Having Medicare competitively bid its services, including managed-care reimbursements, is viewed by many as the future of the program. But that future is looking further and further away.
After two aborted attempts by HCFA to implement a competitive-bidding model for HMO reimbursement, Congress last year authorized a private-sector committee to take the politics out of the process. That group, however, is already behind schedule and unlikely to meet its deadlines.
The 15-member Competitive Pricing Advisory Committee was formed as part of last year's balanced-budget law. The group met for the first and so far only time May 7, about half a year before its Jan. 1, 1999, deadline for selecting the first demonstration sites and getting them up and running.
In 1997 HCFA scrapped a plan to implement a competitive-bidding pilot program in Denver after area lawmakers complained and affected HMOs sued in federal court. A proposed pilot in Baltimore met a similar fate.
"(Congress) wanted to avoid the appearance that HCFA was picking on one area," said Robert Berenson, M.D., director of HCFA's Center for Health Plans and Providers and a co-chairman of the CPAC. Congress authorized the committee under HCFA auspices, and the agency is providing technical assistance.
Committee member Charles "Chip" Kahn, president-designate of the Health Insurance Association of America and one of the CPAC architects when he was staff director of the House Ways and Means health subcommittee, agreed with that assessment. He said there was a feeling in Congress that "if the process was not done in the open it won't work."
The new panel's charge is to select two demonstration sites that will begin operations on Jan. 1, 1999. Two more sites are to be selected for Jan. 1, 2000, and three more may begin in 2002 but only if recommended by the commission.
"The time frame in the law is totally unrealistic," said CPAC member Robert Reischauer, a Brookings Institution scholar and former director of the Congressional Budget Office. "There is no way we can have the sites chosen and preliminary work done by Jan. 1, 1999. It is more likely that it will be July 1 (1999) or even Jan. 1, 2000."
There is little disagreement about the importance of the competitive-bidding model.
HCFA Administrator Nancy-Ann Min DeParle has called competitive bidding one of HCFA's top priorities.
Moving Medicare away from administered pricing "is terribly important to the future of the program," Reischauer said. "We need to learn how plans and participants react to a more competitive structure."
Reischauer cautioned, however, that the Medicare program at large probably won't feel the effects of the pilot program until many years down the road.
The panel has a number of issues to tackle. The most obvious is the demonstration sites.
According to several commission members, the ideal sites are ones that have a mature managed-care market or ones that have little managed-care penetration.
But there are many other issues surrounding the structure of the program. One of the most trying will be the rules for the bidding process.
The failed Baltimore and Denver demonstrations would have required HMOs in Baltimore and Denver to submit bids for a monthly capitation rate from HCFA. Plans that submitted bids below that rate would have been allowed to participate in the program. Plans that submitted bids higher than the chosen rate would have been barred from enrolling Medicare beneficiaries. Plans complained that being barred from the program would be a death sentence for any HMO.
Recently, former HCFA Administrator Bruce Vladeck disclosed that HCFA's estimates showed the Denver pilot project would have reduced Medicare reimbursements to area HMOs by 12%. That estimate was based on bids HCFA received from plans before the project was killed.
Under the law that created the demonstration program, it must not increase total Medicare spending in the market. Of course, that creates winners and losers.
"Everyone is all for competition in every market in which they purchase but none in which they sell," Reischauer joked.
Kahn agreed that choosing a reimbursement structure will be one of the committee's most difficult tasks.
"You want a pricing system that encourages plans to bid, but on the other hand you want a program that is rich enough to offer extra benefits and entice beneficiaries to move out of original Medicare," Kahn said.
The group also has the option of imposing additional quality standards on plans participating in the demonstration above those required of other Medicare plans.
Other areas for the committee to consider will be how the success or failure of the program will be measured, who can participate in the bidding process and how to overcome beneficiary and plan concerns.
Other committee members include James Cubbin, executive director of healthcare for General Motors Corp.; former Sen. David Durenberger (R-Minn.), now a lobbyist with Durenberger/Foote in Washington; John Rother, director of legislation and public policy at the American Association of Retired Persons; Andrew Stern, president of the Service Employees International Union; and Gary Goldstein, M.D., chief executive officer of Ochsner Clinic, New Orleans.