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Private Fee-for-Service Plans: Worth the Money?

By Mary Agnes Carey, CQ HealthBeat Associate Editor

March 16, 2007 -- As Democrats consider payment cuts to Medicare Advantage plans as a way to finance an expansion of the State Children's Health Insurance Program (SCHIP) and other priorities, they may take an even closer look at Medicare private fee-for-service plans.

Of the approximately 8.3 million Medicare beneficiaries enrolled in Medicare Advantage plans, 1.3 million are in the private fee-for-service plans, one of the fastest growing sectors within Medicare Advantage.

But unlike other Medicare Advantage plans, which include health maintenance organizations and preferred provider organizations, private fee-for-service (PFFS) plans are not required to have a network of providers, nor are they subject to requirements for beneficiary protection or plan review and provider monitoring the way MA plans are, according to a Kaiser Family Foundation report released Friday as part of a forum on PFFS plans.

The plans, created as part of the 1997 balanced-budget act (PL 105-33), are paid on average 119 percent of traditional fee-for-service rates, and some panelists at the Kaiser forum said neither beneficiaries nor the government are getting their money's worth. Panelists also said beneficiaries are confused by the plans because they think they are traditional fee-for-service rather than a private market product.

"People sign on with these plans and they and they don't know what they're getting," said Joyce Dubow, AARP senior policy adviser on policy and strategy. Beneficiaries might not understand, for example, that while their doctor accepts Medicare fee-for-service reimbursement, the doctor might choose not to participate with the private fee-for-service plan. Dubow also said there is little evidence that private fee-for-service plans do a better job of coordinating care than traditional Medicare.

But proponents of such plans, who also spoke at Friday's event, said the plans offer more benefits and better coordination of care than traditional fee-for-service.

Gary Jacobs, senior vice president of Universal American Financial Corporation, whose company has 150,000 Medicare beneficiaries enrolled in private fee-for-service plans, said the plans include features such as nurses working with beneficiaries to better understand treatment options and computer systems that help catch possible drug interactions. In one month alone, he said, the plans' computer systems caught 55,000 drug interactions that could have harmed beneficiaries.

"This is all about choices for beneficiaries," Jacobs said.

But the amount that Medicare pays per beneficiary should not depend on what plan they select, said Mark E. Miller, executive director of the Medicare Payment Advisory Commission (MedPAC), which advises Congress on Medicare payment policy. "The payment should be neutral," Miller said. He also suggested that there are other coverage options for Medicare beneficiaries that offer the same services as PFFS plans but do so at a lower cost to Medicare.

MedPAC has previously found that Medicare Advantage plans are paid on average 112 percent of fee-for-service plans, a finding that the industry's leading trade group, America's Health Insurance Plans (AHIP), has disputed.

"We talk to AHIP every time we do this," Miller said Friday. Even with some adjustments AHIP would like to see in MedPAC calculations, Miller said, Medicare Advantage plans "are still being paid well above fee-for-service."

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