The Medicare program has not been successful in moving beneficiaries from fee-for-service to managed-care plans or in achieving significant cost savings from its managed-care efforts, according to two recent studies.
In June of this year, Medicare had 268 managed-care contracts covering 3.3 million beneficiaries. That represented 7% of the Medicare population, only a two percentage point increase from January 1988, according to a report by the Prospective Payment Assessment Commission, a congressional advisory panel.
In a separate report, the General Accounting Office concluded that one reason Medicare has not seen the cost savings it envisioned when it first moved into managed care is that the program has used a faulty rate-setting scheme.
Managed-care reimbursement rates are set by Medicare based on local fee-for-service costs. Medicare pays rates estimated to be 95% of what it would cost to treat a patient on a fee-for-service basis.
Through the years, the GAO found, the youngest and healthiest Medicare beneficiaries typically join HMOs resulting in what it called "favorable selection."
According to the GAO report, because the managed-care enrollees are healthier, it costs the HMOs less than 95% of the average fee-for-service cost to treat the patients who enroll in managed care.
However, those cost savings have not been reflected in the Medicare rate-setting methodology, which meant "HCFA paid HMOs more for beneficiaries' treatment than it would have spent had those same beneficiaries remained in the fee-for-service sector," the GAO report said.
The GAO also found that because the managed-care reimbursement rate is based on local fee-for-service charges, a wide variation in payment rates has led to "uneven participation in the Medicare risk contract program."
The GAO recommended that HCFA consider several risk adjustment mechanisms to better link the payment rates to beneficiaries' health status. For example, one method would be to increase the capitation rates for patients who had clinical indicators for heart disease or cancer.