Quality Could Save Medicare Advantage

Lost in the public insurance and health reform debate last week was a Medicare Payment Advisory Committee (MedPAC) report issued to Congress that criticized Medicare Advantage for paying private insurers billions more than what the government pays providers through traditional fee-for-service Medicare—despite the fact that many Medicare Advantage programs offer similar services.

The key takeaway as highlighted in multiple media reports is that the federal government will pay $12 billion more to health insurers in Medicare Advantage than it costs to care for beneficiaries in fee-for-service Medicare. As such, some industry observers are recommending that the feds implement competitive bidding for Medicare Advantage insurers.

But there was another idea buried inside the 300-page report that could help Medicare resolve the overpayment issue, weed out insurers that are not providing innovative care management and delivery systems, and gain Democratic leaders' support for the program. What is this magic potion? MedPAC suggested the federal government pay private insurers in Medicare Advantage through quality measures.

As stated in the report, private insurers involved in Medicare Advantage don't gain financially from creating innovative programs. Sure, their beneficiaries might benefit from better programs, but the federal government isn't paying those insurers any more than competitors that are not providing those services.

Instead, the federal government should pay innovative insurers more for improving quality, while reducing payments to those who are offering more expensive FFS-like programs. This is no different than paying doctors and hospitals for providing quality care.

The National Committee for Quality Assurance found in 2008 that only half of the 10 million Medicare Advantage beneficiaries are enrolled in plans with above-average quality rankings. In other words, paying private insurers 13% more than FFS beneficiaries is not improving quality to about half of Medicare Advantage beneficiaries.

The federal government could improve the Medicare Advantage payment system by reemphasizing the goals of the program: financial neutrality, efficiency, equity, and quality. This could happen through care coordination and cost savings, which were the original goals of Medicare Advantage, according to MedPAC.

"Encouraging plans to be efficient is a key element. Plans that are more efficient than FFS Medicare can provide extra benefits while maintaining financial neutrality with FFS. In a transition to new benchmarks, quality improvements could be promoted by paying more for better quality. After the transition, if plans' quality can be measured relative to FFS, plans providing better quality care than FFS would be paid more than FFS," wrote MedPAC.

That is exactly the type of thinking every private insurer in Medicare Advantage should support. Health insurers, such as Blue Cross Blue Shield of Massachusetts, are already testing quality as a payment measure—and that's the right way to go.

Not only does better quality lead to better patient outcomes and lower long-term health costs, but a greater focus on quality could actually help private insurers rescue Medicare Advantage. The Obama administration has already cut Medicare Advantage payments between 4% and 4.5% for 2010 and future cuts are expected.

The president was clear during his campaign that he does not like the program and called it a Republican giveaway to private insurers. But making quality a key determinant of payment level would show that private insurers that remain in Medicare Advantage after the change to quality-based payments are interested in improving beneficiary care. This revamped, quality-driven Medicare Advantage would no longer be considered—fairly or unfairly—a program that was created as a way to please private insurers.

This change to quality payments was buried in a lengthy document, but is an idea that both the federal government and private health insurers should explore further. It just might be the idea that rescues Medicare Advantage.