Copyright 1999 Federal News Service, Inc.
Federal News Service
MARCH 18, 1999, THURSDAY
SECTION: IN THE NEWS
LENGTH:
3575 words
HEADLINE: PREPARED STATEMENT BY
JANET G.
NEWPORT
VICE PRESIDENT, REGULATORY AFFAIRS
PACIFICARE HEALTH SYSTEMS
THE AMERICAN ASSOCIATION OF HEALTH PLANS
BEFORE THE
HOUSE WAYS AND MEANS COMMITTEE
HEALTHCARE SUBCOMMITTEE
SUBJECT - ISSUES IN IMPLEMENTATION
OF THE MEDICARE+CHOICE PROGRAM
BODY:
I. Introduction
Mr. Chairman and
members of the Subcommittee, thank you very much for the opportunity to comment
on issues related to implementation of the Medicare+Choice program. I am Janet
Newport, Vice President of Regulatory Affairs/1 for PacifiCare Health Systems,
based in Santa Ana, California. PacifiCare provides health care coverage for
more than 3.7 million enrollees in ten states - Arizona, California, Colorado,
Kentucky, Nevada, Ohio, Oklahoma, Oregon, Texas and Washington - and the
territory of Guam. Through Secure Horizons, our Medicare plan, we enroll nearly
one million Medicare beneficiaries, the largest enrollment nationwide. I am
testifying today on behalf of the American Association of Health Plans (AAHP),
which represents more than 1,000 HMOs, PPOs, and similar network health plans.
Together, AAHP member plans provide care for more than 140 million Americans
nationwide. AAHP appreciates this opportunity to comment on the Health Care
Financing Administration's (HCFA) implementation of the Medicare+Choice
provisions of the Balanced Budget Act of 1997 (BBA).
When passed by
Congress, the goal of the BBA was to expand on the successful Medicare HMO
program and to provide for additional private sector options for beneficiaries
while allowing the program to expand into other parts of the country. AAHP and
its member plans have long supported these efforts to modernize Medicare and
give beneficiaries more choice. Today, more than 16 percent - or 6 million
beneficiaries are enrolled in health plans, up from 6.2 percent five years ago.2
The transition from Medicare's risk contracting program to the
Medicare+Choice program has not been without difficulties. As
the.Medicare+Choice program has been implemented, the result has been unintended
negative consequences for beneficiaries and the health plans that serve them.
Last year, health plans holding nearly 100 Medicare contracts reluctantly
reduced their service areas or withdrew from the Medicare program largely
because of the combination of reduced payments and the significant
administrative burden of the many new regulatory requirements under the
Medicare+Choice program. These decisions resulted in disruptions in care and a
loss of benefits and increased out-of-pocket costs for more than 440,000
Medicare beneficiaries. Of these beneficiaries, 50,000 were left with no choice
but to return to the traditional fee-for-service program. HCFA's decision to
proceed with phased-in deep cuts under its new risk adjustment
methodology will further contribute to the program's instability and penalize
beneficiaries who have chosen to join Medicare+Choice plans.
AAHP has
consistently supported the goal of ensuring that Medicare payments to health
plans are accurate and that they fairly reflect the health care service needs of
the Medicare beneficiaries who enroll. However, it is critical to place the
program on a stable and predictable footing so that beneficiaries enrolled in
the Medicare+Choice program can continue to receive the high quality services,
benefits, and lower cost sharing that they have come to rely on. This statement
examines three areas of Medicare+Choice implementation: 1) the proposed new
risk adjustment method; 2) dissemination of health plan
information to seniors; and 3) new plan requirements for quality measurement.
II. Risk Adjustment
The risk adjuster proposed by HCFA
threatens the stability of the Medicare+Choice program in two ways: 1) by
exacerbating the cumulative impact of payment reductions to Medicare+Choice
plans; and 2) by creating unworkable and burdensome administrative processes
that increase plan costs and raise the likelihood of inaccurate payment. Taken
together, these problems will widen the growing disparity between payment to
Medicare+Choice plans and reimbursement under fee- for-service. In addition,
these problems will make it difficult for Medicare+Choice plans to operate in
certain markets and to maintain the level of benefits and services to which
beneficiaries have become accustomed. It is unrealistic for HCFA or Congress to
assume that a disparity of this magnitude will have no adverse impact on
providers, delivery of services, or health care options for seniors.
On
January 15th, HCFA announced its new methodology for adjusting Medicare+Choice
payment rates to reflect the health status of individual Medicare beneficiaries.
AAHP has serious concerns about the impact of HCFA's new risk
adjustment methodology on Medicare beneficiaries, as well as on
Medicare+Choice participating organizations and their providers. Under HCFA's
new methodology, between 2000 and 2003, Medicare+Choice payments will be based
on a blend of rates adjusted for demographic characteristics only and rates
adjusted for health status as well as demographic factors. During this period,
the portion of the payment rate that reflects health status adjustment will be
calculated under a model that uses only inpatient hospital data. The phase-in
will be completed in 2004 when Medicare+Choice payments will be risk-adjusted
using full encounter data - not just inpatient hospital data.
According to
HCFA, fully implementing the PIP-DCG risk adjustment
methodology in 2000 - without using any transition period - would have resulted
in $15.7 billion in cuts over a five-year period. These reductions would have
accounted for 71 percent of the $22 billion savings that Congress anticipated
from the Medicare+Choice program enacted in 1997. With the transition period
proposed by HCFA, aggregate payments to Medicare+Choice organizations will be
cut $11.2 billion over a five-year period. This is an administratively imposed
50 percent increase in the $22 billion savings Congress anticipated from the BBA
payment methodology. Congress did not anticipate this level of savings from the
risk adjuster when the BBA was enacted. In fact, the Congressional Budget Office
did not score the risk adjustment provision in the BBA. As
discussed in our recommendations below, AAHP strongly believes the new
risk adjustment methodology should be budget neutral to ensure
that it does not reduce aggregate funding of the Medicare+Choice program. HCFA
projects that, when fully implemented, its proposed risk adjuster will cut
payments, on average, by a further 7.0 percent. HCFA's own data show that only 5
to 6 plans/3 will receive increased payments as a result of the new risk
adjustment methodology.
The BBA required that HCFA have its
risk adjustment method evaluated by an outside, independent
actuary. In response to this mandate, the American Academy of Actuaries Risk
Adjustor Work Group conducted an analysis of HCFA's new health status
risk adjustment methodology.4 The Academy issued only a
"qualified review" of HCFA's methodology, which is significant because it means
that the Academy was unable to analyze HCFA's methodology fully due to
incomplete available data and information (p.4). In other words, the Academy was
unable to replicate HCFA's approach and expressed "serious concerns" about the
method's "implementation, operation and impact"(p.3).
AAHP believes, and
the Academy's report confirms, that the design of HCFA's risk
adjustment methodology results in a bias against managed care due to
the system's exclusion of one-day hospital stays and its reliance on
inpatient-only hospital utilization data. Additionally, according to the Academy
report, health plans could be underpaid if claims are "denied due to edits, or
get caught in a data processing bottleneck" (p.27).
At PacifiCare, we have
experienced problems with HCFA's ability to process our claims in an accurate
and timely manner. While PacifiCare, like all plans, has faced challenges,
particularly since the system relies on the reporting of retroactive data,
HCFA's internal systems issues have been a more significant factor in slowing
the establishment of the database necessary for risk
adjustment. In addition, HCFA has admitted to errors in their estimates
of our plans' average risk adjustment factors and has urged us
to rely on our own estimates to determine next year's benefits. In order to
prepare our adjusted community rate proposals, through which we determine the
benefits we will offer and the premiums we will charge to beneficiaries, we must
have accurate estimates of our plans' average risk adjustment
factors from HCFA. Without such information, our own estimates may not be
accurate and have the potential to translate into decreased benefits for the
many beneficiaries that PacifiCare serves. Furthermore, as a requirement of the
BBA, we must attest to the accuracy of our adjusted community rate proposal.
This will be difficult to do without the assurance from HCFA that the data
provided to us and which serves as the foundation for the ACR are accurate.
The initial use of a risk adjuster based solely on hospital inpatient data
penalizes health plans that use disease management or other care management
programs designed to reduce hospitalizations for chronically ill and other
patients who would have otherwise been treated in inpatient settings. These
programs are designed to provide superior quality care while preventing costly
hospitalizations by treating patients in alternative settings. The Academy of
Actuaries identifies "several drawbacks" to a risk adjustment
system that uses only inpatient data, noting that "health plans which use
outpatient alternatives to hospitalization would be financially penalized"
(p.10, p.19). The Academy also notes "many observers recognize that using only
inpatient data in the PIP-DCG risk adjustment model may result
in a bias toward the FFS system" (p.30). Since the PIP-DCG method is restricted
to inpatient claims, beneficiaries enrolled in health plans may appear healthier
than they actually are because of the limits of what HCFA's new risk
adjustment method can measure.
HCFA's decision not to count
diagnoses related to one-day hospital stays in the risk
adjustment formula reduces payment for health plan members. We believe
that Medicare+Choice organizations have a higher proportion of one-day hospital
stays than occurs in the fee-for- service Medicare program and that more of
these stays involve diagnoses for which hospitalization is the common course of
treatment. In its report, the Academy of Actuaries warns "this limitation could
penalize efficient plans enough to make them leave the Medicare market" (13.19).
The Academy also notes that excluding one-day stays reduces the predictive power
of risk adjustment. The Academy concludes, "the disadvantages
of excluding one-day hospitalizations may outweigh any possible gains" (p. 13).
The Academy's report questions the administrative feasibility of
implementing the new risk adjustment system given the timing
and data collection challenges involved, some of which we have identified above.
The Academy notes that other programs have had difficulty implementing the
PIP-DCG method due to data collection problems and administrative challenges.
Many of these programs conducted extensive simulations prior to implementation
of risk adjustment including the Health Insurance Plan of
California (HIPC), which conducted a one year test prior to the start of the
program.
AAHP recommends the following with regard to implementation of the
new risk adjustment methodology:
- The new risk
adjustment methodology should be budget neutral to ensure that it does
not reduce aggregate funding of the Medicare+Choice program.
- Payments to
Medicare+Choice organizations should not be based on a new risk
adjustment mechanism until, at the earliest, January 1, 2001.
- In
the meantime, HCFA should redesign the new risk adjustment
method to eliminate serious inaccuracies with the data and the methodology
itself.
- HCFA should also move forward with the calculations and data
collection initiatives that are necessary to support implementation of the model
and allow simulations of its impact.
This additional time will provide an
opportunity for Medicare+Choice organizations and HCFA to gauge more reliably
the potential impact of the PIP-DCG model on health plan payments and the
benefits and premiums offered to Medicare beneficiaries. Postponing
implementation of the PIP-DCG model will also provide an opportunity to resolve
numerous significant outstanding issues with the model and complete the data
submission and processing that are necessary to support it.
III. Beneficiary
Information and Education The BBA instructs the Secretary to educate Medicare
beneficiaries about their choices using a variety of approaches, including a
handbook, toll-free number, an internet website, and community outreach. To
finance these activities, the BBA authorizes HCFA to charge each Medicare+Choice
organization and Medicare risk contractor a fee equal to the organization's pro
rata share of HCFA's estimated costs of enrollment and information dissemination
activities. While AAHP supports efforts to enhance informed beneficiary choice,
we have significant concerns about the funding, costs and design of the program
developed by HCFA.
We urge HCFA to revisit its plans for the 1999
beneficiary education campaign and ensure that it provides beneficiaries with
information that will educate, not confuse. HCFA's 1998 beneficiary information
and education campaign experienced numerous problems that confused beneficiaries
and hindered access to the new Medicare+Choice program.
- In Omaha,
Nebraska, Baltimore, Maryland and West Virginia, the Spanish language brochures
were sent to areas with no Spanish-speaking population. - In Eastern Washington
and parts of Florida, the brochures were mailed with a statement that the
information presented is incorrect and that the beneficiaries should call a
toll-free number if they have any questions. - The toll-free call centers were
expected to receive 15,000 calls per week per center. However, during the month
of November 1998, the total number of calls received by all centers was only
9,400. Most of the calls regarded HCFA's mistake in sending Spanish language
brochures, and requests for additional brochures.
While it is reasonable for
health plans and their enrollees to contribute to funding HCFA's enrollment and
information dissemination initiatives, their contribution should be in
proportion to their participation in the Medicare program. Last year, Medicare
risk HMOs and their enrollees represented 14.3 percent of the program but
shouldered 100 percent of the cost of the information campaign.5 Requiring
health plans and their members to bear 100 percent of the burden of this fee
directly affects the premiums and benefits that plans can offer to their
members. While AAHP supports disseminating information to all beneficiaries to
enhance informed choice, we believe that an equitable funding mechanism is
critical to the success of this effort. The goal of expanded choice is not
served if the costs of underwriting the information campaign reduce the level of
benefits that Congress sought to make available to more beneficiaries.
We
also are concerned about the costs of the education campaign that HCFA intends
to implement. Congress appropriated $95 million for these activities in FY 1998,
less than one half of the $200 million allowed by the BBA. In FY 1999, HCFA
requested the full $150 million allowed by the BBA, and Congress again approved
only $95 million. The President's proposed FY2000 budget requests that Congress
appropriate $150 million, $50 million more than the amount allowed by the BBA.
In addition, the President's budget calls for a series of new user fees to
generate an additional $194.5 million. Of these proposed new user fees, which
also would apply to fee-for-service providers, $36.7 million would be levied on
Medicare+Choice plans to support HCFA's application and renewal processing
activities. At a time of growing instability in the Medicare+Choice program, we
are concerned that these user fees set a dangerous precedent and translate into
reduced choices for beneficiaries.
AAHP and its member plans will continue
to work with HCFA, beneficiary groups and others to develop an education
campaign that provides accurate, timely and meaningful information to
beneficiaries without compromising the services to which they have become
accustomed.
The central goal of this initiative, to provide more and
better information to beneficiaries about all of the options available to them,
is critical to permitting beneficiaries to take advantage of the expanded range
of choices envisioned under the new Medicare+Choice program.
Quality
Improvement System for Managed Care
One area of significant concern to our
member plans is HCFA's Quality Improvement System for Managed Care (QISMC).
QISMC is designed to establish a consistent set of quality oversight standards
for health plans for use by HCFA and state Medicaid agencies under the Medicare
and Medicaid programs, respectively. AAHP has long advocated coordination of
quality standards for health plans in order to maximize the value of plan
resources dedicated to quality improvement. While we believe that QISMC holds
the promise of contributing to this important goal, we have a number of serious
concerns regarding implementation. We urge HCFA to engage in intensive dialogue
with health plans contracting under the Medicare and Medicaid programs to permit
full consideration of their outstanding concerns about the QISMC standards and
guidelines. Furthermore, we are also concerned that the Medicare program is not
providing equal attention to the overall quality of care furnished under the
fee-for-service program.
One of our primary concerns is that QISMC lacks
clear coordination with existing public and private sector accreditation and
reporting standards. Health plans currently meet voluntary private accreditation
standards, such as those developed by the National Committee for Quality
Assurance, in order to satisfy requirements of private sector purchasers and
some states. Rather than coordinate with these existing standards, QISMC appears
to establish an entirely new system of requirements. This adds to administrative
cost while actually detracting from health care quality improvement. Additional
concerns expressed by AAHP members include:
QISMC fails to establish
realistic goals for health plan activities and performance that take into
consideration available resources and health plan responsibilities for the
delivery of quality care to beneficiaries. The significant additional resources
that would be required to meet the new QISMC standards and the prescriptive
nature of the QISMC standards would seriously hinder health plan pursuit of
quality improvement projects focused on the needs of their enrolled Medicare and
Medicaid beneficiaries. - Far more consideration should be given to standards
that would be applicable to all types of Medicare+Choice plans. While QISMC
requirements are modeled after a health plan using the primary care gatekeeper
model, organizations participating in the Medicare+Choice program will have many
different structures.
- In establishing goals for health plan performance,
QISMC lacks recognition of differing characteristics of Medicare and Medicaid
beneficiaries and the programs and policies under which they receive health
care.
- We have urged HCFA to engage in an intensive dialogue with health
plans contracting under the Medicare and Medicaid programs to permit full
consideration of their serious outstanding concerns about the draft QISMC
standards and guidelines. We are eager to work collaboratively with HCFA to
develop an approach to future health plan quality oversight activities under
Medicare and Medicaid that is responsive to the interests of beneficiaries,
health plans, and federal and state responsibilities under the Medicare and
Medicaid programs.
As the Committee considers reforms to the Medicare+Choice
program, we encourage you to examine the experience of our member plans in
implementing quality initiatives such as QISMC. As numerous studies demonstrate,
health plans provide high quality care. In recent years, private sector quality
initiatives have provided the leadership in this area. We are concerned that
government programs are not adequately recognizing these initiatives and
coordinating better with them.
V. Conclusion
Health plans have valuable
experience to share with Congress and HCFA on implementation of many of the
provisions of the Balanced Budget Act of 1997. AAHP appreciates this opportunity
to comment on the Medicare+Choice program and its implementation to date. We
urge you to undertake mid-course corrections to implementation of the
Medicare+Choice program to ensure the program's future stability. We look
forward to continuing to work with members of the Subcommittee, other members of
Congress, and HCFA to ensure the successful implementation of the
Medicare+Choice program.
FOOTNOTES:
1 Ms. Newport also serves as a
commissioner on the Medicare Payment Advisory Commission. 2 Includes enrollees
in risk, cost, and HCPP contractors.
3 Out of 195 plans that submitted
substantially complete data for the base period July 1, 1997 to June 30, 1998.
4 American Academy of Actuaries Risk Adjustor Work Group, Actuarial Review
of the Health Status Risk Adjustor Methodology. January 14, 1999.
5 Includes
enrollees in risk contracts only.
END
LOAD-DATE: March 20, 1999