Medicare Advantage: Action Needed to Ensure Appropriate Payments for Veterans and Nonveterans
Published: 2016-04-11T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Veterans enrolled in Medicare can also enroll in the VA health care system and may receive Medicare-covered services from either their Medicare source of coverage or VA. Payments to MA plans are based in part on Medicare FFS spending and may be lower than they otherwise would be if veterans enrolled in Medicare FFS receive some of their services from VA. Because this could result in payments that are too low for some MA plans, CMS is required to adjust payments to MA plans to account for VA spending, as appropriate. CMS determined an adjustment was needed for 2017, but not for 2010 through 2016.
GAO was asked to examine how VA's provision of Medicare-covered services to Medicare beneficiaries affects payments to MA plans. GAO (1) estimated VA spending on Medicare-covered services and how VA spending affects payments to MA plans and (2) evaluated whether CMS has the data it needs to adjust payments to MA plans, as appropriate. GAO used CMS and VA data to develop an estimate of VA spending on Medicare-covered services. GAO reviewed CMS documentation and interviewed CMS and VA officials.
section_title: What GAO Found
paragraphs: In fiscal year 2010, the Department of Veterans Affairs (VA) health care system provided $2.4 billion in inpatient and outpatient services to the 833,684 veterans enrolled in Medicare Advantage (MA), a private plan alternative to Medicare fee-for-service (FFS). While the Centers for Medicare & Medicaid Services (CMS), an agency within the Department of Health and Human Services (HHS), generally pays Medicare FFS providers separately for each service provided, MA plans receive a monthly payment from CMS to provide all services covered under Medicare FFS. These monthly payments are based in part on a bidding target, known as a benchmark, and risk scores, which are used to adjust the payment amount to account for beneficiary demographic characteristics and health conditions. Both the benchmark and risk scores are calibrated based on Medicare FFS spending. Therefore, VA's provision of Medicare-covered services to veterans enrolled in Medicare FFS likely resulted in lower Medicare FFS spending and, in turn, lower overall payments to MA plans. However, the extent to which these payments reflect the expected utilization of services by the MA population remains uncertain. Specifically, payment amounts may still be too high or could even be too low, depending on the utilization of VA services by veterans enrolled in MA plans and veterans enrolled in Medicare FFS. If, for example, veterans enrolled in MA receive a greater proportion of their services from VA relative to veterans enrolled in Medicare FFS, then the benchmark may be too high. Conversely, payments may be too low if MA-enrolled veterans tended to receive fewer Medicare-covered services from VA relative to veterans enrolled in Medicare FFS. Assessing these possible differences would require data on the services veterans receive from MA. CMS began collecting these data in 2012 but, as of August 2015, had yet to take all the steps necessary to validate the accuracy of the data, as GAO has previously recommended.
CMS also lacks data on VA diagnoses and utilization that may improve its methodology for determining if an adjustment to the benchmark is needed to account for VA's provision of Medicare-covered services to veterans enrolled in Medicare FFS. Federal standards for internal control call for management to have the operational data it needs to meet agency goals to effectively and efficiently use resources and to help ensure compliance with laws and regulations. While CMS determined that no adjustment was necessary for 2010 through 2016 based on a 2009 study it performed, CMS's methodology did not account for services provided by and diagnoses made by VA, which can only be identified using VA's data. CMS officials updated the agency's study in 2016 using the same methodology, but with more recent data. CMS officials told GAO that they did not plan to incorporate VA utilization and diagnoses data into their analysis because (1) they do not currently have such data and (2) incorporating these data would introduce additional uncertainty into the analysis. However, if an adjustment is needed but not made or if an adjustment is too low due to limitations with CMS's methodology, it could result in some plans being paid too much and others too little. If CMS does revise its methodology and determines that an adjustment to the benchmark is necessary, it may need to make additional adjustments to MA plan payments, as discussed in this report.
section_title: What GAO Recommends
paragraphs: CMS should (1) assess the feasibility of revising its methodology for determining if an adjustment to the benchmark is needed by obtaining diagnoses and utilization data from VA and (2) make any additional adjustments to MA plan payments as appropriate. HHS disagreed with the first recommendation, but agreed with the second. GAO maintains that VA data may improve CMS's analysis.

section_title: Letter
paragraphs: Both veterans and nonveterans may enroll in Medicare Advantage (MA),  a private plan alternative to Medicare fee-for-service (FFS). Unlike in  Medicare FFS, where providers are generally paid separately for each  service provided, the Centers for Medicare & Medicaid Services (CMS)  pays MA plans a fixed per member per month (PMPM) payment to  provide all services covered under Medicare FFS. This payment does  not vary on the basis of the individual services beneficiaries receive.  Veterans enrolled in an MA plan can also enroll in the Department of  Veterans Affairs (VA) health care system and may receive Medicare- covered services from either source. A 2012 study estimated VA  provided $13 billion in covered services to 1.2 million veterans who were  also MA enrollees between 2004 and 2009. The authors characterized  VA spending on Medicare-covered services as “duplicate federal  payments,” although they stated that they were unable to quantify the  amount of excess federal payments to MA plans on behalf of VA  enrollees because they did not have access to data needed to determine  how the services provided by VA affect CMS payments to MA plans.  Information on this relationship is critical because any potential excess  federal payments could be reduced, or eliminated, if MA payments were  sufficiently lower as a result of MA-enrolled veterans obtaining care  through VA instead of their MA plans.
VA’s provision of Medicare-covered services could also result in PMPM  payments to some individual MA plans that are too low. CMS generally  calculates the benchmark—a bidding target used in determining PMPM  payments to MA plans—from average per capita Medicare FFS spending  in the counties in which a plan operates and other factors. When veterans  from those counties are enrolled in Medicare FFS but receive Medicare- covered services from VA, average per capita Medicare FFS spending is  lower than it otherwise would have been if veterans received all of their  services from Medicare FFS; this can lower the benchmark and  correspondingly lower PMPM payments to MA plans. The resulting  PMPM payment would be the same for both veterans and nonveterans.  However, the amount may, on average, be too high for veterans and too  low for nonveterans. As a result, individual MA plans that enroll a  disproportionately high number of nonveterans may receive a PMPM  payment that is too low.
To address the possibility that PMPM payments for nonveterans are too  low, CMS is required to adjust payments to MA plans, as appropriate, to  account for the effect of VA’s provision of Medicare-covered services. In  2009, CMS used Medicare FFS data to develop an estimate of the effect  of VA spending on MA plan payments. Based on the results of its study,  CMS determined that no adjustment was necessary from 2010 through  2016. In 2016, CMS updated its 2009 study using more recent data and  determined that an adjustment would be necessary for 2017. Given the  potential implications for MA plan payments, it is especially important that  CMS’s estimate is based on reasonable data and sound methodology.
You asked us to examine how VA’s provision of Medicare-covered  services affects payments to MA plans. In this report, we estimate the amount that VA spends to provide Medicare-covered  services to veterans enrolled in MA plans and how VA spending on  these services affects CMS payments to MA plans; and evaluate the extent to which CMS has the data it needs to determine  an appropriate adjustment, if any, to MA payments to account for VA’s  provision of Medicare-covered services to MA-enrolled veterans.
To estimate the amount that VA spends to provide Medicare-covered  services to veterans enrolled in MA plans, we first identified all months in  which individual veterans were enrolled in VA health care and an MA plan  during fiscal year 2010 using enrollment data from CMS and VA. We  conducted our analysis for fiscal year 2010 because that was the most  recent analysis year for which data were available at the time we began  our study. We then estimated VA spending on Medicare-covered inpatient  and outpatient services using VA utilization and cost data, both for  services provided by VA and for VA care in the community. To determine  how VA spending on these services affects CMS payments to MA plans,  we reviewed CMS documentation and interviewed CMS officials.
To evaluate the extent to which CMS has the data it needs to determine  an appropriate adjustment, if any, to MA payments to account for VA’s  provision of Medicare-covered services to MA-enrolled veterans, we  reviewed CMS documentation and interviewed CMS officials.
To assess the reliability of the data we used in our analyses, we reviewed  related documentation, interviewed knowledgeable officials from CMS  and VA, and performed appropriate electronic data checks. This  assessment allowed us to determine that the data were reliable for our  objectives. See appendix I for more details on our scope and  methodology.
We conducted this performance audit from July 2013 to April 2016 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: VA Health Care
paragraphs: For fiscal year 2015, VA estimated it received $59.2 billion in  appropriations, including collections, to fund health care services for  veterans, manage and administer VA’s health care system, and operate  and maintain the VA health care system’s capital infrastructure. VA  estimated that in fiscal year 2015 it provided health care services— including inpatient services, outpatient services, and prescription drugs— to 6.7 million eligible patients.
section_title: Medicare Advantage
paragraphs: For calendar year 2015, the Medicare Trustees estimated that CMS paid  MA plans about $155 billion to provide coverage for 16.4 million Medicare  beneficiaries. Beneficiaries of MA can enroll in one of several different  plan types, including health maintenance organizations (HMO), private  fee-for-service (PFFS) plans, preferred provider organizations (PPO), and  regional PPOs. Medicare pays MA plans a capitated PMPM amount.  This amount is based in part on a plan’s bid, which is its projection of the  revenue it requires to provide a beneficiary with services that are covered  under Medicare FFS, and a benchmark, which CMS generally calculates  from average per capita Medicare FFS spending in the plan’s service  area and other factors. If a plan’s bid is higher than the benchmark,  Medicare pays the plan the amount of the benchmark, and the plan must  charge beneficiaries a premium to collect the amount by which the bid  exceeds the benchmark. If the plan’s bid is lower than the benchmark,  Medicare pays the plan the amount of the bid and makes an additional  payment to the plan called a rebate. Plans may use this rebate to fund  benefits not covered under Medicare FFS.
CMS uses risk scores to adjust PMPM payments to MA plans to account  for beneficiaries’ health status and other factors, a process known as risk  adjustment. For beneficiaries enrolled in MA, risk scores are generally  determined on the basis of diagnosis codes submitted for each  beneficiary, among other factors, and are adjusted annually to account for  changes in diagnoses from the previous calendar year. In addition, risk  scores for beneficiaries who experience long-term stays of more than 90  days are calculated differently to account for the differences in expected  health expenditures. While risk scores are based on diagnoses from the  previous year, changes to the risk score to account for long-term hospital  stays of more than 90 days are reflected in the calendar year when the  stay occurred.
section_title: Change to Benchmark Calculation
paragraphs: The Patient Protection and Affordable Care Act (PPACA) changed how  benchmarks are calculated so that they will be more closely aligned with  Medicare FFS spending. Specifically, the benchmark changes, which are  to be phased in from 2012 through 2017, will result in benchmarks tied to  a percentage of per capita Medicare FFS spending in each county. In  general, for those counties in the highest Medicare FFS spending  quartile, benchmarks will be equal to 95 percent of county per capita  Medicare FFS spending, and for those counties in the lowest Medicare  FFS spending quartile, benchmarks will be equal to 115 percent of per  capita Medicare FFS spending. Prior to 2012, benchmarks in all  counties were at least as high as per capita Medicare FFS spending, but  were often much higher. For example, while counties generally had  benchmarks that were derived from per capita county Medicare FFS  spending, the benchmarks were generally increased annually by a  minimum update equal to the national growth rate percentage in Medicare  FFS spending. In cases where the growth rate used to update the  benchmark was greater than the rate at which per capita Medicare FFS  spending grew within a county, it would result in a benchmark that was  higher than the average per capita county Medicare FFS spending rate.  In addition, some urban and rural counties had benchmarks that were  “floor” rates, which were set above per capita county Medicare FFS  spending rates to encourage insurers to offer plans in the areas.  According to a CMS study reported in the 2010 MA Advance Notice,  approximately 96 percent of counties had benchmarks that were set  based on a minimum update or were floor rates.
section_title: Required MA Payment Adjustment for VA Spending
paragraphs: Especially in counties with a relatively high proportion of veterans,  average per capita Medicare FFS spending may be low if many veterans  receive health care services from VA instead of Medicare providers.  Because benchmarks are calculated based in part on Medicare FFS  spending, MA payments may be lower in such counties and may not  reflect Medicare’s expected cost of caring for nonveterans. CMS is  required to estimate, on a per capita basis, the amount of additional  Medicare FFS payments that would have been made in a county if  Medicare-eligible veterans had not received services from VA. If needed,  CMS is also required to make a corresponding MA payment adjustment.  To address these requirements, CMS reported the results of its study  analyzing the cost impact of removing veterans eligible to receive  services from VA on 2009 Medicare FFS county rates in the 2010 MA  Advance Notice. CMS reported that, on average, removing veterans  from the calculation of counties’ per capita Medicare FFS spending rate  had minimal impact on per capita spending and that the differences in  expenditures between all Medicare beneficiaries and nonveterans were  more attributable to normal, random variation than to distinctly different  spending for the two populations. Based on CMS’s study results, the  agency concluded that no adjustment for VA spending on Medicare- covered services was necessary to 2010 through 2016 MA payments. In  2016, CMS updated its 2009 study using more recent data and  determined that an adjustment would be necessary for 2017.
section_title: Overall Payments to MA Plans Likely Were Lower Due to VA’s Provision of $2.4 Billion in Services to MA-Enrolled Veterans, but Appropriateness of Resulting Payments Still Uncertain
paragraphs: VA provided about $2.4 billion in Medicare-covered inpatient and  outpatient services to the 833,684 MA-enrolled veterans in fiscal year  2010. In total, VA provided approximately 61,000 inpatient services and  8.2 million outpatient services to veterans enrolled in MA plans. During  that same time period, CMS paid MA plans $8.3 billion to provide all  Medicare-covered services to veterans enrolled in an MA plan.
VA’s provision of services to MA-enrolled veterans resulted in overall  payments to MA plans that were likely lower than they otherwise would  have been if veterans had obtained all of their Medicare-covered services  through Medicare FFS providers and MA plans. Specifically, because VA  provides services to MA-enrolled veterans, the three components that  determine payments to MA plans—benchmarks, bids, and risk scores— are likely lower than they otherwise would be, which results in lower  overall payments to MA plans.
Benchmarks—Because benchmarks are generally calculated in part  from per capita county Medicare FFS spending rates, any VA  spending on Medicare-covered services for veterans enrolled in  Medicare FFS would be excluded from the benchmark calculation. As  a result, the benchmark would be lower and, in turn, payments to MA  plans would also be lower. This would be particularly true following  the implementation of the PPACA revisions to the benchmark  calculation—to be phased in from 2012 through 2017—as the PPACA  revisions further strengthened the link between the benchmark and  average per capita county Medicare FFS spending rates.
Bids—MA payments also may be lower to the extent that MA plans  set bids based on historical experience. MA plan bids may reflect the  fact that in previous years enrolled veterans received some Medicare- covered services from VA instead of the MA plan. If so, MA plan bids  would be lower and, in turn, MA payments would also be lower.
Risk scores—VA’s provision of Medicare-covered services may result  in lower risk scores because, like benchmarks, they are calibrated  based on Medicare FFS spending for beneficiaries with specific  diagnoses identified by Medicare. As a result, any VA spending on  Medicare-covered services for veterans enrolled in Medicare FFS that  is related to these diagnoses would be excluded when the model is  calibrated. In addition, MA plans would generally not have access to  diagnoses made by VA. Therefore, when VA identifies and treats a  diagnosis not identified by the veteran’s MA plan, it would not be  incorporated into the veteran’s risk score. Because PMPM payments  to MA plans are risk-adjusted, a lower risk score would result in lower  payments to MA plans.
Although VA spending on Medicare-covered services likely results in  lower CMS payments to MA plans, the extent to which these payments  reflect the expected utilization of services by the MA population remains  uncertain. Specifically, payment amounts may still be too high or could  even be too low, depending on the utilization of VA services by veterans  enrolled in MA plans and veterans enrolled in Medicare FFS. As noted  earlier, both benchmarks and risk scores are generally calibrated based  on veterans and nonveterans enrolled in Medicare FFS. However,  veterans enrolled in MA plans may differ in the proportion of services they  receive from VA compared to veterans enrolled in Medicare FFS, which  would affect the appropriateness of payments to MA plans.
For example, payments to MA plans may be too high if veterans  enrolled in MA receive a greater proportion of their services from VA  relative to veterans enrolled in Medicare FFS. Under this scenario, the  benchmark would reflect the higher use of Medicare services by  Medicare FFS beneficiaries who are receiving fewer of their services  from VA than are veterans enrolled in MA. As a result, the benchmark  may be too high and, in turn, payments to MA plans may be too  high. This effect of a higher benchmark may be at least partially  offset by a risk score that is too high.  In contrast, payments to MA plans may be too low if veterans enrolled  in MA receive a lesser proportion of their services from VA relative to  veterans enrolled in Medicare FFS. Under this scenario, the  benchmarks may be too low and may result in MA plans being  underpaid, although the effect may be partially offset by risk scores  that are too low.
To assess whether there are service utilization differences between the  MA and Medicare FFS veteran populations that result in payments to MA  plans that are too high or too low, data on the services veterans receive  from Medicare FFS, MA, and VA would be needed. Data on veterans’ use  of services through Medicare FFS and VA health care are available from  CMS and VA, respectively. However, CMS does not currently have  validated data that could be used to determine veterans’ use of services  through MA. CMS began collecting data from MA plans on diagnoses and  services provided to beneficiaries starting in January 2012. We reported  in July 2014 that CMS had taken some, but not all, appropriate actions to  ensure that these data—known as MA encounter data—are complete and  accurate. At that time, we recommended that CMS complete all the  steps necessary to validate the data, including performing statistical  analyses, reviewing medical records, and providing MA organizations with  summary reports on CMS’s findings. CMS agreed with the  recommendation, but as of August 2015, had not completed all steps  needed to validate the encounter data.
section_title: CMS Does Not Have the VA Diagnosis and Utilization Data That May Improve Its Methodology for Calculating Adjustments to MA Payments
paragraphs: CMS determined that no adjustment to 2010 through 2016 MA payments  was needed to account for the provision of Medicare-covered services by  VA, but used a methodology that had certain shortcomings that could  have affected MA payments. CMS is required to estimate, on a per  capita basis, the amount of additional payments that would have been  made in a county if Medicare-eligible veterans had not received services  from VA and, if needed, to make a corresponding adjustment to MA  payments. If CMS determined that an MA payment adjustment was  necessary, it would make the adjustment by using a modified version of  per capita county Medicare FFS spending rates that are adjusted to  account for the effect of VA spending on Medicare-covered services. Per  capita county Medicare FFS spending rates serve as the basis of the  benchmarks used in determining MA payment rates. To determine  whether an adjustment was needed, CMS obtained data from VA  showing veterans who are enrolled in VA health care and Medicare FFS  (that is, enrollment data). CMS then estimated the effect of VA spending  on Medicare FFS spending by calculating average per capita county  Medicare FFS spending for nonveterans and comparing it to the average  per capita county Medicare FFS spending for all Medicare FFS  beneficiaries, after adjusting for beneficiaries’ risk. However, CMS’s  methodology did not account for two factors that could have important  effects on the results: (1) services provided by and diagnoses made by  VA but not identified by Medicare and (2) changes to the benchmark  calculation under PPACA.
First, because CMS used only Medicare FFS utilization and diagnosis  data in its study, the agency’s methodology did not account for services  provided by and diagnoses made by VA—which could result in inaccurate  estimates of how VA spending on services for Medicare FFS-enrolled  veterans affects per capita county Medicare FFS spending. Only VA’s  utilization and diagnosis data can account for services provided by and  diagnoses made by VA. Without this information, CMS’s estimate of how  VA spending affects per capita county Medicare FFS spending rates may  be inaccurate.
Specifically, estimates of per capita county Medicare FFS spending  for all beneficiaries, including veterans, may be too low because  services provided by VA would not be accounted for in Medicare FFS  spending. Excluding those services could have the effect of deflating  veterans’ risk-adjusted Medicare FFS spending and therefore total per  capita county Medicare FFS spending.
Conversely, estimates of per capita county Medicare FFS spending  for all beneficiaries, including veterans, may be too high because  excluding diagnoses identified only by VA could result in Medicare risk  scores that are too low, which would have the effect of inflating  veterans’ risk-adjusted Medicare FFS spending and therefore total per  capita county Medicare FFS spending.
Thus, depending on the number and mix of services provided by and the  diagnoses made by VA, risk-adjusted Medicare FFS spending for  veterans may either be higher or lower than it would be if CMS accounted  for VA-provided services and diagnoses.
Second, because CMS’s study was done in 2009, it did not account for  changes to the benchmark calculation that occurred under PPACA and  that are to be phased in from 2012 through 2017. CMS noted in 2009 that  only 45 of the 3,127 counties nationwide would have had per capita  county Medicare FFS spending rate increases after accounting for VA  spending. According to CMS, the number of affected counties was as low  as it was in part because many counties had payment rate minimums,  which often resulted in benchmarks that were higher than per capita  county Medicare FFS spending. However, as noted earlier in this report,  PPACA revised the benchmark calculation to more closely align  benchmarks with average per capita county Medicare FFS spending  rates. As these revised benchmark calculations are implemented,  counties will no longer have benchmarks set based on minimum updates  or floor rates. Because CMS did not update its 2009 study when  determining whether an adjustment was necessary through 2016, the  agency lacked accurate information on the number of additional counties  in which VA spending on Medicare-covered services would have made a  difference in per capita county Medicare FFS spending rates.
When CMS updated its 2009 study to determine whether an MA payment  adjustment was needed for 2017, it used the same methodology, albeit  with more recent data. Doing so allowed CMS to account for the revised  benchmark calculations implemented under PPACA. However, CMS  cannot address the other limitation we identified without additional data.  Specifically, CMS cannot account for services provided by and diagnoses  made by VA. Officials said that they did not intend to incorporate VA  utilization and diagnoses data into their analysis because they did not  currently have such data and that incorporating these data would  introduce additional uncertainty into the analysis. For example, CMS  officials noted that there would be challenges associated with how much  Medicare would have spent if the covered services had been obtained  from Medicare providers instead of VA.
We agree that CMS would face challenges incorporating VA data into its  analysis, but if an adjustment is needed and not made or if the adjustment  made is too low, the PMPM payment may be too high for veterans and  too low for nonveterans. Depending on the mix of veterans and  nonveterans enrolled by individual MA plans, this could result in some  plans being paid too much and others too little. Both CMS and VA officials  told us that the agencies have a data use agreement in place that allows  them to share some data, but this does not include data on services VA  provides to Medicare beneficiaries. According to VA, as of December  2015, CMS has not requested its utilization and diagnosis data.
Federal standards for internal control call for management to have the  operational data it needs to meet agency goals to effectively and  efficiently use resources and to help ensure compliance with laws and  regulations. In this case, without VA data on diagnoses and utilization,  CMS may be increasing the risk that it is not effectively meeting the  requirement to adjust payments to MA plans, as appropriate, to account  for VA spending on services for Medicare beneficiaries.
If CMS revises its study methodology and determines that an adjustment  to the benchmark to account for VA spending is needed, it may need to  make additional MA payment adjustments to ensure that payments are  equitable for individual MA plans. A benchmark adjustment would  increase payments for nonveterans and would address the possibility that  payments to MA plans with a high proportion of nonveterans would be too  low. However, if CMS makes a benchmark adjustment, it would also  increase MA payments for veterans. While the resulting higher payment  to MA plans for nonveterans may be appropriate, higher payments for  veterans may not be because veterans may be receiving some services  from VA. In that case, payments to MA plans that enroll veterans would  be too high, with the degree of overpayment increasing as the proportion  of veterans enrolled by plans increases. To ensure that payments to MA  plans are equitable regardless of differences in the demographic  characteristics of the plans’ enrollees, CMS is authorized to adjust  payments to MA plans based on such risk factors that it determines to be  appropriate. Therefore, if CMS determines that an adjustment to the  benchmark to account for VA spending is needed and the adjustment  results in payments to MA plans that are too high for veterans, additional  adjustments to payments to MA plans could be necessary.
section_title: Conclusions
paragraphs: Given that veterans enrolled in an MA plan and the VA health care  system can receive Medicare-covered services from either source, it is  important to consider how the provision of services by VA affects  payments to MA plans. In fiscal year 2010, VA provided $2.4 billion worth  of inpatient and outpatient services to MA-enrolled veterans, which likely  resulted in lower overall payments to MA plans. However, the  appropriateness of these lower payments is uncertain, given potential  differences in the proportion of services veterans enrolled in MA plans  and Medicare FFS receive from VA. An estimate of the differences  between the two populations of veterans would enable CMS to determine  if additional actions are needed to improve the accuracy of PMPM  payments. To this end, we recommended in July 2014 that CMS should  validate the MA encounter data, which would be needed to determine if  there are differences in utilization of services between veterans in MA and  Medicare FFS.
In addition, it is important to ensure that VA spending on Medicare- covered services does not result in inequitable payments to individual MA  plans for veterans and nonveterans. While CMS is required to adjust MA  payments to account for VA spending on Medicare-covered services, as  appropriate, the agency determined that no adjustment to the benchmark,  which is based in part on per capita county Medicare FFS spending, was  necessary for years 2010 through 2016. CMS updated the study it used  to make this determination in 2016 and determined that an adjustment  was necessary for 2017. However, both CMS’s 2009 study and its 2016  study were limited because the agency did not have VA utilization and  diagnoses data. Adjusting the study’s methodology to incorporate these  data could change the study’s findings and result in CMS making a larger  adjustment to the benchmark in future years. Such a benchmark  adjustment could improve the accuracy of payments for nonveterans.  However, a benchmark adjustment could also result in or exacerbate  payments to MA plans that are too high for veterans, so additional MA  payment adjustments could become necessary.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretary of Health and Human Services direct  the Administrator of CMS to take the following two actions:
Assess the feasibility of updating the agency’s study on the effect of  VA-provided Medicare-covered services on per capita county  Medicare FFS spending rates by obtaining VA utilization and  diagnosis data for veterans enrolled in Medicare FFS under its  existing data use agreement or by other means as necessary.  If CMS makes an adjustment to the benchmark to account for VA  spending on Medicare-covered services, the agency should assess  whether an additional adjustment to MA payments is needed to  ensure that payments to MA plans are equitable for veterans and  nonveterans.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this product to VA and the Department of Health  and Human Services (HHS).  HHS provided written comments on the  draft, which are reprinted in appendix II. Both VA and HHS provided  technical comments, which we incorporated as appropriate.
In its comments, HHS concurred with one of our two recommendations.  HHS agreed with our recommendation that if CMS makes an adjustment  to the benchmark to account for VA spending on Medicare-covered  services, it should assess whether an additional adjustment to MA  payments is needed to ensure that payments to MA plans are equitable  for veterans and nonveterans. HHS acknowledged that CMS is required  to estimate, on an annual basis, the amount of additional Medicare FFS  payments that would have been made in a county if Medicare-eligible  veterans had not received services from VA and, if necessary, to make a  corresponding MA payment adjustment. In the 2017 MA Advance Notice,  CMS provided the results of its updated analysis, which used the same  methodology as its 2010 analysis, but with more recent data. Based on its  findings, CMS plans to make an adjustment to 2017 MA payment rates to  account for VA spending on Medicare-covered services. In its comments,  HHS stated that CMS will assess whether an additional adjustment to MA  plan payments is needed to ensure that payments to MA plans are  equitable for veterans and nonveterans. We encourage CMS to complete  its assessment prior to finalizing its 2017 payments to ensure that  payments to MA plans will be equitable when the adjustment to account  for VA spending on Medicare-covered services is made.
HHS did not concur with our recommendation that CMS should assess  the feasibility of updating the agency’s study on the effect of VA-provided  Medicare-covered services on per capita county Medicare FFS spending  rates by obtaining VA utilization and diagnosis data for veterans enrolled  in Medicare FFS. HHS stated that CMS uses Medicare FFS spending  rates when setting the benchmark, which excludes services provided by  VA facilities. In addition, HHS stated that incorporating VA utilization and  diagnosis data into CMS’s analysis may not materially improve the  analysis and the resulting adjustment. HHS indicated that it will continue  to review the need for incorporating additional data or for methodology  changes in the future. As we note in the report, only VA’s utilization and  diagnosis data can account for services provided by and diagnoses made  by VA. Depending on the number and mix of services provided by and the  diagnoses made by VA, risk-adjusted Medicare FFS spending for  veterans may either be higher or lower than it would be if CMS accounted  for VA-provided services and diagnoses. Therefore, relying exclusively on  Medicare FFS spending to estimate the effect of VA spending on  Medicare FFS-enrolled veterans could result in an inaccurate estimate of  how VA spending on services for Medicare FFS-enrolled veterans affects  per capita county Medicare FFS spending. While there may be  challenges associated with incorporating VA utilization and diagnosis data  into CMS’s analysis, we maintain that CMS should work to do so given  the implications that not incorporating the data may have on the accuracy  of payment to MA plans. We continue to believe that an important first  step would be for CMS to assess the feasibility of incorporating VA  utilization and diagnosis data in a way that can overcome the challenges  identified by CMS and potentially lead to a more accurate adjustment.
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If you or your staffs have any questions about this report, please contact  me at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made major contributions to  this report are listed in appendix III.
section_title: Appendix I: Scope and Methodology
paragraphs: This appendix describes the scope and methodology used to (1) estimate  the amount that the Department of Veterans Affairs (VA) spends to  provide Medicare-covered services to veterans enrolled in Medicare  Advantage (MA) plans and how VA spending on these services affects  Centers for Medicare & Medicaid Services (CMS) payments to MA plans;  and (2) evaluate the extent to which CMS has the data it needs to  determine an appropriate adjustment, if any, to MA payments to account  for VA’s provision of Medicare-covered services to MA-enrolled veterans.
To estimate the amount that VA spends to provide Medicare-covered  services to veterans enrolled in MA plans, we first identified veterans with  at least 1 month of overlapping enrollment in an MA plan and in VA health  care in fiscal year 2010. VA provided us with an enrollment file that  included veterans enrolled in VA health care for at least 1 month in fiscal  year 2010 and whom VA had identified as having at least 1 month of  Medicare private plan enrollment. To determine months of MA enrollment  in fiscal year 2010, we matched the VA enrollment file to Medicare’s  calendar year 2009 and 2010 Denominator Files based on whether  beneficiaries had the same Social Security number and either the same  date of birth, sex, or both. We excluded those beneficiaries who did not  have at least 1 month of overlapping MA and VA health care enrollment.  In addition, we excluded veterans in the VA enrollment file that did not  have a VA enrollment start date, were listed as having died prior to fiscal  year 2010, or were not enrolled in one of the four most common MA plan  types. After all exclusions, we identified 833,684 veterans with at least 1  month of overlapping enrollment in an MA plan and VA health care in  fiscal year 2010.
We identified all inpatient and outpatient services provided by VA to those  veterans in our population during fiscal year 2010. VA can provide  inpatient and outpatient services directly at one of its medical facilities or  it can contract for care, known as VA care in the community; we received  inpatient and outpatient utilization files for both types of VA-provided care.  We excluded prescription drug services from our analysis, as payments to  MA plans for coverage of Part D services are determined differently than  are payments for other Medicare-covered services. We also excluded  services that were received during a month when the veteran was not  enrolled in both VA health care and an MA plan. We considered an  inpatient stay, which can last multiple days, to be during a month when  the veteran was enrolled in both VA health care and an MA plan if 1 or  more days of the stay occurred during a month in which the veteran was  enrolled in VA health care and an MA plan. In some instances, hospital  stays had an admittance date prior to fiscal year 2010 or a discharge date  after it, and in those cases, we included only the portion of the stay that  occurred during fiscal year 2010.
We excluded those inpatient and outpatient services that were provided  by VA but were not covered by Medicare. For inpatient services directly  provided by VA, we used the category of care assigned to each service  by VA to exclude service categories not covered by Medicare, such as  intermediate and domiciliary care. In addition, we excluded services  provided by VA that went beyond Medicare benefit limits. Because MA  plans may have different benefit limits than Medicare fee-for-service  (FFS), we analyzed the benefits offered by a sample of 45 MA plans for  2014 for services covered by Medicare FFS that have benefit limits. We  identified the most common benefit limits for those services and used  those as our benefit limits for VA services. In cases where some or all MA  plans had service categories with lifetime reserve days (e.g., inpatient  days beyond the 90 days Medicare covers per benefit period, up to an  additional 60 days per lifetime), we made the assumption that  beneficiaries had 25 percent of their lifetime reserve days remaining. For  inpatient services provided through VA care in the community, we  excluded hospice services; services with cancelled payments; and  services with a classification of dental, contract halfway house, pharmacy,  reimbursement, or travel. For outpatient services directly provided by VA,  we excluded services that were not included in the Medicare physician  fee schedule; ambulance fee schedule; clinical lab fee schedule; durable  medical equipment, prosthetics/orthotics, and supplies fee schedule;  anesthesiology fee schedule; or ambulatory surgical center fee schedule.  We also excluded services that had a Medicare physician fee schedule  status code indicating they were a deleted code, a noncovered service,  had restricted coverage, or were excluded from the physician fee  schedule by regulation. For outpatient services provided through VA care  in the community, we made the same exclusions as for outpatient  services provided by VA and also excluded hospice care services and  services with cancelled payments.
We calculated total VA spending and CMS payments to MA plans for  beneficiaries for months in which they were enrolled in both VA health  care and an MA plan in fiscal year 2010 and evaluated how, if at all, VA  spending on these services affects CMS payments to MA plans. To  calculate VA’s estimated spending, we assigned all Medicare-covered  services directly provided by VA a cost, using VA’s average cost data;  and for services provided through VA care in the community, we used the  amount that VA disbursed to the service provider. We calculated total MA  spending for veterans enrolled in MA and VA using actual CMS payments  to MA plans for our population in fiscal year 2010. To evaluate how VA  spending on Medicare-covered services affects CMS payments to MA  plans, we reviewed CMS documentation and interviewed CMS officials.
To evaluate the extent to which CMS has the data it needs to determine  an appropriate adjustment, we reviewed CMS documentation and  interviewed CMS officials. As part of this effort, we also evaluated CMS’s  methodology for a study it used as the basis of its decision to not adjust  county per capita Medicare FFS spending rates for VA spending on  Medicare-covered services. Our evaluation was based on a review of  CMS documentation and an interview with CMS officials.
To assess the reliability of the data we used in our analyses, we reviewed  related documentation, interviewed knowledgeable officials from CMS  and VA, and performed appropriate electronic data checks. This  assessment allowed us to determine that the data were reliable for our  objectives.
We conducted this performance audit from July 2013 to April 2016 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Comments from the Department of Health and Human Services
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Gregory Giusto, Assistant  Director; Christine Brudevold; Christine Davis; Jacquelyn N. Hamilton;  Dan Lee; Elizabeth T. Morrison; Christina C. Serna; and Luis Serna made  key contributions to this report.