Medicare Compliance & Reimbursement

Medicare legislation to add a prescription-drug benefit and inject more private health-plan competition into the program has passed both houses of Congress. But uncertainties still abound, starting with whether a conference committee can bridge differences between the two bills to keep more liberal senators and more conservative House members from bolting when a final vote arrives.

If and when a law is enacted, there still are future cliffhangers aplenty. Stakeholders will continue to struggle over rules setting up the new programs. And since many of the mechanisms the legislation proposes are new and untried, advocates on all sides will stay vigilant for the inevitable unintended consequences.

Here's a sample of issues still in question:

WILL PRIVATE PLANS SAVE MONEY?

Gospel among Republicans is the proposition that a new private-plan portion of Medicare will significantly hold down costs. Indeed, for many this proposition constitutes the primary stated rationale for retooling Medicare to depend on private insurers. But health plans don't necessarily tout that selling point the way lawmakers do.

At a June 26 briefing on Capitol Hill, American Association of Health Plans Executive Vice President Diana Dennett stressed the importance to insurers of having their reimbursements tied to local Medicare fee-for-service spending.

An audience member at the forum spon-soredbytheAlliance for Health Reform and the Kaiser Family Foundation wondered why, given that private plans work at holding down prices and motivating providers to offer the most effective and cost-effective care.

Health plans can do a bit to bring care closer to sensible norms in areas where there's underuse or overuse, Dennett said.

But she went on to emphasize that "the underlying driver of health care costs is provider expectations" about how much money they'll make, not health plans. First priority for a health plan must be assembling a provider network. And the major barrier to accomplishing this is "inability to meet the expectation of providers" about how much money they'll make from participating in the plan, Dennett said.

WHAT WILL MOTIVATE PRIVATE PLANS TO BE EFFICIENT MANAGERS OF MEDICARE BENEFITS?

For many Republican policymakers, the answer is "bearing insurance risk." But on the matter of risk, too, private plans seem to be singing from a different hymnbook than many of their congressional advocates.

According to documents from the American Association of Preferred Provider Organizations, PPOs - the new private health plan of choice for Medicare - aren't accustomed to bearing insurance risk, prefer not to bear insurance risk, and also want Medicare to continue processing claims and setting provider fees administratively, another Centers for Medicare & Medicaid Services function that many lawmakers hope they can kiss goodbye with a new influx of Medicare private plans.

Describing its preferred "traditional," "non-risk" PPO model as a potential partner for Medicare, AAPPO writes:

"Each contracting PPO will build a Medicare network of doctors and providers in a designated market and use that network as the network of choice for the Medicare beneficiaries who enroll. ...

"CMS will continue to receive, process, and pay claims at current fee schedules, through the existing intermediary and carrier structure.'

On its preferred format for PPO participation in Medicare, AAPPO notes that "as a non-risk model, CMS would continue to be the payer under this model - identical to an ERISA-exempt employer non-risk arrangement in the commercial market."

AAPPO also suggests that PPOs wouldn't offer comprehensive coverage on their own, as many policymakers apparently assume, but would rely on other insurers to fill in gaps, just as happens with traditional Medicare.

"In response to input from the White House, AAPPO suggests that the traditional PPO model (non-risk) could be coupled with an insured Medicare Gap (Medigap) policy," the group says in a "White Paper Supporting Expansion of Medicare Offerings to Include a Traditional PPO Model." "This option would allow full coverage for Medicare PPO beneficiaries."

In what might come as a shock to at least some lawmakers, administered pricing by CMS still would rule under AAPPO's recommended model: Under a Medicare PPO program, "network physicians would agree to accept Medicare fee schedules in their area."

REDRAWING THE MAP.

Some of the hottest, most protracted fights over a new Medicare system will occur as policymakers attempt to divide up the nation into the regions that private comprehensive health plans must serve in their entirety as well as into areas throughout which private drug-only plans must offer the same premium.

Making these regions relatively large and diverse - similar to Medicare's ten current administrative regions - was vital for bill writers to get lawmakers who represent rural and other low-payment areas on board with the current language. Without ensuring that private comprehensive plans would have to serve the whole country and that beneficiaries wouldn't face starkly higher prescription-drug premiums because of where they live, lawmakers could not have convinced many senators, including some Republicans, to support the new mechanisms.

So big regions are the order of the day for many in Congress.

But what's big and good according to many lawmakers is big and bad according to private plans.

Sponsors of drug-only policies should be permitted to price their products locally, a group of actuaries from insurance companies, pharmacy benefit managers, and other health-industry sectors told analysts from the consultancy Health Policy Alternatives, Inc., this month.

The panel of eight actuaries "agreed that locally or at most regionally specific premiums are necessary to reflect the significant geographic variations in prescription-drug utilization," write HPA analysts in a paper commissioned by KFF.

"In the actuaries' experience, prescription drug utilization varies significantly from one community to another even within a state, let alone within a region or across the nation." Physicians' prescription patterns and, to a lesser extent, drug prices vary significantly by area, they said. "For many plans, a requirement that they price on a national or regional basis could discourage their participation in the program."

For comprehensive health plans, the stakes in map-drawing wars also are high. Both bills passed last week suggest that relatively large regions - the size of a whole state or larger - would be the basis for private-plan service regions. But the Senate bill has much more explicit language on how the regions should be drawn, according to HPA analyst Beth Fuchs.

The suggestion that Medicare's ten administrative regions would be the basis for competitive regions for health plans is alarming to AAHP, Dennett indicated at the Alliance briefing.

"These are very very large regions and the payment equity issues across the regions are significant" over such "huge" areas, she said. That clearly makes shrinking the regions imperative for health plans in upcoming conference and rulemak-ing deliberations. But many lawmakers just as certainly will try to push the other way.

FORMULARY FIGHTS.

How many different plans will offer a given enrollee how restrictive a choice among prescription drugs is another question that's unlikely to be easily settled.

The pharmaceutical industry is the most prominent combatant in the formulary wars, and its position on specific issues is generally easy to discern: Beneficiaries should have access to as generous coverage as possible through as wide a variety of different covering entities as possible, to keep Medicare's huge buying power disaggregat-ed to discourage any moves toward government-controlled prices.

On the other side of the formulary battle, private health plans and some federal policymakers will push for allowing relatively restrictive drug for-mularies, with tiered copayments, and other mechanisms to guide utilization and help negotiate lower prices from drugmakers. The pharmaceutical industry will fight such regulations adamantly.

Meanwhile, the same guiding principle is leading the drug industry into a shifting set of alliances with other stakeholder groups on numerous additional provisions that are still in flux.

For example, the industry sides with the House on who should pay for drug coverage for beneficiaries who are dually eligible for Medicare and Medicaid, Ian Spatz, vice president for public policy at Merck & Co., Inc., said June 26.

The Senate would leave state Medicaid programs with the main responsibility for dual eligibles' drug coverage. The House would gradually shift all responsibility for duals' drug bills to Medicare - a better plan, said Spatz. The elderly should be treated as Medicare beneficiaries, not Medicaid beneficiaries. As a growing number of states put stricter controls on the drugs they provide in Medicaid, dual eligibles would have access to a wider variety of medications if they were Medicare-covered instead, he said.

Pharmaceutical companies also side with the House on a subtle matter of how the two chambers phrase congressional goals for getting private drug-only plans into the program, said Spatz. According to Senate language, the goal of the federal government will be to get two plans into the program in every area, he said. In the more attractive House language, the goal is stated more expansively - to get as many plans into the program as possible.

Expect pharmaceutical companies to side with employers in any dispute that touches on retiree health coverage, said Spatz. "Our preference is for people to stay in the good coverage they have."

The Senate's choice of a risk-corridor approach for drug plans - in which the government would share gains and losses with private insurers within specified percentages of their bids - is "much better" than the House's reliance on rein-surance, in drug companies' view, he said.

The drug companies' view jibes with what actuaries told HPA. Actuaries "preferred that risk-sharing be accomplished through the use of risk corridors, at least in the early years of the program or for new plans," says the HPA paper. Insurers and PBMs already are familiar with risk corridors in employer plans and in PBM performance clauses in contracts. But "the major appeal ... especially in the first years of offering a stand-alone drug policy, is that the plan's financial exposure would be limited at a time when they were acquiring claims experience and becoming familiar with the administration of a stand-alone drug benefit."

But pharmaceutical companies and insurers don't see eye to eye on another measure, albeit one that Congress seems unlikely to change: allowing beneficiaries to switch plans once a year.

Having a chance to change plans during an annual open season is a great way for beneficiaries to make their coverage preferences known and push plans to change formularies and other rules, said Spatz.

But while the actuaries who spoke with HPA agreed that there would be political barriers to locking beneficiaries into plans for longer, they said they wished it could happen. Allowing enrollees to shift after a year "would increase plan adverse selection because beneficiaries would use the opportunity to switch to the plan with the formulary and cost-sharing structure that best met their needs at the time," the actuary panel said.