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Hospitals Push Health Plans to Offer Medicare Rates in Duals Projects

By Rebecca Adams, CQ HealthBeat Associate Editor

September 14, 2012 -- As 26 states begin a new initiative to more efficiently care for people who are dually eligible for Medicare and Medicaid, hospitals will have to persuade health insurance plans, not the federal government, to pay them at the higher Medicare reimbursement rate.

Officials with the Centers for Medicare and Medicaid Services (CMS) support the use of Medicare rates for hospitals, but the agency will not directly set those rates. Instead, managed care plans that are chosen to participate in the demonstration projects will negotiate rates with individual hospitals and health systems. Medicare and Medicaid officials do not plan to weigh in directly on the tense negotiations over payments that will soon begin in earnest between hospitals and health plans in states like Massachusetts.

"We don't anticipate requiring minimum rates to providers," a CMS official said last week. "We plan to stay out of that."

In fact, the official said that in the duals demonstration projects, the agency will follow a rule that bans CMS from interfering in contract negotiations between health plans and providers in the Medicare Advantage managed care program.

"There's a federal statute that in Medicare Advantage prohibits us from getting directly involved in establishing rates between plans and providers," the official said. "That's the model that prevails for us."

The Medicare part of the Social Security Act (PL 74-271) includes an amendment on "non-interference" that bans Health and Human Services (HHS) officials from requiring any Medicare Advantage plan to contract with a particular hospital "or require a particular price structure for payment under such a contract." The ban is needed, the law says, "in order to promote competition."

The issue will play out in the 26 states that have proposed plans to shift dually eligible patients to managed care or managed fee-for-service plans in a major CMS demonstration project. CMS officials are working to finalize proposals that will allow states such as California, Ohio and Wisconsin to go forward with their plans next year.

The demonstration projects are getting a lot of attention because some providers and policy analysts say the initiative is moving too fast and will affect too many people. As many as 2 million of the 9 million dually eligible people may be shifted to managed care or managed fee-for-service under the project.

CMS officials say the initiative will significantly improve the coordination of care for patients and that the status quo of fragmented care is unacceptable. They hope to simplify the care for dual eligibles, who currently have to navigate different policies under the Medicare, Medicaid and prescription drug benefit programs. (See related story, CQ HealthBeat, July 20, 2012). The dual eligibles are among the frailest and sickest people in those programs and therefore the most expensive to care for.

Monitoring Massachusetts

Many health industry executives and policy analysts are watching how the process unfolds in Massachusetts, the first state whose proposal was approved.

In Massachusetts, health plans will soon learn whether they have been formally accepted into the program and what the plans' rates will be. Then contract discussions between health plans and individual health systems will get serious. The program is expected to launch on April 1.

"Our strong support for the concept that underlies this initiative is equaled by our great concern that inadequate reimbursement may undermine its potential success," said Massachusetts Hospital Association Executive Vice President and General Counsel Timothy F. Gens. "This is chief among our concerns."

Hospitals would like to see an explicit guarantee from the state or federal government that they will get rates that are at least as generous as Medicare rates.

"We're concerned that there'll be no requirement or directive from either the federal or state government and we won't find out until each provider organization finds out what it's going to be paid" from managed care plans," Gens said. "There's nothing explicit ... The process is beginning, so we still are advocating that there be a specific requirement for Medicare rates."

CMS and state officials both say the program's goal is not to save money by cutting providers' rates. The projects do assume savings, but federal and state officials say that should come from fewer administrative and marketing costs for health plans as well as lower utilization of unnecessary medical services.

State officials in Massachusetts and California have suggested that they expect hospitals to be offered rates as high as those in Medicare.

Some health systems already know they will be getting Medicare rates because they have contracts with insurers that provide a blanket guarantee of similar rates for every line of business.

And even though federal officials will not be in the room for every contract negotiation, they do have one card to play to make sure that providers are reasonably compensated. CMS officials will conduct a readiness review for every state that looks at a range of issues, including whether the provider network that a health plan has built is adequate for patients with complicated medical needs. If large numbers of hospitals individually refuse to sign a contract with a health plan unless they are paid Medicare rates, then the managed care plan may not be considered by CMS to be ready to participate in the project. If CMS officials believe that a number of insurers do not have adequate networks, then the entire demonstration project in that state could stall.

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