-in-one” and offered by approved private companies following rules set by Medicare. MA plans often also provide dental, hearing, and vision coverage and attractive caps on out-of-pocket expenses. In many cases, covered patients need to use health care providers who participate in the plan’s network and service area for the lowest costs.
With the Centers for Medicare & Medicaid Services (CMS) charting MA on a path to utilization for more than 34 million lives in 2023 (up from 24 million in 2020), it is clear that MA is not just an experiment. It is the coming tide of what healthcare delivery and payments will look like, and we expect commercial markets to tack in this direction following the path laid out from CMS and existing MA models. This only advances the imperative for clinicians to engage seriously in these new mechanisms. Livelihoods depend on adaptation to evolution in a capitated world.
Time and Tide
But we’re not yet at inundation for MA across the country. Adoption has been inconsistent, to say the least. According to research compiled by the Kaiser Family Foundation, current enrollment ranges from 1% to 40% state to state (from 1% to 70% across all U.S counties), and it will continue to be lumpy. A look at a map of the enrollment guides us to population centers as the key drivers for early adoption. This makes sense, it’s easier to build a comprehensive, yet narrower, network of adequate providers in the urban settings where there are more hospitals and care options. It is also easier to more actively engage in care management with populations that are more densely populated. Likewise, member recruitment is simpler with Customer Acquisition Costs (CAC) in aggregate lower in locales with higher density pools of eligible prospects.
Along a traditional adoption curve, MA is fully at “take-off” stage for payers, yet as professor Everett Rodgers famously explained, adoption isn’t diffusion. As the variation in participant numbers state-to-state and county-to-county suggest, we do not have adoption across all populations and are still awaiting overall market diffusion of the MA principle.
Yet unlike failed diffusion reflected in, say, social media technology, in healthcare, MA is here to stay. And that is because the part of the market with momentum around adoption is the side of the market where money flows — and it is being driven by the largest payer (CMS).
Upwards of 50% enrollment is expected by 2028 and federal spending is expected to increase from $200 billion to $580 billion (not including Medicare part D, which is already becoming synonymous with MA). Additionally, employers who have populations older than 65 are even transitioning their workforce, driving a self-insured trend. Plus, big players such as UHG and Humana have a national reach (84% and 66% of all counties, respectively), and are expanding (charting 10% growth or more). Targeted new entrants like Bright Health, Oscar, Devoted, and Zing Health are also riding this wave. This increasingly competitive landscape means that positioning brand and product for new members becomes paramount, as does care-provider alignment to drive satisfaction, quality, and effective care.
Let’s unpack the elements. The majority of current plans (89%) include a prescription plan (Medicare Part D), and more than half of these offer a plan with no premium beyond the Part B premium (which averages around $145/month). The average eligible person has the option of 33 plans provided by up to 8 different companies (and some companies, like United, offer multiple plans in a given market). This drives a need for market differentiation.
Differentiation, and ultimately performance, are driven by extra benefit service offerings and positioning for target populations. Examples of services beyond traditional Medicare that are compelling range from mental health provisions to ancillary personal-health engagement and telemedicine services that shift the site of care, ease access and convenience to patients, and reduce overall costs. Indeed, the most common supplementary benefits impact along two axes: increased engagement, and/or improved outcomes with reduction of high-cost events (such as admission or readmission to hospital). You see this play out with uniformity of additional services beyond traditional Medicare Fee-for-Service (FFS) — fitness, dental, vision, and hearing (upwards of 85% of MA plans offer these additional plan components). Also, advancements in care management and technology by some of the more recent market entrants have become more important as CMS evolves its payment constructs around MA. Provider alignment and partnership as a point of differentiation is more pressing than it has ever been. Zing Health and a few other companies are an example of this latter point.
Designed and built by minority founders, Zing targets a specific, traditionally underserved population with its benefit selection and service design and its brand identity. Zing is part of the community that it takes care of, reflects its unique needs, and aims to create a unique customer experience driven by an equally important evolution of collaboration between care provider and care plan. Zing is not alone, as other novel MA plans like Bright Health have evolved their view of the provider/physician as a partner not only for better health outcomes, but also a better overall experience. To understand why overall experience is important, let’s explore a critical piece to the MA payment construct…the STAR rating.
The Customer is King
Performance via STAR ratings indicate the true bar of success for MA plans (and ultimately business sustainability and profitability in the space). Bonus programs drive a large portion of profits for health plans, and recent CMS changes mean customer-experience-related metrics will determine 57 percent of overall Stars ratings (up 25 percentage points) by 2023. Ratings now heavily emphasize engagement over paperwork.
Historically, plans that do not rank above 3 stars find it hard to compete with a lack of additional funds on top of premiums. They generally enter a sort of patient recruitment death spiral (who wants a three-star plan versus a five-star one). To see the impact this can have on plan performance, if a plan drops one star from 5 to 4, they see a ‘7% decline in revenue per member all else equal.’ Further, STAR performance is measured on a curve — meaning as more plans improve, the higher the bar is raised on performance. In addition to being a great incentive carrot put in place by CMS, the STAR program stresses the need to build a company that resonates with its members (customers) and drives meaningful engagement to shape positive changes in behavior. Add to that the increased emphasis placed on the engagement components of the STAR system and it is easy to understand why there is such significant growth in peripheral and non-traditional innovation around supplemental offerings that resonate.
New technology-based consumer-centered health brands innovate around meaningful services that drive both health and engagement and top the next wave of MA plans. This is why the newer breed of MA plans are approaching their structure differently.
Traditionally, the physician and/or care provider in the MA space is viewed as an input to care delivery that must be cost managed. However, the trend in care models has moved the market towards partnership, rather than oversight management. Bright Health scales into markets with at least one provider system as an anchor partner (their Care Partners program) to quarterback the provision of care. And we have also seen significant growth and fanfare on the capitation side with companies like Oak Street Health and Village MD (both of whom orient around provider empowerment and engagement).
This emerging trend in MA is an opportunity for care providers. It goes beyond care outcomes, and presents the chance to shape how the service of healthcare is re-imagined. With the right kinds of MA partnerships, physicians can more fully engage, collaborate, and capture the value they create.
While the innovation in this developing market was the payment construct, the ultimate diffusion is firmly in the hands of the care provider. Multiple companies, including Zing are showing that a path to profitability can come from true partnership between the two. If a doctor helps drive the new MA plan design around engagement and member satisfaction, they will be able to share in profits driven by happier and healthier patients — and an entirely new healthcare system centered around value.