President Bush presented his controversial Medicare reform plan last week, proposing prescription drug coverage through a new system that some said could jeopardize provider payments and possibly the quality of care.
The administration's plan, still shy of the details some lawmakers and industry leaders wanted to see, including cost projections, would refashion the 38-year-old Medicare entitlement into a menu of options that would provide drug coverage and preventive health services but largely depend on private managed-care plans to do it (See chart).
"We're cautiously negative," said Kenneth Raske, president of the Greater New York Hospital Association. "The president has more than signaled that he would plan on using provider cuts to help finance the package."
Raske was referring to an HHS 2004 budget proposal saying that some providers are overpaid and that savings from eliminating extra payments "could be used to modernize Medicare." Bush has proposed spending $400 billion over 10 years to add a drug benefit to Medicare and otherwise improve the program.
With one exception, providers and insurers contacted by Modern Healthcare reacted tentatively to the newest reform plan, which ostensibly will offer Medicare's first-ever prescription drug benefit. But the real thrust of the plan-herding the vast majority of Medicare beneficiaries into health plans managed by private insurers-was not lost on anybody. Where would the money to pay for the new drug benefit come from, they wondered, and what can this latest plan offer that will improve upon Medicare+Choice's dismal track record?
"I think until the details of some of these programs are worked out, it's hard to support it one way or the other," said Denise Grabner, a spokeswoman for Pittsburgh-based Highmark. The Pittsburgh market is one of the few areas of the country where Medicare+Choice plans actually compete, probably because the elderly constitute such a large proportion of the population, Grabner said.
Highmark offers four Medicare HMO products to 190,000 enrollees in 17 Western Pennsylvania counties-the fourth-largest Medicare+Choice plan in the nation. Another 268,300 enrollees in 49 counties subscribe to Highmark's Medicare supplemental plan.
That said, it hasn't been easy street for private insurers tapping into the Medicare market in Pittsburgh. Competing plans have come and gone, she said. Aetna recently dropped out of the market, leaving UPMC Health Plan as the biggest remaining competitor.
Still, Medicare reimbursement has been increasingly problematic for Highmark. "Up until recently we were able to make benefit changes that somehow shielded the members from premium increases" through increasing copayments, Grabner said. But in the past couple of years, premiums have increased as well "because we are feeling the pinch." Medicare reimbursement will increase by 2% in 2003, but medical and prescription drug costs combined are expected to climb by 11%. That 9% gap has to be made up somewhere, she said.
"We support Medicare reform but only if it addresses the reimbursement issue," Grabner said. "So much of what the president is proposing is still really unclear in the details as to how it will affect health plans."
While the Bush plan potentially could be a boon for private insurers-if it pays-hospitals and doctors are at opposite ends as to whether they prefer to deal with Medicare directly or through the buffer of private payers. But they jointly worry that funding for the prescription drug program driving the Bush plan will come from their limited pot.
"He's pushing patients into HMOs, but there is no sign that he will give additional funding to the HMOs to cover the provider cost. Obviously you are going to have to provide some money if a mandatory pharmacy benefit is attached, but those details haven't come out yet," said Jeffrey Milburn, senior vice president of Colorado Springs (Colo.) Health Partners, a physician-owned multispecialty group with 70 doctors in the Pikes Peak region.
All things being equal, the Medicare+Choice plans reimburse physicians a little better than traditional fee-for-service Medicare, Milburn said. But cuts in the Medicare physician fee schedule prompted the group this year to limit new patients enrolled in Medicare+Choice plans and exclude new patients enrolled in traditional fee-for-service Medicare. On the other hand, both hospitals in town refuse to see Medicare+Choice patients, but that has not affected the relationship between doctors and the hospitals, Milburn said.
"You are at a period now where a lot of HMOs are getting out of the Medicare risk business and primarily because of inadequate funding," Milburn said. "Providers' expenses have outpaced reimbursement increases. If this is going to work, then the government is going to have to put more money in just to keep the standard going, let alone the pharmacy benefit."
For hospitals, it's the other way around: Medicare HMOs typically reimburse hospitals at a commercial rate that is below cost, said David Rosen, president and chief executive officer of three-hospital MediSys Health Network, New York. On the other hand, through the DRG payment system, fee-for-service Medicare covers the cost with a modest margin if the hospital is "reasonably effective at getting patients through the system," he said. Rosen does not expect the Bush plan would have any impact on utilization at MediSys because the DRG payment system provides incentive enough to be efficient, he said.
Michael Dowling, president and CEO of 12-hospital North Shore-Long Island Jewish Health System, Great Neck, N.Y., wondered why there is such a rush to reform "one of the most successful programs ever designed." About 40% of that system's $2.9 billion in revenue is generated by the Medicare program, the vast majority of that from traditional fee-for-service Medicare because of a lack of Medicare+Choice options in the area, Dowling said.
"Medicare is an unbelievably efficient system. It pays on time. It pays the right amount, and it's all electronic. There's no paper back and forth," Dowling said. "This is a dream private insurance wants."
Judith Pelham, president and CEO of 45-hospital Trinity Health, Novi, Mich., likewise questioned the managed-care model that takes center stage in the Bush plan, considering Medicare+Choice has been unsuccessful or unavailable in most communities. But she agreed that Medicare needs a prescription drug benefit at least for the low-income elderly. As it stands, state governments are bearing the burden of providing drugs to the poor elderly through their Medicaid programs, she said. Trinity supports a prescription drug benefit so long as "it does not come out of existing provider payments," Pelham said.
One happy hospital
The Bush plan does have one hospital friend: investor-owned Province Healthcare Co., Brentwood, Tenn. Province, which owns 20 hospitals and manages another 35 largely in rural areas, supports the Bush plan "because it gives beneficiaries an array of choices in terms of what type of plan they want," said Tony Fay, its vice president of government affairs.
Unlike urban hospitals, Province can't say anything negative about its experience with Medicare+Choice because Medicare managed care never took off in sparsely populated areas. That hasn't affected Province's revenue, but it is, of course, an issue for Medicare beneficiaries who come to Province hospitals, Fay said. In rural areas, the solvency of Medicare managed-care programs has been more of an issue for hospitals owned and managed by Province than the reimbursement that was paid, he said.
"We think the president's plan provides safeguards to rural hospitals that we haven't necessarily seen in the past," Fay said.
Regardless of how the Bush plan develops, utilization rates are bound to only go up, providers and insurers alike agreed. "The population is getting older and the simple fact here is that as it gets older and we keep people healthy longer, some time at the end of life, utilization increases," said Dowling of North Shore-Long Island. "The only way to stop that is to put a moratorium on the aging process and medical advances. I don't know how to do either."
Democrats quickly attacked the president's plan as the first move toward completely privatizing Medicare, even as Bush sought to assure seniors that benefits would improve, even for those who stay in the current program.
"Traditional Medicare will continue to be there for those who want it, with help for prescription drugs," said a White House document concerning the president's address last week to the American Medical Association's national advocacy conference in Washington, where he disclosed the plan.
Congressional and industry sources said they do not expect the White House to provide any additional details on the plan, leaving Congress with the chore of dissecting, debating and delivering it. Lawmakers may adopt some of the Bush "principles" for Medicare reform but are unlikely to craft a plan that closely resembles the one Bush proposed last week.
Earlier this year the administration proposed a vague reform plan that would have required beneficiaries to leave Medicare for drug coverage. They later backed off that proposal when criticism from both sides of the aisle rang out.
"The idea here is not to scrap the Medicare program (but) to improve it," said Doug Badger, special assistant to the president on economic policy. The reformed Medicare program would require a new agency within HHS, Badger said, the mission of which would be "assuring open and fair competition" among participating health plans and Medicare. Benefits under the new program would not be available before 2006, he said.
Some hospital officials expressed early concerns that reimbursement could be compromised if private managed-care plans become heavily involved in Medicare. (See related story, p. 15.)
Although substantive debate in Congress is not likely for months, Medicare is now back in the hands of lawmakers who have radically different views of how to reform one of the nation's flagship entitlement programs.
Bush's proposal "isn't going to work and isn't going to pass," Sen. Charles Schumer (D-N.Y.) told reporters last week. Sen. Byron Dorgan (D-N.D.) called it "a giant leap in the wrong direction," and several consumer groups criticized a plan that they said would mirror the troubled Medicare+Choice program.
Such opposition could prove significant, especially because any reform package will require 60 votes to pass the narrowly divided Senate. Even some Republicans could erect roadblocks to the president's plan, especially those in powerful positions and from rural states where managed-care plans are nonexistent or few and far between.
"We need a universal drug benefit so seniors who want to stay in traditional Medicare get a prescription drug plan that's just as good as those who chose a new option," said Senate Finance Committee Chairman Charles Grassley (R-Iowa).
Some in the industry agreed with Grassley that all Medicare beneficiaries should be entitled to the same level of coverage, including the American Academy of Family Physicians, which represents more than 94,000 doctors around the country. "This country has to recognize that part of our capitalistic success needs to include taking care of the socially underprivileged," said academy President Jim Martin. "This plan does not include that."
The degree to which health plans will participate in a Medicare benefit program also generated controversy. Despite statements of support from American Association of Health Plans President Karen Ignagni and others in the insurance industry, not everyone was convinced that managed-care plans would touch the Medicare hot potato.
"If you were a health plan, wouldn't you be afraid of the sickest people coming over from Medicare fee-for-service and tremendous adverse selection?" one Democratic Senate aide asked last week. Under Bush's plan, the aide said, hospitals might find themselves negotiating with health plans for rates lower than what they now get from Medicare.
"Market competition might be helpful, but my greatest wonderment is if you add a drug benefit and prevention ... that the dollars are there to do it," said the Rev. Michael Place, CEO of the Catholic Health Association. "My greatest fear is that this will become an occasion for political posturing" in the run-up to elections in 2004, Place said.
The White House has not revealed enough information about its plan to know how reimbursement policy and rates might be affected, according to Tom Nickels, senior vice president of federal relations at the American Hospital Association.
"It seems like the Bush administration is moving in right direction, but we need to see more details," Nickels said, adding that he was pleased Bush didn't recommend payment reductions in the plan he touted last week.
Within an hour of Bush's address to the AMA, House Democrats introduced their own reform plan, calling for a drug benefit within Medicare that would employ HHS to negotiate discounts from drugmakers. The Bush plan "won't cover as many drugs as we do, in part because they do nothing about price," Rep. Sherrod Brown (D-Ohio) told Modern Healthcare.
What do you think?
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Steven Bjelich, president and CEO of Saint Francis Health Care System, Cape Girardeau, Mo.
"We need to get the providers, the real experts, involved with developing the particulars that will change this from an aim to a reality."
Chris Van Gorder, president and CEO of Scripps Health, San Diego
"I'm concerned that (the Bush proposal) is not just a benefit but may be a mechanism to force patients to pick one plan over another."
Steve Brenton, president and CEO of Wisconsin Hospital Association:
The Bush plan "fails miserably to deal with long-standing fee-for-service provider payment equity issues."
Don Richey, administrator of 90-bed Guadalupe Valley Hospital, Seguin, Texas
"The big question is, how are they going to pay for it? And how comprehensive is the prescription benefit going to be?"
Steve Zatkin, senior vice president, Kaiser Permanente, Oakland, Calif.
"Hopefully ... we'll see an adequate drug benefit for all Medicare beneficiaries and adequate funding for all Medicare options."