Proposal Calls For New Payment Structure Under Medicare+Choice

When Congress considers whether to once again increase payments to Medicare+Choice plans, it should ignore recent recommendations by the Medicare Payment Advisory Commission and the House Ways and Means Committee leadership to enact "payment equality" between Medicare managed care plans and the Medicare fee-for-service program at the local level, Robert Berenson writes in a paper published Nov. 28 on Health Affairs Web site. Instead, Congress should construct a new payment structure that rewards plans based on measures of quality and coordinated care, he says. Berenson, senior adviser at the Academy for Health Services Research and Health Policy in Washington and adjunct professor at the University of North Carolina School of Public Health and Duke University School of Business, says the relationship between fee-for-service and HMO payments, which is based on a "formal linkage" between the two, has been "out of kilter for years." In the early 1990s, Medicare payments to health plans were in excess of actual costs because fee-for-service costs were "rising rapidly." But recently, "flat" fee- for-service spending has "yielded HMO payments that lagged well behind actual spending growth" (Health Affairs release, 11/28).

Severing the Link
As a solution to this problem, Berenson says that "perhaps the formal linkage between spending for Medicare+Choice plans and traditional Medicare should be removed rather than reinforced," as recommended by MedPAC last March. He adds that it "seems odd that Medicare+Choice plan payment increases are not based on their own performance but rather are tied directly to the annual success or failure of an 'any-willing-provider' government purchaser ... that must meet social and political objectives and does not have the freedom to compete as a private insurer would." With the payment structure severed, Medicare+Choice could be seen as "another provider type, with payment updates based on its own characteristics and performance, much as Congress treats hospitals, physicians or home health agencies. In addition, Berenson suggests that CMS set payments to Medicare+Choice plans based on quality measure scores, thereby giving plans an incentive to boost the quality of care. He concludes: "Instead of viewing plans as a primary vehicle for reducing program costs or providing additional benefits, it might be more appropriate, instead, to reward private plans that improve quality and help manage the care for Medicare beneficiaries with chronic disease. Changing the focus of the program will require severing the current payment linkage between Medicare+Choice plans and the traditional Medicare program and designing a new regulatory and payment regime for contracting private plans" (Berenson, "Medicare+Choice: Doubling or Disappearing?" Health Affairs Web site, 11/28).

Seeking Reaction
Health Affairs also published five responses to Berenson's proposal on its Web site. Their titles and authors are as follows:

• "Medicare+Choice: Where Did the Scorekeepers Go Wrong?" -- Joseph Antos, resident scholar at the American Enterprise Institute.
• "Medicare Managed Care: Preserving an Option for the Future" -- John Bertko, vice president and chief actuary of Humana Inc.
• "Medicare+Choice: A Time for Hibernation" -- Ronald Klar a physician/consultant in Washington, D.C., who provides consulting services for private health plans.
• "Paying Medicare+Choice Plans: The View from MedPAC" -- Murray Ross, executive director of MedPAC.
• "Adding Quality to the Health Care Purchasing Equation" -- Patricia Salber, medical director of Managed Care Health Care Initiatives, GM, and Bruce Bradley, director of managed care plans, Health Care Initiatives, GM (Health Affairs Web site, 11/28).