Medicare Advantage (MA) is complex, and there are many risks for senior living providers involved in joining or starting a plan.
But the risks are perhaps even greater for senior living providers who wait on the sidelines for others to figure it out, according to Juniper Communities Founder and CEO Lynne Katzmann.
“If you wait too much longer, the market will be taken by a whole variety of other people. There’s too much money at stake,” Katzmann said. “And we as senior housing providers have to make a move if we are going to take our seat at the table.”
Katzmann shared these views during Senior Housing News’ annual summit in Washington, D.C. last week. She was joined by representatives from Catonsville, Maryland-based Erickson Living and Optum CCM, an Eden Prairie, Minnesota firm that is part of UnitedHealthGroup, and provides care services to MA beneficiaries and helps providers navigate the ins and outs of Medicare Advantage.
The wide-ranging discussion at the summit spanned many topics, from ways to get paid under Medicare Advantage to the minimum scale needed to make such a plan work. The senior living industry has an increased interest in Medicare Advantage thanks to the Centers for Medicare & Medicaid Services (CMS) granting new flexibilities to cover services related to managing chronic conditions and social determinants of health. In the future, senior living MA plans could cover transportation, food, and health care services that are the bread-and-butter of what providers offer to residents.
Although residents will likely always make rent payments out of pocket, there is significant interest in and exploration of ways Medicare Advantage can support senior living services that manage chronic conditions to reduce medical care costs while improving quality and customer satisfaction.
Here are five notable numbers for senior living providers interested in the growing Medicare Advantage opportunity:
Erickson Living has played in the Medicare Advantage space now for more than 14 years, and it’s learned a lot along the way. Erickson is one of the largest providers in the nation, with more than 21,000 units across 19 properties, according to 2019 rankings from industry association Argentum.
While the company’s first foray into Medicare Advantage was a Medicare Part C plan with BlueCross BlueShield of Maryland in the late 1990s, that plan ultimately folded after the insurance provider pulled the plug. In 2005 that the company began a Medicare Advantage plan for its continuing care retirement communities (CCRCs) with a new partner.
That plan, a joint venture with UnitedHealthcare dubbed Erickson Advantage, today serves about 5,000 residents, according to Matthew Narrett, the company’s chief medical officer.
While Erickson represents one way of making the model work, the new MA flexibility is prompting other senior living to chart their own path through the space, including by starting their own plans without the affiliation of major insurers like United.
One such example is a new MA collaboration among 10 senior living companies in the Twin Cities area of Minnesota, in partnership with Minneapolis-based nonprofit health plan Medica and integrated care provider Genevive. The senior living providers together have 78 communities, representing about 5,500 eligible beneficiaries.
Another instance lies in the Perennial Consortium, a Medicare Advantage collective formed by Christian Living Communities, Juniper Communities, Ohio Living and AllyAlign Health. As planned, the organizations will launch MA special needs plans on a state-by-state basis, starting with Colorado and Ohio.
While it’s possible for senior living providers to start their own plans with the help of organizations like AllyAlign, other organizations might choose the Erickson model of teaming up with a major player like UnitedHealth. Some might be leary of doing so, based on the example of what happened in the skilled nursing space, where Medicare Advantage has been more entrenched. There, SNF providers have protested that MA has not worked well, for several reasons, Katzmann observed.
For example, they have said that plans put pressure on them to decrease length of stay, cutting into their profitability without giving them enough of the upside that results from decreased SNF usage.
But the Erickson example does go to show that senior living providers and health insurance giants can have productive, mutually beneficial long-term partnerships. It’s crucial to have a true joint venture partnership from a financial standpoint, Narrett said.
“It stood the test of time for 14 years. We split the management dollars and we split the risk,” he explained during the panel. “It’s important for both parties to have downside and upside risk.”
While senior living providers haven’t had to worry about star ratings in the past, the scores are imperative for providers that want to start or participate in a Medicare Advantage plan. Star ratings are determined by CMS based on dozens of measures, all aimed at driving down costs and keeping older adults healthier. Ultimately, they are meant as a consumer tool to help people evaluate the quality of plans that they might want to join.
Star ratings also help determine how much providers are paid, with higher Medicare reimbursement rates at 4, 4.5 and 5 stars. Boosting star ratings is key for providers in the MA space, as margins are thin and every dollar counts.
The Perennial Consortium is set to start at 3.5 stars when it launches in 2021, due to the way CMS assigns star ratings, according to Katzmann.
“We can’t even increase our stars, even if we’re perfect, for another couple of years,” she explained.
To ensure it’s on the right track with regard to its star rating, Perennial is working with its affiliated primary care practice, Redwood Health, to collect and submit claims data a full year before it’s due to launch.
“One of the reasons Perennial has a long runway is because of that,” Katzmann said. “We understand what we need to do to maximize reimbursement and minimize risk, and both are part of that runway.”
There are four main ways for senior living providers to make money in Medicare Advantage, according to Katzmann:
— By offering supplemental benefits, which traditionally are 4% to 6% of premiums. In assisted living, a typical MA premium is $2,000 a month, equating to $80 to $120 per resident, Katzmann said. The new MA flexibilities allow for more varied supplemental benefits to be offered than in the past, such as those covering transportation.
— Payment for services rendered.
— Gainsharing and controlling Medicare dollars. “[Assuming] Medicare pays you $2,000 a month, 85% of that has to be spent on medical benefits,” she explained. “If you spend less than that 85%, you get to keep the difference.” Providers who control how those savings are shared in the end stand to make “real money,” Katzmann said.
— Terminal value, or the long-term value of the plan. “We’re not starting Perennial to sell it, but there is terminal value in the plan. MA is a big growth area,” Katzmann added.
Putting all the pieces together, providers could stand to make money by implementing Medicare Advantage.
Katzmann shared a hypothetical scenario of a 100-bed building where half of the residents are beneficiaries in an MA plan. In this example, the provider took in about $350 per resident, per month on services rendered, gain share and profits — assuming they did a good job managing care and avoiding unnecessary and high-cost services.
“If you add to that increased length of stay and additional care charges relative to the people you can now serve, you end up with quite a big chunk of change, about $281,000 per year,” Katzmann said. “If you cap that at 8%, it’s equivalent to another $3.5 million in value.”
That’s roughly in line with another similar model presented at the National Investment Center for Seniors Housing & Care (NIC) spring conference in San Diego this year. Under that hypothetical scenario, a 100-bed building that embraces the new direction of health care and MA plans would see higher average occupancy, longer length of stay and ultimately a higher property value.
But there are risks involved in offering MA plans, Katzmann and Narrett were quick to point out. It’s a point that was driven home by Jan Eyer, a regional vice president with Optum CCM. Just one resident needing higher-than-average care costs can break the model fairly quickly, particularly at a small scale.
For instance, providers could have only a few high-cost members with cardiac conditions, dialysis or diabetes that may cost them well above their Medicare reimbursement.
“Scale is important,” Eyer said. “It is not for the faint of heart.”
It can be tough to determine the exact scale needed to start a successful MA plan. And it depends on the plan offered, Narrett said. But small-scale plans can be successful if providers focus not on scale, but on providing care consistent with what families and residents want. That, in turn, should lower costs and keep residents out of the hospital, he said.
“To give you some perspective on the Erickson experience, Medicare, for a similar age-matched cohort, has about 500 hospitalizations per 1,000 beneficiaries,” Narrett said. “The Erickson Advantage experience is 300 admissions per thousand which is a 40% reduction.”
One example lies in Erickson’s previous contract with Evercare, a United Healthcare product line designed to help coordinate care for skilled nursing residents.
“When we did Evercare, we only had a few hundred residents,” Narrett said. “We had a big margin because we managed them in place.”
But there are risks in doing so, especially as it relates to residents’ “disease burden,” or how many beneficiaries have conditions that require more costly health care.
“Describing that disease burden is very important because Medicare pays you that monthly amount based on your disease burden,” Narrett said. “So, there is complexity, but you’ve got to understand the levers of revenue and expense to be successful, like any business.”