Mistakes in the balanced-budget law will result in excess Medicare HMO payments of nearly $1 billion in 1998, HCFA said in a letter.
That has sparked calls for legislation to change the payment formulas, although HMOs said it isn't clear a change is needed.
The bulk of projected overpayments -- about $900 million -- is attributable to problems with the baseline used to calculate future Medicare capitation rates.
The discussion of the matter is contained in a March 6 letter from HCFA Administrator Nancy-Ann Min DeParle to Senate Finance Committee Chairman William Roth (R-Del.). The letter was released last week.
Projected Medicare spending growth in 1997 was used to calculate capitation rates for 1998. But the projected growth was overstated by 3%, and the Balanced Budget Act of 1997 does not allow HCFA to correct the overstatement.
Thus without legislation, future capitation rates, as well as 1998's, will be inflated by about 3%, DeParle said.
The remaining overpayments will occur because HCFA is not able to decrease HMO payment rates to keep total payments from exceeding the level that would have been reached under previous law. That is the second mistake in the budget act.
The act bases HMO county-by-county payment rates on the greatest of three options: a floor set at $367 per enrollee per month in 1998, a minimum 2% increase from 1997, or a blend of national and local rates.
Congress tried to keep aggregate payments from rising with a "budget neutrality" factor, which allows HCFA to decrease HMO payments if they exceed what they would have been under previous law.
But according to the balanced-budget act, the neutrality factor can only be applied in cases in which the blended rate applied. For various reasons, all 1998 payments were based on the floor rate or the minimum increase, and the blended rate was not applied.
Rep. Fortney "Pete" Stark (D-Calif.), senior Democrat on the House Ways and Means health subcommittee, said he is drafting legislation to correct the overpayments. Stark, who released the letter, said, "$1 billion is a lot to pay for legislative drafting errors."
An HMO trade group, however, cautioned against hasty action, saying it could threaten Medicare enrollees. "As things stand, it is not at all clear if there should be any adjustment to HMOs' 1999 payments established by Congress just last year," said Donald White, spokesman for the American Association of Health Plans. "Congressional support for maintaining a package of Medicare HMO benefits with low out-of-pocket beneficiary costs continues to be strong."