1. Should Medicare Advantage Plans Try to
Attract the Sick?
Improved care coordination, new risk adjustment methodologies, and predictive
modeling could allow MA plans to successfully attract sicker patients and save
billions while improving the quality of care and life for patients.
Historically, Medicare Advantage Health Plans, like all managed care
organizations, have been very careful to attract a population of enrollees with a
significant percentage of “well” people. Product design to ensure balance
between competitive attractiveness and adverse risk selection is seen as core
business competencies for all plans. But are there circumstances under which it
makes sense for an ACO that is taking significant risk to attract those that are sick,
or who have multiple chronic conditions, or even mental impairment? Under the
right conditions, the answer may be yes! Organizations like GRACE Team Care
(see insert) have found that they can improve outcomes and lower costs for this
population.
Medicare Advantage has proven to be one to the government’s most popular
programs with approximately 30% of all Medicare beneficiaries enrolled in a
Medicare Advantage plan. An additional 12 million Medicare beneficiaries will
become eligible by 2020 with total Medicare expenditures estimated to rise from
$597 billion in 2014 to $849 billion in 2020.1
Medicare Advantage enrollment is
expected to grow along with the participation of provider sponsored health plans.
Since 2008, there have been 30 new provider sponsored health plans—30%
expansion of existing plans and 70% new market entrants2
1
Congressional Budget Office, Updated Budget Projections, Fiscal Years 2013-2023.
2
CMS.gov enrollment data 2013

2. New Business Skills & Technology Create Market Opportunity
A great deal has changed since the wave of provider organizations
took capitated risk in the early 1990’s. Data systems and the related analytics
have improved significantly, knowledge of how to manage the health of
populations has increased, and risk-adjustment payment methodologies have
been adopted by Medicare and some commercial insurers. Retrospective risk
adjustment has certainly reduced the risk of enrolling those with multiple chronic
conditions.
These changes together may create the conditions that make sense, under the
right conditions, to incent MA plans to focus on attracting those that are high-
risk/high-cost enrollees. These individuals are those who can most benefit from
effective care coordination programs.
Sizing the Opportunity
We know that 5% of Medicare beneficiaries account for 39% of total Medicare
fee-for-service expenditures.3
This high-cost population tends to have multiple
chronic conditions and be treated by multiple providers, frequently with care that
is not coordinated. Studies have shown that at least a few well-developed care
management program can improve the quality of life and reduce the cost of care
for this population by up to 20%.4
So-called “Dual Eligibles”—beneficiaries who receive full benefits under
both Medicare and Medicaid account for about $320 billion in healthcare costs
annually and are another potential target market. By improving care coordination
it has been estimated that up to $20 billion could be saved annually while
improving quality of care and outcomes5
Therefore, there is the potential to improve care and save significant dollars by
focusing on these populations.
3
“A Data Book: Health Care Spending and the Medicare Program”, June 2014
4
C.S. Hong, A.L. Siegel, “Caring for High-Need, High-Cost Patients—What Makes for a Successful Care Management
Program,” Commonwealth Fund Issues Brief, August 2014
5
Thorpe, K. Estimated Federal Savings Associated with Care Coordination Models for Medicare-Medicaid Dual
Eligibles,” AHIP 2011

3. DOING THE MATH
Let’s say that one has a 10,000 enrollees in a Medicare Advantage
Health Plan. Average 2010 Medicare expenditure per enrollee was $ 11,157, so
let’s use that as the plan revenue per enrollee. The average expenditure for the
high-cost enrollee was $ 87,024 and the average expenditure for the balance of
enrollees was $ $ 7,164. 6
Thus, the total revenue for these 10,000 enrollees
would be $ 111,570,000. Suppose one wanted to double the Medicare Advantage
revenue. One option would be to target getting another 10,000 enrollees,
assuming one would get 500 high-cost enrollees and 9,500 other enrollees.
A second option to doubling the revenue would be to attract the high-
risk population (high-risk will be used rather than high-cost, since one would need
to make a prospective determination). As shown in Table 1, one would need to
enroll an additional 1,282 high-cost enrollees and no other enrollees.
Table 1
# of Enrollees Revenue (2010) Millions
Current Option 1 Option 2 Current Option 1 Option 2
High-cost enrollees 500 1,000 1,782 $ 43.5 $ 87.0 $ 155.1
Other enrollees 9,500 19,000 9,500 68.1 136.1 68.1
Total 10,000 20,000 11,282 $111.6 $ 223.1 $ 223.2
Given the potential to improve care the high-cost population and
reduce the associated costs, there is also an opportunity to improve profitability
for the Medicare Advantage Plan. Assume the following for purposes of
discussion:
 The operating margin currently is 2%.
 The plan develops an aggressive, effective care management program in
concert with the providers in its panel (don’t underestimate the challenge
of doing this effectively!)
 The care management program can reduce costs of the high-cost enrollees
by 20% with a net of 15% after deducting the cost of the care management
program.
6
“A Data Book :Health care Spending and the Medicare Program”, June 2014; and BDC Analysis

4.  The care management program can reduce the cost of care for the balance
of the enrollees by a net of 2%.
Using the same 2 options as shown above, the result is shown in Table 2.
Table 2 - Medicare Advantage Plan Net Operating Income
($ in Millions)
Current Option 1 Option 2
High-cost enrollees $ 0.87 $ 14.79 $ 26.36
Other enrollees 1.36 5.45 2.74
Total $ 2.23 $ 20.24 $ 29.1
Net Income as @ of revenue 2% 9% 13%
The first observation is the significant increase in net income that is
derived from better coordination and improving the care of the high-cost
population. Even without focusing on marketing to the high-cost population, net
incomes increases over four fold.
The second observation is that focusing on attracting the high-cost
population, net income increases more than six fold!
CRITICAL SUCCESS FACTORS.
Now, there are a number of assumptions which are critical to this
analysis. They include the following:
 There exists an excellent risk-adjustment model that accurately reflects for
the increased cost of the high-cost population in calculating the revenue
which the plan receives. Note that I have not seen an evaluation of how
effective the current Medicare risk-adjustment methodology is for the high-
cost population.
 The documentation and coding for the population of enrollees (which
drives the risk-adjustment methodology) by the participating providers is
accurate and complete.
 The care management/coordination program for the high-cost population
is highly effective with a focus on management of chronic disease in the

5. frail elderly and coordination of post-acute care, and can generate the care
improvement and cost reduction reflected above. Gaining the effective
participation of primary care physicians in this effort is essential (and
difficult).
 The plan has excellent regulatory compliance with focus on management of
all aspects of the value chain based on CMS rules and can capture a 4 or 5
STAR rating in order to have a competitive product in the market.
 It is possible to identify the high-cost population in advance, so that they
can be targeted for care management intervention. This is a challenging
area as being high-cost in one year does not mean that an enrollee will be
high-cost in subsequent years or vice-versa. A recent study by Avalere
Health LLC found that taking into account non-medical factors, such as
Activities of Daily Living, through Health Risk Assessments and other
techniques can improve a plans ability to predict high-cost enrollees in
advance. 7
Provider-owned MA plans, which have all these skills and infrastructure systems
together, have often out performed commercial plans in key metrics of success
including revenue management and STAR rating; currently most 5 STAR plans are
provider sponsored.
There are challenges with each of these assumptions that make it likely that only
some of the cost savings identified above may be achievable. In particular,
developing and operating an effective care management model for the high-risk
population is very challenging. However, with a concerted effort, it should be
possible to obtain at least a portion of these results.
HAVING THE RIGHT PRODUCT DESIGN
So, the next logical question is whether it is possible to successfully identify and
attract the high-risk population. Several strategies are likely to be effective in
doing so:
7
“Effective Management of High-Risk Medicare Populations, Avalere Health. LLC September 2014

6.  Offering an enriched drug benefit will draw enrollees who use a number of
drugs and are likely to have multiple chronic conditions. The author’s
experienced this (painfully) while working for a health system in the early
1990’s that took capitated risk for a Medicare Advantage plan. The insurer
kept trying to compete for more enrollees by increasing the drug benefit or
lowering the cost of the drug benefit. This resulted in medical costs per
enrollee increasing at a time when Medicare did not have a good risk
adjustment model in place, nor did the system have a robust care
management program.
 Participating as a sub-contractor in a CMS, State Demonstration Program to
Integrate Care for Dual Eligibles, which is now operational in 23 states.
Approximately 9.5 million Dual Eligible beneficiaries are estimated to be
eligible to participate in the program nationally, and 2 million may
participate in the demonstration.
 Participating as a Medicare Special Needs Plan. This is a program for
enrollees with specific severe or disabling conditions and requires an
application to CMS. There are 3 different Special Needs Plans: chronic
conditions, dual eligible, and institutional.
 Using primary care physicians and specialists in the provider network to
identify patients who could benefit from an effective care management
program, and having them encourage such patients (legally) to consider the
Medicare Advantage Program. Marketing directly to Medicare beneficiaries
and their families with a focus on the benefits of the care management
program and its success in improving the quality of life for enrollees with
multiple chronic conditions. Note that CMS carefully regulates how a
Medicare Advantage Plan is marketed and CMS must approve all marketing
materials.
Health systems that offer their own Medicare Advantage plans or partner with
such plans are well positioned to play a role in marketing to this population. Most
of these systems already have a strong brand associated with providing health
services to those who are sick or injured.

7. CONCLUSION
Attracting older, sicker Medicare beneficiaries can be a key strategy for improving
Medicare profitability, as fee-for-service Medicare is gradually being replaced by
new CMS initiatives. But, one needs to have an effective care management/care
coordination program for this population, not easily done but doable.
In conclusion, conditions have changed such that ACO’s who take
significant risk, particularly for the Medicare population, should consider whether
they are well positioned to benefit from attracting the high-risk population. One
should not automatically assume that it is bad to attract more of the high-risk
population, if one has an effective program to manage and coordinate their care.
This may be an opportunity to “do good, profitably.”
INSERT
Case Example – GRACE Team Care
The Indiana University School of Medicine’s Center for Aging Research
developed the GRACE Care Team approach over 10 years ago. The program has
been tested and evaluated and has been shown to be effective. It is offered to
providers and is being utilized in several communities across the United States.
In this model, enrollees are assigned team consisting of a nurse
practitioner and social worker, who work closely with the patient, caregiver, and
the enrollee’s primary care physician. The team, performs an in-home
assessment, develop an individualized care plan with input from a larger
interdisciplinary team (geriatrician, pharmacist, mental health professional, and
community resource expert), implements the care plan in coordination with the
primary care physician, and provides ongoing care coordination, including
transitional care coordination.
An evaluation performed by Avalere Health LLC found that the GRACE Team
Care approach reduced the cost of care by $ 4,291 per enrollee per year while
costing $ 2,201, for a net savings of $ 2,090 per enrollee per year. It should be
noted that this evaluation was conducted on enrollees comprising the top 20% in
cost, not the very high-cost (top 5%) referenced in this article.

8. Sources: GRACE Team Care website, www.graceteamcare.indiana.edu/home.html
“Effective Management of High-Risk Medicare Populations”, Avalere
Health LLC, September, 2014