MEDICARE HMOs: Receive Adequate Reimbursements, HHS Says

      Although managed care organizations have said that Medicare cuts imposed by the 1997 Balanced Budget Act are "too severe" and would "reduce beneficiaries' access to plans and additional benefits," a report from the HHS Office of Inspector General states that MCOs receive "more than an adequate amount" to care for Medicare beneficiaries. The BBA, which established the Medicare+Choice managed care program, also implemented changes in the Medicare payment system to correct excessive payments and reduce geographic variations, the report notes. Many MCOs, however, are planning to leave the Medicare program, citing higher-than-expected inflation and the "growing gap" in funding between the Medicare+Choice and fee-for-service programs. But the OIG report maintains that the "overall impact" of the BBA is that MCO payments during calendar year 2000 will be about 95.5% of the average amount paid in the Medicare FFS program. After fully adjusting for "risk selection," the OIG report notes that the "effective payment rate" during CY 2000 should be 90.5%. However, the Balanced Budget Refinement Act of 1999 delayed the risk adjustment factor's full implementation, resulting in MCOs' receipt of $1.8 million more in Medicare payments than they should have received under risk adjustment. The BBA also required that MCO payments no longer be tied directly to FFS costs, instead basing payments on a blend of the local and national rates, or a minimum 2% annual increase. The report notes that the 2% increase will result in overpayment of $1.5 billion during CY 2000. The report concludes that the "base of payments on which MCOs are paid is incorrect, resulting in higher than necessary monthly capitation payments." Furthermore, the OIG recommends that HCFA use the report to modify present monthly rates to "a level fully supported by empirical data" ("Adequacy of Medicare's Managed Care Payments After the Balanced Budget Act of 1997," September 2000).