Medicare Compliance & Reimbursement

After an all-day June 12 mark-up, the Senate Finance Committee approved a bill that would add prescription drugs to Medicare and carve out a new role in the program for preferred provider organizations.

The 16 to 5 favorable vote evidenced the momentum that has built up behind the effort to give seniors a drug benefit, which conventional wisdom only recently had consigned to another year of futility. The full Senate will take up the bill, S. 1, on Monday, and Majority Leader Bill Frist (R-TN) has vowed to pass it before the July 4th recess.

Also on June 12, House Ways and Means Chair Bill Thomas (R-CA) and Energy and Commerce chair Billy Tauzin (R-LA) unveiled their version of Medicare prescription drug legislation. Thomas said his committee will mark up the bill on Tuesday, while Tauzin is still trying to rally all the Commerce Republicans around the plan.

Under both bills, seniors who stayed in fee-for-service Medicare could get drug coverage through private stand-alone drug plans that would compete to offer coverage in multi-state regions. Alternatively, seniors could get drug coverage by joining preferred provider organizations, which would bid regionally to offer drug coverage and medical coverage, or by joining Medicare+Choice HMOs, which would bid in smaller areas such as counties. When plans bid above benchmarks, beneficiaries would pay extra to join, and beneficiaries and the government would share in the savings when plans bid below the benchmarks.

The PPOs, which would feature catastrophic medical coverage and combined Part A and B deductibles, represent a new frontier for Medicare and no one knows quite what to expect. One measure of this: The actuaries at the Centers for Medicare & Medicaid Services predict that 43 percent of Medicare beneficiaries would be in private plans by 2008, including 28 percent in PPOs, while the Congressional Budget Office forecasts only 9 percent in private plans by that date, with less than one percent in PPOs.

While the House and Senate proposals are similar in broad outline, the House plan contains some differences sure to raise Democratic hackles, and probably some Republican senatorial hackles as well. One example: Under Thomas and Tauzin's proposal, in 2010, Medicare fee-for-service would begin competing directly with private plans. Many have worried that this sort of competition could lead to FFS premium increases if traditional Medicare attracted disproportionate numbers of sicker and older beneficiaries, but at a briefing House GOP staffers said risk-adjustment techniques could deal with this concern.

Opposition to the Senate bill was split between conservatives worried that the bill costs too much and does too little to move Medicare towards the private sector, and liberals worried about exactly the opposite. Voting no were Republicans Don Nickles (OK) and Trett Lott (MS), and Democrats Jay Rockefeller (WV), John Kerry (MA), and Bob Graham (FL).

Earlier this week, the Congressional Budget Office told S. 1's authors, panel chair Charles Grassley (R-IA) and senior Democrat Max Baucus (MT), that their proposal would cost only $351 billion over ten years, giving them $50 billion more dollars while still staying within the $400 billion set aside for Medicare reform in Congress' fiscal year 2004 budget resolution. The two legislators used that money to increase the point at which the bill's low-income subsidies phase out, from 150 percent to 160 percent of the federal poverty level.

They also sweetened the standard drug package Medicare would offer. In the version approved by the committee, beneficiaries would pay a $250 deductible. Medicare and the beneficiary would then split costs 50-50 until the drug costs reached $4500.

After that, seniors would be responsible for all costs - the so-called "doughnut hole" - until they had incurred a total of $3,700 in out-of-pocket spending. Medicare would then pay 90 percent of all further costs.

At the mark-up, Democrats and some Republicans expressed particular concern regarding the potential for premiums to vary in different regions around the estimated $35 average premium. The committee rejected an amendment by Minority Leader Tom Daschle (SD) that would have limited the variation to 5 percent, but approved one by Olympia Snowe (R-ME) giving the Secretary of Health and Human Services discretion to adjust for utilization in setting premiums.

House GOP Unveils It's Own Proposal

At a June 12 briefing, House GOP staffers said their bill would also cost $400 billion. They emphasized that the House's standard drug benefit would be more front-loaded than the Senate's. After a $250 deductible, the government would pay 80 percent of prescription drug costs up to $2,000, which Thomas said would take care of expenses for two-thirds of seniors. Then comes the House's doughnut hole, with no government contribution until the beneficiary incurred hit a catastrophic cap. After that, the government would pay 100 percent of all drug costs.

For most beneficiaries, the out-of-pocket maximum would be $3,700. However, some beneficiaries with higher incomes would have to pay more under the House version. The out-of-pocket cap would start to increase from $3,700 at incomes of $60,000 for an individual and $120,000 for a couple, topping out at $12,000 for individuals making $200,000 or more. Staffers said only about five percent of seniors would be subject to an increased catastrophic cap.

Because they wanted to direct available funds towards those without supplemental coverage, Grassley and Baucus chose not to count costs paid by employer-based retiree coverage as out-of-pocket costs that would fill the doughnut hole. In contrast, the House bill would count such contributions. House aides said this, combined with their plan's partial employer subsidy, would result in virtually no seniors losing retiree health coverage. At the Senate mark-up, the Congressional Budget Office chief Douglas Holtz-Eakin caused great consternation with his assessment that 37 percent of those with retiree coverage would lose it under the Senate bill, although Republicans argued vigorously that retiree coverage was declining even without the bill.

Like the Senate, the House plan would offer beneficiaries at least two stand-alone drug plans, but unlike the Senate the House does not provide for a government fallback. Previous House-passed bills, however, have allowed the government to take over virtually all risk to get plans to participate, and this year's bill is likely to do the same.

The House plan would index the $100 Part B deductible, which aides said represented 45 percent of total charges in 1966 but by 2000 had dropped to 3 percent. The Senate would go further, first increasing the Part B deductible to $125 in 2006 and then indexing it.

On the provider front, Iowan Grassley and Montanan Baucus focus on improving rural reimbursements. The House bill includes some rural provisions; it also erases pending physician pay cuts and attempts to smooth out the volatility of the physician payment formula.