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Copyright 1999 Federal News Service, Inc.  
Federal News Service

MAY 13, 1999, THURSDAY


LENGTH: 3785 words



Mr. Chairman and Members of the Subcommittee:
Good morning. I am Stephen W. Gammarino, Senior Vice President, Federal Employee Program and Health Care Management Systems, at the Blue Cross and Blue Shield Association. On behalf of the Association, I thank you for the opportunity to appear before you today to discuss the guidance we have received from the Office of Personnel Management (OPM) for 2000, as well as other issues of importance to the FEHBP. I am also pleased to note that this is my first appearance before the subcommittee since you became Chairman, Mr. Scarborough. Blue Cross and Blue Shield looks forward to continuing a productive relationship with the subcommittee. As you know, Blue Cross and Blue Shield Plans jointly underwrite and deliver the Government-wide Service Benefit Plan. This plan has been in the federal program since its inception in 1960 and is the largest plan in the program. The Service Benefit Plan currently covers almost two million contracts and more than 3.8 million lives.
My testimony today highlights several trends affecting the FEHBP currently that we believe are adversely impacting the well-being of the program overall. These trends are:
-- The increasing administrative burden on participating carriers as additional regulations and further mandates are imposed;
-- Reduced carrier flexibility in delivery of health care coverage as a result of OPM initiatives;
-- Movement away from a "level playing field" among carriers with regard to flexibility in administration and benefits; and
-- The standardization of health plan administration and benefits, thus reducing enrollee choice in the FEHBP. These trends will be reflected in my comments today on the following areas:
-- The impact on cost and quality of the policies set forth in this year's call letter; and
-- Other matters of concern to the Blue Cross and Blue Shield Association regarding the FEHBP.
Call Letter Guidance
Your invitation requested our views on how the provisions of OPM's call letter for 2000 are likely to impact the cost and quality of health care coverage in the FEHBP. While we are generally opposed to mandates and believe they have an adverse effect on the cost and affordability of coverage, the level of impact can vary significantly with the degree of flexibility that carriers are allowed in implementation. Although negotiations have not yet begun, we are hopeful that the agency will allow the same flexibility concerning the various initiatives set forth in this call letter as was allowed last year.
Implementation of the Patients' Bill of Rights is a case in point. As the call letter notes, much of what was required as a result of the President's Executive Memorandum was put in place for 1999. Two of the changes proposed for 2000, however, could pose significant problems: the provision of transitional care for members forced to change providers or health plans and the patient's right to obtain and amend his or her medical records. Both are put forth as potentially requiring provider contract changes. Such contract changes are inappropriate for the Service Benefit Plan. With a network of more than 400,000 providers and provider contracts developed in most cases for Blue Cross and Blue Shield Plans' commercial business, directing our local Plans to recontract for these issues would come at a tremendous cost, if it were even possible. And such cost would bring very little value to the program, especially in the case of patient access to medical records; the carrier simply has no reason to be involved in therelationship between the physician and the patient with regard to medical records. We are also concerned that, should we attempt to recontract for these issues, it is possible that some providers may simply refuse, thus reducing in size the broad networks which our enrollees expect and on which they rely. In this instance, it is essential that OPM allow for compliance strategies other than recontracting.
In the area of network and provider information disclosure (e.g., compensation methods, years in practice, languages spoken, etc.), the message put forth in the call letter is that, for the provider- specific, detailed information required by the Patients' Bill of Rights, carriers may refer members to providers. This is the appropriate and reasonable approach. Although such detailed information might prove helpful in some instances to members seeking out providers with particular characteristics, such information would be extremely difficult and costly for carriers to collect and then maintain.
With proper consultation between the agency and carriers and reasonable flexibility, then, it is possible that the substance of the Patients' Bill of Rights could be implemented without major adverse impact on the program. However, I should note that the set of requirements I have been discussing is quite distinct from any of the various patients' rights acts currently being considered here in Congress. Indeed, despite the assertion by some that the FEHBP experience demonstrates that the pending Patients' Bill of Rights measures would not be costly, the requirements of the "bill" being implemented in the FEHBP in 1999 and 2000 are significantly less onerous for health plans than some of those now being discussed. For instance, in the past two years, there has at no point been discussion of health plan liability in the FEHBP that would allow enrollees to sue carriers. Additionally, although external review was an element of the bill being implemented, OPM (employer) review was and should be deemed adequate to meet this requirement; current proposals require external review independent ofthe health plan or sponsor. If such requirements were to be imposed in the FEHBP, without question, the costs would be significant.
We also have concerns about the potential impact of initiatives discussed in the call letter under the rubric of "Quality Healthcare." These initiatives involving quality indicators and outcomes measurements appear not to take into account the differences among types of health plans in the FEHBP. A strong example of this is the collection of HEDIS data. We support the agency's initiative to make as much information available as possible for federal employees and annuitants to compare health plans, and by adding HEDIS data to this effort, an attempt to provide comparisons of quality is being made. Yet such a comparison can prove misleading when made between a PPO like the Service Benefit Plan and an HMO. With regard to the data available, PPOs primarily have only claims data, which is insufficient for HEDIS measures. HMOs, by contrast, have in many instances contractual provisions with providers for the collection of detailed information, including outcomes data, as well as medical records review.

Perhaps more importantly, the HMOs have the administrative and contractual mechanisms in place to effect a change in provider behavior should that data reveal a quality-of-care issue. With such fundamental differences, we do not believe an apples-to-apples comparison can be made. Absent a measurement scheme that can deal with these differences, collection and dissemination of comparative "quality" data is likely to be more misleading than informative.
Were we to be required to report HEDIS-type quality measures, in order to do so, we would have to:
1. Incorporate mechanisms, such as gatekeepers, for coordinating and managing care;
2. Introduce provider capitation and incentive payments in our physician contracts;
3. Eliminate open access to non-network providers;
4. Recontract with providers and enter into a much more information- intensive relationship, including ongoing access to patient medical records; and
5. Reduce significantly the number of physician and other health care providers available within the network.
In essence, we would become an HMO, abandoning those features for which enrollees select the Service Benefit Plan in the first place: broad networks, easy access to providers and limited involvement in the physician-patient relationship.
Department of Defense Demonstration Project
One final initiative mentioned in the call letter, the Department of Defense Demonstration Project for participation in the FEHBP by military retirees, is cause for considerable concern. We share with the agency an interest in setting premiums at an attractive level for eligibles to ensure adequate participation, while mitigating carrier exposure to additional risk. However, based on an oral exchange with OPM officials, we believe their intended course of action with regard to financing the project is contrary to law and incompatible with the very structure of the FEHBP. Let me explain. By law, one percent of the premium of each plan in the FEHBP is set aside in an Administrative Reserve, the purpose of which is to cover OPM's expenses in administering the program. OPM uses only a small fraction of the available amount and the unused portion is distributed to carriers based on their market share, in accordance with explicit directions in the law. We understand that OPM proposes to utilize the unused portion of the reserve to pay off any deficits carriers may incur because of the demonstration project without regard to the statutory instructions for distributing the funds. We can find absolutely no basis for such action in law. The legislation that authorized the demonstration project gave OPM access to the reserve to defray any additional costs it may incurbecause of the project, but it said nothing about carrier costs and did not in any way alter the distribution scheme set forth in the basic law.
Why is this issue important? It is important because OPM's proposed action is incompatible with the concept of an insured, competitive program, which is what the FEHBP is in law and in fact. OPM would in effect be re-distributing premium income among the carriers, taking money that was derived from one carrier's premium and giving it to another. In a self-insured program, this would not be a problem. In a competitive, insured program, it undermines the integrity of the rate- setting process and erodes the basis for carrier liability.
We believe that, rather than by way of OPM's problematic proposal, the objectives of affordable premiums and limited carrier risk are attainable within the letter and spirit of the law and the financial structure of the program. Congress clearly intended that the DOD enrollees be kept separate for rating purposes so that the group would be as self-sustaining as possible and its experience could be tracked and compared with that of the larger group of civilian enrollees. But Congress also intended that they be part of the overall program and not a separate insured group. We believe the objectives of the demonstration are best served, consistent with the provisions of the law, by establishing a separate rating category for the DOD eligibles (similar to the separate categories for High and Standard Options or self only and family coverage) while including them with the larger group for carrier liability and financing purposes. We have communicated our position twice to OPM in writing, but have as yet received no reply.
Let me assure you that the Blue Cross and Blue Shield Association is committed to ensuring the success of the demonstration project for military retirees. We anxiously await guidance from OPM regarding critical operational issues related to the project so that we may begin implementation. However, unless we soon receive such guidance as well as satisfactory resolution of the financial issue, ourability to handle this population during Open Season and in 2000 will be jeopardized.
Mental Health Coverage
One issue that was unexpectedly absent from the call letter was mental health coverage. It has been our understanding for some time that OPM would soon be informing health plans of its intent to mandate mental health parity in the FEHBP in 2001; we have recently been told informally by the agency to expect formal notification in June. It was also indicated that the mandate would include an expectation of providing coverage in a managed setting.
While we do not know any other details of OPM's proposal, I can already express to you our reservations regarding the administrative challenges the Service Benefit Plan, in particular, will face in implementing such a mandate. Whereas many HMOs participating in the FEHBP use managed behavioral health care companies already to provide networks and administer mental health and substance abuse benefits, the Service Benefit Plan and most other fee-forservice carriers do not have a "gatekeeper" in place for these benefits, and will need to contract with such organizations. This will be especially difficult for us in trying to implement a managed benefit for almost four million members. Should we decide to select a behavioral health care partner, few of them have nationwide networks of behavioral health care providers available, and certainly none of them handles any groups with an enrolled population of our size. Should we choose to develop that capacity internally, we would require our 52 independent Blue Cross and Blue Shield Plans to develop this capacity and, if necessary, form networks by 2001. With either approach, one consequence would undoubtedly be controlled access to a reduced network of providers for our enrollees.With regard to the cost implications of such a mandate, I will only say that, with enhanced benefits and no limits, even in a managed environment, there will be an increase in health care costs that must be borne by the enrolled population.
Further Benefit and Administrative Issues
While the call letter draws attention to specific program-wide initiatives for the coming year, there are of course other issues affecting the FEHBP in general that are not addressed in the call letter, but are of special concern for the Service Benefit Plan. In accordance with your invitation to comment on other matters concerning the FEHBP, I would like to discuss two issues about which I have testified before you previously, and yet which remain arguably the two most important issues challenging our participation and success in the p
Cost Accounting Standards
One area of great concern to us is the Administration's continuing efforts to impose the cost accounting standards on carrier contracts in the FEHBP. These standards, developed primarily for contractors doing business with the Department of Defense, are promulgated by the Cost Accounting Standards Board. This Board is an entity with the Office of Management and Budget.
As you know, upon the request of this Subcommittee and the full Committee on Government Reform, the Congress included a provision in the Omnibus Appropriations Act of 1998 exempting carrier contracts in the FEHBP from the application of the cost accounting standards. The Administration, specifically, the Office of Management and Budget, opposed this provision at the time even though OPM was on record as recognizing the inherent difficulties in attempting to fit these standards to insurance contracts and had earlier requested the Cost Accounting Standards Board to grant a delay in application. The President's Fiscal Year 2000 Budget proposes to delete this exemption.

The Blue Cross and Blue Shield Association actively sought the exemption last year when we concluded, after an exhaustive analysis, that the cost accounting standards are fundamentally incompatible with, and inappropriate for, our health insurance systems. There are many technical reasons why the cost accounting standards don't make sense for FEHBP contracts and we have provided extensive justification for our position to this Subcommittee, other Congressional bodies, the Cost Accounting Standards Board Review Panel and to OPM.
For the purposes of this hearing let me simply note the obvious: In the Service Benefit Plan, federal enrollees use the same provider networks as other subscribers to commercial coverage offered by our local Blue Cross and Blue Shield Plans. Because of this, the Government also shares in the deep discounts that Blue Cross and Blue Shield Plans have been able to negotiate with providers. Our basic insurance company operations, such as claims processing, payment processing, provider contracting and utilization review, are largely indistinguishable for the Service Benefit Plan.
Truly by simple measures of common sense, if not by some of the arcane rules of government procurement, there is no government contract that is more of a commercial item acquisition than the contract for health insurance provided to federal enrollees under the Service Benefit Plan.
Because the Blue Cross and Blue Shield Plans cannot practicably segregate their FEHBP business (which accounts for only about five percent of the typical Plan's book of business) from their commercial business, the cost accounting standards cannot simply be applied just to the FEHBP portion. Accordingly, our plans would have to restructure their entire accounting systems to comply with the cost accounting standards. This would require them to group costs in ways that would cause adverse impacts for the management of their much larger commercial business. This simply cannot be justified as a rational businessdecision and the implications of continuing to try and impose the cost accounting standards would cause many of our Plans to reassess their participation in the Service Benefit Plan. For these reasons, the Blue Cross and Blue Shield Association, as the agent of the Plans, cannot sign a contract with OPM that contains a cost accounting standards clause or that otherwise applies cost accounting standards coverage.
As I indicated earlier, we arrived at this position only after much study and only after seeking ways to apply the cost accounting standards to our existing accounting systems. Moreover, discussions with OPM and other carriers over the past several months have not produced any substantive areas where applying the cost accounting standards would add value to the FEHBP. Thus, our position has been reaffirmed; we are convinced that the statutory exemption that the Congress so wisely provided last year is not only appropriate, but necessary. Given the Administration's reluctance to recognize the inappropriateness of applying the cost accounting standards to our contract as evidenced by the proposal to delete the exemption, we are also convinced that congressional intervention is required. Once again, we ask for your assistance in retaining this vital statutory exemption.
Prescription Drug Benefits
A second area of significant concern is the lack of sufficient flexibility to adapt our benefit structure to changing trends in a timely manner. An important case in point is our prescription drug program.
The cost trends for prescription drugs continue to outpace by far all other benefit cost trends. The demand for new, expensive drug therapies continues to increase, fueled in part by direct-to-consumer advertising. Other factors, such as the aging of our enrollee population, also contribute to rising costs, as I testified before this Subcommittee last year. And in the Service Benefit Plan, we continueto experience wastage and high utilization that is encouraged by the availability of "free" drugs for some enrollees. We have sought to control our costs by introducing cost sharing for these enrollees, but for the past two years, OPM has denied our requests to address these issues in this manner.
To be precise: our proposals to introduce cost-sharing in our mail pharmacy program for members with Medicare have been rejected repeatedly, despite our having provided ample, unprecedented documentation of the need for this change. While we have sought to minimize unnecessary utilization and to assure that necessary cost- sharing was spread across our entire covered population, the repeated denials simply maintain the free drug benefits for the Medicare population while increasing the burden on active employees. Moreover, the rejections of our benefit proposals are especially disappointing when we have seen other carriers permitted to alter their benefit designs in the same way that we have sought without success. Now, not only do we have reason to question the existence of a "level playing field" for all carriers, but the benefit adjustments now required are larger than they would have been had we been permitted to respond to rising drug trends in a timely manner.
The rules by which the FEHBP operates have always treated benefit negotiations as confidential between the carrier and OPM, for obvious reasons. We don't want to, or intend to, violate these rules here. But we believe that responsible stewardship of our responsibilities to all of our enrollees dictates that we alert the Congress to the growing, and troubling, lack of flexibility in benefit design.
Final Comments
The Blue Cross and Blue Shield Association is very proud of the role it has played in helping to make the Federal Employees Health Benefits Program a success. And as we approach the twenty-first century, we know that keeping the program as successful as it has been for nearly forty years will requireextraordinary stewardship by all parties responsible for its management, operation and service delivery. In that regard, it is apparent from our testimony today that we are growing increasingly concerned about the direction in which the FEHBP appears to be heading.
The fundamental strength of the FEHBP has been derived from a number of important features:
-- The ability of enrollees to select from a number of competing health plans that will best meet their health care needs;
-- The ability of carriers to compete on a level playing field and to bring needed and attractive products to the marketplace; and
-- The ability of program administrators to make intelligent decisions, consistent with law and regulation.
These features must not be eroded by what appears to be the increasing tendency toward overly prescriptive program administration, regulatory rigidity and mandated coverage.
The FEHBP is widely admired in the health care world and, indeed, is viewed by many as a model of a successful consumer-choice program. As we move into the twenty-first century, it is crucial that we preserve and enhance the features that have ensured its success.
Thank you. Once again, on behalf of the Blue Cross and Blue Shield Association, I appreciate the opportunity to come before you and I will be pleased to answer any questions you may have.

LOAD-DATE: May 14, 1999

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