Cindy Dyer

Though it might seem counterintuitive in a year that saw the U.S. healthcare system buckle under the strain of a pandemic-driven surge in demand, overall healthcare costs were down in 2020. New data from the Peterson Center on Healthcare and Kaiser Family Foundation show 

 declined roughly 2.7% last year as of December 2020, making it “the first time in recorded history,” that annual U.S. healthcare spending fell, the study authors write,.

It’s easy to understand why. Think about the appointments you or your loved ones canceled last spring and summer or the ones canceled by your providers. Then there was the care deferred—annual physicals, elective procedures, visits to specialists—because of quarantine measures and fear. These deferred episodes of care represent billions in lost revenue for healthcare providers.

The impact of COVID-19 on healthcare provider finances, however, extends well beyond 2020. The sharp decrease in costs has created an unprecedented financial forecasting challenge for Medicare Advantage (MA) physician practices submitting bids to the Centers for Medicare & Medicaid Services (CMS) for the upcoming plan year.

Confidentiality and consent considerations when treating minors

Fortunately, CMS appears to recognize that practices essentially are flying without radar in planning revenue for next year. The federal agency 

 the final rule for its MA and Part D payment methodologies for the 2022 contract year in January. In recent years, CMS has announced the Medicare Advantage and Part D rules four months later in May. This final rule, which will go into effect in 2021, and the timing of its announcement makes it clear that CMS considers this to be a transition year for both MA practices and beneficiaries.

CMS included several unexpected updates in the final rule, some of which address payment growth rate. Below are the biggest changes in the MA and Part D final rule for 2022 that could have a financial impact on physician practices. Understanding the implications of these changes will help physician practices improve efficiency and profitability.

During the pandemic, physician practices ramped up the use of telehealth to the point that 60% of Medicare beneficiaries with a regular provider said they 

 to telehealth appointments. Given that 91% of Medicare Advantage plan members 

 at least somewhat favorable telehealth experiences and 82% of seniors have high-speed 

, telehealth use is highly likely to increase.

Telehealth was such a huge success during the pandemic—even among seniors—that the Medicare 

 for virtual care enacted early in the pandemic have been retained in the 2022 MA final rule. This means CMS will continue to treat telehealth-permissible codes the same as in-person codes. Further, the virtual care encounter data can be applied toward risk scores.

After a year in which the pandemic created confusion over coding that resulted in disruptions to provider revenue cycles, the CMS decision to maintain continuity in telehealth coding means physician practices can continue to promote telehealth services to their MA members without worrying about code-related claims delays and denials.

In the rule’s Advance Notice, CMS estimated the effective payment growth rate for 2022 would be 4.55%. That jumped to 5.59% in the final rule, however, resulting in a 4.08% increase in revenue. For MA organizations, this is a promising sign because it indicates CMS is not anticipating a significant cost rebound after the major revenue decrease caused by deferred or foregone care.

Nonetheless, health plans cannot afford to remain complacent. Contract bids to CMS must be based on the most current and accurate Hierarchical Condition Category (HCC) data available. If plan members have been avoiding in-person care, such as their Annual Wellness Visits, for a year or more, the risk of new care gaps or chronic conditions increases. Member outreach and engagement efforts need to ramp up this year to close care gaps and identify any new health challenges that may have emerged in 2020. 

Payment growth will be higher than expected in 2022; however, for some payers, this revenue increase may be offset due to changes in the risk adjustment factor (RAF) score calculation. As announced years ago, the RAF score in 2022 will be based exclusively on data from the Encounter Data System (EDS) and fee-for-service claims rather than a blend of encounter data and Risk Adjustment Processing System (RAPS) data.

Once again, the challenge for MA plans is incomplete data to calculate an accurate risk score because members forego care, resulting in missing or overlooked HCCs. While the accuracy of these scores can be improved by encouraging members to seek preventive care or chronic condition management, MA payers should expect a small financial loss per member per year due to the EDS transition and incomplete data.

Newer MA practices would be well-advised to consult partners with experience in the technical requirements to calculate accurate risk scores and avoid financial losses in the contract year.

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Updates to the Part D Hierarchical Condition Category (RxHCC) model in the 2022 final rule may impact the bottom lines of MA practices. Risk score calculations, for example, will be based on 2017 diagnoses paired with 2018 drug data, each updated by three years. As is the case with the RAF score, the RxHCC will be based solely on encounter data, which may be lacking for most practices because members have delayed or foregone care.

 show an across-the-board risk score decrease for RxHCC, which translates into reduced revenue for MA practices on drug costs. Fortunately, plans can expect to recover those losses in the coming year as more members return to in-person care.

Under the 2022 MA contract, individuals with end-stage renal disease (ESRD) will be allowed to enroll in a plan for the first time. Although increasing membership is a primary goal of every MA practice, ESRD is an expensive condition to manage. One study showed that in 2016, the average beneficiary with ESRD cost 

 for the year. That’s six times more than the $10,182 cost per beneficiary without the condition. Costs for members with ESRD exceeded MA benchmarks in nearly 

Going into the contract bidding process for 2022, MA practices should ensure they have the most accurate and timely data available on new members with ESRD to avoid large and unanticipated financial losses.

The MA and Part D final rule for 2022 makes it evident that while CMS expects 2021 will be a post-COVID-19 transition year for MA practices and beneficiaries alike, the agency does not foresee a deluge of utilization after more than a year of deferred care. The biggest variable is the health status of MA members, which could impact the bidding submission process for physician practices.

We can expect many fully vaccinated members to resume in-person care this year, which will give MA plans a more consistent and reliable stream of data for their financial projections. MA practices that use the right data management, member outreach, and engagement tools will increase their chances for a smooth transition to 2022.

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