Table Of Content

THE MEDICARE+CHOICE PROGRAM AFTER ONE YEAR HEARING BEFORE THE SUBCOMMITTEE ON HEALTH AND ENVIRONMENT OF THE COMMITTEE ON COMMERCE HOUSE OF REPRESENTATIVES ONE HUNDRED FIFTH CONGRESS SECOND SESSION OCTOBER 2, 1998 Serial No. 105-139 Printed for the use of the Committee on Commerce U.S. GOVERNMENT PRINTING OFFICE 51-475CC WASHINGTON 1999 : ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington.DC 20402 ISBN 0-16-057951-1 COMMITTEE ON COMMERCE TOM BLILEY, Virginia, Chairman W.J. "BILLY" TAUZIN, Louisiana JOHN D. DINGELL, Michigan MICHAEL G. OXLEY, Ohio HENRY A. WAXMAN, California MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts DAN SCHAEFER, Colorado RALPH M. HALL, Texas JOE BARTON, Texas RICK BOUCHER, Virginia J. DENNIS HASTERT, Illinois THOMAS J. MANTON, New York FRED UPTON, Michigan EDOLPHUS TOWNS, New York CLIFF STEARNS, Florida FRANK PALLONE, Jr., New Jersey BILL PAXON, New York SHERROD BROWN, Ohio PAUL E. GILLMOR, Ohio BART GORDON, Tennessee Vice Chairman ELIZABETH FURSE, Oregon JAMES C. GREENWOOD, Pennsylvania PETER DEUTSCH, Florida MICHAEL D. CRAPO, Idaho BOBBY L. RUSH, Illinois CHRISTOPHER COX, California ANNA G. ESHOO, California NATHAN DEAL, Georgia RON KLINK, Pennsylvania STEVE LARGENT, Oklahoma BART STUPAK, Michigan RICHARD BURR, North Carolina ELIOT L. ENGEL, New York BRIAN P. BILBRAY, California THOMAS C. SAWYER, Ohio ED WHITFIELD, Kentucky ALBERT R. WYNN, Maryland GREG GANSKE, Iowa GENE GREEN, Texas CHARLIE NORWOOD, Georgia KAREN MCCARTHY, Missouri RICK WHITE, Washington TED STRICKLAND, Ohio TOM COBURN, Oklahoma DIANA DeGETTE, Colorado RICK LAZIO, New York BARBARA CUBIN, Wyoming JAMES E. ROGAN, California JOHN SHIMKUS, Illinois HEATHER WILSON, New Mexico James E. Derderian, ChiefofStaff Charles L. Ingebretson, General Counsel Reid P.F. Stuntz, Minority StaffDirectorand ChiefCounsel Subcommittee on Health and Environment MICHAEL BILIRAKIS, Florida, Chairman J. DENNIS HASTERT, Illinois, SHERROD BROWN, Ohio Vice Chairman HENRY A. WAXMAN, California JOE BARTON, Texas EDOLPHUS TOWNS, New York FRED UPTON, Michigan FRANK PALLONE, Jr., New Jersey JAMES C. GREENWOOD, Pennsylvania PETER DEUTSCH, Florida CLIFF STEARNS, Florida ANNA G. ESHOO, California NATHAN DEAL, Georgia BART STUPAK, Michigan RICHARD BURR, North Carolina GENE GREEN, Texas BRIAN P. BILBRAY, California TED STRICKLAND, Ohio ED WHITFIELD, Kentucky DIANA DeGETTE, Colorado GREG GANSKE, Iowa RALPH M. HALL, Texas CHARLIE NORWOOD, Georgia ELIZABETH FURSE, Oregon TOM COBURN, Oklahoma JOHN D. DINGELL, Michigan, RICK LAZIO, New York (Ex Officio) BARBARA CUBIN, Wyoming TOM BLILEY, Virginia, (Ex Officio) (II) */H»W H**r;^f «?<r*/2*i se,^J ¥f , CHS Library C2-07-13 7500 Security B!vd, CONTENTS Page Testimonyof: Bradley, Bruce E., Director, Managed Care Plans, General Motors Cor- poration 78 Feder, Judith, ProfessorofPublic Policy, Georgetown University 104 Gradison, Bill, President, Health InsuranceAssociation ofAmerica 62 Hash, Michael, Deputy Administrator, Health Care Financing Adminis- tration 18 Ignagni, Karen, President and ChiefExecutive Officer, American Associa- tion ofHealth Plans 56 Riley, Patricia A., Vice President, Government Relations, Allina Health System 53 Sacco, Donald P., Chief Executive Officer, Blue Cross Blue Shield of Oregon, accompanied by Mary Nell Lehnhard, Senior Vice President, BlueCross Blue ShieldAssociation 71 Wilensky, Gail R., Chair, Medicare PaymentAdvisoryCommission 97 Material submitted forthe record by: American HospitalizationAssociation, prepared statementof 121 Voinovich, Hon. George V., letter dated October 2, 1998, to Hon. Michael Bilirakis 128 (in) THE MEDICARE+CHOICE PROGRAM AFTER ONE YEAR FRIDAY, OCTOBER 2, 1998 House of Representatives, Committee on Commerce, Subcommittee on Health and Environment, Washington, DC. The subcommittee met, pursuant to notice, at 10:08 a.m., in room 2123, Rayburn House Office Building, Hon. Michael Bilirakis (chairman) presiding. Members present: Representatives Bilirakis, Hastert, Upton, Stearns, Burr, Bilbray, Ganske, Brown, Waxman, Pallone, Green, DeGette, Hall, Furse, and Dingell (ex officio). Staff present: Howard Cohen, majority counsel; Eric Berger, professional staff; Robert Simison, legislative clerk; Bridgett Taylor, minority professional staff; and Amy Droskoski, minority professional staff. Mr. Bilirakis. The hearing will come to order. Last year in the Balanced Act, BBA 97, Congress created the Medicare+Choice Program to provide Medicare beneficiaries with a new array of choices of private health care plans. The goal of the program was to modernize the Medicare program by allowing Medicare to offer the same type ofinnovative plan options that now dominate the private health care marketplace. Medicare beneficiaries could elect to obtain services through the traditional fee-for-service system, or elect one of the new Medicare+Choice options which are coordinated care plans; like HMO's, provider sponsored organizations, preferred provider organizations, medical savings accounts, and private fee-for-service plans. The guiding principle of this new system was to allow the marketplace to create new private health care plan options and to provide beneficiaries with the information they need to make informed choices. For many elderly individuals, Medicare HMO's covered both their cost-sharing with the need to purchase expensive medigap insurance, while also providing them with extra benefits like coverage ofpharmaceutical drugs. In the past several years, the number of Medicare beneficiaries who enrolled in HMO's has grown substantially with approximately 6.5 million enrollees by 1997. With the establishment of the Medicare+Choice program and revisions in the payment method for plans, there was the expectation that enrollment in such plans would continue to accelerate. (i) 2 Unfortunately, during the last several weeks, the exact opposite appears to be taking place. A significant number of health plans have terminated their contracts with Medicare. These risk plans covered approximately 300,000 beneficiaries. Although the vast majority of beneficiaries live in counties where other risk plans are available, this trend is certainly very deeply disturbing. There are many factors which have led to the current situation. First, we in the Congress must acknowledge that the BBA substantially restructured the system for setting the rates by which Medi- care pays health plans, while simultaneously cutting billions from the program. The BBA also established very aggressive timeframes tojump start the program. Unfortunately, these ambitious deadlines may be having the opposite effect. For any change of this magnitude and complexity, it will take at least several years to solve the glitches which accom- pany such a significant restructuring. HCFA has also fundamentally created many problems by issuing interim final regulations that contain overly expansive interpreta- tions ofthe BBA and run counter to congressional intent. The regulations are guided by a rigid bureaucratic mentality which will lead to ossification rather than modernization of the Medicare program. These regulations have already led to less, rather than more, options and choices for Medicare beneficiaries. So far, HCFA has demonstrated a fundamental misunderstand- ing of the goal and spirit of the Medicare+Choice program. This program will only succeed by HCFA's commitment to flexibility and innovation in regulation. Finally, health plans must also be flexible in conforming to the new system. The new payment system, the requirement for the implementation of a risk adjuster, new patient protections with their emphasis on quality, and the user fee for providing information to beneficiaries were all essential elements ofthe BBA legislation. In the next several weeks and months, it will be critically important for Congress, HCFA, private health plans and Medicare beneficiaries to work together in a cooperative manner to make the Medicare+Choice work. We all need to make this commitment today. I would like to conclude by welcoming our first witness, Mike Hash, the Deputy HCFA Administrator. Mike provided distin- guished service for this subcommittee for a number ofyears on the issues of Medicare and health care reform. Michael, after all the other opening statements, we will have you at the desk, but we do look forward to your testimony and know that your direct and knowledgeable approach to issues will help clarify the issues ofthis very complex program. The Chair now recognizes the gentleman from Ohio, Mr. Brown, for an opening statement. Mr. Brown. Thank you, Mr. Chairman, for holding this hearing on Medicare+Choice. Last year, we enacted a number ofchanges in the Medicare program and today's hearing will focus on the new health plan choices for beneficiaries in Medicare and revisions in the way we pay plans. I am interested to hear from both Mr. Hash, the Deputy Admin- istrator of HCFA and the industry about the progress to date in 3 this area. One ofthe challenges we face in implementing these new choices is, as we move away from fee-for-service into managed care, it becomes more difficult to determine whether seniors are getting the care they need and whether taxpayers are getting what they pay for. In fee-for-service, dissatisfied beneficiaries can vote with their feet and choose another doctor. In managed care, eventually they will be locked into a plan for at least a year. That's why Congress included in the Medicare+Choice statute provisions to allow HCFA to act as a more prudent purchaser, to require HCFA to protect HCFA beneficiaries, to require to get access to the kinds of data needed to determine whether or not both seniors and the government are getting value for their dollars. In this regard, HCFA has an obligation to Congress, to taxpayers, to beneficiaries, and to health plans to make sure that this process works smoothly. I am glad to have the opportunity to hear both sides ofthe story today. If plans are having difficulty complying with the requirements, we need to know why and what can be done about it. If the law reduced payments to plans too much, we need to know that. If HCFA has extended its reach beyond its authority, we need to know that, too. However, I'd like to mention two issues of particular concern. First, I've heard warnings from plans only recently regarding HCFA's regulations. The interim final regulation on Medicare+Choice has been out since June. The guidance on the quality improvement systems in managed care has been out since January. Yet it wasn't until September 16 that HCFA received word from the American Association of Health Plans about the impending "crisis" resulting from the Balanced Budget Act requirements. It is curious that the industry waited until this point to announce their inability to comply with basic quality standards and their inability to provide care under the average community rates that the plans themselves submitted to HCFA in May. Further, part of what they are claiming to be the problem, the quality system, was announced in January, well before the rates were submitted in May. And finally, the quality requirements have been substantially relaxed since the January version was released. Moreover, the Federal employee health plan rates were due in May, and health plans incorporated a 10.6 percent increase in health care costs in the coming year. Medicare and private sector cost increases tend to track each other closely. What happened in Medicare? Did plans forget to take these factors into account when submitting rates for the Medicare program? Was it just now that plans are discovering that they need to make adjustments? Given the evidence plans had prior to submitting their ACR's, I'd like to know what happened. I recognize this is the first year of implementation of the new Medicare+Choice program. In this transition year, there will be many changes for plans, HCFA and beneficiaries. We are creating a new system and implementing it at the same time. It will require extra effort from everyone involved to make sure this program runs smoothly. 4 My second, and larger, concern ultimately centers around poten- tial cream skimming and ultimate privatization of Medicare. In too many cases, we are seeing the youngest and the healthiest, and in many cases, the most affluent, join private managed care plans, leaving in public fee-for-service Medicare, the most expensive pa- tients to insure, to the point that private insurance insures people when they are well, and taxpayers insure people when they are sick. If we allow that to happen in this inexorable way it seems to be happening, we will end up with two plans: one more private in na- ture of the most affluent, the healthiest and the youngest; and a second, that generally doesn't have the broad public support that Medicare has always had, of the oldest and the poorest and the sickest. And that's what we ultimately need to avoid in breaking up this system, Medicare, that has served the public so very well. Mr. Chairman, I thank you for holding this hearing. Mr. BiLlRAKlS. I thank the gentleman. Mr. Hastert, for an opening statement. Mr. Hastert. Mr. Chairman, I thank you for holding this very important hearing. I am very concerned today that the intent of Medicare reform legislation is not being implemented. I am grate- ful for the opportunity this morning to investigate solutions to the Medicare implementing problem. In our bipartisan Balanced Budget Act of 1997, we worked to es- tablish a Medicare program that afforded beneficiaries access to af- fordable, effective choices in Medicare. We know that a one-size- fits-all approach to health care doesn't work. When we passed the BBA, we hoped to mimic the health care marketplace that cur- rently offers folks outside of government health care programs a wide variety of options. We hoped to provide seniors with the abil- ity to choose the Medicare option that best fits their needs. Mr. Chairman, my Medicare constituents informed me loud and clear last year that they wanted more choices in Medicare. Through a strange set of circumstances, we had a situation in the Fox Val- ley of Illinois that left Medicare beneficiaries without a managed care option. A widely popular managed care entity decided to go out of the Medicare business. You would not believe how outraged these Medicare beneficiaries became. The 1,100 seniors who were im- pacted, my office held an information forum and over 600 seniors showed up. They were very angry that managed care was no longer a choice for them. Even though they still had access to the traditional Medicare program, they wanted the option of joining a Medicare managed care organization. It was a truly enlightening experience for me, Mr. Chairman. Despite all the backlash against managed care this year, my constituents told me loud and clear that they wanted the options. Now, for a variety ofreasons that we may explore today, my constituents are again going to be lacking choice where it is sorely needed. I was informed yesterday that a Medicare managed care plan will be dropping out of the Medicare program in two counties in my area. Illinois is not the only area with this problem. 5 Apparently, many managed care companies have announced that they can no longer participate in Medicare, and this deeply con- cerns me. The intent of the Balanced Budget Act was simple: provide effective choice. And I am eager to hear your thoughts on what we must do to ensure that the Medicare+Choice program is a suc- cess. I recently wrote a letter to the Health Care Financing Adminis- tration, which is represented here today, and I asked them to immediately reevaluate their so-called megareg to implement the BBA. They should do all they can to immediately lift excessive and burdensome regulatory and administrative requirements on health plans and promote choice. They also ought to engage in a serious dialog with the health plans to see what can be done to encourage more choice and participation. I would like to learn more about the argument that payment rates are too low to sustain Medicare participation. In my district, the two counties where the health plan is pulling out actually have comparatively high reimbursement rates. I would like to hear more about the administration's decision to implement additional and discretionary requirements on health plans through the Patient's Bill of Rights and regulation outside the scope ofthe BBA. I look forward to the testimony of our panelists and hope we can immediately begin to solve this very, very serious problem. Thank you, Mr. Chairman, for having this hearing. Mr. Bilirakis. I thank the gentleman. The gentleman from Michigan, Mr. Dingell, for an opening statement. Mr. Dingell. Thank you, Mr. Chairman. First of all, I commend you for holding this hearing. In the Balanced Budget Act of 1997, the Congress created a new program called Medicare+Choice, which substantially expands options for beneficiaries. On June 26, 1998, the Secretary of Health and Human Services issued regulations implementing the Medicare+Choice program. We have given the Secretary and the Health Care Financing Adminis- tration a tremendous challenge. So your supervision at this time is going to afford us an opportunity to assure that that challenge is met properly. The new choices for the Medicare program will work only if the health care industry, the seniors, and all others choose to participate in the new plans created under the Medicare+Choice proposal in a proper fashion. More importantly, however, it will only be successful if the seniors get high quality health care, which they deserve, and upon which they have come to depend. Fortunately, the Congress has insured that seniors are protected by allowing them to stay in the traditional fee-for-service program upon which they have relied for better than 30 years, thus maintaining the commitment ofthis Nation to our senior citizens during an implementation period fraught with serious uncertainties. I am pleased that we will hear today from Bruce Bradley, Direc- tor of Managed Care Plans for General Motors. Mr. Bradley has been an important leader in the health care quality community and recognizes that both corporate and public purchasers must assume 6 a leadership role in driving quality improvement in our Nation's health care system. Purchasers must demand performance measurements on quality and work with providers to identify and to implement opportunities for improvement. General Motors and the other automobile companies have provided great leadership in terms of both performance measurements on quality and other questions associated with health care. And he can bring a valuable view on this matter to the committee. If Medicare is to become a prudent purchaser like GM, it must demand that plans meet appropriate quality standards. And you and I on this committee will be judged by how we do in seeing to it that that goal is implemented. I would also like to acknowledge and welcome Mr. Michael Hash, Deputy Administrator from the Health Care Financing Administra- tion, to our committee. Mr. Hash was a respected committee staff member for 5 years, and we are pleased to see that he has brought forward his talents to the implementation of this program. I look forward to hearing from both Mr. Hash and Mr. Bradley and the other witnesses today. Again, Mr. Chairman, I thank you for holding this hearing. I commend you. We have much to do here and much to learn and a great opportunity, as well as substantial risk. Thank you. [The prepared statement ofHon. John D. Dingell follows:] Prepared Statementof Hon. John D. Dingell, aRepresentative inCongress from the State ofMichigan Mr. Chairman, thank you for holding this hearing. In the Balanced Budget Act of 1997, Congress created a new program called Medicare+Choice, which substantially expands options for beneficiaries. On June 26, 1998, the Secretary ofHealth and Human Services issued regulations implementing the Medicare+Choice program. We have given the Secretary and the Health Care Financing Administration a tremendous challenge. The new choices in the Medicare program will work only ifthe health care industry, and seniors, choose to participate in the new plans created under Medicare+Choice. More importantly, however, it will only be successful if Seniors get thehigh quality health care theydeserve andhave come to depend on. Fortunately, Congress has insured that seniors are protected by allowing them to stay in the traditional fee-for-service program they have relied on for 30 years, thus maintaining our commitment to seniors during an implementation period fraught withuncertainties. I am pleased that we will hear today from Bruce Bradley, Director ofManaged Care Plans for General Motors. Mr. Bradley has been a leader in the health care quality community and recognizes that both corporate and public purchasers must assume a leadership role in driving quality improvement in our nation's health care system. Purchasers must demand performance measurements on quality and work with providers to identify and implement opportunities for improvement. If Medi- care is to become a prudent purchaser like GM, it must demand that plans meet appropriate qualitystandards. I would also like to acknowledge and welcome Mr. Michael Hash, Deputy Admin- istratorfrom the Health CareFinancingAdministration to our committee. Mr. Hash was a respected subcommittee staffmember for 5 years and we are pleased to see that he has brought his talents to the implementation ofthis program. I look forward to hearing from both Mr. Hash and Mr. Bradley and the other witnesses here today. Thankyou again, Mr. Chairmanforholding this hearing. Mr. Hastert [presiding]. The gentleman's time has expired. The gentleman from Florida. Mr. Stearns. Good morning, and thank you, Mr. Chairman. I looked at my statement, and Fd like to read a portion ofit. But I'd