MEDICARE HMOS: Under Pressure As Pay Rates Change
Today's Wall Street Journal reports that the federal government is "squeezing" Medicare HMO payments, "authorizing rate increases of barely 2% a year from 1998 onward, after boosting reimbursement as much as 10% annually earlier this decade." As a result, some "HMOs worry that Medicare's austerity will crimp their own finances, or force them to offer less-palatable choices to members." Although large health plans like PacifiCare and Humana "keep signing up the elderly at a brisk rate and say it is profitable to do so," some HMOs are already "trimming" benefits "as they feel the pinch of the new reimbursement rates." Heidi Margolis, head of government programs at Humana, said, "There's a delicate balance between budget concerns and being able to provide a level of benefits that will attract seniors to managed care."
Times Have Changed
Medicare HMOs have flourished in areas such as Miami, Los Angeles and New York City, "where per-patient reimbursement levels reach $600 or more a month." But the Balanced Budget Act of 1997 now "squeezes funding in richer areas." Nancy-Ann Min DeParle, head of the Health Care Financing Administration, said "Managed care holds a lot of promise in keeping down costs in Medicare as long as we fix the pricing." DeParle also "has high hopes for developing better ways to adjust payments based on patients' health status." She said, "That way, Medicare HMOs won't be able to profit by seeking out healthy members and dodging the sick." Rep. Bill Thomas (R-CA), the chair of the House Ways and Means health subcommittee, said the changes made last year were "long overdue." He said "the government's longtime pay scale" for Medicare HMOs was "'an artificial creation' that varied excessively by region."
R&R For Uncle Sam?
According to the Journal, as "Medicare's bureaucrats pull back, the federal government won't be obligated to micromanage Medicare." Instead, the government "can simply set funding levels, decide which health plans are entitled to serve the elderly, and then police those plans and their doctors to make sure that quality standards are met." It will be health plans that will face the "challenge of cutting costs without upsetting the public." The Journal notes that the "pinch is already being felt in places like Fresno, CA, where Medicare HMOs get just $380 per member per month, the lowest rate in California." With such low reimbursement, "[m]ost hospitals and health plans there are struggling to break even on the Medicare managed care business." V.J. Jones, CEO of California HMO Priority Health Care said, "They will keep delivering high-quality care. But I don't know how long we can keep hanging on."
The Journal reports that "Washington's leaders ... are betting that HMOs' grumbles won't generate much sympathy. The managed care industry has made enough money during Medicare's fat years -- and is such a convenient scapegoat for Americans' ambivalence about how much should be spent in pursuit of quality health care -- that few people are likely to feel for HMOs that suffer cuts in Medicare payments" (Anders, 4/16).