The Spectre of Managed Medicare

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Monday, March 31, 2003

Linda Sauls remembers the good old days, when managed Medicare+Choice paid more than fee-for-service. Now the roles have been reversed in a big way, says Sauls, A/R director for LifeCare Solutions in Fort Lauderdale, Fla. For an oxygen concentrator, for instance, her company receives $149.63 in reimbursement from a Medicare+Choice plan and $213.75 from Medicare fee-for-service - a difference of $64.12. “Basically, if we want to be competitve and have business, we have to accept it,” she says. “It’s the payers. They come to you with a contract, and they say, ‘Take it or leave it.’ These are the all big payers that do this. They know there’s always someone out there who will still take the money.” But would she want more managed Medicare business?
“Why would we want more managed Medicare?” she says. “It’s mangled care.”

Sauls says LifeCare has to keep itself understaffed just to make do with the reimbursement it receives from managed Medicare companies.

Managed Medicare and beneficiaries have a rocky relationship: Many of the managed care companies that wooed beneficiaries in the 1990s have been packing their bags and moving out while beneficiaries, jilted and jaded, have been opting for fee-for-service over managed care plans in increasing numbers.

That’s fine with most HME providers who would prefer not to do more business with managed Medicare. They say dealing with managed Medicare means relatively poor pay, slow reimbursement and inconsistent coverage policies - an “administrative nightmare,” as one provider put it. There’s also a vague, uneasy feeling that managed Medicare favors larger providers over smaller providers.

Yet the Bush administration has set its sights on reforming Medicare by sweetening the relationship between managed Medicare and beneficiaries.

In his recent State of the Union address, the president publicized a proposal that creates a prescription drug benefit and offers it to beneficiaries who are willing to enroll in a version of Medicare that relies on managed care. Though fee-for-service will still be available, the proposal envisions no prescription drug coverage for beneficiaries enrolled in that plan.

The proposal is an “irresistible incentive” for beneficiaries to switch to managed Medicare, says Ann Howard, director for federal policy at the Washington-based AAHomecare.“It’s a carrot,” she says. “They’re using a carrot instead of a stick. If they offered a drug benefit under traditional Medicare fee-for-service, beneficiaries would stay. But they want them to leave.”

So if all goes as Bush plans, HME providers might have little choice but to do more managed Medicare business. What would that mean?

The rise and fall

Medicare, a program in its 38th year, currently offers two health plans to beneficiaries: traditional fee-for-service or Medicare+Choice. The latter includes managed Medicare plans like HMOs and PPOs, and private fee-for-service.

Under traditional fee-for-service, beneficiaries make co-pays to receive basic services from any provider they choose. Under Medicare+Choice, they pay a premium (and sometimes make co-pays) to receive basic services and sometimes “extras” like prescription drug benefits, but they are restricted to a network of providers. Few Medicare HMOs can afford to offer a drug benefit today. In a PPO, however, a beneficiary is allowed to visit a provider outside of the network, but he must pay an additional cost. Under private fee-for-service plans, beneficiaries also pay a premium and co-pays to receive basic services and “extras,” but they have the freedom to choose their provider.

While Medicare pays a provider 80% of a beneficiary’s costs in fee-for-service, it pays insurers a capitated rate to pay a beneficiary’s costs in Medicare+Choice.

Recent studies show the number of Medicare+Choice plans being offered to beneficiaries dropped to 240 in 2002. And the percentage of beneficiaries opting to sign Medicare+Choice plans in lieu of fee-for-service plans dropped to 14% or 5.6 million patients. But it wasn’t always that way.

Managed Medicare grew steadily in the late ‘90s, with beneficiaries participating because of “extras” like drug benefits. And HMOs quickly served them, thinking they could make a buck if they didn’t spend more on medical costs than they received in capitated fees. At its peak in 1999, the number of Medicare+Choice plans hit 450, according to CMS. And the number of beneficiaries enrolled in those plans hit 6.3 million, according to the American Association of Health Plans (AAHP).

But since then, the number of plans and the number of beneficiaries in managed Medicare has steadily decreased. There is no sign that will change, either: Another 670,000 beneficiaries are expected leave Medicare+Choice plans by January 2004, the AAHP reports.

Managed Medicare companies say it is a matter of dollars and cents. While healthcare costs are rising 10% to 15% per year, reimbursement is capped at 2% annually, thanks to the Balanced Budget Act of 1997 (BBA ’97). They say they are not getting enough money from Medicare to pay the costs of beneficiaries.

Medicare companies tried to keep their medical costs low (and their profits high) by sponsoring events like “Medicare HMO dances,” which helped them recruit healthy seniors, but when healthy beneficiaries got sick, the costs caught up with them, says Dave Kazynski, director of Homelink, the VGM Group’s managed care division.

“Medicare HMOs underestimated the cost of caring for that patient population,” he says. “They got out because there was no money to be made.”

And with managed Medicare companies holding the purse strings, there wasn’t much money left for providers.

The managed Medicare maze

LifeCare Solution’s Sauls’ take on managed care resonates all over the industry. In a recent HME NewsPoll, 85% of 160 respondents said that they do not want more managed Medicare business. Mary Ellen Doran is one of those respondents. Unlike Sauls, however, she says her company refused to sign a contract with the biggest HMO in the area because they were offering 55% of the Medicare allowable.

“We’re not out to make millions of dollars,” says Doran, manager of the Med Supply Closet in Colmar, Penn. “But we’d like to make a living.”

Not only does managed Medicare typically pay less, they are typically slower to reimburse, providers say. Sauls said a clean claim will take between 60 to 90 days for a Medicare+Choice plan to process, when it takes 15 days for fee-for-service. One NewsPoll respondent said a claim takes between 90 to 120 days for a Medicare+Choice plan to process.

A report recently released by AAHomecare shows that these providers’ experiences with Medicare+Choice are common.

It’s often thought that with managed Medicare plans, providers can at least reduce their paperwork - a huge cost. But Sauls says that’s not always the case. Whereas fee-for-service requires a certificate of medical necessity (CMN) each year for authorization for respiratory therapy, a Medicare+Choice often requires a pulse ox test every three to five months.

“We can’t charge for the test, so we eat the $40 it costs for the test and the cost of sending a respiratory therapist to do the test,” she says.

Adding to the paperwork burden is the high turnover in Medicare+Choice. Beneficiaries are often jumping in and out of the plans, depending on their health.

“A lot of times we ship thinking a patient has one type of insurance, only to find out they don’t have it anymore,” Doran says. “The poor patients have no idea. They’re calling us, asking us what insurance plan they have. It’s crazy.”

Sharon Webb agrees. “My mother has signed up for three different HMOs,” she says, v.p. of Reading Medical in Shillington, Penn. “And this is a lady who’s a school teacher.”

Another provider says Medicare+Choice won’t always pay for equipment that fee-for-service will pay for. A Medicare HMO in his area won’t pay for oxygen conserving devices, for instance. Even if a beneficiary has paid for a conserving device out-of-pocket, the HMO won’t pay for the cylinders a beneficiary needs because it does not own the regulator, he says.

Webb has had the same experience with her local managed Medicare plan. It would not approve a commode, for instance, which is typical for a patient who has undergone hip replacement surgery. Even after numerous phone calls, the commode was never reimbursed because the HMO said it was a convenience item, she says.

“That’s the thing - Medicare gives guidelines, and you know when you’re covered and when you’re not,” Webb says. “We might not like the reimbursement, but we know the system. With managed Medicare, you often get different answers. It’s so time consuming.”

Providers say more managed Medicare might also mean the death knell for mom-and-pop providers. One respondent to the NewsPoll said HMOs look at smaller providers with “disdain,” preferring to do business with larger providers who can offer them cost efficiencies.

Asela Cuervo points to another reason why providers prefer to do fee-for-service business over managed Medicare: When a provider signs a Medicare+Choice contract, the contract sets the parameters for the provider’s legal rights - period; however, when a provider does fee-for-service, he has procedural rights ensured by the Constitution.

“That’s a big one,” says Cuervo, v.p. of government relations and general counsel for AAHomecare.

The flip side

Not all providers think managed Medicare is a “nightmare,” however.

One provider says Medicare+Choice will sometimes pay for equipment that fee-for-service won’t pay for, especially if the equipment is considered preventative care. Because a grab bar for a bath tub might prevent a beneficiary from falling and breaking his hip and costing the insurer even more money, for instance, a Medicare+Choice is sometimes more apt to pay for such equipment.

“Managed Medicare looks more at the outcomes,” the provider says. “The goal is to keep the patient in the home, where it’s the least restrictive and the least expensive setting. They’re able to think outside of the box more.”

Another provider thinks providers may be only getting what they asked for from managed Medicare companies. When they came knocking on his company’s door in their hey-day and tried to court him with something like 75% of the Medicare allowable, he said, “Good luck.” But other providers said, “We’ll take it,” and that’s where the relationship ran into trouble, he says.

“Managed Medicare companies don’t want to build a quality network - they want cheap prices,” says Fran Burke, president of the Chicopee, Mass.-based Burke Medical Equipment. “If a provider wants to sell stuff at their price, and he doesn’t care to follow up, and he could care less about the care his patients receive, then he signs up. We just wouldn’t do it.”

Burke Medical has been able to carve out a small but successful managed Medicare business by choosing its managed Medicare contracts wisely, Burke says. That means negotiating a “reasonable fee schedule” and agreeing to “reasonable expectations,” he says. For instance, Burke won’t agree to provide service 24 hours a day, seven days a week. As a rehab provider - unlike, say, a respiratory provider - he doesn’t feel that’s a necessary service, he says.

“If you’re dumb enough to take what they give you, and they’re smart enough to get away with it, who’s the stooge here?” Burke says.

Burke says he’s not sure more managed Medicare would mean a death knell for smaller providers, either. Larger companies that contract with HMOs rarely offer coast-to-coast service, and managed Medicare companies call smaller providers all the time, trying to court them with out-of-network deals, he says. That’s where a smaller provider is at an advantage.

“We’re able to negotiate the price, nose-to-nose, that day, when they need it most,” Burke says. “I’d say we do one of those every day.”

Cuervo agrees. She says managed Medicare doesn’t necessarily put larger providers in a better position. In fact, she’s heard the opposite: that smaller providers would have more flexibility to adapt to more managed Medicare.

“In general, it’s going to be the providers with good service and good referrals,” she says. “Those are the ones that do well in any situation. Those are the ones doing well today.”

But Cuervo says managed Medicare does put more emphasis on a provider’s ability to negotiate. When dealing with Medicare fee-for-service, providers “stand in the same shoes,” she says - all providers have to do is meet certain criteria. When dealing with managed Medicare, however, the atmosphere is more competitive. Providers must compete with each other to win contracts from networks of physicians and hospitals.

The future

Providers agree on one thing: They will be watching closely to see whether Congress bites at Bush’s proposal. Opposition, especially from Democrats, may be considerable, according to major newspapers: Democrats argue the proposal discriminates against beneficiaries who stick with fee-for-service because they can’t afford HMO premiums, and moderate Republicans resist changing Medicare at all. What would more managed Medicare mean to HME providers? It is hard to say this early in the game, Howard says. The devil is in the details.

“It could potentially have a huge impact,” she says. “Providers and Medicare would have to find a new way of relating to each other. They’d have to.”

Providers agree on another thing, too: Competitive bidding is still enemy No. 1. When asked whether more managed Medicare would be better than national competitive bidding, providers say they will take more managed Medicare any day. And yet 85% don’t want to see more managed Medicare.

That’s not surprising, Cuervo said. In managed Medicare, you bid what your costs are and the value of your services; in competitive bidding, services are often neglected, she says.

“In competitive bidding, they want you to bid lower than the fee schedule amount,” Cuervo says. “It’s more of a cat-and-mouse game. There’s more flexibility in managed Medicare.”

VGM’s Kazynski says the hope of providers who dislike doing managed Medicare business may lie with beneficiaries.

“I don’t think anyone is going to influence that population by saying it’s a good deal, and you’re a good Republican, so go sign up,” Kazynski said. “Beneficiaries do what they think is best for them. [The government] is going to have to be very creative with what they come up with.” HME

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