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HealthBiz: Medicare Advantage taking shape

Posted - Oct. 22, 2004 at 1:20 p.m.



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WASHINGTON, Oct 21, 2004 (United Press International via COMTEX) -- The new look of Medicare Advantage is taking shape and the Centers for Medicare and Medicaid Services is determined to show health plans that the program is not just Medicare+Choice with a different name.

The CMS staff -- including Administrator Dr. Mark McClellan -- did their best this week to make that clear to plans attending a Medicare and Medicaid conference sponsored by America's Health Insurance Plans.

The Medicare Modernization Act of 2003 uses Medicare Advantage to replace Medicare+Choice, bringing a permanent drug benefit via drug-only insurance plans, and preferred provider organizations or PPOs for comprehensive health and drug coverage. The name change already has happened, so now all M+C plans are Advantage plans.

The worry has been CMS had not learned its lessons from the failure of M+C, which included only 4.7 million seniors out of 41 million Medicare beneficiaries. PPOs, like their HMO brethren, could be doomed to fail because of instability and unpredictability on the part of CMS and low payments. M+C HMOs pulled out by the dozens because they could not make money and CMS was deemed a bad business partner.

For now, the Medicare Advantage payment structure based on Medicare fee-for-service -- with some plans getting up to 112 percent of FFS -- remains substantially the same, albeit tweaked with more federal money. That changes in 2006, when plans begin competitive bidding -- potentially against FFS -- to provide Medicare coverage in various U.S. regions.

It is hoped competitive bidding will reduce costs over the long term -- even though PPOs historically are more expensive to operate than HMOs because of fewer patient restrictions.

M+C often was a county-by-county proposition -- plans would pull into and out of counties and states, creating a weird patchwork of coverage only in areas of profitability. A new regional approach to Medicare Advantage means plans will have to provide coverage in areas of a state or more.

CMS itself has done some retooling, bringing in new people to handle the transition. Patricia Smith, director of the Medicare Advantage Group, said CMS has divided into three groups "to try and make sure that we can serve you better. It was an effort to flatten the organization (and) create less hierarchy, so we could focus on problems as they arose more immediately and not have to spend time sifting through things that hierarchies tend to drive you to."

This might sound like a breath of fresh air, but just how Medicare Advantage is going to work still is worrisome and plan reps at the conference asked CMS to be diligent in considering their business requirements.

All in all, however, CMS seems to have a plan to pull it all together by June 2005, though it is heavily bolstered by billions of dollars in incentives for plans to participate, not to mention risk corridors that allow the government to pick up the lion's share of cost overages should they occur. These incentives will not last forever -- a couple of years in the 10-year program structure -- but they are enough to make plans comfortable at least to give Medicare Advantage a go.

An infusion of money from the new Medicare law already is making Medicare Advantage's HMOs look a bit healthier. McClellan said 35 new plans have applied to participate in Advantage in 2005 and 22 have applied to serve an expanded geographic area. That could bring another 1.6 million Medicare beneficiaries into the managed care.

"We're expecting to see premiums, based on the filings, decrease by an average of 10 percent in the Medicare Advantage plans," he told the plans. "We're expecting to see out-of-pocket payments for covered services in the Medicare Advantage plan decline by about 10 percent."

For years, Medicare's managed-care plans have had trouble establishing a foothold in rural areas. In some states, such as Montana, there are no managed-care plans available. It is difficult to generate the physician and hospital networks needed in rural areas and providers often have balked at participating in managed care.

A $10 billion retention fund -- paid for partly by additional savings expected because plans are bidding for Medicare business -- begins in 2007.

"This fund will be available through 2013 and can be used to help make sure we can get the plans where we need them," McClellan said.

Plans that provide national coverage over all regions will receive a bonus of 3 percent per year and the money also can go toward entry bonus payments "to encourage plans to enter a particular region that may not have access or may be threatened with a loss of access to these coordinated care plans," he said.

That may be fine as far as it goes, but the pressure will be on health plans to persuade reluctant providers to join PPO networks if they ultimately pay less than traditional fee-for-service Medicare. In rural areas with a limited doctor supply, doctors would see the same patients whether they are FFS Medicare or managed-care Medicare. There is no competition to force their hand.

Still, payment is not the whole issue, said Heidi Margulis, senior vice president for government affairs at Humana Inc. She told the conference there is a large group of physicians in the upper Midwest, serving eight counties in a rural area, that has refused to join Medicare managed care.

"It's simply that (they have refused to) accept the same rate as they would have accepted from the beneficiaries if they were in the fee-for-service program," she said.

Keith Dines, president and chief operating officer for Sun Health, which operates in Arizona, said regional and local plans like his face the same challenges -- even though they are community-based.

"We often struggle to recruit Medicare beneficiaries that have been in Medicare plans for many, many years or were disillusioned when many plans left the marketplace," Dines said. "We also struggle with billing provider networks in rural areas. There are many, many plans and many instances where you have had difficulties contracting with providers."

Referring to comments by Margulis, Dines said if health providers refuse to accept even the full Medicare payment, yet continue to serve the traditional Medicare beneficiary, "both are challenges not only that the regional plans face, but local plans face today."

Therefore in many ways, the size and demographic makeup of the regions become crucial when Medicare Advantage switches in 2006 to the new structure with the new bidding process. The smaller and local plans want CMS to give a little bit to accommodate their needs.

McClellan said no final decisions have been made and CMS is well aware of the plans' interest in limiting cost variations within a region.

"We know we need to account for where effective plans or collaborations between plans with complimentary networks have already been established," he said. "There have been steps taken, for example, to pull plans together in multiple state areas in other contexts besides Medicare, and that's an important concept for us to look at. And we also recognize that, especially at the start, too large a scale can make it difficult for plans to scale up operationally. I want to be clear, though, that in this process we've seen some considerable expressions of interest in multi-state regions for both prescription drug plans and PPOs."

The CMS schedule calls for publishing regulations for Medicare Advantage plans in January 2005. Then, June 6, 2005, "from our standpoint, everything has to be working and working well by that point in time," Smith said.

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E-mail ebeck@upi.com

Copyright 2004 by United Press International.

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