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Stark: Private Fee-for-Service Plans 'High on the List' for Cuts

By John Reichard, CQ HealthBeat Editor

May 22, 2007 – House Energy and Health Subcommittee Chairman Pete Stark flipped the order of witnesses at a mid-afternoon hearing Tuesday to force the Bush administration to respond to testimony critical of private fee-for-service plans in the Medicare program. It was the start of what was a long afternoon for supporters of the plans, which the California Democrat said in his opening statement are "at the top of my list" for Medicare cuts.

Stark is eying cuts not only to private fee-for-service plans, but also to other types of plans in the Medicare Advantage program, the private plan side of Medicare. In that regard he got a boost Tuesday from the American Medical Association, which said Medicare Advantage plan payments should be lowered so that they are paid the same rates as providers in traditional Medicare.

But the focus of Tuesday's hearing was on private fee-for-service plans, which like Medicare HMOs are among the alternatives seniors have to traditional Medicare. Private fee-for-service plans are paid much more than those HMOs even though they are much less efficient, witnesses said. In addition, the big profit margins they enjoy lead them to offer huge commissions to sales agents, a practice that, combined with weak oversight by the Medicare program, has allowed deceptive sales practices to flourish, witnesses added.

But the Centers for Medicare and Medicaid Services said in written testimony that it is tightening oversight of fee-for-service plans, and the subcommittee's top Republican, Dave Camp of Michigan, said "we must recognize the value" they offer.

Originally designed to appeal to beneficiaries worried that traditional Medicare and Medicare HMOs would ration their care, private fee-for-service plans have soared in popularity, their enrollment fueled in part by coverage of out-of-pocket costs not covered in traditional Medicare. Private fee-for-service plans also have pumped up overall enrollment in the Medicare Advantage program.

Stark apparently wants to slam the brakes on that growth by cutting the plans' payments which would help him raise money to meet the Democratic goal of covering more uninsured children in the State Children's Health Insurance Program.

"Given that half of the projected Medicare Advantage growth is in this option, we need to immediately evaluate its value before it gets unmanageable," Stark said.

The witnesses he summoned Tuesday expressed much doubt about that value.

David Lipschutz, a staff attorney with California Health Advocates, a Sacramento-based group that counsels Medicare beneficiaries, said some of the plans are duping seniors with false promises. "In the one-on-one marketing pitch, prospective enrollees are told, 'You can see any doctor you want,' or 'You can see any doctor that accepts Medicare,' " Lipschutz said. "The reality is quite different." Many enrollees "have had problems finding providers who are willing to accept" the plan's conditions and payments, he said.

Stark released a letter from California Medical Association President Anmol S. Mahal noting "hundreds of phone calls from physicians complaining that their long-standing Medicare patients had enrolled" in private fee-for-service plans. The plans can "deem" the doctor as having a contract with the plan when he or she treats one of its enrollees, Mahal complained. But the payment rules of the plans can change and doctors don't know what those rules are, he said.

Meanwhile, patients who see "deemed" doctors pay higher co-payments, Mahal added. But if doctors on their own agree to contract with the plan to spare patients those higher charges, the physicians may receive payment rates below that in traditional Medicare, he said. His letter called for the elimination of private fee-for-service plans from Medicare Advantage, saying they have become "unwarranted profit centers for the insurance industry at the expense of patients, physicians, and the taxpayers."

Wisconsin Insurance Commissioner Sean Dilweg said insurance regulators in 39 states have received complaints about misleading claims by Medicare Advantage sales representatives about benefits offered by the plans or which providers are in their networks. These problems are most evident with private fee-for-service plans "because of the tremendous rate of growth in sales and enrollment in these plans," Dilweg said.

Patricia Neuman of the Kaiser Family Foundation said that while private fee-for-service plans cover many of the out-of-pocket costs beneficiaries are charged under traditional Medicare, in some cases sicker beneficiaries could face higher cost-sharing requirements. "Unlike traditional Medicare, some private fee-for-service plans impose daily hospital co-payments, daily co-payments for home health visits, and daily co-payments for the first several days in a skilled nursing facility," Neuman said.

Mark Miller of the Medicare Payment Advisory Commission said that private fee-for-service plans are the least efficient plans in Medicare Advantage, while HMOs are the most efficient plans in the program. These HMOs provide the benefits offered by traditional Medicare, plus extra benefits, at 110 percent of the costs of providing care in the traditional program. Private fee-for-service plans do so at 119 percent of those costs, he said.

But Abby L. Block, director of the CMS Center for Beneficiary Choices, said private fee-for-service plans "often locate in areas where Medicare Advantage plans have not traditionally been available." In a number of states they may be the only Medicare Advantage option, she said. The plans "also are attractive to employers and unions throughout the country, because they can readily provide coverage nationwide, including coverage that is adaptable to seasonal changes in residence."

Catherine Schmitt, vice president of Blue Cross Blue Shield of Michigan, urged against "vilifying" private fee-for-service plans, which provide benefits to some 100,000 retired union workers in the state, including when they travel to other parts of the country.

Separately, an American Medical Association (AMA) survey released Tuesday found physicians' experience with Medicare Advantage plans "troubling," with more than half of physicians reporting that their patients in a Medicare Advantage HMO or preferred provider organization being denied coverage of services typically covered in Medicare's traditional fee-for-service plan.

In addition, 84 percent of patients had problems understanding how the plans worked and 51 percent of doctors reported that MA payments are below the payment rate of Medicare fee-for-service.

"The private health plans were supposed to inject competition into the Medicare program, but instead we've ended up with a federal handout to the insurance industry," AMA Board Chairman Cecil Wilson said in a statement. "Eliminating the overpayments to the insurance companies will save Medicare $65 billion over five years, according to the government's own estimate." The AMA expressed its "staunch support of fiscal neutrality between the regular Medicare program and the Medicare Advantage program.

"It's shameful that under current law Medicare will slash payments to doctors well below the cost of caring for seniors, while increasing payments to highly profitable managed care companies," Wilson said. "Congress has to make a choice—preserve access to care for all seniors by stopping next year's Medicare cut to doctors, or continue to help insurance companies line investors' pockets."

The insurance trade group America's Health Insurance Plans (AHIP) in March released its own survey of physicians, examining doctors' attitudes toward Medicare Advantage and the likely effect that cuts to the program would have on seniors. According to the survey, 74 percent of doctors said cuts to the program would have a negative effect on seniors with only 16 percent saying it would have no real effect. The vast majority of doctors polled for the AHIP survey said Congress should cut other programs or raise taxes, rather than cut Medicare Advantage.

Mary Agnes Carey contributed to this story.

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