MEDICARE: Payment Discourages HMO Disease Management

      A change in Medicare reimbursement rules for chronically ill patients may penalize HMOs for effective disease management and provide a "perverse incentive" to hospitalize chronic enrollees, the Wall Street Journal reports. The new rules, which will be phased in beginning Jan. 1, set higher payments to insurers for chronically ill patients, providing an incentive for HMOs to cover those with expensive chronic diseases. To qualify for the higher rates, however, a patient must have been hospitalized as a result of a chronic illness for at least two days in the previous year -- meaning that insurers with extensive disease management programs will receive much lower reimbursements for seriously ill patients if they treat them successfully and keep them out of the hospital.

'Alarmist'?
      Insurance executives complain that the new rules will encourage unnecessary hospitalization and reward health plans that fail to manage chronically ill patients well. Meanwhile, they say, insurers that invest in disease management, which usually pays off in terms of better health, lower mortality rates and reduced long-term costs, will lose money. The hardest hit will be HMOs that care for the sickest Medicare beneficiaries and try to keep patients out of nursing homes as long as possible, experts say. They warn that the rule changes could have unintended consequences for insurers attempting to find ways of meeting the long-term care needs of the aging population. Though HCFA officials recognize the problem, they call critics of the rule changes "alarmist," saying that the program, which won't be fully implemented until 2004, is "a good start" on improving a system that currently "starves the good guys and bloats the sharks." HCFA officials are considering insurer complaints, but under federal rules cannot change the system before January 2001 without Congressional intervention (Gentry, 11/16).