HMOs Receive ‘Excessive’ Reimbursements in Medicare+Choice Program

HMOs have "long touted" their "ability to save Medicare money" and provide seniors with additional benefits, but "numerous" studies suggest that the Medicare+Choice program has cost taxpayers "billions of dollars more" for basic benefits because payments were not appropriately adjusted to reflect patient risk, the Sacramento Bee reports. The research, "vociferously challenged" by the managed care industry, has drawn "little public attention," but "it goes to the heart of a raging debate over Medicare's future," posing a "fundamental challenge to the view that HMOs are an answer to Medicare's spiraling costs." According to "government and private studies" conducted over the past two decades, taxpayers have paid HMOs, which enroll "healthier" Medicare patients, "excessively" for standard benefits provided under traditional Medicare, the Bee reports. HMOs receive monthly payments from Medicare based "mainly" on the average cost of providing benefits to the program's fee-for-service beneficiaries. However, reimbursements to HMOs -- which recent data suggest serve patients 5% to 10% healthier than traditional Medicare -- have "not been adequately risk-adjusted." The Bee reports that research "continues to show" that HMO patients "on average cost Medicare anywhere from 3% to 8% more" than fee-for-service patients." Last summer, the General Accounting Office found "an even bigger overpayment" in a study of 800,000 Medicare beneficiaries who enrolled in 210 HMOs, revealing that the health plans enrolled patients 13.2% healthier than those in traditional Medicare and received $3.2 billion in overpayments from the program. Bruce Vladeck, who served as HCFA administrator from 1993 to 1997, called the research "incontrovertible." Vladeck said, "This is an area in which the beliefs of many politicians are just contrary to the data. Historically, the public sector in health insurance in the United States has significantly outperformed the private sector."

Richard Smith, a vice president for the American Association of Health Plans, called the studies "erroneous," and pointed out that many patients' medical records "make them look deceptively healthy before they enroll" in HMOs because they "could not afford the out-of-pocket payments in the fee-for-service system and deferred needed care." Mark McClellan, President Bush's newly appointed White House health care adviser, also "cited the lack of medical data from HMOs as a problem in the studies." Managed care organizations did not start submitting data to the federal government until Congress required them to do so in 1997. McClellan said that "most data on commercial health-care markets point to ... private plans being less expensive." He also "denied suggestions" that the Bush administration "want[s] to steer more seniors into HMOs." McClellan said, "All the administration really wants to do is to make sure seniors get the kinds of options that members of Congress have, that federal employees have." The Bee reports that HCFA officials "are declining to comment" on the Medicare managed-care program research "as they await the new administration's policies" (Gordon, Sacramento Bee, 4/23).