Enclosure III

Responses to Comments on the January 14, 2000, Advance Notice of Methodological Changes for Calendar Year (CY) 2001 Medicare+Choice (M+C) Payment Rates

We received two letters of comment on the January 14, 2000, notice: one letter came from a managed care association, and one from a Medicare+Choice organization. These two letters raised several issues.

Comment: Both letters requested more information about the adjustments for changes in the estimates of prior years' growth that were incorporated into the preliminary estimate of the change in the national per capita M+C growth percentage for aged enrollees in CY 2001. Specifically, the commenters requested that HCFA provide:

• written substantiation and validation of their derivation;
• the necessary data, including information on fee-for-service spending, and technical assistance to allow for an independent calculation of the national per capita M+C growth percentages for CYs 1998 through 2001 and the adjustments to the growth rates; and
• earlier notice of possible adjustments for prior years, in the form of detailed and complete mid-year estimates of the growth rate and anticipated adjustments.

Response: We make every effort to provide complete and timely information on the data used to compute the national per capita M+C growth percentage. We are unable to provide detailed information on the derivation of the national per capita M+C growth percentage in the annual January notice because of restrictions on the release of information related to the Administration's budget prior to the announcement of the budget in February. However, we include these data in the March notice each year. The tables included in Enclosures I and II of this notice contain the data required to calculate the change in the national per capita M+C growth percentage for CY 2001 and the adjustments for changes in prior years' estimates.

Comment: One commenter expressed concern that the preliminary estimate of the change in the national per capita M+C growth percentage does not reflect one of the basic intents of the Balanced Budget Act (BBA) of 1997. Specifically, the preliminary estimate of a -1.3 percent national per capita M+C growth percentage for aged enrollees in CY 2001 implies that no counties will receive the local/national blended rates in 2001. The commenter believes that this runs counter to the BBA's intent of using the blended rate formula of the methodology to increase the rates for rural areas and thus to encourage plans to expand their service areas into those counties.

Response: The preliminary estimate of the change in the national per capita M+C growth percentage was computed as prescribed by the statute. The rate-setting methodology is prescribed in detail in section 1853(c) of the Social Security Act, which was added by the BBA. We have no authority under current law to change the methodology. Section 1853(c)(6) of the Act provides that the national per capita growth percentage equals the projected per capita rate of growth for Medicare expenditures, adjusted for any under- and overprojections in previous years (adjustment for the overstatement of the 1997 base rates is not authorized). It also reflects any statutory adjustments (e.g., -0.5 percent for CY 2001 as required by section 1853(c)(6)(B) of the Act). The final national per capita growth percentage for CY 2001 reflects these requirements. It is important to note that, in accordance with the requirements of the BBA, the adjustments applied to this year's national per capita M+C growth percentage reflect the overstatement of the projected rate of growth in Medicare spending incorporated in the ratebooks for calendar years 1998, 1999, and 2000.

The BBA provides that county rates will be the largest of: (1) the blend amount, which is subject to a budget neutrality adjustment, (2) the minimum 2 percent increase, or (3) the minimum payment amount or floor. The BBA further provides that total payments under the "largest of" method will be budget neutral relative to payments that would have occurred if payments were based solely on the local component of the blended rates. In 1998 and 1999, the budget neutrality adjustments resulted in blend amounts lower than 2 percent minimum increase or floor rates. Hence all counties received either the 2 percent minimum increase or the floor rate, thus preventing budget neutrality from being achieved. In 2000, the budget neutrality adjustment resulted in increases (of very small amounts) in the blend rates that would have applied without the budget neutrality requirement. For 2001, county rates will be based on the 2 percent minimum increase or the floor rate because blend amounts will be less due to the -1.3 percent update. As a result, Medicare+Choice payments in 2001 will exceed the budget neutrality amount, and thus the policy of budget neutrality established by the BBA, by an estimated $1.6 billion.

It should be noted that the minimum 2 percent increase for 2001 applies to the blended rates that many counties received in 2000. In this way, the substantial increases provided to low cost counties in 2000 through blended rates will carry into 2001. These counties will eventually experience similar gains during the remaining years of the BBA blend phase-in as the national proportion of the blend reaches 50 percent in 2003.

Comment: One commenter expressed concern about the potential exclusion of Qualified Individuals (QIs) from the Medicare+Choice rate adjustment in CY 2002. The commenter agreed that the application of the Medicaid adjustment to this income group is inappropriate for CY 2001 since QIs were not included in rate calibrations. The commenter recommended, however, that HCFA make the necessary changes in calibration of the Medicaid factors to allow the application of the adjustment to QI payment rates beginning with CY 2002. The commenter also noted that state Medicaid agencies, not Medicare+Choice plans, designate beneficiaries as eligible for the Medicaid adjustment. The commenter therefore recommended that health plans should not be held accountable for errors in these designations.

Response: The two categories of Qualifying Individuals were not in existence when HCFA conducted the analyses and calibrated the Medicaid adjustments to the capitation rates in 1997. The overall costs of Qualifying Individuals were accounted for both in the demographic model in place prior to the BBA and in the risk adjustment model introduced by the BBA. These individuals were not considered, however, in the specific calibration of Medicaid factors for either model. As the commenter notes, this factor alone makes application of the Medicaid adjustment to Qualifying Individuals inappropriate in 2001.

As noted in the January 14 notice, we will analyze the Medicare costs of Qualifying Individuals compared with those for other Medicare beneficiaries in the context of our work on future improvements to risk adjustment under M+C. We do not have sufficient data at this time to make a determination as to the specific recognition of costs associated with this population for 2002.

Comment: One commenter expressed appreciation of HCFA's decision to move forward in developing a methodology to respect outpatient management of congestive heart failure (CHF). The commenter also expressed disappointment that HCFA will not implement any such measure until CY 2002. The commenter noted that managed care associations, Medicare+Choice organizations, and clinical experts had participated in very productive discussions of CHF and risk adjustment during 1999, and that these discussions supported the need to develop payment measures to ensure that plans are not disadvantaged for improving health outcomes for beneficiaries through disease management programs not only for CHF, but also for other diseases.

Response: As we discussed in the January 14, 2000, Advance Notice, HCFA is working to develop an approach to refining payments to provide for recognition of outpatient management of CHF until a comprehensive risk adjustment model is ready for implementation in 2004. The development of an approach to identify specific criteria for recognition of outpatient management of CHF requires additional work at HCFA and consultation with industry and CHF experts during 2000 and will not be ready for 2001. Therefore, any changes in the Medicare+Choice payment methodology with respect to payment for outpatient management of CHF will be announced in the January 15, 2001 Advance Notice of Methodological Changes for Calendar Year (CY) 2002 Medicare+Choice (M+C) Payment Rates, and would apply only to payment in 2002 and 2003.