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  1. Tipping the Scales Toward Medicare Advantage (at the Expense of Medicare)
  2. Does Observation Status Undercut Claims that Hospital Readmissions Have Been Reduced? MedPAC Says No, Research Says Yes.
  3. Another Week, More Health Care Sabotage
  4. CMS Reverses Obama Policy on Nursing Home Quality Enforcement
  5. World Elder Abuse Awareness Day at the UN

Tipping the Scales Toward Medicare Advantage (at the Expense of Medicare)

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Ranking Committee Members Echo Advocates’ Complaints to CMS about Draft 2019 Medicare & You

As discussed in a previous CMA Alert, the Center for Medicare Advocacy, Justice in Aging and the Medicare Rights Center recently sent a letter to the Centers for Medicare & Medicaid Services (CMS) raising “strong objections to serious inaccuracies” in the draft 2019 Medicare & You Handbook, and urged CMS to rectify the errors prior to dissemination. 

As stated in a joint press release about the letter, without fair and accurate information, older adults, people with disabilities and their families cannot make informed choices about their Medicare and health care coverage.  The organizations assert that rather than presenting information in an objective and unbiased way, the draft Handbook’s information about traditional Medicare and Medicare Advantage (MA) distorts and mischaracterizes facts in serious ways.

On June 14, 2018, Ranking Members Richard Neal and Frank Pallone, of the House Ways & Means and Energy & Commerce Committees, respectively, wrote a letter to CMS Administrator Seema Verma echoing many of the same concerns raised by our organizations.

Here is an excerpt from the letter, including questions posed to CMS:

The coverage decisions that beneficiaries make can have life-long ramifications. It is not the government's role to direct Americans to one choice over another – rather, its role is to provide fair and balanced information so individuals can reach their own conclusions based on their individual circumstances. To that end, we request responses to the following questions:

  1. How was the decision to make changes made?
  2. What is the rationale for each of the language edits specified above?
  3. To what extent were these changes vetted with beneficiaries and tested to ensure that they do not inadvertently lead seniors to false conclusions about their Medicare coverage options?
  4. Please provide the data/reports from the field testing conducted with consumers to inform these new changes.

Given our concerns, we respectfully request that you not include this language in future outreach, enrollment, or training materials and that copies of those final materials be provided in a timely manner to the undersigned.  We also request that you provide another copy of the handbook to relevant stakeholders prior to its publication.

Another Study Finds Medicare Advantage Plans are Overpaid Based on Enrollees’ Health

Payment to Medicare Advantage (MA) plans is based, in part, on the health of plans’ enrollees.  Recent studies have shown, however, that the amount that plans are paid is higher than warranted based on the health of their enrollees.  As described by the Medicare Payment Advisory Commission (MedPAC) in a fact sheet summarizing their March 2018 Report to Congress,

Medicare payments to MA plans are enrollee-specific, based on a plan’s payment rate and an enrollee’s risk score. Risk scores account for differences in expected medical costs and are based in part on diagnoses that providers code. MA plans have a financial incentive to ensure that their providers record all possible diagnoses because higher enrollee risk scores result in higher payments to the plan. For several years now, the Commission has observed that risk scores for MA enrollees are higher than the risk scores of similar beneficiaries in [traditional Medicare].

A recent study published in Health Services Research adds to an existing body of work surrounding the misalignment between MA payment and enrollees’ health status.  In a paper entitled “Getting What We Pay For: How Do Risk‐Based Payments to Medicare Advantage Plans Compare with Alternative Measures of Beneficiary Health Risk?” by Paul D. Jacobs Ph.D. and Richard Kronick Ph.D. (May 22, 2018), the authors posed the following questions: “[w]hat is the relative health risk of MA beneficiaries compared with those in traditional Medicare (TM), and how do these relative rates of underlying health risk compare with the risk-adjusted payments that plans receive?”

The authors analyzed Medicare claims and enrollment records for a sample of beneficiaries enrolled in Part D between 2008 and 2015, using prescription drug utilization data “independent of diagnostic information that MA plans report for their enrollees and that beneficiaries do not report themselves.” Among their findings was that in each year of their study period, “MA enrollees had substantially lower predicted health spending than enrollees in [traditional Medicare]” and “predicted spending was consistently lower for MA beneficiaries than beneficiaries in [traditional Medicare] across key subgroups, including those living in an institution, and those living in the community with or without Medicaid.”  While they found that the health risk of MA enrollees relative to those in traditional Medicare has been increasing over time, the rate of increase is “substantially less than the rate at which the risk scores used to pay MA plans are increasing.”

Noting that these findings have important implications for MA payment policy, the authors conclude that “our results provide further support for the premise that MA enrollees are no sicker, and may well be healthier, than similar beneficiaries in [traditional Medicare], and further support changing the method of computing the coding intensity adjustment to reflect this principle.”

Some analysts have tried to quantify how much MA plans are being overpaid based upon enrollees’ health status. A 2017 study published in Health Affairs found that coding intensity practices could result in overpayments to MA plans totaling $200 billion over the next decade.  Similarly, in April 2016, the General Accounting Office (GAO) issued a report stating that CMS estimates that about 9.5% of its annual payments to Medicare Advantage (MA) organizations were improper – totaling $14.1 billion in 2013 alone – “primarily stemming from unsupported diagnoses submitted by MA organizations.” 

At a time when the majority in Congress continues to propose budgets that would push more people into private plans and cut $537 from the Medicare program – following passage of a tax cut bill that will add over a trillion to the deficit – addressing MA overpayments should be low-hanging fruit, and should be addressed immediately. 


Does Observation Status Undercut Claims that Hospital Readmissions Have Been Reduced?  MedPAC Says No, Research Says Yes.

As required by the Affordable Care Act, the Medicare Hospital Readmissions Reduction Program (HRRP) reduces Medicare payment rates, by up to 3%, to hospitals that readmit patients with certain specified conditions within 30 days.[1]  The financial penalty is applied only when the patient’s initial hospital stay and subsequent hospital stay are both identified as inpatient.  However, if a patient is classified as an outpatient in observation status for either the initial or subsequent hospital stay, the penalty is not imposed. 

Does observation status affects claims about reduced hospital readmissions?  Research focusing on commercial payers finds that observation status completely offsets gains made in reducing hospital readmissions; the Medicare Payment Advisory Commission (MedPAC) finds that observation status has little effect on rehospitalization.

Research Study

A review of patient-level claims data, 2007-2015, for 350 commercial payers finds that apparent reductions in hospital readmissions are offset by hospitals’ increased use of observation status.  In other words, researchers find no change in the rate of hospital readmissions when the data include observation patients who return to the hospital for care within 30 days.[2]

Reducing rehospitalization of patients is a public policy goal that is viewed as reflecting a measure of quality.  However, as noted above, rehospitalization is defined as inpatient hospital status followed within 30 days by another inpatient hospital stay.  When either or both hospital stays are not classified as inpatient, a patient returning to the hospital for care is not considered to have been rehospitalized.  Accordingly, observation status for either the initial or subsequent hospital stay, or both, leads to patients not being counted in rehospitalization data.  Researchers document that excluding patients in observation status, which is considered an “outpatient” status, skews readmission data.

Researchers found that although the rate of rehospitalization for inpatients declined from 17.8% to 15.5% (a 2.3% decrease) between 2007 and 2015, “the rate of readmission after an observation stay increased from 10.9% to 14.8%” (a 3.9% increase) during the same nine-year period.[3]  When the researchers counted observation patients’ initial and returning stays as  hospital admissions, the reduction in readmissions declined to 1.2 per 1000 hospitalizations, “which suggests that there has been virtually no change in all-cause readmissions.”[4]

Researchers offer various explanations for why patients in observation return to the hospital for additional care.  A first explanation is that the severity of illnesses in observation patients has increased over time.  This explanation is consistent with researchers’ finding that there has been a large increase in the number of patients classified as observation, rather than inpatient.  (Indeed, the researchers found that in 2015, 14% of commercially-insured patients with emergency department visits were hospitalized and that 57% were admitted as inpatients while 43% were hospitalized as observation patients.[5])

A second explanation is that hospitals do not offer comprehensive care-coordination or discharge planning services to patients in observation status, as they offer inpatients.  A third explanation is that hospitals want to discharge observation patients in 48 hours, leading to premature discharges.[6]  Finally, hospitals are subject to regulatory consequences for engaging in poor discharges for inpatients while they “face no repercussions for unsafe or poorly handled discharges from observation care that may lead to repeat hospitalizations.”[7]

The researchers conclude that “excluding observation stays from readmission measures means that information on more than 400,000 additional unscheduled hospitalizations will be omitted from readmission measures each year.”[8]  They recognize that all patients need high-quality care transitions, whether they are inpatients or observation patients, and that repeated observation stays may reflect similar concerns about quality of care transitions as inpatient readmissions.[9]

MedPAC Report

As mandated by the 21st Century Cures Act, MedPAC examined how HRRP affected readmissions, observation stays, and emergency department (ED) visits (as well as mortality rates).[10]  MedPAC acknowledges that “The decline in readmission rates coincided with increases in the rate of observation and the rate of ED use”[11] and that “The joint timing of a decline in inpatient admissions with an increase in observation stays and ED visits suggests that there was some substituting of outpatient care for inpatient care.”[12]  Nevertheless, on several bases, MedPAC concludes that HRRP has not caused increased use of observation status.

Citing national data from 2010 to 2016, MedPAC reports, “The faster growth in ED visits and observation stays for those without a recent admission to the hospital allows us to conclude that the readmission policy was not likely the driver behind the ED and observation growth experienced.”[13]  MedPAC suggests that other policies that went into effect during the same general period as HRRP – audits by Recovery Audit Contractors and the two-midnight rule – also influenced the increased use of observation stays.[14]

MedPAC also looks at data at the hospital level.  Although “hospitals with above-average declines in readmissions did tend to have increases in observation and ED use,” MedPAC concludes that “only a small share of the increase in observation and ED use was related to the HRRP.”[15]  Additional evidence at the hospital level cited by MedPAC is that although rehospitalization rates for conditions covered by HRRP were greater than rehospitalization rates for conditions not covered by HRRP, there was no difference in observation stays or ED visits for patients in covered and non-covered conditions.[16]


Research with commercial payers finds that observation status outweighs claimed reductions in rehospitalizations.  MedPAC recognizes some correlation between HRRP and increases in observation status and ED use, but discounts arguments of cause and effect.  This seems counterintuitive.

There is no question, however, that observation status has a significant negative effect on Medicare beneficiaries, especially those who need care in a skilled nursing facility after they leave the hospital and are required to pay for that care entirely out-of-pocket.[17]

The Improving Access to Medicare Coverage Act of 2017 (S. 568/H.R. 1421), which counts all time in the hospital, whether “inpatient” or “outpatient,” would resolve the problem of observation for most beneficiaries, especially those who are most vulnerable.

[1] Section 3025, 42 U.S.C. §1395ww; 42 C.F.R. §§412.150-.154.
[2] Amber K. Sabbatini and Brad Wright, “Excluding Observation Stays from Readmission Rates – What Quality Measures Are Missing,” N. Eng. J. Med. 378; 22 (May 31, 2018) [hereafter “Excluding Observation Stays”].
[3] Id. 2063.
[4] Id.
[5] Id.
[6] In the Center’s experience, many patients in observation status remain hospitalized for longer than 48 hours.
[7] “Excluding Observation Stays,” supra note 1, at 2064.
[8] Id.
[9] Id.
[10] MedPAC, Report to the Congress: Medicare and the Health Care Delivery System (Jun. 2018), Chapter 1, “Mandated report: The effects of the Hospital Readmissions Reduction Program,” pp. 3-29.
[11] Id. 21.
[12] Id. 20.
[13] Id. 21.
[14] Id. 4, 20.
[15] Id. 22.
[16] Id. 22.
[17] See the Center for Medicare Advocacy’s materials on observation,


Another Week, More Health Care Sabotage

This week the Department of Labor issued the final rule for Association Health Plans. The release of this rule is yet another action taken by the Administration to undermine the Affordable Care Act (ACA). Expanding these Association Health Plans will make it easier for certain small employers to offer plans don’t provide ACA coverage protections. These plans could attract younger, healthier consumers out of the ACA Marketplace and raise costs for consumers who are older or sicker. These plans could weaken essential health benefits for people who need coverage the most and cause premiums to rise for others. Consumers who choose these so-called “plans” would find themselves without comprehensive coverage when they need care the most. Any plan that increases costs, weakens essential health benefits and doesn’t protect people with pre-existing conditions must be rejected.


CMS Reverses Obama Policy on Nursing Home Quality Enforcement

The Centers for Medicare & Medicaid Services (CMS) issued a Survey and Certification Letter on October 27, 2017, which outlined proposed changes to Chapter 7 of the State Operations Manual (SOM), and invited public comment. As the Center for Medicare Advocacy noted in a previous alert, the proposed changes sought to reverse surveyor guidance issued by the Obama Administration in 2016 and to make changes to federal enforcement policy that would:

  • Create a distinction between different types of immediate jeopardy that does not exist in federal regulations;
  • Allow CMS Regional Offices (ROs) to lower per day Civil Money Penalties (CMPs);
  • Allow CMS ROs to select remedies for deficiencies without regard to the scope and severity of the facility’s noncompliance (in a manner that seemingly violates federal regulations); and
  • Allow CMS ROs discretion in determining whether to apply the immediate imposition of remedies at all for past noncompliance.

The Center for Medicare Advocacy and the Long Term Care Community Coalition submitted joint comments on November 22, 2017, expressing our opposition to CMS’s proposed changes and arguing that such changes could lead to a greater risk of resident harm. Unfortunately, CMS has chosen to move forward with their proposal. On June 15, 2018, CMS issued a Quality, Safety & Oversight (QSO, former S&C) Letter that made the proposed changes final.

While CMS has made some minor adjustments to the language in the proposed revisions, the overall impact that these changes could have on resident care and quality of life remain the same.


World Elder Abuse Awareness Day at the UN

The Center for Medicare Advocacy was pleased to have participated in the World Elder Abuse Awareness Day observance at the United Nations (UN) in New York. The theme for this year’s observance was “Moving from Awareness to Action through a Human Rights based approach. In attendance were NGOs, representatives from the UN Focal Point on Ageing, and international advocates for the human rights of older people.

The discussion focused on mobilizing stakeholders, challenging social norms, and preventing elder maltreatment through a human rights-based approach. Representatives from Europe, Asia, Latin America and North America shared innovations from their regions to improve the lives of their older citizens. An especially timely presentation focused on protections for older residents of nursing homes and long term care facilities. The Deputy Permanent Representative of the Mission of Argentina to the United Nations was on hand to speak about the need for increased advocacy within the UN for the rights of older people.      

Elder maltreatment is a global and growing human rights issue. According to the World Health Organization, 1 in 6 people aged 60 and over experienced abuse, and only 1 in 24 cases of abuse ever gets reported. Article 3 of the Universal Declaration of Human Rights States that “Everyone has the right to life, liberty and security of person.” Advocates must work with governments to ensure this remains true for all older people in our communities.

The Center for Medicare Advocacy is committed to ensuring that older people’s rights “to life, liberty and security of person” are realized by gaining access to health care and the ability to live in safety and dignity.  


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