A finding that Medicare may be overpaying HMOs by as much as 7% because the managed-care plans attract a healthier population is prompting federal officials to renew calls for changes in the payment formula.
The study, conducted by HCFA's office of research and demonstrations, found that had Medicare HMO enrollees continued seeking care on a fee-for-service basis, they would have cost Medicare 88% of the national average because they are healthier than average.
HCFA pays its Medicare HMOs, called "Medicare risk HMOs," a capitated rate that equals 95% of the estimated average fee-for-service cost of caring for each beneficiary who enrolls in an HMO.
The study of data collected in late 1994 follows on a Mathematica Policy Research report based on 1990 data that found that Medicare overpays HMOs by 5.7%. HMOs have argued that there is little difference today between the health status of Medicare HMO enrollees and beneficiaries receiving care on a fee-for-service basis.
The latest HCFA findings could take on greater significance with the projected growth in the number of Medicare beneficiaries enrolled in managed-care plans.
The Congressional Budget Office estimates enrollment in Medicare risk HMOs at 3.6 million in 1996, more than 9% of total Medicare enrollment and a 23.6% increase compared to 1995. The CBO projects that enrollment will reach 4.8 million by 1998, more than 12% of the projected Medicare enrollment.
"This study clearly shows there still may be a problem of risk HMOs having healthier Medicare beneficiaries," said HCFA Administrator Bruce Vladeck. "These findings reinforce our belief that we need to change the law on Medicare payments to HMOs."
Richard Smith, vice president for policy and research at the American Association of Health Plans, said the trade group agrees that the Medicare managed-care payment system needs to be changed.
But he questioned the HCFA study, saying the 1994 data may not reflect the current profile of Medicare HMO enrollees because enrollment has grown 50% since then.
"I think we're getting our share of less-healthy people," Smith said. "As the program continues to grow at this rapid rate, the selection issues, to the extent that there are selection issues, should be disappearing."
The new HCFA study found that Medicare risk HMO enrollees were less likely to suffer from disabilities that affect their daily lives.
HMO enrollees were more likely to be reported in very good or excellent health than the population in the fee-for-service sector. The fee-for-service population was more likely to be reported in fair or poor health.
HMO enrollees were less likely to suffer from heart disease, cancer, hypertension and other chronic conditions, although the percentage of HMO enrollees suffering from other conditions such as diabetes and osteoporosis were almost the same as those in fee-for-service.
In fact, the percentage of HMO enrollees who have arthritis exceeds that of the fee-for-service population.
That similarity in the percentage of enrollees with chronic conditions affirms a Price Waterhouse survey from earlier this year that found few differences in health status between HMO enrollees and the fee-for-service population.