Medicare to pay HMOs more for sicker patients

Plans may require physicians to increase data reporting.

By Markian Hawryluk, amednews staff. Aug. 18, 2003.

Washington -- Critics of Medicare managed care plans long have maintained that HMOs are siphoning off healthier, lower-cost patients, leaving Medicare fee for service with the sickest, most expensive cases. Next year, however, plans will be paid more to take patients with expensive chronic conditions and less for enrollees who use fewer health care services.

While that may help pay plans more accurately, it also means that Medicare+Choice plans will be expecting a lot more from their doctors.

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Until 2000, Medicare adjusted payments to managed care plans based only on the age, sex and residence of the enrollee.

Over the past three years, Medicare also has adjusted 10% of the payment based on the primary condition contributing to an inpatient hospital stay.

But beginning in 2004, the Centers for Medicare & Medicaid Services will add physician outpatient diagnoses to the mix to create a risk score for every Medicare beneficiary. Patients who fall into one of 61 diagnostic cost groups will garner higher payments for the plan that enrolls them in the following year.

The cost groups will identify those patients with chronic conditions, such as diabetes or congestive heart failure, that are often the most expensive for Medicare to treat.

In 2004, Medicare beneficiary risk scores will include physician outpatient diagnoses.

CMS officials indicated that getting good encounter data from physicians in a timely manner may be the biggest challenge in implementing the risk adjustment plan.

Physicians already submit the diagnosis information to Medicare as part of their fee-for-service claims and to health plans if they are paid at a percentage of the Medicare fee schedule. It is physicians with capitated contracts with Medicare managed care plans who may have to adapt to the new system, said John Gorman, president and CEO of Gorman Health Group, a Washington, D.C.-based consulting firm.

"The plans are going to get much more aggressive with providers getting encounter data on the conditions that are subject to risk adjustment," Gorman said. "They will also be after the providers to code this stuff accurately so that they're getting paid the amounts that they should for the risk they are bearing on these very sick patients."

Not reporting a diagnosis for a single patient could wind up costing a plan $10,000 in that one year alone once the system is fully implemented. The risk adjustment will be phased in over four years and will be applied to only 30% of the 2004 payment rates.

By 2007, the entire capitated payment to health plans will be risk-adjusted, and the need for accurate reporting will be heightened.

Gorman said physicians need to make sure that their practices are aware of what conditions need to be reported to managed care plans and how to properly code those diagnoses. He also suggests that physicians who have risk-bearing capitated contracts verify how plans will share the additional Medicare funds they receive.

If risk adjustment works well, it could eliminate much of the risk selection that now plagues the program, said Marilyn Kramer, president and CEO of Boston-based DxCG, a commercial venture formed by some of the researchers who worked on the CMS cost-group model.

"You want the plans to be indifferent about whether or not they attract a sicker or healthier population because there will be money to take care of sicker people," Kramer said. "To the extent that we can see HMOs having people in wheelchairs in their ads, we'll know we've done a good job."

Stability still in question

The larger challenge is the continued health of Medicare+Choice, she said. The risk adjusters will redistribute the dollars paid to Medicare managed care plans but will not increase overall funding levels.

CMS officials acknowledge that unless Congress increases reimbursements levels to plans, the risk adjustment modification will do little to stem the tide of plans abandoning Medicare+Choice.

The risk adjusters would be used for any new managed care options provided by the Medicare reform bills that are currently under negotiation in Congress. The measures also would ramp up full risk adjustment to 2006.

The American Assn. of Health Plans, while supportive of the new payment structure, has said that without increased funding, risk adjustment may be a moot point.