The Centers for Medicare & Medicaid Services (CMS) initiated the Hierarchical Condition Category (HCC) model in 2004 to adjust payments to Medicare Advantage Organizations (MAOs). The model has been more prevalent in recent years as HCCs are becoming more widely recognized as one of value-based programs' most important components. This heightened visibility is due in large part to the growth and success of Medicare Advantage as we'll explore below.
Medicare Advantage enrollment is growing Enrollment in Medicare Advantage has more than doubled over the past decade. Currently more than 28 million people are enrolled in a Medicare Advantage plan and the rapid growth is expected to continue as older adults are living longer. According to a 2021 “State of Medicare Advantage” report from the Better Medicare Alliance, the number of MA plans offered has also dramatically increased in recent years. The report found that in 2021, there were more than 4,800 plans offered - an increase of more than 2,100 compared to 2017.
The use of HCC's has become increasingly common as the industry transitions to a value-based system. Beyond Medicare Advantage, ACO's, ACA’S, and commercial payers have adopted the HCC model. This is due in large part to the success of HCC risk adjustment in helping to predict resource utilization, improve care and reduce costs for Medicare Advantage enrollees. Risk adjustment is the process of modifying payments and benchmarks to reflect the degree of illness, which in turn allows the Centers for Medicare & Medicaid Services (CMS) to estimate future spending and allows providers to understand the health characteristics of their managed population.
Recent research has shown compelling evidence that Medicare Advantage provides better clinical outcomes than traditional fee-for-service Medicare. A 2018 study found that MA members have 33% fewer emergency department admissions and almost 23% fewer standard hospital admissions compared to FFS Medicare. According to the study, use of emergency departments, ambulatory surgery and high-cost imaging are 20% to 30% lower in Medicare Advantage plans compared to FFS Medicare, and beneficiaries enrolled in Medicare Advantage receive about 10% fewer hip and knee replacements. The findings also suggest that risk-adjusted mortality is lower in Medicare Advantage plans, which may reflect better care coordination and greater use of preventive services.
Similar studies indicate that hospital costs and length-of-stays decline not only for seniors enrolled in MA plans, but also for beneficiaries still on the traditional program. Since healthcare providers typically treat all three beneficiary groups—traditional Medicare, Medicare Advantage and other privately insured patients— changes in treatment and practice patterns fostered by Medicare Advantage spread to the care delivered to all patients. In a paper published by the National Bureau of Economic Research, Harvard’s Katherine Baicker, Michael Chernew and Jacob Robbins have found that for every 10% increase in the uptake of Medicare Advantage, inpatient spending among FFS Medicare seniors falls by 5% to 10%.
Participation in CMS-HCC risk adjustment improves overall documentation and coding practices HCC risk adjustment emphasizes precise and accurate documentation. Just as improved treatment patterns spillover to non-MA patients, documentation practices tend to show overall improvement for organizations who have assumed accountability for MA patients. Plans and providers develop best practices for capturing the full disease burden resulting in higher and more appropriate reimbursement, improved financial health and better care delivery for all complex patient populations in their care.
Medicare Advantage is an affordable option for beneficiaries, and provides critical cost protections, including more savings relative to Traditional FFS Medicare and annual out-of-pocket limits. On average, Medicare Advantage members spend less on premiums and out-of-pocket costs than those enrolled in traditional FFS Medicare.
Another part of the appeal of MA for members is that the plans offer additional benefits beyond those afforded traditional Medicare members, such as dental and vision coverage as well as support for social needs.
MA enrollment is expected to continue growing steadily. 2022 will likely surpass the federal government's prediction of 29.5 million people.
There’s plenty to attract payers to Medicare Advantage but it's a competitive field. UnitedHealthcare, Humana and Blues plans continue to dominate the market. According to a recent study from the Kaiser Family Foundation, Humana and UnitedHealthcare together accounted for 45% of the MA market in 2021. However, new startups enter the market on a regular basis and many established mid-size plans have prioritized the product line. To compete in this market, these plans will need to define a strategy for operational excellence in order to accurately adjust for risk and increase the quality of care while maintaining margins and reducing costs.