How will Medicare Advantage Developments Affect Your Products?

July 16, 2013 at 12:00 PM 1 comment

Around the same time the health insurance exchanges open in three months, so will the next enrollment period for Medicare Advantage plans. While it is unclear if enrollment numbers will rise or decline, it is for certain that healthcare manufacturers need to keep quality-based performance in mind if they wish to have their products covered by Medicare Advantage plans.

In 2010 when the Affordable Care Act implemented reduced payments to Medicare Advantage plans, many government officials, like those from the Congressional Budget Office (CBO) and the Centers for Medicare and Medicaid Services (CMS) Office of the Actuary (OACT), predicted enrollment would drop.

Is this what actually happened though? Take a look at the diagram1 below to see for yourself.


As you can see from the figure, although the OACT and CBO predicted a decrease in Medicare Advantage enrollment, the number of people enrolled actually increased significantly from 11.1 million in 2010 to 14.4 million in 2013. There isn’t any one reason why enrollment increased instead of decreased however. Two of the most likely explanations could be that the plans were able to keep their premiums low and/or the baby boomer generation is more comfortable with managed care plans than other generations were.

After 2014 however, the CBO and OACT projections start to differ; the CBO predicts a steady increase of enrollment while the OACT predicts a drop in enrollment followed by a gradual increase in 2018. Because of this split prediction, no one is positive as to how enrollment will play out over the next few years.

If enrollment continues to rise like the CBO predicts, it will be increasingly important for drug and device manufacturers to develop and maintain marketing relationships with Medicare Advantage plans. This is especially important if there are additional reductions in Medicare federal payments and insurers decide to cut back on their benefits programs.

In 2010, CMS cut federal payments to individuals in Medicare Advantage plans by 14%2. To help compensate for this reduction, CMS provides those plans that earn high quality ratings with bonus payments. These quality-based bonuses are based on Medicare Stars ratings. Because these bonus payments are a significant amount, they can be one of the most important determinants of a Medicare Advantage plan’s profitability.

By rewarding performance based on quality, insurance companies are encouraged to prefer products that deliver the greatest value.  Value is based on improvement in quality of care as a function of cost. The quality of a medical device, therapy, or other product needs to be validated before an insurer will consider including it under their plan.

Therefore, it is beneficial to healthcare manufacturers if they can demonstrate that their products drive improvements in scores for publicly-reported quality measures. If enrollment in Medicare Advantage plans grows, there will be an increasing importance in developing peer-reviewed clinical data that demonstrates a product’s value specifically for the Medicare population.

For more blog entries like this one, click on the links below:
Why Market Access is Crucial for Healthcare Marketers Today
Differentiating a Core Hospital-based Therapy
ACA to Greatly Benefit those with Pre-existing Conditions


Entry filed under: Healthcare Reform. Tags: , , , , , .

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