In this episode, David Muhlestein, Chief Research Officer at Leavitt Partners discusses a recent report issued by Leavitt Partners that examined the relationship between the concentration of Medicare Advantage plans in a market and Medicare Advantage premiums.
Mike Passanante: Hi, this is Mike Passanante. And welcome back to the Hospital Finance Podcast.
Today, I’m joined by David Muhlestein who is Chief Research Officer at Leavitt Partners. He directs the study of accountable care organizations through the Leavitt Partners’ Center for Accountable Care intelligence and leads the firm’s quantitative evaluation of healthcare markets. He is an expert in using policy analysis, predictive modeling and applied analytics to understand the evolving healthcare landscape.
David has joined us today to discuss a recent report issued by Leavitt Partners that examine the relationship between the concentration of Medicare Advantage plans in a market and Medicare Advantage premiums.
David, welcome to the program.
David Muhlestein: Thanks! Great to be on.
Mike: So first, for those who may not be familiar with Leavitt partners, tell us a bit about your firm and what you do.
David: Sure! So, Leavitt Partners is a healthcare consulting firm. It was formed by Mike Leavitt who was the Secretary of Health and Human Services during the Bush administration. And it has the goal of helping people understand how the healthcare system is evolving and helping them create strategic plans given the changing dynamics, particularly as it relates to the adoption of value.
And what we mean by that is what are the business decisions that can be made in all aspects of the healthcare industry to drive down the cost of care, improve the quality and improve patient satisfaction.
And so, we work with hospitals, physician groups, pharmaceutical companies, trade associations, technology vendors, payers, Medicaid, government or agencies, a little bit of the federal government—so really, broad across the entire spectrum of the healthcare system.
Mike: Great! Thanks for that, David. So, let’s jump right into your report. Your firm recently published a report entitled Medicare Advantage Premiums Higher in Markets with Concentrated Health Plans. Could you explain why you conducted this research and what you were looking at.
David: Sure! So, we do a lot of trying to understand how prices are changing over time and really what’s the dynamic that is affecting the impact on consumers as well as on the broader system.
And with Medicare Advantage, there’s been a lot of study that’s trying to say what’s driving the cost, the total cost, of the program. And this is similar to what’s happened with Medicare and commercial where people are trying to understand how competitive the dynamics, the concentration of payers or with health systems within a market drives or affects that total cost of care.
A piece of this that’s important to the consumer but hasn’t really been adequately studied before is what is the dynamic between concentration—so the market power of a health system or of a plan within a market—and how does that relate to the premium because, with Medicare Advantage, the premium is not necessarily tied to the total cost of care. The total cost is really built on the benchmark that’s coming from the average cost for Medicare within the plan or within the market. But then the plan has the flexibility to kind of put that premium and really adjust it almost independently of the total cost of care—which is very different from commercial. With commercial, if the total cost is higher, then the premium for the consumer is higher as well.
But with that disconnect on the Medicare Advantage side, we wanted to understand what happens, what are the competitive dynamics that will either lead to a higher consumer premium or a lower consumer premium.
Mike: Okay. And could you tell us about the data you examined and your methods?
David: Sure! So, what we built this on was Medicare Advantage data. We had a list of all of the different plan offerings across every county in the country. We looked at enrolled lives within those and also a bunch of different factors that relate to the plan itself.
So, is it an HMO plan? Does it have Part D or the drug benefit included within it? Does it have a narrower network or a higher star rating or a lower star rating?
And so, we are able to bring all of those different pieces together and do a regression model to say what is the impact of the competition. For competition, we said what percent of the market is being covered by all of the different Medicare Advantage plans. And then, we were able to calculate the Herfindahl Hirshman Index or the HHI which is a measure of competition within the same thing looking at hospital systems.
So, the idea was what are the relative competitive dynamics of the plans and the hospitals and how does that drive the cost of premiums—not the total cost of care, but just the cost of premiums.
Mike: And David, what were the results of your research?
David: What we found is that when you look at the relative competitiveness of the Medicare Advantage market, we found that the more concentrated it was, so the higher the HHI, it led to a higher cost of care or cost of premium for the beneficiaries. So the fewer the plans that were there, the higher the premiums that were there.
We did find though a moderating effect by the health systems. So it turned out that, when there was less competition for the MA side, and there was also less competition for the plan side, the prices started to drop a little bit. And the analogy that I use is when you think about the gorilla in the market, the huge plan or the huge provider. By and large, when you have a large plan, it’s always going to cost more. But if you can have a large provider (so a very dominant health system), it starts to somewhat lower the cost of care for that market.
So, that was the real takeaway. Very few plans, always going to be higher priced. But you can reduce some of that effect by having a very large provider to compete with that plan.
Mike: Okay. And in the paper, you did review some potential policy implications. Tell us about those.
David: Yeah. So, one of those is just looking at the impacts of consolidation. So there’s been a lot that’s been talked about saying, “What would happen if we could reduce the amount of consolidation within markets and really drive more competition?”
And what we found is that if you were able to increase that competition, so we used a standard deviation increase, if you were able to increase the price standard deviation, it would lead to a modest average decrease in enrollment premiums.
The problem though is that it’s quite low. It’s basically almost to the effect of being irrelevant. And the reason for that is that when you just look at one small standard deviation change, it’s really not that big of a difference when you’re looking at the large markets to the small markets and just how many plans are competing within them.
And so, when you look at the most consolidated markets, there’s only one plan. When you look at other markets, there are many, many plans. And so it would be multiple standard deviations away. And there just aren’t policy levers that are able to drive that.
And so, yes, competition is good, but there probably aren’t really meaningful policy levers that can be polled that are going to move the market to the point that we would really see a significant decrease in the premium for the consumers.
I won’t say that a few dollars a month isn’t important—it is. But that’s only a few dollars when you can look at premiums that could be over a hundred dollars a month.
Mike: And David, if someone wanted to get a copy of the paper or find out more about you and the work that you do, where can they go?
Mike: David Muhlestein, thanks for joining me today on the Hospital Finance Podcast.
David: Thanks, Mike.