White House exceeded authority with Medicare Advantage project, GAO says

Washington The agency administering the Medicare program lacks the statutory authority to boost payments to certain Medicare Advantage plans under a nationwide demonstration project that rewards insurers for average performance, federal auditors said.

A July 11 letter from the Government Accountability Office stated the Centers for Medicare & Medicaid Services has failed to provide evidence that its Medicare Advantage demo complies with federal statute. The demonstration does not need to result in increased efficiency or economy, but it must follow the principles established in enabling legislation, the 2010 health system reform law. These provisions authorized incentives to improve quality and cost-effectiveness.

CMS chose to run a program that differs from the one outlined in the reform law by testing whether a tiered bonus structure would produce better results. The $8 billion Medicare Advantage program began rewarding the private plans under the three-year demonstration starting this year. The demo bases bonuses on a five-star system, with the highest amounts going to those with the highest ratings.

There is long-standing precedent for this type of demonstration, with Republican and Democratic administrations using the authority in this way, a CMS spokesman wrote in an email responding to a request for comment. The agency maintains that the demonstration gives Medicare Advantage plans incentives to improve quality.

The GAO disagrees. First-year bonuses paid during 2012 are based on performance before the demonstration was announced in November 2010. The second-year bonuses for 2013 will be based on data collected between January 2010 and June 2011.

“CMS intends to increase payments to plans in 2012 and 2013 on the assumption that plans will use these additional moneys to increase quality, as there is no requirement that plans improve or even attempt to improve quality in these years as a condition of receiving or retaining the payments made under the demonstration,” the letter stated.

The backdating used for determining which plans qualify for bonuses does not allow for insurers to demonstrate improved quality going forward, the GAO said. Furthermore, the bonus structure in the reform law offered more modest incentives than the CMS demonstration, but would have encouraged plans to achieve higher performance ratings. For instance, the law would pay bonuses of 1.5% to plans achieving five- and four-star scores and no bonuses for three-star scores, but the demo pays 3% bonuses to three-star plans and up to 5% bonuses for five-star plans.

Republicans have criticized the Obama administration for its policies on Medicare Advantage, which covers roughly 25% of seniors. Sen. Orrin Hatch (R, Utah) accused the White House of paying the bonuses to make up for cutting pay to plans under the reform law. “Lacking the legal authority to undertake a project of this magnitude shows how the Obama administration tried to use a technicality to sidestep Congress and write itself a blank check to spend more money for political purposes leading into this year’s elections,” he said in a statement.