CMS to Reduce Medicare Advantage Payments

Providence Health Plan CEO says "everyone will share in the pain."

April 15, 2009 -- Seniors who belong to Medicare Advantage plans may be charged higher premiums and receive fewer benefits next January. This comes on the heels of an announcement by the Centers for Medicare and Medicaid Services, which intends to reduce payments to managed care plans.

New premium rates and benefits will be released in October, with enrollment getting under way on November 15. Oregon’s rates are expected to decrease by 3-4 percent, according to preliminary estimates by CMS. Meanwhile, the current medical trend (rate of medical increases) ranges from 6-7 percent.  
“So we’re facing a 9-11 percent problem,” said Jack Friedman, CEO of Providence Health Plans, which has 34,447 Medicare members. “Everyone will share in the pain. We will need to look at our administrative costs and our medical costs and see where we can make some improvements. I anticipate that our physicians and hospitals will share in the pain as well.”
Health insurers should prepare themselves for even deeper cuts in 2011, according to Nancy-Ann DeParle, director of the White House Office of Health Reform. She spoke to a reporters-only healthcare reform briefing on April 15 sponsored by the Kaiser Family Foundation, Families USA and the National Federation of Independent Business.
DeParle will play a major role in shaping and implementing the administration’s position on health reform.
The Obama Administration intends to lower the payments and require even more competitive bidding by health plans to secure contracts. “We intend to reduce the overpayment and strengthen Medicare,” DeParle told reporters. The overpayment is estimated between 12-14 percent by federal officials, depending on the geographical region.
Insurers shouldn’t be surprised by this move. “Medicare Advantage plans have been feeding their trough for a long time,” said an insurance executive who preferred to remain anonymous. “The profit that plans earn from Medicare is more than the commercial population. There’s a reason health plans don’t want to give up Medicare Advantage. It’s a gold mine. No health plans, particularly the big ones, are losing money on Medicare. It’s good for health plans, not for America.”
Insurers have managed to maneuver more money into their coffers by up-coding the diagnostic codes that are submitted by physicians. “All of a sudden Medicare is paying 14 percent more to health plans for the same procedures done in traditional Medicare,” the executive added. “It’s really time to put a kabash on this waste of money.”  
The overpayment to health plans is substantiated by a recent analysis from the Medicare Payment Advisory Commission, known as MedPAC, an independent federal panel that advises Congress. It stated: “This added cost contributes to the worsening long-range financial stability of the Medicare program.” By tightening the bidding process by which health plans must compete for contracts, the Obama Administration has projected savings of $176.6 billion over the next decade. 
The proposals from CMS have caught the attention of Senators Ron Wyden and Jeff Merkley who joined their colleagues on April 3 calling upon Charlene Frizzera, acting administrator of CMS, to protect the interests of Medicare beneficiaries. “If the proposed changes are implemented, MA enrollees in our states could face substantially higher premiums and lose valuable benefits.” The letter also challenged the coding adjustment changes that would lead to reduced payments. “We urge CMS to moderate their approach and impose not more than a one-year adjustment for coding intensity.”
What’s occurring shouldn’t come as a surprise, said Janet Bauer, policy analyst with the Oregon Center for Public Policy. When Congress passed the Benefit Reduction Act several years ago, it included similar provisions. 
Insurers may not be alone in having to deal with lower rates. Physicians could see their fees reduced by 21 percent for traditional Medicare members starting next January. The federal government uses a formula, known as the sustainable growth rate, which has been successfully challenged for several years by the powerful lobbying group, the American Medical Association.
That formula was intended to minimize the growth in medical spending, but is flawed, said Betsy Boyd-Flynn, deputy executive director of the Oregon Medical Association. 
“We want a fundamental recalculation based on a more realistic understanding of what medical inflation is. Reimbursement is a key issue in why physicians limit or close their practices.”
Ultimately, the decision will come down to how the Obama Administration decides to fund Medicare, she added. “We believe the formula is flawed, and we fight like heck in Congress. Otherwise, access problems are only going to get worse.”
The latest CMS statistics, as of March 2009, indicate 2,467,886 seniors participated in a MA plan, representing 29 percent of the eligible population, with 591,820 people staying with traditional Medicare. In Oregon, Regence BlueCross BlueShield had the highest number – 56,333 members, followed by Kaiser with 39,976. Clackamas County had the highest penetration rate, 56 percent, while Marion County had 55 percent, Polk County, 54 percent, Multnomah County, 52 percent and Washington County stood at 51 percent. 

Take Action

For more information on Medicare Advantage overpayments and how they fair by state see this 2008 Commonweatlh Fund study.

For assistance dealing with Medicare plans or to file a complaint consult the state of Oregon's Senior Health Insurance Benefits Assistance Program.

A list of local resources for seniors choosing a Medicare plan can be found here.

Call the SHIBA program at (800) 722-4134

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