Copyright 1999 Federal News Service, Inc.
Federal News Service
JUNE 9, 1999, WEDNESDAY
SECTION: IN THE NEWS
LENGTH:
4367 words
HEADLINE: PREPARED TESTIMONY OF
STEPHEN
J. DEMONTMOLLIN
VICE PRESIDENT AND GENERAL COUNSEL
AVMED HEALTH PLAN
ON BEHALF OF THE AMERICAN ASSOCIATION OF HEALTH PLANS
BEFORE THE
SENATE FINANCE COMMITTEE
SUBJECT - MEDICARE+CHOICE PROGRAM
BODY:
I. Introduction
Mr. Chairman and
members of the Committee, thank you very much for the opportunity to comment on
issues related to implementation of the Medicare+Choice program. I am Steve
deMontmollin, Vice President and General Counsel of AvMed Health Plan. Based in
Gainesville, Florida, AvMed is Florida's oldest and largest notfor-profit HMO,
serving some 400,000 members, including nearly 80,000 Medicare members,
throughout the state. AvMed has participated in the Medicare program since being
awarded demonstration project status in 1981. ArMed contracts with close to
7,000 private physicians and 126 hospitals, is federally qualified, and is
privately accredited by the National Committee for Quality Assurance (NCQA) and
the Joint Commission on Accreditation of Healthcare Organizations. Last year
AvMed sustained significant losses in the Medicare program and found it
necessary to withdraw from seven of the twenty-five counties in which we
previously offered Medicare services affecting some 6,500 beneficiaries. A large
part of our not-forprofit mission is to serve the Medicare and Medicaid
populations and we are hopeful that it will not be necessary to withdraw from
additional counties for the year 2000.
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. AAHP's membership includes most
Medicare+Choice organizations. Together, AAHP member plans, which provide care
for more than 140 million Americans nationwide, have strongly supported efforts
to modernize Medicare and give beneficiaries the same health care choices that
are available to working Americans.
AAHP and its member plans have had a
longstanding commitment to Medicare and to the mission of providing high
quality, cost effective services to beneficiaries. Today, more than 16 percent
-- or 6.1 million beneficiaries -- are enrolled in health plans, up from only
6.2 percent five years ago. Recent research indicates that health plans
areattracting an increasing number of older Medicare beneficiaries, and that
Medicare beneficiaries are remaining in health plans longer. In addition,
near-poor Medicare beneficiaries are more likely to enroll in health plans than
are higher-income beneficiaries. These health plans offer Medicare beneficiaries
many benefits that are not covered under fee-for-service Medicare, such as
expanded hospital benefits or prescription drug coverage.
The Medicare
program was enacted 34 years ago and reflected private sector insurance coverage
at that time. Much has changed since then -- but prior to the enactment of the
Balanced Budget Act of 1997 (BBA), Medicare had taken few dramatic steps to
modernize the program. In the past 34 years, health plans have learned how to
organize and deliver health care services in ways that improve coverage and
quality while better controlling costs. But Medicare had been slow to take
advantage of these improvements. As a result, while more than 80 percent of
working Americans with health insurance coverage now receive their care through
health plans, only one out of every six Medicare beneficiaries is a health plan
member.
With passage of the BBA two years ago, Congress took significant
steps to provide Medicare beneficiaries with expanded choices similar to those
available in the private sector and ensure the solvency of the Medicare trust
fund. The establishment of the Medicare+Choice program, which AAHP supported, is
the foundation for a program design that can be sustained for baby boomers and
future generations of Medicare beneficiaries. Unanticipated events, including
the more than 800 pages of regulations for the program and HCFA's plans to
implement a risk adjuster that will result in significant payment reductions,
however, have endangered this foundation and created structural issues that must
be resolved quickly. As you debate changes to the Medicare+Choice program, AAHP
members urge the Committee to consider the following five principles, which we
expand upon later in this testimony:
- First, Congress must ensure that
Medicare+Choice payments are adequate, stable, and fair compared to those in
fee-for-service Medicare. Federal contributions to Medicare+Choice organizations
should be adequate and predictable to promote expanded choices for beneficiaries
in low payment areas, while maintaining the availability of affordable options
for beneficiaries in markets in which health plan options are currently well
established. As is now apparent, the BBA payment formula, in combination with
the Administration's risk adjuster, will not achieve this goal. Instead, AAHP
analysis shows a dramatic gap opening up between reimbursement for beneficiaries
in the Medicare+Choice program and their counterparts in fee-for-service
Medicare.
- Second, mechanisms to improve payment accuracy should ensure
that Medicare+Choice organizations are reimbursed appropriately. Much, though
not all, of the gap between Medicare+Choice payments and fee- for-service
payments result from the risk adjustment approach chosen by the
Administration. The Administration's approach will cut Medicare+Choice payments
by an additional $11.2 billion over a 5-year period and thus endanger the very
choices, broader benefits, and out- of-pocket protections these seniors enjoy.
AAHP urges that implementation of the new risk adjustment
mechanism required under the BBA should only move forward on a spending neutral
basis, as Congress intended.
- Third, beneficiaries need more information on
the Medicare+Choice program that is accurate and timely. Beneficiaries should
receive accurate information that allows them to compare all options and select
the one that best meets their needs. Last year, HCFA conducted a costly
beneficiary information campaign, funded for all beneficiaries through an
assessment on the 15 percent enrolled in Medicare+Choice. This campaign did not
meet congressional expectations. Many seniors received incorrect or confusing
information and some plans were left out of the brochure altogether. AAHP urges
Congress to ask HCFA for an accounting of its use of resources for educational
purposes. We also urge Congress to adopt MedPAC's recommendation to fund this
program through HCFA's operating funds rather than atax on Medicare+Choice
enrollees, lip continues to believe that the entire beneficiary information
program should be reevaluated and streamlined.
- Fourth, Congress must
promote responsive government. To increase consumer confidence in all aspects of
the Medicare program, HCFA should take immediate steps to improve administration
and regulation of the Medicare+Choice program. During the first year of
Medicare+Choice implementation, HCFA promulgated more than 800 pages of new
regulations and issued countless operational policy letters. HCFA's
implementation of the BBA highlights tensions between the agency's dual roles as
purchaser and regulator The conflict between these roles often prevents the
agency from acting more nimbly in the best interests of beneficiaries.
-
Finally, Congress must act now to ensure that the Medicare+Choice program
remains a viable foundation for long-term structural reform. To that end, as the
Committee considers fundamental reforms to Medicare, it needs to evaluate
carefully what has occurred in the Medicare+Choice program and make necessary
changes.
AAHP believes that the success of the Medicare+Choice program,
and the ability of this Committee to make mid-course corrections, will determine
the nation's willingness to move to broader reforms.
II. Ensure that
Medicare+Choice Payments Are Adequate, Stable, and Fair Compared to Those in Fee
For Service Medicare
The BBA limited the annual rate of growth in payments
to health plans, producing $22.5 billion in savings from the Medicare+Choice
program over five years. In addition, the BBA reduced geographic differences in
payment to encourage the development of choices in lower payment areas of the
country in a way that was also intended to protect beneficiaries in already
viable markets. AAHP supported the passage of payment reforms in the BBA and
understood the need for health plans to contribute a fair share toward the
savings necessary to stabilize the Medicare Trust Fund.- Growing Funding Gap
Does Not Serve Best Interests of Beneficiaries. AAHP is deeply concerned,
however, that the Administration's decision to implement the risk adjuster in a
way that takes further large cuts from payments on behalf of Medicare+Choice
members and the growing funding gap between the two sides of the program do not
serve the best interests of beneficiaries and were not intended by Congress. In
1998 and 1999, because of the low national growth percentage and the budget
neutrality requirement, no counties received blended payment rates. Furthermore,
HCFA has chosen to implement its new risk adjustment
methodology in a manner that will cut aggregate payments to Medicare+Choice
organizations by an estimated additional $11.2 billion over a five-year period.
This is an administratively imposed 50 percent increase in the $22.5 billion
savings Congress anticipated from the payment methodology as enacted in the BBA
of 1997. In fact, the Congressional Budget Office (CBO) recently stated that it
had "previously assumed" that risk adjustment in the
Medicare+Choice program would be budget neutral.1
- AAHP Analysis Finds
Significant Medicare Fairness Gap. AAHP analysis of PricewaterhouseCoopers
projections of Medicare+Choice rates in each county over the next 5 years shows
that a significant gap opens up between reimbursement under the fee-for-service
program and reimbursement under the Medicare+Choice program.2 This
Medicare+Choice Fairness Gap will be at least $1,000 for two-thirds of
Medicare+Choice enrollees living in the top 100 counties, as ranked by
Medicare+Choice enrollment. This same Fairness Gap will exceed $1,500 in major
Medicare+Choice markets, such as Chicago, Los Angeles, Miami, New York, Boston,
Pittsburgh, Cleveland, St. Louis City, Dallas, and Philadelphia. In Miami, the
Fairness Gap will be $3,500 in 2004 and in Houston the gap will exceed $2,500 in
2004. In New Orleans, the Fairness Gap will exceed $2,600 in 2004. The table
below presents several additional examples of the Fairness Gap in Avmed's home
state of Florida.
(Table)
Source: AAHP calculation from
PricewaterhouseCoopers (PWC) analysis prepared for AAHP, March 1999. PWC
analysis based on first stage of risk adjustment, which HCFA
expects to reduce payments by 7.6 percent. PWC analysis does not reflect second
stage of risk adjustment, which HCFA expects to reduce payments
by an additional 7.5 percent in 2004. The Fairness Gap represents growth between
1997 and 2004 in the projected difference between county-level aged
Medicare+Choice risk- adjusted per capita payments and FFS per capita payments.
For nearly half of Medicare+Choice enrollees living in the top 100 counties,
the Medicare+Choice reimbursement will be down to between 72 and 85 percent of
fee-forservice Medicare payments in 2004, significantly exceeding any estimates
of alleged favorable selection by plans. When AAHP examined the top 101-200
counties ranked by enrollment, we continued to find a large Fairness Gap in the
smaller markets that plans were expected to expand into under the policy changes
implemented by the BBA. In these counties, nearly half of Medicare+Choice
enrollees live in areas where the Fairness Gap will be $1,000 or more in 2004.
III. Mechanisms to Improve Payment Accuracy Should Ensure Appropriate
Reimbursement for Medicare+Choice Organizations
A large percentage of the
Fairness Gap is attributable to HCFA's risk adjuster. Contrary to ensuring
predictability in the new Medicare+Choice program, the impact of this
risk adjustment methodology will be to restrict new market
entrants and leave beneficiaries with fewer options, reduced benefits and higher
out-of- pocket costs. Furthermore, instead of using a spending-neutral
redistribution to make more funds available for plans with sicker populations,
HCFA's plans for implementing the risk adjuster will result in fewer dollars to
care for chronically ill persons and other Medicare+Choice members. AAHP has
found that the impact of HCFA's risk adjuster on Medicare+Choice payments to
rural and urban counties is similar - rural areas withMedicare+Choice
beneficiaries are cut by about 6 percent, while urban areas are cut by about 7
percent.
This Committee has a number of means at its disposal for addressing
the growing disparity between payments for beneficiaries in the Medicare+Choice
program and payments for their counterparts in the fee-for-service program. We
urge the Committee to consider the following possible approaches, which would
help reduce the Fairness Gap and restore stability to the Medicare+Choice
program: at a minimum, the risk adjuster could be made spending neutral; in
addition, a floor could be set below which payments to Medicare+Choice
organizations could not fall; or, the legislative reduction in Medicare+Choice
growth rate could be eliminated. Taking action on these options is critical to
reduce the Fairness Gap and restore stability to the Medicare+Choice program.
These approaches are the least disruptive to the BBA Medicare+Choice payment
structure, but other options could also be used to stabilize the program.
IV. Provide Accurate and Timely Information to Beneficiaries
AAHP also
is concerned that only health plan beneficiaries are funding the Agency's
beneficiary education campaign. Given concerns about the effectiveness of this
effort at a time of growing instability in the Medicare+Choice program, AAHP
strongly urges that the program be scaled back and realistic goals set. AAHP
urges 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 little
Spanish-speaking population.
- In Eastern Washington and parts of Florida,
the brochures were mailed with a statement that the information presented was
incorrect and that the beneficiaries should call a toll-flee number if they had
any questions.
- The toll-free call centers were each expected to receive
15,000 calls per week per center (about 60,000 calls a month). 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.
The expense of a
newly developed information effort should be distributed proportionally across
the entire system. Last year, Medicare HMOs and their enrollees represented 14.3
percent of the program but shouldered 100 percent of the cost of the information
campaign. Requiring health plans and their members to bear 100 percent 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.
AAHP
also is concerned about the costs of the education campaign that HCFA intends to
implement. The President's proposed FY2000 budget requests that Congress
appropriate $150 million, $50 million more than the amount allowed by the BBA.
Given HCFA's inability to document use of fees collected thus far and given the
glaring inaccuracies in and inadequacy of the handbook produced to date, it
would be inappropriate to fund this effort at such a high amount. 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 supports MedPAC's recommendation to fund the handbook
through HCFA using administrative funds.The success of the information campaign
is also critical to gaining beneficiaries' confidence and comfort level with
potentially broader changes in the future.
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.
V. Promote Responsive, Smart Government
Below AAHP offers
several examples that illustrate HCFA's need to become more responsive and
smarter as it continues with implementation of the Medicare+Choice program.
- Tensions Between HCFA's Role as Purchaser and Regulator. HCFA's dual roles
as purchaser and regulator are, at times, in conflict and prevent it from acting
more nimbly in the best interest of beneficiaries. Nowhere has this conflict
been more evident than in HCFA's implementation of the BBA. The situation plans
faced in the fall of 1998 serves to illustrate the inherent conflict between
HCFA's traditional role as a regulator and its changing role as a purchaser.
Given all of the uncertainty surrounding the program and the unrealistic
compliance timetable, plans across the country and across model types became
deeply concerned last fall about their ability to deliver benefits promised
under the originally mandated filing schedule. Furthermore, plans were locked
into their benefit and premium offering prior to having reviewed the
Medicare+Choice "mega reg" issued in June 1998. As a result, AAHP members
requested that HCFA allow plans to resubmit parts of their adjusted community
rate proposals. In some service areas the ability to vary copayments -- even by
a small amount -- meant the difference between a plan's being able to stay in or
being forced to pull out of a market.
While this request presented HCFA with
a difficult situation, AAHP strongly believes that an affirmative decision would
have been better for beneficiaries than the decisionHCFA made not to allow any
renegotiation. As a purchaser, HCFA had a strong motivation to maintain as many
options as possible for beneficiaries by responding to health plans' concerns
and adopting a more nimble approach to Medicare+Choice implementation. But as a
regulator, HCFA would have had a difficult time coping with the predictable
political fallout from reopening bids.
These role conflicts remain
unresolved, even largely unaddressed. Until ways are found to reconcile them,
however, they will stand in the way of designing and delivering a
Medicare+Choice program that really works.
- HCFA Discontinues Flexible
Benefits Policy. Prior to enactment of the BBA, Medicare HMOs were allowed to
vary premiums and supplemental benefits within a contracted service area on a
county-by-county basis, and to customize products - or offer "flexible benefits"
- to meet beneficiary and employer needs and the dynamics of individual markets.
The BBA and HCFA's Medicare+Choice regulations are both more restrictive than
this policy, and require that Medicare+Choice plans offer uniform benefits and
uniform premiums across a plan's total service area without regard to different
county payment levels. The result is that plans are less likely to continue or
begin serving lower-payment counties, just the opposite of expanding choice.
HCFA developed a transition policy for existing contractors which allows
Medicare+Choice organizations to segment service areas and offer multiple plans
in an effort to mitigate the effect of moving away from the flexible benefits
policy. Despite this transitional relief, uncertainty remains regarding the
future of this policy. AAHP encourages the Committee to revise the statute so as
to revert to the prior policy allowing flexible benefits within plan service
areas. Maintaining this policy will best serve beneficiaries and the intent of
the BBA in expanding choices and competition.
- HCFA's QISMC Standards
Disregard Experience of Private Sector. One area of significant concern to AAHP
member plans is HCFA's Quality Improvement System for Managed Care (QISMC).
QISMC is designed to establish a consistent set ofquality 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 AAHP believes that QISMC holds
the promise of contributing to this important goal, our members have a number of
serious concerns regarding HCFA implementation of this program. 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. Rather than coordinate
with existing standards, QISMC appears to establish an entirely new system of
requirements, which are far more stringent and unreasonable in their timeframes.
Meeting two competing sets of standards adds to administrative cost while
detracting from health care quality improvement.
VI. Ensure Success of
Medicare+Choice Program So that it Can Serve as Foundation for Broader Reform
AAHP has summarized the crisis in the Medicare+Choice program because we
believe its success will determine the nation's ability to move to broader
reforms. This crisis was best illustrated by the health plans holding nearly 100
Medicare contracts that reluctantly reduced their service areas or withdrew from
the Medicare program last year. These decisions resulted in disruptions in care,
a loss of benefits, and increased out-ofpocket costs for more than 440,000
Medicare beneficiaries. Of these beneficiaries, 50,000 were left with no choice
but to return to the fee-for-service program. Unless this Committee intervenes,
further disruptions in the Medicare+Choice program areunavoidable. These
disruptions will take the form potentially of plan withdrawals, reductions in
benefits, and increases in cost sharing.
Without Congressional action this
year, the promises made to beneficiaries with the passage of the BBA will remain
unfulfilled, and the foundation for strengthening Medicare's future will
crumble. Many issues raised by broad Medicare reforms such as a premium support
approach are similar to those experienced under the controversial competitive
pricing demonstration projects proposed in recent years for Baltimore and
Denver, and HCFA's current efforts to implement similar demonstrations in
Phoenix and Kansas City. Successful competitive pricing models in the private
sector include all options available to enrollees; HCFA's competitive pricing
demonstrations have not and do not include the fee-for-service Medicare program
as an option alongside health plans. From the first proposed demonstration site,
AAHP consistently has recommended that both sides of the program be included in
a model to test competitive bidding.
The competitive pricing demonstration
projects proposed for Kansas City and Phoenix would continue to experiment only
on seniors who have chosen Medicare+Choice. These projects will lead to benefit
reductions and disruptions for the provider community, which explains why in
every community coalitions of physicians, hospitals, health plans, employers,
and beneficiaries have joined together to raise seniors' concerns about these
proposals. This experience provides important lessons for consideration of long
term Medicare reforms such as a premium support model.
VII. Conclusion
For over a decade, health plans have delivered to beneficiaries coordinated
care, comprehensive benefits, and protection against highly unpredictable
out-of-pocket costs, but these choices are at risk. Congress and the
Administration should act immediately to create a level playing field between
the Medicare+Choice program and the fee- forservice program, and a regulatory
environment that holds Medicare+Choice organizations and providers in the
Medicare fee-for- service program equally accountable. We urge you to address
the Fairness Gap, and the problems we have identified with HCFA's implementation
of the Medicare+Choice risk adjuster, and with regulation of the program. We are
in the process of conferring with the members of the Committee and your staff
about AAHP's specific suggestions - some of which we have mentioned today - for
solving these problems.
Without action this year, beneficiaries may find
access to their health plans jeopardized and that few choices are available to
them. In addition, employers and unions who have depended on health plans as a
source of comprehensive and affordable retiree health care may find their
choices severely limited. Finally, if the Medicare+Choice program erodes, it
will seriously set back efforts in the Committee and throughout the Congress to
preserve Medicare for future generations.
FOOTNOTES:
1 "All Analysis of
the President's Budgetary Proposals for FY 2000," Congressional Budget Office.
2 AAHP's analysis of the PricewaterhouseCoopers payment model used
assumptions that produced conservative estimates of the Fairness Gap. For
example, although county-level Medicare+Choice payments were actually lower than
FFS per capita payments in 1997, AHP's analysis assumes that county-level
Medicare+Choice and FFS payments were equal.
END
LOAD-DATE: June 10, 1999 
