MA plan payments, practices face increased scrutiny

February 1, 2008

Medicare Advantage plans escaped threatened payment cuts last year, but the issue is at the top of the health policy legislative agenda for the coming months. Legislation enacted in late December postponed a scheduled reduction in Medicare payments to physicians-but only for six months. Congress paid for that short delay plus an extension of the State Children's Health Insurance Program (SCHIP) without cutting MA rates or raising taxes.

MEDICARE SOARING

A steep growth in Medicare outlays fuels efforts to scrutinize MA plan payments. A recent analysis of national spending on healthcare reported that Medicare expenditures shot up by 18.7% in 2006, compared with a 9.3% rise in 2005.

In addition, spending on the Medicare Advantage program increased dramatically (48%) in 2006-more than twice as fast as in 2005. Because of a 25% increase in MA enrollment, the MA program accounted for 18% of Medicare outlays in 2006, up from 14%. At the same time, traditional Medicare fee-for-service (FFS) enrollment declined 3.8%, and its share of total Medicare spending fell from 86% to 82%, according to this analysis by the Office of the Actuary in the Center for Medicare and Medicaid Services (CMS).

The report, in the Jan./Feb. 2008 issue of Health Affairs, also notes that Medicare spending for administration and net cost of insurance shot up by 67% from 2005 to 2006 because of the expanded role of private plans in providing both drug and medical benefits to Medicare patients. Compared with private plans, government administrative costs for operating the Medicare FFS are relatively low due to huge economies of scale, the analysts note.

SEEKING NEUTRALITY

These trends support arguments for "payment neutrality" between MA plans and Medicare FFS. Because MA plans now receive payments 13% higher than comparable FFS rates, the change would cut spending by an estimated $50 billion over five years. With payment parity should come similar requirements for quality reporting by Medicare FFS, as well as MA plans, as one way to level the playing field among providers. The Medicare Payment Advisory Commission (MedPAC) proposes that CMS collect quality data on FFS Medicare, as well as on all types of MA plans, including private fee-for-service (PFFS) and medical savings account plans.

EYE ON ABUSES

MA plan operations and marketing practices also provide fuel for criticism on Capitol Hill. Last year, CMS suspended marketing by leading PFFS plans because of evidence of sales abuses. Although the agency reinstated the plans in September, reports of aggressive marketing tactics continue to surface in the media.

CMS Acting Administrator Kerry Weems reports that oversight of MA plan marketing activities is one of his "top priorities." Instead of waiting for beneficiary complaints to surface, he says that CMS will continuously monitor plan marketing, including activities of their agents and brokers.

Jill Wechsler, a veteran reporter, has been covering Capitol Hill since 1994.