Medicare Compliance & Reimbursement

Will this be the straw that breaks Medicare+ Choice's back or the final insult that finally convinces Congress to enact major Medicare reform?

The Centers for Medicare & Medicaid Services announced May 12 that Medicare+Choice plans will receive a paltry 2-percent payment boost in 2004. Plans have been clamoring for more funding to save the struggling program, and 2 percent falls quite short of expectations.

"At a time when health care costs are soaring, the 2004 health plan payment rates exacerbate the funding shortfall that has limited the vast potential of this important program," said American Association of Health Plans President and CEO Karen Ignagni in a statement.

"It's yet another year where costs are further outpacing revenues," says John Gorman, president of Washington-based Gorman Health Group. "It means that the companies that are still in the program have to get even more creative to be able to afford to stay in the program, and those that are considering [entering the program] are going to have to be sniper-like in their focus."

Plans who want to enter M+C "will need to be very, very targeted in terms of the markets that one of these products is viable in," Gorman explains. Plans will need to be just as careful about selecting the type of product to put in these markets "to make sure it's financially viable and that it's something the consumers want," he says. Finally, they must be careful about benefit design to make sure that the costs of the product don't out-pace slow revenue growth.

Despite the bad news about the payment increase, Gorman doesn't expect a mass exodus from the program. "Most of the companies that are in now are in for the long-haul," he says, pointing out that plans that were less committed to the program have already left it behind. Nonetheless, he expects the number of plans exiting this year will be "comparable" to the number that exited last year, and that many plans will further refine their service areas.

Still, there will be a handful of new entrants into the program, and some provider organizations will be stepping into the void left by exiting plans, Gorman predicts.

Most M+COs are hoping that major Medicare reform will make the small pay increase irrelevant. Strategic thinkers in the industry are asking themselves how long they can afford to stay in the program without major reform, Gorman says. The hope is that Medicare will introduce some sort of competitive bidding process, which would put pricing back into the hands of the competitors and would make pricing more in line with actual market costs.

So all eyes are on Congress. "If they don't get something done before the August congressional recess, then it's likely we're not going to see this thing taken up again until 2005," Gorman says. That's because everyone will be focusing on the upcoming presidential election after Labor Day, and "this is too huge of a political football" for anyone to want to play with then.

There are reasons to be both optimistic and pessimistic about reform going through in the next three months. On the one hand, seniors are a huge part of the vote, and Republicans know they will be held accountable if Medicare isn't reformed, since they control the White House and both houses of Congress. But on the other hand, Medicare reform would carry an enormous price tag, and with huge deficits on the horizon, legislators might be hesitant to make any waves.