CMS Says Medicare Advantage Plans Can Offer More Benefits, and Seniors Housing Providers May Be the Real Beneficiaries
Each year the Centers for Medicare & Medicaid Services (CMS) announces adjustments to regulations and compensation for Medicare Advantage for the following year. Medicare Advantage (MA) providers then have a widow of time in which to submit to the federal government program designs for the following year’s MA plans in compliance with the announced adjustments.
MA plans are paid per plan enrollee, known as a “capitated rate,” by the federal government to provide medical coverage for Medicare beneficiaries in lieu of traditional Medicare coverage. MA plans may offer benefits in addition to what traditional Medicare covers, which is what attracts many consumers to this product.
This year’s annual announcement by CMS, referred to as a call letter, included a potentially big shift in policy relative to these additional benefits by expanding the definition of “healthcare benefits.” Plans may now include coverage for services related to “daily maintenance,” which may include devices and services that keep frail people healthy but which may not be a direct medical cost, such as a fall prevention device. Previously, MA providers have had their hands tied when it came to such benefits because regulations prohibited the spending of Medicare dollars on these types of services.
In light of the growing body of research demonstrating that providing these services to the frail elderly can actually drive down medical costs, thereby saving Medicare money, it seems the policy direction is changing. As is always the case, CMS aims to produce policies that will bend the cost curve, and this new policy may help do that.
CMS has promised to deliver more guidance before the MA plans must turn in their program designs for 2019. But potential changes could have big implications for seniors housing providers. For example, some or all of the services provided in assisted living could meet CMS’s definition of allowable benefits for MA plans to cover. That could mean assisted living residents with MA plans that include these benefits might only have to pay for the room and board portion of their monthly rent, with MA covering some or all of the services. In other words, out-of-pocket costs to consumers could decrease considerably. As prices go down, demand for assisted living could go up.
Seniors housing providers may find it beneficial to partner with MA plans as a way to gain market share. Keep in mind that because MA plans operate like private insurance policies, they also have networks, often highly selective networks. If an assisted living provider can get into one of those networks to offer this newly approved line of services, they may be positioning themselves to inherit a piece of that MA plan’s population.
An even bolder step could be for assisted living providers to develop their own MA plans for their residents. In fact, even before this CMS announcement, panelists at the 2018 NIC Spring Investment Forum addressed the subject of partnering with MA plans or developing MA plans for residents. The policy shift by CMS underscores the viability of that business strategy, which may also improve the quality of life for seniors housing residents and their families by reducing out-of-pocket costs and improving care coordination.
Fallout for skilled nursing
On the skilled side, the implications of the proposed policy are mostly “more of the same.” By enabling MA plans to cover these new benefits, which resemble home care and assisted living services, CMS is once again pushing policies aimed to reduce the use of more expensive skilled nursing facilities.
For example, let’s say a frail senior who needs help with two activities of daily living enrolls in an MA plan that offers home care visits to help with bathing and medication adherence. The elder experiences an acute episode with a short hospital stay. In the past, she may have received some post-acute care in a skilled nursing property, but in the future, that may not be the case. The MA plan may be able to increase the number of services the home care provider delivers to the elder during the recovery period while also dispatching home health for post-acute care. If this approach is less expensive for the MA plan than a short skilled nursing stay, you can bet the MA plan will opt for the former whenever possible.
Of course, this scenario will never replace the skilled nursing stay outright—some people have acuity needs that require the level of care only available in a skilled nursing facility—but it could steal some market share from skilled nursing operators. However, skilled nursing operators could benefit from this new rule under a very broad interpretation. Imagine if some services provided to long-term nursing home residents could be covered by MA. Those residents could supplement their cost of care just as assisted living residents may be able to lower their out-of-pocket expenses. In this scenario, skilled nursing operators may benefit because their private pay residents, who pay on average $257 per day according to the NIC Skilled Nursing Data Report, maintain their assets longer, avoiding “spend-down.” Once long-term residents in nursing homes exhaust their assets while paying for skilled care, Medicaid takes over as the payor. Medicaid pays for two thirds of patient days in nursing homes, but at a rate much lower than the average private pay daily rate of only $206. If skilled nursing providers can keep their residents paying out-of-pocket at the $257 rate for longer by lowering the actual rate incurred by residents and recouping the remainder from MA—that may be a win. It’s worth noting that the Skilled Nursing Data Report also indicates that MA is much more prominent in urban areas, so rural providers may see little to no change if this scenario played out.
Ultimately all of these scenarios are broad hypotheticals until CMS delivers more guidance. But it’s important to note that in 2020, even more MA plan benefit changes will kick in for chronically ill patients. The next two years and beyond will likely serve as the testing grounds for how these benefits may be offered and also will determine if MA plans can remain or become more profitable by offering these benefits. And you can bet there will be an abundance of new data to determine if consumers are actually healthier and happier as a result of any policy changes.
If these experiments result in wins for the MA plans and patients, we could see similar policy changes implemented for traditional Medicare, which covers most Medicare-eligible seniors. Such a policy shift would be far down the road, but isn’t unrealistic. Often MA serves as a sort of testing ground for new healthcare delivery policies, and successful tactics are sometimes translated across to traditional Medicare. There is no way to predict if that could happen, but if this policy is effective and CMS thinks it can save Medicare money by implementing something similar in traditional Medicare, it’s certainly a possibility.