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Testimony of
JUDITH BEREK
REGIONAL CONSORTIUM ADMINISTRATOR
HEALTH CARE FINANCING ADMINISTRATION
on
THE MEDICARE+CHOICE PROGRAM
before the
HOUSE COMMITTEE ON ENERGY AND COMMERCE
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
May 31, 2001
Chairman Greenwood, Congressman Deutsch, other distinguished
members of the Subcommittee, thank you for inviting me to
discuss the history and current status of the Medicare managed
care program, Medicare+Choice. Medicare+Choice offers Medicare
beneficiaries a range of health plan options, including
the traditional fee-for-service Medicare program, and allows
them to choose the types of health plans that best suit
their individual needs, according to the options offered
by the plans. It provides valuable alternatives to traditional
fee-for-service Medicare, and we are committed to strengthening
this program.
Our new Administration, both Secretary of Health and Human
Services Tommy Thompson and Health Care Financing Administration
(HCFA) Administrator Tom Scully, will be placing a high
priority on protecting and improving Medicare+Choice. For
instance, this week, Secretary Thompson gave Medicare+Choice
plans the extra time they have been asking for to prepare
and submit benefit proposals and to make participation decisions
for next year. Health care costs in recent years have been
less predictable, as have decisions by providers to contract
with Medicare+Choice plans. This action will allow plans
more time to collect information on their costs and determine
the viability of their provider networks before having to
make decisions about their benefit offerings and service
areas for next year. We are committed to working with you
and health plans toward our goal of making more health plan
options available to our beneficiaries in all parts of the
country, while helping beneficiaries to better understand
these options.
Medicare has a long history of offering alternatives to
the traditional Medicare fee-for-service program to our
beneficiaries. In the 1970's Congress authorized Medicare
risk contracting with managed care plans, and in the 1980's
Congress modified the program to make it more attractive
to managed care companies. Under that program, HMOs contracted
with Medicare to provide the full range of Medicare benefits
in return for monthly "per person" or "capitated"
payment rates. In the Balanced Budget Act of 1997 (BBA),
Congress created the Medicare+Choice program to correct
perceived flaws in the risk contracting program, including
payment differences. Since then, Congress has refined the
Medicare+Choice program through the Balanced Budget Refinement
Act of 1999 (BBRA) and the Medicare, Medicaid, and SCHIP
Benefits Improvement and Protection Act of 2000 (BIPA).
Today, 64 percent of all Medicare beneficiaries have access
to a Medicare+Choice option; and about 5.5 million, or about
15 percent of all Medicare beneficiaries, have chosen to
enroll in a Medicare+Choice plan. As was the case with the
risk contracting program prior to the BBA, payments under
the Medicare+Choice program vary by county, and plans have
the option of varying their additional benefits or premiums
from county to county. The differences in benefits across
the country and between adjacent counties was an issue with
the risk contracting program, and remains an issue with
the Medicare+Choice program today.
BACKGROUND
Medicare pays for the health care of almost 40 million beneficiaries,
involving nearly one billion claims from more than one million
physicians, hospitals, and other health care providers.
As the administrator of this program, the Health Care Financing
Administration (HCFA) oversees Medicare's various health
care plan options, including the Medicare+Choice program.
For beneficiaries in Medicare+Choice, we ensure access to
providers, approve promotional materials, and calculate
capitated payment rates. Before the BBA became law in 1997,
Medicare calculated capitation rates under a methodology
known as the Adjusted Average Per Capita Cost, or AAPCC.
Under the AAPCC methodology, we determined, for each county,
the average per person cost for fee-for-service Medicare
beneficiaries living in that county. Health expenditures
were not attributed to the county where services were provided,
but to the county in which the beneficiary lived. For example,
if a beneficiary living in Bucks County received a service
in Philadelphia, that expenditure was included in the AAPCC
for Bucks County. The per capita amounts were then "standardized"
to account for differences between the demographic characteristics
of Medicare beneficiaries in the county and the demographic
characteristics of Medicare beneficiaries across the nation.
Additionally, capitation rates were set at 95 percent of
the AAPCC, with the 5 percent reduction reflecting the assumption
that managed care plans could achieve savings through discounts
and more efficient management of health services. The following
example illustrates how payment was made:
Example:
Beneficiaries
in Bucks County,
PA, 19975 |
Demographic Factor,
Part A |
Demographic Factor,
Part B |
Monthly county capitation rate * factor |
Monthly payment per person |
Male, non-institutionalized
Age 65 to 69
Medicaid eligible |
1.15 |
1.10 |
Part A:
$ 422.05
Part B:
$ 229.50
|
$651.55 |
Female, non-institutionalized Age 80 to 84
Medicaid eligible |
1.70 |
1.25 |
Part A:
$ 623.90
Part B:
$ 260.80
|
$884.70 |
Under the AAPCC method, Medicare capitation rates varied
widely. Since county fee-for-service costs were used to
calculate county capitation rates, the rates reflected differences
among counties in fee-for-service health service usage and
payment levels. In addition to the substantial variation
in rates across the country, there were a number of other
concerns with the AAPCC payment method, including:
RECENT CHANGES TO AAPCC
In the BBA, Congress replaced the risk contract program
with Medicare+Choice. The BBA modified Medicare+Choice payment
rate calculations to address a number of concerns with the
AAPCC methodology. It broke the direct link to fee-for-service
spending in a county, and moved to reduce wide disparities
in county capitation rates by bringing both high and low
payment rates closer to the national average payment rate.
In addition to adjusting the payment rates based on demographic
factors, the BBA required payment rates to be adjusted for
beneficiary health status, sometimes referred to as a "risk
adjusted method" of payment. It also provided direct
payments to teaching hospitals for Medicare+Choice patients
to ensure these hospitals were receiving appropriate medical
education payments for their Medicare managed care patients.
The BBA also mandated that the 1997 AAPCC rates would serve
as the basis for the Medicare+Choice rates, and the rates
for particular counties would be equal to the largest one
of three amounts:
1. Minimum 2 percent increase over the prior year's rates,
which protected high payment areas as the medical education
reductions and reductions in geographic disparities took
effect.
2. Minimum amount or "floor" amount that
increases rates in historically lower-rate counties where
Medicare managed care plans generally have not been offered.
Beginning in 1998, the BBA set the floor rate at $367; this
floor has been adjusted annually by the rate of growth of
the overall Medicare program.
3. Blended amount, which is calculated by blending
county and national rates, thus increasing rates in historically
lower-rate counties while reducing rates in historically
higher-rate counties. Each year, from 1998 - 2003, a greater
percentage of the payment amount is based on the national
rate, until a 50/50 blend is reached. The blend percentage
for 2001 was 66 percent county and 34 percent national rates.
The "national rate" for each county is calculated
by adjusting the national rate by each county's Medicare
hospital wage index and geographic physician practice cost
index.
ADDITIONAL BENEFITS AND PREMIUM REDUCTIONS
As was the case under prior law, the BBA requires plans
to compute whether their projected Medicare revenues, based
on Medicare capitation payments, will exceed their projected
costs for providing Medicare services (excluding Medicare
deductibles and coinsurance). If revenues exceed costs,
the plan must use those funds to provide additional (non-Medicare)
benefits to enrollees at no additional cost to the enrollee.
In 2001, on the national level, Medicare+Choice plans are
using an average of about 19 percent of their Medicare revenues
to provide these additional benefits, such as routine vision
care, dental care, and prescription drugs, which are not
available through fee-for-service Medicare.
As was also the case under prior law, the BBA mandated
that plan premiums or other charges, such as copayments,
for services covered by Medicare may not exceed the actuarial
value of fee-for-service beneficiary cost sharing. For 2001,
that amount is $100.66. Medicare+Choice plans may also offer
supplemental benefits that Medicare does not cover, such
as prescription drugs, and may charge premiums for those
benefits. Depending on the supplemental benefits that a
plan offers, this plan premium may exceed $100 per month.
Congress revised the BBA changes in 1999, through the BBRA,
and again in 2000, through BIPA. The BBRA included changes
to the Medicare+Choice program to make it easier for beneficiaries
and plans to participate, including giving plans more flexibility
in their benefits and cost-sharing, and increasing payments.
The BBRA also included incentives for plans to offer plans
in areas without a Medicare+Choice plan already in place.
Similarly, BIPA increased Medicare+Choice payments and expanded
the incentive program for managed care plans to offer Medicare+Choice
in areas without such options. Congress increased both the
minimum percentage payment rate increase for 2001 only (from
2 percent to 3 percent), as well as the payment rate floor
amount, to $525 in Metropolitan Statistical Areas with a
population of 250,000 or more, and to $475 in al other areas.
REDUCTION IN GEOGRAPHIC VARIATION
The BBA and subsequent amendments have reduced the variation
in payment rates at the national level. In 1997, the county
with the highest payment rate was Richmond County in New
York and the county with the lowest payment rate was Arthur
County in Nebraska; their rates were $767 and $221, respectively
(Chart 1). The ratio of the Richmond County rate to the
Arthur County rate was 3.47, that is, the rate in Richmond
County was about 250 percent higher than the rate in Arthur
County. In 2002, the rates in Richmond and Arthur counties
will be $856 and $500, respectively. The ratio of the rates
will be 1.71, a dramatic reduction from 1997.
This chart also highlights how variation within states
was reduced. In 1997, in Nebraska, the ratio of the highest
to the lowest county was 1.96, that is, the rate in Douglas
County was about 100 percent higher than the rate in Arthur
County. In 2002, that ratio will be reduced to only 1.11.
There will be a similar reduction in New York, from 2.53
to 1.71 in 2002. Thus, the BBA changes effectively reduced
both national and state level variation in payment rates.
PHILADELPHIA AND BUCKS COUNTY
The second chart (Chart 2) looks specifically at Medicare
payment rates and utilization rates in Bucks and Philadelphia
Counties. The Medicare law requires payments to Medicare+Choice
organizations in 2001 to be based 90% on the demographic
method and 10% on the risk adjusted method. The first row
in the chart indicates that under the rates used in 2001
for the demographic portion of payments, the rate for the
average beneficiary in Philadelphia County is 22 percent
higher than the Bucks County rate. The next row on the table
shows the percentage difference for rates under the risk
adjustment method. For the risk adjusted portion of payments,
the rate in Philadelphia County is 14 percent higher than
the Bucks County rate. The difference between the risk method
rates in the two counties would indicate that, on average,
beneficiaries in Bucks County are healthier than beneficiaries
in Philadelphia.
Turning to the comparison of the utilization of services
in the two counties, the table shows that beneficiaries
in Philadelphia County utilize more services than those
in Bucks County. In particular, they use more hospital,
home health, skilled nursing facilities, and durable medical
equipment services than beneficiaries in Bucks County. The
greater use of these relatively costly services would be
associated with a population that is sicker and therefore
has a greater need for medical services. This higher use
of services corresponds with the higher 1997 base rate for
Philadelphia County.
Differences in payment rates as well as in benefits and
premiums between adjacent counties were an issue prior to
the BBA and remain an issue today. These premium and benefit
differences are influenced not only by Medicare payment
rates, but also by the ability of the Medicare+Choice organization
to negotiate favorable payment rates with providers and
the presence of other Medicare+Choice options in the market
area.
CONCLUSION
We are working hard to ensure that Medicare beneficiaries
receive high quality health care, and have a variety of
options to choose from so their health plans most closely
meet their individual needs. The Medicare+Choice program
is one important way we accomplish this goal. As the name
suggests, Medicare+Choice offers many beneficiaries a guarantee
of traditional Medicare fee-for-service benefits, as well
as a choice of other options, which vary from plan to plan.
Congress has made several important improvements to Medicare+Choice
over the last few years, and our new Administrator is strongly
committed to working with you and health plans to expand
and revitalize the Medicare+Choice program. Thank you for
the opportunity to discuss this with you today, and I am
happy to answer your questions.