INTRODUCTION
Mr. Chairman, I am very pleased to be here to describe how the Health Care Financing
Administration (HCFA) is working to make sure that Medicare beneficiaries receive high quality
care under managed care. 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 and
traditional fee-for-service, but for all Americans in all types of health plans. We also are
working to become more adept at being a beneficiary centered purchaser, and as the Nation's
largest purchaser of health care, we want to effectively use market forces to obtain best value for
our beneficiaries.
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 and Medicaid programs. 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 grew by 33 percent in 1996. 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-:m 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, and grievance mechanisms. However, we believe that
more needs to be done to educate consumers about their health care alternatives and later
in my testimony I will describe our plans for improvement in this area.
- Beneficiaries cannot be subjected to health screening or preexisting condition limitations
-- Current law is clear in this area. We enforce this requirement through careful monitoring
of all marketing materials and activities of contracting plans, and by reviewing
beneficiary grievances and appeals.
- Beneficiaries must have access to medically necessary and appropriate care - Before
receiving a contract, all plans must meet Federal standards which guarantee beneficiary
access to medically necessary services. HCFA is committed to ensuring that HMOs
adhere to these Federal standards.
- Beneficiaries must have access to procedures to resolve grievances and access to a neutral
third party for appeals - While this is one area 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 Process: 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. Improvem ent 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
determined 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 outpatient hospital treatment or requirements for outpatient treatment. Similarly, we
recently reinforced 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 commercial
managed care enrollees.
- 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 availa ble 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 d ata 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 reso urces 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 p as t October marked the opening
of a pilot project to provide beneficiaries with the lat est Medicare information in a convenient,
one-stop, personal service facility. T he 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. Ms 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 certain 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
taking 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 now I would like to describe 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.
- HEDIS 3.0: The latest iteration of the Health Plan Emplo yer Data and Information Set,
HEDIS 3.0, reflects a joint effort of public and p rivate purc hasers, consumers, labor
unions, health plans, and measurement experts , to develop a comprehensive set of
measures for Medicare, Medicaid, and commercial populations enrolled in managed care
plans. As of January 1, 1997, HCFA is requiring Medicare managed care plans to use
HEDIS. This will facilitate comparison of plan performance measures and permit HCFA
to hold plans accountable for the quality of the care they provide. HEDIS measures eight
components including: effectiveness of care; access/availability of care; satisfaction with
the experience of care; health plan stability, use of services; cost of care; informed health
care choices; and health plan descriptive information.
- HCFA, working with the HEDIS Committee on Performance Management, was
instrumental in adding functional status for enrollees over age 65 as a measure in the
"effectiveness of care" category in HEDIS 3.0. This will be the first outcome measure in
HEDIS that will longitudinally track and measure functional status. It addresses both
physical and mental status through a self-administered instrument which determines
whether the beneficiary perceives that his or her health status has improved, stayed the
same, or deteriorated. In addition, six other measures that impact on Medicare
beneficiaries have been added to the "effectiveness of care" category, including:
mammography rates, rate of influenza vaccination, use of retinal examinations for
diabetics, outpatient follow-up after acute psychiatric hospitalization, and utilization of
beta blocker in heart attack patients.
- Foundation for Accountability: The Foundation fo r Accountability (FAcct) is a new
nonprofit organization dedicated to helping purchasers and consumers obtain the
information they need to make better decisions about their health care. As Federal
Liaisons to the FAcct Board of Trustees, HCFA is joined by other public and private
sector partners, including the American Association for Retired Persons, the Department
of Defense, the Office of Personnel Management, Ameritech, and American Express.
The underlying premise of FAcct is that better health care information, assembled from
the consumers' point of view, should help steer Americans toward the highest quality
care. Specifically, FAcct endorses and promotes a common set of patient-oriented
measures of health care quality. Together, HCFA and AHCPR have played major roles
in the development of FAcct quality measures for depression, breast cancer an Florida, New York, Pennsylvania and Minnesota) and 23 Medicare-contracting HMOs
are collabor ating on MMCQIP. In addition, an on-going sister project, utilizing the
PROs in Maryland, Iowa and Alabama, will analyze the same measures in the
fee-for-service setting. The initial finding is that there is room for improvement in both
managed care and fee-for-service in these two areas.
- Medicare Choices Demonstration - An important component of this demonstration is
improvement in our comprehensive quality monitoring system. Under the Choices
project, we will be developing and testing quality/outcomes and risk adjustment
measurements systems that use encounter data (health care services received by
enrollees); all participating plans will be required to provide 100% encounter data. We
have contracted with the RAND Corporation to assist us in designing such a system,
which will be refined further using the "Choices" data.
Other important Medicare managed care quality initiatives include the establishment of new
requirements for Medicare managed care plans in the areas of quality improvement activity;
health information systems; health services management; and member tights and responsibilities.
In addition, as part of a project to improve efficiency in monitoring and oversight, teams of
HCFA and PRO staff are being formed to target a review of managed care plans' internal quality
assessment and improvement programs. We have Florida, New York, Pennsylvania and Minnesota) and 23 Medicare-contracting HMOs
are collabor ating on MMCQIP. In addition, an on-going sister project, utilizing the
PROs in Maryland, Iowa and Alabama, will analyze the same measures in the
fee-for-service setting. The initial finding is that there is room for improvement in both
managed care and fee-for-service in these two areas.
Medicare Choices Demonstration - An important component of this demonstration is
improvement in our comprehensive quality monitoring system. Under the Choices
project, we will be developing and testing quality/outcomes and risk adjustment
measurements systems that use encounter data (health care services received by
enrollees); all participating plans will be required to provide 100% encounter data. We
have contracted with the RAND Corporation to assist us in designing such a system,
which will be refined further using the "Choices" data.
Other important Medicare managed care quality initiatives include the establishment of new
requirements for Medicare managed care plans in the areas of quality improvement activity;
health information systems; health services management; and member tights and responsibilities.
In addition, as part of a project to improve efficiency in monitoring and oversight, teams of
HCFA and PRO staff are being formed to target a review of managed care plans' internal quality
assessment and improvement programs. We have similar quality improvement initiatives for
Medicare fee-for-service plans. Our budget also includes a provision to give us the authority to
develop an integrated quality management system, so that we can assess more comprehensively
the quality of care provided under fee-for-service.
THE PRESIDENT'S 1998 PROPOSALS
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. Our specific proposals
to expand and enhance beneficiaries' choices include:
Expanding Beneficiary Choices
- Expanded PPO/PSO Options -- Currently, HCFA can con tract with Federally qualified
Health Maintenance Organizations (HMOs) and Compe titive Medical Plans (CMPs) to
serve as Medicare managed care plans. The Admini stration 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.
- Comparative Information - Everyone agrees that "knowledge is power," and we seek to
empower beneficiaries by ensuring wide and more consistent dissemination of health plan
information in a format that is easier to understand. 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 would be developed. Adjustments
would then be made to the current standard Medigap packages to make comparison easier
for beneficiaries. As described below, Medigap plans would be required to operate under
the same rules followed by Medicare managed care plans.
- Annual Open Enrollment - 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. 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.
- 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 insurer's 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 Senator Chafee and Senator Rockefeller
and others and we look forward to working together toward enactment this year.
- Community Rating for Medigap Plans -- Our final Medigap refor m addresses rating.
There are currently no federal requirements regarding the rating methodology used by
Medigap plans. As a result, plans can use low premiums to entice younger beneficiaries
to enroll but as the enrollee ages premiums become unaffordable. 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 ti metable 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 structures
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.
PAYMENT REFORMS
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 minimum payment to better assure that Manage 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 minimum payment (generally $350 per
member per month), would dramatically reduce geographical variations in current payment rates.
(CHART 1)
The President's 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.
Proposals With A Budget Impact
IME/GME/DSH CARVE-OUT (Five-year saving --- $10 billion): Payments for indirect
medical education (IME), graduate medical education (GME), and disproportionate share
payments (DSH) would be carved out of the blended payment rates over a two-year
period (50 percent in 1998; 100 percent thereafter) and p rovided directly to teaching and
disproportionate share hospitals for managed care enrollees and to entities with
recognized teaching programs. The carve-out of these payments does not represent a
reduction in payment for managed care enrollees because these funds would be provided
to teaching and disproportionate hospitals directly by HCFA for such enrollees.
- Managed care plans can consider these funds available to such hospitals when
they negotiate their rates.
- A current law provision that requires non-contracting hospitals to accept the
Medicare diagnosis-related groups (DRGs) amount as payment in full would be modified to
require non-contracting hospitals to accept the DRG amount, minus the carve-out, as payment in
full.
INDIRECT IMPACT OF FEE-FOR-SERVICE PROPOSALS (Five-year saving --- $18
billion). The budget proposes an update mechanism tied to overall Medicare growth.
Therefore, policies that would affect fee-for-service providers would also restrain the
growth of managed care payments.
FAVORABLE SELECTION ADJUSTMENT (Five-year savings - $6 billion): Beginning
in 2000, an adjustment would be made to payment r ates to reduce Medicare's current
Overpayment, which results from managed care enrolle es being, on average, healthier
than beneficiaries who remain in fee-for-service. Research studies support basing
payments on 90 percent of the AAPCC rather than 95 percent, to take into account this
phenomenon referred to as "favorable selection." This adjustment would remain in place
until a new health status adjusted payment methodology is implemented.
- Some have argued that the extent of favorable s election documented by
Mathematica Policy Research (MPR) in 1993 no longer exists. This perspective, however, is not
supported by a recent HCFA study (HCFA Review, Summer 1996), which would justify
payment at 87.6 percent of the AAPCC, or about 83 percent if we continue to pay managed care
plans five percentage points less than fee-for-service.
- In the last three years, the Medicare program has lost, at a minimum, $2.2 billion
because of favorable selection into managed care plans, and over $1 billion in the last year alone.
- HCFA is developing a new payment methodo logy that incorporates health status
adjusters and that moves away fro m the current policy of ignoring differences in utilization
between managed care and fee-for-service in making payment to managed care plans. A
proposal could be ready for Congressional action as early as 1999, with phase-in beginning as
early as 2001. Payment at the 90 percent level would be consistent with payment levels
anticipated under this new payment methodology.
- Competitive Pricing Demonstration - This demonstration will test a new market-
based payment methodology as a possible alternative to the AAPCC method, in addition to
offering new education and information resources to local beneficiaries. The Denver site will
start in 1997, to be followed by two additional sites.
Proposals Without A Budget Impact
BLENDED RATE METHODOLOGY - The budget would dramatically reduce the
current wide geographic variation in payment rates to managed care plans by breaking the
link between plan payments and local fee-for-service experience. The blended payment
rates, minimum payment and minimum increase would be implemented on a budget-neutral
basis.
- Impact on Relatively Low Payment Areas - Managed care plans, now in relatively
low payment counties, would benefit fr om the proposed blended payment rate.
By 2002, 30 percent of their payment rate would be based on a higher national rate. In each year
between 1998 and 2002, many of these plans would receive a "double update," with rates
increasing due to both the national update and the transition to the 70/30 blend.
- Impact of Minimum Payment Amounts - The President's plan would create, for
the first time, a minimum payment amount which would significantly increase rates in isolated
rural counties and could increase the number of managed care plans serving rural and other low
payment areas, especially with the entry of Provider Sponsored Organizations (PSOs) into the
Medicare program.
We have a few illustrations of the effects of our managed care payment reforms on rates in
counties with various characteristics. As you can see, the impact on a particular county depends
both on current teaching costs and on whether the county is currently receiving a relatively low
or high payment. (CHART 2) The methodology would ensure that no county would receive a
decrease during the 5 year budget window except in the year 2000. In 2000, almost two-thirds of
counties (64%) would receive increases; the other counties would receive either no increase or a
decrease no greater than 3.37%.
The net effect of the President's payment proposals is a balanced approach that achieves savings
and significantly reduces current wide geographic variation, while continuing the trend of
increased enrollment in managed care. 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 in 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. (CHART 3)
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 malting 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.