Medicare Part C
The Balanced Budget Act of 1997 made a number of significant changes in the Medicare Risk Contract or HMO program, including changing its name to Part C, or Medicare+ Choice, and adding other alternative treatment programs for Medicare recipients.
Medicare Risk Contracts
Change Of AAPCC Methodology
One of the stated goals of the government in reforming the Medicare Risk program was to expand access in rural and low-cost urban areas. Under the system which existed prior to BBA 1997, HMOs received 95% of the Adjusted Average Per Capita Cost for the county an enrollee resided in. The lowest AAPCCs in the country were $221 PMPM and, of course, no HMOs were interested in establishing plans there. Under the new law, the minimum payment will be of $367 for 1998. In high cost areas, the methodology will change such that the payment amount will gradually move during a 6 year period to a 50/50 blend of national average costs and local (county) costs, provided that present rates will have a minimum annual increase of 102%.
The phase-in of the 50-50 mix is as follows:
| Year | Blend % |
|---|---|
| 1998 | 90/10 |
| 1999 | 82/18 |
| 2000 | 74/16 |
| 2001 | 66/34 |
| 2002 | 58/42 |
| 2003 | 50/50 |
Another significant financial change for payments to HMOs involves the gradual removal of Graduate Medical Education or GME costs (direct and indirect) from the Medicare+ Choice payments over a period of 5 years. Medicare fee-for-service makes such payments directly to teaching hospitals to support the medical residency programs in which physicians receive training in their chosen specialty. These payments are made via enhanced DRG amounts for services received by Medicare recipients. This provision will have the greatest effect on HMOs operating in counties which have significant teaching hospital presence, such as Boston, New York, Philadelphia, Houston, Chicago, New Orleans and many others. The excluded portion of the GME payment is 20% in 1998 rising 20% per year until it is 100% in 2002.
In an attempt to adjust capitation rates for severity of illness, a risk adjusted capitation rate study is due by March, 1999 and the method is supposed to be in place by 2000.
Enrollment
Another significant change which will be phased in only gradually involves enrollment and disenrollment from the part C program. Under present law, patients may disenroll from their HMO on 30 days notice. This has led to circumstances in which very ill patients who could not get referrals for the particular doctors or institutions they preferred, left the HMO, self-referred themselves, and the cost of treatment, back to fee-for-service Medicare, and then could later return to the HMO for ordinary care. Such patterns led to increasing costs PMPM in fee-for-service Medicare which, under the prior methodology, also led to higher payments to the HMOs!
Continuous open enrollment, if the health plan is open to new enrollees, and disenrollment can continue on a monthly basis through the year 2001. In 2002, enrollees may change once during the first 6 months. Thereafter, the new rules will be fully phased in and enrollees will be able to switch once per year during a 3 month open enrollment period.
The annual open enrollment will be in November, effective the following January. As of 2002, those newly eligible for Medicare can re-enroll in Medicare fee-for-service during their first 12 months of +Choice membership.
The legislation also establishes new Minimum Enrollment Requirements which are aimed at preventing some of the failures in plans due to actuarial factors. These provisions were effective with enactment. An HMO or similar organization must have 5000 enrollees if located in an Urban Areas (1500 For PSOs) and 1500 enrollees if located in a Rural Areas (500 For PSOs). This provision is waived during the first 3 years of an organization's contract with Medicare.
Provider Sponsored Organizations
The original Medicare risk legislation, written in large part by the HMO industry (American Association of Health Plans), required that only state licensed insurers, federally qualified as HMOs, could contract with the Medicare program. For many years, the AMA and the AHA (American Hospital Association) have lobbied Congress intensely to be able to receive Medicare capitation directly. The rationale, among others, was that health care providers were in a unique position to manage risk since they were providing care directly. Providers could recruit patients directly from their practices, without the need to spend money on advertising, marketing and similar enrollment programs. In addition, the HMOs were retaining a significant portion of the capitation payment, usually 15% to 20%, for this marketing, as well as administration and profit, and a like amount was not going to providers.
The legislation creates a new qualified contracting entity called a Provider Sponsored Organization (PSO). In general, contracting entities must be organized under their state's laws as a full risk-bearing entity eligible to offer health insurance coverage, unless they are PSOs. A PSO is defined as an entity organized by health care providers in which the providers provide and share risk for a 'substantial proportion' of the Medicare+ Choice required services, and in which they own a majority interest.
A PSO can apply for a federal waiver of state law for up to three years if it has been denied licensing by the state due to 1) unreasonable delay in processing the application (90 days); 2) imposition of requirements in excess of those generally applied to similar businesses; 3) an inability to meet federally defined solvency standards. The waiver cannot be renewed and is applicable only to a single state; however, HHS is required to report to Congress by 12/31/2001 on whether waivers should be extended.
The underlying intent of the legislation is to give PSOs the ability to contract without the level of capital typically required of HMOs by state authorities - which varies considerably from state to state. During the three year period, if successful, the PSO would presumably retain capital and therefore qualify under its state law after the waiver period. Federal solvency standards are in the process of being established.
Other Medicare+ Choice Options and Provisions
In addition to the HMO program which has been in existence since the 1982 TEFRA legislation, the Act establishes two other generic choices: 1) A Medical Savings Account (MSA) or 2) a private fee-for-service plan. As was the case with the 1996 MSA legislation for non-Medicare purposes, only a limited number (390,000) of such plans may be established.
Organizations which have Medicare+ Choice contracts must make prompt payments to "non-contracting" providers at least equal to what Medicare fee-for-service would have paid, including the patient co-pay. This provision is apparently aimed at preventing HMOs from paying other than Medicare allowables to providers who have not entered into a provider agreement with the HMO to accept some contracted level of payment. It is common for HMOs to attempt to take their existing commercial contract provider agreements and apply them to new Medicare HMO products. HMOs are increasingly providing broad language as to the 'product lines' covered by their standard provider agreements.
Of significance to the HMO industry is a new provision phasing out the so-called 50-50 rule. This provision had required that an HMO could not have more than 50% of its enrollees in Medicare. As a result of this rule, it was necessary for the HMO to first establish a commercial contract base of insureds before enrolling Medicare recipients. During the period from enactment through 12/31/98, HHS is permitted to waive the requirement. Effective in 1999, this requirement is eliminated.
