DSNP Bid Strategies for CY 2021: Challenges and Opportunities
Earlier this month, dual eligible special needs plans (DSNP) submitted their CY 2021 bids to the Centers for Medicare and Medicaid Services (CMS). These bids include details on the specific supplemental benefits DSNPs will offer in 2021, beyond the basic Medicare Part A and B benefits. While the public won’t have visibility into these supplemental benefits until we get closer to the start of the annual enrollment period (AEP) on October 15, 2020, now is a good time to take stock of the unique issues DSNPs faced in building their bids this year.
The challenges go beyond forecasting the course of the coronavirus pandemic – although that is certainly a major issue – and include folding into the bids the new federal Medicare-Medicaid integration requirements that begin in 2021, more active state Medicaid agency engagement in the overall bid process, and new benefit flexibilities from CMS.
This note will preview the strategic considerations DSNPs faced in building their bids. How each organization built its bid will dictate critical business outcomes, including the strength of its relationship with state Medicaid agencies, the membership growth (and retention of existing members) it can expect, the effectiveness of using non-health care related interventions to drive health outcomes, and many other strategic outcomes.
Building the Baseline
The focus of this note will be a DSNP’s strategic choices in building supplemental benefits in the CY 2021 bid. In order to get there, however, we need to talk about the baseline assumptions that dictate what a DSNP can afford to offer in supplemental benefits.
1. Bidding and Benchmarks
Every year, CMS determines a benchmark price for each county. Roughly speaking, the benchmark is CMS’s estimate of what it would cost Medicare’s fee-for-service (FFS) program to deliver Medicare Part A and B services to an average Medicare beneficiary in that county. (An average DSNP member has a higher acuity level than an average Medicare beneficiary, and CMS reflects this through risk adjustment.) The benchmark price can be quite high in a county with historic overutilization in Medicare FFS; alternatively, the benchmark price is very low in a county with conservative practice patterns and low FFS utilization among providers.
A DSNP develops its annual bid against this benchmark price in its service area. The DSNP can elect to bid below the benchmark and use the difference to invest in supplemental benefits in order to avoid a rebate. This bid strategy is entirely dependent on making a bet that the DSNP will deliver the required Part A and B services below what it would cost Medicare FFS.
It’s also important to note that a DSNP’s Star rating (based on quality) affects its individual benchmark. The benchmark for a DSNP with a 4+ Star rating is set higher than the benchmark for a DSNP with only a 3.5 Star rating – to incentivize and reward higher quality – and this is reflected in the individual plan’s benchmarks.
2. The basics
To illustrate, I’m going to compare two DSNPs in their approaches. Let’s assume that DSNP No. 1 is a 4.0 Star rating, and DSNP No. 2 has only a 3.5 Star rating. This difference is worth about $40 per-member per-month (PMPM) for an average Medicare beneficiary. (It’s really worth about $60-$80 PMPM in a DSNP, when the higher average acuity level of a dual eligible in a DSNP is taken into account.) Let’s assume that the county-level benchmark for both of these DSNPs is $650 PMPM, and the DSNPs build their respective bids aware of this county-level benchmark price.
· Medical spending on required Medicare services
Before even talking about supplemental benefits, we need to figure out how much the DSNP will spend on the required Medicare Part A and B benefits in 2021, such as hospital and physician services. This is an area where it’s going to be very interesting to see how different DSNPs build their forecasts, in light of Covid-19. There is no debate that health care utilization has fallen dramatically in 2020, because of avoided elective procedures and in-person care due to the pandemic. Is all that deferred care going to result in pent-up demand in 2021? Or will individuals still avoid elective or optional care, perhaps because a Covid-19 vaccine isn’t widely available until well into 2021? Will individuals present for care at a much sicker phase of the disease progression? How much have services permanently moved toward telehealth instead of clinic-based care? What is the trajectory back to “normal” – and what is that normal?
DSNP No. 1. Imagine that the first DSNP’s actuaries assume a best-case scenario: utilization of required Medicare services will remain suppressed in 2021; the new-normal is deferring or avoiding care (or using telehealth instead of hospital outpatient departments); some deferred care never returns; and there is a widely available vaccine/low Covid-19 burden starting early in 2021. This DSNP might forecast that coverage of required Medicare Part A and B benefits will only cost $580 PMPM, and the bid is developed accordingly.
DSNP No. 2. Imagine that its competitor, a different DSNP, assumes the opposite: coverage of a massive amount of medically necessary but elective procedures that were deferred in 2020 suddenly shows up in 2021; a significant volume in visits to the emergency room and doctors’ offices occurs to address conditions that got worse when people sheltered in place; plus a vaccine for Covid-19 doesn’t arrive until well into 2021. This DSNP’s actuaries might build into its baseline an assumption of $660 PMPM in medical spending just for required Medicare Part A and B benefits. In this scenario, the bid is already above the county-level benchmark of $650 PMPM, and the DSNP would have virtually no resources to invest in supplemental benefits
· Medical spending on new Medicare-Medicaid integration requirements
Effective January 2021, DSNPs must meet new federal requirements to help their members access and secure the Medicaid benefits necessary to address their assessed needs, such as long-term services and supports (LTSS) and specialty behavioral health.[1] Among other things, the new federal requirements obligate DSNPs to help arrange for members to access medically necessary Medicaid benefits, and to coordinate with the Medicaid program in transitions of care.
These requirements will add new dimensions to DSNP-funded care coordination, which is an activity that is considered medical under the MLR test.
DSNP No. 1. Imagine that the first DSNP builds a care coordination staffing model based on its assumption that its membership will have a low prevalence of complex Medicaid LTSS and specialty behavioral health needs, and the clinical model it will deploy is a telephonic care coordination model using social workers. This DSNP might estimate the medical cost of the new federal requirements to be $10 PMPM.
DSNP No. 2. Imagine that the second DSNP makes a different set of assumptions: a high prevalence of members with complex Medicaid needs, and the best clinical model is a high-touch model for care coordination using nurses. This DSNP might estimate the medical cost of meeting the new federal requirements, based on its model and population, is $20 PMPM
3. Roll-up pro formas and available funds for supplemental benefits
Based on those two major – and new -- variables for building the respective bids for 2021, the two DSNPs mentioned above would start from a fundamentally different place in what they can afford to offer in supplemental benefits in 2021.[2]
In my illustration, DSNP No. 1 would have $100 PMPM to invest in supplemental benefits to avoid a rebate, and DSNP No. 2 wouldn’t have anything, as shown here:
Supplemental Benefits and Benefit Flexibility
Once that baseline forecast is complete, a DSNP will then set its budget for supplemental benefits. And perhaps it goes without saying that a DSNP can elect to fund supplemental benefits beyond the amount needed to avoid a rebate position. For example, a DSNP can lower its profit margin in its bid assumptions in order to invest more in supplemental benefits, in a play to offer the best package and attract the largest membership during the annual enrollment period (AEP).
1. Types of supplemental benefits
Usually, the discussion about supplemental benefits then becomes focused on the types of supplemental benefits, and in general there are three types:
· Traditional “primarily health-related” benefits
This list includes over-the-counter (OTC) medications, dental benefits including dentures, vision benefits including eyeglasses, non-emergency transportation to medical appointments, post-discharge meals at home, and other benefits. This list also includes covering a member’s coinsurance/out-of-pocket. In the case of a DSNP, where the member generally doesn’t have to pay this cost sharing, the effect of buying down the coinsurance is that the DSNP helps the state Medicaid agency’s budget, since the state otherwise has to pay the dual eligible’s Medicare-related coinsurance/deductible.
· Primarily health-related benefits added in 2019
CMS recently expanded the definition of health-related benefits to include benefits that address functional limitations and physical impairments, among other disabilities. Thus, newly-added health-related benefits include in-home supportive services, adult day health, respite care, homemaker services (e.g. laundry, meal preparation), and other new primarily health-related benefits.
· Non-primarily health-related benefits
The Bipartisan Budget Act of 2018 formalized mechanisms for Medicare Advantage plans, including DSNPs, to
offer different types of targeted non-primarily health related benefits. Sometimes the targeting is based on chronic conditions (meaning the benefits only are available to members with that condition – this is known as Special Supplemental Benefits for the Chronically Ill, or SSBCI)), and sometimes the targeting is based on evaluating the effectiveness of demonstrating value-based insurance design (VBID) principles using diagnosis or income levels for targeting, almost like a Medicaid waiver demonstration.
Non-primarily health-related benefits include meals (unrelated to hospital discharge), home modifications like grab bars and wheelchair ramps, pest control services, service dog support, home air quality systems, and transportation for non-medical purposes.
2. Strategies about supplemental benefits
The inclusion of specific supplemental benefits in a DSNP’s bid needs to serve an organization’s strategic goals. In general, for a DSNP, the supplemental benefits incorporated in the bid will serve one of three distinct strategies: (a) strengthening the relationship with the state Medicaid agency; (b) improving health outcomes and Star ratings/quality results; or (c) growing membership by including benefits that are most attractive to members during the AEP sales cycle (and subsequent enrollment switching periods). Taking these in order:
· Strengthening the state Medicaid relationship
Many benefits will help the state Medicaid agency. Sometimes, the state relationship is advanced through covering the coinsurance/cost sharing the state would have to pay, thereby saving the state money in its budget. Sometimes, the DSNP helps the state by extending a benefit that perhaps the state doesn’t offer, such as dental or vision services. Sometimes, the DSNP can help the state by using the VBID flexibility to target LTSS benefits to dual eligibles who might be on a wait list for Medicaid-funded LTSS (using Medicare’s Part D low-income subsidy eligibility as a proxy for targeting).
One clear strategy a DSNP can deploy is using its available supplemental benefit budget for state relationship purposes. And one clear risk to the DSNP is that, in subsequent years, the state might expect this as an ongoing commitment, even though the available budget for supplemental benefits fluctuates.[3]
· Health outcomes/Star ratings/quality
The next strategic goal is intended to drive health and quality outcomes. Focused on this goal, a DSNP might invest in post-discharge meals to avoid hospital readmissions, or it might pay for unlimited transportation (trips) to get to medical appointments and close gaps in care through these visits.
· Membership growth
The last – and by no means least – strategic goal is growing membership. Focused on this, a DSNP might offer an OTC benefit with a debit card (to get non-prescription medications or first aid) that is easily used at chain drugstores or grocery stores. Similarly, growth is driven through benefits like dental visits and dentures (which aren’t covered by Medicare), or by a VBID food benefit, such as a debit card to pay $25 or $50 worth of healthy groceries each month.
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Ultimately, we won’t know how each DSNP grappled with these decisions until it gets closer to the start of AEP on October 15. Only then will we see how DSNPs analyzed the impact of Covid-19 on utilization of required medical services in 2021, and how those actuarial risk tolerances set supplemental benefit budgets, as well as how DSNPs considered the strategic tradeoffs between advancing the state relationship, driving health outcomes/quality, and sales/growth. My personal bet is that many DSNPs will make fairly heavy bets on ample supplemental benefits (making a wager there won’t be pent-up demand for elective and deferred services), and that the supplemental benefit investments will largely focus on the state relationship, and membership growth.
For more information
Medicare Advantage Supplemental Benefit Flexibilities: Adoption of and Access to Newly Expanded Supplemental Benefits in 2020. Health Management Associates: https://www.healthmanagement.com/wp-content/uploads/Medicare_Advantage_Supplemental_Benefit_Flexibilities_Issue_Brief_2-27-20_HMA.pdf
Meeting Medicare Beneficiary Needs During COVID-19: Using Medicare Advantage Supplemental Benefits to Respond to the Pandemic. ATI Advisory: https://atiadvisory.com/wp-content/uploads/2020/05/05-26-2020_Meeting-Medicare-Beneficiary-Needs-During-COVID-19.pdf
Sample Language for State Medicaid Agency Contracts with Dual Eligible Special Needs Plans. Integrated Care Resource Center: https://www.integratedcareresourcecenter.com/sites/default/files/ICRC_SMACSampleLanguage.pdf
Medicare Advantage Program Payment System. MedPAC: http://www.medpac.gov/docs/default-source/payment-basics/medpac_payment_basics_19_ma_final_sec.pdf?sfvrsn=0
Medicaid-Capitated D-SNPs: An Innovative Path to Medicare-Medicaid Integration. ATI Advisory (Rizer): https://atiadvisory.com/medicaid-capitated-d-snps-an-innovative-path-to-medicare-medicaid-integration
[1] Here, I will focus on DSNPs that are not fully-integrated DSNPs (FIDE SNPs) or highly-integrated DSNPs (HIDE SNPs). Instead, I will focus on DSNPs that don’t necessarily deliver the Medicaid benefits directly, but instead need to coordinate with the entities that deliver those Medicaid benefits.
[2] It’s also worth noting that states increasingly are adding administrative requirements (and administrative costs) to DSNPs, analogous to ordinary state procurement rules. For example, DSNPs increasingly are seeing requirements like set-asides for businesses owned by minority and veteran-owned businesses, use of domestic call centers, use of state-specific forms such as health risk assessments, and similar mandates.
[3] The month of June is always an odd month in the business cycle for DSNPs. The DSNP bids -- including the composition of supplemental benefits -- have already been submitted to CMS; the bids were due on June 1, 2020. However, the MIPPA contract the DSNP needs with its state Medicaid agency to operate isn’t due to CMS until early July each year. (It’s called a MIPPA because the requirement arose from the Medicare Improvements for Patients and Providers Act of 2008.). This timing anomaly exists every year, and it means some states that wait until the month of June to negotiate and execute the MIPPA might insist on some supplemental benefit, as a condition of signing the MIPPA, well after the bid was actually delivered to CMS. This year, the MIPPA is due to CMS on July 6, although CMS is willing to accept a letter of intent this year due to the Covid-19 pandemic.