The once-dormant Medicare risk marketplace is drawing interest from large and small HMOs across the country.
The nation's population of almost 36 million people over the age of 65 once was considered an unlikely target for managed-care organizations. Senior citizens have become increasingly attractive to-and attracted by-HMOs, which now cover about 2.4 million of them in capitated Medicareplans, compared with 1.4 million at the end of 1992.
Since current managed-care enrollment represents less than 10% of the Medicare population, Medicare can indeed be viewed as the last frontier for HMOs.
Before Congress passed laws covering Medicare HMOs in 1982 and regulations became effective in 1985, few HMOs offered risk contracts.
Once legislation simplified risk contracting rules, the number of risk contracts jumped to 161 at the end of 1987 from 32 in April 1985.
Under a risk contract, Medicare pays an HMO a monthly capitated rate per enrolled beneficiary.
HMOs ran into problems with the capitated payments, which didn't match the cost of managing the care of an older, sicker population. By 1992, the number of risk contracts had fallen to 86. As HMOs began to develop special programs to care for the elderly, the risk market saw a steady influx of plans, and enrollment has burgeoned (See chart, p. 84).
Although only 98 of the nation's 550 HMOs currently offer risk contracts, that number was up to 157 at the end of February. At that time, HMOs offered a total of 30 cost contracts, which reimburse HMOs for the "reasonable cost" of services to Medicare beneficiaries (See chart, p. 80). Cost contracts allow beneficiaries to use nonplan providers, who are also reimbursed on a fee-for-service basis.
Managed care's meager penetration of the Medicare market "is a glaring omission in the context both of the market movement toward managed care and the public policy drive toward managed care, which are close to overwhelming," said Joseph Martingale, a principal with Towers Perrin in New York. Martingale directs a Towers program that brings employers and
HMOs together to offer risk products to retirees.
"When you think of the faith that has been placed in managed care by employers, providers-who have rearranged their businesses to convert to managed-care systems-and public policy," it is unreasonable to leave out the aged, he said. They are the group that can benefit most from managed care, he said.
Karen Ignagni, president and chief executive officer of the Group Health Association of America, told MODERN HEALTHCARE, "We've begun to do a lot of talking to members" about why more plans have not entered the Medicare risk market. A chief reason, Ignagni said, is the lack of clarity about many aspects of the Medicare program, including future changes in reimbursement.
Because Congress has indicated it will consider Medicare changes later this year, "We want to be ready for that," she said. "What we've been doing now is hearing from our plans on the advantages and disadvantages of the current system, to try to learn specifically what's working and what's not, and to figure out ways we as an industry can suggest changes."
Clearing the path.
Despite the reluctance of some plans to enter the market, Medicare risk contracting is picking up steam. HMO executives say they are encouraged by HCFA's apparent willingness to consider regulatory changes that would smooth the way for Medicare risk contracting.
Executives are particularly eager to see Congress pass legislation that would change the so-called "50-50 rule," originally intended as an assurance of quality, that limits an HMO's enrollment in a Medicare risk plan to the number enrolled in its commercial plans.
Under the rule, for example, a California plan can't offer a Medicare product in an Eastern market before it establishes a commercial HMO there-a costly procedure, and a slow one because it takes time to build commercial enrollment in a competitive market.
"We'd like some modification in the (50-50) rule for some mature HMOs, so that we would be able to enter a new market quickly and expand services to the Medicare population," said Gary Goldstein, M.D., senior vice president and chief medical officer at Fountain Valley, Calif.-based FHP Health Care, one of the nation's largest Medicare risk contractors.
In order to get around the 50-50 rule, Cypress, Calif.-based PacifiCare Health Systems decided on a strategy of franchising its Secure Horizons p