News stories and political rhetoric vilify Medicare HMOs for pulling out of markets and leaving beneficiaries to fend for themselves without any drug coverage.
They are accused of putting profits ahead of patients. Just last month, in fact, Rep. Sherrod Brown (D-Ohio), introduced a bill in Congress to "make Medicare HMOs more reliable" for beneficiaries by requiring health plans to provide continuous coverage to seniors for at least three years.
"HMOs have turned seniors' healthcare into a revolving door," Brown says.
But Medicare HMOs aren't the only ones making business decisions, and Brown's bill leaves unanswered a very important question: What happens when HMOs can't get key providers to come out and play the Medicare managed-care game?
"If you don't have a willing provider network, you don't have a product," says Cheryl Brady, a spokeswoman for PacifiCare Health Systems, whose Secure Horizons Medicare HMO has exited some California markets because providers declined to participate. "The hospitals are saying their hands are tied, and they just can't do it for the (low) reimbursement."
In what continues to be a problem for health plans, more and more medical groups and hospitals are severing ties to Medicare managed care and focusing on traditional Medicare. Providers say they can't offer services to seniors for so little payment without jeopardizing their own financial health.
Consider these recent examples:
* Milford-Whitinsville Regional Hospital, a 108-bed facility in Milford, Mass., ended its participation in Harvard Pilgrim Health Care's First Seniority Medicare HMO effective Jan. 1. The hospital said it was losing too much money on the contract.
* As of Dec. 31, 1999, three-hospital Southcoast Health System of Fall River, Mass., terminated all three of its Medicare managed-care contracts. In response, one of the plans, Harvard Pilgrim's First Seniority, withdrew from Bristol County.
* Two of the three hospitals in Washington County, Pa., just outside Pittsburgh, last year almost pulled out of Security Blue, a Medicare HMO run by Highmark Blue Cross and Blue Shield. After some changes to the hospitals' contracts, the two facilities agreed to stay in Security Blue's network, averting a crisis for beneficiaries.
"Three or four years ago, providers got into this because they thought it would be the only game in town," says Marsha Gold, a senior fellow in the Washington office of consulting firm Mathematica Policy Research. "Now they're saying, I don't have to play in this game. It varies by market, but to the extent that Medicare managed care is in a market with only one or two hospital systems, it's much easier for providers to push back."
The number of Medicare HMOs multiplied quickly through the early 1990s, peaking at 346 in 1998. By April of this year, the number had dropped to 262.
Enrollment growth has also declined, according to HCFA data. In 1995, annual enrollment growth in Medicare managed care was 36.2%. Last year, it was a mere 4.8%.
Medicare managed-care plans have until July 3 to inform HCFA about any changes in benefits or service areas. As that deadline approaches, the issue of provider participation is becoming more germane to plans' decisions to stay in a county or go.
The sentiment is nothing new. Public provider resistance had its genesis in 1998, when providers in New York and North Dakota started urging beneficiaries to stay in traditional fee-for-service Medicare.
And last year, the Connecticut Hospital Association mailed 390,000 brochures to state residents and kicked off an advertising campaign calling traditional Medicare "a secure alternative to Medicare HMOs" (May 31, 1999, p. 8).
Effective Jan. 1, some 99 different Medicare managed-care plans withdrew from at least one county, forcing 325,000 Medicare beneficiaries to either enroll in a new plan or return to Medicare fee-for-service.
Signs are appearing that this year could bring more of the same.
Too good to be true? Locally, hospitals and medical groups get just as much of a bad rap for withdrawing from a Medicare HMO as the HMO does for exiting a market.
"At the start, (our announcement) was poorly received in the community," says Edward Kelly, chief financial officer and vice president at Milford-Whitinsville. "Our hospital was taking the brunt of the negative publicity. People really didn't care why it happened. They were, and rightfully so, concerned about their own situations."
In the beginning, Medicare managed care had a lot of promise, and lots of hospitals wanted in because the beneficiaries wanted in.
"I don't always want to be a leader," Kelly says. "I like to follow and let other people work the bugs out before I get into something. But sometimes, you have to take that leap of faith. That's how and why we got into (Medicare managed care).
"We kind of thought managed care might be better care, because it would be coordinated care. Looking back, it was almost too good to be true."
The health plans told the government that for 95% of what fee-for-service Medicare paid, they could give beneficiaries more--outpatient drugs, eyeglasses, other benefits. And the government told the beneficiaries it would cost them less, too. Providers say that, ultimately, they were expected to pay the difference.
But something funny happened on the way to Medicare's future.
"We had agreed to rates, particularly on the inpatient side, that were less than fee-for-service rates," says Linda Bodenmann, Southcoast's chief financial officer and senior vice president. "At the time, we felt we could cross-subsidize from traditional Medicare, but two things happened. First, the Balanced Budget Act of 1997 reduced Medicare reimbursements. And second, our Medicare managed-care volume increased."
When more and more Medicare enrollees come through the doors, hospitals' slice of the revenue pie grows, but the pie itself shrinks, hospital executives say.
"In 1995, less than 1% of our Medicare revenue came from Medicare managed care," Bodenmann says. "Four years later, 23% of our Medicare revenue came from HMOs. By 2000, had we stayed in, that would have been 30%."
For that reason, the longer a hospital stays in the Medicare managed-care game, the harder it is to get out, says Milford-Whitinsville's Kelly.
"If we had waited another year, it would have been 5,000 seniors (affected) instead of 3,200," he says.
Hospital officials interviewed declined to disclose total Medicare revenue.
No-blame game. The beneficiaries were unhappy with the plans and the providers, but the plans and the providers weren't unhappy with each other.
In many cases, there are no hard feelings and is no finger-pointing between plans and providers. If those two groups blame any organization, it's HCFA, or Congress, for not putting enough money into the program.
"We don't blame the providers," PacifiCare's Brady says, in a typical response. "They're in the same boat we are, struggling with these low reimbursement rates. We respect their decisions, and we know they're hard decisions."
This year, as it did last year, PacifiCare is meeting with lots of medical groups and hospitals to discuss concerns about Secure Horizons and Medicare managed care.
"We want to know what we can do to help (providers)," Brady says. "Last year, we had to add copays and other things, for example. We really had to change the benefit for 2000, and that was a first."
The goodwill might not last forever, however.
"(The low reimbursement) is creating a lot of tension between the programs and their providers," says Louis Panza Jr., senior vice president and treasurer of 262-bed Monongahela (Pa.) Valley Hospital. "The question is, is the reimbursement appropriate?"
In Southcoast's service area, fee-for-service Medicare typically paid $6,000 per year per beneficiary; and seniors, through supplemental insurance, paid about $4,000 a year for prescription drugs and outpatient services.
But in Medicare managed care, the government paid the plans $5,700--95% of what fee-for-service would pay. Plans kept roughly $1,100 to cover administrative costs, leaving $4,600 for providers.
Hospitals and medical groups in areas with a high concentration of elderly residents, such as the southeastern Massachusetts area that Southcoast serves, often struggle the most with making Medicare managed-care work.
"We had sick, elderly patients flocking to these plans," Bodenmann says. "As we looked at our utilization, we had sicker-than-average Medicare patients coming in, but we were getting paid a lot less."
Bodenmann estimates that in fiscal 1999 alone, Southcoast lost $7 million on its Medicare managed-care business.
"We saw the writing on the wall," Bodenmann says. "We don't think seniors got what they were sold, anyway. We should've added it up a long time ago and said that it just doesn't work."
But some, like Rep. Fortney "Pete" Stark (D-Calif.), say that Medicare pays HMOs too much, and that they really have nothing to complain about.
According to Stark's office, a Congressional Budget Office analysis shows that the 1997 budget law removed HCFA's ability to recover overpayments when healthcare inflation is lower than expected--a provision that cost Medicare $800 million in 1997 alone.
In August 1999, after the release of an HHS' inspector general's report on overpayments to Medicare HMOs, Stark called for annual audits of the amounts that HMOs bill Medicare for overhead costs.
"We have long pointed out the ways that Medicare is overpaying HMOs," says a Stark aide. "That's just a reality."
Rainy forecast. It's unclear how many plans will announce their withdrawals come July 3, but health plans are already dropping hints that things will get worse before they get better.
The American Association of Health Plans, which is lobbying Congress to put $13 billion more into Medicare managed care during the next five years, predicts another deluge of dropouts.
In 1998 and again in 1999, PacifiCare announced some exits from markets because hospitals and medical groups declined to participate. Last year, the plan announced its withdrawal from California's Merced and Mariposa counties and some of Madera County for exactly that reason.
PacifiCare is still evaluating markets for Secure Horizons, which has close to 1 million members nationwide, including 575,000 in California.
"I'm sure we'll see more plans leaving areas where there aren't participating providers," PacifiCare's Brady says.
Sometimes, the business relationship can be salvaged.
Panza, of Monongahela Valley, says his hospital eventually worked something out with Highmark Blue Cross' Security Blue HMO.
Mon Valley, as the hospital is called, depends a lot on Medicare revenue--more than 70% of its patients are age 65 or over. About 25% of its Medicare revenue comes from three HMOs, including Security Blue.
At the same time, Medicare depends on Mon Valley to provide care for area residents, Panza says, giving the hospital some clout in the negotiation of Medicare contract terms.
"Community hospitals are the backbone of healthcare, especially in Medicare managed-care plans," Panza says. "You're dealing with a population whose ability to travel to get care is limited. Both us and Highmark felt it was very important to continue serving this population."
Panza says that while Security Blue didn't increase its payments to the hospital, the HMO did make some structural changes to its contract with Mon Valley. "They were attempting a one-size-fits-all contract," Panza says. "And that just didn't fit here. We have to make business decisions, too."
A month ago, the hospital and Security Blue signed an amendment to their contract that calls for a new reimbursement structure and guarantees Mon Valley's participation through 2002.
A role to be played. Medicare HMOs are going through a lot of strain now, having exhausted the savings from the healthiest beneficiaries, which tend to join HMOs first, Panza says.
"As you continue to move more and more lives (into managed care), the savings are diminished," Panza says. "There's still some benefit to HMOs, but having everyone in an HMO is not going to save the Medicare program."
Maybe not, says Gold of Mathematica Policy Research, but Medicare HMOs will likely play a role in Medicare's future.
"I can't help but think there has to be a future in (Medicare managed care)," Gold says. "Beneficiaries don't do a lot of plan switching, and there are so many in plans already. I'm not sure how much of their future will be tied to the fact that through savings you will be able to offer new benefits."
Even providers and plans that have decided to bow out entertain the hope of re-entering a revamped Medicare managed-care program. "You never say never," Milford-Whitinsville's Kelly says. "Our conclusion right now is, people are trying to squeeze money out and add coverage. I don't sense that there's a movement afoot to add more money to the program."
"We have to work together," Brady says. "Even with increases (to beneficiaries), it's more affordable than being in Medicare and getting Medigap coverage."