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Medicare Compliance & Reimbursement

Medicare Advantage:

MedPAC: Medicare Private Plans Cost More Than FFS

Published on Thu Apr 22, 2004

Health plans, now eager to join Medicare, dispute the findings.

Medicare pays private plans 7 percent more than it would cost to cover the same people through the program's fee-for-service arm, the Medicare Payment Advisory Commission reported April 8.
 
Fifty-three percent of all Medicare beneficiaries and 45 percent of private-plan -- Medicare Advantage -- enrollees live in counties where 2004 payment rates for private plans will exceed FFS costs by at least 5 percent, said MedPAC. The Commission warned that its figures could even understate the payment differentials, since they assume, in contravention of most research, that private-plan enrollees are similar demographically and no healthier than their FFS counterparts.

But MedPAC's report is flawed, since the Commission does not count graduate medical education payments in its calculation of FFS expenditures, Karen Ignagni, president of America's Health Insurance Plans, countered in a statement. "This finding, like previous MedPAC findings on this issue, fails to include direct and indirect FFS payments to teaching hospitals. Accounting for all FFS payments would raise the FFS payment rate above the Medicare Advantage payment rate for the majority (52 percent) of Medicare Advantage beneficiaries."

The Commission's report, however, suggests that GME payments in fact work to boost private plan payments. In the Balanced Budget Act of 1997, GME payments were carved out of private-plan payment rates and Medicare began making separate GME payments to hospitals on behalf of plan enrollees. But because plans were also guaranteed a minimum update by the law, payment rates for plans could not actually decrease -- as they might have in some instances - to compensate for the separate GME payments.

Thus, according to MedPAC, "as the proportion of FFS spending in a county accounted for by GME payments increases, so does the ratio of Medicare Advantage payments to FFS costs, ranging from 103 percent of FFS for counties with a relatively small proportion of GME spending to 109 percent of FFS for counties with relatively high proportions of spending devoted to GME."

In addition, last year's Medicare Modernization Act added indirect medical education back into the private-plan rate calculation, without eliminating the separate IME payments that Medicare also makes to hospitals on behalf of MA enrollees. The MMA also added a fourth payment option for MA plans: 100 percent of the county's per capita FFS spending. But because of the double counting of IME payments, plans actually average 102 percent of FFS costs under this payment option, according to the Commission.

Reacting to the report, Democratic Rep. Pete Stark (CA) said that "time and again, objective analysis has shown that HMOs and private plans cost Medicare more" adding that "HMOs want to be paid more so they can offer better taxpayer-funded benefits than those available under Medicare."

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