MA Rebate Policy Comes Under Fire

April 1, 2008
Daniel B. Moskowitz
Daniel B. Moskowitz

Volume 20, Issue 4

A report from the Government Accountability Office (GAO) has led to new questions about the way health care for seniors covered under Medicare Advantage (MA) plans is paid for-and has prompted Centers for Medicare & Medicaid Services (CMS) acting administrator Kerry N. Weems to promise to collect more data from plans.

 

A report from the Government Accountability Office (GAO) has led to new questions about the way health care for seniors covered under Medicare Advantage (MA) plans is paid for-and has prompted Centers for Medicare & Medicaid Services (CMS) acting administrator Kerry N. Weems to promise to collect more data from plans.

At the heart of the dispute is the subsidy-called a "rebate"-that the government pays to MA plans that offer to cover Medicare beneficiaries for less than the maximum CMS pays in each plan's geographical region. The rebate is equal to three-fourths of the difference between a plan's low bid and the CMS benchmark for each region. The plan is free to use the money to provide additional services, such as dental or vision care, or to reduce costs for beneficiaries, for example, by offering lower copayments. The GAO was asked to find out exactly how MA plans spent the rebate but said it could not do so accurately because the plans are not required to report what services they provide. Weems pledged to begin collecting this information.

However, according to a report released in February (GAO-08-359), the GAO determined that the government "spends more per beneficiary in the MA program than it does for beneficiaries in the original Medicare fee-for-service program, at an estimated additional cost to Medicare of $54 billion from 2009 through 2012." Depending on the exact mix of services MA enrollees require, they may pay more than they would under fee-for-service Medicare for home health care, hospital stays, and nursing homes. Analysts found that just under half of all MA beneficiaries are enrolled in plans with an annual out-of-pocket maximum-requiring them to pay no more than an amount set between $2750 and $4600, depending on the plan-but that many of these ceilings exclude certain outlays, such as drugs used to treat persons with cancer.

The GAO also found that on average, 87% of the payment to MA plans is used for medical expenses, 9% of the payment is spent on administrative costs, and 4% is profit, whereas 98% of fee-for-service Medicare outlays goes to medical expenses. The report's authors suggested that Congress amend the rebate plan so that it funnels the extra payment to low-income beneficiaries.

To Rep Pete Stark (D, Calif), chairman of the House Ways and Means Subcommittee on Health, the report shows that MA plans are "grossly overpaid and under-regulated." But Rep Dave Camp (Mich), the ranking Republican on the panel who joined Stark in requesting the GAO investigation, rejected these conclusions and asked for a new GAO study that would examine "actual historical spending patterns of a statistically valid sample of Medicare beneficiaries."

At a March 11 hearing before Stark's subcommittee, consultant Glenn M. Hackbarth, JD, chairman of the Medicare Payment Advisory Commission (MedPAC), testified that MA overpayments are approximately $10 billion a year. He also said that the managed care plans receive 17% more than providers under traditional fee-for-service Medicare, and that only 53% of that extra money is used for additional benefits for enrollees.

Medicare Prescription Drug Coverage
GAO: Part D Plans Must Improve Appeals Process

Part D plans should expect CMS to strengthen its demands that the processes for appealing an initial refusal to cover a particular medication be tilted more in beneficiaries' favor. The GAO acknowledges in report GAO-08-47 that CMS has improved its oversight of plans' coverage decisions but says that closer monitoring is still needed. The GAO analysis was requested by Sen Max Baucus (D, Mont), chairman of the Senate Finance Committee, and Sen Charles E. Grassley (Iowa), the Republican party's ranking member on the committee.

The GAO did not find widespread abuse. At the initial level of appeal, between 57% and 76% of the disputes were settled in the beneficiary's favor; on average, the beneficiary received the drug on the first appeal 67% of the time. When beneficiaries who were turned down on the initial appeal took the matter to the second level, payment for the drug was ordered 40% of the time. At the third level- when the appeal was presented to an independent review organization-beneficiaries won at least partial approval 28% of the time.

But the GAO found glitches that led to both delays in processing appeals and outright dismissals. One problem is that physicians frequently send appeals without the required "appointment of representative" form to Part D plans. The GAO recommends that CMS adopt a new rule: in such cases, the plan will simply call the beneficiary and ask if he or she wants to file an appeal. In addition, the GAO suggests a crackdown on plan sponsors who are not compliant with current requirements, such as those who have incomplete written policies on denial appeals.

CMS says it is considering the first recommendation, is in the process of implementing the second recommendation, and has already modified its guidelines for Part D reporting requirements.

Medicare Prescription Drug Coverage
President Bush Proposes Income-Based Part D Premiums

President Bush has submitted to Congress a plan to slash future Medicare expenditures, including a formula to yoke beneficiaries' Part D outlays to their income, but the proposal may have little chance of being adopted by the Democrat-controlled Congress.

In 2003, the lawmakers decided that if it looked as though Medicare income would fall so low that more than 45% of the program's cost had to come from general revenues, the administration would have to offer a way to bring expenditures back under the 45% ceiling. Although general revenues provided only 41% of the program's cost in 2007 and are currently at this level, the need for a package of changes was triggered by the estimate from the Congressional Budget Office (CBO). The CBO calculated that this figure would inch up above 45% in fiscal 2013 and 5 years later exceed 51%.

The Bush administration's legislative package follows other changes included in the 2009 budget-also unpopular with Congressional Democrats-that are projected to cut $178 billion in Medicare costs over 5 years. The new proposals call for reducing medical malpractice awards by decreeing that patients can collect no more than $250,000 per injury in noneconomic damages, improving the efficiency of Medicare health services by encouraging greater use of both electronic medical records and provider quality ratings to steer beneficiaries to the best physicians and facilities, and adding an income test to the Medicare prescription drug benefit. The higher drug cost would be imposed on persons with an annual income of more than $82,000 or married beneficiaries with a family income of more than twice that amount. The Bush administration calculates that the Part D change by itself would save the government $900 million in 2013, which is enough to push general revenue funding of Medicare below the 45% level and $3.2 billion over 5 years.

Most analysts, however, think the concept of tying Part D outlays to income has little political viability. Sen Baucus says flatly that "means testing in the drug benefit will not be included in my upcoming Medicare reform legislation." Democrats also have long stymied efforts to impose federal caps on malpractice litigation. But the suggestions for giving beneficiaries tools to select high-quality providers may well make their way into final legislation. Under the 2003 statute, Congressional committees must consider the proposals by June 30.

In Other Legislative and Regulatory News . . .

The FDA announced a new policy on warning prescribers about previously unreported risks associated with drugs already on the market. The agency will now issue "early communications" when it has an indication of a new danger rather than wait until it has conclusive evidence. "I feel strongly it's important for us to communicate early, but in communicating early, we are acting with a much smaller degree of certainty," FDA Commissioner Andrew C. von Eschenbach, MD, explained. "We are trying to get people to understand that we haven't said there's a problem, only that we are concerned there's a problem."

A report from the Agency for Healthcare Research and Quality (AHRQ) provides new data on the strength of continued growth in mail delivery of pharmaceuticals. While less than 9% of the US population bought drugs via mail delivery in 2000, this figure rose to 13% by 2005, AHRQ found. Almost 40% of those using prescription drug mail delivery were aged 65 years and older, and almost 87% of them had private health insurance. A majority had at least 1 chronic illness.

The HHS Office of Inspector General (OIG) approved a program to give persons with hemophilia A free trial supplies of a drug to prevent hemorrhagic episodes-but warned pharmaceutical manufacturers not to interpret the ruling as a precedent. Through the program, physicians identify patients who might be helped by the recombinant antihemophilic factor VIII product and write prescriptions, which are filled by the pharmacy administering the program and then are sent directly to the patients. The OIG noted in advisory opinion 08-04 that the program might technically violate federal antikickback laws but said that the government would not impose any sanctions. However, the ruling specified that its approval was based on the fact that this plan complies with the Prescription Drug Marketing Act of 1987 and has minimal risk of making patients dependent on the drug. The ruling also indicated that with other facts, the OIG might well have reached a different conclusion.

Prescribers in Massachusetts continue to lead the nation in using electronic transmission to order drugs. The third annual analysis of e-prescribing patterns conducted by Safe-Rx shows that in 2007, prescribers in the Bay State routed 13.4% of prescriptions electronically (approximately 4 million prescriptions), which is approximately 6 times the national average. Rhode Island, Nevada, and Delaware continued to hold the number 2, 3, and 4 spots, respectively. Michigan moved up one place, to fifth, from sixth in 2006, while Arizona showed a significant increase in e-prescribing, jumping from the 14th spot to the eighth. The Dakotas were the states with the lowest percentages of prescriptions transmitted electronically.

Montana's insurance commissioner scored a legal victory in his campaign to ban discretionary clauses in group health insurance policies. The clauses are included in nearly every health insurance policy sold in Montana, according to State Insurance Commissioner John Morrison. Because they leave it to the insurer's discretion about how to pay a claim, the only way a claimant can fight a denial is to prove that it was an abuse of discretion, which is difficult. Morrison refused to allow any policies with the provision to be sold in the state, but his ruling was challenged in federal court by Standard Insurance Company. US District Court Judge Donald Malloy upheld the ban as the kind of "straightforward regulation of insurance" left to state authority. While discretionary clauses have also been banned in such states as California, New York, Illinois, and Michigan, the Montana ruling was the first judicial endorsement of the trend. A similar ruling was handed down in Michigan 2 days after the Montana ruling.