Medicare HMOs said to be overpaid

As Medicare+Choice plans request additional federal funds, a GAO report concludes they are already paid too much.

By Susan J. Landers, amednews staff. Sept. 11, 2000.

Washington -- Health plans that participate in the Medicare+Choice program continue to be overpaid, despite fervent cries by the plans to the contrary, said a recent General Accounting Office report.

The GAO estimated that the federal government spent about $3.2 billion more on services for Medicare beneficiaries in managed care plans in 1998 than it would have if they had received services through the traditional fee-for-service program.

A major reason for the overpayment is that health plans tend to attract a disproportionate number of healthier-than-average beneficiaries with lower-than-average health costs. Yet plans' payment rates continue to reflect the expected costs of beneficiaries of average health in the fee-for-service program, the report said.

The overly generous government payments, rather than plan efficiencies, are responsible for plans' ability to offer such popular benefits as outpatient prescription drugs at little or no extra cost, the GAO said.

The American Assn. of Health Plans criticized the GAO report for continuing to use the same "flawed academic assumptions" that have driven earlier studies that reached similar conclusions.

"They have always concluded that beneficiaries who used health care sparingly before they joined an HMO were healthy, rather than confronting the reality that financially vulnerable beneficiaries can't afford to get the care they need under traditional Medicare," said Susan Pisano, spokeswoman for the group, which represents many Medicare+Choice plans.

"We think only in Washington can there be such a gap between analysis and what's going on in the real world, where plans are being forced to leave the program," she added.

During the Medicare+Choice program's three-year existence, more than 1.6 million Medicare beneficiaries received word that they would have to switch to a different managed care plan or return to fee for service because their plan was leaving the Medicare+Choice program.

The plans have blamed poor reimbursement rates for the withdrawals. "The simple arithmetic is that their costs are going up 10% or more a year and their reimbursement is going up 2% a year, and you can't sustain good programs very long under those circumstances," Pisano said.

Congress is examining whether to give plans extra Medicare funding, with more than a dozen bills introduced, she added.