MEDICARE HMO ENROLLMENT GROWTH AND PAYMENT POUCIES HEARING BEFORE THE SUBCOMMITTEE ON HEALTH OF THE COMMITTEE ON WAYS AND MEANS HOUSE OP REPRESENTATIVES ONE HUNDRED FOURTH CONGRESS FIRST SESSION MAY 24, 1995 Serial 104-58 Printed for the use of the Committee on Ways and Means U.S. GOVERNMENT PRINTING OFFICE 26-329CC WASHINGTON : 1996 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-053954-4 COMMITTEE ON WAYS AND MEANS BILL ARCHER, Texas, Chairman PHILIP M. CRANE, Illinois SAM M. GIBBONS, Florida BILL THOMAS, California CHARLES B. RANGEL, New York E. CLAY SHAW, Jr., Florida FORTNEY PETE STARK, California NANCY L. JOHNSON, Connecticut ANDY JACOBS, Jr., Indiana JIM BUNTnTING, Kentucky HAROLD E. FORD, Tennessee AMO HOUGHTON, New York ROBERT T. MATSUI, CaUfomia WALLY HERGER, CaUfomia BARBARA B. KENNELLY, Connecticut JIM McCRERY, Louisiana WILLIAM J. COYNE, Pennsylvania MEL HANCOCK, Missouri SANDER M. LEVIN, Michigan DAVE CAMP, Michigan BENJAMIN L. CARDIN, Maryland JIM RAMSTAD, Minnesota JIM McDERMOTT, Washington DICK ZIMMER, New Jersey GERALD D. KLECZKA, Wisconsin JIM NUSSLE, Iowa JOHN LEWIS, Georgia SAM JOHNSON, Texas L.F. PAYNE, Virginia JENNIFER DUNN, Washington RICHARD E. NEAL, Massachusetts MAC COLLINS, Georgia ROB PORTMAN, Ohio PHILIP S. ENGLISH, Pennsylvania JOHN ENSIGN, Nevada JON CHRISTENSEN, Nebraska Phillip D. Moseley, ChiefofStaff Janice Mays, Minority ChiefCounsel Subcommittee on Health BILL THOMAS, California, Chairman NANCY L. JOHNSON, Connecticut FORTNEY PETE STARK, California JIM McCRERY, Louisiana BENJAMIN L. CARDIN, Maryland JOHN ENSIGN, Nevada JIM McDERMOTT, Washington JON CHRISTENSEN, Nebraska GERALD D. KLECZKA, Wisconsin PHILIP M. CRANE, IlUnois JOHN LEWIS, Georgia AMO HOUGHTON, New York SAM JOHNSON, Texas (II) CONTENTS Page Advisory ofMay 9, 1995, announcingthe hearing 2 WITNESSES Physician PaymentReviewCommission, Gail R. Wilensky, Ph.D., Chair 7 Prospective Payment Assessment Commission, Stuart H. Altman, Ph.D., Chairman 17 U.S. GeneralAccounting Office, H,ealth, Education, and Human Services Divi- sion, Jonathan Ratner, Associate Director, Health Financing and Policy Issues 43 Butler, Stuart M., HeritageFoundation 76 CIGNAHealthcare ofArizona, Inc., Martin Block, M.D 98 FHP Health Care, RichardJacobs, M.D 108 HealthPartners ofSouthernArizona, PaulA. Zucarelli 116 Kendall, David B., ProgressivePohcyInstitute 88 PARTNERS Health Plan ofArizona, PaulA. Zucarelh 116 SUBMISSIONS FOR THE RECORD AirForce SergeantsAssociation, James D. Staton, statement 132 AmericanAcademyofActuaries' MedicareWork Group, statement , 134 American RehabilitationAssociation, statement 144 American Society ofPlastic andReconstructive Surgeons, statement 149 Coalition ofMental Health Professionals and Consumers, Inc., Karen Shore, statement and attachments 153 Consortium for Citizenswith Disabilities, statement 163 Luther, Hon. Bill, a Representative in Congress from the State ofMinnesota, statement 167 PatientAccess to SpecialtyCareCoalition, statementand attachment 168 (III) MEDICARE HMO ENROLLMENT GROWTH AND PAYMENT POLICIES WEDNESDAY, MAY 24, 1995 House of Representatives, Committee on Ways and Means, Subcommittee on Health, Washington, DC. The Subcommittee met, pursuant to call, at 10:08 a.m., in room 1100, Longworth House Office Building, Hon. Bill Thomas (Chair- man ofthe Subcommittee) presiding. FThe advisory announcing the hearing follows:] (1) 2 ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS SUBCOMMITTEEONHEALTH FORIMMEDIATERELEASE CONTACT: (202)225-3943 May 9, 1995 No. HL-Il Thomas Announces Hearings on Increasing and Improving Options for Medicare Beneficiaries — Private-SectorLessonsto beSought— CongressmanBill Thomas(R-CA), Chairman, SubcommitteeonHealthofthe Committeeon WaysandMeans,today announcedthatthe Subcommitteewillholdaseriesof hearingstoexplore increasingandimprovingoptionsforMedicarebeneficiaries,withafocus onprivate-sectorsuccesses. Thehearingdates and subjectsareasfollows: Tuesday, May 16, 1995: ExperienceinControllingCostsand Improving QualityinEmployer-BasedPlans Wednesday, May24, 1995: MedicareHMOEnrollmentGrowthand PaymentPolicies Thursday, May 25, 1995: ThePotential RoleforEmployers,Associations, and MedicalSavingsAccountsin theMedicare Program The hearingson May 16 and May 24,will beheld inthemain Committeehearing room, 1100 Longworib HouseOfTice Building, beginningat 10:00a.m. Thehearingon May 25will be held in room B-318 oftheRaybum HouseOfficeBuilding, beginningat 10:00 a.m. Oral testimonyatthesehearingswill beheard frominvitedwimessesonly. Wimesses will include healthpolicy experts, representativesfromthehealthcareindustry, andemployer groups. However, any individual ororganizationnotscheduledforanoralappearancemay submitawritten statementforconsiderationbytheCommitteeorforinclusionintheprinted record ofthe hearing. BACKGROUND : Accordingtothe 1995 reportoftheBoardofTrustees,theoutlaysoftheMedicare Hospital Insurance(HI)ttiistftmdwillexceedincomebeginningin 1996andtheHItrust fund isprojectedtorunoutofreservesin2002, usingtheintermediatesetofassumptions. TokeeptheHI trustftmd inacttiarial balancefor25 yearswouldrequire, inthe absenceofspendingrestt-aints, animmediate44percentincreaseinthepayrolltaxrate. Asa result,taxesonapersonearning$20,000wouldbeincreasedby$260annuallyandaperson earning $30,000peryearwouldseetheirtaxeshikedby$390ayear. Thosewhomake $75,000ayearwouldpayanadditional $975 intaxeseveryyear. Inthereport,theBoardofTrusteescalledfor"prompt,effective,anddecisiveaction" toputtheHI trustfundintobalance. (MORE) 3 WAYSANDMEANS SUBCOMMITTEEONHEALTH PAGETWO TheBoardofTrusteesalsoej^re^ed"greatconcern"aboutspendinggrowthfromthe Siq)plementaryMedicalInsurancetrustfund. AsnotedbytheBoardofTrusteesinthe 1995 report: "Inspiteofevidenceofsomewhatslowergrowthratesintherecentpast, overall,thepastgrowthrateshavebeenr^id,andthefuturegrowthratesare projectedtoincreaseabovethoseoftherecentpast Growthrateshavebeenso TspidthatoutlaysoftheprogramhaveincreasedS3percentintheaggregate and40percentperenroUeeinthelast5years." Medicareinsurancecoverageremainslargelyasitwasoriginallyenactedin 1965: traditionalfee-for-serviceindemnityinsurancewithbeneficiarycost-sharingrequirementsto controlutilization. However,privatehealthinsurancehasevolvedsubstantiallysincethattime. Moreand moreprivatelyinsuredAmericansareenrolledinmanaged-careplans, suchasHealth MaintenanceOrganizations(HMOs)andPreferredProviderOrganizations. Accordingtothe GroupHealthAssociationofAmerica(GHAA),some56millionAmericanswereenrolledin HMOsin 1994,upfrom36millionin 1990,and65percentofpeoplewithemployer-based healthinsuranceplanswereenrolledinsomeformofmanaged-carearrangement,accordingto the KPMG PeatMarwickHealthBenefitsin 1994(October 1994). Moreover,managed-careorganizationshaverecentlybeensuccessfulinslowingthe rateofgrowthofpremiums. In 1995,onaverage,HMOsareexpectedtoreducetheirper personpremiumsby 1.2percent,accordingtoGHAA. SomeprivateemployershavealsobeguntooffertheiremployeesMedical Savings Accounts. Suchaccountsallowemployeesandtheirdependentstocontroltheirhealthcare dollars,providingstrongincentivesforcostconsciousspending. Medicarebeneficiariescanenroll inHMOsundertheriskcontractingprogramand othermanaged-carearrangements, but, duetocertainfeaturesoftheprogram, managed-care remainsarelativelysmallpartofMedicare,withonly 8percentofthebeneficiariesenrolled inmanaged-careplansasofDecember 1994. Medicarebeneficiariesarealsonotcurrently ableto enroll inanykindofMedical SavingsAccount. FOCUSOFTHE HEARINGS ; Thehearingswill focusonsuccessfulprivate-sectorapproachesatcontrollingcostsand improvingqualityandanexplorationofhowsuch£q)proachescanbemademoreavailableto increasechoicesforMedicarebeneficiaries. ThehearingonTuesday,May 16, 1995,on"ExperienceinControllingCostsand ImprovingQualityinEmployer-BasedPlans"willreviewtheapproachesemployershave takentoimprovethecost-effectivenessandqualityoftheircoveragefortheiremployees,the issuesandproblemsencounteredastheseapproacheswereimplemented,theeffectivenessof theseapproaches,andlessonstheFederalGovernmentcanlearnfromtheseprivate-sector experiences. ThehearingonWednesday,May24, 1995,on"MedicareHMOEnrolhnentGrowth andPaymentPolicies"willinvestigatethereasonsforincreasingbeneficiaryenrollmentin MedicareriskcontractingHMOs,andcurrentandalternativeHMOpaymentmethods. ThehearingonThursday,May25, 1995,on"ThePotentialRoleforEmployers, Associations,andMedical SavingsAccoimtsintheMedicareProgram"willexploreissues involvedinenablingemployersandassociationstoofferMedicarecoveragetoformer employeesandmembers,respectively,andthepotentialroleMedical SavingsAccountscould playintheMedicareprogram. (MORE) 4 WAYSANDMEANS SUBCOMMITTEEONHEALTH PAGETHREE DETAILSFORSUBMISSIONOFWRITTENCOMMENTS ; Anypersonororganizationwishingtosubmitawrittenstatementfortheprinted recordoftihehearingshouldsubmitatleastsix(6)copiesoftheirstatemeiU,withtheir addressanddateofhearingnoted,bythecloseofbusiness,Thursday,June8, 1995,toPhillip D. Moseley, ChiefofStaff, CommitteeonWaysandMeans,U.S. HouseofRepresentatives, 1102 LongworthHouseOfficeBuilding, Washington, D.C. 20515. Ifthosefilingwritten statementswishtohavetheirstatementsdistributedtothepressandinterestedpublicatthe hearing,theymay deliver200additionalcopiesforthispurposetothe Subcommitteeon Healthoffice,room 1136LongworthHouseOffice Building,atleastonehourbeforethe hearingbegins. FORMATTING REOUIREMENTS : EadisutementprMentsd(orpttntlnetoUieCammltteoby«wltneu.anywilttenitatamoitoroiUbltmbmlttodfortbopriatadrecord oranywrittencominentaInresponsetoareqnest(orwritteneonunentsmosteonfanntothepildaUnesliftedbelow. Anystatamantat eiblbltnotIncompUaneewltbtbesei^ildeUneswillnotbeprinted,bntwlUbemaintainedIntbe(kmunltteefllet(ortvflewandnaebythe Committee. 1. Allstatementsandanyaecompanylnfexhibits(orpilntlncmustbetypedinslnflaapaceonlefal-dzepaperandmaynot exceedatotalof10pacesInelndlncattachments. 2. CopiesofwholedocumentsmbmlttedasexhibitmaterialwlUnotbeaccepted(orprlntliic. Instead,exUhitmaterialshouldbe referencedandipiotedorparaphrased. AHexhibitmaterialnotmeeHnetheseapedflcatlmigwlUbemaintainedIntheCommitteefllei(or reviewandasebytbeCommittee. 3. Awitnessappearingatapabliehsailn£.orsnbmlitlneastatement(ortherecordofapublicbearing,ormbmlitlnewritten commentsInresponsetoapnblishedreqnestforcommentsbytheCommittee,mostIndndeonhisstatementorsobmlsilaBalistofall clients,persois.ororxanlzaUcmsonwhoeebehalftbewimessappears. 4. Asupplementalsheetmostaccompanyeachstatementlistingdiename,foili ortbedeslpiaiedrepresentatlTemaybereachedandatopicaloatllneorsnmmaryofthe< statement ThissapplementalsheetwillnotbeIneladedIntheprintedrecord. TbeaboverestrictloosandUmliaUaasapplyonlytomaterialbelnfsnbmltted(orptlntlnc. Statementsi maurlalsnbmlttedsolely(ordistribatlontotheMember*,thepreuandthepebUednrtnfthecoarseo(api Note; All Committeeadvisoriesand newsreleasesarenowavailableovertheInternetat G0PHER.H0USE.GOV, under 'HOUSE COMMITTEEINFORMATION'. 5 Chairman THOMAS. The Subcommittee will come to order. HMO I want to welcome you to our hearing on Medicare's Pro- gram. This morning, we are going to hear from a number of panels to allow us to begin to focus on an effort to make Medicare better by improving the solvency of the trust funds and by examining ways to provide more options to the beneficiaries for their health care coverage outside ofthe traditional program. Clearly, one of the options among many beneficiaries will be the enrollment in cost effective HMOs. Today we will examine the cur- HMO rent Medicare Program, the recent enrollment growth, cur- rent policies for paying HMOs under risk contracts and, obviously, options for modifying the payment system. In April, 1993, 1.6 million Medicare beneficiaries were enrolled in HMOs with risk contracts. In April of this year, there were 2.5 million beneficiaries in such plans, a 56-percent increase in just 2 years. All signs indicate that enrollment will increase another 20 to 25 percent this year. Clearly, coordinated care is making some inroads into the Medi- care Program. Beneficiaries are finding that in many parts of the country, well-run private health plans can provide more coverage at less cost than the traditional Medicare Program. By enrolling in risk-contracting HMOs, they can reduce their Medigap premiums and, to a certain extent, their paperwork hassles. Nonetheless, managed care remains a relatively small part of Medicare, with only 9 percent of beneficiaries enrolled in coordi- nated care plans; and the payment methodology for risk contracts, which is essentially a fee-for-service shadow price, has been criti- cized by many as arbitrary and really ineffective in reducing costs for the program. I am anxious to hear from the list of experts we have testifying today about how we might move away from the current pa3anent methodology, the so-called AAPCC, or the average area per capita cost payment structure, to a payment system that promotes cost ef- fectiveness, is more stable geographically, and encourages more plans to offer coverage to more Medicare beneficiaries. I am also pleased that we have a sufficient number of witnesses from Arizona to take more of an indepth look at that particular HMO market. Arizona is a highly competitive market. Well- coordinated care organizations have been very successful in enroll- ing large numbers of Medicare beneficiaries, even though the pay- ment rates are not as high as other areas with managed care en- rollment rates that are high as well. I am grateful that the three HMO representatives from Arizona are here today and are going to share their insights with us. These HMOs differ in terms of their evolution, size, and ap- proaches to managed care. So their particular perspective is some- thing that we want to get on the record in the hopes of finding some common patterns that will assist us in this evolutionary proc- ess. I look forward to hearing from all our witnesses, but prior to that, I would recognize the Ranking Minority Member, Mr. Stark, for his opening statement. Mr. Stark. Thank you, Mr. Chairman. 6 We are going to talk about managed care today and how to im- prove managed care for Medicare's beneficiaries. I think we have got to deal with three things. Does managed care actually save us any money? If one assumes that managed care restricts the use of health care services, does that serve the patients well? And, in gen- eral, how have managed care plans been working for the Medicare population? CBO has consistently reported that the savings from managed care are pretty elusive. It only works generally with staff model and group model HMOs. You only get savings from those. There is little evidence that managed care reduces any growth in health spending over a period of time, and virtually all of the recent growth and enrollment in managed care plans has been in looser arrangements, such as preferred provider, point-of-service plans, those which have no evidence of saving any money. The issue ofconsumer satisfaction, I find that studies which tend to show people who like fee-for-service don't really reflect whether or not we save money or not, and I tend to dismiss those; but my own district experience is that halfofmy constituents belong to the Kaiser Permanente Health Plan and they seem to be satisfied. A large number of them choose to stay in Kaiser when they mature into Medicare. And yet, I receive a lot of mail from people who are unhappy. The stories are anecdotal, but they largely have to do with restricted or withheld care. Managed care options have worked reasonably well, but we know that the AAPCC pajrment system needs fixing. This Subcommittee made that clear in legislation we approved in 1989. Wide variations in payments to HMOs make little or no sense, and they leave the impression that access to low-premium, high-benefit HMOs may be an act of where the beneficiary lives, rather than a function of the particular health plan. To devise a fair pa3rment system is going to be a real problem. The potential for risk selection within the Medicare population is high. The citizens are uniquely vulnerable in that population, and it provides an opportunity for health plans, usually through un- scrupulous insurance salesmen, to skim off the low-risk bene- ficiaries; and proposals to increase managed care enrollment ofthat nature could cost Medicare more, not less. So last, I think that we have to preserve managed care's vol- untary nature. My feeling is that efforts to coerce beneficiaries to enroll in HMOs or other managed care organizations will cause problems and eventually end in failure. Taking away the freedom of choice of doctors and hospitals from the Nation's seniors, to me, is a sure way to start a revolution. No amount of planning can take away the fact that the choice of a plan is not the same thing as the choice of a doctor, and I think if we keep that in mind, we may avoid a lot of problems that we have had in the past when we have legislated too quickly for sen- iors. We could provide new profit centers for insurance companies, but that is not what this Committee ought to be doing. We can find ways to cut Medicare benefits, but I am sure that the public will call that to our attention, and I think we have to continue to pro- tect the benefits that seniors receive and do that incrementally.