Although Medicare’s private fee-for-service option was created in 1997, only in the past few years have health plans that fall into this category experienced rapid growth. According to CMS enrollment data reported by MedPAC (Medicare Payment Advisory Commission), in December 2005 there were about 200,000 beneficiaries enrolled in PFFS plans, which fall under Medicare’s privately sponsored Medicare Advantage plans. Less than a year later, in August 2006, that figure grew to 800,000 and by November 2007 more than doubled to 1.7 million.
In contrast, MAs other plan options, namely health maintenance organizations and preferred provider organizations, grew by less than half the amount for the same 2006-2007 period, from 5.9 million to 6.3 million.
What happened? Essentially, Medicare Advantage plans became more appealing to health insurers when payment rates were raised under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. Included in this act was a prescription drug benefit for traditional Medicare beneficiaries. As the federal government promoted the new drug benefit for traditional Medicare, more insurers saw the opportunity to leverage that marketing and begin offering MA plans, says Jonathan Blum, vice president of Avalere Health LLC, a Washington, D.C.-based healthcare advisory company.
Rather than having to set up networks, required with HMOs and PPOs, insurers could enter the Medicare market by offering a PFFS plan, which doesn’t have the same requirements as other Medicare plans, including the need to form a network of providers and physicians.
“Private fee for service plans were growing prior to 2003 when the Part D [drug] legislation was passed, but it really started to explode, and that was the tipping point, after the Part D drug benefit and the other changes were signed into law into 2003,” says Blum.
What’s the Difference?
Payments to providers under the PFFS option are almost the same as payments to providers under traditional Medicare. Non-network PFFS plans generally follow the same payment rate for physicians, hospitals, and nursing homes as a traditional fee-for-service plan, says Blum. Providers do, however, have to set up another billing system to handle another health plan, what Blum calls the “hassle factor."
“So, in theory the doctor or hospital is neutral to traditional Medicare vs. a PFFS Medicare plan because there’s no rate differential,” Blum says. “But I think in practice the doctor or hospital has to learn a new billing system, has to have one more plan they have to know how to do and how to bill for. It’s just an administrative hassle.”
Blum adds that although the plan pays the same rate as traditional Medicare, private insurers may not pay on the same two-week frequency as Medicare. Providers may also have the optioning of joining a network PFFS plan, in which case the pay rate would be according to the contract worked out between the insurer and provider.
Despite the similarities with traditional Medicare, when PFFS plans grew so extensively a few years ago, some providers were caught off guard. Medicare patients showed up at their offices with these “new” plans, which many providers did not understand.
“It created some confusion,” says Terri Winning, FHFMA, vice president of CoxHealth Network, a Springfield, Mo.-based network of three main hospitals and 700 physicians in 22 counties in southwest Missouri. “I think providers were not as educated on what PFFS plans meant, that they deemed them as in-network providers. If they saw the patient, they were automatically taking XYZ rates for them, which is usually the Medicare rate.”
Winning says that physicians in the CoxHealth network who were approached by PFFS beneficiaries wondered about such issues as whether they were in the network, how a patient should be handled from a referral standpoint, and whether a precertification was required for certain procedures. Because providers were accustomed to associating private Medicare plans with HMOs and PPOs, they assumed that treating a PFFS patient meant joining a network, she says.
As a result of the numerous questions, many CoxHealth providers at first refused to see PFFS patients, Winning says. The same was true for providers in other areas.
“I think there were some providers who just didn’t know what this PFFS option was. They didn’t’ know where they were supposed to bill. They didn’t know how the billing systems worked. So, there was a lot of pushback in the beginning,” says Jane Galvin, director of regulatory affairs for the Chicago-based Blue Cross and Blue Shield Association.
In response, Galvin says CMS and many organizations who sponsor PFFS plans have taken a number of steps to address both provider confusion and administrative issues with payment schedules, for example, “So, I think things are a lot smoother in the marketplace than they were maybe two or three years ago.”
The Future of PFFS
After educating their own network of providers through such venues as newsletters, meetings, and e-mail about PFFS plans and providing a list of licensed PFFS insurers in the area, Winning says the network is hearing less concerns from providers.
Currently, Winning says there are about 60 licensed PFFS health insurance plans in the southwest Missouri area. Winning says while CoxHealth physicians have been approached to join PFFS networks, the CoxHealth system has not, so far. She expects that to change, however, with recent legislation that puts more restrictions on PFFS plans. A provision of the Medicare Improvements for Patients and Providers Act of 2008, passed in July, requires that PFFS plans in areas where there are already at least two Medicare health plan networks to form similar networks of physicians and hospitals.
Rather than insurers contacting individual physicians to join such PFFS networks, however, Winning says, “I think the health network will be contacted and pursued more,” which means health systems will have to conduct more due diligence on these insurers to determine whether joining the network is advantageous.
The federal government, on the other hand, believes that the growth rate of MA plans will slow as fewer Medicare beneficiaries will be interested in PFFS plans, once the network requirements and other provisions of the Medicare Improvements act go into effect in 2011.
According to estimates by the Congressional Budget Office, there will be 2.3 million fewer beneficiaries in MA plans than originally projected. Before the law, the CBO projected 14.3 million MA enrollees in 2013. Currently, there are 9.6 million beneficiaries enrolled in MA plans. The CBO says those 2.3 million beneficiaries will instead enroll in Medicare’s traditional fee-for-service plan.
Others don’t necessarily see network plans shrinking.
Jane Galvin says that the network requirement may mean that PFFS plans will just convert into HMO and PPO products instead, meaning providers will be faced with deciding whether or not to join a network in order to see Medicare patients, much the same way they must make similar decisions for non-Medicare patients under 65. As to whether MA plans, and PFFS plans in particular, will continue to grow as they have been, Galvin says, “We’re talking about the marketplace in 2011. I don’t have a crystal ball in front of me. But I think you’ll see an increase in beneficiaries in network-based health plans over time.”
Avalere’s Jonathan Blum says if trends for PFFS growth continue at a similar rate as they have for the last three years, it will be pretty hard for providers to avoid dealing with PFFS beneficiaries, “Because there’s just a dramatic migration from the traditional fee for service program over to a private fee for service plans,” he says. “If a provider wants to add Medicare patients, chances are if trends continue they’re going to have to look to adding PFFS patients.”
Ultimately, Blum believes what will happen with PFFS plans in particular largely depends on who wins the November presidential election. A Democratic administration may impose more restrictions on networks, making them harder to form, while a Republication administration may take more of a free market approach with a looser interpretation of the Medicare Improvement law’s provision, he says.
“I think it will really depend on how CMS chooses to implement the new requirements. Do they take a very hard-nosed approach to requiring that these plans have the exact same network standard as an HMO, or do they take a more lenient approach?” he says.
Payment Cuts on the Horizon?
Beyond the recent network ruling, however, Blum says what may slow or even stop the growth of PFFS plans is the possibility of payment cuts. “The longer term thing to watch is how payment rates change for private fee-for-service plans,” he says.
Blum says there was a fair amount of support in Congress to reduce payment rates for PFFS plans, but ultimately not enough support to make the cuts into the recent legislation.
“That may change next year, and that may change if the country’s in a much tougher fiscal situation than it is today or if, again, Democrats take over the Congress in a larger margin and take the White House,” he says.
If payments to PFFS plans are cut, Blum says that could cause PFFS plans to pull out. If rates remain stable, however, then Blum foresees continued growth.
“I think the insurance industry is kind of waiting to see what happens next year,” he says. “If the political dynamic changes in 2009 relative to today, you could see more pushes by CMS and by Congress to go after payment rates and that may change the overall growth trends going forward.”