Three health insurers will no longer offer Medicare Advantage private fee-for-service, or PFFS, plans starting next year, indicating that tighter federal regulations for these controversial plans, which go into effect in 2011, are causing insurers to rethink this line of business.
Three flee fee-for-service Medicare
Coventry, Health Net, WellCare ending PFFS plan option
Last week, Coventry Health Care, Health Net and WellCare Health Plans announced separately they will shutter their PFFS plans at the end of the year.
In a Securities and Exchange Commission filing, Bethesda, Md.-based Coventry cited lowered profitability in light of federal reimbursement rates and medical cost trends as well as a desire to focus on other business, as reasons to exit the program. Coventry has about 322,000 members in PFFS plans, according to the CMS.
Similarly, Tampa, Fla.-based WellCare said that it must focus on other business. WellCare has about 108,600 members in PFFS plans, according to the CMS. And Woodland Hills, Calif.-based Health Net said during its first-quarter earnings call that it would exit the market. Health Net has about 15,000 PFFS members, according to the company.
Under federal regulations enacted last year, PFFS plans must establish provider networks where they operate and report quality measures starting in 2011.
Investing to build the provider networks, which will be required for 2011, would be unwise given the geographic dispersion of our membership and the uncertainty of Medicare rates in rural markets, WellCare spokeswoman Amy Knapp said in an e-mail.
Knapp added that concentrating on other Medicare products including prescription drug plans will help in our efforts to address the issues raised in the CMS sanction. On March 7, the CMS suspended WellCares Medicare Advantage and Part D marketing and enrollment activities, citing multiple deficiencies.
WellCares decision to no longer offer PFFS plans is not related to ongoing federal and state investigations, or the companys $80 million settlement last week with the U.S. attorneys office in Tampa, Fla., over fraudulent Medicaid claims, according to a company statement.
Since their debut in 2006, Medicare Advantage PFFS plans have grown rapidly, with membership rising from nearly 33,000 that year to 2.4 million people this year, largely because employers have chosen this low-cost option for their retirees. Today, 42 organizations offer PFFS plans, up from nine in 2006, according to the CMS.
Like other Medicare Advantage plans, PFFS plans are paid between 13% and 19% more than the cost of administering traditional Medicare, according to some estimates. Congress is now considering cutting these so-called overpayments.
Consumer complaints have also increased scrutiny. In 2007, seven insurersincluding Coventry and WellCareagreed to suspend marketing of PFFS plans after the CMS found dubious practices. Those sanctions were soon lifted, but many patient groups and physician organizations remain critical of these plans, saying they promise beneficiaries more coverage and better provider choice than they actually provide.
For other insurers, PFFS plans havent been as popular as hoped. Jim Woys, chief operating officer for Health Net, said on an investor call last week that enrollment in PFFS is 12,000 members short of expectations. As a result, Health Net stopped marketing the product last month and will exit at the end of the year. We prefer to focus our energy on network-based MA plans to add value, Woys said, referring to Medicare Advantage plans.
Some insurers seem committed to sticking with the program. Humana, which has the largest share of PFFS members, has said it will build the required provider networks by 2011.
But that can be costly, especially for insurers whose PFFS membership is spread out. Carl McDonald, senior analyst for New York-based Oppenheimer & Co. estimated that WellCare would have to spend $50 million to meet the new provider network rules. The largest market for WellCare PFFS is in Cuyahoga, Ohio, with just 2,500 members, McDonald said in a research note.
Plans have until the end of May to notify the CMS of their decision to participate, then must submit bids by June 1, said Joseph Kuchler, spokesman for the CMS.
Its too early to speculate what any other Medicare Advantage organizations are contemplating, but we know that they are taking a hard look at their business and are making hard decisions, Kuchler said in an e-mail. We will continue to closely monitor all plan changes to make sure that any changes in beneficiaries benefits will be as seamless as possible.
Vicki Gottlich, senior policy attorney for the Center for Medicare Advocacy, which has been critical of PFFS plans, said that she expects more insurers to opt out or convert their products to PPOs, avoiding the CMS new PFFS provider network rule.
It will be difficult to build these networks, Gottlich said. Many physicians and hospitals dont want to take these plans, or they are in areas with limited providers so theres no need for a network.
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