Is New Medicare Package A Cure for Medicare HMOs’ Ills?

Washington Watch

Health plans and providers got what they wanted from Congress for the new year: passage of the Medicare, Medicaid, and Balanced Budget Refinement Act of 1999. But for Medicare+Choice plans, is it the gift that will keep on giving? Some inside-the-beltway experts say the new law isn’t the panacea it appears to be at first blush, and that the actual numbers reported for Medicare relief may not hold up under scrutiny. As one industry spokesperson put it: “Those numbers are really squishy. I sure wouldn’t sacrifice my firstborn on the strength of those numbers.”

Preliminary estimates from the Congressional Budget Office suggest the package will restore $16.4 billion to Medicare over five years through regulatory and legislative means. Specifically, the legislation increases payments to managed care plans, as well as hospitals, nursing homes, home health agencies, and rehabilitative-therapy providers. It also extends coverage for immunosuppressive drugs, and caps the amount beneficiaries can be charged for coinsurance for hospital outpatient care.

For Medicare+Choice health plans, a risk-adjustment payment formula blends 90 percent of the old demographic method and 10 percent of the new health-status method for calendar years 2000 and 2001. The mix goes to 80-20 in 2002.

The secretary of health and human services is required to revise regulations governing the risk adjuster to ensure that the overall payment to Medicare+Choice plans isn’t reduced from what it would have been under the Balanced Budget Act of 1997. The blend would have been much faster under the old system, with a 70-30 mix in 2001, 45-55 in 2002, 20-80 in 2003, and full risk adjustment in 2004.

Generally, it is thought that providers and health plans will make out better with the new, slower blend than they would have under the old law. The change in the blend schedule is expected to restore $400 million. On top of that, the new legislation provides for increases in the traditional Medicare fee-for-service program that, in turn, will pump an additional $900 million health plans’ way, according to American Hospital Association estimates. This is because Medicare+Choice payments are tied to fee-for-service increases.

Shell game?

But the figures touted are being received skeptically by some Washington observers.

“What Congress has done is to shove a whole lot of things around. I’m not confident that they’ve really done what they intended to do, or what they said they intended to do,” says one HCFA official. “Whether that will translate into real relief, and whether it does much for the Medicare+Choice program, we’ll have to see. I’m not sure it really comes to much at the end of the day.”

The perception among some Washington insiders is that the whole thing was done hastily and that the numbers may not hold up. The new law may be more of a feel-good job than an actuarial masterpiece: By restoring some of the cuts, everyone got to declare victory and go home. Whether it works out remains to be seen.

At the least, says Chip Kahn, president of the Health Insurance Association of America, the Medicare provisions within the new law point up the fact that Congress “recognizes the tight financial squeeze under which private Medicare plans currently operate. The refinements are a step in the right direction.”

But Kahn wishes Congress had gone further by providing additional funding that would have allowed private Medicare plans to achieve greater parity with traditional Medicare.

HIAA is relieved that Congress abandoned a move to squeeze prescription-drug coverage mandates into any legislative remedies for Medicare. Such a directive, he predicts, “could raise seniors’ Medigap premiums as much as 100 percent, causing many of them to give up their private Medigap coverage.”

Tom Scully, president and CEO of the Federation of American Health Systems, believes what happens next with Medicare+Choice “is 100 percent related to the next election.” Any kind of split in power between Congress and the president or control of the White House by the Democrats is likely to result in a stalemate or only limited progress on Medicare matters, he predicts.

If the Republicans control the White House and Congress, there’s likely to be “a quiet but definite move” to promote greater involvement of private health plans in Medicare — part of the GOP’s free-market emphasis, Scully concludes.

Hospitals helped, too

Scully thinks the changes resulted from pressure from grass roots hospital interests on Congress.

“We had a lot of very angry, very aggressive hospital people talking to people in Congress,” Scully says. “The people in Congress can figure out what is BS and what isn’t.”

Hospital officials presented evidence of hospital closings, and “made it clear that the Balanced Budget Act … was killing them,” Scully asserts.

Hospital issues, he adds, are perceived by the public differently from managed health care issues, because a hospital may be a major local employer and is seen as a community institution — unlike managed care plans.

Indeed, insiders say there’s a feeling that the law was revised to placate hospitals more than managed care plans. Helping a local institution is more politically popular than aiding an HMO, no matter how much it cries poor or how many pull out of Medicare+Choice.

The message taken to Congress, Scully reports, is that 1999 savings under the Balanced Budget Act turned out to be $25 billion more than had been targeted — for a total of $40 billion, rather than $15 billion.

“The goal of the act was to reduce spending 10 to 15 percent. The policies adopted saved a hell of a lot more money than intended,” which caused problems for local hospitals, he says.

The proposed outpatient payment schedule received intense lobbying attention. Changes followed, along with the provision of additional money for rural hospitals and some for teaching hospitals.

Now it appears as much as $10 billion will be restored to hospitals. “It was the screaming at home that got Congress’s attention,” says Scully. “I think grassroots anger was the key.”

Dick Davidson, president of the American Hospital Association, views Congress’s action as only a first step. “With many hospitals still facing financial disaster, the fixes aren’t complete. We’ll work with Congress and the administration to further restore Medicare funds,” Davidson says.

The AHA cites strong member support and an intensive congressional lobbying effort as factors that persuaded legislators to approve the changes. “Not only is it unprecedented for Congress to restore Medicare provider cuts, but at the beginning of this year, few in Washington thought it could be done.”

What most health care interests hope will happen is that Congress will revisit the issue in the next session, after the effects of this round of refinements becomes apparent.

Whether any resultant funding increases are enough to stop health plans from leaving Medicare remains to be seen, but the managed care industry can take heart in that lawmakers appear to understand there have been unintended consequences to their budget-cutting efforts. As New Mexico Republican Sen. Pete Domenici asked last year, “Why in the world would we sit around and watch an industry go bankrupt?”