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Washington -- Medicare private plans that for years have received annual pay increases are set to sustain sizeable reductions in 2010 under cost estimates recently released by the Obama administration.

In an April 6 directive to Medicare Advantage plans, the Centers for Medicare & Medicaid Services updated plan payment information that it first released in February. The National Per Capita Medicare Advantage Growth Percentage -- an estimation of how much more the program will need to spend on all beneficiaries -- will be 0.81% for 2010.

While this is an increase over the agency's initial projection of 0.5%, it still amounts to an expected reduction in payment over 2009 levels to private insurers that administer Medicare plans. For the first time, CMS will make a "coding pattern differences" adjustment to Medicare Advantage risk scores to account for differences in disease coding patterns between Medicare Advantage and traditional fee-for-service, producing more expected rate reductions.

Industry analysts project that, taken together, these administrative factors will produce cuts of between 4% and 5% next year for Medicare Advantage, said Robert Zirkelbach, America's Health Insurance Plans spokesman. CMS released the pay data so organizations offering Medicare Advantage and prescription drug plans could structure their benefits and beneficiary cost-sharing as they prepare their bids for 2010. Medicare Advantage plans have until June 1 to submit their bids to CMS.

Some experts think the latest CMS actions mean the Obama administration wants to limit Medicare Advantage plans even before cuts approved by Congress last July take effect in 2011. President Obama also has proposed saving another $180 billion over 10 years by requiring private Medicare plans to bid competitively for contracts, with the federal government paying the average of all bids.

A major part of the reason CMS is projecting such a low growth percentage for Medicare Advantage is that it is assuming Medicare physician pay will go down by an estimated 21% next year under current law. AHIP is dismayed that CMS has not taken into account the fact that Congress has stepped in every year since 2002 to head off a projected cut to Medicare payments for physicians and that it is likely to do so again this year, Zirkelbach said.

The potential effect of a Medicare Advantage cut next year on beneficiaries is raising concerns from some lawmakers in both parties. Sens. Max Baucus (D, Mont.) and Charles Grassley (R, Iowa) sent an April 3 letter to CMS saying projected payment rates could lead to premium hikes and benefit reductions.

The letter, addressed to CMS Acting Administrator Charlene Frizzera, said that by the time Congress acts later this year to adjust the physician payment formula, it would be too late for Medicare Advantage plans to resubmit their bids for the 2010 plan year under the updated projections.

"Even though Congress fully intends to avert the sizable physician pay reduction and is actively developing changes to the physician fee formula, CMS assumes current law in its update for Medicare Advantage plans," stated the letter from Baucus and Grassley, leaders of the Senate Finance Committee.

The projected payment cuts also are opposed by the California Assn. of Physician Groups, which is concerned about possible higher premiums and benefits reductions for the 1.5 million Medicare private plan enrollees in that state. "A reduction in Medicare Advantage funding would drastically limit the ability of physicians to provide important health care services to seniors and disabled Americans, many on limited incomes, who count on Medicare Advantage," said Donald Crane, president and CEO of CAPG, which represents groups that employ or contract with nearly 60,000 California physicians.

Nearly 11 million beneficiaries are in Medicare Advantage plans.

CMS also is taking a closer look at how Medicare Advantage plans operate and wants to ensure that beneficiaries are protected from high out-of-pocket costs and given transparent choices of Medicare Advantage plans. The agency announced some of these policy changes in its annual "call letter" March 30 to plans that intend to offer Medicare Advantage and prescription drug plans in 2010.

CMS also is looking to pare the Medicare Advantage arena by asking insurers to eliminate low-volume plans that confuse beneficiaries. The agency said 27% of Medicare Advantage plans have fewer than 10 enrollees but that only a small number of beneficiaries -- less than 1% of all enrollees -- would be affected if these plans were dropped.

The American Medical Association is one of several physician organizations that supports equalizing private Medicare plan pay with traditional fee-for-service pay and using the money saved to boost doctor payments. The AMA also supports the new policies in the CMS call letter.

"The AMA believes that CMS' new oversight action will help strengthen these programs for patients," said AMA Board of Trustees Chair Joseph M. Heyman, MD. "We are pleased that the Obama administration listened to the concerns of physicians and implemented many of the AMA's suggestions into its latest guidance."

The print version of this content appeared in the April 27, 2009 issue of American Medical News.

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