Medicare Advantage

Some Medicare Special Needs Plans Have Networks Insufficient to Reach Enrollment Targets

Reprinted from the June 28, 2007, issue of MEDICARE ADVANTAGE NEWS, biweekly news and analysis on the Medicare (and Medicaid) managed care programs.

In what could be indicative of a potentially troublesome industry trend, some sponsors of Medicare Advantage (MA) Special Needs Plans (SNPs) are finding that their provider and broker networks have been insufficient to reach enrollment targets. QMed, Inc., a disease management (DM) firm that entered the MA program in January 2006, said this month that it expects SNP revenues to be lower than anticipated for 2007. But QMed predicted that a gradual buildup of networks in New Jersey is likely to generate membership growth there soon, and said that it has exceeded its SNP enrollment target in South Dakota.

Industry consultant John Gorman cites the inherent difficulty in selling SNPs to a niche population, noting that almost half of SNPs have "clearly unsustainable" enrollment below 1,000 members. He predicts this situation will lead to a fair number of SNP non-renewals and consolidations for 2008 along with dozens of new SNP entrants, but overall, he says, the numbers of SNPs likely will continue to rise for next year.

"It's extra difficult to sell chronic-care SNPs," says Gorman, president and CEO of Gorman Health Group, LLC in Washington, D.C. "Marketing and sales is much more than billboards..There are many more SNPs missing these [enrollment] numbers now than hitting them. We expect dozens of new chronic-care plans in '08, but amid serious consolidations in that space." Yet Gorman says he is confident that QMed, which is a client of his firm, has the leadership to "ultimately get to where it wants to be," even as it works on a new skill set as a payer.

Stephen Wood, a principal in the Chicago office of actuarial consulting firm Reden & Anders, Ltd., says he also expects eventual consolidation of the SNP marketplace, but likely not before 2009. He notes that one of his clients — with a membership of sicker-than-average people dually eligible for Medicare and Medicaid — also has found that its provider networks have been insufficient to get the SNP enrollment it would like.

Eatontown, N.J.-based QMed announced June 14 that it had reduced the earnings guidance to investors for its 2007 SNP revenue, which is derived from two plans for chronically ill members in New Jersey and South Dakota, and from a small plan for people dually eligible for Medicare and Medicaid in South Dakota that began in May. QMed said the reduction "reflects lower than expected CMS per member per month reimbursements in both South Dakota and New Jersey, which differ from actuarial estimates, along with slower than expected enrollment in New Jersey." As a result, QMed said its revenue guidance is in the range of $31 million to $33 million, down from the previous range of $38 million to $44.5 million for 2007.

"Happily, we're coming in ahead of actuarial estimates on our MLR [medical loss ratio]," Robert Mosby, QMed's vice president for corporate strategy and government relations, tells MAN. He says QMed will be looking beyond its SNPs in South Dakota and New Jersey in the next couple of years, but the DM firm remains uncertain as to whether expansion opportunities will be for new geographical areas or new disease states.

Nationwide, there are 310 dual-eligible SNPs, 85 SNPs for institutionalized beneficiaries and 74 chronic-care SNPs for 2007. That compares with 225 dual SNPs, 38 institutional SNPs and a mere 13 chronic-care SNPs for 2006.

Only 162 Enrollees in N.J.

Mosby explains that QMedCare of New Jersey runs a chronic-care SNP in four counties in New Jersey for beneficiaries who have been diagnosed with coronary artery disease or congestive heart failure or who have had a stroke. As of June 1, that plan had attracted 162 members, all with Medicare Part D prescription drug coverage, since it began on Jan. 1, 2007, according to CMS's monthly enrollment report by contract. Mosby, noting that QMed has not released SNP enrollment projections for New Jersey, says, "We're a little behind where we want to be."

Gorman, describing New Jersey as "the world capital of PPOs" where consumers are sophisticated about Medicare choices, says the market is a tough sell. In general, he says, chronic-care SNPs need a broad enough service area to improve their chances of finding sufficient specialized membership.

QMed is partnering on a chronic care SNP with DakotaCare, a part of South Dakota State Medical Holding Co., Inc., whose parent company is the South Dakota Medical Association. Called HeartLine Plus, this SNP, which covers the same cardiac conditions as does the New Jersey SNP, began services Jan. 1, 2006; it had attracted 2,436 members, all enrolled in Part D, as of June 1, CMS said. According to DakotaCare's Web site, the SNP's 2007 monthly premium is $101. The plan, which contracts with 169 pharmacies in South Dakota, offers a three-tiered formulary plan with no copayments for formulary generic drugs, a $25 copayment for a 30-day supply of a formulary brand-name drug and a $50 copayment for a 30-day supply of a non-formulary brand-name drug.

QMed's SNP in South Dakota is "way over target in terms of enrollment," Mosby says. The entire state of South Dakota has only 113,000 Medicare eligibles, he says, and of those somewhere between 19,000 and 20,000 seem to be eligible for the cardiac SNP. QMed holds the MA HMO license for the chronic-care SNP in New Jersey, but in South Dakota, DakotaCare holds the license, and QMed takes the insurance risk, he says, adding that QMed is "probably close to being profitable" with the South Dakota SNP.

In its recent statement, QMed said, "The company believes that recent enhancements, based on local market conditions, to its New Jersey sales and marketing strategy will produce improved results, similar to those experienced in South Dakota." Asked to elaborate, Mosby explains that in South Dakota, QMed benefits from its partnership with DakotaCare because of its large physician network. In New Jersey, by contrast, QMed had had to create a physician network and a distribution network of agents to sell the product.

But QMed is close to building solid networks of physicians and brokers in New Jersey that will allow the SNP's enrollment to grow, Mosby asserts. He says it has come at a slower pace in New Jersey than in South Dakota because it takes time for the broker community to sell and to build a physician network "strong enough to hit that critical mass." QMed is "not a straight MA plan and can't do straight MA marketing.and only one in five beneficiaries are a target for us," he adds.

Mosby says that QMed, given the size of its monthly premium, has to find beneficiaries for the SNP who likely could afford Medicare supplemental insurance. "By joining our program, they can save 40% to 50% a month on our product for the monthly out-of-pocket, not including gap coverage," he says.

According to Mosby, the issue for QMed in terms of enrollment is that its chronic-care SNP has "a very rich benefit design" that includes prescription drug coverage through the gap for both generic and brand-name drugs. He says that QMed spends an average of $320 per member per month on prescription drugs, while the member premium is $125 in New Jersey. "Obviously, we've made a decision it's more important to have [members] on drugs than to make money on that portion of the business," he says.

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