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Medicare Compliance & Reimbursement

Medicare Reform:

LEGISLATORS STILL DISAGREE ON ROLE OF PRIVATE PLANS

Published on Thu Oct 30, 2003

Past the initial deadline for a final bill, experts say process could go until December. 

As MLR goes to press, Medicare negotiators are still meeting, trying to hammer out the conceptual deal that Sen. Charles Grassley (R-IA) and others had suggested would have been at hand by late October. Indications are that conferees are still facing serious divides on several issues.

That's not to say that the negotiators have not been making notable progress in some key areas. For instance, according to reports based on documents prepared by the offices of Sens. Max Baucus (D-MT) and John Breaux (D-LA) - the only Democrats whom Republicans have allowed to participate in the negotiations - conferees have tentatively agreed on a structure for the drug benefit that, like the House's, provides substantial up-front help with initial drug expenses.

After a $275 deductible, Medicare would pay 75 percent of drug expenses up to $2,200. Then the "doughnut hole" would kick in, with beneficiaries responsible for 100 percent of their drug costs until they spend $3,600 out of pocket. That would occur after about $5,050 in total drug expenses, barring employer-based retiree contributions. Employer payments do not count against the beneficiaries' OOP obligation under the "true OOP" concept included in both the Senate and the House bills, although negotiators are said to be considering ameliorating that to stem concern that employers might drop coverage.

Once seniors reach the OOP maximum, Medicare would pay 95 percent of additional drug expenses.

Legislators are still battling over the following issues:

  • Can Local and Regional PPOs Coexist? Both the Senate and the House bill have two tracks for private plans: a new, competitive-bidding based Medicare+Choice system, under which plans would serve counties as under the current M+C program; and a new track under which plans would serve regions. The Senate would allow PPOs only in the regional track, but the House would allow PPOs to be either regional or limited to a single county.

    Speaking Oct. 22 at the American Association of Health Plans/Health Insurance Association of America Medicare conference, Centers for Medicare & Medicaid Services Administrator Tom Scully predicted that the conferees would adopt the House approach. While Scully said he favored this choice, he emphasized several times that it raised a serious concern: Why would any health plan bid, for instance, on the whole Midwest or the whole mid-Atlantic if it could pick just the counties it wants?

    "If we want to make this regional PPO structure work and to make sure we have access in rural counties, then we do have to have some differentiation, some benefit, whether it's a different premium mix or slightly different rules," that "makes it attractive for plans to offer regional PPOs. Otherwise, they just won't do it," Scully said.

    The latter type of incentive may already exist in the bills to some extent, since PPOs in the regional tracks would not appear to be subject to the rigorous quality improvement requirements that M+C plans must follow. These requirements are part of the reason that PPOs, while legally permitted, have been extremely rare in M+C, since it is much easier for HMOs, which have far more control over their networks, to meet the quality improvement requirements.

    The House bill is also much more flexible on the size of individual regions; S 1 requires a region to be at least as big as an entire state, but the House bill leaves the size of regions solely to CMS' discretion. AAHP Vice President for Government Affairs Julie Goon predicted Oct. 21 that the Medicare conferees were likely to punt on this issue, directing a neutral group to study the question with a directive that the group should try not to split up states.

  • Do Plans Need More Money Than FFS? Conservatives generally believe that, over the long run, increasing the role of private PPOs in Medicare will save money. However, in the short run many plans are saying they may need more money to go into areas - whether they be rural areas with small numbers of providers, or more urban ones where providers have merged - where they say physicians and hospitals have monopoly power and can demand payments in excess of Medicare rates.

    Under both bills, beginning in 2006, PPOs would bid against benchmarks established by averaging county Medicare+Choice rates. Health plans have complained that these rates are inadequate, tracing the problem back to the Balanced Budget Act of 1997. Under the BBA, the analysis goes, Congress raised M+C rates in rural areas, but the absence of networks in those areas made them unattractive for HMOs at any price. Meanwhile, in urban areas where M+C HMOs were popular, plans got only two percent increases even as their costs went up at double digit rates.

    Particularly under the House bill, however, M+C rates would be beefed up. Nevertheless, plans still say they do not have the same power Medicare does to demand that providers accept certain rates.

    Asked about this at AAHP-HIAA, Scully said that this is why antitrust law is so important in health care. In markets where hospitals have acquired too much power, whether through mergers or other means, then the Federal Trade Commission, which has taken over most of the antitrust functions in the health care arena, should step in.

    Conferees are said to be looking at ways to give plans more money than they would get under a straight application of the M+C-based benchmarks. Conferee Sen. Jon Kyl (R-AZ) favors basing PPO compensation solely on the plan bids, but AAHP VP Julie Goon pointed out that the $50-$70 billion over ten years that this would cost renders it far beyond the means of Medicare conferees with only a total of $400 billion to spend.

    Getting more play is the idea of blended benchmarks. Under this approach, plans would be paid based on some combination of traditional Medicare costs - as filtered through the M+C rates - and the amounts that the plans themselves bid, with the former likely receiving more weight than the latter.

    Conferees are also reportedly considering providing extra payments for plans that enter rural areas. Amounts ranging from $6 billion to $20 billion over 10 years have been talked about as totals for such payments, according to the Associated Press.

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