Medicare PFFS plans under attack

WASHINGTON, D.C.-Medicare pays private fee-for-service (PFFS) plans 19% more than prevailing fee-for-service spending, according to the June 2007 report of the Medicare Payment Advisory Commission (MedPAC). At the same time, beneficiaries are complaining of misleading promotional tactics by these plans.

The high rates have attracted more insurers to offer this product and more Medicare beneficiaries to sign up: PFFS plans now serve more than 1.3 million seniors, compared with only 774,000 a year ago. But members of Congress are calling for reforms to crack down on abusive marketing-and to tap some of those extra payments to support other healthcare programs.

HMO-type Medicare Advantage (MA) plans also receive payments higher than what is paid for care under the traditional Medicare program. But PFFS plans enjoy even higher benchmarks, as well as several other advantages over other MA options: PFFS plans do not have to establish provider networks, submit quality performance data or offer Medicare prescription drug coverage. This flexibility originally aimed to attract insurers to underserved rural areas, where limited providers made it difficult for plans to form contractual networks. But hefty benchmark rates for "floor" counties in urban, as well as rural areas, have made these plans highly lucrative in many markets.

As insurers have moved to expand PFFS options, aggressive marketing has generated complaints from beneficiaries and scrutiny on Capitol Hill. In May, state insurance regulators told the Senate Special Committee on Aging about unethical and illegal practices by insurance sales agents seeking to enroll seniors in these plans. The House Ways and Means Health Subcommittee similarly heard testimony from providers, patient advocates and state regulators about PFFS inequities and abuses.

In response, the Centers for Medicare & Medicaid Services (CMS) recently instituted a voluntary halt in PFFS marketing until plan sponsors can demonstrate their ability to monitor and ensure adherence to Medicare marketing requirements. This voluntary sales suspension involves UnitedHealthcare, Humana, Wellcare, Universal American Financial Corp. (Pyramid), Coventry, Sterling and Blue Cross/Blue Shield of Tennessee. A serious problem is that insurance agents have promised beneficiaries that they can see any Medicare provider under the PFFS plan, although doctors and hospitals can and do refuse to accept PFFS members. CMS and plans blame the rise in complaints on the actions of a few "rogue agents." But House Health Subcommittee Chairman Pete Stark (D-Calif.) asserts that the plans' high profit margins encourage them to offer "huge commissions" that attract "hucksters" to the PFFS business.

Under the sales moratorium, the plans will ask CMS to certify that they have management controls in place to monitor sales agents, educate providers on plan terms, verify that new enrollees understand plan rules and provide model disclaimer language in all sales materials and presentations. Most plans expect to be in compliance in time for Medicare's open enrollment season this fall.

PAYMENT NEUTRALITY

Even if PFFS plans clean up their marketing activities, Stark and many members of Congress still want to cut payments to MA plans as one way to support funding increases for the State Children's Health Insurance Program (SCHIP). MedPAC supports a gradual shift to a system that sets MA plan benchmarks at 100% of FFS expenditures levels. The advisory commission adds that shifting too quickly toward "financial neutrality" could harm beneficiaries.

MedPAC Executive Director Mark Miller acknowledges that if Congress reduces benchmarks, some plans will withdraw from Medicare, and benefit packages will be less rich. But he believes that the current overpayment to PFFS plans is inequitable and costly. MA plans have the potential to promote greater efficiency and improved outcomes, but not with "inflated, administratively set county benchmarks" that exceed FFS expenditure levels, says MedPAC.