P R O C E E D I N G S
LEN NICHOLS: I’m going to start asking you to drift back in, grab your last shot of caffeine, and maybe pick up one more of those cute little dessert things that I liked a lot and come on back because we do have an action-packed finale.
Without further ado, let me begin to introduce Bob Hurley, who in addition to being an associate professor at Virginia Commonwealth University and the Department of Health Administration, basically, I think it’s fair to say Bob probably knows more about managed care than any single researcher in life today, and in particular public sector managed care. It seems like if you want to have a question about Medicaid managed care, you better ask Bob first.
He’s testified before the Senate, before various state legislatures, and is currently a senior consultant to HSC and has been a major contributor for the site visit design and to all of the papers that have come out of there. I think he’s written at least 60 papers since I’ve been there, which has been one month.
So, anyway, Bob is going to start us off, and then we’ll have a panel.
ROBERT HURLEY: Thanks, Len. It’s a pleasure to be in this program today.
Let me begin by just sort of pointing out that we did invite Leslie Nielson to be here with us this afternoon. The RWJ $500 a day wasn’t enough, apparently, to loosen him up, so we put a picture on here. We’ll probably have to pay royalties to him for this.
[Laughter.]
ROBERT HURLEY: But we really do want to sort of set up the discussion. I know when you come to Washington and talk about Medicare+Choice, you’re in front of a host of experts, both in front of me and behind me, because it’s sort of like the Red Skins and coaching them. Everybody is an expert when you come inside the Beltway on this topic.
But I want to use this presentation that’s based on a paper that I’ve written with Joy Grossman and Brad Strunk to kind of give you a little bit of additional information, if you will, that both benefits from the design of the CTS, both in terms of its longitudinal nature, and also its multimarket perspective.
So you’re going to get a kind of a motion picture, if you will, of Medicare+Choice, and I’ve kind of characterized it. I think this imagery actually works pretty well of a roller coaster ride over the last 5 years. To kind of preview our findings, what I’m going to suggest to you that there was when the first visits were occurring, in the 1996-’97 period, rising enthusiasm for the Medicare product.
Interest stalled in ’98 and ’99, in no small part, because of the BBA effects which were being realized at that time. And then private market forces changes were actually influencing planned strategies, an issue of development a little bit, and the withdrawals began, both withdrawals and retreats if you will. Then, when we went back this past time, the 2000-2001 round three visits, the momentum for growth was lost and withdrawals have continued.
I think to sort of preview our closing comments, the view from the local markets is that the legislative remedy is something that the GAO, I think, confirmed in their own work this past week. Legislative remedies have been unsuccessful so far in terms of stopping the decline.
Just to give you a picture, this I think sort of sets up the fact that we were there before the BBA was implemented or the past. We were there really when the plans were wrestling with the implications of both the consequences of the BBA and, in some cases, the BBRA, which was just being debated that time, and then we were there, actually, the timing is off a little bit on this, but the BIPA actually passed about the time when were in last two or three markets this cycle.
So we have had a chance to observe this, and we’re anxious actually to go back and to see whether or not there has been any particular follow-on consequences.
If you’re interested in looking at in depth, there’s actually a couple of slides that we’re not going to show here that actually show the 12 markets, Medicare penetration by these 12 markets, and then, also, if you’re interested in gently testing the hypotheses that Medicare penetration is associated with payment rates and managed care penetration, there’s a graphic on that that actually shows those numbers. I’m just going to show you a picture.
We were I think fortuitous, in terms of our longitudinal glimpse of this. We were also fortuitous in terms of the distribution of our markets, more so than we realized, until we actually cranked out the numbers, and we found that of the 12 CTS markets, 12 of them were above the national average in managed care penetration, six of them were above it, and six were below. So we basically split the dozen markets pretty nicely with this.
You can see that we have three of the high, the plus-40-percent penetration markets in our analysis. You will notice in the penetration levels in those markets, it didn’t change very much. Some people suggest this is kind of the natural ceiling for Medicare penetration and also at the bottom markets, and these have been markets that traditionally were pretty low. Payment rates there hasn’t been very much change at all. There has been a little more activity in these middle cluster markets, and again you can identify those if you’d like.
Also, to put this in a little--this was managed care penetration what I was showing you, the mean penetration, and this next one is just the number of participating Medicare HMOs by market cluster over this same period of time. You can see that, not surprisingly, the high-penetration markets had the most plans, but they, too, like all of the other markets, have experienced some attrition in the last, particularly the last two years, again, because of the timing of our business, we were picking up the BBA effects more dramatically in 2000.
We, also, you can see, I think--actually, if I go back to the other slide, you can see the was more activity in these middle-range markets. Again, there was a movement up and then a movement down in these markets, and this, I think, is important in terms of the overall goals of the Medicare+Choice program to try to grow access to HMOs.
So let’s put this in kind of the context in which we looked at this, and actually we drew from some work, in writing this up, drew from some work that Marsha Gold and Randy Brown had done in terms of looking at markets and kind of the characteristics of markets, and we’ve kind of distilled these down into looking at factors that fall into the realm of policy, plan, strategy and operational experience.
You can see that at the time of the first round of visits, the Medicare risk premiums were--and I’ll show you this in a graphic in a moment--Medicare risk premiums increases were exceeding what was available in the commercial rates and also exceeding health care cost growth. So that made this market appealing and attractive, and so planned strategies focused in on the Medicare market, and specifically membership and revenue growth, which were of paramount concern, and we heard some of that this morning in terms of the impetus or to imperative to grow at that point in time. Medicare became a natural target market for those purposes.
We also saw, from an operational experience standpoint, providers saw growth as likely, in other words, the momentum was building among providers that they had to join managed care plans if they wished to retain their Medicare beneficiary, something, again, it’s 5 years ago, a lot has happened that time, but if you go back 5 years, that was a particularly pertinent development. This was when the drumbeat for the PSOs, in fact, was building, as you recall.
Risk arrangements were in vogue, were coming in vogue for the reasons that Larry was talking about this morning. The enrichment or the additional benefits were drawing in new members at that point in time.
This is a really powerful slide. This is a wonderful slide that Brad put together, and many of you have seen various renditions of this, but this isn’t a product of our work, but I think it’s certainly a backdrop for our work and certainly a backdrop for the strategies. Let me just point out what each of these three trends represent.
The gold trend, the yellow trend, is the average Medicare payment rates over this period of time, the health care costs is represented by the red trend, and then the commercial premiums are the green trend, and you can see the interplay of these kind of undulating, but unsynchronized patterns is very important and really does, in fact, demonstrate the appeal back in 1996 and ’97 of the Medicare payment rates relative to both health care cost growth and also to the commercial markets. Again, we heard a little bit of that this morning. I will refer back to this as we proceed.
Within these markets, these clusters that I identified earlier, what we saw back in ’96 and ’97 is that the zero premium product had become standard for the high-penetration markets. Competition among the plans was largely--exists among existing plans for current beneficiaries, if you will, or beneficiaries who would move from plan to the other for some enrichment, again, because of the high level of penetration, it was difficult to draw new people in.
In the moderate markets, the markets that were just a tier below this, this would have been Cleveland, Boston and Seattle, I believe, these were markets that were targeted by national plans for growth, and local plans were responding to the competition. Seattle is a good example of the impact of PacifiCare on group health and so forth.
And it limited in the minimal markets, there was positioning and exploration by market leaders among plans and providers, again, reflecting this idea that providers were feeling a sense of momentum building for this program, and they were looking at how they might be able to participate if Medicare managed care became the modal way in which beneficiaries got their services.
However, when we went back or when our colleagues went back in ’98 and ’99, we observed kind of this schizoid development or schizophrenia development, if you will, in the sense that there was a kind of unnerving leveling off. Remember my roller coaster ride parallel here. What we saw was rate increases were declining, but they were still greater than commercial.
So, really, leading up to this period of time, what we were observing was that the attractiveness of Medicare was starting to fade a bit, but it was still a market worth entering, and then the BBA came along, and it had an abrupt negative effect, which will develop here momentarily.
Planned strategy, at that point in time, any plans either retreated or aborted entry, entry that they had been planning and developing, but now step back from. Some plans reported that they hoped that Congress would repair the problems that had been created by the BBA, particularly the 2-percent limit in terms of rate of increase, and then the other strategic implication, and again this is very important, in terms of looking at what plans were attempting to do, this is a period of time when plans were under a lot of financial pressure, and a number of them began to look at retrenchment to try to restore profitability across their entire book of business.
At the operational level, certainly, costs were on the rise, especially pharmacy. And because of the richness of the pharmacy benefit in many of these Medicare+Choice plans, that was beginning to take a toll on the plans.
Risk arrangements immediately were cast into some jeopardy by the small rate of increase. So when these high penetration or the markets that exceeded the national average, that faced a 2-percent limit, if you had a percentage-of-premium arrangement with providers, then those could be in significant jeopardy.
And then we began to see benefit erosion that was actually being reflected in new benefit packages that were being crafted for the out years, the future years.
Just looking across the strata of markets that we have, in terms of patterns in the high markets, the limits on increases were felt immediately because the 2 percent applied to places like Miami and Orange County that were above the national average, and they obviously put in jeopardy the percentage of premium deals, as that was just suggesting.
In moderate penetration markets, what we observed were the nationals or, actually, more aptly, the multistate plans, since there probably aren’t really any nationals, fairly stated, quickly pulled back, and so a lot of the initial withdrawals or retreats that were documented by some of you in this room were in markets where these companies simply changed their strategic posture toward the Medicare program.
And then we also saw slowing of marketing or as some plans characterize as silent withdrawals. Rather than invoking all of the antipathy that abandonment would represent, what they did was they simply chose not to market their products.
In the limited and in the minimal markets, interest faded pretty quickly, and I think this market evaporated and died in a number of these markets.
In Round 3, just to sort of move to the next step of this, the kind of steep decline, the one that is certainly in the contemporary discussion today, the policy environment at that point in time, premium increases continued to be well below rising costs. Again, if you go back to that graphic I showed you, this issue, particularly in the high-penetration markets was problematic. The conclusion was, in many places, the repair legislation had not been meaningful, at least so far, at that point.
Planned strategies, retrenchment continued within these plans. Large commercial rate increases were beginning to be realized or at least beginning to be targeted as possible new sources of revenue. There was a trimming of poor-performing lines of business by these plans, so that they culled out the products that weren’t successful, and provider negotiations grew more fractious and most momentum in Medicare was lost, partly because providers, for the reasons that we heard about this morning, were losing their enthusiasm for risk, but also it became less likely that Medicare was going to be successful in drawing in Medicare beneficiaries into HMOs or into coordinated care plans.
At the operational experience, and this has been well documented by many, many people now, benefit deterioration and rising premiums became much more common, and member anxiety grew as to what the future was, so that even though your plan may still be in the market and even though there had been some deterioration of the benefit package, you still couldn’t rest assured that your plan would be there in the out years.
Across the markets, again, looking at the kind of clusters that I identified earlier, zero-premium products were disappearing in many markets, although not all, as we know, pharmacy benefits have been sharply curtailed, provider risk deals have continued to collapse or go away, and the product still remains profitable in these markets, but you can observe certainly a wasting away because of the rising costs of medical care relative to the 2-percent ceiling that it’s experienced in a number of these markets.
In the moderate markets, some plans have maneuvered to try to salvage, in their negotiations with providers, to salvage their products, but there continues to be sharp benefit erosion and premium increases in remaining plans, a kind of implosion almost of the benefit package in a number of these cases.
In one of our limited markets, actually, we have one of the three markets in the country that was identified in the GAO report, where there was a plan that announced its intention to return to the Syracuse market. There was some reconsideration of whether the BIPA floors would, in fact, draw plans back in. It turns out that this plan was subsequently acquired by someone else who has chosen not to enter the market, so it actually has no more membership.
In the minimal markets, there was virtually no interest shown, at least we’ll see this when we go back.
So we might pose the question is this program in free-fall, as has been suggested by a number of observers both within and beyond the Beltway. Certainly, at the local market level, the general view seems to be that the program is in perilous condition. You could also suggest, I think, based on what we’ve been told and what we’ve observed, that Medicare’s problems with its HMO strategy appear to be both self-inflicted and consequences of broader market trends.
It’s difficult, I guess I could say this, and see whether or not in our discussion we can elicit some constructive ideas, but it’s difficult to see what policy changes can reverse the negative trends and perceptions. Certainly, that’s the concern and the viewpoint in many of the markets that we visited.
So what kind of lessons might we draw from this or some of the implications that we, as we put our collective heads together and thought a little bit about where we are with this program at this point in time.
Obviously, Medicare managed care is an inherently risky business for plans and policy makers. Both have been burned, if you will, based on the experience of the last 5 years. It is made more risky by Medicare and commercial trends being out of sync, so that the competition for different lines of business or opportunities that are represented by these different lines of business vary, and they vary across markets, and they vary over time. So the expectation of achieving more stability or equilibrium is problematic.
Obviously, we would cite this next point as pretty significant relative to the larger aims of the CTS. The Medicare HMO strategy is hostage to the local health plans strategic aims and adaption. Again, decisions may be made here about a more monolithic or unilateral basis, but how they play out in the local markets is affected by a variety of factors and considerations and developments.
We can also say, I think, that Medicare policy initiatives to expand beneficiary access to HMOs and additional private plan options have not been successful, so far, I guess we should add to that. But I go back to that graphic that I showed you earlier, in terms of the penetration levels across these four clusters of markets. In the high-penetration markets, life has basically gone on as it was going on before with some deterioration in the benefits. In the low-penetration markets not very much has changed at all. And in those middle-range markets, we saw an effort to try to expand access, which has now been receding, so one has to draw the conclusion I think that we haven’t seen success yet at this point in time.
Our next point, and I think this is something that maybe our work can actually add to the larger debate and discussion as to what the future may hold, as well as reflecting on how we got where we are.
Severe relationship damage has been done and will impede any efforts at turnaround. I mention this for a couple of reasons. One of them is that I think some of the reform strategies that may be concocted and may be developed here within the Beltway I think are going to suffer from the fact that there is such suspicion and such a disappointment with past initiatives it will be very difficult to persuade plans and, to some extent, providers at the local market to sign on for some of these reform efforts. So I think we can’t delude ourselves into thinking that competitive bidding or whatever may be just around the corner if we can just get the formula right.
The other side of this is that the provider momentum has been, the loss of provider momentum is extremely important. If you go back 5 years, and in the preparation of this paper, we did, we went back and looked at some material that was prepared by the Health Care Advisory Board, which you are familiar with it, it informs providers who participate in membership of the Health Care Advisory Board. They put out a very nice, very impressive, slick, glossy presentation about why Medicare managed care was in your future as a provider, and you need to either form your own plan or else you needed to find a relationship with a plan because an increasing percentage of beneficiaries would be affiliated with managed care plans.
That’s simply gone by the board now, as we know. And so to kind of resurrect that momentum and to persuade providers to join health plans and to join health plans that will serve the Medicare beneficiaries seems like an enormous amount of inertia will have to be overcome.
The last two points probably are just pretty much straightforward to what most of you here already recognize, is that the Medicare administrative inflexibility is a significant impediment, depending on your perspective, or anchor, from the other vantage point in the face of transitioning markets. So the kinds of discussions that have gone on today, I know you’ve been looking at in the CTS program or people have been looking at the CTS program for a number of years, stand in contrast to the--the pace of change stands in contrast with the lack of nimbleness, shall we say, on the part of the Medicare program to respond.
The final point I’d make here, and I suppose this sounds rather pessimistic, and maybe it is, but I guess we have to at least air this concern is that the broader market trends that we’ve heard raised throughout the day in terms of concerns about the capacity of managed care organizations or particularly HMOs to control price increases or have traction in cost control, morphing of products and the changes in the practices in managing care, these broader market forces probably should justify reconsideration of what managed care can now contribute to the Medicare program.
So I will stop there, and I will pass this off to the panelists.
[Applause.]
LEN NICHOLS: Nice job, as always, Bob.
We have quite a panel for you, so I’ll try to just briefly introduce people and get to the discussion.
First, is Brian Jeffrey, who, as I read his vitae here, I must say I think actually has the hardest job in America. He is director of Network Management for PacifiCare, trying to get those docs to agree to stay on board. He actually has over half a million Medicare+Choice beneficiaries. He may have the last half-million still breathing, so we are very glad he’s with us today. By the way, he also did an internship there by directing institutional programs for Massachusetts. So he, too, has done his turn in the People’s Republic.
To my left, and only physically, not ideologically, we have two members of the federal support staff who are very distinguished, Bill Scanlon, the director of Health Studies at the U.S. General Accounting Office. Bill not only testifies before Congress, he educates the Congress and educates the professional staff, directs and conducts research. Before he was at GAO, he was at Georgetown directing the Center for Health Policy Studies.
Mark Miller, to his left, is the new Associate Director of Congressional Budget Office for Health and Human Services, so he’s actually going to have to do nonhealth for at least one-half of one day every week. He is now in charge of all public and private health care issues at CBO. Before that, and most recently, he was at the Center for Beneficiary Choices at CMS or what used to be HCFA, and before that, of course, he was a branch chief at OMB.
Both Bill and Mark share the distinction with me of being graduates of the Urban Institute, so I am very glad to have them on the panel with me to show that there is, indeed, life after Urban, as we all know.
Let’s start with Brian, and basically I want to come back to Bob’s very nice characterization there of the question mark, is this program in free-fall?
BRIAN JEFFREY: I thought about that question, as we talked, and it sounded, at first, a little mellow dramatic, the concept of free-fall, but as I looked at what’s happened in my market in Southern California, I think of free-fall as a process where, if you extend out the trends linerally, you get to a big crash at the end. I think that’s a pretty good definition of free-fall. I think that’s where we are.
If you look at where benefits in Orange County were in 1999, right after BBA, it was an incredibly rich benefit package. We had zero premium, zero copay, and an unlimited pharmacy benefit and about probably 70,000 members at that time in the county.
Each year since that, as we dealt with trying to get the revenues and the expenses to balance, we’ve had to make the benefit package less attractive and have gone from--we still kept the zero premium, up till 2002, but the copay has been increased and the pharmacy benefit has been decreased each of the 4 years. It’s a bit at this point like throwing benefits off the back of a troika here. At some point, it just stops working. I think we can continue that. We’ve trimmed the provider panel, in some cases at our instigation and at some cases the providers’ the instigation.
So we can try to work with the more cost-effective provider groups, we can try to moderate the benefits, we can try to increase the premiums. But as long as we’re tied to a disconnect with lower premium rate increases and higher cost increases, it does point towards a crash at some point.
LEN NICHOLS: Okay. So there is a little bit of a window of opportunity for these guys to fix it before we get there.
BRIAN JEFFREY: To pull the ripcord, I think.
LEN NICHOLS: Okay. Great. Let me start with is it in free-fall and how--
WILLIAM SCANLON:: I would not dispute at all that it’s on a downward trend, but I would say that I don’t think it’s in free-fall. Actually, Bob, I was listening to hear his answer to it when he posed the question, and he said it was in perilous condition. He didn’t say actually it was in free-fall. And the reason I say it’s not in free-fall, I think, is because there is such genuine interest in preventing it from crashing too hard. I think that’s evidenced by both what’s happened in BBRA and BIPA, as well as the kinds of discussions that are going on now both within the Congress and within the administration. So there is sort of efforts to try and create resistance to the decline that we’re observing.
Now, whether they’re going to be or how successful they’re going to be, that’s sort of another issue. We do have this issue of where we are going to bottom out.
The other thing I think that we need to keep in mind, and I think Bob touched on this in several different points in his excellent summary of the situation is that we had a market that was in very much disequilibrium, sort of even before we started to see the significant withdrawals. There were conditions that were just not sustainable for the longer term. We had sort of providers who had agreed to contracts out of some sense of what the future was going to hold, and then when it didn’t, they were quite disgruntled.
We had plans who had this market share, but not profit sort of strategy that is not sustainable for the longer term. We had beneficiaries who were, on one level, satisfied and happy because they were getting free benefits for zero premium, but were not making the sort of right calculation, which is how well off they were compared to what the alternatives were, which would be basically the Medicare fee-for-service program, plus a Medigap sort of plan, and they became somewhat disgruntled whenever there was a change in, in some respects, the right direction in terms of making the plans move to a sounder economic footing by charging premiums and sort of restricting benefits.
So you had all of these forces or all of these actors in this market that were in a situation that really was not going to be preserved sort of over the longer term. Bob used the word "suspicion," which is I think a good characterization of can we move from a situation like that, where expectations are unrealistic, to a situation where expectations are going to be more realistic. People can find that some kind of compromise actually is of service to all parties in the equation, and that I think is a key.
I think it’s going to be critical that plans are able to charge premiums, able to compete sort of effectively with Medigap policies as their competitor, not sort of just with one another, which is I think where they were in the period before we went into this decline.
LEN NICHOLS: Mark?
MARK MILLER: I don’t think my comments differ a lot from things that have been said. I wouldn’t have said free-fall. I agree with the roller coaster analogy. There are some things that I think you can point to that suggest that maybe it’s not--that we might be at the point where we have a little window or a ripcord or whichever is the analogy that you want to use.
I think some of the declines that we have seen in this last round are not as significant as the last couple of rounds, and whether that is an indicator is something to consider.
Also, I think there are statements that are made here that I would just articulate a little bit differently. You can really see a lot of what’s going on within the plans as sort of coming into a new equilibrium, so that they are revisiting benefits, they’re revisiting premiums, they’re looking at their drug offers and moving more to generics and trying to fit within the framework that they’re currently finding themselves.
I think there were references to the fact that there still are markets in areas where the payments are high, even though costs are catching up to them, and there are still plans able to operate in those areas, and I think there is still a question for to new floor counties as to how any of that is going to work out. I think Robert referred to the fact that there may be some interest there, but it’s too early to tell what’s going on.
On the other hand, I mean, cost growth are very aggressive right now and how the plans are going to deal with that is an issue. To the extent that I talked to a lot of managed care executives in the last, at CMS, a lot of them were saying a few years and we’re not going to be here any more. That still suggests that there is a window, but exactly how long?
And, of course, all of the other stuff that we can rack up pretty easily, the provider backlash, beneficiary backlash, patient bill of rights kinds of trends, those kinds of things.
The other thing I’ll say, and this is a completely throw-away comment. I don’t know what to do with it, other than to say it. I mean, you have these different trends, in terms of the premium cycles, and payments, and costs, and I think another piece of the environment, and I think there’s been references to it, if that’s what was meant by some of the comments, I think you have industry, the policy world, and the beneficiary all changing their expectations at the same time.
I think people are kind of saying the same thing. So it seems extremely murky right now because I don’t think the industry knows exactly what kind of products it’s going to put out there, what kind of arrangements with providers. Beneficiaries are feeling burned. The policy world is looking at the models that they’re looking at right now and wondering if they’re going to incorporate the new world.
LEN NICHOLS: Very good. Let me start with some of the deconstruction of the murkiness, in the sense that I think a lot of people want to know how much was BBA responsible for the decline in Medicare+Choice and how much was it just sort of has become the scapegoat or how much was it just a good bill passed at the wrong time?
Let me start with the federal guys. I want to let you have a shot at that. We’ll start with Mark.
MARK MILLER: Can we start at the other end?
[Laughter.]
MARK MILLER: How strict are the rules?
I guess, you know, I don’t know. I’ll start there. I think a couple of lines along these lines are I think there’s at least still some sense of disentangling what BBA did, much less whether BBA relative to market forces are to blame here. I mean, there is still sort of a fight intellectually within was it BBA or was it fraud and abuse and those kinds of things.
You can certainly point to BBA, in terms of compressing the payment rates, the 2-percent limit, the fact that there were fee-for-service cuts in BBA, and to the extent that the payment systems were still somewhat linked to fee-for-service, they’ve certainly created back pressure on the providers to them come to the HMOs. There’s the issue of administrative burden. Let’s not forget that BBA also created whole new pieces of the law that didn’t exist before where quality was concerned, and so that and other kinds of administrative burdens that the plans have regularly pointed to can all be sort of pushed in the BBA corner.
On the other hand--and it’s all the stuff I said, so I’ll just sort of run that tape again; you know, the provider backlash, the beneficiary backlash, costs are increasing, that kind of thing. So I think it’s still a legitimate question to ask whether we would be in this boat or kind of in this boat anyway if BBA had not been passed. I mean, the fee-for-service expenditures right after BBA dipped very significantly. If we had a system that was completely tied to fee-for-service like we did before BBA, there would have been a lot of plans that would have been hit there, too. A lot of plans in the minimum 2-percent update actually did better than they would have done in those first few years after BBA.
LEN NICHOLS: Bill?
WILLIAM SCANLON:: Working for the Congress, I don’t know if I have ever seen a bad bill that passed.
[Laughter.]
MARK MILLER: I guess I should have said that too.
[Laughter.]
WILLIAM SCANLON:: But I think if you go back to the one slide that Bob showed of the different cost trends sort of over time, and you saw the period pre-BBA, and you saw that Medicare was sort of significantly sort of higher than the private sector, you think back, and you think to yourself, we needed a BBA for Medicare. We had some significant problems that needed to be addressed sort of in the fee-for-service side. And if you just think about that side alone and address those, there’s going to be an impact on the risk program.
The fact that we created M+C at the same time and we did some things to the M+C, sort of payment rate, that’s another sort of issue. So I think one of the things, too, sort of keep in mind is we needed to do BBA. What we did was we brought about a situation where we were bringing sort of the basis for Medicare payment, namely fee-for-service growth, more in line with what the private sector was experiencing.
Now the question is that bad because it makes it harder to offer sort of additional benefits at zero premium? It’s not clear that that’s bad from a program perspective. So I think that we need to sort of acknowledge that.
What we did to the M+C rates is another sort of question. In partially delinking them from fee-for-service, as Mark indicated, we have actually provided them some protection as fee-for-service spending per capita was declining there for a while, and that was sort of the good side.
I think that the negative side is that we expected too much from managed care plans in the new rate system that we created. The idea of the plans were going to be able to buck the trends of their communities and be able to exercise influence over utilization to be able to live with blended rates, if we ever got to blended rates, was something that I think is potentially sort of unrealistic for such a small market player, sort of in the communities that plans are going to be operating in. So that aspect of BBA, I sort of question as to whether or not sort of that was sustainable.
In terms of what we’re seeing with withdrawals, I think that it is a combination of sort of the BBA, as well as the private market forces, as well as sort of the unrealistic expectations ripening, and in ripening, sort of becoming apparent, it became apparent that they were unrealistic and people deciding it was now time to change sort of what was being provided, and that’s key to sort of what we are seeing now.
LEN NICHOLS: Very good. Brian?
BRIAN JEFFREY: I think one thing that really comes out in looking at Bob’s work and some of this other discussion is how local some of these issues are. It’s hard to say anything national and generic about whether a policy works or not. I think that in a very highly penetrated market like Orange County, where the major impact of BBA was the 2-percent, you had the fault trend on revenue, it resulted fairly directly.
There were certainly other environmental issues going on as well, but it had a pretty direct link to what has happened on the benefit side, and I think you can make a legitimate argument that that was one of the intentions of BBA was to rationalize some of the benefit designs that was somewhat inappropriately rich in counties like Orange County.
On the other hand, I think if you look at some of the rural counties where part of the intent of BBA was to offer more choices and to increase the attractiveness of plans moving into some of those areas, I think there, while clearly that wasn’t the result of what was put in place, I think there BBA is not the prime culprit. I think that a lot of things happened in those rural areas. I think, having tried to set up some Medicare risk plans in rural areas, it’s an inherently difficult proposition. I think it’s affected much more by the dynamics of the provider market and the psychology of the provider market.
I think something that Bob said before about this perception that was out there in the mid ’90s that Medicare managed care was in your future so you better figure out how you’re going to work with it, that started to dissolve around this time. There were a number of constituencies, I think, that went along with Medicare managed care because they thought it was inevitable and that it was a question of how you do it and when you do it, not whether.
When that juggernaut started to fall apart and that became an open question about whether Medicare managed care or Medicare+Choice was coming, I think it empowered a lot of people to try to put the genie back in the bottle, in some cases, fairly successfully in some of these rural markets.
LEN NICHOLS: So, if the genie is either back or approaching the bottle, how are we going to fix this program? Are you as pessimistic as Bob? You know Bob is a smart guy. What scared me was that little point on the slide that said it’s not clear what to do next.
You get to go first.
BRIAN JEFFREY: Oh, thank you.
[Laughter.]
BRIAN JEFFREY: I’m sort of wondering what I was doing with some of the leading lights in the policy world on Medicare. I was thinking back of a friend in graduate school who was from down South, a very bright guy, but he liked to effect this sort of down-home country bumpkin look. And somebody came up to him and said, "What are you doing at Harvard, Joe?"
And he said, "Geographic distribution."
[Laughter.]
BRIAN JEFFREY: I feel like that’s my role here is geographic distribution. I’m not sure I’m the ideal person to comment on the future of the system. I do think that if you look at broad options of a more and more formulaic driven or tweaking the formula, bringing more factors in on one end of the policy spectrum versus something that’s more market driven, for lack of a better word, I think that the search for some elusive paradigm, that if we just put enough factors in the equation, we’ll get something that works and everybody responds the way they’re supposed to, I’m somewhat skeptical that that’s going to work.
I do think that there needs to be some sort of short-term change to link the rise in Medicare+Choice rates or the trend in Medicare+Choice--we won’t presuppose a rise, although I’d like to--to something, some underlying cause either in the Medicare+Choice plans or that fee-for-service Medicare is facing, some recognition of the fact that underlying health care costs are going up right now. I think if that doesn’t happen in the short term, it will be an academic question, as we were saying before.
I think that some sort of market-based approach that people have or we can cite the example of FEHBP, and I think there’s a lot that could be learned from some sort of competitive bidding process to bring that approach in. I think within that, if there are specific issues around chronic disease or quality that you want to stress, there are ways of building that into the selection process to try to recognize those.
LEN NICHOLS: Good. Well, those are creative starts. What do you think, gentlemen, how do we fix this?
WILLIAM SCANLON:: I’m not positive about how to fix it. I think one of the critical things, though, is that we try and sustain it until we can get a change in expectations for sort of a longer-term fix because I think one of the things that we’re facing now is that a competitive model may not work in the immediate short term. I mean, if you think about what plans are telling us very clearly is that at the sort of Medicare rates, they don’t want to be in this business, and they’re going to leave or, if they’re going to stay, they’re not going to be sort of offering additional benefits.
How attractive is a plan with a network that restricts your choice of providers and no additional benefits to beneficiaries? It’s not going to be something that’s going to be sort of sustainable.
At the same time, sort of for the longer term, I would hope that a competitive model really would be productive in terms of getting beneficiaries to sort of recognize tradeoffs between sort of benefits, sort of ease of access and costs to them and that there be sort of the savings from sort of that kind of a model that accrues to both the program, the plan, and sort of the beneficiaries. So I think it’s very much in our interest to try and sort of sustain sort of this program to the point where we can have expectations that are realistic enough that maybe this model sort of would work.
That, I mean, there have been people that have suggested to do that what we need to do, in some respects, is to, for the short term, subsidize this program to a greater extent than we have in the past. I’m in the sort of strange position of having said, as a GAO sort of spokesperson, that we pay Medicare+Choice plans too much, that because of favorable selection and prediction errors, that we actually have overpaid the plans.
I follow that up by saying, and the plans are telling us that we pay them too little, and I agree with them completely. They are demonstrating that by voting with their feet. They are leaving sort of these markets, and there’s no better test for an economist that you haven’t paid what the supply price is than when the supplier refuses to supply the product.
So I agree that we have underpaid them in terms of trying to maintain their participation, and I think that if we want to, for the longer term, be able to take advantage of the competitive model, as well as to be able to potentially take advantage of quality and management types of lessons that may come from M+C, that we need to think about short-term subsidies.
LEN NICHOLS: Mark, do we go short or long?
MARK MILLER: I think, for me, I’m going to go long, and I think what that means is I’m going to be very careful about not talking about specific policies and sort of talk about whether you end up with an administered price system or with a competition model of some kind.
What we have to think through more carefully this time is some--and some of these things I think we did. Some of these things I think we didn’t, and I use the we there very inclusively, myself included. I think we have to think very carefully about beneficiary incentives. Obviously, there’s premiums and copayments and things like that, but also the benefit packages. And I think it’s already been brought up here. When a beneficiary is making a choice, what are they comparing it to and sort of the notion of traditional fee-for-service and a Medigap model.
I also think that we need to think, this time around, about plan incentives and whether markets form, and how they form, so that, you know, spend some time trying to think about what is the tipping point for plans entering and exiting markets. I think some of the research here in the Health Systems Change, and the paper in particular, does talk about some of the things that go on in the local marketplace, which again I’m not clear how to accommodate, but clearly point to things that go on in specific marketplaces; you know, local plans tend to stick around, national plans tend to be, I think I’m hearing the first two or start thinking about pulling out.
Payment rates on the part of the federal government. If you’re in a dynamic marketplace and they’re changing their products and changing how they offer, how does the payment have to be structured to allow that to happen, but at the same time not result in situations where you’re systematically getting gamed and overpaid or paying too much, and then also how do you maintain equity in an environment like that?
So, if people start saying, well, maybe we ought to move past capitation and talk about shared risk or something else, it’s how do you balance all of that because you can end up with situations where you don’t know what you’re paying to what plan and equity across plans in a marketplace can become a bigger issue. Obviously, some will argue that that’s more easily solved in a competitive model, where the plan has to set its bid and then accept the consequences.
I think the administration burden issue, certainly at CMS, was something that I heard a lot of, and I think it’s something that we need to think about again, and I don’t have a ton of clever ideas here, but, you know, plans are sort of, and you should take note of this and take it back to all of your plan friends because I’m sure they always thought I was insensitive and didn’t listen--
[Laughter.]
MARK MILLER: Which is only partly true--
[Laughter.]
MARK MILLER: Just kidding. I mean, plans, you know, to listen to the administrative burden that CMS was imposing was one issue, but there are issues beyond that as well. Lots of people look at plans. State insurance commissioners look at plans, employers look at plans, different parts of the federal government look at plans, and the quality accreditors look at plans, and sort of how all of that is happening in the environment is something that if that could be looked at in a way that rationalized it at some level, that might be a step to take.
Now I firmly believe that, first and foremost, you have to get the payments right, and then people are willing to tolerate burden in that market or in that kind of a situation. But if those, the payments are not working and there’s burden, then I think it makes it much easier to exit from the system.
Another point I’ll mention, and then I’ll stop because I’m sure I’m talking too much, is information. I think, particularly in a market setting, all markets sort of assume perfect information, you know, okay.
[Laughter.]
MARK MILLER: Also, if it ends up being an administered price system, I think you have to think about this. Information comes in a lot of varieties. There is information in terms of plan quality and provider quality, and that gets to whole sets of issues of how you measure it and even if you can measure it, how do people absorb that information? The elderly and the disabled often have a real hard time with it. So are you aiming at their kids? Are you aiming at some other caretaker.
But there’s also information, and this goes to the administrative burden point, financial performance, compliance with quality requirements, those kinds of things, is that information that can be collected from the environment and used for oversight in a way that’s not as aggressive so that you’re targeting your efforts where there are other problems, as opposed to just blanket going out and every quarter or every year checking these types of things, is the plan doing X, Y, and Z. I guess that would be kind of my dodge on what exactly we should do here. These are the issues that I think we should think about.
LEN NICHOLS: Very good.
Brian, I want to close my questions with one to you, and it comes back to the powerful point Bob made about this loss of moment, and as you put it, the juggernaut falling apart, and we have enough metaphors now I’m scared. So the question is can we ever get providers back to where they are willing to trust, and play, and participate if we get the payment right and assume we get the burden down to a tolerable level? Now that Mark is out of CMS, he can tell him how much burden they’re imposing or are we going to have re-earn trust over a 10-year period?
BRIAN JEFFREY: Can we pull the ripcord on the juggernaut before the roller coaster--
LEN NICHOLS: There you go. That’s good. That’s good. Something like that.
BRIAN JEFFREY: Again, it’s very specific to the individual markets. I think in a market like Orange County, one of the things that Orange County, San Diego, markets that I’m most familiar with, have going for them is they have independent organized delivery systems. And Bob spoke earlier about the potential, the importance of Medicare managed care or the sustenance of organizations like that, and I think also tied into Janet’s speech at lunch, the importance of organized delivery systems in producing and measuring quality.
So, in Orange County, we have probably half a dozen independent provider, physician-based systems of some infrastructure or others. It ranges from, in levels of sophistication, from not very great to moderate. I wouldn’t say any of them are sort of state-of-the-art, incredible juggernauts of informatics, but some of them are fairly well integrated, primary-care based, multispecialty, they’ve got good systems of care, they have hospitalist programs, they’ve got ties into the individual physician’s offices.
They’ve made a substantial infrastructure investment that only pays off in some sort of prepaid Medicare+Choice system. If you cut through all of the noise around the edges of it, it’s a population where managed care should work, and I think it can work. You deal with a lot of chronic conditions. We’re putting more energy into population disease management programs, and I think you can get over some of the challenges that population management programs have had on the commercial side.
You tend to keep Medicare managed care patients in your plan longer, they stay in. If they’re happy, they stay in 7/8 years, as opposed to commercial, where they’re always turning over. They have enough chronic conditions that there’s a payoff there for investing up front.
So I think that where there’s a foothold for managed care and where providers have made some of those up-front investments or see the potential payoff that, they are somewhat hunkered down now trying to see if they can make it through this period and if the policy change is to make it a little bit more attainable, you know, a long return to pay off there.
Again, I think in some of the rural markets, I am not sure that or low-penetration markets, I’m not sure that we lost the trust of providers. I’m not sure we ever had the trust of the providers, and I think this sort of corroborated everything that they suspect.
So I think we lost against some momentum there. I think the next person who has to go out to Okanogan, Washington, and tell the physicians they really need to sign up with Secure Horizons, has one more barrier they need to get over than I did. But it was a tough sell in ’95. It will be a tough sell in 2002. But I think if you have the policy there and people can point to it, it’s not insurmountable.
LEN NICHOLS: Very good. Let me turn our audience. Marsha, you go first.
MARSHA GOLD: Hi, Marsha Gold, Mathematica.
I want to commend Bob on the paper. I think it really helps if you’ve been looking at this stuff nationally as a program to see how the work translates down at the local market level because health care is local, and so I think it adds a dimension for policy in Washington that has been lacking.
What I sort of wanted to focus on, I think in my own work I would probably agree it sounded like what Bill and others were saying, you know, in terms of the short-term effect on the BBA, it clearly didn’t accomplish what it set out to do, but whether some of that erosion would have happened with or without, it’s probably a mixed bag of some of it was BBA created, some of it would have happened even without BBA.
But I really wanted to sort of focus a little bit on ultimate objectives and long run because I think that’s where, in some ways, I’m not sure I see an easy solution and maybe that’s why Bob didn’t have any answers, and I’m wondering whether there’s some inconsistencies or inherent tensions.
If you thought about the original BBA, the estimates were 35 percent of people would be in a managed care plan or another kind of new plan, which is an enormous number, particularly if you understand the structure of the supplemental market because the denominator is not 100. That’s a lot bigger shift than you would see from among people who would.
I guess what I’m trying to sort through, as I think about it, is whether there’s some inconsistency, just in concept between a national program, and if people who think of that as having a defined benefit with a certain amount of oversight on that program versus a sort of more market model, which is more flexible, that operates differently in different markets because I think we all know you can’t create the same managed care structure in all markets because markets are different. That is local, and yet a market model that operates within the congressional legislative cycle of however long that takes and however the sausage gets made.
And so I guess what I’d be interested in, and maybe this is a sort of pointy-headed researcher comment, as opposed to a politician, because it doesn’t point to any clear solutions, but I’d be interested in Bill and Mark’s reaction or others about whether, in some ways, what we have is just an ideological split on what we’re trying to accomplish with Medicare, and ultimately we probably can stabilize Medicare+Choice in the short term, but we’re not really going to be able to resolve the question because we don’t know what it wants to do, and there may be some conflicts between competing objectives and people value those objectives or outcomes differently.
MARK MILLER: What I won’t be able to do is talk about the inconsistency between the national and the local, which I see your point there, but I did at least scratch down a couple of thoughts on, because I think it’s pretty widely agreed and understood that when--that there were expectations at the front end of BBA that were hard to meet; you know, grow your enrollment, expand your benefits, reduce your premiums, cut payments. There was a lot going on there. Although the trends were very aggressive at that point in terms of the growth, it probably, in retrospect, was a bit much to expect all of that to happen.
I think, and this won’t be any like great thoughts here, I mean, I think you sort of have to pick and choose, and actually I want to link to one comment Jeffrey made because I think it was--or Brian made, sorry--are we going to go down the road and say, look, this program is about quality and choice--we’ll pay more for quality, and we’ll pay more for giving people choice. I mean, that strikes me as a path you could go down. You could go down the path of sort of cutting costs and managing beneficiaries and manage them through three-tiered cost structures, that kind of stuff.
Another way you could think about going, and you’re starting to see some of this, is the notion of kind of getting into disease management, getting into particular subpopulations. I’m going to go for the chronic care group, and I’m going to try and take care of them.
I just, I think that it would behoove the process to sort of decide up front that all things can’t be accomplished and that there is sort of this program is really headed more for this, rather than that, before you try to design a program out of it.
WILLIAM SCANLON:: You raise an interesting question, and I think part of the answer is that if we look at the traditional fee-for-service Medicare program, one of the things we may want to acknowledge is that it’s not a uniform national program, that it’s a program that tolerates an incredible amount of local variation and, in some instances, actually serves to sort of discipline provision of care to adhere to sort of local variation. I mean, we have sort of local medical policy that the contractors use to decide sort of what is going to be covered and what’s not going to be covered sort of in certain instances.
Even when Medicare doesn’t play an active role, there’s a huge role that’s played by the providers in deciding what are the medically necessary services that the Medicare benefit entails and what are people going to get? Home health for me was always the graphic example of where you went from 35 visits per year in Maryland to 150 visits per year in Louisiana, and no one believes that the people in Louisiana are five times as ill as the people sort of in Maryland.
So we do tolerate sort of a lot of variation within the program. I think that with respect to the Medicare+Choice program, the idea that we want innovation sort of in the delivery of this Medicare benefit package is the essence, in terms of one of the goals. I mean, I think there are sort of higher level goals, which Mark was talking about in terms of quality, management of services, cost, et cetera, that we also need to acknowledge, but that within Medicare+Choice, we sort of want sort of innovative models of management of that Medicare sort of benefit package.
What boundaries we want to put on the management that we find tolerable is an issue that we have to face, is an issue that we come up against in terms of the sort of administrative burden that the program imposes. What are we going to say to plans that you’re going to have to do to be a participant sort of in Medicare+Choice, especially sort of when what we’re asking you to do is inconsistent with accreditation standards, is inconsistent with what state insurance commissioners are requiring, is inconsistent with what employers in a local area sort of are requiring. That’s the kind of tension that I think we may have to address sort of in thinking about this program.
LEN NICHOLS: Ellen?
ELLEN ZANE: Thank you. My question is for either Bill or Mark, and it has to do mostly with timing, representing providers that are in the trenches and representing physicians who largely really like this product and believe in their hearts that it is better care for their patients, and that when they compare it to fragmented episodic care under traditional Medicare to more coordinated care under Plus Choice, they pine over the fact that we’re literally holding this thing together with bubble gum and wire.
I would purport that this is not stable, in the short term, and would be very interested in your thoughts, given what’s happening around 9/11, what kind of opportunity there is to do something about this in the short term. Because I can tell you from our market, this will not last another year.
WILLIAM SCANLON:: Sort of predicting sort of the path of sort of health care delivery and financing, sort of just looking at what goes on in the private sector, I find to be an impossible task. Predicting what the Congress is going to do is a higher order of an impossible task.
[Laughter.]
WILLIAM SCANLON:: I think that one of the things that has happened since September 11th, I mean, I think we’ve added sort of an incredible focus to our agenda, but it hasn’t sort of taken the focus off of this problem.
However, there certainly is no consensus that has emerged yet, in terms of exactly sort of what is going to be done to deal sort of with the problem. There is very interesting sort of set of supporters to try and take action, to try and sort of buttress the program. It cuts across party lines, it cuts across geographic lines which has sort of the prospect that something sort of positive will happen, but, again, being a predictor of the Congress is not a business that I ever want to get into.
MARK MILLER: I really have nothing to add to that, other than to say, I mean, if you had to predict, I think you would predict that you’d be more likely to get sort of another small fix rather than a big fix, a reform type of, but I wouldn’t know what to predict.
ELLEN ZANE: We all talk about plans exiting the market. It’s important to understand that there is no market unless the providers want to play. And when we’re looking at providers saying, "Why bother? This is more work," and it does require more resources then fee-for-service Medicare, many providers turn around and say, "Why not go back? I want a DRG, and I want fee-for-service payments. This is a lot of work."
When trends are rising 8 percent and the reimbursement is going up 2 percent, there is something very wrong with that picture, and that’s why I asked the question about timing, because in the trenches, that’s what people see, and it won’t last.
MARK MILLER: To be perfectly honest with you, I’ve heard both sides of that argument. I’ve heard physicians say, "I can’t stand dealing with fee-for-service because I can’t deal with my carrier, I can’t deal with local medical carrier decisions," and then I’ve heard, "I can’t deal with my HMO," and quite the opposite, "I’d rather deal with my HMO than to deal with traditional fee-for-service."
I’m sure what you’re saying is true. I think this varies also by marketplace.
ELLEN ZANE: Although we’re voting with our feet.
DOUG ARMSTRONG: Hi. I’m Doug Armstrong, and I’m with the American Association of Health Plans, so I see this a lot. And reiterating what Mark has said, after the inadequate rate payments that they get, the plans that seem to be leaving Medicare+Choice are very strongly impeded by these administrative and regulatory burdens. We seem to be doing a lot of talking here, and I guess my question is sort of like a 30,000-foot question because we seem to be playing a game of tug-of-war, where the industry is on one side, and government is on the other side.
My question is what are your possible ideas and thoughts to get everybody pulling on the same side? Because otherwise this is not going to be a successful program, and you’re going to get a lot more pullouts. I know it’s a very broad question, but an example was the Medicare lock-in rates, which is something that the plans have consistently said, "We don’t want this. We want Medicare beneficiaries to be able to choose and change plans," and the government comes by and says, "No, we’re going to allow only one time that they can do it."
So it seems like people aren’t listening to all parties. I guess I’d just like to hear some of your ideas on how to get everybody who is at the table listening to everybody else at the table.
LEN NICHOLS: Bob has been very patient. Do you want to take that one?
ROBERT HURLEY: No.
[Laughter.]
ROBERT HURLEY: But something that Ellen said before I thought is pertinent, perhaps, to this. One of the things that’s really struck me about this issue, since I guess we looked at it the first time back in the TEFRA evaluation about 10 years ago and revisiting it more recently, and particularly talking to plans who are in the process of pulling out or seeing their benefit packages erode and the dislocation for beneficiaries, there’s a real poignancy about this at the plan level, and I think at the provider level, about both a missed opportunity and the prospects of an increasing number of people reverting back to the traditional fragmented system.
That face or that voice of genuine concern about beneficiaries seems not to get debated or not to get reflected in this debate. I think, unfortunately, it’s turned out, and I think I heard Marsha say this before, a food fight over money, which I think is so unfortunate, but that’s really the nature of the debate, as opposed to people really understanding that beneficiaries are really being affected by this, and neither plans nor providers are pleased with the consequences.
KATHERIHE CAPPS: I’m going to change the questioning a little bit. I’d like to make one comment. I’m Katherine Capps from Health Care Resources.
I was interested in your comment, Bob, about managed care, is this overall a failure of managed care, and I’m curious as to whether this is really a failure of managed care or a failure of those vehicles we are choosing to finance and organize care to effectively bring accountability to the system for those beneficiaries of it, the consumers.
That brings me to my question, and that is, in order to sustain it, as you had mentioned, Bill, we’re going to need to change our expectations. I’m curious as to what the panel thinks the expectations of the consumers and employers and those that are receiving the products and services from the health care delivery system, whether the employers are involved in the Medicare end, they are strongly influenced by what happens on the Medicare side of this.
So the question is, in changing those expectations, where do the consumers and employers fit into this?
WILLIAM SCANLON:: I think consumers, both current beneficiaries, as well as future beneficiaries, have a huge sort of stake sort of in these expectations. I mean, one of the things that we need to do is make the Medicare program operate sort of as efficiently as possible, given sort of both the longer term numbers of people that are going to be enrolling, and given, in the short term, sort of the huge gaps that we’ve identified sort of in the benefit package that’s being offered, the fact that Medicare does not have a prescription drug benefit and Medicare does not provide catastrophic coverage, and the fact that consumers, if they want sort of a sound health insurance policy, would like sort of to have both.
So I think that the idea of making the program more efficient, in order to make it sort of more feasible to try and provide some of those additional benefits is key.
Now the other side of that is, and this goes to sort of I think administrative sort of restrictions, I mean, is the issue that consumers want protections against sort of decisions made sort of by third parties, both third parties that are payers, such as the contractors, as well as sort of the plans, and for decisions made by providers. That’s where I think we need a process that protects consumers who enroll in plans to ensure that they do get the benefits that they are entitled to and have the appropriate sort of right of redress.
Employers’ role in this I think is more secondary. They are sort of primarily financing the working age population these days. They have removed themselves more and more sort of from coverage of retirees and have seemingly sort of are generating sort of a much smaller role sort of in the market for retiree coverage than they have in the past.
MARK MILLER: I’d add just one very narrow point to that last thought.
What I saw at CMS were, with respect to the employer market, because I agree entirely with the comments, was actually the plans approaching CMS and other parts of the government and saying what we would like to do is have flexibility to market just to employer groups, much like they do on the private side, where they can get a lot of bang for the buck, go out, hit a bunch of people at one point in time. You may know there’s been a set of waivers added as part of, I don’t know whether it was BBA or BBRA or one of those, that allows the secretary to now begin to waive those rules and allow the plans to enter the employer markets more directly.
My understanding is that there’s movement on that front. I realize it’s a very narrow point, but it is something that the plans are doing with the employers.
LEN NICHOLS: Larry?
UNIDENTIFIED: [Microphone is cutting out.] The interchange between Mark and Ellen brought me up here. Mark, you said that while you’ve heard both sides, physicians who don’t like dealing with the traditional Medicare program and [inaudible] the Medicare HMO program.
But I think there’s a critical difference, which I think needs to be understood if there’s any hope of the Medicare+Choice program continuing, which is this. An individual physician may not like dealing with the traditional Medicare program, but it doesn’t really cost them anything to do it. They don’t have to create an administrative infrastructure to manage care to deal with that. They just see the patients as they come in and complain about how the carrier treats them.
But for a hospital or a physician group or a health plan to deal with Medicare+Choice or a Medicare HMO program, there has to be a huge investment in infrastructure that’s not a trivial thing. Because of this, I question whether even raising payment rates in the short term and lowering administrative requirements, even if the Congress would do that, whether that will, in fact, stabilize the program because there really is a question of can the government make a credible commitment to providers or plans that this is a program that is going to be sustainable and that isn’t going to get jacked back and forth from year-to-year after they make their investment.
I don’t have an answer to this, but I’d be interested in your comments. It seems to me that it’s a chicken-and-egg problem. As long as there is not a credible expectation that this is a program that will be viable going down, that no one is going to want to come back in and make a commitment or very few people, even if payment rates are better.
On the other hand, frankly, I don’t see how the government can make such a commitment. So I’d be interested to hear your comments.
MARK MILLER: I guess I have to take the first pass since I started it.
Let me respond to a couple of things. I do agree with your point, particularly at the end of your comments, where you said, if you just change the rates and don’t provide whatever other kind of stabilizing infrastructure that would make somebody enter this marketplace and say, "I think that you’re entering with a good business partner," that you need that fixed, and I completely agree with that.
My comment on, if I may, this comment was at least a thought, could you get people back is--I think the plans, if the payment rates were made satisfactory to the plans, however that is, I think plans would be willing to come back. It’s a secondary question of whether they could enter into contracts with providers and bring them with them. I think plans would be willing to come.
The last thing I’ll say is I disagree with the first part of your comment, at least to the extent that physicians were in my office regularly, you know, jumping all over me on this. They feel like they do have significant investments they have to go through on the fee-for-service side, that they have to change, they have to hire office staff, and these are hospitals, too, the same scenario, you guys change your payment systems so often, I have to change my payment systems. I have to hire people to understand your rules. I have to hire people to handle the audits when they come in. You change your coverage rules, and I have to completely change what I’m doing, who I’m seeing in my billing practices.
I have been in rooms with physicians, where they have very vehemently argued that it is a large investment on the fee-for-service side to make it work. I agree that you would think that it would be less so. You see your patients, you complain about the carrier, everybody does it. But their argument is that there is a significant cost factor that they realize in their practices. That’s what they say.
I don’t want to put too fine of a point on this, but I’ve heard this, at least.
LEN NICHOLS: Let’s take one more, and then Paul will come up and close it.
CAROLINE STEINBERG: I’m Caroline Steinberg from the Lewin Group.
I guess this morning we heard a lot about how there is not a lot of care management or managing of care in managed care, and a lot of the savings from managed care comes from provider discounts. There has been a fair amount of aggressive management of length of stay and sort of fledgling efforts at care management and disease management.
I guess if you take this and apply it to Medicare, you’re not going to get any more provider discounts, especially in a post-BBA world. You’ve already gotten most of the length of care stay savings out of DRGs. I mean, if you look at the length of stay, most of that came out in the first 3 years after DRGs and very little came out in the next 10 years of managed care penetration increases.
So I guess what my question is, is sort of is there enough cost savings left, once you take these things out, to justify the very huge increase in administrative costs that you incur when you go into a managed care kind of plan?
LEN NICHOLS: Brian, since you actually manage one of these animals, why don’t you speak to that.
BRIAN JEFFREY: It’s a good question. I think there is. If you look at we’ve got a new focus on population management, I think partially driven by the fact that we are scrambling to try to balance costs against revenue and probably should have done this years ago, but population management has become much more of a focus. We’ve got about 7,000 members now on the Medicare side in one form of population management program or another.
If you look at CHF, if you look at end-stage renal disease, if you look at preponderance of costs at the end of life, there are areas, I think, where you can provide better care up front, avoid costs down the line, and some of them are things that plans are well-positioned to do, as opposed to providers because of the information systems we have.
So I think there are savings out there. Now, ironically, one of tools that we’ve got to support that has been the pharmacy benefit. The pharmacy benefit, not only is it critical for the maintenance of some of these preventive care issues, it also provides a very good source of information on people who should be on certain medications that aren’t currently. It gives us a perspective beyond the encounter data that fee-for-service generated claims into what’s actually happening with care.
So, as we’ve had to reexamine the pharmacy benefits, it’s taken away one of the critical tools to try to foster some of that population management. I think there are, in this population in particular, some genuine opportunities for savings on the chronic care side.
And, again, without bringing in all of the potential administrative questions and all of the challenges that come around some sort of risk-adjusted payment system, there is that inherent challenge of building a system that supports these areas without generating some sort of adverse selection against the plan in the process of doing it. But I think there is a lot of work that can e done in this population.
LEN NICHOLS: On that cautiously optimistic note, join me in thanking the panel, and Paul is going to come up and have a few closing remarks.
[Applause.]
PAUL GINSBURG: I want to thank you all for coming to this meeting. I do need to acknowledge that a number of people at HSC were very heavily involved in the planning of this conference. They did a wonderful job. Some of the key ones are Cara Lesser, Alwyn Cassil, Roland Edwards, Teri Armstrong, Donna Lovelace, and Mukarrama Terrell.
So please give them a round--
[Applause.]
PAUL GINSBURG: Number two, I’m pleased to say that Round Four will be beginning soon. We’re going to start to plan it next month, and we’re going to have a lot of stability in the project. All of the presenters that you saw today will be involved in the same or similar roles in Round Four.
The final thing is those blue pieces of paper, evaluation forms, I’d really appreciate if you could fill them out. We’re researchers, we do surveys, we worry about response rates, but we do use them.
Thank you for very much.
[Applause.]
[Whereupon, at 3:22 p.m., the proceedings were adjourned.]