For managed-care plans looking to operate in Loving County, Texas, the Republican budget plan is a disaster.
The GOP plan would reduce 1996 reimbursement rates for managed-care plans and provider-sponsored networks in Loving County, currently $881.35, by nearly 40%. The reduction would bring the annual rate to $536.40.
The good news is that of the 19 eligible beneficiaries in Loving County, only one was enrolled in a managed-care plan last year. Therefore, the GOP budget is unlikely to change anyone's plans to do business in the county.
But elsewhere, the GOP proposal would affect where plans choose to operate, according to a county-by-county study of the GOP plan and its effect on managed-care plan reimbursements conducted by Ernst & Young.
The study found, for example, that when compared with what payments would be if no changes are made to Medicare, Dade County, Fla., will see a 6% decrease in payments per beneficiary. Other areas, such as Los Angeles County will see almost no effect (See chart). At the same time, many rural areas would get huge increases.
Payments for beneficiaries in Okeechobee County, Fla., would decrease more than 17%, while most payments for beneficiaries in Puerto Rico would skyrocket.
Overall, about two-thirds of the counties in the country would see an increase because of the introduction of the payment floor called for in the GOP plan, the study showed. However, those counties are primarily rural areas and include only about one-third of all Medicare beneficiaries.
When GOP leaders announced the budget plan, they said that one of the goals of the new payment structure, which separates managed-care payments from fee-for-service payments, was to reduce the discrepancy between the highest and lowest reimbursement rates.
Currently, the rates vary from more than $700 a month in some areas to less than $170 a month in others. The GOP plan would, over time, reduce that discrepancy by about 30%.
One way the plan reduces the variation is by putting a floor on the lowest payment rates. That floor would be $300 a month in 1996 and would rise to $350 in 1997. To help reduce the payment gap, future updates would be more than twice as much for the lower-cost areas as for the higher-cost areas-more than 9% annually vs. less than 4%.
If no changes are made before year-end, the 10% average increase in payments to managed-care plans announced by HCFA earlier this year would take effect automatically.
According to Ernst & Young partner Fred Abbey, the new payment scheme's message to managed-care plans and provider organizations is clear: Go where the reimbursement rates are rising the fastest.
"This tells (managed-care plans) they should go into new markets rather than expanding their existing markets," Abbey said.
In general, areas that already have a significant number of Medicare beneficiaries enrolled in managed-care plans would experience a modest decrease of 3% to 7% or a very small increase, generally less than 2%, in 1996, according to the study.
Roger Taylor, M.D., chief medical officer for Cypress, Calif.-based PacifiCare Health Systems, agreed that the GOP plan will have the greatest effect in rural areas where managed-care plans have not entered the market primarily because of low reimbursement rates.
"We have found that when you get the payment rate up to about where the floor is under the (Republican) plan ($300 per month in 1996), it becomes attractive to enter the market," Taylor said. "Below that, there is not really enough money in the system to make it viable."
Taylor added that the decreases that would occur in most urban areas would not be significant enough to affect service.
Managed-care winners and losers
The 10 counties that would receive the largest decreases and increases in total managed-care payments in 1996 under the GOP budget. Ranked by change in payment per beneficiary multiplied by the number of enrollees.
County Enrollment 1996 rate with nochange 1996 rate under GOP plan % change in â– payments per enrollee
Dade, Fla. 93,013 $687.13 $648.96 -6%
Broward, Fla. 94,387 610.15 587.62 -5
Palm Beach, Fla. 62,851 538.47 509.20 -5
Harris, Texas 32,855 547.98 522.04 -5
Queens, N.Y. 33,646 651.90 626.66 -4
Philadelphia 35,814 681.48 659.03 -3
Kings, N.Y. 32,927 703.07 679.74 -3
Pinellas, Fla. 33,699 464.21 446.94 -4
Nassau, N.Y. 22,610 575.45 550.02 -4
Richmond, N.Y. 10,801 758.53 706.23 -7Increases
Riverside, Calif. 91,142 $476.20 $499.95 5%
San Diego 142,807 480.77 494.85 3
Los Angeles 342,630 587.44 593.11 1
Orange, Calif. 103,683 544.87 558.07 2
Multnomah, Ore. 47,546 385.33 410.83 7
San Bernardino, Calif. 78,846 492.44 502.82 2
Clark, Nev. 39,194 478.77 498.80 4
Hennepin, Minn. 53,764 386.77 400.51 4
Honolulu 33,676 371.82 390.72 5
Monroe, N.Y. 26,144 413.87 437.43 6
Source: Ernst & Young