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10/05/95
15:18
202 822 9612
NATIONAL COMM.
002/011
Statement of
Martha McSteen
President of the
National Committee to
Preserve Social Security
and Medicare
Submitted to
Senate Democratic Policy Committee
Regarding
Medicare Reform
October 5, 1995
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NATIONAL COMM.
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The National Committee to Preserve Social Security and Medicare, on behalf of its six million
members and supporters, has a vital interest in sustaining Medicare. We support balanced,
equitable measures necessary to assure Medicare's long term solvency. We oppose excessive
cats which have as their primary underlying purpose financing deficit reduction and tax cuts.
The Medicare program cannot sustain the level of cuts under consideration without
significant hardship to seniors, the disabled and their families.
The Republican plans to restructure Medicare are a major departure from the universal,
insurance design of Medicare What is billed as "choice" by its proponents is really the
blueprint for dismantling Medicare. In effect. the proposals will individually "block grant"
Medicare--providing a defined contribution toward health care and ending full
comprehensive health care. I do not believe that Americans will support such a move.
The Medicare reform proposals approved by the Senate Finance Committee and under
consideration in the House hold out the promise of cost savings to the Federal government
and profits to the private insu ance sector. For seniors, the promise is higher costs, lower
quality care and restraints on services.
The Democratic leadership plan contains a more realistic target for extending the solvency of
Medicare Part A without raiding Part B to pay for deficit reduction and tax cuts. The plan
holds out the promise of a bill which will strengthen Medicare, not undermine it. The
Democratic alternative plan re cognizes Medicare' successes and builds upon them while
allowing time for study of refc rms for long-term change.
On the other hand, the Medicare plan approved by the Senate Finance Committee goes too
far. too fast. A large scale move toward private sector options is premature and unwise. A
centerpiece of the Republican proposal, Medical Savings Accounts (MSA), has not been
tested for the senior and disabled population and could prove to be a financial burden for
Medicare. Last week, the National Committee released a study it commissioned from Lewin-
1
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NATIONAL COMM.
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VHI on MSAs. The study con dudes that MSA proposals are likely to increase Medicare
program costs, by at least $15 billion or more over the seven year budget period. In fact, the
report concluded that there is no scenario under which MSAs will save Medicare money. If
Medicare is really in financial crisis, why is a proposal being moved forward that is more
expensive and primarily bene its upper income, relatively healthy beneficiaries?
If beneficiaries are allowed to make tax free contributions to MSAs, the combined Medicare
and tax loss would be about $20 billion, according to Lewin-VHI. Even if beneficiaries are
able to use tax free contributions to MSA accounts to pay for non-Medicare covered health
expenses, it is estimated that only 3 to 5 percent of Medicare eligible individuals would
enroll in MSAs. Enrollment W ould peak in 1996 at slightly over a million individuals but
would drop to 346,000 by 2002 as payments to insurers and MSAs are held to a 4.9 percent
rate of growth and the amount deposited into the MSA declines. If Medicare payments to
insurers and MSAs are reduced to be cost-neutral to Medicare, Lewin VHI estimates that
fewer than 100,000 persons would enroll.
We also have major concerns about other proposed changes. Adequate risk adjusters to
compensate private sector plans for covering seniors and the disabled have not been
developed. Current payment methodologies appear to overcompensate managed care plans.
Extending these payment met nodologies on a large scale has the potential to cost the
Medicare program money, rather than improve its fiscal condition.
At the same time, the cap on I rogram growth, set below private sector inflation, will erode
the quality and benefits provided by private plans, or increase out of pocket costs, or both. If
offered the opportunity to reenter the market, private insurers will undoubtedly target the
healthiest seniors who, within traditional Medicare, are the least expensive to care for. To
the extent that healthier senio:s are enticed away, cost savings predicted by supporters will
not be attained and the risk of adverse sclection presents financial dangers to the traditional
Medicare program.
2
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The Republican leadership has offered little in the way of details, data, cost analysis or other
technical information to justify a large scale move to private sector plans. The information
provided to date amounts to anecdotal information and assurances provided by insurance
company executives. For exa mple, the claim that quality managed care can be provided at a
lower cost than fee-for-service care is unsubstantiated as is the claim that quality care can be
maintained with a cap on pay ment growth set below private sector inflation. It is ironic to
hear the virtues of the private sector extolled by the current Congressional leadership. Let's
not forget that the private ma ket would not cover most seniors in the past. This is the same
private sector that currently leaves a third of the non-elderly uninsured and contains costs in
significant part by restricting benefits and choices, increasing out of pocket costs and
dropping the very sick from coverage.
Medicare is a remarkable success story. Seniors are universally insured. They can not be
denied coverage for pre-existi 1g conditions, lose protection if they become ill. or have
payment denied for medically needed services. Seniors have complete freedom to select the
provider or managed care plant of their choice. Because payments to providers are at deep
discounts from what private insurers pay, Medicare is, in effect, a nationwide preferred
provider organization. Over the past decade, outlays per enrollee have grown more slowly
than private sector outlays. All of this has been accomplished with administrative costs
averaging only 2 percent of program outlays when you compare similar health care services.
The private insurance large gr oup market, in contrast, has administrative costs of 5.5 percent
and the small group market 26 percent. In the private market, even the largest companies
fail to meet loss ratio requirements for Medigap insurance for the clderly. The private
market holds no magic bullets for Medicare- its record on coverage of individuals and cost
containment is inferior to Medicare.
Growth in Medicare's costs mi Tors what is happening in the health care system generally.
Medicare costs ultimately will be constrained only with a system-wide approach to health
3
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NATIONAL COMM.
5
006/011
care cost containment. Unlcss projected growth in overall medical care spending is
controlled, Medicare cuts will be a shell game. Dollars cut at the federal level will reappear.
Part B premiums, Medigap charges, copayments, deductibles and other out-of-pocket costs
will risc. Cost shifting will accelerate the rise in the price of medical care to non-elderly
private payers and insurers. As more non-elderly or their employers are priced out of the
private insurance market, Me dicaid-also targeted for excessive cuts-will face increased
demand from ever more individuals and families unable to afford health care protection.
We cannot allow that to happen. The success that Medicare has achieved should be
recognized. Certainly any prc gram of this magnitude needs to be reviewed and updated
from over time, not destroyed.
The proposal to end individual entitlement to Medicaid will place at risk large numbers of the
elderly who rely on Medicaid for long-term care. The provisions terminating federal
standards for nursing homes are tragic. These federal standards place critically important
requirements on nursing homes such as nursing qualifications and staffing, and prohibitions
against excessive use of phys cal and chemical restraints.
We believe that the budget conciliation changes to Medicare and Medicaid are driven
primarily by political promises to balance the hudget in seven years and cut taxes. In the
last Congress. alarms were sounded over the proposed $124 billion in Medicare reductions
over seven years proposed by the President as part of health care reform. Many Republican
Members of Congress predicte d the cuts would destroy quality and access for beneficiaries or
even the program itself. The : ame is even more applicable to the current budget resolution.
Remember, the President's prc posal maintained the Medicare program for all beneficiaries
and added new benefits and a tempted universal cost containment
The current debate over Medicare costs is driven largely by the deficit problem. It is
important to note that Medicare Part B has contributed a relatively small amount to the
4
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NATIONAL COMM.
007,011
current deficit. (Scc attached chart) Medicare Part A has contributed nothing to the deficit.
When spending on all genera revenue fund programs, including interest, is compared,
Medicare Part B accounts for only 6% of deficit spending in fiscal year 1994. Yet the budget
resolution targets Medicare Part A and B for 35% of the funds for deficit reduction.
Similarly, Medicaid accounted for only 11% of 1994 deficit spending yet is targeted for 24%
of the dollars for deficit reduction. Defense spending contributed 36% of deficit dollars in
1994, but will contribute noth ing toward deficit reduction in this budget resolution.
Apparently, the over two trillion dollars the government will forego over the next five years
in tax entitlements will also e scape mostly unscathed. We do not believe our members, or
most Americans, will support a budget reconciliation bill which reflects this disproportionate
and unjustified treatment of Medicare and Medicaid.
With Medicare, as with other Federal expenditures, looking for quick fixes to budget deficits
can be self-defeating over the longer term. For example. by constraining funding for
research into the diseases of 2 ging. this nation may be turning its back on the most
promising long-term hope for slowing growth in Medicare costs. A report submitted to the
recent White House Conference on Aging documents that the entire savings which the
Republicans hope to achieve il seven years would be achieved each and every year if the
most common conditions of aging could be postponed by just five years. 1 Longevity does
not have to be accompanied by disability and disease to the extent that it is today if we as a
nation commit ourselves to the goal of holding back the diseases of aging. Medical and
pharmaceutical research can make a difference. If only the onset of Alzheimer's Disease, for
example, could be delayed by an average of five years, a $50 billion a year savings would be
achieved. The same is true fo : delaying diabetes by five years. Slowing ostcoporosis and
reducing the hip fractures that often accompany that disease would save more than pain and
1 Putting Aging on Hold: Delaying the diseases of old age, An official report to the White House
Conference on Aging, Prepared by the American Federation for Aging Research and the Alliance for
Aging Research, 1995
5
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NATIONAL COMM.
008/011
suffering, it would provide annual savings of $15 billion a year.² The report calls for a "a
stronger national commitment to accelerate research in human aging and to alleviate aging-
related diseases." The National Committee wholeheartedly endorses that recommendation
as the most effective and huntane way to save Medicare well into the 21st century. Younger
individuals would benefit from this research both in lifetime improvements in their own
health and in relief from the care of parents and grandparents whose independence would be
maintained years longer.
Medicare has enhanced life for millions of Americans and their families. While increasing
productive years of life for beneficiaries, Medicare has also helped support the development
of health care facilities and medical education. In the years since 1966. when Medicare was
implemented, much has been learned about reversing life-threatening illness. relieving pain
and recovering lost functional capacity. Americans of all ages and degrees of health are
benefiting from this program. because it protects whole families from much of the cost of
acute health care for senior or disabled family members.
Citizens want prudent spendir g but also want the insurance they pay for to be in place when
needed. In general, large systems require continuous evaluation and refinement, and
Medicare is no exception. "Innovations" may be found that will increase efficiency, hold
down cost and eliminate waste, but let us not jump at just any strategy that is advertised as
cutting cost. New ideas should be tested first before implementing on a wide-scale basis.
We must determine "whose cost is being cut?" and "who benefits from these cuts?" Will
Medicare really pay out less? What will be the level of choice, coverage and quality of care?
Most importantly, does a reform plan leave Medicare as one universal program? We can
make changes within Medicane to allow for more managed care options with appropriate
consumer safeguards.
2 Ibid., P. 5
3 Ibid.
6
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NATIONAL COMM.
009/011
In seeking ways to improve Medicare, this Congress must commit itself to maintaining
Medicare as a federal program which guarantees comprehensive health care to all entitled
seniors and the disabled. Me dicare's 38 million beneficiaries are overwhelmingly satisfied
with this insurance which ass ures portability, renewability, wide choice of providers, does
not exclude preexisting condi ions, does not change the ground rules of coverage when
people are sick and need care and gives the individual standing to dispute decisions about
coverage. Some of the changes being promoted as Medicare reforms would diminish or even
end these protections. In National Committee testimony submitted to the Senate Finance
Committee this year, we outlined reasonable long and short term strategies for maintaining
the solvency of Part A and wing the growth of Part B. But we also cautioned that overall
health care reform is essentia) to a successful effort.
The National Committee endo ses the following principles for any Medicare reform plan:
Universality - Medicare must remain a universal program covering all entitled senior and
disabled Americans. Universality permits the pooling of risks, making insurance affordable
even for the chronically ill. The National Committee opposes dismantling Medicare.
Increasing choice of plans is acceptable as long as the choices are within the Medicare
framework of access to a defin ed set of benefits. It is important that HCFA search for cost-
effective means of delivering $ ervices to seniors, such as PPO's and HMO's as long as quality
standards, access and comprehensive benefits are assured.
Affordability - The average se hior spends over $3,000 annually for out-of-pocket health
care, including premiums, deductibles and co-payments for Medicare, and uncovered care,
including prescription drugs a id long-term care. This amount represents a greater
percentage of out of pocket conts than before Medicare was created. Increasing premiums,
deductibles and co-payments will place unacceptable fiscal and physical hardships on
moderate and low income seniors and the chronically ill. These types of increases are penny
7
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202 822 9612
NATIONAL COMM.
5
010/011
wise and pound foolish solutions as they will result in seniors putting off needed medical
care, which will result in ultimately higher cost medical solutions.
Quality - Medicare promises $ eniors access to high quality health care. The enthusiasm for
managed care should be balanced with the realities of access to care and quality. Medicare
beneficiaries in managed care plans should have national quality standards, clearly defined
appeal rights and access to specialty care.
Means Testing - Means testing violates the universality of Medicare and singles out higher
income Medicare beneficiaries for discriminatory treatment. A study by Lewin-VHI
conducted for the National Co nmittee demonstrates that the Medicare Part B subsidy for
upper income beneficiaries will be more than made up by Medicare Part A taxes in excess of
Part A benefits over a lifetime. 4
Choice - Seniors should contir ue to have their choice of doctors, specialists and other
Medical providers. Choice of managed care plans should not be coerced.
Cost Containment Proposed eforms should not only address the solvency of the Medicare
program, but should also contribute to controlling overall health care costs. Proposals that
shift Medicare costs to benefic iaries or the privately insured are simply cost shifting
proposals and are not real cos : containment reforms. Medicare cuts alone are not real cost
containment.
Fairness to Providers - Fair re mbursement to providers is the only way to guarantee access
to quality health care.
The most recent report of the Medicare Trustees projects that Medicare Part A trust fund will
be depleted in 2002. Such reports are not new. Seven times the Trustees have reported
insolvency within a seven yea time frame. In fact, Trustees predicted that bankruptcy was
4 Paul Hogan and Matt Reilly, "Health Care Insurance Tax Subsidies and Medicare Benefits," Lewin-
VHI, June 1994.
8
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NATIONAL COMM.
1
011/011
only four years away as far back as 1970, and Medicare is still here today. The reasons for
this are the determination of he Congress over the intervening years to maintain the
program and the full support of the public for doing so. We are convinced that large
majorities of Americans of all ages still fully support preserving the Medicare program.
The report of the Trustees has been misused by some Members of Congress to convince the
public that these drastic proposals are necessary. Ultimately. however, the public will have
all the facts and hopefully the real debate will begin. Perhaps then we will have a national
debate on priorities: What kind of health care do we want? Will we continue the guarantee
of health coverage for seniors and the disabled? Can we provide a guarantee of the same for
working and poor Americans" Can we take better care of our children? Can we reduce the
deficit in a manner in which everybody pays their fair share, including corporations and the
defense industry?
CONCLUSION
Medicare provides valuable in surance protection to millions of entitled seniors and disabled
individuals, insurance that would be difficult, if not impossible, for many to obtain in the
private market. The problems in the health care system in this country must be addressed,
but attempting to abruptly dis nantle Medicare will not solve the problem. We must continue
to improve and refine Medicare as we search for a resolution to this nation's overall health
care dilemma. The National Committee is committed to finding solutions which preserve
Medicare as a universal, comprehensive federal health care program for all entitled senior
and disabled Americans.
9
EXECUTIVE OFFICE OF THE PRESIDENT
LRM NO: 2377
OFFICE OF MANAGEMENT AND BUDGET
Washington, D.C. 20503-0001
FILE NO: 1363
SPECIAL
8/22/95
LEGISLATIVE REFERRAL MEMORANDUM
Total Page(s): 4
TO: Legislative Liaison Officer - See Distribution
FROM: Janet FORSGREN
(for)
Assistant Director for Legislative Reference
OMB CONTACT: Robert PELLICCI 395-4871
Legislative Assistant's line (for simple responses): 395-7362
SUBJECT: HHS Proposed Report RE: HR1739, Establishment of the Bipartisan Commission on the Future
of Medicare
DEADLINE: NOON Thursday, August 1995
In accordance with OMB Circular A-19, OMB requests the views of your agency on the above subject before
advising on its relationship to the program of the President.
Please advise us if this item will affect direct spending or receipts for purposes of the
"Pay-As-You-Go" provisions of Title XIII of the Omnibus Budget Reconciliation Act of 1990.
COMMENTS: Attached is a proposed response drafted by HHS to a letter sent by Rep. Stearns to the
President regarding HR 1739. HHS requests your review of the attached draft prior to its
forwarding this document to WH LA. Please note that in addition to the draft letter, the
incoming letter from Rep. Stearns and a copy of HR 1739 are also attached to this LRM.
DISTRIBUTION LIST:
AGENCIES:
EOP:
429-National Economic Council - Sonyla Matthews - 2024562174
Nancy-Ann Min
Barry Clendenin
Mark Miller
Allison Eydt
Bob Damus
Chris Jennings
Jennifer Klein
Diana Fortuna
Jeff Connaughton
OMB LA
Jim Murr
Ron Peterson
Janet Forsgren
22:24 No.004 P.01
AUG 21'95
8719-6-:I
RESPONSE TO
LRM NO: 2377
LEGISLATIVE REFERRAL MEMORANDUM
FILE NO: 1363
If your response to this request for views is simple (e.g., concur/no comment), we prefer that you respond by e-mail or
by faxing US this response sheet.
If the response is simple and you prefer to call, please call the branch-wide line shown below (NOT the analyst's line)
to leave a message with a legislative assistant.
You may also respond by:
(1) calling the analyst/attorney's direct line (you will be connected to voice mail if the analyst does not answer); or
(2) sending us a memo or letter.
Please include the LRM number shown above, and the subject shown below.
TO: Robert PELLICCI 395-4871
Office of Management and Budget
Fax Number: 395-6148
Branch-Wide Line (to reach legislative assistant): 395-7362
FROM:
(Date)
(Name)
(Agency)
(Telephone)
SUBJECT: HHS Proposed Report RE: HR1739, Establishment of the Bipartisan Commission on the Future of
Medicare
The following is the response of our agency to your request for views on the above-captioned subject:
Concur
No Objection
No Comment
See proposed edits on pages
Other:
FAX RETURN of
pages, attached to this response sheet
22:24 No.004 P.02
AUG 21'95
8719-6-0:I
DEPARTMENT OF HEALTH & HUMAN SERVICES
Health Care Financing Administration
Washington D.C. 20201 0001
Date:
Draft
From: Debbie Chang, Director
Office of Legislative and Intergovernmental Affairs
Subj: Response from President to Congressman Stearns
To: Susan Brophy, Legislative Affairs, OS
Below please find suggested text for a response to Congressman
Stearns from the President, regarding the congressman's
introduction of a Dill which creates a Bipartisan Commission on
the Future of the Medicare Program.
DRAFT LETTER FROM THE PRESIDENT TO CONGRESSMAN STEARNS:
The Honorable Cliff Stearns
U.S. House of Representatives
Washington, DC 20515
Dear Congressman Stearns:
I want to thank you for personally notifying me of your
introduction of legislation to establish a Bipartisan Commission
on the Future of the Medicare Program.
We are at an historic moment. For the first time in & long time
there is a willingness to try to bring the budget into balance
and a willingness to try to secure the Medicare Trust Fund. I
know we can do both while maintaining our commitments to the
3
elderly and their children and grandchildren. Medicare is an
integral part of the fabric of American life. It provides
security not only for the elderly who receive it, but for their
children as well, who otherwise would bear the worry and cost of
paying for their parents' health care in addition to their own
financial commitments.
We must be committed to reducing medical cost inflation and
stabilizing the Medicare Trust fund through genuine reforms, not
by destroying Medicare and hurting the people who are on it.
I appreciate your efforts to achieve a bipartisan approach and I
look forward to working with you in the difficult months shead.
AUG 21'95 22:24 No.004 P.03
8719-6-:I
HOUSE OF : 20
WASHINGTON, D.C. 20815
CLIFF STEARNE
SIXTH DISTRICT
June 7, 1995
The President
The White House
95 JUN 13 95 JUN A9: 20
Washington, D.C. 20500
Dear Mr. President:
This is to advise you that I have introduced legislation to establish a
Bipartisan Commission on the Future of the Medicare Program.
I am deeply committed to finding a solution to ensure that this
important program, which is so vital to our senior population, can
be reformed with the goal of making it an even better and more
efficient system for providing health care to the elderly.
It is my hope that you will endorse my efforts and I look forward to
hearing from you in this regard.
With best wishes, T am,
Sincerely,
Cliff Stearns
U.S. Representative
CS:vte
Mr. Pendint-
I behine this is A
"win" sefuction for
both postics something
like the Pepper Commission
on social security.
Best wates,
Cuff
AUG 21'95 22:25 No.004 P.04
8719-6-0:I
SENT BY:Xerox Telecopier 7021 8-14-95 4:17PM :
93956148:# 3
SENATE BUDGET COMMITTEE
QUESTIONS TO SECRETARY
Question from Senator Exon:
What is your estimate of how much of a tax shift there would be
if We arbitrarily put a cap on the Medicare program?
Response:
If Medicare expenditures were limited by an arbitrary cap on the
program, the excess costs above that cap would have to be borne
by the health care system, both providers and consumers.
For example, the Republican plan expects to save $270 billion
over seven years. If one assumos that half of this savings will
be achieved by provider cuts, and half will be passed on to
beneficiaries through higher out-of-pccket costs, this would
translate to an increase of $2,825 in out-of-pocket costs for the
average beneficiary over the seven year period. The Increase
would be $625 in the year 2002 alone.
Some have suggested vouchers as an alternative way of capping the
program, but on a per capita basis. While a voucher can be
applied to the purchase of a private insurance plan,
beneficiaries will have to cover any additional costs if the plan
they want is more expensive than the voucher amount.
Alternatively, they may have to accept fewer benefits in order to
buy a plan that is affordable with the voucher.
To protect beneficiaries, the value of the voucher would have to
be indexed to actual increases in health care costs; however,
Congressional Republicans' budgetary goals would not permit this
rate of increase. The Budget Resolution would require a 4.9
percent per capita growth rate for Vouchers under Medicare. CBO
data indicate that the private sector per capita growth rate
would be 7.1 percent from 1996-2002.
Constraining the costs of providing care for a much more
vulnerable Medicare population to a rate of increase so much
smaller than that of the private sector is, at best, unrealistic.
The resulting impact would be that the value of the voucher would
very quickly erode.
Given that 75 percent of Medicare beneficiaries have incomes
below $25,000, the additional costs that they will have to bear
through increased premiums and copayments or through a voucher
system will represent a substantial additional tax on their
income.
SEN! By:Xerox lelecopier 7021 8-14-85 4:17PM
93956148 4
Question from Senator Frist:
Under present law, do you have the authority to expand the
geographic reimbursement area or to add a health risk adjuster?
Response:
We have the authority both to modify the geographic reimbursement
area and to add health risk djustmento in order to improve
actuarial equivalence.
Geographic Areas: Under section 1876 (a) (4) of the Social
Security Act, the AAPCC ic determined by the Secretary and based
on the estimated cost "in a geographic area served by an eligible
organization or in a oimilar area, with appropriate adjustments
to assure actuarial equivalence
The geographic area used for the AAPCC is the county. we have
examined alternative geographic areas in the past and determined
that they are not superior to the county.
Health Status Adjusters: Under section 1876 (a) (1) (B) of the
Social Security Act, the Secretary can use any factors related to
"classes of members" that are appropriate "to ensure actuarial
equivalence". The Secretary can also modify the factors, for
example, add health status adjusters, if she believes it will
improve the actuarial equivalence of the AAPCC rates.
Health status adjuster models are currently being developed for
use in the Medicare program. Two models, Ambulatory Care Groups
and Diagnostic Cost Groups, should be available for testing in
the spring of 1996. We intend to pilot them as part of a
demonstration of alternative delivery systems and payment
methods. If these health status adjuster models improve actuarial
methodology. equivalence, they would be incorporated into the payment
FILE JUL 25 '95 04:51PM WASH POST-NATIONAL DESK 334 6192
JOHN HARRTS
F: 334 4576 Congress of the United States
dup
Mashington. DC 20515
Attn: Chris Jennings July
25, 1995
From: Johntharris
The President
The White House
Washington, DC 20500
Dear MI. President:
As the nation marks the 30th anniversary of Medicare this
week, America's seniors are certain to be treated to a large dose
of political rhetoric, and regrettably, some distortions about
this program's future.
In the interest of providing the American people with the
facts they need to make informed judgments about this important
policy debate, we are writing to request that you direct
Secretary Shalala to send to all Medicare recipients the official
summary of the 1995 annual report of the Medicare Board of
Trustees. As you know, the Trustees, who include three members
of your own cabinet, concluded that Medicare will go bankrupt in
just seven years. If Medicare goes bankrupt, no payments, by
law, can be made by Medicare to pay for hospital care or for any
other services paid for by the Trust Fund. The 33 million
seniors and four million Americans with disabilities who depend
on Medicare every year have a right to know these important
facts.
It is because of this impending bankruptcy that Republicans
in Congress are committed to bold and decisive action to
preserve, strengthen and protect Medicare action that will
still allow Medicare spending to increase from $178 billion this
year to $274 billion in 2002.
We appreciate your consideration of this request, and we
hope you share our determination to see Medicare live past 2002,
its 37th birthday.
Sincerely,
Bah
Newt Gingrich
Bob Dole
Speaker of the House
Senate Majority Leader
SENT BY:Xerox Telecopier 7021 ; 7-28-95 ; 5:19PM ;
939561481# 2
DRAFT
STATEMENT OF
BRUCE C. VLADECK
ADMINISTRATOR
HEALTH CARE FINANCING ADMINISTRATION
BEFORE THE
SPECIAL COMMITTEE ON AGING
U.S. SENATE
AUGUST 3, 1995
P.00 ' ON 211:2
56.65 701
SENT BY:Xerox Telecopier 7021 : 7-28-95 ; 5:20PM i
939561481# 3
INTRODUCTION
Mr. Chairman and Members of the Committee, thank you for the opportunity to
testify on the Health Care Financing Administration's (HCFA) oversight of health
maintenance organizations (HMOs) providing services to Medicare beneficiaries. The
Special Committee on Aging has over the years played an Important role in focusing
attention on the Issue of quality of care in Medicare managed care plans. We
appreciate Senator Cohen and Senator Pryor's continued Interest In this area, and we
look forward to working with this Committee on further improvements.
Over the past two years, Medicare managed care enrollment has increased
dramatically. In the first six months of 1995 we have already seen a 9 percent
increase in managed care enrollment, an acceleration over last year's annual rate of
16 percent growth. Enrollment is growing at a rate of 75,000 per month. Currently,
9.5 percent of all Medicare beneficiaries - over 3.5 million people - have chosen to
enroll In managed care plans. Seventy-four percent of Medicare beneficiaries have
access to a managed care plan, and 57 percent have a choice between two or more
plans.
More than 250 managed care organizations currently contract with HCFA to
serve Medicare beneficiaries. Interest in the Medicare managed care program
continues to Increase. Much of the recent growth in new contracts has been in
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regions that have not had a strong Medicare managed care presence in the past.
1 want to describe for you how HCFA is honoring Its commitment to ensuring
that the growing number of beneficiaries served by managed care plans receive high
quality care. First, HCFA has recently improved its monitoring and enforcement
program for Medicare HMOs. Second, we have several initiatives underway to
ensure quality, such as the development of performance measures and
improvements in the appeals process. Finally, we are improving our efforts to inform
beneficiaries about their managed care options.
MONITORING AND INFORCEMENT
Over the past few years, we in HCFA have been involved In an unprecedented
effort to review all of our activities in light of our mission and strategic plan. This
review has led to a new focus within the agency on our beneficiaries as our primary
customers. it has also led to a rethinking of our relationships with the providers,
contractors and health care plans as our partners in serving the beneficiaries.
As the nation's largest purchaser of managed care, HCFA is committed to
ensuring the quality of care for our beneficiaries. We believe that the best way to
achieve this end is to work in partnership with the plans to achieve continuous quality
improvement. But HCFA is not just like any private sector purchaser. We are
purchasing care for Medicare beneficiaries and therefore, have to keep their Interests
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at the forefront of our efforts. For this reason, HCFA and Its managed care
contractors must be held to a higher standard of accountability. Thus, on occasion,
we have to call our partners to task for not holding up their end of the bargain. This
Administration has demonstrated that In Instances where plans fall out of compliance
with standards, we have not hesitated to take swift action.
Beginning In 1994, HCFA Initiated an aggressive enforcement process to
remedy the root causes of quality and access problems. HCFA has initiated eight
Investigations in the last two years, three In 1994 and five in 1995. These
Investigations Identified problems with utilization management systems; quality
assurance; administration and management: availability, accessibility and continuity
of health care services; high rates of disenrollment; and marketing and contract
management. In all eight Investigations, plans have developed acceptable corrective
action plans to address the findings of the investigations. As a result of these
investigations and the corrective action plans Implemented by plans, the number of
consumer complaints has decreased and the Peer Review Organizations, which
review the clinical quality of care provided by HMOs, have identified fewer problems.
Not only have we moved aggressively when we have Identified compliance
problems, but this Administration has significantly Improved and expanded our
oversight activities In three ways. First, we have brought new resources to bear on
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oversight activity. Using our contracting authority, we have expanded our own review
staff with private sector clinical and technical expertise when needed including
physicians, registered nurses and statisticians. This had not been done before by
previous Administrations.
Second, In 1993, and again In 1995, we made significant improvements to the
protocol and procedures used in our monitoring process. These Improvements
Included incorporating PRO review findings as an Integral part of the quality
assurance review; enhancing methods to evaluate situations in which HMOe delegate
quality assurance activities to providers; and developing a scare sheet which
provides the reviewer with a more definitive methodology for evaluating and
assessing quality assurance.
Finally, starting in January, on-site monitoring will take place on an annual,
rather than biannual, basis. These improvements clearly Indicate the high priority that
this Administration places on our oversight responsibilities.
In preparing its recent report on our oversight activities, the GAO only fully
considered enforcement cases as of June 1994. Therefore, its report does not fully
reflect the new energy that this Administration has Injected into enforcement activities,
nor the results that we have been able to achieve. The GAO report also leaves the
Impression that our activities should be judged based on the number of civil
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monetary penalties or intermediate sanctions we impose. We emphatically disagree
that this is the appropriate standard.
First, one could argue that in a world of publicly-traded health plans and
intense private purchaser scrutiny, HCFA has a more powerful enforcement tool than
simple penalties and sanctions. I would ask which is more likely to motivate a plan
manager, a $15,000 or even $100,000 civil money penalty or the marketplace's
reaction to the adverse publicity resulting from an investigation. We believe that
angry and disgruntled purchasers and shareholders are major motivators for plan
managers and that plans are "sanctioned" when they have to inform shareholders of
negative findings from our Investigation.
Second, we believe that the time and energy spent developing the
documentation necessary for a civil money penalty or intermediate senction is better
spent working with the plan to correct the particular deficiency or quality problem.
I
would add, however, that HCFA has obtained voluntary enrollment freezes from plans
in Instances where we believed such a freeze would be In the Interest of beneficiaries.
ADDITIONAL INITIATIVES TO ENSURE HMO ACCOUNTABILITY
While we have made Improvements to our quality assurance reviews, we would
agree with the GAO that we must further remodel our methods for ensuring quality.
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We are keenly interested in assuring that as the Medicare managed care program
grows and evolves, we have adequate measures in place to assure and improve the
quality of care plans provide to our beneficiaries.
Like other purchasers, we are attempting to develop process and eventually
outcome measures of quality. Designing these measures is a challenge, as we must
broaden our focus from Individual, physician-based care to performance measures
for entire populations. Further, unlike fee-for-service medicine, where each medical
encounter results in a claim. Information about specific services provided by
managed care organizations has historically been limited.
Public as well as private sector purchasers have only recently begun to require
plans to collect the encounter data necessary to develop plan performance
measures. Little consensus has emerged, however, on what measures to assess,
what types of encounter data to collect, how to ensure encounter data and
performance measures are reliable and comparable across plans, and how to best
present information on plan performance to consumers.
We are facing up to this challenge and working closely with the managed care
Industry and private sector purchasers to develop appropriate and meaningful
procedures that can be relied on by HCFA, by our beneficiaries, and by the managed
care plans. For example, HCFA, together with the Department of Defense and the
Federal Employees Health Benefits Program. has joined private sector health
purchasers, Including GTE, AT&T, and PepsiCo, in an unprecedented partnership to
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explore the formation of a new organization for quality improvement and managed
care accountability. This new organization, the Foundation for Accountability (FAcot),
will develop performance measures that will assist purchasers and consumers when
choosing a health plan. This organization will also help to eliminate unnecessary
duplication in Individual quality improvement and HMO accountability efforts. The
collective membership of this organization represents approximately 80 million
covered Individuals. HCFA is also convening a series of meetings with public and
private purchasers of health care services, consumer groups, providers, and
managed care plans to discuss issues regarding best practices for ensuring quality.
Just last week, we had our first meeting with major private purchasers.
Because plan performance measures required by private sector purchasers
may not always be relevant to the Medicare population, HCFA has undertaken
several Initiatives of its own to develop performance measures applicable to our
beneficiaries. For example, HCFA plans to collaborate with the National Committee
on Quality Assurance (NCQA). with the support of the Kaiser Family Foundation. to
modify the Health Plan Employers Data and Information Set (HEDIS) to incorporate
measures more germane to the Medicare population.
1
In addition, In May 1995, we launched a pilot test of the three core
performance measures, developed by the Delmarva Foundation and Harvard
University, to be used by Peer Review Organizations (PROs) In their external review of
HMOs. The Delmarva contract was Intended to help HCFA and the PROs shift from
the current retrospective case review method of HMO oversight to one based on
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outcomes measurement and continuous quality improvement.
As described in the GAO report, the current process through which
beneficiaries can appeal HMO coverage decisions is not as effective as it could be In
protecting beneficiaries against potential underservice by plans. This is the case
because the current process takes too long to resolve disputes over services that
beneficiaries believe are urgently needed. As the report also indicates, we have
taken steps to improve the appeals process. We are planning additional
improvements such as a mechanism for providing expedited appeals. We are also
determining how to best educate beneficiaries regarding their appeal rights and the
appeal process.
BENEFICIARY EDUCATION
Before beneficiaries can make choices among managed care plans, they must
first be aware that they have a choice between traditional Medicare and Medicare
managed care plans. HCFA has several Initiatives underway to ensure that
beneficiaries are aware of their option to join a Medicare HMO. For example, HCFA
works with Social Security Administration (SSA) to ensure that SSA District Office
personnel are knowledgeable about managed care options available to our
beneficiaries. HCFA also publishes several handbooks, brochures and directories
which Includes information about managed care options. We have even placed
Information on Medicare managed care on Compuserve and the Internet.
We would like to do even more to ensure that beneficiaries are aware of their
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option to enroll in Medicare HMOs. To this end, we are examining all HCFA
publications to determine If managed care information needs to be Included or if new,
enhanced brochures are required. As part of this effort, we are collaborating with the
Spry Foundation to interview beneficiaries on the usefulness of HCFA's managed
care publications.
Finally, we are planning to modify the Information Included In the initial
enrollment package to ensure that the beneficiaries are aware they have a choice
between traditional Medicare and Medicare managed care plans. The initial
enrollment package is mailed to beneficiaries six months before they turn 65.
Providing beneficiaries with reliable, comparative Information on managed care
plans will be a much more difficult task and will require a significant investment on
HCFA's part " one that HCFA Is willing to make. As explained earlier, at this stage
In the evolution of plan performance measures and their inclusion In consumer
"report cards," there is no single best approach. Private sector purchasers, health
plans and organizations such as NCQA have only recently begun developing
information in a format that would be useful to consumers In evaluating the quality of
care provided by health care plans.
We Intend to continue to work with a broad range of private sector
organizations, as well as pursuing our own developmental work, to move forward as
quickly as possible. For example, as part of HCFA's competitive pricing
demonstration, beneficiaries would receive objective, comparative information about
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the plans available to them in their market areas. Accordingly, we have solicited
proposals for the development of an information, education and marketing strategy to
inform beneficiaries about their health plan choices. We have received several
proposals In response to this solicitation and are currently reviewing them. We
expect to award the contract by late September.
Through the competitive pricing demonstration and Its open enrollment
process, HCFA will learn what types of comparative information on plans is useful to
beneficiaries and how to best communicate that information to them. it is in this
context that HCFA will determine how best to use Information from Its monitoring
visits such as disenrollment rates, the number of beneficiary complaints and
enforcement activities.
CONCLUSION
As managed care enrollment continues to expand, oversight of managed care
plans will become an even more important part of HCFA mission than it is today. We
have made significant enhancements in this area but We recognize that we face
continuing challenges.
We believe beneficiaries should have access to a wider range of managed
care choices and hope to work with the Congress toward that end. As Congress
considers restructuring the Medicare program. however, we believe this Committee
has a special role in ensuring that beneficiary protections are not diminished while
options are expanded.
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BERER
Thank you for the opportunity to testify on this Important subject. I would be
happy to answer any questions you may have.
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FINAL
STATEMENT OF
BRUCE VLADECK
ADMINISTRATOR
HEALTH CARE FINANCING ADMINISTRATION
BEFORE THE
SUBCOMMITTEE ON HEALTH
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
FEBRUARY 10, 1995
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Mr. Chairman and Members of the Subcommittee
I am pleased to be here today to begin a dislogue with this Subcommittee
about the current state of the Medicare program and, more importantly, about its
future. More than any other members of this Congress, the members of this
subcommittee have long had an understanding of the complexities of the Medicare
program and the vulnerable population that we serve, and have contributed to major
improvements in the program over the years. Medicare is a popular and successful
program. I believe we need to work together to improve on the program's success
and strengthen It for Its beneficiaries and the taxpayers who support it.
We in HCFA have been working very hard to make the Medicare program an
effective, affordable and "customer friendly" program for beneficiaries. At the same
time, we have been working to implement administrative and program improvements
which maximize the efficiency and cost effectiveness of the program. I want to begin
by reviewing some of our recent efforts and successes and then provide you with an
overview of our efforts in the area of managed care. Finally, I would like to discuss
some of our Initiatives to improve the administration of the Medicare program.
1. SUCCESSES
Medicare is the world's largest health insurance program and by many
measures one of the most successful. It began in 1966 as a Federal health insurance
program for the elderly and was expanded in 1972 to cover disabled persons and
those with End Stage Renal Disease (ESRD). The Medicare program was established
because our vulnerable populations had difficulty obtaining private health Insurance
coverage.
Medicare is administered largely by private contractors under our supervision. in
1994, Medicare served almost 36 million persons under Parts A and B of the program.
Aged Medicare beneficiaries number 32 million, 3.6 million are disabled and 77,000
have ESRD. Medicare has agreements with over 65 contractors to process
beneficiary claims. In FY 1994, over 750 million claims were processed and Medicare
paid more than $159 billion for medical services, treatment and equipment.
Today, we maintain Medicare's commitment to serve the most vulnerable.
Medicare is the largest payor of the elderly's health care expenses. As the
Subcommittee examines the future of the Medicare program, I would urge you to
consider the following Important facts about Medicare beneficiaries.
o
Relatively few Medicare beneficiaries can be considered financially well-off.
Approximately 83 percent of program spending in 1992 was on behalf of those
with incomes less than $25,000. (CHART 1)
Currently, 20 percent of our beneficiaries are either seniors age 85 and older,
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most of whom are women, or persons with disabilities including End Stage
Renal Disease (CHART 2).
o
Third, per capita health care spending for aged beneficiaries is 4 times the
average for the under 65 population.
Medicare is successfully fulfilling its mission and beneficiaries continue to express a
high degree of satisfaction with the program. Millions of elderly and disabled
Americans now have health care coverage and a quality of life that they would
otherwise lack, thanks to the Medicare program.
Innovative Program Administration
Despite the size of the Medicare program, we have maintained a high level of
consumer satisfaction with low administrative costs, less than two percent of program
outlays. In contrast, private insurance administrative expenses are about 25 percent in
the small group market and about five percent in the large group market.
Medicare has been a pioneer In streamlining program administration and is a
world leader in fostering electronic claims submission: Ninety percent of Medicare's
hospital and skilled nursing facility claims and 67 percent of its physician claims are
submitted electronically. in contrast, 60 percent of Blue Cross' hospital claims and 20
percent of its physician claims are electronically submitted. For commercial carriers,
the percentage is 10 percent for all claims. (CHART 3)
We have focused attention on reducing the paperwork burden on health care
providers, working closely with the health care community to establish a standard.
uniform national Medicare claim form for physicians and another for hospitals, Skilled
Nursing Facilities (SNFs) and Home Health Agencies (HHAs). Many other Insurers
use these forms, but attach additional forms as well, These, however, are the only
hospital and physician claim forms that Medicare requires.
Decline in the Medicare Baseline
During the Clinton Administration, the projections for the average annual rate of
growth for Medicare have decreased. In the President's FY 96 Budget, the projected
annual average rate of growth for 1996 - 2000 is 9.1 percent. In contrast, six months
ago in the Mid-Session Review, the projected annual average rate of growth for the
same period was 10.3 percent. The primary contribution to lower Medicare
projections is slower growth in Part A Hospital Insurance expenditures. The decline in
projected Part A growth results primarily from a decrease in forecasted hospital cost
inflation and slower growth in the complexity of Medicare inpatient cases.
II. MANAGED CARE AND THE MEDICARE PROGRAM
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Today, any discussion of the quest to enhance cost effectiveness, as wait as the
accessibility of quality medical cáre for beneficiaries, must include managed care. We
are committed to working with you to Improve and extend the managed care choices
available to our beneficiaries so that they have the full range of managed care options
available to the general insured population. The comerstone of our policy is informed
choice in.a fair marketplace, in which beneficiaries have full and objective information
and are not discriminated against on the basis of relative need.
Managed care is not a new concept for the Medicare program. Since its
inception in 1966, a portion of Medicare beneficiaries have received care through
managed care arrangements. Enrollment is increasing, and we anticipate continued
strong growth as newly entitled beneficiaries, who are more familiar with managed
care, enter the Medicare program.
Currently, 74 percent of Medicare beneficiaries have access to 8 managed care
plan and 9 percent of Medicare beneficiaries have chosen to enroll in 8 managed care
option. 1994 was a year of Impressive growth In Medicare managed care, we
experienced double digit increases both in plan enrollment and the number of plans
participating in the program. Plan enrollment increased by 16 percent. We now have
11 counties where 40 percent or more of our beneficiaries are enrolled in managed
care, an additional 30 counties with enrollment between 30 and 40 percent, and more
than 44 counties with enrollment between 20 and 30 percent.
More important for future enrollment growth is the number of contracts with
managed care plans. in 1984, the number of our Medicare managed care plans
Increased by 20 percent. Many of these new contracts are in regions beyond those
that traditionally have had a strong Medicare managed care presence. In our
Philadelphia region, the number of contracts increased from 6 to 16 and in the Boston
region contracts increased from 4 to 9.
As we work to extend and broaden managed care options for Medicare
beneficiaries. we-must be aware both of the practical limitations of a rapid expansion
of managed care in Medicare and of past failures of overly aggressive efforts in both
the Medicare and Medicald programs. The movement to managed care cannot
outpace the capacity of managed care plans to serve large numbers of now enrollees,
particularly those with the expensive and special health needs of the Medicare
population.
In addition, for Medicare to benefit from the expansion of managed care, we
need to improve the way Medicare pays managed care plans. Managed care
currently costs the Medicare program rather than achieving savings. Our evaluations
have suggested that Medicare pays 5.7 percent more for every enrollee in managed
care than would have been paid if the beneficiary had stayed in fee-for-service. The
reason for this is that they attract the healthier members of the Medicare population
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whose health care costs are lower. Efforts are underway to improve the current
payment methodology so it doesn't act as a barrier to the expansion of managed
care. We have initiated several research projects and demonstrations to address this
situation and we expect to have preliminary results later this year.
Medicare beneficiaries themselves must determine the pace of their movement
to managed care. The emphasis must be on choice. Managed care will succeed as
managed care plans are able to prove the value of their products and as beneficiaries
recognize the benefit of the coordination of care and case management that high
quality managed care plans can provide.
New Managed Care Options
In addition to our efforts to improve current managed care options under
Medicare, we want to make available to beneficiaries a new preferred provider
organization (PPO) option. This option has proven to be very popular in the
commercial market, and many of us have access to PPOS. We believe that Medicare
beneficiaries should have the same range of choices. Under the PPO option, our
objective would be to allow beneficiaries to choose to go to any physician at any time,
subject to higher cost-sharing.
In developing a PPO option for Medicare, we hope to learn from our experience
with the Medicare SELECT demonstration. As you know, Medicare SELECT was
designed to create a hybrid of managed care and Medigap that it was hoped would
be beneficial both to beneficiaries and to Medicare. However, our experience under
the demonstration has been that while premiums for traditional Medigap benefits are
reduced. Medicare does not share in the savings.
The reason for this apparent anomaly is that the lower Medigap premiums in
Medicare GELECT plans are generally the result of hospital discounting arrangements
rather than the active management of care or the efficiency of the SELECT networks.
The basic problem with Medicare SELECT is that there are limited incentives for plans
to manage the total costs. As a result, Medicare does not participate in any savings,
and beneficiaries do not receive the benefits of coordinated care that they would
receive in efficient networks. In faot, If proposels to expand:SELECT discounting to
Part B services are enacted, Medicare costs would actually increase, as physicians
increase utilization to recoup their discounts.
A second issue with Medicare SELECT deals with the adequacy of beneficiary
protection. We feel strongly that beneficiaries should not have to worry about the
quality and access provisions of their Medicare choices. We look forward to working
with the Subcommittee on this Important issue.
We also hope to be able to work with the Subcommittee on the PPO option in
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the months ahead. in addition, given the Impending deadline for expiration of the
SELECT authority and the need to examine the demonstration experience before the
program is expanded to all states, Congress may wish to consider a 6 month
extension of the demonstration for existing plans. This would alleviate the uncertainty
for existing plans, and provide time to make appropriate changes to SELECT based
on demonstration experience.
Beneficiary Education
we need to do a better job of informing beneficiaries about the managed care
and Medigap choices that are available. The current lack of Information in the face of
such a variety of choices generates confusion which works against managed care
options. To understand their choices, beneficiaries have to negotiate through
differences in benefit packages, cost-sharing structures and premium amounts.
Beyond this need for information, beneficiaries are also be faced with enrollment
periods that vary by plan and, in the case of Medigap, with health screening and
underwriting. Beneficiaries who initially enroll in a managed care plan lose their one
time option for open enrollment in Medigap.
We would # to do everything possible to make managed care options very
attractive to beneficiaries. We think WB can do a better job of helping them to
understand the advantages of these plens.
Quality and Managed Care
Today, managed care organizations providing services to Medicare and Medicaid
beneficiaries are required to have internal quality assessment and improvement
programs to Identify ways to improve the delivery of health care services and the
health care Itself. We also require independent external review of quality of care
delivered to our beneficiaries.
HCFA is working In collaboration with the industry on a long term effort of
developing a single set of measures that could be used by all payors to address the
full range of a health plan's membership and performance.
The first phase of this effort centers on major performance measurement projects
underway in both Medicare and Medicaid. These are designed to help us develop
measures that are focused on the special needs of our diverse populations.
in Medicaid, we are working colleboratively with National Committee for Quality
Assurance (NCQA), State Medicaid agencies, consumer advocates and managed care
organizations to adapt the commercial sector's state-of-the-art performance
measurement tool HEDIS (Health Plan Employer Data and Information Set) to the
needs of the Medicaid program.
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We chose HEDIS as the template for our Medicaid effort for several ressons:
o
HEDIS is viewed by most of the leading state managed care programs as the
appropriate model for Medicaid. Some states are already adopting HEDIS. We
feel it is important to provide some national leadership,
o
we want to coordinate with the private sector and take advantage of the
significant analytical groundwork already produced by NCQA, SO as to minimize
potential reporting burdens on our managed care plans, many of which are
adopting HEDIS.
in Medicare, we are beginning to pliot test a new, performance based approach to
Peer Review Organization (PRO) review of HMO9 developed under contract with the
Delmarva Foundation. These measures reflect the special health needs of an elderly
and disabled population, for example, in management of chronic conditions. These
measures will them be considered in conjunction with the broader HEDIS effort.
Payment/Competitive Bldding
As I discussed above, concerns about the payment methodology for risk
contractors has been long standing. Currently, we determine rates on a yearly basis,
and plans decide whether or not to enter into a contract each year based on the rates.
These rates, called the Adjusted Average Per Capita Cost (AAPCC), are developed for
each county and are based on fee-for-service costs in the area. County rates are then
adjusted for age, sex, Institutional and Medicaid status; no adjustment is made for
health status per se. Plans have been concerned with the adequacy, stability and
equity of the AAPCC. Early on, when I became Administrator of HCFA, I Invited the
Industry to come up with alternatives to the AAPCC. We still have no significant
alternatives.
One concept that has recently received widespread support and attention from
industry, academia and commercial payers is that of "competitive bidding."
Proponents of competitive pricing models claim that the methodology will result in
payments that more accurately reflect the true costs of doing business, in addition to
promoting efficiency through greater competition among health plans.
We think that this is a promising idea, and we would like to test variants of it as
demonstrations in a number of geographic areas. In order for the demonstrations to
be useful, we believe that competitive bidding should become the payment
methodology for all Medicare managed care plans in the demonstration areas. As
always, beneficiaries will still have the ability to choose to enroll in managed care plans
or remain in fee-for-service, We would be interested in working with the Subcommittee
on the structure of a competitive bidding demonstration.
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IIL
IMPROVED PROGRAM MANAGEMENT
Managed care options while of growing importance to the administration of the
Medicare program are not the whole story. We are actively working to improve
management throughout the program and to make continued Innovations in the fee-
for-service program.
Customer Service initiatives
Under the leadership of President Clinton, Vice President Gore and Secretary
Shalala. we at HCFA have focused our efforts on making sure that our nearly 70
million beneficiaries (Medicare and Medicaid) receive the health care they need when
they need It. This means that beneficiaries come first in all that we do. HCFA has
undergone significant Internal and external changes to insure that the "customer first"
philosophy becomes # reality. Throughout the agency, we are working to improve
communications with beneficiaries . whether it be one-on-one in person, on-line
through the computer, over the telephone, through our numerous publications or
through the media.
The nature of the Medicare program is such that there are numerous other
people and organizations that have closer contact with beneficiaries than HCFA. They
are also our customers and our partners in providing health care services . providers
such as hospitals, nursing homes, home health agencies, physicians and medical
suppliers; contractors (carriers and intermediaries) that process and pay Medicare
claims; and, Peer Review Organizations that assure the quality of health care services.
We have developed a set of customer service standards that apply to our
interactions with beneficiaries and our partners. These standards apply to all of our
communications, claims processing activities, customer satisfaction, consumer choice,
health care quality and program administration. For example, we are working with our
customers to make our publications and notices easier to understand: We are
simplifying Medicare claims administration so that claims determinations will be more
consistent. We are placing a premium on measuring and improving customer
satisfaction through the use of surveys, focus groups and meetings.
We also believe that the need for integrating delivery systems will become more
and more critical as our population becomes increasingly diverse and older with more
chronic care needs. In order to meet these needs, it is clear that HCFA must maintain
a collaborative relationship with its partners in the provider community and assist them
to improve their focus on customer service. Several such initiatives are already
underway. HCFA is examining all of the long-term care services provided by both
Medicare and Medicaid and is considering ways that these services can be better
coordinated with one another and with the acute care system. A similar review of
home health care programs has also been undertaken.
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Freud and Abuse
Starting at the Office of the Administrator and at every level of HCFA, we have
expanded and strengthened our efforts to root out fraud and abuse against Medicare
and Medicaid and to vigorously pursue those who commit such illegal activities. We
operate in a partnership, not only with the Department's Office of the Inspector
General, but with the Department of Justice, including the FBI, state and local law
enforcement agencies, and our contractors. Further, HCFA is Increasingly exercising
its authority to suspend payments to providers and suppliers when evidence of fraud
exists.
in addition, HCFA is reviewing and changing programs and policies that have
been found most vulnerable to abuse. For example, in order to better monitor fraud
and abuse related to durable medical equipment (DME), HCFA has changed the
procedures for claims processing. Four carriers are now responsible for DME claims
processing rather than the previous 33 carriers, a system which provided DME
suppliers opportunities to submit claims to the carrier whose payment policy was most
liberal. The new system of using four regional carriers reduces the chance'for
fraudulent billing because suppliers must submit claims to the carrier in the region
where the beneficiary resides.
The use of more sophisticated data processing systems, such as the MTS
system, that I discussed earlier, further increases the chances of detecting aberrant
patterns that might indicate abusive behavior. The MTS system will greatly improve
HCFA's ability to screen Medicare claims for errors and fraud.
IV. CONCLUSION
For thirty years, Medicare has been insuring the nation's elderly and disabled.
we know from our TOCUS groups, and 1 think you are all aware from interactions with
your constituents, that beneficiaries feel a certain ownership of the program. This
feeling is justified. Through their payroll contributions and those of their employers,
during their working lives, and through their own premium payments, beneficiaries in
fact contribute 70 percent of their insurance costs. We want to work with you to make
responsible decisions in planning the next steps for the future of the Medicare
program. We look forward to working with this Subcommittee as we expand-choices
available to beneficiaries without compromising quality, access or value.
Electronic Submission of Claims
Medicare VS, Private Insurance
Percent Electronic
120
90
100
67
80
60
ID:202-395-6148
60
40
20
10
20
0
Medicare HOSPITAL
BC/BS Hospital
Medicare
BC/BS Phy sician
Commercial Ins.
FEB 20'95 21:11
1994
Source: HCFA/BPO; Blue Cross Assoc.
P78 HCFACHT2
No.001 No P.11
The Composition of the Medicare Population, 1992
Elderly, Disabled and ES.RD
65-74 Years 51%
ID:202-395-6148
<65
(Disabled & ESRD) 10%
85+ Years 10%
75-84 Years 29%
FEB 20'95
Total Beneficiaries=35.6 Million
Source: HCFA/BDMS
P78 HCFACHT4
21:12 No.001 P.12
Share of Program Expenditures by Income
Of Medicare Individuals or Couples, 1992
$15,000 or Under 62%
ID:202-395-6148
$15,001 to $25,000 21%
FEB
$50,001 or More 3%
25,001 10 $50,000 14%
83% of Expenditures: All nual
Income of $25,000 or Less
Excludes 2.2% not reporting income.
Also Excludes HMO enrcllees (9%).
Source: HCFA/OACT
20'95 21:12 No.001 P.13
EXECUTIVE OFFICE OF THE PRESIDENT
LRM NO: 452
OFFICE OF MANAGEMENT AND BUDGET
Washington, D.C. 20503-0001
FILE NO: 491
2/24/95
LEGISLATIVE REFERRAL MEMORANDUM
Total Page(s):
TO: Legislative Liaison Officer - See Distribution below:
FROM: Janet FORSGREN
Assistant Director for Legislative Reference
(for) Janet R tongren
OMB CONTACT: Robert PELLICCI 395-4871
Legislative Assistant's line (for simple responses): 395-7362
SUBJECT: HEALTH AND HUMAN SERVICES Proposed Testimony on the status of the Medicare Program
DEADLINE: 5:30 p.m. Friday, February 24,1995
In accordance with OMB Circular A-19, OMB requests the views of your agency on the above subject before
advising on its relationship to the program of the President.
Please advise us if this item will affect direct spending or receipts for purposes of the
"Pay-As-You-Go" provisions of Title XIII of the Omnibus Budget Reconciliation Act of 1990.
COMMENTS: Hearing is before the Senate Committee on Finance on Tuesday, February 28th. HCFA
Administrator Vladeck is the witness.
URGENT
DISTRIBUTION LIST:
AGENCIES:
EOP:
242-Council of Economic Advisers - Liaison Officer (vacant) - (202) 395-5036
Nancy-Ann Min
217-JUSTICE - Sheila F. Anthony - (202) 514-2141
Chris Jennings
429-National Economic Council - Sonyia Matthews - (202) 456-2174
Diana Fortuna
Jeremy Ben-Ami
Jennifer Klein
Barry Clendenin
Mark Miller
John Richardson
Art Stigile
Janet Forsgren
Melissa Cook
RESPONSE TO
LRM NO: 452
LEGISLATIVE REFERRAL MEMORANDUM
FILE NO: 491
If your response to this request for views is simple (e.g., concur/no comment), we prefer that you respond by e-mail or
by faxing us this response sheet.
If the response is simple and you prefer to call, please call the branch-wide line shown below (NOT the analyst's line)
to leave a message with a legislative assistant.
You may also respond by:
(1) calling the analyst/attorney's direct line (you will be connected to voice mail if the analyst does not answer); or
(2) sending us a memo or letter.
Please include the LRM number shown above, and the subject shown below.
TO: Robert PELLICCI 395-4871
Office of Management and Budget
Fax Number: 395-6148
Branch-Wide Line (to reach legislative assistant): 395-7362
FROM:
(Date)
(Name)
(Agency)
(Telephone)
SUBJECT: HEALTH AND HUMAN SERVICES Proposed Testimony on the status of the Medicare Program
The following is the response of our agency to your request for views on the above-captioned subject:
Concur
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See proposed edits on pages
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FAX RETURN of
pages, attached to this response sheet
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draft 2/23
STATEMENT OF
BRUCE C. VLADECK, Fh.D.
ADMINISTRATOR
HEALTH CARE FINANCING ADMINISTRATION
DEFORE THE
FINANCE COMMITTEE
UNITED STATES SENATE
FEBRUARY 28, 1995
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Mr. Chairman and Members of the Committee
T am pleased to be here today to discuss the Medicare program,
its extraordinary success in providing health care to the
elderly, and the challenges the program faces in controlling
expenditures without jeopardizing the services Medicare offers
its beneficiaries. Medicare has fulfilled its promise of
providing access to basic health care for elderly and disabled
Americans. As Medicare enters its thirtieth year, however, we
face a world quite different from that in which the program
began. We will face continuing challenges in assuring access to
care, in assuring the quality of that care, in responding
appropriately to technological advances in medicine, and in
helping to reform the health-care delivery system.
Background
Before Medicare was created, in 1965, over half of the elderly
population had no health insurance. Now over 95 percent of the
elderly are insured. In 1972, Congress expanded Medicare to
include disabled individuals and those afflicted with end stage
renal disease. Today, these individuals have basic health
insurance and need no longer fear massive billo or having to do
without basic care they need. We should not lose sight of the
importance of this achievement: it justly ranks as one of
America's major accomplishments of the past several decades.
Modicare ic administered largely by private contractors under
our supervision. In 1994, Medicare served almost 36 million
persons under Parts A and B of the program. Aged Medicare
beneficiaries number 32 million, 3.6 million are disabled and
77,000 have ESRD. Medicare has agreements with over 65
contractors to process beneficiary claims. In FY 1994, over 750
million claims were processed
While sustained by our program, many of our beneficiaries
could safely be described as vulnerable.
O Relatively few Medicare beneficiaries can be considered
financially well-off. Approximately 83 percent of program
spending in 1992 was on behalf of those with incomes less
than $25,000 (see Chart 1). Fifty-nine percent of senior
citizens rely on Social Security for 50 percent or more of
their income (see Chart 2).
D Currently, 20 percent of our beneficiaries are either
seniors age 85 and older, most of whom are women, or
persons with disabilities or end stage renal disease (see
Chart 3).
In the first full year of operation, Medicare served 19.1
million elderly Americans, with Federal spending totalling
approximately $4.5 billion. Today, Modicare meets the health
care needs of approximately 36 million beneficiaries, with annual
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expenditures of approximately $160 billion in 1994.
Early projections of Medicare participation did not take into
account the fact that good medical care has helped contribute to
the increased life expectancy for the elderly. However, good
care also translates into greater demand for services.
This growth in spending has resulted from a variety of
factors, including improvements in benefits, expansions in
eligibility, and increases in the costs of health care.
Ironically, part of the growth may also be traced to Medicare
itself: Medicare's case load has quietly risen because life
expectancy has Improved significantly, partly because of the
improved medical care paid for by Medicare.
The Medicare program consists of two distinct parts.
Part A covers services furnished by hospitals for inpatient
care, home health agencies, skilled nursing facilities, and
hospices. Medicare Part A services are financed by the
Medicare tax, paid by both employees and employers.
Medicare Part B is voluntary and is offered to all Medicare
Part A beneficiaries for a monthly premium, now $46.10.
The premiums collected are required by statute to finance
25 percent of the Part B program; the rest is financed
through general Federal revenues.
Part B covers a wide range of medical services and supplies
including physician services, outpatient hospital services
and some home health services. Part B services also
include diagnostic laboratory tests, x-rays, and the
purchase or rental of durable medical equipment.
In recent years, Medicare has witnessed substantial
increases in spending for home health services and
outpatient procedures. In 1994, Medicare spent 15 percent
on these services (See Chart 4).
The Medicare program has helped the nation achieve a high
standard for quality health care.
Medicare pays almost 30 percent of the nation's hospital
expenditures, and this solid base of support had a major
role in permitting the modernization of the nation's
hospitals.
The training of physicians at hospitals is extensively
subsidised through Medicare's graduate medical education
and indirect medical education payments.
Medicare has also pioneered the expansion of at-home
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medical care through home health agencies.
o Medicare has improved access to medical treatments through
special funding for rural and frontier areas.
O Lastly, Medicare, to help assure the quality of health care
delivered to Medicare beneficiaries, pioneered the first
utilization and quality review program, which served as a
model for the rest of the country. Most importantly, all
suppliers and providers that serve Medicare beneficiaries,
must meet the HCFA standards for health and safety. In
addition, I will later describe our Health Care Quality
Improvement Program, under which the Medicare Peer Review
Organisation (TROs) program is setting the standard for
modern quality assurance activities.
Medicare's strengths
Medicare continues to have high levels of customer
satisfaction and physician participation. Recent studies have
shown that the majority of Medicare beneficiaries are highly
satisfied with their medical cal- and coverage.
Medicare also boasts a high participation rate among
physicians and other providers of health care services, which
helps assure access to medical treatment and services for
Medicare beneficiaries. Over 578,000 physicians, or 65 percent
of those physicians who bill Medicare, have signed up to be
participating physicians, meaning they forgo extra billing on all
claims for Medicare benoficiaries. In addition, 6,473 hospitals
participate in Medicare.
Medicare continues to lead the health insurance industry in
the effective use of high technology for program administration.
We operate the Medicare system with administrative costs of less
than two percent of program outlays (see Chart 5). in contrast,
private insurance administrative expenses are about 25 percent in
the small group market and about five percent in the large group
market.
Medicare has been a pioneer in streamlining program
administration and is a world leader in fostering electronic
claims submission. Ninety percent of Medicare's hospital and
skilled nursing home facility claims and 70 percent of its
physician claims are submitted electronically (see Chart 6). In
contract, 60 percent of Blue Cross's hospital claims and 20
percent of its physician claims are eloctronically cubmitted.
For commercial carriers, the percentage is ten percent for all
claims.
We have also focused attention on reducing the paperwork
burden on health care providers, working closely with the health
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care community to establish a standard uniform national Medicare
claim form for physicians and another for hospitals, skilled
nursing facilities and home health agencies. Many other insurers
use these forms, but attach additional forms as well. These,
however, are the only hospital and physician claim forms that
Medicare requires.
For thirty years, Medicare has been insuring the nation's
elderly and disabled. We know that beneficiaries feel a certain
ownership of the program. This feeling is justified. Through
their payroll contributions and those of their employers during
their working lives, beneficiaries directly contribute a
significant fraction of their insurance costs. The average
worker turning 65 and becoming eligible for Medicare today will
contribute about 10 percent, on average, of what Medicare Part A
will eventually pay.
Medicare Successes in Controlling Costs
Medicare has been successful in slowing the J owth of
expenditures for hospitals and physicians. From 1984 to 1993
Medicare's annual rates of expenditure growth were 6.1 percent
for hospitals and 7.9 percent for physicians. In the same time
period, private insurance experienced rates of 7.7 percent for
hospitals and 11.2 percent for physicians (see Chart 7).
During the Clinton Administration, the projections for the
average annual rate of growth for Medicare have decreased. In
the President's Fiscal Year 1996 Budget, the projected annual
average rate of growth for 1996-2000 is 9.1 percent. In
contrast, six months ago in the Mid-Session Review the projected
annual average rate of growth for the same period was 10.3
percent. The primary contribution to lower Medicare projections
is slower growth in Part A Hospital Insurance expenditures. The
decline in projected Part A growth results primarily from a
decrease in forecasted hospital cost inflation and slower growth
in the complexity of Medicare inpatient cases (see Chart 8).
Medicare has experienced a slower growth rate of expenditures
per enrollee than private health insurance: from 1984 to 1993,
Medicare per enrollee expenditures grew at 6.3 percent Versus 9.8
percent for private insurance. While there was a temporary
reversal of this rolationship from 1991 to 1995 (see Chart 9),
our actuaries project a recumption of the trend beginning in 1996
and continuing into the 21st century.
This record has been due, in part, to Modicare's prospective
payment system (PPS) for hospitals and the physician payment foo
schedule, both of which have helped slow the rate of expenditure
growth.
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The Prospective Payment System
In 1984, Medicare began paying hospitals on a prospective
basis for inpatient care of beneficiaries. Prior to PPS,
hospitals were paid on a reasonable cost basis for all charges in
treating a patient on an inpatient basis. Under PPS, each
patient stay is categorized into a Diagnosis Related Group or
DRG. The DRG payment is calculated to represent all the costs
associated for treating a patient with a given diagnosis and is
made as one bundled payment for the hospital.
This prospective payment gives the hospital the incentive to
provide cost-effective treatment and reduce waste while providing
quality care to the patient. The system has worked largely as
intended: cost increases have been curbed and the quality of
patient care has been maintained. Hospitals have played a
significant role in helping the prospective payment system work
as envisioned.
In addition, in 1992 we extended the prospective payment
system to incorporate Medicare's share of capital exponses of
hospitals. Until 1991, Medicare was making payments to hospitals
on a reasonable cost basis. This cost-based system did not
provide incentives for hospitals to make prudent capital
investments. Under the old cost-based system hospitals were
engaged in a race for technology, often competing for high
technology pieces of equipment, such as MRIs and CAT scans, that
cost the Medicare program millions of dollars. Under PPS,
hospitals now have the incentive to make prudent investment
decisions without burdening the Medicare program with paying for
excessive purchases of unnecessary medical equipment.
Physician Fee Schedule
Medicare physician payment reform also provides better
incentives for appropriate use of health care services. The
reform package in the Omnibus Budget Reconciliation Act of 1989
(OBRA 89) had three key elements. First, the law set a goal for
the rate of Medicare physician expenditure growth, called the
Medicare Volume Performance standard (MVPS). Second, a resource-
based fee schedule replaced Medicare's antiquated customary,
prevailing, and reasonable charge system. The last element
included provisions for financial protection for Medicare
beneficiaries by establishing uniform limits on extra billing by
nonpartioipating physicians.
The fee schedule refocuses current incentives by generally
increasing payment for primary care and reducing payment for
surgery and other procedures. At the same time, the Medicare
Volume Performance Standards help restrain overall spending for
Medicare physicians' services. Further, beneficiaries are
protected from extra billing charges under the fee schedule.
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Since implementation of the fee schedule in 1992, we have seen
a slower rate of growth in physician expenditures.
other Areas for Payment Reform
Medicare currently covers four major services that are not
paid prospectively: skilled nursing facilities (SNFS), home
health, hospital outpatient departments and PPS-exempt hospitals.
We are working on developing prospective payment systems for all
of these services.
Technically, we are closest to being ready to implement a
TTS system for SNF services, at least for routine costs.
We are conducting demonstrations on prospective payment for
home health services on per opisode basis and expect to be
able to develop a system after the demonstrations are
completed.
We ATA ready to implement a prospective system for some of
the major services in hospital outpatient departments. We
will shortly submit a report to Congress on the policy
issues involved.
Finally, we are still working on developing the
classification systems necessary to implement PPS for
currently exempt hospitals.
Recent Developments
Over the past few years, HCFA has improved the oversight and
efficiency of Medicare claims processing; strengthened prevention
and detection of fraud and abuse; simplified paperwork; expanded
beneficiary outreach efforts; assured improved quality of health
care; strengthened managed care options; and enhanced the
coordination and integration of health care.
Simplifying Program Administration
As I mentioned earller, Medicare is a leader in streamlining
program administration and fostering the use of electronic
claims. We are continuing our efforts in this area by increasing
our use of electronic technology for all phases of claims
processing to reduce administrative costs. In fact, Medicare has
experienced a significant reduction in administrativo costs for
procossing both Part A and Part B claims. For example,
Modicaro's bottom line cost to process claims has been reduced by
21.6 percent per physician claim and by 21.1 percent per Part A
claim since Fiscal Year 1990.
In order to continue efforts at streamlining our current
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claims processing systems, we recently signed a contract with CTE
to develop the Medicare Transaction System (MTS). MTS will
improve communication, data capabilities, and information sharing
among our contractors.
MTS will replace 11 automated systems currently operated by
73 Insurance companies under contract to Medicare at 62 sites.
The new system will be able to process over 1 billion claims per
year as projected by the turn of the century. MTS will be
phased-in over two years, starting in 1997.
In partnership with suppliers, providers, and Medicare
bonoficiaries, HCFA has sought to re-engineer our business
procosses. For example, In the durable medical equipment (DME)
area, we concluded that we should concentrate all processing for
durable medical equipment and supplies in a small number of
specialized carriers. This step was intended to achieve more
sophisticated and uniform coverage policies, to improve claims
processing, and to help provent fraud and abuse. Greater
efficiency would be achieved because each carrier would have a
trained pool of experienced personnel able to handle the DME
claims more effectively and to process claims more quickly and
accurately.
Starting in October 1993, we have gradually transferred the
processing and monitoring of durable medical equipment and
supplies from 34 Part B carriers to four durable medical regional
carriers (DMERCs).
This consolidation also allowed for standardized submission of
electronic claims. All suppliers are now able to use a single
format to submit their claims to Medicare. This format results
from a major redesign of the previous process, which had well
over 30 different electronic formats.
Combatting Fraud and Abuse
Medicare is administered largely by private contractors under
our supervision. Medicare has agreements with over 65
contractors to process beneficiary claims. In 1994, over 750
million claims were processed and Medicare paid more than $159
billion for medical services, treatment and equipment. with such
a vast network in place the potential for fraud is very real.
Although the majority of our providers and suppliers are
logitimate, a few disreputable actors are responsible for a
significant amount of fraud and abuse.
HCFA is expanding and strengthening efforts to root out fraud
and abuse and to vigorously pursue those who commit such illegal
activities.
O We have taken an active lead on establiching separate fraud
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units in 22 Medicare intermediary and carrier sitos.
HCFA has strengthened relationships not only with the DHHS
Office of the Inspector General, but also with the
Department of Justice (including the FBI), State and local
law enforcement agencies, and our contractors.
We are increasingly exercising our authority to suspend
payments to suppliers or providers when we discover
reliable evidence of fraud.
We are also working with State Medicaid offices to share
new Lechnology and approaches to detect fraudulent
activities. Some states have state of the art technology
available and are quite willing to provide assistance in
dotermining approaches that will benefit our present and
futuro needs.
To better monitor fraud and abuse in a particularly
problematic area, HCFA has changed the way durable medical
equipment claims are handled. Suppliers no longer can game the
system by sending claims to the carrier that paid the highest
amount or subjected them to the least scrutiny. They must now
bill the regional carrier that services the area where the
beneficiary lives.
The consolidation of claims processing for durablc modical
equipment mentioned above has significantly increased our ability
to deal with fraud and abuse in this area. We now have much
improved ability to track specific providers and suppliers, to
check on questionable claims, and to stop payment. on claims that
are not legitimate.
The Statistical Analysis DMERC (or SADMERC) has the added
function of conducting statistical analyses of data provided by
all four carriers. This arrangement provides a quick and
efficient way to detect aberrant patterns of claims that could
not have been easily discovered and investigated in the past.
HCFA has also moved to eliminate the use of multiple billing
numbers by DME suppliers. Starting in October 1993 we
established a new supplier number application process for 120,000
DME suppliers through a National Supplier Clearinghouse (NSC).
The NSC maintains a national file on DME suppliers.
In order to be able to obtain a new supplier number and bill
the Medicare program each supplier must complete a uniform
supplier number application which must be approved by the NSC.
Through this process, we are able, for the first time, to have
comprehensive information about our supplies that can be used to
reliably detect abusive suppliers who attempt to relocate their
operations under a different name. For example, the NSC can
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provide information to carriers about aberrant suppliers and
those who do not have valid supplier numbers. The carriers can
then stop payment on falsely billed claims and suspend billing
numbers.
Upon signing the application, the supplier attests that it
will comply with the Medicare Supplier Standards. Any failure to
comply with these Standards is grounds for termination from the
Medicare program.
Beneficiary/Provider Outreach
We have made great strides in improving beneficiary and
provider relations by listening to them and identifying their
needs. After identifying the problems we went to work to create
solutions. In 1994, HCFA provided simplified forms to both
beneficiaries and providers in order to reduce the amount of
paperwork hangle. The revised "Explanation of Medicare Part B
Benefits" made it easier for Medicare's elderly and disabled
pupulations to understand what was happening to their claims.
The form is also being further refined to consolidated Part A and
Part B benefits information into one form. For physicians,
Medicare now requires them to sign only one form at the time
admitting privileges are granted rather than signing a form each
year. This one action simplified participation in Medicare for
some 300,000 physicians and over 6,000 hospitals.
Part of our responsibility to beneficiaries and the general
public is to provide public education on specific health issues.
Accordingly, HCFA has created and developed a Consumer
Information Strategy. This initiative is coordinated with our
partners which include the Public Health Service, National
Institutes of Health and varied consumer and advocacy groups. We
have alerted Medicare beneficiaries about our coverage of the
influenza and pneumococcal vaccines, and mammography. We are
currently developing future campaigns on breast and prostate
cancers. We strongly encourage beneficiaries to become educated
and better health care consumers.
Growth in Managed Care
Medicare is certainly not immune to the managed care
revolution, and HCFA is responding on a number of fronts. Our
managed ware agenda has two priorities: (1) to ensure the
provision of quality services by HMOs that put the beneficiary
first; and (2) to expand our beneficiaries' choices of managed
care products, similar to those available in the private sector.
We are working with HMOs as partners to meet our goals of
expanded choice and quality services. We expect as much as 20
percent growth in Medicare managed care enrollment this year -- a
clear signal that beneficiaries are changing the face of the
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Medicare program by their own choice.
At present, 74 percent of Medicare beneficiaries have access
to a managed care plan, and nine percent of all Medicare
beneficiaries have chosen to enroll in a managed care option
(see Chart 10). 1994 was a year of impressive growth in Medicare
managed care: we experienced double digit growth both in plan
enrollment and the number of plans participating in the program.
Plan enrollment increased by 16 percent. We now have 11 counties
where 40 percent or more of our beneficiaries are enrolled in
managed care, an additional 30 counties with enrollment between
30 and 40 percent, and more than 44 counties with enrollment
between 20 and 30 percent.
More important for future enrollment growth is the number of
contracts with managed care plans. In 1994, the number of our
Medicare managed care plans Increased by 20 percent (See Chart
11). Many of these new contracts are in regions beyond those
that traditionally have had a strong Medicare managed care
presence. For example, in our Philadelphia region, the number of
contracts increased from 6 to 16 and in the New York region
contracts increased from 11 to 14.
Experience with Medicare SELECT should be part of our efforts
to improve current managed care options under Medicare. We
believe, however, that any expansion of SELECT should be preceded
by a serious examination of our experience under the 15-State
demonstration. We have looked at this experience and have two
areas of concern. One major concern is with the adequacy of
beneficiary protections under Medicare SELECT. Our second
concern is whether Medicare SELECT will make any contribution to
increasing the efficiency of the Medicare program.
Given the impending deadline for the expiration of the
authority for Medicare SELECT demonstration and the need to
examine the demonstration experience, the Congress may want to
consider a temporary extension of the demonstration for existing
plans. This extension would address the current uncertain state
of the existing Medicare SELECT plans and provide ample time to
examine the experience under the demonstration and to determine
the changes to SELECT that should be made based on demonstration
experience.
We also want to make available to beneficiaries a new
preferred provider organization (PPO) option. This option has
proven to be very popular in the commercial market, and many of
us have access to PPOs. We believe that Medicare beneficiaries
should have the same range of choices. Under the PPO option,
would face nominal copayments if they stayed in plan but have the
option to go to any physician at any time, if they were willing
to pay the cost-sharing. A ΓΓo option represents the ideal
choice for those beneficiaries torn between staying in the fee-
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for-service program and joining a Medicare risk plan. We look
forward to working with this Committee on the PPO option in the
months ahead.
As we work to extend and broaden managed care options for
Medicare beneficiaries, we must be aware of the practical
limitations of a rapid expansion of managed care in Medicare and
of past failures of overly aggressive efforts in the Medicare
program. Steps need to be taken to ensure the provision of
quality health care to beneficiaries, in partnership with managed
care leaders. The movement to managed care cannot outpace the
capacity of managed care plans to serve large numbers of new
enrollees, particularly those with the expensive health needs of
the Medicare population. A challenge we face as more and more
beneficiaries enroll in HMOS is one or monitoring, data
collection and plan accountability. Like any other health care
purchaser, we want a quality product.
Payment/Competitive Bidding
Concerns about the payment methodology for risk contractors
has been long standing. Currently, we determine rates on a
yearly basis, and plane docide whether or not to enter into a
contract each year based on the rates. These rates, called the
Adjusted Average Per Capita Cost (AAPCC), are developed for each
county and are based on fee-for-service costs in the area.
County rates are then adjusted for age, sex, institutional and
Medicaid status; no adjustment is made for health status per BC.
Plans have been concerned with the adequacy, stability and equity
of the AAPCC. Early on, when T became Administrator of HCFA, I
invited the industry to come up with alternatives to the AAPCC.
We still have no significant alternatives.
One concept that has recently received widespread support and
attention from industry, academia and commercial payers is that
of "competitive bidding." Proponents of competitive pricing
models claim that the methodology will result in payments that
more accurately reflect the true costs of doing business, in
addition to promoting efficiency through greater competition
among health plans.
we think that this is a promising idea, and we would like to
test variants of it as demonstrations in a number of geographic
areas. In order for the demonstrations to be useful, we believe
that competitive bidding should become the payment methodology
for all Medicare managed care plans in the demonstration areas.
As always, beneficiaries will still have the ability to choose to
enroll in managed care plans or remain in fee-for-service. we
would be interested in working with the Committee on the
structure of a competitive bidding demonstration.
11
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93855148
Quality
Insuring high quality care for Medicare beneficiaries is a
high priority for HCFA. The cornerstone of Medicare's quality
assurance efforts rests with peer review organizations (PROs).
PROs are charged with assuring that care is appropriate, provided
in the correct care setting, and meets professionally recognized
standards of quality. PROs, along with our program to inspect
health care providers and to monitor their compliance with
Federal requirements, provide an assurance that care meets
quality standards.
Our knowledge and expertise in measuring and improving quality
of care has evolved rapidly in the last decade, and we have been
making corresponding changes in the Medicare Paer Review
Organizations (PROs) and End Stage Renal Disease Networks. Two
years ago we announced the Health Care Quality Improvement
Program (HCQIP) to bring modern principles of quality management
to PRO activities, particularly the focus on patterns of care
rather than individual cases of questionable care The HCQIP
forms the heart of our efforts to improve quality of care for
Medicare beneficiaries over the next decade.
HCQIP embodies the major quality themes: development of
quality indicators or measures, support for continuous quality
improvement, development of information to promote informed
consumer choice, and increased consumer protection. The most
important achievement of the HCQIP is redirecting our attention
from individual cases to improving quality in the mainstream of
care. The HCQIP seeks to stimulato the proactive involvement of
plans, providers and practitioners in quality improvement
activities.
Our programs for inspecting and monitoring providers have been
enhanced to improve their effectiveness at assuring the delivery
of quality health services. We are reassessing and revising our
standards of performance to make the focus one which is primarily
directed at patient outcomes, reducing process and structure
requirements for facilities. The development of quality
indicators for home health agencies and skilled nursing
facilities is nearing completion. These indicators will improve
the health care industry's ability to continuously improve the
quality care provided and enhance our ability to assure quality
of care for all patients in the care of a skilled nursing
facility or home health agency.
Managed Care Quality
Today, managed care organizations providing services to
Medicare and Medicaid beneficiaries are required to have internal
quality assessment and improvement programs to identify ways to
improve the delivery of health care services and the health care
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itself. We also require independent external review of quality
of care delivered to our bonoficiaries.
HCFA is working in collaboration with the industry on a long
term effort of developing a single set of measures that could be
used by all payors to address the full range of a health plan's
membership and performance.
The first phase of this effort centers on major performance
measurement projects underway in both Medicare and Medicaid.
These are designed to help us develop measures that are focused
on the special needs of our diverse populations.
In Medicaid, we are working in collaboration with the
National Committee for Quality Assurance (NCQA), State Medicaid
agencies, consumer advocates, and managed care organizations to
adapt the commercial sector's state-of-the-art performance
measurement tool, the Health Plan Employer Data and Information
Set or "HEDIS," to the needs of the Medicaid program.
We chose HEDIS as the template for our Medicaid effort for
several reasons:
HEDIS is viewed by most of the leading state managed care
programs as the appropriate model for Medicaid, and some
states are already adopting it.
We want to coordinate with the private sector and take
advantage of the significant analytical groundwork already
produced by NCQA, so as to minimize potential reporting
burdens on our managed care plans, many of which are
adopting HEDIS.
In Medicare, we are beginning to pilot test a new,
performance based approach to Peer Review Organization (PRO)
review of HMOs developed under contract with the Delmarva
Foundation. These measures reflect the special health needs of
an elderly and disabled population, for example, in management of
chronic conditions. These measures will them be considered in
conjunction with the broader HEDIS affort.
Coordination and Integration of Health Care
HCFA is constantly looking for new approaches to providing
high quality care at a lower cost than traditional approaches to
medical care. Starting in 1990, a demonstration project, the
Program of All-inclusive Care for the Elderly (PACE), was
developed to provide an integrated system of care for frail
elderly beneficiaries.
PACE is the congressionally authorized replication of the
health care delivery system pioneered by on Lok, Inc. PACE
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93856148,#16
provides integrated acute and long-term care financed through
capitation. The program provides community-based care that
integrates comprehensive medical, restorative, social and
supportive services to address the client's multiple,
interrelated needs. Preliminary data seems to indicate that this
integrated care approach in successful in providing high quality,
cost-effective health care to the frail elderly population.
Another demonstration that is now undergoing a second phase of
operation is the Social HMO demonstration. The Social HMO offers
Medicare beneficiaries the opportunity to receive a wide range of
services to meet both acute and long-term care needs. This model
of care combines the features of HMOs with those of long-term
care in demonstration projects.
The first Social HMO demonstration included a fully-integrated
structure to provide a range of services to enrollees, a
coordinated case management system, enrollment of a cross section
of the elderly population, including the functionally-impaired
and the well elderly and financing methodology comprised of
prepaid capitation from Medicare and member premiums.
The second generation Social HMOs will focus on refining the
targeting and financing methodologies and benefit design, with an
omphasis on geriatric care and the extension of the model to
spocial populations. Six provider organizations from across the
country have been selected to participate in the second phase of
the demonstration.
I am optimistic that through demonstrations such as these, new
models of care can be tested and succccsfully implemented to
serve the long-term health care needs of Medicare bonoficiaries.
Additional Challenges Facing the Medicare Program
As we continue to work with tighter budgets and growing needs,
the Medicare program seeks to serve its benaficiaries in the best
possible ways. The aging of our population, changes in morbidity
and mortality, and technological advances in medicine will
continue to contribute to the changing needs of the people
Medicare serves.
Access and Quality Concerns
HCFA is committed to finding new ways to assure quality health
care and access to medical services in more efficient ways. We
are developing enhanced performance standards and quality
indicators to assure that the quality of service and treatment of
Medicare beneficiaries continues to improve.
We have funded grant programs to provide access to health care
in rural areas, and we support the availability of managed care
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options across the country. We strongly encourage beneficiaries
to make educated decisions about their health care by providing
choices. Despite those efforts access to quality health care is
sometimes difficult for those beneficiaries living in rural,
frontier or inner-city arcas. Our goal is make basic quality
health care easy to receive.
Improved Beneficiary Outreach
In addition to cost containment and quality goals, we are
committed to improving communication with beneficiaries. HCFA is
striving to make Medicare more understandable for beneficiaries.
Communication with beneficiaries must be improved to ensure that
the information they receive is comprehensible. We have been
working to create new channels to extend our beneficiary outreach
efforts. One project is 1-800-MEDICARE, a national toll-free
service that will provide immediate on-line assistance for
beneficiary inquiries. We are currently working with various
industry, private sector, consumer, and beneficiary groups to
accomplish this ambitious task. I am confilent that this effort
will provide a new level of bene liciary service and access to
information never seen before.
Medicare's Trust runds
While we strive to expand and change the way we do business,
financial realities must be acknowledged. The most recently
available optimistic estimate of the Trust Fund exhaustion date
from the April 1994 Trustees report, indicate that the Hospital
Insurance (HI) Trust Fund would be solvent until 2004. Changes
made by OBRA 93 had the effect of extending the date of solvency
reported in the April 1993 report by about three years.
While OBRA 93 made various cuts in provider payments, the
largest part of this effect resulted from revenue provisions.
The HI tax of 1.45 percent is now applied to all earnings;
previously earnings above $135,000 oscaped this tax. In
addition, the percentage of Social Secruity benefits subject to
the income tax was raised from 50 percent to 85 percent. The
additional revenues generated by these provisions were dedicated
to the HI Trust Fund.
The Board of Trustees will be issuing itm report in April
1995. I will be happy to discuss these options with the Committee
in greater detail once the report is released.
Medicare's Benefit Package
As I mentioned earlier, through better access to medical
services, improved medical care and advanced technology our
beneficiaries' quality of life has increased and they are living
longer. These factors have made more obvious what many consider
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gaps in our health care system. The long-term care or
prescription drug needs of the elderly are not addressed in our
current Medicare program.
While Medicare does cover temporary stays in skilled nursing
facilities and provides limited covarage for home health care
these benefits do not adequately address needs for long-term
care. In 1987, Medicare covered only 2 percent of all nursing
home expenditures (for short-term stays), while 58 percent was
financed through private sources, which include direct out-of-
pocket expenditures by the elderly (see Chart 12). only 17
percent of Medicare beneficiaries have any private insurance
coverage for nursing home services. This gap will continue to
grow as our "baby boom" population reaches age 65 shortly after
the turn of the century.
Conclusion
Although there are many approaches and views on how to provide
cost effective accessible health care, the effect will be keenly
felt by Medicare beneficiaries. The move towards better
coordination and cooperation with our partners both in the
private and public sectors will help make Medicare a stronger and
more responsive program.
The Modicare program continues to be an extraordinary
accomplishment. The vision started thirty years ago has proven
to be revolutionary and has helped make the quality of life for
the nation's eldorly better. The steps taken by this committee
has helped provide more comprehensive health benefits for
millions of Medicare benoficiaries. In turn, the steps taken by
Medicare has often provided the leadership for private insurance
companies to offer the same types of benefits and coverage for
medical treatments for all Americans.
However, this Committee or HCFA's rosponsibilities are not
completed, they are just beginning. The challenges that we face
to provide basic health care to the vulnerable populations in
this country in addition to all Americans is formidable. I look
forward to working with the members of this Committee to
addressing these issues.
I would be happy to answer any question you may have.
16
Share of Program Expenditures by Income
Of Medicare Individuals or Couples, 1992
$15,000 or Under 62%
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83% of Expenditures:
Annual Income of
$25,000 or Less
$50,001 or More 3%
$15,001 to $25,000 21%
$25,001 to $50,000 14%
Excludes 2. 2% not reportingincorna Also excludes HMO enrollees (99).
Source: HCFA/OACT
Chart
59
I
Percent of Elderly Relying on Social Security
1992
70%
59%
60%
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50%
% of Elderly
40%
32%
30%
20%
10%
0%
For 80% +
For 50% +
of income
of Income
93956148:#20
Source: Income of the Population, 55 Years or Older, 1992, SSA, Office of Research & Statistics
Chart
31
2
The Composition of the Medicare Population, 1992
Elderly, Disabled & ESRD
65-74 Years
51%
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<65
(Disabled & ESRD)
10%
75-84 Years
85+ Years
29%
10%
Total Beneficiaries = 35.6 Million
93956148;#21
Source: HCFA/BDMS
13
Chart
3
Where the Medicare Dollar Goes
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Hosp. Inpatient 54%
Hosp. Inpatient 66%
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Home Health 1%
Hosp. Outpatient ?%
SNF 4%
Home Health 7%
SNF 4%
Phys/Suppi 27%
P.. s/Suppi 27%
Hosp. Outpatient 8%
1980
1993
Total $33.9B
Total $142.9B
93956148;#22
Source: HCFA/OACT
Chart
39
Administrative Costs
Medicare VS. Private Plans
30
25
WW91.R CR-77-7 201 YA
Percent of Program Costs
20
15
10
5.5
5
J
0
Medicare
Small Group Market Large Group Market
Small group market = firms <50 employees; Large group market = lirms 10,000+ employees
Sources: HCFA/OACT and CRS, "Coste and Effects of Extending Health Insurance Coverage," 1968
078104100000
Chart
5
47
Electronic Submission of Claims
Medicare VS. Private Insurance
**
100
Percent Electronic
37
of
80
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60
40
1
20
10
20
0
Medicare HOSP/SNF BC/BS Hospital Medicare Phys/Guppi BC/BS Physician Commercial Ins.
1994
93956148:#24
Sources: HCFA/BPO; Blue Cross Assoc.
a
Chart
48
Comparison of Growth in Hospital and Physician Expenditures
Per Enrollee
Private Health Insurance VS. Medicare
16
15.5
NO
14
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12
11:2
Percent Growth
10
7:
8
Private
6
Medicare
4
2
0
Hospitals
Physicians
Hospitals
Physicians
76-'84
76-'84
'84-93
'84-'93
Annual Rates of Growth
93956148;#25
Source: HCFA/OACT
7
Chart
52
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Medicare and Medicaid Growth Slows
Under the Clinton Administration
$420
1994-1998 Average
$400
Annual Growth Projections:
$380
January 1993 Baseline: 12.7%
Clinton 1996 Baseline: 9.5%
$360
Billions of Dollars
$340
January 1993
$320
$300
Clinton 1996
$280
$260
$240
$0
1994
1995
1996
1997
1998
Fiscal Year
93956148;#26
8
Annual percentage increase in Medicare expenditures per enrollee
versus private health insurance expenditures per insured person
25%
Medicare
20%
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Annual percentage increase
15%
10%
5%
Private insurance
Actual
Projected
0%
1965
1970
1975
1980
1985
1990
1995
2000
2005
Calendar year
Notes: 1. llistorical data shown for private health insurance are estimates
Office of the Actuary
based on limited data on the number of insured persons.
Health Care Financing Administration
2. Values shown for 1994 are prefiminary estimates.
February 6, 1995
6
Availability of Medicare Maraged Care Products
Percent of Beneficiaries
HMOs Offering a
With Plans Available (1994)
Medicare Product (1995)
Plan Available
Offer Plans
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74%
70%
No Plan in Area
No Medicare Option
26%
30%
Source: HCFA OMC, Group Health Association of America
Chart
or
109
Medicare HMO Enrollment, 1985 to Present
(In Thousands)
3500
3055 3098
3000
2614
2500
1996
2000
1709
1815
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(000)
1500
1172
1000
500
0
1985 1987 1989 1990 1993 1994 1995
Cost HMO Enrollment
731
706
681
732
799
787
758
Risk HMO Enrollment
441
1003
1134
1264
1815
2268
2340
Risk HMO Enrollment VI Cost HMO Enrollment
Cost HMO Enrollment Numbers Include Cost HMOs and Health Care Prepayment Plans
Source: HCFA OMC
93956148:#29
Chart
11
111
wnat share do the elderly pay?
Nursing Home Expenses
Private sources
58%
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Other Public
4%
Medicare
Medicaid
2%
36%
1992
Source: HCFA/OACT
Chart
87
12