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MedPAC Report Proposes Efficiency Measures

By Mary Agnes Carey, CQ HealthBeat Associate Editor

June 15, 2007 -- Establishing an independent entity that would sponsor research on comparative effectiveness of health care services, equalizing payment rates between Medicare Advantage and Medicare's traditional fee-for-service plan, and making changes to other Medicare payment systems are among the recommendations the Medicare Payment Advisory Commission (MedPAC) included in its June report sent to Congress on Friday.

Taking those and other steps, such as implementing a home health pay-for-performance system, encouraging hospitals to adopt strategies to reduce readmissions, and repealing the existing hospital wage index and replacing it with a new approach, would all help make Medicare more efficient, MedPAC concluded. Approximately 78 million Baby Boomers will begin to flood the program in 2010, putting pressure on the federal health care program that provides health care insurance to approximately 43 million elderly and disabled beneficiaries.

Many Democrats have been proposing payment cuts to Medicare Advantage plans as a way to finance other health care priorities, such as reauthorization of the State Children's Health Insurance Program. In its report, MedPAC said that while private plans have the potential to promote greater efficiency in health care delivery and outcomes, the current Advantage payment system does not promote efficiency primarily because county benchmarks—which are the basis of payment for Advantage plans—exceed Medicare's fee-for-service expenditure levels.

Benchmarks averaged 116 percent of expected fee-for-service spending in 2006, and those high benchmarks allowed plans to offer extra benefits to attract enrollees, which helped fuel Advantage enrollment growth. That growth has been greatest in private fee-for-service plans (PFFS), a type of Advantage plan, rather than in coordinated care plans, MedPAC found. Yet, on average, private fee-for-service plans provide the basic Medicare benefit package at a cost higher than the traditional fee-for-service program, while health maintenance organizations do so for less.

"In other words, PFFS plans are providing extra benefits because of the higher payment rates, not because of greater efficiency," the report states, adding that Congress should establish payment equity among Medicare Advantage and Medicare's traditional fee-for-service plans, setting benchmarks at 100 percent of fee-for-service. "The payment system should be neutral," and not vary on what plan the beneficiary selects, MedPAC executive director Mark E. Miller told reporters at a breakfast briefing. If the benchmarks are adjusted, Congress may want to establish a transition period to help ease the impact on plans and beneficiaries, he said.

Separately Friday, the Centers for Medicare and Medicaid Services (CMS) announced that seven health care insurers had signed an agreement to voluntary suspend marketing of PFFS plans in response to concerns about improper marketing practices.

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