Medicare’s Transition To Managed Care


Mervin Shalowitz, M.D., president of the Medical Care Group in Skokie, Ill., and professor of medicine at Rush Medical College in Chicago. He is the moderator.

Maribeth Capoleto, director of federal relations and assistant administrator of government programs for Group Health Cooperative of Puget Sound in Seattle.

Alan Hillman, M.D., associate dean for health services research and director of the Center of Health Policy at the University of Pennsylvania in Philadelphia.

Robert Reischauer, Ph.D., senior fellow at the Brookings Institution in Washington, D.C., and former director of the Congressional Budget Office.

Philip Nathanson, vice president for policy and product development for the National Committee for Quality Assurance, more often known as NCQA, in Washington, D.C.

Shalowitz: We're going to talk about changes in the program–the effects of passage of the Budget Reconciliation Act as well as the Medicare law, which has been greatly modified to allow more flexibility, the government hopes, in providing managed care to Medicare beneficiaries. From a policy standpoint, Bob, would you give us your perspective on the impact of these changes?

Reischauer: They are likely to be the most significant we've seen in Medicare's 31-year history. Structural changes are probably what we should focus on. There has been a major expansion of the options that seniors will have should they not want to go in fee-for-service Medicare. Heretofore, they have the choice of HMOs or HMOs with a point-of-service option. Now they'll have PPOs. Capitated and fee-for-service plans will also be available, and there will be plans sponsored by provider-service organizations–PSOs. And finally, there'll be an experiment with medical savings accounts in high-deductible insurance.

Shalowitz: Do you think seniors are sophisticated enough to understand these changes and make these choices?

Reischauer: I think they are, because there's been so much about it in the press during the 1990s.

Shalowitz: Maribeth, you're with an HMO. How do you see these changes? Notably the competition that PSOs will bring to the table?

Capoleto: It's going to be good for the marketplace for seniors to have expanded choice, and HMOs already in the business won't be threatened by it. It will enhance the opportunity for seniors to learn more about what HMOs can offer them.

Shalowitz: Phil, how do we account for what we would call “denominator medicine” on the one hand–the population, and “numerator medicine” on the other–individual patients?

Nathanson: There are two primary watchdogs: the Health Care Financing Administration, which administers Medicare, and our organization, NCQA, which accredits HMOs. We've done something refreshing, I think, and that is that we've agreed on a methodology for holding health plans accountable as more Medicare folks come in. Medicare beneficiaries, of course, are sicker than most people. They are, obviously by definition, older than most people. They need more health care. Another log on the fire is the intensely competitive nature of Medicare managed care in some markets, which leads to a lot of emphasis on direct marketing to individual beneficiaries to encourage them to change their health plan. That's an interesting concern from a quality measurement point of view, because if everybody is changing their health plan all the time, it's hard to figure out what health plans are doing. We and the Health Care Financing Administration have agreed that we would use HEDIS, a set of quality measures developed by NCQA, and Medicare will require managed care plans to report that data set. In addition, NCQA is developing a number of Medicare-relevant, or even Medicare-specific, quality measures.

Reischauer: We have to keep a lot of this in perspective. We never asked much about quality before the managed care revolution, and the question is, why? Because an employer was giving you a plan, or Medicare, or fee-for-service gave you a plan, and you could choose your provider. The responsibility for choosing a high-quality provider rested with the individual. We now have a system in which people are put in plans, and those plans limit the providers that you can see. The entity, Medicare or your employer, has a responsibility to ensure that you're being given an adequate quality and set of choices. Medicare is going to move more into capitation plans and public officials are going to feel responsible, just as an employer feels responsible, for ensuring that those choices being offered are of adequate quality. We're going to see more intervention.

Shalowitz: Does new legislation address the benefit structure at all? Have we modified it?

Reischauer: Yes, we have. Beneficiaries will be a little bit better off because there will be more emphasis on certain preventive benefits.

Shalowitz: How do they propose to fund all this when they're talking about constraints in funding and expansion of benefits?

Reischauer: By and large, these aren't very costly. The heavy lifting–the big savings in this bill –comes almost exclusively from ratcheting down payments that will be made to providers over the next five years. Particularly, hospitals will have their financial updates frozen this year. Then they'll be 1.9 percent less than market basket next year. Durable medical equipment and laboratories will all be constrained. We will move gradually to prospective payment systems for rehabilitation hospitals, for skilled nursing facilities and for home health, and all of this will save money.

Shalowitz: Do you think we're going to go then to case payment for home health?

Reischauer: That is the intention. The movement to prospective payment is going to be difficult.

Hillman: Where I think the new legislation slips up is the details, which are left to the secretary [of health and human services]. We're going to take $115 billion out of Medicare over the next five years. That's not a reduction; it's a reduction in the rate of increase, and it's important to recognize that. It's a reduction in what would otherwise have occurred. So we're ratcheting down the increase, we're increasing the comprehensiveness of the coverage policy and we're leaving the details to be worked out.

Capoleto: I'd rather have them worked out by the secretary, though, than by Congress. So I'm not an opponent of that type of policy.

Hillman: Well, I don't think they can be worked out, by the secretary, by the Congress, by anybody. And I think this is fallacious reasoning that we can reduce the rate of growth, increase comprehensiveness, start worrying about paying for drugs. The single most important thing we can do for seniors is to give them the right portfolio of pharmaceuticals, which aren't even paid for in Medicare. So I think we're heading for a new crisis. This is a great budget bill right now because we're all holding hands, Republicans and Democrats, but hidden in it are some difficult things that will not be worked out.

Shalowitz: Do you think there are practice opportunities in Medicare managed care? Do you think, having said all this, that that's going to make this a more or less viable system for them to practice in–a more friendly system?

Hillman: Oh, I think it's going to make it more friendly over the short term. But anybody who goes into Medicare managed care thinking we've solved everything has the blinders on.

Shalowitz: There's another issue we haven't touched upon–the impact of the employer community not only on managed care and HMOs per se, but also on Medicare managed care. Many employers have responsibility for retiree benefits, and one thing that is interesting is that they can have some degree of cost control if they get people into managed care. That's been well demonstrated at Puget Sound.

Capoleto: Sure. We will offer that transition in seamless employer-based plans. And what employers are also looking for is that expanded benefit package that their enrollees have been accustomed to while employed. The choices are between a Medigap policy that may offer some of those things, and managed care, whose cost savings can be used to enhance the benefit structure. You've seen a lot of preventive screenings that Congress passed this year and included in the fee-for-service side. And you've also seen coverage of prescription drugs and exercise clubs, and even transportation and eyeglasses and hearing aids–things that the senior population demanded, and the employer population looked for, for employees moving into the Medicare program.

Reischauer: About 34 percent of Medicare participants have an employer-provided wraparound policy to supplement their Medicare. Employers are realizing that they can save a lot by making that wraparound policy an HMO. So they're encouraging their retirees to join HMOs. They then pay a supplement to the HMO, but it doesn't have to be as large as the supplement that they'd pay if their retirees remained in fee-for-service medicine.

Shalowitz: There was concern that some of these supplemental benefits would go away as they begin to ratchet down some of the high-reimbursement areas, but I think the marketplace is not going to permit that. Once you give people something, it's very difficult to take it away.

Reischauer: I don't think that is the major flaw with this bill. There are steps I see as inevitable if we're going to reform Medicare, to move to a system of competing plans. But when we do that, we have to specify an adequate benefit package. Clearly, the Medicare core package is not. And now, we are saying to seniors, you can go into this capitated world, and they'll probably lure you in by giving you some extra benefits. But they can't both have zero premiums and these added benefits without the federal government paying more for Medicare.

Capoleto: These preventive benefits they've added this year are just the beginning of it.

Reischauer: The structure now is such that you can shift out of a Medicare HMO and back into fee-for-service with a month's notice, so it's really a no-risk proposition for people.

Capoleto: Then they're forced to look at reasons for disenrollment. It's really key to track that and see why people are leaving the plan.

Nathanson: This year, we have a standardized Medicare satisfaction survey. Last year we began with a standardized commercial survey, and this year we [at NCQA] have a Medicare survey, so over time we're going to be able to track disenrollment and satisfaction, one plan against another, and against fee-for-service.

Shalowitz: Very good.

Nathanson: Let's talk about data, and the emphasis not only in this bill on data, but the need for managers of health care to think about what they do–about processes that could be understood by using data. For the last decade or so, a very tender shoot has been trying to break through the crust, and this–the CQI or the TQM movement in health care–is a very delicate shoot because of the lack of access to data and lack of appropriate financial incentives for the various players. The Medicare population has a way of getting studied in a way that the commercial insurance population doesn't. My feeling is that this is going to increase the pressure for us to think about health care delivery processes as processes that are amenable to improvement. There's always been opportunity for physicians, hospitals and others to do this; there's not been enough incentive. But I think there is more incentive for the reasons I've suggested. This will lead to more investment in information systems. Health care has historically invested less than one percent of revenue in information systems while manufacturing is in the twenties, insurance is in the fifteens, other service industries are in the tens to twelves. That's a major change this legislation will indirectly boost.

Shalowitz: Should all physicians be allowed into a Medicare HMO, or should it be restricted to people who have a particular interest or specialization competency in geriatrics?

Hillman: The latter, absolutely.

Shalowitz: How do you folks feel about this–lay people as opposed to physicians?

Reischauer: This bill moves a little in that direction because the previous requirement that half the enrollees of an HMO be not Medicare or Medicaid is being relaxed. And now there will be the capacity to develop specialized plans, with a specialized panel of providers.

Nathanson: We are developing a measurement advisory panel, a group of experts to look into the science and see where we are in terms of identifying distinguishing characteristics of the practice of medicine for an elderly population, and to see if we can find quantitative measures that are valid and reliable for us to evaluate.

Shalowitz: If you're in the geriatric age group and you want to pick a physician, you could almost walk into the office and tell whether that office is friendly or not. Is the doorway wide enough to get a wheelchair through? Does the waiting room have dining-room-height chairs, or do they force you to sit on a couch 10 inches or less off the floor? Are there handrails? Are they Americans with Disabilities Act-compliant? And is the print big enough to read? So what we're saying is, there's a whole way of preparing your practice and preparing yourself for the elderly. This is something the physicians have to look at very carefully if they're going to attract the Medicare population.

Shalowitz: Some final comments?

Nathanson: The Medicare legislation and the prospect of more Medicare folks migrating into managed care increase both our challenge and our opportunity to measure and manage quality in ways that we're just beginning to do. I look forward to an increasingly sophisticated ability for us to measure managed quality.

Reischauer: In some ways, the desire to push HMOs and people into the benefits of managed care might actually face a little bit of a setback in the next few years because there will be probably a small explosion of fee-for-service capitated plans, PPOs that don't involve much in the way of management, and PSOs that also are like that. So the plans that call themselves HMOs now are going to have some pretty stiff competition until we have better measures of quality and cost and we develop incentives for beneficiaries to choose plans that can provide high-quality service at reasonable costs. That won't be for a few years.

Hillman: One of the problems in Medicare has been short-term vision, in which each year, or each budget cycle, there are new rules and regs written for Medicare. Providers, patients and HCFA are totally confused after each change in the legislation. What I find in the new budget bill is a slight turn toward the longer-term vision. For example, the new bill, as I understand it, creates a federal advisory commission of 17 members to suggest what to do by 2010, when the baby boomers hit 65. And that kind of long-term vision, I think, is the kind of vision that we should have in Medicare.

Capoleto: I think the program is open for more changes because some difficult decisions were avoided or put aside. Maybe this commission can address some of them, like income-adjusting the premium, or increasing the age of eligibility. We're not out of the woods as far as making sure this program is solvent. Not just for now, but for the longer term as the baby boomers come in. We have to be careful not to become comfortable with where it is now with this next payment formulation, because just over the threshold is the work that HCFA is starting to do on competitive bidding in a capitated arena. Hopefully we're moving toward a more defined benefit package that includes drugs and maybe other things that need competition on an equal basis so we can measure equal benefits against equal quality measures.

Shalowitz: I agree, and I think the aging of the population, together with the explosion in technology, the fact that people are living longer, working longer, have longer productive lives–I don't know that retirement is going to continue to take place as an early age as we see it now–these are great changes. And physicians have to understand–and this is the reason that we are so anxious to present the NCQA approach–that their offices are now open to scrutiny, their charts are open, and they are going to be held accountable. We used to ask in teaching, Why didn't you order a certain test years ago? Today we ask, Why did you order a test? The way we approach patients has changed. If we can make this work, it will be a more accountable system. I want to thank the panel. This was, I hope, a very informative discussion.