Copyright 1999 Federal News Service, Inc.
Federal News Service
FEBRUARY 25, 1999, THURSDAY
SECTION: IN THE NEWS
LENGTH:
5630 words
HEADLINE: PREPARED TESTIMONY OF
KIRK
JOHNSON ESQ.
SENIOR VICE PRESIDENT
CNA HEALTH PARTNERS
THE HEALTH
INSURANCE ASSOCIATION OF AMERICA
BEFORE THE HOUSE COMMERCE
COMMITTEE
HEALTH AND THE ENVIRONMENT SUBCOMMITTEE
BODY:
Mr. Chairman and members of the Committee, I
am Kirk Johnson, Senior Vice President of CNA Health Partners. I am testifying
today on behalf of the Health Insurance Association of America ("HIAA"). As the
preeminent health insurance trade association, HIAA is the principal voice of
the broadest spectrum of the health insurance industry. HIAA represents over 265
members that include commercial insurers, health maintenance, preferred provider
and managed care organizations and businesses that provide products and services
to the health insurance industry. Together, HIAA members provide health,
long-term care, supplemental, and disability income insurance coverage to more
than 110 million Americans. Association members include companies currently
serving as Medicare+Choice managed care contractors, companies who are
considering offering new Medicare+Choice options, and companies that have
recently withdrawn from the Medicare+Choice program, giving us a unique
perspective on the issues under review by this Committee. CNA Health Partners is
a company assisting new or developing Medicare+Choice organizations.
I am
pleased to have this opportunity to discuss the implementation of the
Medicare+Choice program with you and to share a few of our principle concerns.
HIAA and CNA Health Partners believe that the Medicare+Choice program represents
an essential component in the government's effort to ensure the financial
survival of the Medicare program and to meet the health care needs of the baby
boom generation as we move into the 21st Century. HIAA applauds the Commerce
Committee for its role in shaping these bold Medicare reforms through the
Balanced Budget Act of 1997. Recent developments, however, suggest that the
Committee's work is not yet done. To ensure the promise of the reform, and to
facilitate beneficiary choice under the Medicare program, additional legislative
and policy modifications must be made.
CONCERNS ABOUT LOW ANTICIPATED
MEDICARE+CHOICE ORGANIZATION PAYMENT RATE INCREASES.
1. Limits on Annual
Increases in Capitation Rates and Concerns Regarding the New Proposed
Risk Adjustment Methodology Threaten the Continued
Attractiveness of the Medicare+Choice Program to Beneficiaries and Providers.
a. Most Plans Will Experience Cost Increases From Medical Inflation That
Exceed Payment Increases During the Coming Year.
Perhaps the greatest threat
to the success of the Medicare+Choice program is the collective impact of
changes in Medicare's payment methodology enacted by the BBA. In order to
achieve a successful partnership between the federal government and
Medicare+Choice organizations, program rules must: (1) allow payment rates that
recognize and adjust for the actual costs of providing health care and permit
necessary investment in clinical and operational improvements, and (2)
incorporate financial incentives to reward those Medicare+Choice organizations
that achieve the government's economic, clinical and operational objectives.As
set forth in Section 1853(c) of the BBA, Medicare+Choice organizations will be
paid the greater of:
(a) a blended capitation rate, which is the sum of a
percentage of the area-specific capitation rate and a percentage of the national
Medicare+Choice capitation rate (the percentage balance will change over time
until it reaches a 50/50 blend in 2002): or
(b) a minimum amount, which is
$379.84 per enrollee per month in 1999; or
(c) a minimum percentage increase
for 1998 equal to an increase of 2 percent of the 1997 Adjusted Average Per
Capita Cost ("AAPCC") rate for the particular county, with increases of 2
percent in each subsequent year.
Due to a budget neutrality requirement, the
blended capitation rate was not available in 1998 or 1999. The Health Care
Financing Administration (HCFA) anticipates, however, that the blend will apply
for the first time in the year 2000. While the majority of counties will receive
blended payments, it is HIAA's understanding that approximately 30 percent of
counties will continue to receive the floor amount and 11 percent of counties
will receive the minimum two percent increase.
'(he practical result, based
on actual Medicare+Choice enrollment, is that Medicare+Choice organizations
serving a majority of Medicare beneficiaries enrolled in such organizations will
receive rate increases of the minimum 2 percent or only slightly more. For
many--if not all--of these organizations, this increase would not be sufficient
to cover the increased cost of providing mandated services, given projected
medical inflation.1 This, combined with the fact that many Medicare+Choice
organizations experienced significant losses in 1998 (and anticipate additional
losses in 1999), forecasts trouble for the program.
Indeed, inadequate
reimbursement rates largely were responsible for the retrenchment of
Medicare+Choice plans last Fall. At that time, some of the most respected
Medicare+Choice organizations in the country withdrew from states and counties
with low capitation rates. Other withdrawals occurred in low enrollment areas
even though capitation rates were above average. As reported, 42 health plans
decided to withdraw from the Medicare+Choice program and 53 plans decided to cut
back their services. In all, about 400,000 Medicare beneficiaries were effected.
To put this in perspective, HCFA averaged two Medicare risk contract
cancellations per year from 1993 through 1997.
The use of the blended rate
for some Medicare+Choice plans for the first time in 2000 is clearly a step in
the right direction in terms of ensuring fair and adequate reimbursement.
However, HIAA strongly believes that additional adjustments are necessary to
attract and maintain the number and diversity of Medicare+Choice organizations
necessary to establish a sound and attractive market-based alternative to the
traditional fee-for-service program.
Accordingly, HIAA urges Congress to
reconsider the artificial and arbitrary limits on capitation rate increases set
forth in the BBA. Specifically, HIAA suggests that annual increases in
Medicare+Choice payment rates be sufficient to fully cover medical inflation
experienced in the local markets. Because local employer health plans and other
commercial customers have a tremendous incentive to keep costs down, they will
positively affect the inflation rate in each market. If the current
reimbursement structure is not adjusted, more Medicare+Choice organizations are
likely to withdraw from areas served and beneficiaries enrolled in the remaining
plans will likely experience premium increases or reduced benefits. Finally, as
Medicare+Choice plans leave the market, the original Medicare program (with its
higher per capita costs) will have more beneficiaries and put additional strain
on both the Part A Trust Fund and the budget. b. The New Risk
Adjustment Methodology Will Substantially Reduce Payments to
Medicare+Choice Organizations.
Change in the Medicare+Choice payment
calculations is all the more necessary because the risk
adjustment process which HCFA is implementing is expected to
substantially reduce aggregate payments to Medicare+Choice plans while adding
additional administrative requirements and expenses. According to preliminary
HCFA estimates, total Medicare+Choice plan revenues for the year 2000 are
projected to be $200 million less than they would have been under the Adjusted
Average Per Capita Cost ("AAPCC") payment method and $6.3 billion less in 2004.
As a result, some plans will see even their minimum two percent increase eroded
in 2000 as the risk adjustment methodology is phased in. Thus,
what began as a straightforward effort to more accurately compensate plans for
the health care costs of their particular members will, unexpectedly, result in
an overall reduction in funds to Medicare+Choice organizations.
This
development runs counter to HIAA's understanding of Congressional intent, i.e.,
that the savings resulting from the percentage reduction: in plan payments for
years 1998 through 2002 was intended to be in lieu of any net program savings
from risk adjustment. (Indeed, the Congressional Budget Office
did not score any projected savings in connection with the risk
adjustment program under BBA 97). The new methodology,
and huge projected revenue reductions, underscores HIAA's concerns regarding the
inadequacy of plan payments under Medicare+Choice. To the extent that the
proposed HCFA risk adjustment methodology translates into a
significant overall decrease in payments for the Medicare+Choice program, it
will undoubtedly be an additional deterrent to program participation.
Accordingly, HIAA urges Congress to require HCFA to modify the risk
adjustment methodology so that aggregate payments to Medicare+Choice
plans for 2000 and beyond are based on aggregate BBA adjustments, making the
risk adjustment process budget neutral.
c. The User-Fee
"Tax" on Medicare+Choice Organizations for Beneficiary Education is Inequitable
and Reduces Even Further Payments to Medicare+Choice Organizations.
HIAA
strongly supports educating and informing Medicare beneficiaries about all
coverage options, including the Medicare+Choice program, and supplying
beneficiaries with straightforward, unbiased information to help them choose
appropriate coverage. That said, we are concerned that the BBA, to support
beneficiary education activities for all 37 million beneficiaries, places a
"user fee tax" on Medicare+Choice organizations only.3 The educational campaign
is a benefit to all Medicare beneficiaries. Indeed, initial information suggests
that the toll-free number HCFA established last year with funds from the $95
million dollar "tax" assessed upon Medicare+Choice organizations primarily
fielded calls from beneficiaries seeking information about the fee-for-service
program. Considerations of equity dictate that the educational program --which
informs beneficiaries about basic program benefits and requirements--be funded
from the Medicare trust fund, or another broad-based source of revenue, as are
other such essential program functions.
We note that this tax, which is
.355% of the total monthly payments to each Medicare+Choice plan in 1999,
further exacerbates the problems outlined above concerning inadequate
reimbursement. Indeed, when the user fee tax is combined with potential large
revenue reductions from risk adjustment, some existing
Medicare+Choice plans will see little or no increase in their payment rates from
1999 to 2000 even though HCFA is using a phase-in of an interim
risk-adjustment methodology.
The cumulative effect of these
three payment reductions will vary depending upon the relationship of the
current payment, current benefits, and the number of beneficiaries enrolled.
In your district. Chairman Bilirakis, there were 139,000 beneficiaries
enrolled in Medicare risk plans (or 32 percent of Medicare beneficiaries). We
project/4 that Medicare+Choice plans will receive only 51.4 percent or half of
the increase per capita relative to Medicare fee for-service increases. We also
project an increase in the 65+ population from 482,000 in 1998 to 533,000 in
2003. If Medicare+Choice options are withdrawn or have less perceived value by
then, a reduction of Medicare+Choice enrollment to 75 percent of existing
numbers would reduce the savings from BBA for 2003 by $77.7 million/5 from your
district alone.
)HIAA has calculated the impact of BBA's payment policies,
including risk adjustment, for the counties of each member of
this subcommittee. A composite of your district's projected payments has been
delivered to your office. As examples of these projections, attached to our
testimony are the projections for Chairman Bilirakis' district and
Representative Brown's district.
2. The May 1 Deadline for Filing ACRs Has
Created Serious Problems in the Administration of the Medicare+Choice Program
and Should Be Changed to November 1.
The BBA moved the deadline by which
Medicare+Choice plans must submit their adjusted community rate (ACR) proposals
from November 1 to May 1. This was done in order to allow HCFA sufficient time
to approve rates and include this rate information in the materials to be
distributed to beneficiaries as part of the educational campaign. The problem
with this time frame is two-fold. First, by submitting proposals seven months in
advance of the actual effective date (i.e., January 1), plans place themselves
at substantial risk that health care costs will rise in unexpected ways in the
latter half of the year and thus not be captured in the proposals. This is what
occurred last year, contributing to the decision by many Medicare+Choice
organizations to not renew their Medicare+Choice contracts for 1999, or to
reduce their service areas. Also, proposals submitted by May 1st are based on
relatively limited claims experience with the Medicare beneficiary population
enrolled in the more rapidly growing plans and are thus less likely to be
accurate predictors of costs than proposals based on a longer period of time.
Accordingly, HIAA proposes moving the ACR deadline to November 1 or as close
to that date as operationally possible.6
In regulations published earlier
this month, HCFA "recognize(d) the difficulties inherent to estimating the cost
of a benefit package for 2000 based on at most 4 months of experience under the
1999 benefit package," but indicated that it had no discretion in this matter
due to the statutory mandate. The President's fiscal year 2000 budget includes a
proposal that would extend the deadline for ACR submissions until July 1. HCFA
strongly supports this proposal. Given the importance of this issue to
Medicare+Choice organizations, and the concerns involved, HIAA urges the
Committee to take steps to put in place a permanent workable deadline for ACR
submissions and suggests that an ACR date of November 1.
3. Congress Should
Return to the Previous Policy Allowing Flexible Benefits and Premiums Within a
Service Area.
Historically, Medicare risk contractors were able to offer
different benefit or charge structures within a given contracted service area.
For example, modified benefit packages were often developed and offered in a
subset of the contracted service area. While Medicare beneficiaries residing in
the segmented service area were offered a uniform array of benefits at a uniform
price, uniformity was not required across the entire service area. This
flexibility was important because it allowed contractors to adjust their benefit
package and premium structure to take into account differences in capitated
payment rates received, which varied by county.
In the BBA, Congress
mandated a new policy requiring that organizations offer uniform benefits and
premiums throughout a service area, despite varying payment levels. Under the
Medicare+Choice regulations, an organization may offer multiple plans and
propose different services areas for each plan. (Were this not the case,
organizations would be discouraged from expanding to outlying rural counties
that typically offer lower reimbursement rates.) This regulatory policy allows
Medicare+Choice organizations to achieve results similar to the original
flexible benefit policy, but only at significant additional expense. Instead of
one ACR being filed for a broad service area with benefits modified to reflect
anticipated revenues, as used to be the case, multiple ACRs must be generated
for separate Medicare+Choice plans by each organization, and reviewed and
approved by HCFA. The Congressional mandate thus imposes significant
administrative costs on the organizations and the agency, with absolutely no
benefit to beneficiaries. Therefore, HIAA urges Congress to repeal the uniform
benefits and premium provisions of the BBA.
IN MANY PLACES THE REGULATIONS
ARE OVERLY RIGID AND DEMANDING SO THEY BECOME AN IMPEDIMENT TO SMALL AND/OR
RURAL MEDICARE+CHOICE ORGANIZATIONS
1. The Quality Assurance Approach is
Misguided.
HIAA believes that some form of quality standards are important
to any market-based approach to Medicare.
Without quality standards, or
some other performance measurement, the added costs of maintaining quality will
be difficult to present fairly although over time, it will be obvious. That
being said, HIAA has serious concerns about the breadth and depth of the onerous
quality assessment, performance improvement and performance measurement
standards developed by HCFA.
a. Performance Measures Should Vary More by
Type of Plan
As an initial matter, we believe that performance measures
should be designed to fit the services offered by various types of plans. HCFA,
however, has essentially embraced a "one size fits all" approach. As a result,
it is unlikely that Medicare+Choice PPO plans that offer a broad choice of
providers to beneficiaries (but are loosely "managed") will be able to meet the
quality requirements. Similarly, the extensive quality-related requirements
applied to MSA plans and private fee-for-service plans are likely to deter the
necessary investment required before these types of plans can be offered. The
bottom line is that the HCFA regulations are so inflexible that few options
other than existing managed care arrangements with large numbers of
beneficiaries can be developed. As a result, beneficiary choice will suffer, and
a key goal of the Congress' work on BBA will have been defeated. In rural areas
with no existing private health plan options, these regulations effectively
preclude any chance that new choices will develop under most reasonable
financial scenarios.
b. The Extensive Data Collection Proposed Is Not
Necessary
Second, the extensive data collection and reporting efforts
required under the regulations will add significant administrative costs to
Medicare+Choice organization operations. We question whether these costs are
justified or desirable, and whether the quality assurance goals might not be met
just as well through alternative approaches. HIAA strongly believes that
consumers, not government officials, should dictate through their plan choices
the extent and nature of quality improvement, balanced against costs. Under this
approach, organizations that are responsive to consumer preferences would be
rewarded with greater market share. Fewer government resources would be required
for oversight.
HCFA could, however, play a central role in ensuring that
minimum standards are met and encouraging quality initiatives through flexible,
incentive-based standards established by contracts. HCFA is to be congratulated
for posting beneficiary satisfaction survey results and other such information
on the Medicare internet site (www.medicare.gov). In HIAA's view, this would be
far superior to the current practice of setting detailed regulatory mandates
which run the risk of leading to micromanaging and encouraging uniformity at the
price of creative experimentation.
In trying to determine the cost of the
extensive data collection effort proposed, HIAA notes that many health care
organizations, particularly those with loosely managed network-style delivery
systems (such as PPOs) do not currently have the capability to capture or report
performance data at the level being proposed. The BBA's limitations on increases
in capitation rates means that outside sources will be required to fund system
upgrades. Even if financially possible, the time required for procurement,
installation, training, and validation are not consistent with HCFA's scheduled
implementation and reporting requirements for Medicare+Choice plans. As a
result, these quality assessment requirements will be a significant deterrent to
expanding senior's choices as potential new plans decide not to participate in
the Medicare+Choice program. At the very least, HIAA believes that organizations
making a good faith effort to meet the regulatory requirements should be
provided a transition period where penalties would not be imposed. This is
particularly important given plan efforts to address Year 2000 computer issues.
c. The "Deemed Status" Program Should Be Implemented Immediately.
Most
Medicare+Choice organizations already adhere to rigorous quality assurance
review by nationally accredited health care organizations. HCFA has provided by
regulation that Medicare+Choice organizations may be "deemed" to meet quality
assessment and performance improvement requirements if judged to do so by a
national accreditation organization approved by HCFA and applying HCFA's
standards for assessing compliance. This approach has much merit. It would allow
plans to work with reviewers who already are familiar with their operations,
creating obvious efficiencies and potential cost-savings. HCFA has failed,
however, to establish procedures to implement the "deemed status" process. To
date, HCFA has not designated any national accreditation organization for this
purpose, nor has it issued policy guidance on how this process will work. HIAA
urges Congress to direct HCFA to promptly institute a procedure for awarding
deemed status since this process has the potential to reduce some of the
substantial costs associated with HCFA's extensive quality assurance measures.
2. The Proposed Risk Adjustment Policy is Ill-Conceived.
On January 15, 1999, HCFA announced its methodology for implementing the
risk adjustment mandate set forth in the BBA. While HIAA
believes that improved risk adjustment is an appropriate and
essential long- term goal for the program, we have serious concerns regarding
the current HCFA proposal, which calls for the initial use of only inpatient
hospital data. During the Administration's proposed 5-year phase-in period,
plans would receive capitated payments based on a blend of payment amounts under
the current demographic system and the interim (PIP-DCG) risk
adjustment methodology. For the year 2000, for instance, the HCFA plan
calls for a separate capitated payment rate for each enrollee based 90 percent
on the demographic method and 10 percent on the risk adjustment
methodology. By 2004, payment rates would be based on comprehensive risk
adjustment using full (i.e., inpatient and other) encounter data and
the demographic method would not be used. HIAA's concerns with this proposal are
both practical and programmatic.
First, the practical. The time frame for
implementation outlined by HCFA is simply far too short. Given the significant
technological considerations involved, it is unreasonable for the agency to
require that all Medicare+Choice organizations be able to provide physician,
outpatient hospital, skilled nursing facility and home health data beginning as
early as October 1, 1999. (HCFA has not yet identified a specific date by which
this information must be provided, creating additional uncertainty.) The
collection, verification, transmission and analysis of "representative"
encounter data is a complicated endeavor. Capturing this data in a valid,
accurate and transferable manner will be a major challenge for most plans.
Indeed, some HIAA member companies that currently contract with HCFA do not have
the technical capability to capture and transmit encounter data other than
inpatient encounters. Nor do our members with PPO and similar network- style
delivery systems have the capability to do so. They are simply not organized in
a manner that will allow them to collect this level of data.
Even if the
capital for such purposes can be arranged, HCFA's proposed time frame is
insufficient to allow Medicare+Choice organizations to procure and install the
required systems. Procuring systems that can accomplish these tasks requires
very careful planning and assessment, review of the capabilities of competing
technologies and vendors. Time is needed to install the systems, modify provider
contracts if necessary to ensure adequate reporting to the Medicare+Choice plan,
train the staff (both at the Medicare+Choice organization and provider
locations) and verify and validate the data. All of these steps must be
carefully executed or the system will fail. These obstacles to compliance cannot
simply be wished away. Moreover, the imposition of these costs on all
Medicare+Choice plans will make the development of rural plans even more
difficult because they will continue to have fewer beneficiaries enrolled
compared to plans in other areas.
The process by which information is
communicated to, and received by, HCFA is likely to present significant
technological problems as well, if past experience is any guide. HI, A members
have experienced, and continue to experience, problems in ensuring that accurate
inpatient hospital data is transmitted via Medicare fiscal intermediaries to
HCFA.
Difficulties can also be expected as HCFA attempts to manipulate
significant amounts of data for the first time using the proposed PIP- DCG
risk adjustment model. The methodology developed by HCFA is
complicated and requires numerous steps. The process is yet untested. HCFA faces
a monumental task in getting the PIP-DCG system to work. We are awaiting the
opportunity to review the plan-specific effects of the data collected to date.
Moreover, as HCFA acknowledges, "the PIP- DCG model is (simply) an interim step
towards implementation of a comprehensive risk adjustment model
(i.e., one which uses diagnoses from all sites of service.)" HIAA strongly
believes that the ambitious time frame proposed by the agency rests on a flawed
premise: namely, that all of the anticipated technological and methodological
problems can be resolved in the five-year window.
HIAA's doubts in this
regard are heightened by the fact that planned implementation coincides, at
least initially, with agency efforts to ensure Year 2000 readiness, both
internally and in connection with Medicare+Choice organizations and other
contractors. If HCFA transitions to risk adjustment before the
necessary fixes are made and before reliable data are gathered and properly
analyzed, the consequences could be catastrophic for individuals enrolled in
Medicare+Choice plans, as well as the Medicare managed care program generally.
As if all this were not reason enough to delay implementation, HIAA has
significant programmatic concerns regarding the proposed risk
adjustment model. First, HIAA is concerned that variations resulting
from excessive payments under the original Medicare fee-for-service program have
been incorporated into the risk adjustment calculation.
Additional, unnecessary hospitalizations that have occurred within the original
Medicare Part A fee-for-service program, despite HCFA's attempt to fight this,
are still significant. As a result, Medicare+Choice organizations will receive
lower payments through the proposed risk adjustment
methodology. HCFA should not penalize the managed care portion of Medicare for
the program's failure to limit false or fraudulent claims and medically
unnecessary hospitalizations. One approach to avoid this, would be to limit the
use of risk adjustment so that the total amount paid to all
Medicare+Choice plans is not reduced but instead redistributed among
Medicare+Choice plans only.
Second. recognizing the fact that most federal
agencies rely on sampling. HCFA's expectation of reported data on all
individuals seems excessive. Given that even the more comprehensive risk
adjuster will not be able to fully reflect all differences, HIAA believes that
Congress should require HCFA to reexamine the use of plan-based sampling to
reduce the administrative burden on the plans, reduce the potential for errors
in the start-up phases, and increase the privacy of each individual's sensitive
medical information.
Third, HIAA strongly believes that it is poor public
policy to base risk adjustment--even temporarily--on inpatient
hospital data only. Such an approach, even with the adjustments that HCFA has
made to its initial risk adjustment proposal, would reward
Medicare+Choice plans with excessive hospital use. and penalize plans that have
effectively reduced inpatient hospitalizations and focused on providing more
care on an outpatient basis. The incentives created by a risk
adjustment methodology based exclusively on inpatient hospital data
could result in increased inappropriate hospital use, increased avoidable costs,
and a set back in the effort to realize greater efficiency in the health care
system. Beneficiaries enrolled in plans with a relatively high proportion of
members who receive care for expensive chronic illnesses outside the hospital
setting would be particularly harmed.
For all these reasons, HIAA urges HCFA
to delay the implementation date of risk adjustment beyond
January 1,2000. Since HCFA believes it does not have the authority to do this.
Congress should revise the implementation date. While the effort to collect
encounter data should proceed in a careful and deliberate manner, changes in
payment methodology based on risk adjustment should not be
implemented until complete and reliable encounter data are available. To ensure
the validity of the data and a viable risk adjustment process.
Congress should direct HCFA to (1) conduct a demonstration project aimed at
validating the proposed methodology and (2) identify less costly and less data
intensive ways of performing risk adjustment.
SUMMARY AND
CONCLUSION
If the Medicare program is to be sustained for the next
generation of beneficiaries and beyond, it is crucial that the federal
government employ every strategy appropriate to enhance quality health care
options for beneficiaries and encourage the development of lower cost options
rather than relying on punitive regulations which will reduce choice and funnel
more people into the highest cost option--fee-for- service Medicare. The
Medicare+Choice program already is at an early crossroad where improvements can
allow it to flourish but neglect of necessary change will doom it to failure. It
would be more wise, in the long run, for the government to employ
market-oriented strategies to ensure that there are Medicare+Choice options
available to beneficiaries and to create incentives for private health insurers
and providers to deliver value in the context of the Medicare program. Because
it is a critical building block in this market-based strategy, Medicare+Choice
must be successful.
In summary, HIAA believes that the prospects for success
will be greatly improved if the following steps are taken with respect to the
Medicare+Choice program:
- Adjust the payment structure so that increases
cover medical inflation; - Issue revised regulations to reduce costly
administrative burdens on small, rural and non-HMO plans; - Change the due date
of ACRs to November 1 to eliminate unnecessary risk; - Delay and revise the
proposed risk adjustment model to reduce the cost of reporting
and system development; and - Modify the role of risk
adjustment so that overall revenues to the Medicare+Choice program are
not reduced, but simply reallocated among based on the health status of
enrollees. A final word of caution: Congress must act quickly to direct HCFA to
change course in the manner outlined and to find ways to reduce the regulatory
burden of participating in the Medicare+Choice program if it wants the program
to succeed. The time frames for critical decisions relating, for instance, to
system investments are very short, particularly given HCFA's anticipated
risk adjustment schedule. Thus, if Congress is to make
adjustments to the program, it should act now.
Thank you, Mr. Chairman. I
would be happy to answer any questions you may have at this time.
(Note:
Attachments not transmittable).
FOOTNOTES:
1 The budget for fiscal year
2000 includes funding original fee-for- service Medicare that reflects
anticipated increases in medical costs over a five year period of 27% and an
increase in the Federal Employee Health Benefit Program of about 50%. Estimates
of the likely growth for Medicare+Choice plans in high paying counties for the
same period is less than 10%.
2 In addition to the 5 percent reduction in
payment from fee-for- service costs which existed prior to the BBA, the increase
in payment to Medicare+Choice organizations under both the blended rate and the
floor will not fully reflect anticipated medical inflation. A reduction of 0.8
percent was made in 1998 and reductions of 0.5 percent are to be included in
1999 through 2002. The cumulative effect of these reductions will be that even
the blended rate adjustment will be inadequate. This, coupled with the
insufficient increases in the minimum rate, will undermine Congressional intent
to encourage growth of Medicare+Choice options for seniors in low cost areas.
3 Medicare + Choice organizations essentially pay a "head tax" (i.e., an
amount based on the number of Medicare+Choice enrollees in their plan) to
support the public information program.
4 Our projections utilize September
1998 enrollment figures, a 1998 Price Waterhouse report on Medicare Capitated
Payments, and reflect HCFA's assumption for the average cost to Medicare+Choice
plans of risk adjustment.
5 Lost savings, based on the
difference in projected per capita payments to HCFA vs. Medicare+Choice,
multiplied by the potential Medicare+Choice enrollment less 75 percent of
current enrollment.
6 We recognize that HCFA may prefer a date earlier than
November 1 in order to collect information for the annual public information
campaign. We believe that HCFA's public information objectives can be met while
permitting Medicare+Choice organizations to submit ACRs on the old schedule.
Working with third party publishers, including daily newspapers, HCFA could more
than adequately distribute plan specific information to beneficiaries in a
timely fashion.
END
LOAD-DATE: February 27,
1999