Medicare Compliance & Reimbursement

The so-called social health maintenance organizations - with which Medicare has experimented for nearly two decades - should be folded into the Medicare+Choice program when the S/HMO demonstration officially ends this December.

That's the word from the Medicare Payment Advisory Commission, based on repeated findings that S/HMOs haven't had much more success with integrating care, cutting institutionalization rates, and improving outcomes for frail elderly people than have other Medicare health plans.

The S/HMO demonstration was established in 1985 and revised in 1996 to test a service-delivery and financing model that would provide acute, chronic, and long-term care, especially community-based LTC, and smooth beneficiaries' transitions among the three.

Under the demonstration - which currently exists in four sites and serves around 115,000 beneficiaries - enrollees are entitled to basic Medicare benefits, supplemental benefits such as prescription drugs and eyeglasses, and expanded "social" benefits including personal-care and homemaker services. Eligibility for some benefits, such as personal care, depend on the enrollee's health status.

S/HMOs are paid on a capitated basis and receive 5.3 percent more than county M+C rates. The higher payment is intended to pay for additional services and "is a holdover from the years when managed-care payments were set to 95 percent of fee-for-service payments for a county," MedPAC explains in an August report.

But a series of studies over the years has demonstrated that S/HMOs generally haven't done better than the rest of Medicare at integrating care or reducing institutionalizations, MedPAC says.

In recent years, one of the four S/HMOs, operated by the group-model HMO Kaiser Northwest in Portland, OR, "has successfully integrated care," adopting both an interdisciplinary-team organization and other care-management approaches recommended by geriatricians, says the Commission. But Kaiser has adopted those approaches in both its S/HMO and its regular M+C plan, while the other three S/HMOs haven't adopted similar proven geriatric-care techniques.

With competition between S/HMOs and M+C plans basically a wash, MedPAC concludes that the existing S/HMOs should be offered the opportunity to become regular M+C plans come January, and that mandates for S/HMOs to provide additional benefits should end. If the plans choose to enter M+C, their extra payment should be phased out between 2004 and 2007, and the same comprehensive risk adjustment that's in the offing for M+C should be phased in over the same period.

The recommendation follows from two of MedPAC's chief principles, says the Commission. Eliminating S/HMO plans that were mandated to offer extra benefits - unlike some M+C plans that are able to offer non-mandated benefits because they deliver care more efficiently - preserves equity among beneficiaries. Eliminating extra payments to S/HMOs accords with the principle that plans serving basically the same beneficiaries should be paid the same to preserve a level playing field between service-delivery systems. S/HMOs have turned out not to serve a significantly different population than the rest of Medicare, the panel says.

The Commission also recommends that the government develop specific payment adjustments for frail beneficiaries, either as part of basic risk adjustment or as a separate "frailty adjuster."