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03/01/2004 |
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Patrick K. O'Hare Appeared in HFM At a Glance For providers, the most significant effect of the hotly debated Medicare reform legislation may well come from the reinvigorated Medicare risk program called Medicare Advantage. In a nutshell, if the Medicare Advantage program increases beneficiary enrollment, providers could be forced to negotiate with HMOs that have newly increased bargaining power and, as a result, may be forced to accept reduced payment or adopt other competitive strategies. Background HMOs initially found the program attractive because their administrative costs (which can include profits) were paid, and they were able to spread fixed costs from both their commercial and Medicare operations over a greater number of lives. However, as provider payments escalated and payments from HHS did not keep pace, many HMOs withdrew from Medicare+Choice, forcing many beneficiaries back into the traditional Medicare program. Medicare Advantage A Jump Start for the Program Plans that have requested to withdraw from the old Medicare+Choice program are allowed to rescind their withdrawals to take advantage of the new payment rates. New rates for 2004 will be paid as of March 1, 2004, with payments retroactive to January 1, 2004. 2006 and Beyond Medicare Advantage regional plan applicants must serve the entire region (to ensure coverage of rural areas) and must construct a network of providers with contractually agreed-upon payment terms. Both in-network and out-of-network coverage must be offered. The legislation also contemplates that a contractor might offer a national plan serving all regions and that current Medicare+Choice contractors could continue their existing plans as "local" plans. A critical feature of the new design will be a competition program. Under the new program, local and regional plans will submit bids to provide services to enrolled Medicare beneficiaries. Regional plans must also offer prescription drug coverage. The bid must describe the amount of Medicare payment requested (including administrative costs, profit, and, for regional plans, the cost of the prescription drug benefit), allocate the payment amounts between Medicare-required and supplemental benefits, be actuarially supported, and describe the beneficiary's liability for co-payments. HHS is empowered to negotiate the bid amounts, using a process much like that for the Federal Employee Health Benefits Program. Bids are compared with formulaic benchmarks (which include, for regional plans, some component derived from other plan bids). Bidders below the benchmark are required to make up 75 percent of the difference in additional benefits or reduced beneficiary payments. HHS retains 25 percent of the difference. Plans that bid above the benchmark will be allowed to charge an additional premium to the beneficiaries. The legislation contains numerous incentives to get plans to enter the program, including enhanced payments, improved benefit design, and state preemption provisions. One of the incentives offered to regional Medicare Advantage plans to encourage their participation in the first two years of the Medicare Advantage competition program (2006 and 2007) is the use of "risk corridors" (i.e., a mechanism for Medicare to share a portion of a plan's cost overruns). In essence, if the Medicare Advantage plan's "costs" (defined similarly to a medical loss ratio) exceed the plan's payments (including Part B premiums) by certain percentages, Medicare will share part of the excess cost with the plan through the payment of certain additional formula amounts. Conversely, if "costs" do not exceed the payments by certain percentages, the savings will be shared between the plan and the Medicare Advantage program. Another Medicare Advantage plan incentive is the creation of a stabilization fund for regional plans. Monies from the stabilization fund will be made available to Medicare Advantage regional plans as an incentive to enter a region in which no plan is operating or to continue in their current region in the face of proposed plan withdrawals. READ MORE
www.hfma.org/resource/ HHS is also authorized to make extra payments to plans to be paid to hospitals with which Medicare Advantage plans were previously unable to contract but that are essential in the service area. To qualify f this extra payment, the plan must demonstrate that the hospital's costs exceed a certain ceiling (among other requirements). The added payment is the difference between what the hospital would have been paid under PPS and what the hospital would be paid as a "critical access hospital" (which, under Section 405 of the Medicare act, is now increased from 10 percent to 101 percent of reasonable costs). Rather than being a boon to those essential hospitals, this provision may well act as a ceiling limiting what they can expect in their plan contracts. The legislation also contains important state preemption provisions to assist Medicare Advantage plans. The statute postpones the need for an HMO to be license in all states in the region (if it is licensed in at least one; while it pursues multiple state licensures. State laws governing HMOs, other than licensing and solvency requirements, are preempted. Thus, certain state law benefiting providers (e.g., "any willing provider" and "prompt payment" provisions) will be nullified for Medicare Advantage plan contracts, further reducing providers' competitive position with plans. States are also forbidden from subjecting payments to Medicare Advantage plans to state premium tax. Another large incentive to attract enrollees to the program is improved benefit design. Medicare Advantage plans must have a single deductible, as opposed to the separate deductibles that now apply to traditional Part A and Part B benefits. Moreover, this deductible can be applied differentially for in-network and out-of-network services, effectively allowing plans to "steer" beneficiaries to providers under contract, much as commercial PPO plans do today. The plan must also offer catastrophic limits to protect beneficiaries against large out-of-pocket exposure. These provisions, coupled with a plans ability to offer additional benefits not covered by Medicare, may attract additional beneficiaries to enroll. 2010 and Beyond The CCA program will be run in most likely six metropolitan statistical areas selected using statutorily specified criteria to ensure a representative demographic sample. Medicare Advantage plans in CCA areas would submit bids and have their bids measured against formulaic benchmarks using a process similar to that for the competition program that will start in 2006. Costs for traditional Medicare program beneficiaries in CCA areas would be computed and compared with the same benchmarks. If traditional Medicare program costs were greater, beneficiaries would have their Part B premiums gradually raised (although not by more than 5 percent). Conversely, if Medicare program costs were less than the benchmark, 75 percent of the savings would be rebated to the Medicare Advantage beneficiaries. Considerations for Providers Depending on where the bargaining power is in each marketplace, a revitalized Medicare Advantage program could either benefit or harm providers. An important factor is the payment levels negotiated with the individual Medicare Advantage plan and whether that plan's bids and relevant benchmarks are likely to produce an increase or decrease in payment levels to providers. In markets where HMOs are successful in enrolling much of the Medicare population and in negotiating payments to providers below conventional Medicare payment levels (with this savings translated into additional benefits, and thus, enrollees), providers will see their financial positions eroded. This effect will be exacerbated in markets where the Medicare enrollees are concentrated in only a few Medicare Advantage plans. Such a trend could accelerate provider consolidation in an effort to increase bargaining power, or could renew interest in PHOs or other contracting strategies, perhaps using percentage-of-premium or other risk formulas. The Medicare reform legislation had both strong supporters and strong opposition. It is possible that new legislation may be introduced to roll back portions of the program, especially given the need for studies required in the near term to measure the effect of the new Medicare Advantage program. Furthermore, much of the Medicare Advantage program will need to be implemented through regulations that could delay or otherwise influence the program's ultimate operation. Providers should monitor these developments closely to determine whether a change in business strategy will be needed. Patrick K. O'Hare, JD, is a principal, Ober|Kaler, Washington, D.C., and a member of HFMA's Washington Metropolitan Chapter. Questions or comments about this article may be sent to the author at pkohare@ober.com. |
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Ober, Kaler, Grimes & Shriver Maryland
Washington, D.C. Virginia |
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