Medicare Compliance & Reimbursement

Medicare+Choice plans that have been holding on in hopes of being saved by a prescription drug benefit have new reason for optimism.

The good news: House leaders came to an agreement June 9 on a compromise drug plan in which Medicare beneficiaries would receive a new prescription drug benefit; the plan is similar to one devised by the Senate, and President Bush said he would sign the bill. The not quite so good news for M+COs: The proposed drug plan would give the same benefit to all benes, regardless of whether they are enrolled in Medicare+Choice or fee-for-service.

That means that private plans who were hoping an Rx proposal would be stocked with incentives to push benes into private plans aren't getting everything they'd hoped for. Such a proposal would have been a huge boon to managed care, but it has been apparent for weeks that rural legislators, wary of the managed care plans that have abandoned many of their constituents in recent years, would not allow such a proposal to pass anyway.

Nonetheless, the new proposal would still be a shot in the arm for M+COs, experts say.

"This was a very encouraging week in terms of the political viability" of the reform and the odds of it being passed this year, says John Gorman of Gorman Health Group in Washington. The worst-case scenario for health plans would be for legislators to pass no Medicare reforms this session. So health plans should be pleased that something is at least in the works.

Gorman says that the chances of Congress passing prescription drug legislation have now "increased 100 percent," but he adds that managed care organizations shouldn't celebrate yet. If something isn't passed by the end of August, then nothing will happen until 2005, as Congress would then decide to sit on the issue until after the next presidential election.

Under the new proposal, benes who opt for drug coverage would pay a $35 monthly premium and a $250 deductible. The government would pay four-fifths of benes' medication costs up to a ceiling of approximately $3,450, after which benes would be on the hook until their catastrophic coverage kicks in.

Not Perfect for Plans, But Awfully Good

As far as private health plans are concerned, the perfect proposal would be one which gives a markedly better benefit to benes who are in private plans, therefore encouraging more benes to join private plans, swelling plans' enrollment. But the proposal as it now stands still would offer substantial advantages for private plans, Gorman says.

Members of MedicareAdvantage - a revamped, drug-inclusive version of Medicare+ Choice - would only have a $400 deductible for Part A and Part B - that's less than half of FFS's deductible, Gorman notes. Also, the catastrophic policy would only be available to managed care benes; that means the sicker benes who use a lot of drugs will have an incentive to join the managed care plans, which is exactly what many in Congress want to see.

A big question will be how exactly the government implements the competitive bidding process, in which plans jockey for position within Medicare, Gorman says.

If competitive bidding still allows for plans to be adequately compensated, then "this is shaping up to look pretty good" for health plans. But the possibility still exists that the ceiling for bidding could be set so low that it would be difficult for plans to make much money.

One encouraging aspect of the proposal is that the government would take its share of risk on the drug benefit. Plans would be fully responsible for any losses on the drug benefit up to 2.5 percent, but after that, it would implement risk corridors. "That's really good policy" since drugs are plans' biggest liability, Gorman says.

Experts on both sides of the issue are cautiously optimistic about the new proposal. "It's a step in the right direction," says Marilyn Moon, a health economist with the Urban Institute who has been critical of the administration's contention that private plans are inherently better than FFS.

The proposal "is a little better in terms of the leveling out of the playing field" for benes in M+C and FFS, says Moon. But she questions the proposal's 2-percent add-on for PPOs. If private plans are indeed more efficient than FFS, then they shouldn't need to be "bribed" to join the program, she adds.

The proposal is not without its lingering questions, however. Congress wants at least two PPOs in each CMS region available to benes, and has floated the possibility of instituting more medical risk-sharing. But if legislators are expecting PPOs to cover an entire CMS region, they're probably asking too much, Gorman says. CMS regions are quite large - the entire country is split into only 10 - and few if any plans could afford to offer a viable product in such vast areas.


Can M+COs Hold Out Until 2006?

Even if the proposal passes, Medicare would not implement the many reforms until 2006, Gorman says. It will still take a while to establish the new agency, to figure out all the details of competitive bidding, to establish the discount cards and to work out other bureaucratic kinks along the way. So if a plan is in Medicare+Choice today, it needs to decide if it can hang on despite unprofitable reimbursement for up to three more years.

The question M+COs need to ask themselves, Gorman says, is: "Okay, we can see the light at the end of the tunnel, but can we make it to the end of the tunnel?"