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Hill Negotiators May Exclude Medicare Managed Care Plans from Payment for Performance Systems

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.

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