AmCare Health Plans is going where HMOs fear to tread.
The tiny Houston-based HMO has filed an application to provide Medicare services to seniors in the beleaguered Texas market next year.
The move comes at a time when at least 118 health plans across the nation are either pulling out of Medicare entirely or drastically reducing their service areas by Dec. 31. The widely publicized shake-up has not only left nearly 1 million enrollees to seek new coverage but has also triggered a grass-roots effort by the American Association of Health Plans to stop what it has dubbed "the program's free-fall."
Regardless, Thomas Lucksinger, AmCare's president and chief executive officer, remains confident the Medicare+Choice business can indeed be profitable.
"We are anxious to get into the market and are very excited about it," says Lucksinger, who launched the health plan in May 1999. "It's going to be a low-margin business but still a very good business for us."
AmCare is one of a handful of HMOs planning to join the Medicare program for the first time. Meanwhile, several existing plans have hunkered down, vowing to remain in their current markets. A few of them are even daring to expand their coverage areas.
So how do these brave few hope to prosper in a market that industry giants such as Aetna and Cigna Corp. are fleeing?
Some Medicare HMOs such as AmCare plan to capitalize on the reduced competition created as rivals quit unprofitable markets. Others are finding creative ways to use risk-shifting, case management and preventive care to their advantage. But the bulk of Medicare+
Choice plans will undoubtedly be asking seniors to dig more deeply into their pockets for fewer benefits.
"For years, Medicare HMOs have competed on the generous benefits they were able to provide for low to no premiums," says Tricia Neuman, director of Medicare policy at the Kaiser Family Foundation. "Now we're seeing a definite shift toward plans providing less and charging more."
Desperate measures. For 15 years, Medicare HMOs enjoyed rapid growth and often hefty profits. But after passage of the Balanced Budget Act of 1997, plans began to drop enrollees at dizzying rates--400,000 in 1998 and 327,000 in 1999. So far this year, that figure has hit 934,000, exceeding the prior two years combined.
The standard complaint from most departing HMOs has been that Medicare payments from HCFA haven't kept pace with the rapid rise in treatment costs. Cigna, which has decided to all but dismantle its Medicare HMO this year, claims that its medical costs have been climbing roughly 8% annually, far faster than HCFA's fixed 2% yearly reimbursement hikes.
For Philadelphia-based Cigna, whose Medicare+Choice enrollees account for just 1% of its 14 million members, pulling out of Medicare won't put much of a dent in its bottom line. But HMOs like PacifiCare Health Systems and Kaiser Permanente, each with roughly 1 million Medicare members, have much more vested in finding ways to make the program work.
Kaiser, for example, plans to abandon only one Ohio county this year, affecting only 750 of its 833,000 enrollees. Staying in the rest of its markets, however, will mean dramatically hiking premiums and sharply limiting members' choice of doctors.
The Oakland, Calif.-based HMO plans to impose a $20 to $50 monthly membership fee--for the first time ever--in virtually all the markets it serves in 11 states. To date, only Kaiser enrollees in limited areas have had to pay premiums.
"We've worked for the past several years to retain a zero-premium policy," says Kaiser spokeswoman Laura Marshall. "Unfortunately, in order to continue serving our Medicare customers, we've had to alter that policy. The pressures have been too great."
In hard-hit East Coast Medicare markets, prices will get even steeper. Kaiser Permanente of the Mid-Atlantic States, for instance, is seeking HCFA approval to more than triple monthly premiums to $69 from $19 in the District of Columbia and to $79 from $19 in Baltimore.
Kaiser's Senior Advantage is the only Medicare HMO remaining in the mid-Atlantic area after CareFirst Blue Cross and Blue Shield, Cigna and UnitedHealthcare announced that they will be dropping coverage of a combined 50,000 seniors by year-end.
"Our medical costs have been rising 6% to 8% (a year) and our prescription drug costs have been rising 15% to 20%," says David Steinberg, Kaiser's director of Medicare pricing. "Our choices were to leave the market also or to try to stay in it under different circumstances."
Kaiser also plans to limit its Medicare enrollees' choice of physicians in the mid-Atlantic region. Seniors will no longer be able to pick from a network of 3,000 outside doctors; instead, they will have to choose from among 800 doctors that practice at the insurer's 24 Permanente medical centers.
A full two-thirds of Kaiser's 27,000 Medicare+Choice members in the Washington-Baltimore area already receive care at Kaiser's centers. The remaining 9,000, though, will have to switch doctors if they want to stay with Kaiser.
For its part, PacifiCare says that it, too, has had to pull out all the stops so that it won't have to drop more than 2%, or 20,000, of the 1 million Medicare enrollees in its Secure Horizons HMO.
"It hasn't been easy. We're employing every possible technique to remain in most of our markets," says Janet Newport, PacifiCare's vice president of public policy. "The way we see it, we're staying, but at a price."
The nation's largest provider of Medicare+Choice services intends to boost premiums and "moderate" benefits, as well as turn over more of the risks--and most of its HCFA reimbursements--to healthcare providers.
To rein in costs, Santa Ana, Calif.-based PacifiCare is now relying more heavily on its capitation strategy, under which it pays a portion of its monthly HCFA payments to hospitals and doctors that assume the risk of covering its Medicare enrollees' treatment costs. The insurer retains the rest to handle sales and administration--and to turn a modest profit.
Of late, that's meant renegotiating its provider contracts. In July, for instance, PacifiCare said it would drop 399-bed Memorial Hospital of Colorado Springs, Colo., and two Denver-area HealthOne hospitals from its Medicare+Choice network because they rejected risk contracts in favor of fee-for-service agreements, which minimize the providers' cost risk.
As such, 12,600 Secure Horizons enrollees will have to switch to one of several hospitals operated by Centura Health, which has agreed to a capitated contract. Doctors who don't agree to direct patients to Centura will be dropped from the plan.
"If we're going to meet our business goals and continue to grow, we have to limit our risk," Newport says.
Filling the void. Both Kaiser and
PacifiCare have a notable advantage in that they focus on urban and suburban counties, primarily in California. More rural markets, where most of the HMO pullouts have taken place, tend to have smaller senior populations and fewer well-established healthcare providers from which to pick and choose. They also garner lower Medicare reimbursements.
According to HCFA, the monthly, per-patient payment rate for counties being affected by HMO withdrawals this year averages $541, or about 6% lower than the $573 average for all counties. About one-third of all Medicare enrollees in counties that receive the basic floor payment of about $415 are being dropped by their current HMO.
"(Medicare) plans have a much harder time controlling costs in rural areas," says Richard Ostuw, global director of healthcare consulting at Watson Wyatt Worldwide. "Not only is it difficult for them to build a large enough membership (over which) to spread costs, the limited choice of providers makes it harder for them to manage the cost of care."
A few health plans, though, are bucking that trend.
Take Gundersen Lutheran Health Plan of La Crosse, Wis. The Medicare HMO, which began enrolling seniors in five rural Wisconsin counties last October, is already on the brink of breaking even. That's no small feat given that the plan receives HCFA's floor payment in all of its markets.
Gundersen's key to surviving on this shoestring budget is to manage patient care very closely, says Patrick Killeen, the plan's executive director.
The HMO, for instance, recruits a team of nurses who call all new Medicare enrollees to conduct health-risk appraisals. Enrollees are asked a series of questions regarding their current health, prior medical problems and any chronic conditions they may have. Those who are deemed "high risk" are assigned to a case manager, who closely monitors their health to prevent emergencies, such as heart attacks.
The HMO is looking to buy state-of-the-art software that would use information from its claims systems to automatically identify these high-risk members.
"The best way to keep costly hospitalizations down is to minimize significant adverse events," Killeen says. "Prevention is the name of the game."
Gundersen, in fact, is so confident about its health management technique that it's expanding next year into a fifth county that receives the floor payment. It also projects to double its current enrollment to about 4,000 by year-end.
"We think we can manage the medical needs of our population intelligently," Killeen says. "We're pretty optimistic about Medicare+Choice."
So, too, is AmCare.
The HMO has jumped at the chance to fill the massive Medicare+
Choice void left in Houston and seven other counties in Texas--by far the state hardest hit by this year's HMO flight.
The market is a daunting one, to be sure. Seven of the 10 HMOs in Texas plan to exit the Medicare business next year, cutting loose nearly 200,000 enrollees--or 55% of the state's total Medicare+Choice beneficiaries. Of the seven counties nationally that have five or more plans withdrawing, six of them are in Texas.
But Lucksinger, a longtime HMO executive who ran NYLCare Health Plans in Houston before it was acquired by Aetna in July 1998, believes the same risk-shifting strategy that has protected PacifiCare's bottom line could work equally well for a small player like AmCare.
"We will only contract on a globally capitated basis," Lucksinger says. "So, to the extent that providers are interested in taking on such a venture, we will be glad to handle the administrative aspects on their behalf."
Lucksinger also believes AmCare could reach critical mass quickly if it can attract a sizable portion of the seniors now left with very little else in the way of coverage choices.
Even Houston, where the HMO will become the sole rival to giant PacifiCare, presents a good opportunity for growth, Lucksinger says. The government spends about $600 million a year on Medicare in the county.
David Dross, a healthcare consultant with William M. Mercer in Houston, says AmCare is in a good position to enter the Medicare market, because the HMO is in growth mode. Also, unlike PacifiCare, AmCare is not publicly traded and
doesn't have to answer to investors, who tend to focus on short-term gains.
Still, Dross warns that not all potential enrollees will be looking for a new HMO and instead may choose to bypass such a plan in favor of other healthcare options.
"It might be difficult for HMOs to come in on the heels of all this and recruit members in a market where they've just been dropped," he says. "(Seniors) may feel a little gun-shy about these types of plans and will likely be cautious when making their decisions."
New alternatives. That skittishness is precisely what newcomer Sterling Life Insurance Co. is banking on.
In July, Sterling, a unit of Chicago-based insurance broker Aon Corp., became the nation's first private fee-for-service Medicare plan, which Aon describes as a cross between Medicare HMOs and Medigap plans.
"It's a hybrid product for those who want the cost benefit of a managed-care plan but the freedom of an indemnity plan," says Debbie Ahl, chief operating officer of Aon's Olympic Health Management Systems unit, which runs Sterling. "We expect to draw seniors from both managed-care and traditional Medicare plans."
Sterling has already begun selling its Option 1 plan in Kentucky, South Dakota and 23 other states, mostly in rural areas where 14 million seniors still receive their healthcare through traditional Medicare.
Sterling charges monthly premiums of $55, comparable to those of most Medicare HMOs but without a gatekeeper. That means patients can see the doctor of their choice without a referral from a primary-care physician. Beneficiaries must still share in the cost of their healthcare, including copayments of $10 for office visits, $300 per hospital stay and $25 a day for care in a nursing facility.
So how does Sterling plan to elude the specter of runaway costs? In two words: fewer benefits.
Option 1 offers no prescription-drug benefit, widely recognized as the No. 1 drain on Medicare HMOs. Nor does it pay for physicals, hearing aids, eye exams or glasses.
Still, Ahl predicts that as many as 10,000 seniors will sign up with Sterling by year-end.
"We hope seniors will appreciate our pragmatic approach and see it as our way of ensuring that we will stay in the (Medicare) market," Ahl says.
Looking for recruits. Since July 1998, HCFA has approved 58 applications for Medicare+Choice organizations to begin service or expand a coverage area. Many of these new risk-takers have been small, provider-backed plans.
These plans, some of which have no non-Medicare business lines, have
entered the Medicare+Choice arena for a variety of reasons--to fulfill their charitable missions, gain entry to large
employer accounts or control a bigger portion of the healthcare dollar.
Take Clear Choice Health Plan of Bend, Ore., which was started in 1995 by a group of physicians to help Oregon Health Plan manage its Medicaid program.
"We're owned by the medical community, and they thought we had an obligation to provide this product," said Clear Choice CEO Patricia Gibford. "They said, `If managed care is going to come to this area, let's have a say in it.' They wanted control."
Clear Choice, the first provider-sponsored organization to contract as a Medicare+Choice plan, expanded beyond its seven-county, central Oregon base last January into three untapped counties and part of a fourth.
The HMO manages its costs through what Gibford calls a community approach.
"Because we are a physician-driven plan, we tend to have close relationships with the hospitals, their administrators and their discharge personnel," she says. "It's a joint effort."
Plus, the plan has benefited from the additional revenue it garners from its
dually enrolled members. Each Medicare beneficiary who also qualifies for Medicaid brings in an additional $300 or so per month.
With its success so far, Clear Choice is now thinking about launching a Medicare PPO.
To be sure, the government is giving Medicare newcomers like Clear Choice and Sterling a helping hand. Not only is HCFA speeding up its review of health plans seeking to enter markets without any Medicare+Choice options, it's begun doling out 5% per month bonus payments to plans committing to unserved counties.
"We are giving priority review status and other incentives to plans, helping them to enter neglected areas quickly, as long as they meet quality and other standards," a HCFA spokesman says.
Ironically, the agency recently rejected an application from one company that
arguably could have taught many Medicare+Choice plans a thing or two about cost-containment.
In July, Baltimore-based Erickson Retirement Communities sought approval to form its own HMO to provide Medicare benefits to its residents, many of whom will be stranded once CareFirst, Maryland's largest Medicare HMO, leaves the market later this year.
HCFA denied the company's request in early August, claiming the plan would be "discriminatory" toward all other Baltimore residents who don't live in one of Erickson's communities and hence wouldn't have access to the plan's benefits.
Under a CareFirst contract, Erickson had been providing Medicare+
Choice services to 700 residents in its two Baltimore County retirement communities. It paid all claims for its members using the monthly fee it received from the HMO.
Yet, unlike many risk-bearing contractors, Erickson had managed its costs so well that it was generating a hefty surplus. The company had knocked its hospitalization rate down to 700 days a year per 1,000 members, compared with 2,700 days for CareFirst's other member groups, says Gary Applebaum, M.D.,
Erickson's medical director.
The key, he says, was keeping its provider network "small and manageable" and investing heavily in preventive care.
"By budgeting twice as much for primary care, we ended up with enormous savings on the back end," he says.
But the story isn't quite over. Emboldened by its financial success, Erickson intends to give its Medicare HMO another shot.
"We plan to meet with some higher-ups at HCFA in September and try again," Applebaum says. "(Medicare) has been too good of an experience for us to give up."