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Stark Sees Little Alternative to Cutting Medicare Advantage Payments

By John Reichard, CQ HealthBeat Editor

January 23, 2007 -- Democrat Pete Stark of California told an Urban Institute confab Tuesday that there's little alternative this year to cutting payments to private plans in the Medicare Advantage program.

But other gray-haired Medicare policy pros at the event suggested it ain't likely to happen, at least not to the point where payment rates in traditional Medicare and private plan Medicare are the same. The fast-growing Medicare Advantage program is developing powerful political constituencies, the other analysts said.

Stark, who chairs the Health Subcommittee of the House Ways and Means Committee, told the forum "depending upon what we're called upon to do in the budget, the overpayment of the plans looks like an attractive pot of money." If tax increases are off the table, and Stark said he suspects they are, "we don't have a whole hell of a lot of room to go out there finding funds to meet our budget targets," he said. Passing new legislation to prevent scheduled cuts in physician payments would cost a "good bit of money," Stark noted.

Urban Institute President Robert Reischauer, who appeared on the panel with Stark, noted an estimate that if enrollees of Medicare Advantage plans, the private health plan side of Medicare, were plunked back into the traditional fee-for-service part of the program, savings would total some $5 billion a year, based on an analysis of 2005 data by George Washington University analyst Brian Biles. "It's not chump change," Reischauer said.

Reischauer also cited estimates prepared by the Medicare Payment Advisory Commission that Medicare spends 10 percent more on average on enrollees in HMOs than on beneficiaries in traditional Medicare. The corresponding figures for PPOs and private fee-for-service plans in the Medicare Advantage program are 17 percent and 19 percent more respectively, he added.

But Reischauer noted that some 700,000 Medicare beneficiaries are enrolled in private fee-for-service plans in Medicare Advantage. Those plans are like traditional Medicare in that they do not restrict choice of provider, but are different in that they offer extra benefits. "In a sense, we've created a monster" by establishing private fee-for-service plans, Reischauer said, adding they would be hard to eliminate because of their large enrollment.

Fellow Urban Institute analyst Robert Berenson also noted difficulties slicing into Medicare Advantage rates. He said he sees a "political dynamic" now in which Democrats defending the extra benefits in Medicare Advantage plans counter other Democrats who pressure for rate cuts.

John Gorman, who helped oversee managed care plans as a Medicare official in the Clinton administration, said "we should never lose sight of the fact that [Medicare Advantage] has been an absolutely key safety net for low-income, unsubsidized Medicare beneficiaries." Gorman added "we know that a majority of African-American and Latino beneficiaries are already enrolled in Medicare Advantage. This program brings the only hope of reducing racial disparities among the elderly."

Gorman, who now runs a consulting firm that advises Medicare Advantage plans, also defended current payment rates in Medicare Advantage for managed care plans. He said they should be regarded as an investment in systems of coordinated care that can help tame the costs of caring for the chronically ill. "This is an investment we are making in infrastructure that really offers the only hope against the explosion of expenditures that we're going to see" in Medicare, he said.

But with Democrats trying to raise money to fund wider coverage of children and facing the cost of fixing physician payments, it's likely to be a dicey year for managed care lobbyists, even if Congress decides to save money by trimming payments for hospitals, home health care agencies and other providers.

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