The U.S. Government Accountability Office has published a report that blasts the results of2 Medicare preferred provider organization test programs.[@@]

The report, requested by Sen. Max Baucus, D-Mont., the most senior Democratic member of the Senate Finance Committee, bears the title “Medicare Demonstration PPOs: Financial and Other Advantages for Plans, Few Advantages for Beneficiaries.”

The Medicare Advantage program, formerly known as the Medicare plus Choice program, gives private managed care companies a chance to participate in the Medicare program. Originally, the rules were friendlier toward health maintenance organizations, but the Centers for Medicare & Medicaid Services, the agency that runs Medicare, has been encouraging PPOs to participate in recent years, and the CMS is in the process of implementing new laws and regulations that are supposed to encourage PPOs to get into the program.

Employee demand for flexibility has helped PPOs take market share away from HMO plans in the commercial health coverage market.

Carriers operate only 6 ordinary Medicare PPOs. In 2002, the CMS added a “demonstration” program, or test program, to see if it could attract more PPOs by easing contract terms. The CMS also ran a smaller, similar demonstration program to try to keep a Pennsylvania plan that was thinking about leaving the Medicare program to stay in the program.

Demonstration program rules let the CMS offer financial incentives, such as special risk-sharing arrangements, to the demonstration program plans.

But the CMS “exceeded its authority” when it allowed 29 of the 33 plans in the latest demonstrations to cover certain services, such as skilled nursing and routine physical exams, only if beneficiaries obtained them from in-network providers, A. Bruce Steinwald, the GAO’s health care economics director, writes in the report.

On average, the carriers that ran the 33 plans enrolled few beneficiaries, did little to expand health care options, exposed beneficiaries to high out-of-pocket costs and seemed likely to increase spending about $300 per enrollee per year, Steinwald writes.

“PPOs have not yet proven to be an attractive option for beneficiaries or the Medicare program,” Steinwald concludes.

But Steinwald concedes that actual cost figures are not yet available, and Dr. Mark McClellan, the CMS administrator, argues in his response that Steinwald’s report is misleading.

The financial arrangements made in the test programs were designed to encourage private carriers to participate, McClellan writes.

The test program terms “should be viewed as a first step in the development of better ways to establish partnerships between the Medicare program and private plans for the benefit of Medicare beneficiaries,” McClellan adds.

CMS believes it had the authority to waive some requirements concerning out-of-network coverage, and the rules governing the new Medicare Advantage PPOs are different from those that governed the Medicare plus Choice PPOs, McClellan writes.

The GAO report is the on Web at http://www.gao.gov/new.items/d04960.pdf