Medicare reform spurs growth in different managed care options

Washington -- Most physicians have not yet encountered a patient who is a member of a Medicare private fee-for-service plan, but that may soon change as insurers seek to boost enrollment in the product.

Last year's Medicare reforms ushered in higher federal payments to managed care companies and sparked a renewed interest in types of plans that thus far have maintained a low profile. Private fee-for-service, which more closely mimics the traditional program, is one of several alternatives to HMOs that are becoming more prominent as the insurance industry prepares to contend with a modernized Medicare fee-for-service system starting in 2006.

Medicare private fee-for-service plans were authorized under the Balanced Budget Act of 1997, but the products experienced years of slow growth. That already has begun to change. For example, a recent move by Humana to double the number of states in which it offers its Gold Choice plan has extended the option to an additional 3 million seniors and people with disabilities.

Under such plans, beneficiaries can visit any physician who will accept standard Medicare rates on a fee-for-service basis. In exchange for an additional monthly premium that is typically less than $100, seniors also receive some level of added benefits, such as coverage for prescription drugs or routine annual physicals.

Some choice for doctors, too

Physicians who accept private fee-for-service patients are not required to negotiate and maintain contracts with managed care firms and do not need to become members of a provider network. Filing reimbursement claims directly with the insurer also eliminates the need to go through secondary Medicare payers.

Such an arrangement is attractive to physicians who desire a measure of rate predictability in a market that often has proved volatile, said Fred Bortho, director of Southeast operations for Humana Gold Choice.

"With this type of plan, it's actually about choice for providers, too," he said. "They don't have a contract, so they're not tied into anything. These plans pay just like traditional Medicare, so they know what the rate is, and it's the same for everybody."

Gold Choice primarily hews to rural counties within the states in which Humana operates, Bortho explained. After gaining a foothold in six states in the Midwest, the company decided to expand the option to Arizona, Georgia, North Carolina, South Carolina, Tennessee and Utah as of Sept. 1.

Doctors who practice in such rural areas could benefit the most from beneficiaries who choose private fee-for-service, said Karen Ignagni, president and CEO of the trade group America's Health Insurance Plans. Smaller medical practices often do not have the resources or time necessary to negotiate and maintain a traditional managed care relationship, she said.

Physicians also appreciate the fact that the plan model does not require preauthorization of any services or referrals to specialists as long as they are covered under traditional Medicare, said Vanja Cuk, MD, an internist in Bloomingdale, Ill. Humana has operated its Gold Choice plan in Illinois' DuPage County since 2002.

"It's usually a big problem when you have to put patients in the hospital," Dr. Cuk said, referring to conventional managed care. "You have to do referrals for everything. It takes time, and you're limited in the number of specialists you can use. It's a hassle."

Interest from more insurers

Other health insurers that are offering private fee-for-service products include Sterling, which sells its Option 1 plan in 23 states, and Unicare, which has expanded into 11 states with SecurityChoice. Neither company has immediate plans to move into additional regions.

Private fee-for-service plans already have experienced unprecedented growth this year. At the beginning of 2004, enrollment stood at slightly more than 26,000 beneficiaries. It totaled just over 40,000 beneficiaries as of Sept. 1.

The product take-up continues to pale in comparison to HMOs, which remain the predominant type of plan in Medicare. But industry experts predict a continued uptick in interest.

The Centers for Medicare & Medicaid Services has revealed that at least two additional insurers have applied to the government to offer new private fee-for-service plans.

The health insurance lobby anticipates that private fee-for-service will become an increasingly viable alternative as the list of program options expands to include Medicare PPOs and other relatively new types of coverage.

Humana's Bortho and AHIP's Ignagni nevertheless declined to predict whether the private fee-for-service option would remain as big a draw to seniors once add-ons such as drug coverage and the "Welcome to Medicare" physical become part of the traditional program.

Meanwhile, critics of Medicare Advantage, as Medicare managed care is now known, have pointed to the past several consecutive years of HMO dropouts and declining enrollment as an indication that private plans are not reliable partners of the federal government.

Industry officials counter that the payment increases afforded to plans in 2004 already have allowed them to move into new counties in more than half of the states.

Private plans remain on the defensive over rate boosts, which have resulted in managed care companies receiving more money this year per beneficiary than it costs to cover seniors under traditional fee-for-service.

The Medicare Payment Advisory Commission recently released a projection stating that participating managed care plans will receive an average of 107% of the standard program rate for 2004. The analysts added that the figure is likely higher if CMS is correct in estimating that Medicare Advantage seniors on the whole are less costly to treat.

Brian Biles, a health analyst with George Washington University and former chief of staff for the House Ways and Means Committee's health subcommittee, predicted that the difference in spending would increase in 2005. Current CMS payment policy puts the Medicare Advantage plans in line to receive rates that average 11.8% higher per beneficiary than the government will pay for traditional fee-for-service, he said at a recent Alliance for Health Reform briefing.

Ignagni, the HMO lobby president, contended that some of the methodology used by MedPAC and Biles is misleading. She also renewed an assertion, which has been echoed by CMS officials, that the higher rates to managed care are necessary to bolster Medicare Advantage in anticipation of the full program reforms in 2006.