An overhaul of how Medicare reimburses HMOs may be necessary if the government wants to push more beneficiaries into managed care, experts say.
Citing inadequate reimbursement, at least eight major health plans announced plans to withdraw their Medicare HMOs effective Jan. 1, 2000. According to HCFA, 327,000 beneficiaries from 329 counties in 33 states will be affected by the pullouts.
HMOs were required to tell HCFA of their plans for the coming year by July 1.
About six million seniors subscribe to Medicare HMOs, comprising 16% of the Medicare program's total population of 39 million.
About 400,000 beneficiaries already had been affected by HMO pullouts as of January 1999.
It's expected an additional 930,000 people will face $20 to $40 increases in their monthly Medicare premiums, according to a June survey of its membership by the American Association of Health Plans.
Provider-sponsored organizations are facing the same financial pressures as commercial HMOs, but they may enter Medicare risk contracting for different reasons. Consultants say rate concerns have caused fewer health systems than expected to develop PSOs, a change that would give them status similar to that of HMOs in Medicare contracts. But because operating PSOs and HMOs also can solidify ties to physicians, many providers don't view the success of such ventures in strictly financial terms.
Healthcare consultant Jacque Sokolov, M.D., a vocal proponent of Medicare-risk contracting, says he is increasingly disappointed with the rate structure.
"There is fundamentally nothing different in Medicare-risk than in any other HMO product, except the revenue stream is determined by a single payer," says Sokolov, chairman of Los Angeles-based Sokolov, Schwab, Bennett. "If the single payer is trying to affect policy, to increase managed-care enrollment in this case, it needs to re-evaluate. At the end of the day, every major trend in healthcare has been influenced by the attractiveness of the revenue stream more than anything else."
In many markets Medicare reimbursement increases aren't enough to offset rising pharmaceutical expenditures, Sokolov says.
Medicare reimbursement varies by county and is calculated using a complex formula that includes a minimum threshold set by the Balanced Budget Act of 1997.
Per-member-per-month rates now range from $380 in low-cost counties to $798 in the highest-cost counties, Sokolov says. In 1997, per-member-per-month payments ranged from a low of $221 to a high of $767.
Many plans entered low-cost markets as a short-term strategy to ensure their entry into more attractive markets. That's because HCFA has favored contiguous HMO expansion over new market expansions. To obtain HCFA approval to expand from one major market to another, HMOs in many cases entered all the counties in between. The "in-between" markets are among those now being dropped, Sokolov says. Meanwhile, caps on annual rate increases have made the high-cost markets less attractive, he says.
HCFA says Medicare HMOs will get 5% rate hikes on average in 2000.
St. Joseph's Healthcare in Albuquerque, N.M., began enrollment in its new PSO in March. System President Steven Smith says he believes the PSO, which has 2,000 enrollees so far, can succeed financially, despite the fact that it serves low-cost counties. More importantly, however, the PSO allows the system to partner with physicians and expand market choice. "We are looking at this as a means to an end," Smith says.
In contrast, Brown & Toland Medical Group in San Francisco withdrew its PSO application in late 1998. Despite initial enthusiasm for the venture, the 1,200-physician group believed it couldn't support the product given current rate trends, says Michael Abel, M.D., its president. The group also recently dropped its limited Knox-Keene license, a state license that allowed it to assume financial risk for hospital care. "The hospital systems were all organized and had no desire to work with us," Abel explains. "We had a license we weren't using."
Abel says he no longer believes full-risk contracting will work in practice, though he still supports the theory. "Expenses are going up, reimbursement is going down," he says. "Practically and from a pure business point of view, it just doesn't work."
Peter Kongstvedt, M.D., is a senior partner in the Washington office of Ernst & Young. Kongstvedt says: "The reality is HMOs are backing out of the system. In the cold light of day, you need to look at the issues they face."