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PPOs to Cost Medicare $60 Billion Over Decade, Study Finds; Critics Say Findings Flawed

SEPTEMBER 6, 2005 -- Medicare will spend as much as $60 billion over the next decade to attract preferred provider options (PPOs) to offer coverage to beneficiaries in areas not now served by managed care plans, according to a study published on the Health Affairs Web site.

Critics of the research said the findings were premature and based on assumptions that would not prove to be true.

The article predicts the PPOs, created as a part of the new Medicare drug law (PL 108-173), will bid competitively to serve Medicare beneficiaries on a regional basis and avoid competing with existing Medicare health maintenance organizations (HMOs).

By sidestepping markets that have existing HMOs, those PPOs will be able to attract Medicare enrollees by offering a less generous, but also less costly, benefits package, according to Steven Pizer, health economist at the Department of Veterans Affairs Boston Health Care System. Pizer, an assistant professor of health services at the Boston University School of Public Health, wrote the article along with two colleagues.

"Our findings indicate that regional PPOs will avoid competing with HMOs, focusing instead on traditionally underserved areas that will be profitable only because of overpayments," Pizer said in a news release. Some health analysts have complained that Medicare pays private health care plans more per beneficiary than for patients in traditional Medicare.

Critics of the Health Affairs study said it was based on flawed assumptions. Mohit Ghose, vice president of public affairs at America's Health Insurance Plans, a trade group representing insurers, said, "It is premature to attempt to evaluate the impact of payment methodology until some actual experience is available to do so."

A spokesman for the Center for Medicare and Medicaid Services (CMS) said PPOs were going to be "competitive" and be governed by the same requirements as other health plans offered to seniors.

The article, the spokesman said, "was too speculative and based on the wrong assumptions," including one that PPOs would be available in 11 regions. CMS has announced that the plans would be available in 21 regions.

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