Geographic variation in determinants of Medicare managed care enrollment

OBJECTIVE: To examine the effect of adjusted average per capita cost (AAPCC) rate and volatility on Medicare risk plan enrollment at the county level. DATA SOURCES: Secondary data from the Health Care Financing Administration's office of managed care and other sources were merged to create comprehensive data on all Medicare risk plans in 3,069 of the 3,112 U. S. counties in December 1996. STUDY DESIGN: A two-step least squares regression was estimated to examine the effects of AAPCC rate and volatility, commercial HMO enrollment, market factors, and characteristics of the county population on Medicare HMO enrollment. The model was also used to simulate the effects of the Balanced Budget Act of 1997. Data from the Health Care Financing Administration were merged with other sources at the county level. The Federal Information Processing Standards code and a crosswalk file matching that code with the county name linked the data across sources. PRINCIPLE FINDINGS: The AAPCC rate has a small positive effect on the probability of Medicare HMO availability and enrollment. However, commercial HMO enrollment has a much stronger positive effect on Medicare HMO enrollment. Volatility has a negative effect on the probability of any Medicare HMO enrollment. CONCLUSIONS: The results suggest that payment changes enacted as part of the Balanced Budget Act will have a limited effect on Medicare HMO enrollment, especially in rural areas. Other policy changes are needed to stimulate Medicare HMO enrollment.     

Medicare physician payment changes: impact on physicians and beneficiaries

The Balanced Budget Act (BBA) of 1997 generally reduced Medicare payments for surgical services while increasing them for other services. Concern about implications of these fee reductions prompted the Medicare Payment Advisory Commission to sponsor a national survey of physicians to learn their views on Medicare payment and whether access to care has changed for Medicare beneficiaries. Results suggest that beneficiaries' access to care has not declined. While physicians are concerned about Medicare reimbursement, they are more concerned about reimbursement from managed care plans and Medicaid. Continued monitoring will be important to detect any emerging access problems accompanying upcoming payment reductions.     

Impact of Medicare's prospective payment system on hospitals, skilled nursing facilities, and home health agencies: how the Balanced Budget Act of 1997 may have altered service patterns for Medicare providers

The prospective payment system is one of many changes in reimbursement that has affected the delivery of health care. Originally developed for the payment of inpatient hospital services, it has become a major factor in how all health insurance is reimbursed. The policy implications extend beyond the Medicare program and affect the entire health care delivery system. Initially implemented in 1982 for payments to hospitals, prospective payment system was extended to payments for skilled nursing facility and home health agency services by the Balanced Budget Act of 1997. The intent of the Balanced Budget Act was to bring into balance the federal budget through reductions in spending. The decisions that providers have made to mitigate the impact are a function of ownership type, organizational mission, and current level of Medicare participation. This article summarizes the findings of several initial studies on the Balanced Budget Act's impact and discusses how changes in Medicare reimbursement policy have influenced the delivery of health care for the general public and for Medicare beneficiaries.     

What does voluntary disenrollment from Medicare+Choice plans mean to beneficiaries?

The Balanced Budget Act (BBA) of 1997 required CMS to report publicly Medicare managed care (MMC) plan voluntary disenrollment rates. To ensure disenrollment rates would be meaningful to beneficiaries in health plan choice, CMS funded the development of surveys and reporting formats to identify and present the reasons that beneficiaries voluntarily leave plans. Public reporting of reasons on the Medicare Web site began in 2002. We discuss results from extensive audience testing of disenrollment rates and reasons materials. Medicare beneficiaries do not easily understand disenrollment. We also discuss challenges in presenting useful disenrollment information and policy implications for public reporting.     

Health-risk-assessment tools used to predict costs in defined populations

With the Balanced Budget Act of 1997 mandating that the Health Care Financing Administration (HCFA) implement risk-adjusted payment mechanisms for Medicare managed care plans (Medicare + Choice) by January 2000, risk-adjustment tools will play an important role in future capitated reimbursement. This is because there is growing evidence that healthier-than-average beneficiaries select Medicare + Choice. The risk adjustment that HCFA has adopted is initially based on primary inpatient diagnosis from hospitalizations in the previous year. Other payers are likely to adopt similar payment mechanisms. This article reviews nineteen risk-adjustment research papers, including the tool adopted for Medicare + Choice, some of which are likely to form the basis for subsequent HCFA risk-adjustment methods. In general, claims-based models are more powerful in predicting total costs than survey-based or demographics-based models. Survey-based models, although expensive and not as powerful claims-based models, can be used when claims data are unavailable. One of the most popular survey-based tools, SF-36, is likely to become increasingly important because HCFA will be using it to measure quality outcomes from Medicare + Choice plans and will make the results public. All of the models reviewed have limitations, but can be expected to be building blocks for future risk-based capitated reimbursement.     

The costs of decedents in the Medicare program: implications for payments to Medicare + Choice plans

OBJECTIVE: To discuss and quantify the incentives that Medicare managed care plans have to avoid (through selective enrollment or disenrollment) people who are at risk for very high costs, focusing on Medicare beneficiaries in the last year of life-a group that accounts for more than one-quarter of Medicare's annual expenditures. DATA SOURCE: Medicare administrative claims for 1994 and 1995. STUDY DESIGN: We calculated the payment a plan would have received under three risk-adjustment systems for each beneficiary in our 1995 sample based on his or her age, gender, county of residence, original reason for Medicare entitlement, and principal inpatient diagnoses received during any hospital stays in 1994. We compared these amounts to the actual costs incurred by those beneficiaries. We then looked for clinical categories that were predictive of costs, including costs in a beneficiary's last year of life, not accounted for by the risk adjusters. DATA EXTRACTION METHODS: The analyses were conducted using claims for a 5 percent random sample of Medicare beneficiaries who died in 1995 and a matched group of survivors. PRINCIPAL FINDINGS: Medicare is currently implementing the Principal Inpatient Diagnostic Cost Groups (PIP-DCG) risk adjustment payment system to address the problem of risk selection in the Medicare+Choice program. We quantify the strong financial disincentives to enroll terminally ill beneficiaries that plans still have under this risk adjustment system. We also show that up to one-third of the selection observed between Medicare HMOs and the traditional fee-for-service system could be due to differential enrollment of decedents. A risk adjustment system that incorporated more of the available diagnostic information would attenuate this disincentive; however, plans could still use clinical information (not included in the risk adjustment scheme) to identify beneficiaries whose expected costs exceed expected payments. CONCLUSIONS: More disaggregated prospective risk adjustment methods and alternative payment systems that compensate plans for delivering care to certain classes of patients should be considered to ensure access to high-quality managed care for all beneficiaries.     

Medicare's risk-adjusted capitation method

Since 1997, the method to establish capitation rates for Medicare beneficiaries who are members of risk-bearing managed care plans has undergone several important developments. This includes the factoring of beneficiary health status into the rate-setting calculations. These changes were expected to increase the number of participating health plans, accelerate Medicare enrollment growth, and slice Medicare spending.     

The Balanced Budget Act (1997) and the supplyof nursing home subacute care

This article examines the impact of the Medicare prospective payment system (PPS) on the supply of subacute care services by nursing homes. A quasi-experimental interrupted time-series design using Heckman's two-stage regression model is employed to test for changes before and after the implementation of Medicare PPS. Our findings suggest that the change in Medicare reimbursement from cost-based to PPS under the Balanced Budget Act of 1997 resulted in a decrease of 1.7 percent in the supply of subacute care beds by nursing homes. However, this was a one-time, short-term negative effect. The supply of nursing home subacute care remained stable in the long-term. Other environmental factors, such as Medicare hospital discharges, hospital-based subacute care, Medicare managed care penetration, availability of home health, and per capita income were associated with nursing home subacute care supply. Organizational-level factors, such as occupancy rate, RN staff mix, and Medicare payer mix were also predictors of nursing home subacute care supply.     

Future financial viability of rural hospitals

Policymakers are concerned that some rural hospitals have suffered significant losses under the Balanced Budget Act (BBA) of 1997 and that access to inpatient and emergency care may be at risk. This article projects that the median total profit margin for rural hospitals will fall from 4 percent in 1997 to between 2.5 and 3.7 percent after the BBA, Balanced Budget Refinement Act (BBRA) of 1999, and Benefits Improvement and Protection Act (BIPA) of 2000 are fully implemented in 2004. The Critical Access Hospital (CAH) Program is expected to prevent reductions in inpatient and outpatient prospective payments from causing an increase in rural hospital closures.     

Favorable selection in the Medicare+Choice program: new evidence

Historically, studying the Medicare managed care favorable-selection issue has been difficult because direct data on managed care enrollees have been unavailable. In this study, we analyzed the first year of Balanced Budget Act (BBA)-mandated inpatient encounter data. Based on this comparison of actual managed care and fee-for-service (FFS) beneficiaries, it appears that there are significant differences between these populations. The most striking differences are found in the comparison of average risk factors, indicating a clear bias in the managed care populations toward beneficiaries predicted to be less costly.     

M+C plan county exit decisions 1999-2001: implications for payment policy

The primary legislative response to diminishing private plan participation in the Medicare+Choice (M+C) program since 1999 has been substantial payment increases. Analysis of M+C decisions to continue serving or drop counties from 1999-2000 and 2000-2001 reveals that payment amounts, although important, did not have a consistent impact on these decisions. Plan decisions varied depending on the year and the intention to continue participating in M+C at all. Simulations show that M+C plans were better off, on average, with the payment methodology imposed by the Balanced Budget Act (BBA) of 1997 than under the previous payment system and that large payment increases would increase plan retention.     

Principal inpatient diagnostic cost group model for Medicare risk adjustment

The Balanced Budget Act (BBA) of 1997 required HCFA to implement health-status-based risk adjustment for Medicare capitation payments for managed care plans by January 1, 2000. In support of this mandate, HCFA has been collecting inpatient encounter data from health plans since 1997. These data include diagnoses and other information that can be used to identify chronic medical problems that contribute to higher costs, so that health plans can be paid more when they care for sicker patients. In this article, the authors describe the risk-adjustment model HCFA is implementing in the year 2000, known as the Principal Inpatient Diagnostic Cost Group (PIPDCG) model.     

Reforming Medicare payment: early effects of the 1997 Balanced Budget Act on postacute care

The 1997 Balanced Budget Act (BBA) reformed payment for Medicare postacute services. This article examines postacute care use just before and immediately after implementation of the BBA for hospital discharges for five diagnosis-related groups that commonly use postacute care. Changes in treatment patterns were more beneficiaries receiving no postacute care, much less use of home health services both initially and after initial institutional postacute care, and slightly more use of rehabilitation and long-term care hospitals. But no consistent increases in adverse outcomes were observed using logistic regression models. These results demonstrate that financing changes can affect use patterns, that less use does not automatically imply poorer quality, and that the interrelationship of services should be considered when designing reimbursement methodologies.     

BBA impacts on hospital residents, finances, and Medicare subsidies

Concern over rapidly rising Medicare expenditures prompted Congress to pass the 1997 Balanced Budget Act (BBA) that included provisions reducing graduate medical education (GME) payments and capped the growth in residents for payment purposes. Using Medicare cost reports through 2001, we find that both actual and capped residents continued to grow post-BBA. While teaching hospital total margins declined, GME payment reductions of approximately 17 percent had minimal impact on revenue growth (-0.5 percent annually). Four years after BBA, residents remained a substantial line of business for nearly one-half of teaching hospitals with Medicare effective marginal subsidies exceeding resident stipends by nearly $50,000 on average. Coupled with an estimated replacement cost of over $100,000 per resident, it is not surprising that hospitals accepted nearly 4,000 residents beyond their allowable payment caps in just 4 years post-BBA.     

Effects of Medicare BBA spending reductions on the profitability of general acute care hospitals

The Balanced Budget Act of 1997 was intended to reduce spending by about $115 billion from the Medicare Hospital Insurance trust fund over a five-year period. Several studies were funded by the hospital industry that indicated that the actual reductions would be far greater than $115 billion and that these reductions would have a devastating effect on U.S. hospital finances. In 1999, Congress passed the Balanced Budget Refinement Act, which added back about $11 billion in spending for fiscal years 2000 through 2002. In 2000, Congress passed the Benefits Improvement and Protection Act, which restored another $37 billion in spending over a five-year period. These cutbacks were going into effect at the same time as a cyclical decline in hospital operating margins occurred. This study was designed to determine if any separate effect of the Balanced Budget Act could be detected in the operating margins of general acute care hospitals in Tampa Bay, Florida. Operating margins were analyzed for 25 hospitals for a 12-year period (1990 through 2001), and a regression model was tested in which the dependent variable was the difference in mean operating margins for each hospital between the 1990 through 1997 period and the 1998 through 2001 period. The mean percentage of hospital revenue derived from Medicare, five other revenue source variables, and three hospital structural variables were used as the predictor variables. A statistically significant decline in operating margins was seen between these two periods, but Medicare revenue did not account for a significant amount of the variance. Thus, it was concluded that the Balanced Budget Act of 1997 did not significantly affect the operating margins of the study hospitals. Implications for Medicare policy are addressed.     

Vulnerability of rural hospitals to Medicare outpatient payment reform

Because the Balanced Budget Act (BBA) of 1997 requires implementation of a Medicare prospective payment system (PPS) for hospital outpatient services, the authors evaluated the potential impact of outpatient PPS on rural hospitals. Areas examined include: (1) How dependent are rural hospitals on outpatient revenue? (2) Are they more likely than urban hospitals to be vulnerable to payment reform? (3) What types of rural hospitals will be most vulnerable to reform? Using Medicare cost report data, the authors found that small size and government ownership are more common among rural than urban hospitals and are the most important determinants of vulnerability to payment reform.     

The spillover effects of Medicare managed care: Medicare Advantage and hospital utilization

More than a quarter of Medicare beneficiaries are enrolled in Medicare Advantage, which was created in large part to improve the efficiency of health care delivery by promoting competition among private managed care plans. This paper explores the spillover effects of the Medicare Advantage program on the traditional Medicare program and other patients, taking advantage of changes in Medicare Advantage payment policy to isolate exogenous increases in Medicare Advantage enrollment and trace out the effects of greater managed care penetration on hospital utilization and spending throughout the health care system. We find that when more seniors enroll in Medicare managed care, hospital costs decline for all seniors and for commercially insured younger populations. Greater managed care penetration is not associated with fewer hospitalizations, but is associated with lower costs and shorter stays per hospitalization. These spillovers are substantial – offsetting more than 10% of increased payments to Medicare Advantage plans.     

Why did Medicare spending growth slow down?

So-called excess growth in Medicare spending per beneficiary has varied widely and has slowed in recent years. The annual rate of excess growth fell from 5.6 percent during 1975-1983, to 2.1 percent during 1983-1997, to only 0.5 percent during 1997-2005. Changes in payment policies and regulations can help explain the observed slowdown. These include new prospective payment systems for hospitals and postacute care providers, and controls on aggregate Medicare physician spending. Competing explanations-increases in managed care enrollment, changes in Medicare cost sharing, and a systemwide spending slowdown-do not account for the slowdown.     

National health projections through 2008

Health spending is expected to resume its rise as a share of gross domestic product (GDP) in the projection period, following 6 years of near stability, increasing from 13.5 percent in 1997 to an estimated 16.2 percent by 2008. This implies an approximate doubling of health spending, from $1.1 trillion in 1997 to $2.2 trillion by 2008. We anticipate a reversal in recent patterns of growth in public and private health spending, with private spending expected to accelerate while Medicare spending slows in response to the implementation of the Balanced Budget Act (BBA) of 1997.