2003-10-31 -- Medicare Restructuring Gives Insurers $12 Billion to Develop New Programs


So what's wrong with this picture?  On one hand, the Congressional
Medicare Restructuring negotiators agree to spend $12 billion to
encourage insurers to set up Preferred Providers Organizations of
doctors, while on the other hand, the federal government announces a
4.5% cut in physician re-imbursements for Medicare services for next
year.

How are they going to encourage insurers to set up new Medicare
programs if physicians' rates are being cut?  The development money
will be used to set up stripped-down Medicare programs that can still
profit at the reduced reimbursements.

Kaiser Daily Health Policy Report

1. Medicare Negotiators Tentatively Agree on $12B Fund To Encourage
Participation of PPOs

Access this story and related links online:
http://cme.kff.org/Key=839.FlQ.D.D.Kqh06j

Negotiators attempting to reconcile the House and Senate Medicare
bills (HR 1 and S 1) have tentatively agreed on the creation of a $12
billion fund that would be used to increase payments to preferred
provider organizations to encourage their participation in Medicare,
the Wall Street Journal reports (Lueck, Wall Street Journal, 10/31).
The fund was "not envisioned" in either the House or Senate Medicare
bills, but both bills call for the federal government to "invite
private health plans to compete to care for patients in different
regions of the country," the Washington Post reports (Goldstein,
Washington Post, 10/31). Some Republicans have said that allowing
beneficiaries greater access to private health plans would help
control Medicare spending. Under the negotiators' tentative agreement,
the HHS secretary would determine when and where to administer
payments from the fund to PPOs that are "wary of providing Medicare
benefits" in certain regions of the country, according to the Journal.
To address House Republicans' concerns that the department would have
too much freedom to pay health plans as much as they want, there would
be limits on HHS' ability to increase payments.

More Details

The creation of the fund, which would be financed by private plans
after the federal government made an initial payment of $12 billion,
stems from the government's experience with Medicare+Choice. Many
private health plans have ended or scaled back their participation in
that program, saying it is too expensive to pay providers in certain
areas, particularly rural regions, to join their networks and that the
formula the federal government uses to calculate payments is not
"responsive to the private market," the Journal reports (Wall Street
Journal, 10/31). The tentative agreement on the fund represents a
"success" for the Bush administration and conservative Republican
lawmakers, who had pushed for stronger incentives to entice PPOs to
participate in Medicare, the Post reports. It also reflects
Republicans' "determination to tilt Medicare toward the private
sector," according to the Post (Goldstein, Washington Post, 10/31).
According to the Journal, Sen. Max Baucus (D-Mont.), a conference
committee member, criticized the idea of a stabilization fund, saying
Medicare should not provide more funds for beneficiaries' benefits
"just because they choose a PPO instead of traditional Medicare" (Wall
Street Journal, 10/31). The Post reports that questions still remain
over how large the designated regions where PPOs would participate
will be, as well as how much influence the government and the private
plans will have on determining rates (Washington Post, 10/31).

Democrats Protest Being Left Out of Negotiations

On Thursday, Rep. Charles Rangel (D-N.Y.) led a group of about a dozen
House Democrats into the Medicare negotiating session in an "act of
political theater scripted to dramatize opposition to legislation
taking shape in negotiations dominated by Republicans," the AP/Long
Island Newsday reports (Espo, AP/Long Island Newsday, 10/30). Three
House Democrats are technically members of the conference committee,
but they have said that Thomas, the committee's chair, has not
permitted them to attend the daily negotiating sessions in his office,
the Post reports (Goldstein, Washington Post, 10/31). The Democrats
stayed for about 30 minutes. Rangel said, "Let us know what the
problems are. Maybe we can talk to somebody." Following the action,
Rangel told reporters, "I came there to say, 'Listen, we don't know
what you're doing. How can we screw up anything worse than what we're
reading in the papers?'" (CongressDaily/AM, 10/31). He protested the
exclusion of most of the Democratic conferees from the negotiations,
saying that Republicans had made it clear they only wanted to meet
with "willing members" of the House (AP/Long Island Newsday, 10/30).
Rep. Nancy Pelosi (D-Calif.) also criticized Republicans for not
allowing Democrats into negotiations, adding that she "doubted
Democrats would be able to support" a final bill, CongressDaily
reports (Rovner/Heil, CongressDaily, 10/30).

Medicare Drug Benefit Could Increase Drugmakers' Profits, Study Says

If the proposed $400 billion Medicare drug benefit is enacted, it
would result in a "windfall profit" of at least $139 billion over
eight years for the pharmaceutical industry, a study released Friday
states, the Washington Post reports (Connolly, Washington Post,
10/31). The report, by Alan Sager and Deborah Socolar, directors of
the Health Reform Program at Boston University's School of Public
Health, estimates that drugmakers would see a 38% increase in profits
as a result of the new drug benefit (Sager/Socolar, "61 Percent of
Medicare's New Prescription Drug Subsidy is Windfall Profit to Drug
Makers," 10/31). Sager said the drug industry's profits would result
in part from the fact that the federal government would not negotiate
price discounts on drugs for the "flood of new customers envisioned
under the proposed legislation," the Post reports. He said that the
Department of Veterans Affairs and other government agencies currently
bargain with pharmaceutical companies for such discounts. The report
concludes that "these unrestrained prices -- given the remarkably low
real cost of producing the added volumes of pills that Medicare
patients need -- will bestow enormous windfall profits on prescription
drugmakers."

Reaction

Joshua Cohen, a senior researcher at the Tufts Center for the Study of
Drug Development, agreed that the drug companies could see a 20% to
30% increase in prescription drug volume, but he cautioned that under
the new drug benefit, beneficiaries would not pay the full retail
price. The Post notes that the Tufts center receives financial support
from the drug industry. The report authors "should be ashamed of
themselves," CMS Administrator Tom Scully, said, adding that drug
companies could see "higher volume, but they will have lower margins."
Rick Smith, vice president of Pharmaceutical Research and
Manufacturers of America, said, "The study seems to be an effort to
scuttle a very needed benefit for America's seniors." Spokespersons
for PhRMA also said the analysis "failed to take into account" the
fact that the legislation would rely on pharmacy benefit managers to
negotiate lower prices on behalf of beneficiaries. But Sager said that
the report does account for PBMs "in the form of the higher
manufacturing costs," according to the Post (Connolly, Washington
Post, 10/31). The report is available online. Note: You will need
Adobe Acrobat Reader to view the report.

2. CMS Announces 4.5% Cut In Medicare Physicians' Reimbursements for
2004

Access this story and related links online:
http://cme.kff.org/Key=839.FlQ.F.D.KrpHwT

CMS Administrator Tom Scully on Thursday announced that the agency
will reduce Medicare's physician reimbursements by 4.5% next year, the
AP/Las Vegas Sun reports (Sherman, AP/Las Vegas Sun, 10/30).

In March, Bush administration officials announced that the provider
payment cut for 2004 would likely be 4.2%, despite a provision in the
2003 omnibus spending package that provided $54 million over 10 years
to avoid such cuts. That law also blocked a proposed 4.4% reduction
for 2003 (Kaiser Daily Health Policy Report, 3/26). Scully said that
the 2004 cut will be higher than the forecasted 4.2% because CMS is
legally required to follow the current payment formula, which is based
on actual Medicare spending, the rate of medical inflation and
economic growth.

CMS will revise the formula next year to "make it more reflective of
doctors' costs," according to agency officials, the AP/Sun reports.
The American Medical Association said the cut will make physicians
reluctant to accept new Medicare beneficiaries. AMA President Dr.
Donald Palmisano said physicians are already limiting their number of
new Medicare patients because reimbursements do not match service
costs. He added that the new reimbursement cuts will exacerbate the
problem and "make it even harder for seniors to get the health care
they need." The cuts come amid negotiations to reconcile the House and
Senate Medicare bills (HR 1 and S 1); the House bill would cancel
reimbursement reductions for 2004 and 2005 and boost physician
payments by 1.5% (AP/Las Vegas Sun, 10/30).

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Wall Street Journal,. 10-31-03

Medicare Conferees    Agree Tentatively    On Insurer Fund

By SARAH LUECK     Staff Reporter of THE WALL STREET JOURNAL

WASHINGTON -- House and Senate Medicare negotiators tentatively agreed
to create a $12 billion fund to entice private insurance plans to
expand their    participation in the government's health-care program
for the elderly and disabled.

The so-called stabilization fund would be used to increase payments to
the private plans known as preferred-provider organizations, or PPOs,
which would    provide Medicare coverage on a regional basis under
legislation being reconciled in Congress. The fund has been a priority
of some Republicans, who contend that giving participants greater
access to private health plans, as an alternative to traditional
Medicare, will hold down government spending.

Details are being worked out, but under the tentative deal, the
secretary of Health and Human Services would control the fund, which
would be financed by    private plans after an initial infusion from
the government. The HHS then could make extra payments from the fund
when insurers are wary of providing    Medicare benefits in a given
region of the country.

The fund is aimed at avoiding some of the problems reported by the
private insurers that currently provide  Medicare benefits, through a
program called Medicare + Choice. In much of the country, especially
rural areas,  insurers have dropped out of the program, saying in some
cases that it is too expensive to pay health-care  providers to join
their networks and that the formula used to calculate payments isn't
responsive to the private  market.

Sen. Max Baucus of Montana, one of the two Democrats participating in
the current closed-door talks, has criticized the idea, saying the
bill shouldn't    provide more funds for people's medical benefits
just because they choose a PPO instead of traditional Medicare. Some
Democrats contend it highlights the contortions they say Republicans
are willing to go through to shore up private insurers. Many
Republicans, though, have agreed to approve creation of a new Medicare
prescription-drug benefit only if it is accompanied by an increased
role for private plans in Medicare.

The core group of Medicare negotiators has reached tentative
agreements on many of the elements of the bill but has yet to resolve
a few contentious    issues.

In a bit of drama underscoring the frustrations many lawmakers are
experiencing during the negotiations, a dozen House Democrats
complained they have been left in the dark. Led by Rep. Charles Rangel
(D., N.Y.), they marched into the room where the daily closed-door
meetings are held. They complained    to the leader of the talks,
House Ways and Means Committee Chairman Bill Thomas (R., Calif.), that
none of the House Democrats appointed to the Medicare conference has
been at the meetings. Mr. Thomas "truly believes he doesn't need
Democrats to support his final product," Mr. Rangel said.

A Thomas aide dismissed the complaint. Mr. Rangel "has rejected
efforts to give seniors more choice" of private insurance plans "even
though this concept    is in both House and Senate bills," he said.

Write to Sarah Lueck at sarah.lueck@wsj.com3

Updated October 31, 2003