By

The Government Accountability Office is criticizing the performance of Medicare preferred provider organization test plans.

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 + Choice program, gives private managed care companies a chance to participate in the Medicare program. Originally, the rules seemed to be friendlier toward health maintenance organizations. In 2003, carriers operated only 6 ordinary Medicare PPOs.

The Centers for Medicare & Medicaid Services, the agency that runs Medicare, has been trying to encourage more PPOs to participate, and the Medicare Prescription Drug, Improvement and Modernization Act of 2003 includes new PPO provisions.

In 2003, the CMS added a Medicare “demonstration” program, or test program, to see if it could work within the limits of the old Medicare managed care program laws to attract more PPOs. The demonstration PPOs enrolled 98,000 beneficiaries, or about 1% of the beneficiaries living in the PPOs markets.

The rules governing the PPO test program let the CMS use financial incentives, such as special risk-sharing requirements, to make participating in Medicare more appealing.

The CMS had a right to provide special financial incentives, but it “exceeded its authority” in the 2003 PPO demonstration when it allowed 29 of the participating 33 plans 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 GAOs health care economics director, writes in the report.

“In general, beneficiaries in Medicare PPO demonstration plans who received care from non-network providers for these services were liable for the full cost of their care,” Steinwald writes.

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

One GAO table shows that the total estimated cost for monthly premiums, co-payments and other out-of-pocket expenses might average about $391 per month for test PPO members. That is lower than the average estimated cost for 2 popular Medicare supplement insurance plans studied but higher than the average for the traditional Medicare program and ordinary Medicare managed care plans.

Actual cost figures are not yet available, but “PPOs have not yet proven to be an attractive option for beneficiaries or the Medicare program,” Steinwald concludes.

Dr. Mark McClellan, the CMS administrator, argues in his response to the GAO report that his agency acted within its authority to make participating in Medicare more appealing to private carriers.

The results of the PPO demonstration “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. “We have learned a great deal that can be applied in the future.”

The CMS learned, for example, about finding ways to make sure that PPOs accurately pay claims for out-of-network care, McClellan writes.

McClellan also emphasizes that the rules governing the new Medicare Advantage PPOs are different from those that governed the Medicare + Choice demonstration PPOs.

Americas Health Insurance Plans, Washington, put out a statement supporting McClellans position.

The CMS gained valuable experience from PPO test programs, the Medicare Advantage PPO program will be different, and “even the GAO agrees that PPO demonstration plans have reduced out-of-pocket costs for beneficiaries in poor health by providing extra coverage for inpatient hospitalization services and prescription drugs,” AHIP President Karen Ignagni says in the AHIP statement.


Reproduced from National Underwriter Edition, October 14, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.