DECEMBER 9, 2005 -- Congressional staffers negotiating to resolve differences between House and Senate budget reconciliation bills favor language adding "payment for performance" systems to Medicare for hospitals, doctors, home health agencies, and dialysis facilities—but are leaning toward exempting managed care plans, say sources close to the talks.

That would be a shame, say some lobbyists who represent managed care plans or are involved in quality measurement activities. Performance measurement in the managed care field has generated quality improvements that have saved thousands of lives, they say.

Plans vary widely in their performance on the measures and higher payments for better performance would help close that gap, saving more lives, they add.

A decision to exempt managed care plans—known in the Medicare program as Medicare Advantage (MA) plans—would appear to be at odds with a central premise of the Bush administration's Medicare overhaul efforts: that spurring private plans to excel is the key to improving quality and efficiency in Medicare and to reducing the program's spending growth curve.

The idea behind payment for performance, or "P4P," is to give Medicare better value for its dollar by paying providers and plans more if they perform well on specific measures of the quality of care or show improvement on those measures.

Hospitals, doctors, and other providers are relative newcomers to performance measurement. But managed care plans in Medicare have been subject to performance measures for several years, with systems already well in place to gather and publicly report performance data.

Sources: Too Much, Too Soon
Sources close to the negotiations say part of the reluctance to bring Medicare Advantage plans under P4P is that the expanded system of managed care competition created by the Medicare overhaul law (PL 108-173) is just getting off the ground. The worry is that plans have enough on their hands learning to compete in that system without also having to adjust to a new payment scheme.

The administration is "nervous about this issue of burden," a managed care industry official said. "I think the House leadership has also got this concern."

As newcomers to Medicare, many managed care plans face very thin profit margins and P4P could deal them a big blow because of the way the system would work, another managed care executive said. Under P4P provisions in the Senate-passed budget reconciliation bill (S 1932), 2 percent of the money paid Medicare Advantage plans would be set aside to pay bonuses to plans if they meet standards for quality improvement or higher performance.

Because the bonus payments would come from existing outlays and wouldn't add new money into the Medicare system to fund them, plans not qualifying for the added money would in effect take a cut compared to existing law. "The 2 percent withhold is a big hit for a lot of plans, especially the new entrants," the executive said.

Others: Managed Care Plans Can Handle It
But the Medicare law is sharply increasing reimbursement for managed care plans, and the 2 percent withhold would not be a great blow, others argue.

"We're talking about setting aside a small amount of money," said Richard Sorian, vice president for public policy at the National Committee for Quality Assurance, which rates the performance of health plans and has developed numerous measures to do so. And plans already have systems in place, he noted. Managed care "is the place where we have the most experience and the most data."

Sorian added that the Medicare Payment Advisory Commission has in recent years repeatedly recommended the adoption of P4P in Medicare.

Jack Ebeler, president of the Alliance of Community Health Plans, argues that Medicare should have payment incentives "aligned" throughout the program to prod quality improvement. "Medicare Advantage is a really wonderful opportunity" to use the new payment process, he said.

"This is not a huge burden for health plans," Ebeler added. Language in the Senate-passed budget reconciliation bill (S 1932) doesn't start P4P for managed care plans until 2009, well after the 2006 start of the expanded scheme of managed care competition in Medicare, he noted.

Ebeler's members generally have performed well on NCQA ratings and seem likely to fare better under a P4P system. But "some plans that have the most clout on the Hill haven't done as well," another lobbyist noted.

DECEMBER 7, 2005 -- Four in five businesses now providing drug coverage for retirees will continue to provide the coverage next year and accept government subsidies aimed at encouraging employers not to drop retirees once the new Medicare drug benefit goes into effect on Jan. 1. But only half of those employers expect to still be offering the benefit to retirees in 2010.

The report, compiled by the Kaiser Family Foundation and Hewitt Associates, also found that another 10 percent of private-sector employers said they will provide some drug coverage to supplement the new Medicare drug benefit while 9 percent say they plan to stop offering drug coverage to Medicare-eligible retirees.

The report gave proponents of the new drug law (PL 108-173) some comfort amid fears that employers would drop retiree drug coverage once the law began Jan. 1.

"The widespread dropping of drug benefits that some had feared has been averted so far as businesses figure out what their longer-term response will be," said Kaiser Family Foundation President and Chief Executive Officer Drew E. Altman.

The federal government is offering to subsidize 28 percent of employers' drug benefit costs.

Among firms that will accept the federal subsidy in 2006, about four in five say they are "very" or "somewhat" likely to accept the subsidy again in 2007. But in 2010, only half of those employers say they are likely to maintain coverage and accept the subsidy while 22 percent say they are unlikely to do so and 28 percent said they do not know.

Employees must also consider how enrolling in the Medicare drug program will affect their coverage. Nearly three in 10 employers who are offering a subsidy said retirees who sign up for a Medicare plan would lose both employer-sponsored medical and drug coverage if they enroll in a Medicare prescription drug plan and a similar share of employers said retirees would lose prescription drug coverage but retain other benefits. The remaining firms—41 percent—say retirees would maintain all employer-sponsored coverage.

"Most retiree plans offer more comprehensive benefits than Medicare and retirees who drop employer-sponsored coverage may not be able to pick it up again later," said study co-author Tricia Neuman, a Kaiser Foundation vice president.

Rising costs for retirees will also play a major role in employers' decisions on providing retiree health care benefits. When asked about retiree health benefits overall, the 300 large firms (1,000 or more employees) surveyed reported an average increase of 10 percent in total retiree health costs between 2004 and 2005, including both Medicare-eligible retirees and early retirees, those under age 65 who do not quality for Medicare benefits.

About one in eight surveyed firms said they had stopped offering subsidized retiree health benefits in 2005 for future retirees, mainly newly hired workers. "Unfortunately, retiree health cost pressures remain intense," said Frank McArdle, manager of Hewitt's Washington, D.C., office.

DECEMBER 8, 2005 -- A key congressional advisory panel unveiled a draft recommendation Thursday that would increase Medicare hospital inpatient payments in fiscal 2007 by about 0.45 percentage points less than the "market basket" increase in the projected costs of hospital inpatient care.

If Congress accepts the recommendation the increase in Medicare hospital inpatient spending next year would be smaller than the amount provided under current law. The current law calls for yearly full market basket increases in hospital inpatient payments. However, Congress rarely approves increases at the full market basket rate.

The panel, the Medicare Payment Advisory Commission, will vote next month on whether to actually make the recommendation in a report to Congress next March.

MedPAC Chairman Glenn Hackbarth emphasized that for several sectors—hospitals, dialysis, home health, and skilled nursing facilities—the draft recommendations unveiled Thursday simply repeated last year's recommendations. He cautioned against assuming that the final recommendations would be similar to the drafts.

The commission also unveiled a draft recommendation that would reduce the market basket update in fiscal 2007 by 0.45 percent for Medicare hospital outpatient payments. The 0.45 percentage point figure represents half of an adjustment the commission makes to account for productivity growth when it considers how much of a payment increase to recommend for hospital inpatient and outpatient payments.

The market basket increase for fiscal 2007 is projected to be 4 percent. That means that under the draft the hospital payment increase recommended by the panel would be 3.55 percent. But Commission Chairman Glenn Hackbarth emphasized that the draft recommendation may not be the final one.

A spokeswoman for the American Hospital Association said the bottom line is that hospitals would see payment increases of about 3 percent while costs rise at 4 or 5 percent. She urged the panel to consider recommending a higher increase. According to MedPAC data released Thursday, overall Medicare margins for hospitals in 2006 are projected to be minus two percentage points compared to minus three percentage points in 2004. Medicare margins for inpatient care specifically averaged minus 0.3 percentage points in 2004, MedPAC staff said. They noted that, overall, the negative Medicare margins are being more than offset by relatively generous private insurer payments.

In its first review of payments to inpatient rehabilitation facilities (IRF) under the sector's new prospective payment system (PPS), the commission found profit margins on Medicare patients to be very high. When "PPS" was adopted in 2001, Medicare margins were 1.5 percent, but then rose into the double digits. In 2004 they reached 16.3 percent.

MedPAC staff estimated however that because of the "75 percent rule" to tighten eligibility for IRF care, the number of patients and the Medicare margins would drop. Staff projected that Medicare margins will fall to 8 percent in 2006 as a result.

However, if pending language in the Senate version of reconciliation is approved—language implementing the rule more gradually—the Medicare margins would be 12 to 15 percent, staff said. Under a draft recommendation unveiled by the panel, Congress would increase payments to the facilities in 2007 by half the market basket increase in care costs, meaning a payment increase of 1.8 percent.

The PPS system appears to have been very, very good to long-term care hospitals (LTCH) as well. Before PPS, Medicare margins were near zero. After its adoption in 2002 margins climbed to 5 percent in 2003 and to 9 percent in 2004, MedPAC staff said. They projected 2006 Medicare margins of 7.8 percent. The commission is considering a recommendation that Congress eliminate the payment update to LTCHs in 2007.

In the skilled nursing facility sector, staff found that Medicare margins averaged 13.5 percent for freestanding facilities in 2004 and projected that they would fall to 9.7 percent for those facilities in 2006 because of changes including an end to certain temporary payments. The commission is considering a draft recommendation that Congress eliminate the payment update to skilled nursing facilities in 2007. But staff also found overwhelmingly negative Medicare margins for hospital-based skilled nursing facilities in 2004—minus 86 percent. That led to some brief discussion at Thursday's event about having a payment increase specifically for those facilities.

Similarly, the commission is considering a draft recommendation of no payment increase for home health agencies in 2007 after releasing new data Thursday showing that Medicare margins in the sector averaged 16 percent in 2004 and are projected to reach 16.9 percent in 2006.

For freestanding dialysis, the panel is considering a draft recommendation for 2007 that payments be increased by the market basket increase for the sector, or 3.2 percent, minus 0.45 percent to adjust for productivity. Medicare margins for the sector are projected to be negative 2.9 percent in 2006, a figure that includes Medicare payments for dialysis services and drugs.

In the area of Medicare oncology payments, MedPAC adopted several final recommendations to be made to Congress in January. It said HHS should use its demonstration authority to test innovations in the delivery of care, but not as a mechanism to increase payments. It added that HHS should require providers to enter a patient's hemoglobin level on all claims for erythroid growth factors, which are used to treat anemia. That data should be used as part of an effort to develop a Medicare payment for performance system.

DECEMBER 5, 2005 -- Only 660,000 of almost 6 million low-income seniors not now in Medicaid estimated to be eligible for the comprehensive Medicare low-income drug benefit have been approved by the Social Security Administration to receive it, the left-leaning advocacy group Families USA said Monday.

Boosters of the Medicare overhaul law (PL 108-173) said it would bring drug coverage to millions of low-income Americans not now receiving it through Medicaid, Medicare managed care, or some other insurance plan.

But "it now appears likely that many millions of low-income seniors will be without the help they need to make drugs affordable," said Families USA Executive Director Ron Pollack. "The most important part of the new Medicare drug legislation was the special help that was supposed to be made available for low-income seniors," he said.

Social Security Administration (SSA) spokesman Mark Lassiter confirmed his agency has approved applications by 660,000 low-income Americans to receive the low-income benefit. Under the Medicare law, SSA must establish that assets held by applicants outside of their yearly income do not exceed certain levels in order for low-income Americans to get the benefit. After an applicant meets the asset test, he or she can then take the next step and actually enroll in a Medicare drug plan.

SSA figures showed that as of the end of November, 3.8 million Americans had applied to meet the assets test. So far, 2.8 million applications have been processed, with the rest to be reviewed by the end of the year, the SSA spokesman said.

Four hundred thousand did not require approval, because they already were deemed eligible or filed a duplicate application, the spokesman added. Of the remaining 2.4 million, about 28 percent, or 660,000, were approved. Of those rejected, 57 percent had too much money saved, 32 percent had too much income from employment, and 11 percent were disqualified both because of income and assets.

The Congressional Budget Office has estimated that 6.4 million Medicare beneficiaries qualify for the low-income benefit because they already are eligible for Medicaid. Medicaid recipients already get drug coverage and are being switched to Medicare.

Another 5.9 million Medicare beneficiaries with incomes below 135 percent of the federal poverty level and ineligible for Medicaid qualify for the most generous part of the low-income benefit, according to CBO.

Centers for Medicare and Medicaid Services spokesman Gary Karr said the low-income population is hard to reach. "It is expected that not everybody would apply right away," he said.

"Anybody who is eligible will get the help. But they do have to apply," he said. Karr added that CMS has sponsored "hundreds of events" along with outside groups to find and enroll low-income Americans. But "we clearly have more work to do and we're going to do it," he said.

DECEMBER 8, 2005 -- Americans enrolled in consumer-directed health care plans are more likely to avoid or delay needed medical care and pay more of their own money for care when they do obtain it than people who are enrolled in comprehensive insurance plans, according to a new study released Thursday.

People who are sick and have low incomes and are enrolled in high-deductible health plans and health savings accounts are at the greatest risk of postponing needed health care, according to the study prepared by the Employment Benefits Research Institute (EBRI) and The Commonwealth Fund.

The study also concluded that individuals in consumer-directed health plans do exhibit more cost-conscious behavior in their health care decisions compared with those having comprehensive insurance. But it also found that very few people have the cost and quality information from their health plans to make informed decisions about their medical care.

"These findings provide evidence that high-deductibles and consumer-driven plans may undermine the two basic purposes of health insurance: to reduce financial barriers to needed care and protect against high out-of-pocket cost burdens for patients," said Commonwealth Fund President Karen Davis.

Proponents of consumer-directed plans have said they may be the ticket to controlling rising health care costs. By giving patients more responsibility for the health costs, the reasoning goes, consumers will spend their dollars more wisely.

Health savings accounts, or HSAs, are becoming a standard component of employer-provided health care, in part because insurers are marketing them aggressively and they are less expensive for businesses to offer than standard plans with lower deductible.

More than one million American workers have enrolled in the accounts since they became available at the beginning of this year, and the Joint Committee on Taxation estimates the figure will increase to 3 million by 2013.

Karen M. Ignagni, president and chief executive officer of America's Health Insurance Plans, a trade group representing health care insurers, said the EBRI-Commonwealth Fund study "confirms other research that has revealed widespread consumer satisfaction with a variety of coverage options offered by health insurance plans."

Ignagni also noted a study released earlier this year by McKinsey and Company that among consumers with HSAs, satisfaction levels did not vary with health status and that people with consumer-directed health plans were at least as likely to obtain preventative health care than consumers in traditional plans.