Medicare Advantage Plans May Lose Millions of Premium Dollars

BY ZACK GERBARG, MD, CPC AND GREG SINAIKO, MPH

Many providers and Medicare Advantage plans are just now waking up to the fact that the Centers for Medicare & Medicaid Services has radically changed the rules about how health plan premiums are calculated. The change is dramatic and, by not acting now, health plans may lose out on millions of premium dollars to which they otherwise would be entitled. Premiums for healthy members are decreasing while premiums for members with significant illnesses are increasing. If health plans do not capture the data to document important diagnoses, CMS will calculate premiums at the healthy member rates. The result will be that some sicker members who require additional care will not have an adequate premium to support their care. How did this come to be?

Background
Previously, patient demographics were the major driver of Medicare health plan premiums. For example, a 70-year-old male member living in a particular county
might generate $650/month of premium, regardless of his overall health status. Starting in 2003, CMS began to phase in a severitybased premium payment system. For 2006, 75 percent of the premium will be calculated by the member’s medical severity and only 25 percent will be based on demographics.
What this means is that rather than a $650/month premium ($7,800/year), a healthy 70-year-old man might only generate a $400/month premium ($4,800/year); whereas, if that member has congestive heart failure and chronic obstructive pulmonary disease (COPD), the premium might be $850/month ($10,200/year). The annual difference could be $5,400 for that one member.

Health plans that have attracted relatively healthy Medicare Advantage members or who do not capture and submit important diagnoses will see a sharp decrease in their annual premium. For most Medicare Advantage plans, the new premium calculation will result in a premium decrease, but we have seen this trend reversed by taking specific action.
Providers’ Role in This Process Claims and encounters from physicians and hospitals are the major sources of data that CMS uses to determine patient severity. If providers do not document and then submit claims and encounters with the members’ appropriate diagnoses, the risk score will reflect a healthier population than actually exists and the premium will be lower.

CMS currently requires that the member’s diagnoses be submitted each calendar year and be based on a hospitalization or a face-to-face visit with a physician. Typically, hospitals do a better job of diagnosis documentation and coding because they need this data to ensure accurate DRG payments. Most hospitals have certified coders on staff to help them achieve this, but

other hospitals face serious challenges if complete data were not captured in the first place. Each significant diagnosis is grouped into one of about 100 Hierarchical Care Categories (HCCs) and each HCC is assigned a weight that is used to determine the risk adjustment score for a member. For example, the diagnosis for uncomplicated diabetes is coded using ICD-9 code 250.00; and this corresponds to HCC 19, which has a weight of 0.200. Congestive heart failure is ICD-9 code 428.0, which corresponds to HCC 80 and has a weight of 0.417. Using CMS tables and the published calculation formula, the risk scores and premium dollars can be determined. Members with more severe and multiple medical conditions will have higher risk scores. CMS allows Medicare Advantage plans to submit diagnosis codes retrospectively and will pay the increased premium. The window of opportunity for submitting diagnoses is up to 16 months after the end of the calendar year.

What this means is that plans have until May 2006 to submit diagnoses from dates of service in calendar year 2004 and then CMS recalculates the 2005 premium. Diagnoses from 2005, which impact the 2006 premium, can be submitted any time up until May 2007. The earlier health plans submit the data, the sooner they are paid the increased amount.

What is the Challenge?
CMS performed a test audit of medical records for six Medicare Advantage health plans and found approximately 50 percent of the diagnoses submitted were not accurate, either because there was no documentation in the medical record to support the diagnosis or because the wrong code had been selected.

That is a frightening result. When audits are performed with certified coders, with additional expertise in diagnosis coding, quality checks will typically show errors of roughly 2 percent.

Part of this improved result can be attributed to the use of laptop-based software that helps coders prevent making many common errors. In addition, most experienced professionals will put in place a careful screening process and apply extensive coder education and oversight. Indeed, medical record audits by knowledgeable certified professional coders have consistently yielded a significantly positive ROI. Results over a population of 10,000 or more members have consistently shown that 10 percent to 20 percent of primary care physician (PCP) medical records yield a diagnosis that is unique that corresponds to an HCC.

While there is a wide range for each individual physician, this overall result has been constant in more than five different geographic parts of the country. Audits of specialty medical records usually yield higher weight diagnoses than PCP medical records.

Benefits and Risks
Approximately 70 percent of the diagnosis data collected for Medicare risk adjustment comes from physician claims and encounters. What physicians document in their medical records is the most important component of accurate diagnosis coding. When auditing diagnoses submitted for severity adjustment, CMS requests the specific note in the medical record in that calendar year that supports the diagnosis. If physicians and their staff can be educated to document and code correctly, then health plans can feel confident that the data they receive are accurate and complete.

The goal in any HCC coding effort must always be accurate documentation and coding. It is relatively easy for physicians and their staff to misinterpret coding rules, which can be fairly complex. For example, certi- fied coders know they cannot submit a code for a diagnosis just because it is noted in the problem list in the medical record—a problem list is not considered a valid source for diagnosis coding.

Clearly, health plans receive a higher premium if they capture data on all the illnesses for their members. Providers will benefit directly if they are capitated at a percent of premium.

A health plan that loses Medicare premium revenue may attempt to reduce the rates paid to the plan’s providers. Another benefit is that more accurate information about the membership population is valuable in supporting case management and disease management initiatives.

Summary of Key Issues
Here is a summary of the central facts for health plan executives to know regarding Medicare risk adjustment: s diagnosis data submitted to CMS have a multimillion dollar impact on health plan premiums; s diagnoses submitted for dates of service in a calendar year determine the premium for the following year. s CMS allows a window of 16 months from the end of a calendar year to submit any and all diagnoses for dates of service in that calendar year from valid sources of diagnosis data. Then CMS pays any premium increases retrospectively—this is formula driven; s diagnoses submitted to CMS should be supported by medical record documentation that will withstand an audit; and s claims and encounters from physicians and hospitals are the key sources of diagnosis data.

Conclusion
There are various strategies that Medicare Advantage health plans can employ to ensure accurate and complete diagnosis documentation, coding, and data capture. Medical record audits by knowledgeable coders and physician education are two approaches that have consistently yielded significant ROI. The benefits of undertaking the challenge of improving diagnosis accuracy can be measured in millions of premium dollars.

Dr. Zachary Gerbarg is principal of Eagle Medical Management, a medical management and executive leadership consulting firm, and Greg Sinaiko is president of The Coding Source, a national provider of health care coding services. More information is available at http://www.eaglemedicalmanagement.com or http://www.thecodingsource.com.

Case Study
One of our clients serves approximately 20,000 Medicare Advantage members. Based on the claims that were collected and submitted to CMS, the average risk score was 0.922 for this Medicare population. Through medical record audits by certified professional coders and targeted physician education, we were able to identify and capture additional diagnoses that had been missed.

This result was an improved risk score of 0.964, which increased the 2005 premium by nearly $4 million (note premium was only 50 percent risk adjusted in 2005); the return on investment (ROI) was approximately 4:1. The same result for 2006 with a 75 percent risk adjustment will be roughly $5.5 million with an ROI of approximately 6:1; and at 100 percent risk adjustment in 2007, the premium increase will be roughly $7 million with an ROI of approximately 8:1.

COPYRIGHT © BY THE BUREAU OF NATIONAL AFFAIRS, INC., WASHINGTON, D.C.

Hospital-Acquired Physician Practices: After the Deal is Done

Hospitals and health systems have been on a rapidcourse of acquiring physician practices in the1990s. In a national survey published in 1995,Mill and Wild found that more than 36% of senior finan-cial executives noted physician acquisition activities fortheir institutions, with over 50% for hospitals withgreater than 300 beds. This trend is seen in all regions ofthe country.

Mospital executives give a number of strategic argu-ments for acquiring physician practices, especially primarycare practices (PCPs). Preparation for managed care andfor accepting global financial risk for populations are keyreasons. To develop a fully integrated delivery system,ambulatory services—including physician practices—areseen as a critical element, and acquisition is seen as aviable approach. Defensive positioning to protect marketshare for inpatient and ancillary services as well as to pre-empt competitors from "stealing" aligned physicians arealso common justifications for purchasing practices. Andfor some organizations, there is the hope that employedphysicians will be more loyal and more easily controlled.Once an acquisition strategy is adopted, it is often given atarget number of physicians considered necessary toachieve a critical mass to achieve the intended goals.

Enough practices have been purchased across the coun-try to identify a significant problem: in the majority ofcases, results are not meeting expectations. Hospital execu-tives are experiencing financial losses on purchased prac-tices far beyond their projections. In a 1995 suivey, only17% of finance executives reported a positive bottom line[1], A report of a 17-hospital survey noted annual losses of $97,000 per acquired physician [2]. This article exploresthe underlying causes of why so many hospital acquiredphysician practices are not successful, and offers possiblesolutions, in the form of recommendations, for improvingthe performance of acquired practices.

The Initial Focus of Practice Acquisition

When most hospitals begin discussions with their physi-cians about possible purchase of their practices, theemphasis is on organizational and governance issues andon contract terms and language. Questions addressedinclude how will the physicians and the newly formed medical group be organized; what will their governance structure be; and what will be the structure and represen-tation on the board of the medical practice organization?There are a number of questions physicians typically ask,such as will we also have representation on the hospitalboard; are we going to be told how to practice; what if wedon't like the practice executive director; and will we bepaid for administrative duties? Also, there is considerationof an array of legal opinions and organizational charts rep-resenting a variety of voting rights issues and organization-al structures. It is important work that requires a lot of timeand effort from everyone involved.

The other area that receives considerable attention is theactual contiact with each physician. These aie negotiated indetail for each practice, and, unless a disciplined approachis used, may result in a number of unique contracts that aredifficult to administer or may lead physicians to wonder ifthey were treated fairly. Physicians are concerned with anumber of issues in the contract, including which assetswill be purchased and at what price {eg, "What about mybuilding?"); will the office manager be guaranteed a job forat least a year; what salary guarantee is to be received andfor how long; what vacation and other benefits will bereceived; and what type of noncompetition agreement is tobe signed. Msually, the result is a salary guarantee for 2 to 5years with a productivity incentive. PCPs have been pur-chased at a cost of anywhere from $10,000 to $600,000,most commonly between $100,000 and $150,000.

While the purchases usually begin with a targeted groupof practices, once the process is in place and a critical massis identified, there tends to be a speeding up of acquisitionswhich may lead to less attention to quality or "fit" as a good partner. In addition, operational issues that aré categorizedas management services organization (MSO) functions areoften seen as relatively easy to do for an experienced groupof hospital administrators. The complexity of performingthese tasks well is often underestimated.

Article by Zachary B. Gerbarg, MD
Gerbarg & Associates Inc.,
3424 East Rovey Avenue, Scottsdale, AZ 8S2S3 USA

New Medicine 1998,2:23-26
Current Science Inc. ISSN I089-2S24
Copyright© 1998 by Current Science Inc.

Click here for full article

HCC Helper 1.0

There are 5500 plus ICD9 codes that are HCC relevant, it's impossible to remember them all, that's why we developed the HCC helper. It gives you a helping hand when trying to remember some of those less often used ICD9 codes.

Browse the library of diagnosis codes by using the arrow keys, or search by disease category by typing in the search box. If you know the code but not too sure about the fifth or sixth places, just type in the code and HCC helper will do the rest. HCC Helper also tells you the additional codes (codes manifestation) you need while coding a particular ICD9. For instance while coding 250.4, you also need to code 581.81, 583.81 etc.

HCC Helper is available FREE on Apple iTunes, click here to connect to iTunes

Merlin Medicare Risk Adjustment 6.0

St. Louis Firm Brings Medicare Risk Adjustment To iPhone Software and services let health plans reduce audit risk while ensuring accurate payments and compliance with Medicare standards

ST. LOUIS, Only a select few have ever wondered how to integrate Medicare Risk Adjustment with their iPhone®. Those who have should be happy to hear about the latest release from Storan Technologies Inc. (STI).

STI announced the release of Merlin Medicare Risk Adjustment 6.0™, a Web-based software solution for health care plans.

Merlin Medicare Risk Adjustment saves health plans time and money by simplifying compliance with Medicare rules and ensuring accurate condition coding. It maximizes payments while improving patient health by focusing on early detection, ongoing assessment and reporting of chronic conditions.

Version 6.0 uses more advanced Web technologies than previous versions of Merlin. It allows users to produce financial forecasts, data analytics or manage retrospective audits online within a customizable and secure Web portal. From start to finish, the processes of Medicare risk adjustment can be managed easily within Merlin.

"We've taken Merlin to the next level by integrating it with Web services such as Skype. The process is seamless. The capabilities are powerful. Our customers are going to love it," said Ciaran Storan, STI co-founder and Chief Technology Officer.

Merlin Medicare Risk Adjustment 6.0 showcases additional new features including Medicare risk adjustment data validation (RADV) support using STI's Smart Track technology along with an application for iPhone. Several additions to the provider module including expanded profiling and outreach reports have been added to accommodate the needs of customers wishing to adopt a more prospective approach to MRA.

"Storan V6 enables us to dramatically improve our ROI." says Kathy Cortez, Vice President of Operations with Fidelis SeniorCare. "It gives us better visibility to our member data and provides detailed analytics that allow us to make the best use of the resources we allocate to capturing the chronic conditions of our complex member base. The technology employed to create our secure dashboard simplifies our ability to conduct reconciliations and avoid missed opportunities. Congratulations to Storan on this impressive upgrade!"

For more information about Merlin Medicare Risk Adjustment 6.0 or Storan Technologies Inc., contact Sales at 636-477-7701.