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Testimony on Medicare Managed Care by Bruce C. Vladeck, Ph.D.
Administrator, Health Care Financing Administration
U.S. Department of Health and Human Services
Before the House Committee on Ways and Means, Subcommittee on Health
March 6, 1997
INTRODUCTION
Mr. Chairman, I am very pleased to be here today. I would like to describe how the Health
Care Financing on (HCFA) is working to ensure that the availability of managed care
options will enhance health care for Medicare beneficiaries. It is important that we clearly
define and support measures to promote quality of care, not only for beneficiaries enrolled in
Medicare managed care plans, but for all Americans in all types of health plans.
Managed care options have been a part of Medicare since the program's inception. With the
signing of the first risk contracts authorized under the Tax Equity and Fiscal Responsibility
Act in 1985, managed care plans proliferated and today have become an essential part of the
Medicare program. As of January 1, more than 4.9 million beneficiaries have enrolled in 350
Medicare managed care plans, two thirds of which are risk contractors. Risk plan enrollment
for the first six months of 1996 increased by more than 520,000 beneficiaries -- an annual
growth rate of more than 30%. This increase is consistent with the rapid rate of program
growth in recent years. In 1994, enrollment grew by 25 percent, in 1995, the growth was 36
percent.
In a managed care plan, a network of doctors, hospitals, skilled nursing facilities and other
providers offers comprehensive, coordinated medical services to plan members on a prepaid
basis. Except in emergencies, services must be obtained from health care providers that are
part of the plan. Care may be provided at a central facility or in the private practice offices of
the doctors and other professionals affiliated with the plan.
We have found that the managed care option is attractive to many beneficiaries. In many
cases, enrollees can receive the same financial protection afforded by Medicare supplemental
-- or "Medigap" -- policies without paying a premium. In addition, most plans provide
benefits not covered under the Medicare program, such as routine vision care, dental care, and
prescription drugs, at little or no additional cost to the beneficiary. I should point out,
however, that the ability of managed care plans to provide additional benefits is due in part to
the inadequacy of Medicare's payment methodology, which we have proposed to address in
this year's budget. Beyond value measured in dollars and cents, managed care plans have the
potential to provide value that can be achieved when services are coordinated and when the
focus of care is on prevention and "wellness."
Our mission in HCFA is to serve our Medicare and Medicaid beneficiaries. Under this
Administration, HCFA's efforts are firmly focused on obtaining the best value for our
beneficiaries. We work in partnership with managed care plans in this task, but as I will
describe later in my testimony, we have not hesitated to take enforcement actions when
warranted.
BENEFICIARY PROTECTIONS
Current law provides beneficiaries enrolling in managed care plans a wide variety of
protections, many of which are not received by most commercial enrollees. Let me take this
opportunity to outline briefly the protections that beneficiaries enjoy under current law and
areas where improvements are warranted.
- Beneficiaries must receive clear and accurate information about the implications of
their choice of a managed care option -- Current law requires that plans provide certain
information to all prospective enrollees including explanations of benefits, premiums
and cost-sharing, lock-in requirement, abeen working closely with other
payers and the industry to make significant improvements in this area and, later in my
testimony, I will outline these initiatives.
- Beneficiaries are protected from the risk of discontinuous or inappropriate care that
could result from the Financial instability of a plan -- Under current law, plans must be
fiscally sound and must have a plan for protecting beneficiaries in the event of
insolvency.
- Beneficiaries' out-of-pocket expenses are limited -- Under current law, Medicare
managed care plan enrollees are protected by limits on premiums and cost-sharing and
by prohibitions against balance billing.
We have also been working toward enhancing beneficiary protections. Some steps can be
taken under current law, while other actions would require legislation.
- Improving the Appeals and Grievance Processes: The appeals and grievance process
serves as a check and balance on contracting plans and hearea where Medicare's protections
are significantly beyond those generally available to managed care enrollees in the
private sector, we believe that improvements are necessary. Our plans for achieving
these improvements will be explained in a subsequent section.
- Beneficiaries' care is reviewed both internally and externally -- Plans must have
internal quality review mechanisms in order to receive a contract. PROs are
responsible for external quality review. We have been working closely with other
payers and the industry to make significant improvements in this area and, later in my
testimony, I will outline these initiatives.
- Beneficiaries are protected from the risk of discontinuous or inappropriate care that
could result from the Financial instability of a plan -- Under current law, plans must be
fiscally sound and must have a plan for protecting beneficiaries in the event of
insolvency.
- Beneficiaries' out-of-pocket expenses are limited -- Under current law, Medicare
managed care plan enrollees are protected by limits on premiums and cost-sharing and
by prohibitions against balance billing.
We have also been working toward enhancing beneficiary protections. Some steps can be
taken under current law, while other actions would require legislation.
- Improving the Appeals and Grievance Processes: The appeals and grievance process
serves as a check and balance on contracting plans and helps to ensure that
beneficiaries obtain all appropriate and medically necessary services. Improvement
activities include an expedited appeals process for certain time-sensitive situations,
shortened time frames for all other reviews involving service denials and terminations,
and improved health plan accountability on the results of appeals and grievances.
However, we cannot afford to be complacent in the face of recently publicized
concerns, and streamlining the appeals process is one of our highest priorities.
- Unrestricted Medical Communication: The Medicare statute requires that contracting
health plans must make all covered services available and accessible to each
beneficiary as detemiined by the individual's medical condition. In fee-for-service,
Medicare beneficiaries are made aware of the full range of treatment options by their
physicians. Managed care enrollees are entitled to the same advise and consultation.
This is a basic right of the patient and we have communicated the prohibition against
"gag" provisions in a policy instruction to all health plans.
- Post-Breast Cancer Surgery Hospitalization: The national attention given to coverage
of mastectomies indicates that there is a need for greater oversight. We are committed
to preventing sub-standard care in this area since Medicare pays for one-third of all
mastectomies. By law, Medicare beneficiaries who receive mastectomies are entitled
to coverage for all medically necessary care. The decisions about what is medically
necessary should be made by a woman and her doctor. To emphasize this, on
February 12, 1997, we sent a policy letter to all managed care plans, making it clear that
they may not set ceilings for inpatient hospital treatment or requirements for outpatient
treatment. Similarly, we will soon be reinforcing this message in Medicare's
fee-for-service sector.
- Physician Incentive Plans: Effective January 1, 1997, the Physician Incentive Plan
Final Rule required managed care plans with Medicare or Medicaid contracts to
disclose information about their physician incentive plans to HCFA or the State
Medicaid agencies, before a new or renewed contract receives final approval. Plans
whose compensation arrangements place physicians or physician groups at substantial
financial risk must provide adequate stop-loss protection and conduct beneficiary
surveys.
- Prudent Layperson: The Administration's plan clarifies the obligation of Medicare
managed care plans to pay for emergency services rendered to their enrollees. By using
HCFA's definition of "emergency services' as those services that a "prudent
layperson" would reasonably believe to be needed immediately to prevent serious
harm to the patient, States will be better able to determine similar requirements for
- National Marketing Guidelines: To ensure uniform interpretation and provide
beneficiaries with accurate and clear information about managed care plans, we have
developed the Medicare Managed Care National Marketing Guidelines. These
Guidelines, which will be released next month, were developed in cooperation with
the American Association of Health Plans and representatives of the health care
industry.
- Beneficiary Information Publications: HCFA and its Department of Health and Human
Services (DHHS) partner agencies have developed several publications to inform
Medicare beneficiaries of their rights and options. These beneficiary advisory
publications answer frequently-asked questions about HMO enrollment and
disenrollment, potential fraud and abuse, and the appeals process. Also, the latest edition
of the Medicare Handbook was sent to all 37 million Medicare beneficiaries and it is our
goal that all beneficiaries receive an updated handbook every year.
- Comparative Information: We want to provide all Medicare beneficiaries comparative
information that would assist them in making choices. In the President's FY 98
Budget Plan, we propose that comprehensive comparative information on all plan
options, including Medigap, be provided to Medicare beneficiaries and be funded by
the plans. In the interim we are working on making comparative information available
on the Internet and to beneficiary insurance counseling centers. Phase I of this project
will be available by June 1997, and will provide comparative market data about HMO
benefits, premiums, and cost-sharing requirements. Currently, many of HCFA's
regional offices sponsor and disseminate comparative information for local
beneficiaries. HCFA is currently working to implement a Competitive Pricing
Demonstration in Denver to test a range of new education and information resources
for beneficiaries --- including new formats of printed materials, in-person seminars, and
a 1-800 call center, all coordinated by a HCFA-sponsored third party. The goal of
these resources is to help beneficiaries understand their options under Medicare and
help them make the best choices --- whether it is fee-for-service, Medigap, or managed
care.
- Community-based Medicare Information Resource: This past October marked the
opening of a pilot project to provide beneficiaries with the latest Medicare information
in a convenient, one-stop, personal service facility. The test site for "Your Medicare
Center" is a Philadelphia shopping mall and is staffed by HCFA employees who
explain managed care options, resolve concerns, and correct records. This innovative
project will allow the public's concerns about entitlement, managed care choices and
enrollment, Medigap insurance, coverage, premiums, and appeals to be answered
promptly and efficiently. Additional services including educational seminars on
managed care-related issues and health screening will also available, using technology
such as interactive video-conferencing and computerized information kiosks.
IMPROVED MONITORING AND ENFORCEMENT
All of the beneficiary protections that I have just outlined are only words on paper unless
there is an explicit commitment to enforcement. I am proud to say that this Administration
has fostered significant improvements in oversight and monitoring of managed care plans.
We have initiated a program of special investigations that may target a specific compliance
problem, or review all plans in a heavily saturated market area. Protocol-monitoring
processes have been revised to improve clarity and establish more consistency in the methods
used to evaluate contractor operations. National guidelines for marketing materials have been
developed to improve our monitoring of plan compliance with statutory and regulatory
requirements.
For the first time in the history of the program, we have begun to impose intermediate
sanctions in response to plan activities. If we find the same compliance problem in
successive monitoring reviews, we are no longer treating the recurrence as an isolated event,
but instead are talking enforcement actions. Under these sanctions, we can require a
contracting organization to suspend marketing activities or enrollment of new members; in
some circumstances we will suspend payments to the plan for new enrollees.
Finally, in regard to monitoring and enforcement, we also have several activities in the
planning stages. First, we are evaluating our process for reviewing and approving
applications for managed care contracts in order to identify potential problems with a plan's
ability to meet contracting requirements before we approve the contracts. Second, we are
redesigning our data system to facilitate cross-plan comparison of enrollments,
disenrollments, appeals processing, complaints, quality and fiscal soundness in order to
identify aberrant patterns that warrant investigation. Lastly, we have begun discussions with
State insurance commissioners regarding actions that could be taken to coordinate activities.
These include eliminating some duplicative oversight functions, and maximizing the sharing
of information, especially with regard to plans experiencing financial difficulties. The
importance of consistent and conscientious quality monitoring cannot be overemphasized, and
I would like to devote the rest of my testimony to describing the progress that we have made
in developing quality measurements and in fostering quality improvement.
QUALITY INITIATIVES
The argument for the potential of managed care to improve quality is well known. it starts
with a critique of fee-for-service. Fee-for-service care tends to be fragmented with a focus on
acute rather than preventive services. Economic incentives are in the direction of
over-utilization of health care services. As a result, under fee-for-service, there tends to be an
inappropriate and costly allocation of existing health care resources. It is then argued that the
capitated prepayment made to managed care allows plans to organize care and re-allocate
resources to address, in a coordinated and systematic way, the needs of each patient. In
managed care, unlike fee-for-service, the organization is accountable for improving the
well-being of the patient. This provides an opportunity, more elusive in fee-for-service, to
improve the quality of care being furnished.
The flip side to the argument is also well known. In managed care, there is the potential for
"underservice" and poor quality, if plans try to maximize short-term profits by not delivering
appropriate care. The goals of our quality initiatives are to develop mechanisms to measure
quality and to hold plans accountable for quality improvement. We have two approaches
toward achieving these goals.
The first approach is to use utilization data or encounter data to address "inputs" into the
delivery of care. Most current performance measures are "process measures." Process
measures refer to clinical interventions (tests, medications, procedures, surgery) which are
believed to lead to favorable patient outcomes. While this approach has limitations, encounter
data and process measures provide significant insight into the quality of care.
The second, and potentially the most efficient strategy for clinical performance measures, is to
move toward outcome measures. The problem is that the science of outcomes measures is in
its infancy. The movement towards better outcomes measures is critical for HCFA,
like-minded purchasers, and beneficiaries in order to hold plans and providers accountable for
the care they deliver. HCFA and the Agency for Health Care Policy Research (AHCPR) have
been active in promoting research to identify these measures. With such measurements in
hand, HCFA and the public will be able to objectively compare managed care to itself and to
fee-for-service, and to determine whether managed care is living up to its potential to improve
the quality of care. However, more research is needed, especially with regard to the health
care needs of the poor, elderly, and other vulnerable populations, and with how to present this
information effectively to beneficiaries.
As I indicated earlier in my testimony, a major focus of our efforts in recent years has
been in working with our partners in the managed care industry and with other payers to
accelerate and standardize the development of outcomes measures.
THE PRESIDENT'S 1998 PROPOSALS
Everyone agrees that "knowledge is power," but at no time has the dissemination of
information been so critical to health care choice. Beneficiaries are often stymied in their health
plan choices by an overload of esoteric and confusing information, making it difficult to
determine which plan best meets their needs. We seek to empower beneficiaries by ensuring
wider and more consistent dissemination of health plan information in a format that is easier
to understand.
The President's 1998 Budget Plan includes several proposals affecting areas I have already
discussed. We believe these changes are important to achieve our stated goals of preserving
the solvency of Medicare and enhancing beneficiary protections and choices. Specific actions
we have taken to expand and enhance beneficiaries' choices include:
EXPANDING BENEFICIARY CHOICES
- Expanded PPO/PSO Options -- Currently, HCFA can contract with Federally qualified
Health Maintenance Organizations (HMOs) and Competitive Medical Plans (CMPs) to
serve as Medicare managed care plans. The Administration believes that Medicare
beneficiaries should have more managed care choices, comparable to those available in
the private sector. Thus, the President's budget would expand managed care options to
include Preferred Provider Organizations (PPOs) and Provider Sponsored Organizations
(PSOs). We believe that direct contracts with alternative managed care models such as
PSOs are the key to expanding managed care to rural areas.
The President's budget proposes that beneficiaries receive comparative materials on all of
their coverage options -- both managed care and Medigap. To help beneficiaries compare
various plans, standardized packages for additional benefits offered by managed care plans
and the Medigap plans would be developed. Medigap plans would be required to operate
under the same rules followed by Medicare managed care plans. These Medigap reforms
would require annual open enrollment, prohibit imposition of pre-existing condition exclusion
periods, and prohibit differential premiums based on age or health status.
- Annual Open Enrollment -- Under Federal law, aged individuals have a once in a
life- time opportunity to select the Medigap plan of their choice when they first join
Medicare at age 65; individuals who become eligible for Medicare because of a
disability or end-stage renal disease beneficiaries have no such choice. If a beneficiary
enrolls in a managed care plan and is later dissatisfied, he or she may not have the
opportunity to select the Medigap plan of his or her choice; for example, drug coverage
may be unavailable due to the individual's poor health status. As a result some
beneficiaries are reluctant to try managed care or are fearful of being locked into
managed care options with no opportunity to return to fee-for-service and Medigap.
The President's budget gives all new beneficiaries, not just aged beneficiaries, the
opportunity to choose the managed care or Medigap plan of their choice when they
first enroll in Medicare. In addition, each year all Medigap and managed care plans
will have to be open for a one month coordinated open enrollment period. Additional
open enrollment opportunities will be available under certain circumstances -- such as,
when a beneficiary's primary care physician leaves a plan or when a beneficiary moves
into a new area.
- Elimination of Pre-existing Condition Exclusions -- In addition to addressing open
enrollment, there are other Medigap reforms included in the President's budget. We
would like to eliminate the ability of Medigap insurers to impose pre-existing condition
exclusion periods. Under the policy in the President's budget, a Medigap plan
cannot impose an exclusion period for a beneficiary who has recently enrolled in
another Medigap plan, Medicare managed care, or employer-based plan. This is similar
to the policy included in a bipartisan bill introduced by Mrs. Johnson and others during
the last session and we look forward to working together toward enactment this year.
- Community Rating for Medigap Plans -- Our final Medigap reform addresses rating.
There are currently no federal requirements regarding t he rating methodology used by
Medigap plans. As a result, plans c an use low premiums to entice beneficiaries to enroll
in their fledgling stages, but as the company matures it raises the premiums to
unaffordable levels. Under the President's budget, Medigap plans would be required to
use community rating to establish premiums. The movement to community rating would
be subject to a timetable and transition rules developed by the NAIC. Given that
managed care plans are required to charge all enrollees the same premium, Medigap
plans should not be allowed to charge differential premiums based on age. Also, if
choice is an important goal, then premium strictures such as attained age rating,which in
effect make Medigap unaffordable as beneficiaries age, should not be allowed.
QUALITY INITIATIVES
- Quality Measurement System: The President's plan would authorize the Secretary to
develop a system for quality measurement which would replace the current requirement
that managed care plans maintain a "level of commercial enrollment at least equal to
public program enrollment," which is often referred to as the "50/50 rule." In the interim,
the Secretary could waive the 50/50 rule for plans in rural areas and for plans with good
"track records"or in other instances the Secretary deems appropriate.
PRUDENT PURCHASING FOR MANAGED CARE PLANS
Through a series of policy changes, the Administration's plan would address the flaws in
Medicare's current payment methodology for managed care. Specifically, the reforms would
create a national floor to better assure that managed care products can be offered in low
payment areas, which are predominantly rural communities. In addition, the proposal
includes a blended payment methodology, which combined with the national minimum floor
of $350 per member per month, would dramatically reduce geographical variations in current
payment rates. The plan would reduce reimbursement to managed care plans by
approximately $34 billion over 5 years. An assessment of the impact of the President's
Medicare managed care proposals should consider the plan as a whole -- both the merits of the
components that have a budget impact as well as other non-budget components, some of
which were discussed above. It should also be kept in mind that Medicare per capita costs,
upon which managed care payments are based, have grown over the past two years by
approximately 16 percent, while growth in payments to plans on the commercial side have
been virtually flat. Our actuaries project that the combined effect of the managed care
reforms, both the proposals with a budget impact and those without budget impact described
earlier, would result in increases m managed care enrollment compared with present law. By
fiscal year 2002, under the President's plan, 22.5 % of Medicare beneficiaries would be
enrolled in managed care plans, compared to 19.3% under current law.
CONCLUSION
We are aware that there is still much work to do in the area of quality improvement of
managed care. As the managed care market further expands and evolves, we expect to reap
the benefits of innovative payment, administrative and patient care strategies. Some of these
have already been applied to our Medicare modernization efforts and will contribute to
Medicare savings. We would like to expand the choices available to beneficiaries; enhance
consumer protections; provide comparative information to assist beneficiaries in making
health care choices; and reform the payment methodology to plans. These goals are shared by
all with a commitment to consumer protection and there is certainly a consensus that quality
and availability of health care is our number one priority. In cooperation with Congress, the
health care industry, and the research community, we will reach our goals -- to extend the
solvency of Medicare, and guarantee its existence for future generations of Americans. I look
forward to working with you to accomplish these goals.
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