Copyright 1999 Federal News Service, Inc.
Federal News Service
JUNE 9, 1999, WEDNESDAY
SECTION: IN THE NEWS
LENGTH:
4821 words
HEADLINE: PREPARED TESTIMONY OF
MIKE
HASH
DEPUTY ADMINISTRATOR
HEALTH CARE FINANCING ADMINISTRATION
BEFORE THE SENATE FINANCE COMMITTEE
MEDICARE+CHOICE
PROGRAM
BODY:
Chairman Roth, Senator Moynihan,
distinguished committee members, thank you for inviting us to discuss our
progress in implementing the Medicare+Choice program. Medicare+Choice allows
private plans to offer a wide range of options available in the private sector.
It requires a massive new beneficiary education campaign and includes important
new statutory requirements for quality assessment and improvement.
It also
initiates a five-year transition to a fairer and more accurate payment system
that includes risk adjustment to take individual beneficiaries'
health care needs into account. Risk adjustment helps assure
that payments are appropriate and curtail disincentives for plans to enroll
sicker beneficiaries.
Successful implementation of Medicare+Choice is a high
priority for us. We strongly believe that managed care and other private plans
are important voluntary options next to original Medicare. Medicare managed care
enrollment has nearly tripled under the Clinton Administration, from 2.3 million
when the President took office to now 6.8 million.
We meet regularly with
beneficiary advocates, industry representatives, and others to discuss ways to
improve Medicare+Choice. Based on these discussions, we published initial
refinements to the Medicare+Choice regulations in February which improve
beneficiary protections while reducing plans' administrative workload. We have
given plans an extra two months to file the "adjusted community rate"
information we use to approve benefit and premium packages. And, we are phasing
in the risk adjustment system over five years to prevent
disruptions to beneficiaries and health plans. We are eager to continue working
with Congress and our other partners to ensure that beneficiaries enjoy the most
that Medicare+Choice can offer.Beneficiary Education
Helping beneficiaries
understand Medicare+Choice is perhaps our most important challenge. We launched
the National Medicare Education Program to make sure beneficiaries receive
accurate, unbiased information about their benefits, rights, and options. The
campaign includes:
- mailing a Medicare & You handbook to explain new
benefits and health plan options;
- a toll-free "l-800-MEDICARE"
(1-800-633-4227) call center with live operators to answer questions, and
provide detailed plan-level information;
- a consumer-friendly Internet
site, www. medicare.gov, which includes comparisons of benefits, costs, quality,
and satisfaction ratings for plans available in each zip code;
- working
with more than 120 national aging, consumer, provider, employer, union, and
other organizations who help disseminate Medicare+Choice information to their
constituencies;
- enhanced beneficiary counseling from State Health
Insurance Assistance Programs;
- a national publicity campaign;
- more
than a thousand individual state and local outreach events around the country;
and,
- a comprehensive assessment of these efforts.
We tested the system
in five States in 1998 and learned how to improve efforts for this November' s
open enrollment period, such as ways to make the Medicare & You handbook
easier to use, and additional links on our website to help users find
information faster. We are also standardizing plan marketing materials that
summarize benefits so beneficiaries can more easily make apples-to-apples
comparisons among plans in this November's open enrollment period.
To help
us continually improve our education efforts, we are establishing the Citizens
Advisory Panel on Medicare Education, under the Federal Advisory Committee Act.
The panel will help:
- enhance effectiveness in informing beneficiaries
through use of public-private partnerships;
- expand outreach to vulnerable
and underserved communities; and
- assemble an information base of"best
practices" for helping beneficiaries evaluate plan options and strengthening
community assistance infrastructure.
Panel members will include
representatives from the general public, older Americans, specific disease and
disability groups, 'minority communities, health communicators, researchers,
plans, providers, and other groups. We expect to announce members and meeting
schedules soon.
Reaching Out to Plans
We have taken several steps to
encourage health plan participation in Medicare+Choice. As a result, we have
converted the vast majority of Medicare HMOs -- more than 300 -- to the new
Medicare+Choice program, and added 15 new plans and expanded service areas for
another 17 plans since last November. We are currently reviewing another 20 new
plan applications and 10 service area expansion applications. And total
Medicare+Choice enrollment is now greater than it was before some plans decided
to leave the program last year.
Last summer, we held outreach sessions
attended by more than 1,500 plan representatives, and we continue to strengthen
lines of communication with plans. In February, we published initial refinements
to the Medicare+Choice regulation that improve beneficiary protections and
access to information, while making it easier for health plans to offer more
options to beneficiaries.
The new rule:
- clarifies that
beneficiaries in a plan that leaves the program are entitled to enroll in
remaining locally available plans; specifies that changes in plan rules must be
made by October 15 so beneficiaries have information they need to make an
informed choice during the November open enrollment;
- allows plans to
choose how they conduct the initial health assessment;
- waives the
mandatory health assessment within 90 days of enrollment for commercial
enrollees who choose the same insurer's Medicare+Choice plan when they turn 65,
and for enrollees who keep the same primary care provider when switching plans;
- stipulates that the coordination of care function can be performed by a
range of qualified health care professionals, and is not limited to primary care
providers; limits the applicability of provider participation requirements to
physicians; and,
- allows plans to terminate specialists with the same
process for terminating other providers.We intend to publish a comprehensive
final rule with further refinements this fall.
To further facilitate plans'
ability to offer choices to Medicare beneficiaries, the President's budget
includes a proposal to give plans 2 more months to file the information used to
approve benefit and premium structures. This "Adjusted Community Rate" data
would be due July 1, rather than May 1. July 1 is the latest we can accept,
process, and approve premium and benefit package data, have the data validated,
and still mail beneficiaries information about available plans in time for the
November open enrollment. This move should help plans base cost and premium
packages on more current marketplace trends and costs. Given legislative
schedules and the need to act immediately, we have informed plans that the
required filing date this year will be July 1. We look forward to working with
you to enact the legislation necessary to support this change that is so
important to the success of the Medicare+Choice program.
Fair Payment
The Balanced Budget Act put in place a new payment system which addresses
many of the problems with the previous adjusted average per capita cost payment
system. The new system will "risk adjust" payments to account for the health
status of each enrollee. And it breaks the link between local fee-for-service
costs and plan payment rates, which had caused wide disparities across the
country in payment rates to plans and availability of plans to beneficiaries.
Under the BBA system, a rate for a particular county is the greater of three
possible rates: a new minimum or "floor" payment; a minimum 2 percent increase
over the previous year's rate, or a blend of the county rate and an input price
adjusted national rate. The new system is phased in over five years, and
therefore has several different moving parts. Medical education costs, which had
been included in HMO payments under the old system, are carved out of county
rates over the five-year transition and paid instead directly to teaching
hospitals. The blend of county and national rates phases up to a 50/50 balance
over the same five years. The national rate, local rates and the minimum payment
amount are annually updated based on per capita Medicare cost growth.There is
considerable evidence that we have both overpaid plans and continue to overpay
plans, because payments are linked to local fee-for-service spending and not
adjusted for risk.
- The Physician Payment Review Commission, in its 1997
Annual Report to Congress, estimated that Medicare has been making up to $2
billion a year in excess payments to managed care plans. This Congressional
advisory body notes that, unlike the private sector where managed care has
slowed health care cost growth, managed care has increased Medicare program
outlays. The Con:mission's 1996 Report found that those who enroll in managed
care tend to be healthy and those who disenroll tend to be unhealthy,
exacerbating Medicare losses.
- Mathematica Policy Research, which has
conducted several studies of Medicare HMOs, says care of Medicare beneficiaries
in HMOs costs only 85 percent as much as care for those who remain in
traditional fee- for-service Medicare. That is 10 percent less than the 95
percent of the average fee-for-service costs plans were being paid.
- The
Congressional Budget Office has said managed care plans could offer Medicare
benefits for 87 percent of Medicare fee-for-service costs, even though they were
paid 95 percent.
Risk Adjustment
Payment to plans will
become more accurate starting in January, 2000, when the law requires Medicare
to "risk adjust" Medicare+Choice payments. That means we must base payment to
plans on the health status of individual plan enrollees. Data on individual
beneficiary use of health care services in a given year will be used to adjust
payment for each Medicare+Choice beneficiary the following year. Adjustments are
based on the average total cost of care for individuals who had the same
diagnoses in the previous year. Risk adjustment represents a
vast 'improvement over the current payment methodology. It helps assure that
payments are more appropriate, and curtails the disincentive to enroll sicker
beneficiaries.
The law requires us to proceed with risk
adjustment starting January 1, 2000, and does not call for a
transition. However, we believe we must implement these changes in an
incremental and prudent fashion, as was done with other new major payment
systems. We are, therefore, using flexibility afforded to us in the law to phase
in risk adjustment over 5 years to prevent disruptions to
beneficiaries or the Medicare+Choice program.
In the first year, only 10
percent of payment to plans for each beneficiary will be calculated based on the
new risk adjustment method based on inpatient hospital
diagnoses. The remaining 90 percent will be based on the existing method for
calculating plan payments, which are fiat amounts per enrollee per month based
on the average cost to care for Medicare fee-for-service beneficiaries in each
county and adjusted for basic demographic factors like age and sex. In 2001, 30
percent of payment amounts will be risk adjusted. In 2002, 55 percent of payment
amounts will be based on risk adjustment. In 2003, 80 percent
of payment amounts will be based on risk adjustment. By 2004,
we and health plans will be ready to use data from all sites of care, not just
inpatient hospital information, for risk adjustment. Then, and
only then, will payment to plans be 100 percent based on risk
adjustment.
During the first year of data collection for
risk adjustment, both the statute and practical issues require
that we use hospital inpatient data alone. About one in every five Medicare
beneficiaries is hospitalized in a given year. Data on these hospitalizations
are relatively easy to gather, easy to audit, and highly predictive of future
health care costs. We will use the data to pay plans more for beneficiaries
hospitalized the previous year for conditions that are strongly correlated with
higher subsequent health care costs. While we will eventually be using a broader
data base for risk adjustment, that is simply not feasible at
this time.
The Balanced Budget Act clearly stipulated that more
comprehensive data on outpatient, physician, and other services could be
collected only for services provided on or after July 1, 1998. That was prudent,
because it has been no small task for plans to learn how to gather the inpatient
data we are using for the initial phase-in of risk adjustment.
Requiring plans to provide additional data on outpatient, physician and other
services would have been unduly burdensome.
This year, we will issue a
schedule and guidance to plans for reporting other encounter data, such as
outpatient information. The schedule will provide sufficient time for plans to
gather accurate data and for HCFA to analyze and incorporate the data into
accurate risk adjusted payments. We are now confident that by 2004 we will be
using data on all health care encounters to assess beneficiary health status for
risk adjustment. If we could base risk
adjustment on more comprehensive data now, we would. But we cannot. The
law requires us to move forward now with the data that is available, as
stipulated in the statute. And, even with its limitations, this initial
risk adjustment system based on inpatient data alone will
increase payment accuracy 5-fold.
The initial risk
adjustment system uses only the approximately 60 percent of inpatient
hospital diagnoses that are reliably associated with future increased costs. For
example, beneficiaries hospitalized for conditions such as heart attacks in
aggregate are at higher risk of subsequent cardiovascular problems, and they
consistently have higher health care costs in the subsequent year.
Hospitalizations for such diagnoses will lead to higher payments to plans in the
following year under risk adjustment.
Hospitalizations
for acute conditions such as appendicitis, however, rarely lead to increased
subsequent care costs. They will not lead to higher payments under risk
adjustment.
The 60 percent of hospital admission diagnoses that are
clearly associated with increased subsequent care costs account for about 30
percent of all Medicare spending the following year. It is important to note
that, while risk adjustment is initially based only on
inpatient data, the risk adjustment payments account for all
costs of care associated with each diagnosis. It is also important to note that
risk adjustment is not cost-based reimbursement; it is
reimbursement adjusted for projected need based on health status in the previous
year.
The relevant diagnoses will be used to classify beneficiaries into 15
different cost categories. One category is for beneficiaries who were not
hospitalized the previous year with relevant diagnoses. For beneficiaries
included in any of the other categories, plans will receive an additional
payment to cover the increased risk associated with diagnoses in that
category.Payment will continue to be adjusted for demographic factors, such as
age, gender, county of residence, and whether a Medicare beneficiary is also a
Medicaid beneficiary. We have revised these demographic factors for use with
risk adjustment, for example, by no longer including
institutional status because the risk adjustment methodology
itself does a good job of predicting expenses for nursing home residents.
Medicare will calculate a score for each beneficiary to determine the
payment that will be made if they choose to enroll in a Medicare+Choice plan.
For example, Medicare's average payment per year to health plans is $5,800.
Under risk adjustment, payment for an 85- year-old man will on
average be $6,414. It will be an additional $2,060 if he is on Medicaid, another
$1,207 if he is disabled, and $8,474 more if he was admitted to the hospital for
a stroke the previous year, for a total of $18,155. The score for each
beneficiary will be calculated annually, and will follow them if they move from
one health plan to another.
Most health plans operate with integrity and
play by the rules, and we doubt that plans will compromise successful medical
management programs that keep patients out of the hospital in order to game the
risk adjustment system. However, plans themselves have raised
concerns that risk adjustment based on inpatient data alone
could create perverse incentives for unnecessary hospitalizations. We,
therefore, have taken solid steps to prevent gaming of the system with
inappropriate hospital admissions or attempts to inflate the data submitted for
use in risk adjustment.
The risk adjustment system does not
include hospital stays of just one day, in order to help guard against
inappropriate admissions. And it excludes diagnoses that are vague, ambiguous,
or rarely the principal reason for hospital admission. In addition, we will use
independent experts to assess the validity and completeness of data plans submit
to us by conducting targeted medical record reviews and site visits. This will
help ensure that plans do not "upcode," or claim that hospital admissions were
for more serious conditions that would result in higher payment.It is essential
to stress that risk adjustment will not and cannot be budget
neutral if we intend to protect the Medicare Trust Fund and be fair to the
taxpayers who support our programs. The whole reason for proceeding with
risk adjustment -- and specifically with risk
adjustment that is not budget neutral -- is that Medicare has not been
paying plans accurately. Congress also recognized that plans have been paid too
little for enrollees with costly conditions, and too much for those with minimal
care needs. The simple demographic adjustments made now for age, gender, county
of residence, Medicaid and institutional status, do not begin to accurately
account for the wide variation in patient care costs. Risk
adjustment will.
The vast majority of beneficiaries enrolled in
Medicare+Choice cost far less than what Medicare pays plans for each enrollee.
Medicare fee-for-service statistics make clear why risk
adjustment must not be budget neutral. More than half of all Medicare
fee-for-service beneficiaries cost less than $500 per year, while less than 5
percent of fee-for-service beneficiaries cost more than $25,000 per year,
according to the latest available statistics for calendar year 1996. The most
costly 5 percent account for more than half of all Medicare fee-for-service
spending.
Since Medicare+Choice enrollees tend to be healthier than fee-for-
service Medicare beneficiaries, the ratio of high to low cost beneficiaries in
health plans is even more stark. Clearly, care for the overwhelming majority of
Medicare enrollees costs plans much less than what Medicare pays because our
payments are predicated on the average beneficiary cost of care, calculated by
county. This average includes the most expensive beneficiaries in
fee-for-service, who generally do not enroll in managed care.
If
risk adjustment was budget neutral, Medicare and the taxpayers
who fund it would continue to lose billions of dollars each year on
Medicare+Choice. Accurate risk adjustment inevitably and
appropriately must change aggregate payment to plans. Budget neutral
risk adjustment would cost taxpayers an estimated $200 million
in the first year of the phase-in, and $11.2 billion over 5 years if health
plans maintained their current, mostly healthy mix of beneficiaries. It is
important to stress that actual savings to taxpayers from risk
adjustment will vary to the extent that less healthy beneficiaries
enroll in Medicare+Choice plans, resulting in higher payments than health plans
receive today.
The amount of payment change will vary among plans and depend
on each plan's individual enrollees. Total payment may be higher for some plans
as they enroll a mix of beneficiaries that is more representative of the entire
Medicare population. As part of our Medicare+Choice March 1 rate announcement,
we sent a letter to each health plan with an estimate of how payment will differ
from what they are paid now, based on their current mix of enrollees.
Overall, we project that payment to Medicare+Choice plans on average will
change by less than one percent in the first year. How it will change over time
depends on the mix of beneficiaries in each plan. Risk
adjustment significantly changes incentives for plans and could well
lead to enrollment of beneficiaries with greater care needs. That could result
in plans receiving higher payments than they do now. Phasing in risk
adjustment also substantially buffers the financial impact on plans.
Taxpayers are forgoing $1.4 billion in savings in the first year and as much as
$4.5 billion over the full 5 years because of the phase in. Payment changes will
be further buffered by an annual payment update for 2000 of 5.04 percent. This
is substantially larger than projections that were made last year.
Competitive Pricing Demonstration
Bringing market forces to bear may
further help set more accurate plan payment rates. We will soon begin a test of
competitive pricing for Medicare+Choice plans, as called for in the BBA. This is
an important step in our efforts to learn how to improve and protect Medicare.
It will provide objective data needed to evaluate Medicare reform proposals that
assume savings from rate-based competition among plans. In this demonstration,
plans will compete to offer benefits at the most reasonable cost. A bidding
process, similar to what most employers and unions use to decide how much to pay
plans, will be used to set Medicare+Choice rates starting in 2000.
A
National Medicare Competitive Pricing Advisory Commission of independent
experts, chaired by General Motors Health Care Initiative Executive Director
James Cubbin, has made recommendations regarding key design features. It
selected the markets of Phoenix, Arizona and Kansas City, Kansas and Missouri,
as demonstration sites. We established local advisory committees in these
communities to set the local minimum benefit package on which plans will bid and
ensure that local beneficiaries and stakeholders have a voice in how the test
operates. The local advisory committee in Phoenix has raised concerns about the
tight schedule for implementing the project. In response, the national advisory
commission urged the local advisory committees to work with us to develop an
alternative schedule that can implement this essential project no later than
April 1, 2000. We have committed to following the Committee's recommendation.
Ensuring Quality
The BBA requires most plans to both monitor and improve
quality. Eventually, plans will have to meet minimum performance standards.
Beneficiaries will be able to compare plans based on quality, and we will be
able to use Medicare's market leverage to promote competition based on quality.
We are working to incorporate quality assessment and improvement into original
fee-for service Medicare, as well, so beneficiaries will be able to make truly
informed choices about all their options.
And we have committed to
making measurable quality improvements throughout Medicare as part of our
Government Performance and Results Act objectives for fiscal 2000.
All plans
must report objective, standardized measurements of how well they provide care
and services. They have been using HEDIS, the Health Plan Employer Data and
Information Set, for reporting purposes since 1997. We also are using CAHPS, the
Consumer Assessment of Health Plans Study, to objectively measure beneficiary
satisfaction. This fall, we will survey beneficiaries who disenroll from plans,
and next year we will apply HEDIS and CAHPS to fee-for-service Medicare so we
can provide comparable data on all options. The results of both HEDIS and CAHPS
are being formatted so beneficiaries can make direct, apples-to- apples
comparisons among all their options, including the original Medicare program.We
recognize that it takes time for plans to adapt to the quality improvement
requirements. Therefore, we made several changes from our draft proposal to help
plans comply.
- We are requiring plans to conduct two performance
improvement projects per year. This workload is comparable to standards imposed
by private sector accrediting organizations.
- We are permitting waivers of
mandatory participation in a national project each year, and allowing plans to
substitute any related ongoing projects of their own.
- We are giving plans
three years before they must achieve minimum performance level requirements and
demonstrable improvement.
- We are giving plans discretion as to where and
how they conduct site visits for provider credentialing, rather than mandating
site visits to each provider location.
We are extremely impressed with the
quality improvement project outlines submitted by plans. They make abundantly
clear that plans are very capable of achieving what Congress envisioned. As a
result, they should provide better care and value for taxpayers' dollars.
Market Volatility
As you know, some Medicare HMOs did not convert to
Medicare-Choice, and others reduced their service areas last year. We are
concerned about the business decision that some plans made to reduce
participation in the program, and especially the impact on beneficiaries who
were left with no other managed care options, or who experience disruptions in
their provider relationships. It is, however, is important to put those business
decisions in context.
The vast majority of Medicare HMOs converted to the
Medicare+Choice program. We have approved 32 new plan and service area
expansions since November, and are reviewing applications from another 30 plans
that want to get into or expand their role in Medicare+Choice. And there are now
more beneficiaries in managed care plans than before last year's plan pullouts.
Plans that withdrew often had weak market positions, commercial pressures such
as rising drug expenditures, or internal management issues. Many of the
disrupted beneficiaries had several other plans to choose from, and all but
about 50,000 had at least one other plan option.A comprehensive review by the
General Accounting Office confirms that many factors contributed to the plan
withdrawals. Reasons for withdrawals and service area reductions cited by the
GAO include plan decisions that they were unable to compete because of low
enrollment or large competitors, and problems in establishing provider networks.
Withdrawals affected far more high payment rate counties (91 percent) than low
payment rate counties (34 percent), according to the GAO. It is our
understanding that the Federal Employees Health Benefits Program had a similar
experience with plan pullouts. In several instances plans that withdrew Medicare
service from specific counties also withdrew from FEHBP in those same counties.
This all suggests that plan withdrawal decisions have more to do with
internal plan and larger marketplace issues than with Medicare rates or
regulations, in fact, a certain amount of market volatility must be expected
when relying on the private sector to serve beneficiaries. That is one reason
why it is essential to preserve a strong, public- sector fee-for-service option
in any Medicare reform proposal. It is why the President's budget includes
proposals to protect beneficiaries from disruption by plan withdrawals. And it
is why we have provided for earlier notification of plan withdrawals in our
refinement to Medicare+Choice regulations. We look forward to working with you
on legislation the President has proposed to broaden access to supplemental
Medigap polices if beneficiaries lose their plan option, and to allow enrollees
with end stage renal disease to move to another plan.
Conclusion
We are
making substantial progress in implementing the Medicare+Choice program. We are
incorporating lessons learned from our initial beneficiary education campaign to
refine future efforts, and establishing an advisory committee to further help
improve these essential efforts. We are working with plans to encourage
participation, and refining regulations so plans will be able to offer
beneficiaries more choices. We are proceeding with quality improvement
requirements in a prudent manner that will meet the statutory mandate while
giving plans reasonable time and flexibility to comply. And, while we are
proceeding with essential payment reforms in a prudent manner, it is abundantly
clear that payment to plans continues to be more than adequate, and that any
comparison of plan payments to local fee-for-service rates is specious at best.
I thank you again for holding this hearing, and I am happy to answer your
questions.
END
LOAD-DATE: June 10, 1999