MEDICARE NEWS

The majority of Medicare+Choice managed care plans will see federal payment rates increase by 2 percent, the minimum increase guaranteed by the Balanced Budget Act of 1997, while others will receive 3.3 percent, the Health Care Financing Administration announced today.

"Plans are getting paid more despite the fact that Medicare fee-for-service costs are coming down," said HCFA Administrator Nancy-Ann DeParle. "If the Balanced Budget Act hadn’t separated Medicare+Choice payments from fee-for-service costs, plans would be getting about $1.6 billion less."

When the estimated payment rate increases were first announced in January, 2000, as required by the Balanced Budget Act, HCFA also said:

• Medicare will develop a method to pay plans more for congestive heart failure patients in ambulatory settings. HCFA will pay more for patients at plans that meet quality standards beginning in 2002.

• Under the Balanced Budget Refinement Act of 1999, the transition to risk adjustment in 2001 will again be based on a blend percentage of 10 percent risk adjusted payment and 90 percent based on the adjustment for emographic factors.

• Competition among managed care plans would enable Medicare to establish payment rates That more closely reflect costs in local communities than under the current formula established by law.

• Congressional enactment of a meaningful prescription drug benefit would enable all Medicare beneficiaries, regardless of where they live and whether they choose managed care, to have access to needed drug coverage.

"If plans were able to submit competitive bids for treating Medicare beneficiaries, annual increases would reflect the real trends in the marketplace, not depend on a formula based on a percentage of changing Medicare costs," said DeParle.

Due, in part, to the strong economy, the Administration’s successful crackdown on waste, fraud and abuse, and the implementation of the 1997 Balanced Budget Act changes, growth in Medicare fee-for-service spending has been declining. However, BBA established a minimum payment formula that will result in the 3.3 percent rate increase to the counties with the lowest rates (31 percent of U.S. counties) and a rate increase of 2 percent for the remaining counties for 2001.

As of February 1, more than 6.2 million of the more than 39 million Medicare beneficiaries have chosen to enroll in managed care plans. Since Medicare began offering a managed care option to its beneficiaries in 1985, a formula set by law has determined the rates paid to managed care companies. It began by determining the average monthly cost of treating Medicare patients through the traditional fee-for-service program and paid HMOs 95 percent of that. This method was used until 1997, when the BBA was enacted.

The Balanced Budget Act made county rates paid to plans in 1997 the basis for all future payments. The law sets each county’s rate at the highest of three amounts. The first is a minimum 2 percent increase over the prior year’s amount; the second is a guaranteed minimum dollar amount known as the "floor" rate; and the third is a blending of local and national rates. Because of the decline in Medicare spending, the blend rate will not be implemented in 2001. The floor and the local and national rates are updated based on the overall increase in Medicare spending.

"With risk adjustment, we want to make sure that managed care plans are paid more fairly for providing care to Medicare beneficiaries," said Dr. Robert A. Berenson, director of HCFA=s Center for Health Plans and Providers. AWe believe there are merits in rewarding plans who commit resources to treating congestive heart failure to avoid hospitalization."

And, as one of the most frequently billed inpatient diagnoses, congestive heart failure is unique in the degree to which it can be successfully managed on an outpatient basis. HCFA will continue to work with experts in congestive heart failure, disease management and risk adjustment throughout CY 2000 to develop ways to refine the risk adjustment formula to reimburse plans for outpatient management of the disease. Any changes will be announced later this year so that plans can initiate quality improvement projects in time for implementation in 2002.

The monthly floor payment rate, which affects 31 percent of counties nationally, will increase just over 3.3 percent for aged beneficiaries from $401.61 to $415.01 in 2001. Examples of floor counties where managed care plans are available include such areas as Chenango, New York and Archer City, Texas. Higher paid counties include Richmond County, New York, which has a current rate of $814.32 and will receive a 2 percent increase to $830.61 in 2001. Dade County, Florida, which has a year 2000 rate of $794.02, will see rates increase to $809.90.

"A number of independent experts, including the nonpartisan General Accounting Office, confirm that Medicare payments are more than generous enough for plans to provide Medicare’s basic benefits. Some managed care plans may complain about payments because the Medicare rates are not growing as fast as their costs. That’s why we believe market-based pricing is a better way to determine payments to managed care plans. Competition is vital to the future of Medicare," said DeParle.

"And just as important is the need for the prescription drug benefit proposed by the President. The Administration’s proposal includes a specific additional payment for prescription drugs for beneficiaries enrolled in managed care plans and a benefit for those who don’t have a managed care option available to them. This would enable all beneficiaries to receive prescription drugs and remove the reasons that managed care plans blame for reducing coverage areas and benefits," said DeParle.

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Last Update: March 2, 2000