In July, Congress voted to override a veto by President Bush to pass the Medicare Improvements for Patients and Providers Act of 2008, aka, the “doctor fix” bill. The law prevented a 10.6 percent cut in Medicare reimbursement to physicians, and instead gave them a 1.1 raise in payments for 2009. To fund the payment increase, funding has been cut from Medicare Advantage (MA), privately administered health plans that receive reimbursement from the Medicare program.
Included in the law is a provision requiring MA’s private fee-for-service (PFFS) plans to form networks of physicians and hospitals in markets where at least two Medicare network plans already exist. Previously, PFFS insurers could opt to not form a network. In rural parts of the country where no Medicare networks are available, insurers still have the option to offer non-network PFFS plans.
The law also phases out payments to MA payers for the costs of indirect medical expenses that are currently paid to both hospitals and plans.
The Congressional Budget Office estimates that these provisions will reduce federal spending by $47.5 billion over the 2009-2018 period.
Congress created the Medicare private fee-for-service plan in 1997 primarily as a way to offer more options for Medicare beneficiaries. The private plan option was especially intended to offer beneficiaries in rural communities, which may have few or no network-based providers, better access to Medicare plans. The PFFS plans were also established in response to concerns by right-to-life groups who advocated the right for Medicare beneficiaries to receive care to extend life as long as possible, coverage that more restrictive plans wouldn’t allow.
Beneficiaries generally find MA plans appealing because they may offer lower cost sharing and a more affordable benefit plan than traditional Medicare, explains Jane Galvin, director of regulatory affairs for Chicago-based Blue Cross Blue Shield Association. “So, there’s a lot of value in Medicare Advantage,” Galvin says. The PFFS plans offer an additional advantage in that, unlike MA’s HMO and PPO products, providers don’t have to be in a network to provide care for a PFFS patient. So, Galvin explains, a beneficiary living in Florida in the winter doesn’t have to be concerned about going out of network when he sees a doctor in New York during the summer.
From the health plan perspective PFFS plans may be appealing because they have fewer restrictions than other MA plans. In addition to the pre-legislation exclusion from having to form a network, there is an exclusion from the requirement to report quality measures, as well. With the new law, which takes effect in 2011, PFFS plans are no longer excluded entirely from such requirements.
According to Jonathan Blum, vice president for Avalere Health LLC, Washington, D.C., the PFFS option was originally intended to be a small program, kind of a safety valve for those beneficiaries who, for various reasons, didn’t have access to traditional Medicare coverage, or whose Medicare coverage didn’t provide sufficient benefits to cover their healthcare needs. “It has grown much faster than anyone expected back in 2003 when the drug benefit legislation was being considered,” says Blum, referring to the Medicare Payment, Improvements, and Modernization Act of 2003, which included provisions to add prescription drug benefits for traditional Medicare plans and raised payment rates for MA plans, as well.
The provisions of the recent Medicare Improvement law are aimed at stemming the growth of MA plans, and in particular PFFS plans, which some say are causing Medicare costs to rise. According to MedPAC (Medicare Payment Advisory Commission), MA was originally designed to produce efficiency in the delivery of health care. However, MedPAC reports that it costs 13 percent more on average to cover a beneficiary through a private plan than through traditional Medicare, and 17 percent more to cover a beneficiary through a PFFS plans.
MedPAC also contends that PFFS plans are the least efficient of MA plans, with administrative costs, marketing, and profits being the reasons for nearly half of the higher costs of PFFS plans.
By requiring PFFS plans to form networks, they will be competing on a more equal basis with other MA network plans. The CBO estimates that the new law will reduce MA enrollment by 2.3 million in 2013, lowering its pre-law estimate of 14.3 MA enrollees to 12 million. The reduction represents half of the 5 million that had projected to be enrolled in PFFS plans in 2013. The CBO reports that these 2.3 million will instead choose to enroll in the traditional Medicare fee-for-service plan.