Medicare Compliance & Reimbursement

But the real test will come when CMS releases payment information next month.

Health plans in California, Florida and New Jersey are thrilled, but those in Massachusetts, Illinois and Oregon are grumbling.

The Centers for Medicare & Medicaid Services made its long-awaited announcement on the region sizes for Medicare Advantage PPOs, and for health plans, the news was either good or bad depending on what state they're in. Both America's Health Insurance Plans andthe Blue Cross Blue Shield Association of America had asked that CMS designate 50 regions - one for each state - but CMS instead has designated only 26. Eleven states were fortunate enough to be named as their own region, but other states are part of larger regions.

"Any way you look at this thing, it was a shocker," says John Gorman, president of Gorman Health Group in Washington. "It didn't end up looking anything like anybody had anticipated." Gorman describes CMS's decision as being typical of its approach throughout Medicare Advantage implementation: "firing a shot down the middle and satisfying pretty much nobody completely."

What it means: Health plans in single-state regions will be able to market a regional PPO product without having to do much tinkering with their current Medicare products. But health plans in states that are part of multi-state regions would need to find a way to create a product that would work in states in which they may never have done business before.

"The obvious winners are the 11 states that were designated stand-alone regions," Gorman says. "Everyone else is scratching their heads wondering if they can make this thing work."

There are only two ways a plan in a multi-state region could participate: if the plan was a large national or regional plan that was already doing business in the relevant states; or if a plan in one state formed a joint venture with plans across the border.

As a result of the new regs, "the big boys are much better positioned to be regional PPOs than the little boys," says Gary Donner, principal with MMC 20/20.

But even larger plans will have trouble dealing with some of the bigger multi-state regions. One region, for example, consists of Connecticut, Massachusetts, Rhode Island and Vermont. Those states have very different providers, Gorman notes. And it can be challenging to get decent contracts signed in a predominantly rural state like Vermont.
 
Will Joint Ventures Succeed?

Forming joint ventures will be "a major challenge" for health plans, says Alissa Fox, executive director of policy for BCBSA.

Plans in multi-state regions will need to get together and mutually decide if they want to form a new venture, hammer out product details and benefits, and decide how to share risk, Fox says. Plans have their own unique medical management policies, so cooperating plans will need to decide whose to use, or will have to create an entirely new policy, Fox adds.

"A lot of this is going to be completely new," says Gorman. He notes that BCBSA, for example, has very strict rules as to which Blues plans can market their products where, so new rules would need to be created - or broken - to allow for multi-state cooperation.

Re-Contracting And the Rural Dilemma

The biggest challenge for participating plans will be signing contracts with providers.

Joint ventures would need to sign new provider contracts, since they'll be a new legal entity, Fox notes. And even plans large enough to deal with multi-state regions, or plans trying to cover a large state like Texas or California, will face challenges in creating a product that is identical across the entire region, as Medicare requires.

"We're going to have a head-on collision with the realities of provider contracting in rural markets - for those that are bold enough to try this," Gorman warns.

For example, there is often only one hospital in a rural county, meaning that a participating plan would need to include that hospital to meet Medicare's access standards.
As a result, the hospital has all the bargaining power, making it difficult for the plan to get an affordable price.

Tough Timeline

On the bright side, "it's a really good thing that we have the information on regions early enough," says Mohit Ghose, AHIP spokesman. This way interested plans will have time to decide what they need to do, he says.

"CMS has created the marketplace," Ghose says, so now it's up to health plan to determine whether they can offer a product in this new marketplace. He notes that some AHIP members are discussing ways to form joint ventures and cooperatives.

But not everyone agrees about the timing. Fox notes that the final rules will be issued no sooner than January, and that initial applications will be due in the spring, with final paperwork and bids due in June. For plans in multi-state regions, that's less than six months to determine the many complexities of joint ventures.

Because of the tough timeline, Gorman predicts "very little uptake on the regional options" in 2006. He thinks plans will show "slightly more interest in '07 as folks get positioned."

"The vast majority of the action in Medicare managed care is still going to be at the local level," Gorman says. Plans will continue to increase their offerings in the current, local Medicare Advantage market, with participation in the regional PPOs coming in a distant second.

The true test of the new program's viability will be when CMS announces the payment rules early next year, Donner says. "If I were a plan, I would find [the regions announcement] interesting, but I would still want to find out the exact details of how I'm going to get paid."