Health Affairs Paper Calls For New Medicare+Choice Payment Structure

As Congress considers whether to once again increase payments to Medicare+Choice plans, it should ignore recent recommendations from the Medicare Payment Advisory Commission and the leadership of the House Ways and Means Committee to enact "payment equality" between Medicare HMOs and the Medicare fee-for-service program at the local level, Robert Berenson writes in a paper published today on the Health Affairs Web site. Instead, lawmakers should construct a new payment structure and reward plans based on measures of quality and coordinated care, Berenson, senior advisor 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. Berenson 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).

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 in 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 develop quality measures and set payments to Medicare+Choice plans based on their scores, thereby giving them 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?" 11/28).