Physician's Capitation Trends-HCFA blame misdirected, agency tells Congress
Physician's Capitation Trends-HCFA blame misdirected, agency tells Congress
Nationwide financial tumult fingered as culprit
Medicare officials have a message for HMOs: Don't blame us for your problems. You may be dropping out of Medicare HMO contracts, but you're dropping out of other markets, too.
In a sharply worded report to Congress in early October, Health Care Financing Administration (HCFA) officials made their case that despite some declines in beneficiary enrollment in Medicare+ Choice (the Medicare HMO plan), the system is alive and well and merely reflecting the private sector's overall market swings.
HCFA cites industry's overall difficulties
"Volatility in the marketplace is not confined to Medicare," the report says. "Program withdrawals, reduced benefits, and premium increases are not unique to Medicare. They reflect the industry-wide difficulty organizations have faced in the last few years in controlling costs while attempting to maintain quality and profit levels."
These ups and downs have been widely reported in the professional and popular press, HCFA officials note. Here are four examples they cite:
• PacifiCare is withdrawing from both Medicare and commercial markets in several Washington state counties.
• Group Health Cooperative in Seattle is pulling out of Medicare and non-Medicare markets in 14 counties in eastern Washington and northern Idaho, citing a variety of reasons.
• In the northeastern area, Kaiser Permanente is withdrawing from Medicare, Medicaid, and its commercial business, affecting 500,000 enrollees. "Kaiser [officials have] specifically said that its withdrawal from these markets cannot be attrib uted to changes in Medicare payments," the report says.
• The Federal Employees Health Benefits Program (FEHBP, with 9 million federal enrollees) has witnessed changes similar to Medicare+ Choice. At the end of 1998, about 20% of participating HMOs withdrew from FEHBP. At the end of 1999, a 13% withdrawal rate is projected.
The dropout rate is not the only barometer of volatility, say HCFA officials. Rising premiums and reduced benefits are two other key indicators, both of which are occurring in commercial plans as well as in Medicare+Choice. One of the more stubborn advocates of holding the financial line — the California Public Employees Retirement System, with one million insured employees — agreed to an average premium increase of 7.3% for 1999 and more than 9.7% for 2000, representing the largest premium increase since 1991.
Overall, HCFA estimates, commercial premium rate hikes will average 9% in the year 2000, much like the 9.5% already established for FEHBP. The New York City-based Towers Perrin consultancy reports that large employers experienced a 7% average premium increase in 1999 — the same level for fee-for-service as for managed care products.
Officials say Medicare subsidized other payers
Large increases in the private sector follow years of Medicare underwriting the private sector to some extent, HCFA officials argue. In the same years when commercial rates remained steady, 1991-1998, "Medicare increases were two to three times higher than private sector increases, and in fact some financial analysts have pointed out that Medicare revenues subsidized premiums of other payers. Those years of excessive Medicare payment increases greatly contributed to the ability of organizations to provide generous benefits packages."
Inadequate payment levels are not the only — perhaps not even the driving — reason HMOs choose to pull out of Medicare HMO contracts in certain areas, the report states. Even in counties where there are zero premium plans, some insurers are bailing out, HCFA argues. (By zero premium, HCFA is referring to plans in which there is not a monthly charge beyond the regular Part B Medicare premium to enroll in the Medicare HMO plan of a particular area.) "If Medicare payments were insufficient for the revenue needs of organizations, one would expect to find zero premium options being limited to the highest payment areas," HCFA says. "The data do not show that to be the case."
David F. Thomas, chief executive officer of Midwest Physician Group in Olympia Fields, IL, agrees with HCFA that many of Medicare+Choice's ups and downs are reflective of managed care overall. The troubling trend Thomas is keeping a close eye on is the merger of major HMOs so that competition dwindles.
"It's not capitation itself; it is the lack of competition, the small number of insurers who control a major part of the market," says Thomas. "When that occurs, you can't recruit physicians. Why should they work in your area if they can go somewhere else and be paid 30% more?" The issue becomes low unit payment, not the capitation payment structure itself.
Referring to California physician concerns about practices closing, Thomas says this phenomenon — as well as Medicare bailouts in many markets — is a reality. "I thought, 'Wow!' when I learned about California's situation," he said. But he then he recalled recently working with a physician practice in northern Michigan where the HMO market became so conglomerated that the practice folded, mainly because of its inability to recruit and maintain physician participation. That's the same kind of scenario HCFA is depicting in its report on Medicare+ Choice, Thomas says.
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