• Competition and Choice
• Funding
• Access and Payment
• Managed Care
• Evidence-Based and Quality-Based Incentives
• Prescription Drug Benefits

Encouraging market-based providers’ and health plans’ participation provides Medicare beneficiaries a choice of coverage options and offers more cost-efficient care. Senior citizens should be able to choose among benefit packages ranging from a minimum standard benefit package to an enriched benefit package, and including traditional Medicare. The favorable experience of the Federal Employees Health Benefit Plan (FEHBP) presents a model for consideration. The structure of expanded market-based competition should ensure that equitable market-based competition is fostered. In addition, the numerous cost and continuity of care advantages presented by multispecialty medical group practices strongly suggest that reform should facilitate beneficiaries’ election of multispecialty medical group practices for their medical care provider.

Recommendation:
Medicare beneficiaries should be allowed entry into a range of plans offered through an FEHB-type model that also includes traditional Medicare. Medicare would fund beneficiaries’ basic plan cost, providing beneficiaries the option of assuming the additional cost if they prefer a more extensive benefit plan. Federally based payments to private-sector health plans should reflect the relative risk of Medicare enrollees to ensure that these plans actively participate in coverage of beneficiaries with costly health care needs. Other incentives for private-sector plans’ enrollment of beneficiaries could encompass federal measures such as tax incentives, participation in state- or federal- level risk pools, and federal insurance-underwriting support. 

Employers should be provided incentives to continue their provision of retiree health care benefits and wrap-around coverage to Medicare eligible retirees. Among the array of potential federally facilitated incentives are increased employer premium tax credits, participation in risk pools, and entry into FEHBP-type choices for employees and retirees.

Medicare reform should include facilitation of beneficiaries’ enrollment in medical group practices. The patient care benefits and cost advantages of multispecialty medical group practices’ continuity of care, particularly for the Medicare population’s high incidence of chronic conditions, should be recognized by exploration of direct relationships with government payers.

Of paramount importance to any reform of Medicare is institution of a sufficient and predictable funding mechanism. The cyclical and increasingly serious annual Medicare funding crises will be exacerbated by the demographic shift in the population leading to an influx of baby boomers.  Such budgetary uncertainty adversely affects provider participation and beneficiary access as reimbursement levels and benefits are spending-reduction targets. Tiered cost sharing by beneficiaries can have an important affect upon utilization patterns and costs, but cannot be expected to sustain the costs of true catastrophic events.

Recommendation:
Improved Medicare funding that ensures sufficient provider service reimbursement should be explored. Combining the funding methods of Medicare Part A’s payroll tax and Part B’s beneficiary premiums and federal general revenue funds should be considered.

The current formula for calculating Medicare provider service payments is detrimental to the provision of timely, high-quality care. Under any reformed Medicare program, the physician reimbursement calculation must be rectified to ensure adequate reimbursement levels that guarantee beneficiary access to high-quality care.

The disastrous impact of the Balanced Budget Act of 1997 on the physician payment methodology is amplified annually by increasingly greater disparity between actual service costs and Medicare reimbursements.  Because of seriously inadequate reimbursement levels that threaten the financial viability of medical practices, beneficiaries are experiencing access problems for certain care and services because providers are unable financially to sustain the less-than-cost reimbursements levels for Medicare patients.  It is noteworthy that an entity no less than the Medicare Payment Advisory Commission (MedPAC) has repeatedly warned Congress that the Sustainable Growth Rate (SGR), an integral part of the payment update formula, is so seriously flawed that it can never address fairly or adequately the actual costs of physician services. 

Recommendation:
As recommended by MedPAC’s Year 2002 Report to Congress, the physician update calculation must be revised to replace the SGR with a formula that accurately measures changes in physicians’ input prices and factors that affect the cost of care.  The productivity adjustment must be based on a multitude of factors (including quality of performance and associated outcomes data), rather than misleading and inappropriate factors such as pharmaceutical costs and labor-only adjustments. The Medical Economic Index must use forecasts of inflation, rather than application of the previous year’s inflation factor, to adjust payment rates for inflation.

Medicare’s geographic-based reimbursement structure presents a significant hindrance to rural beneficiaries’ access to quality care. As more seniors gravitate to retirement in rural areas, greater cost and service pressures are inflicted on already strained rural medical services.  Insufficient rural payment levels have produced pervasive physician recruitment and retention problems.  Implementation of realistic reimbursement rates that reflect the actual value of physician input for service delivery is imperative.

Recommendation:
Medicare’s geographic adjustment index for the physician fee schedule should be established at a floor of 1.0. This would both insure that the value of physicians’ work will be compensated at fair and adequate levels no matter the locality, as well as halt the downward spiral that threatens rural health care access and delivery

MANAGED CARE

Inadequate reimbursement has led to Medicare+Choice Organizations’ withdrawal from markets, benefit reduction, and reduced patient enrollment, all of which prevent Medicare+Choice Organizations from attaining their potential. Improved financial support of Medicare managed care that accurately and fully reflects the cost of efficient delivery of high-quality care is mandatory. Efforts should be continued to fine-tune the recently developed risk-adjusted class model that improves the accuracy of risk-adjusted reimbursement in reflecting actual patient populations. Such risk adjustment will also help deter any potential for adverse selection caused by plans’ avoidance of the higher cost patient

Recommendation:
Medicare+Choice reimbursement must accurately and equitably compensate for the cost of efficient and quality care, including annual payment adjustments for cost increases. Medicare+Choice cost contracts should be reauthorized and extended to encourage entry into new or abandoned markets. Cost contracts should be an option for managed care plans’ continued participation where local payment levels are insufficient. Such reform will ensure that the breadth and depth of plans’ participation remains sufficient to provide beneficiary access and choice.

Medicare’s outdated reimbursement structure adversely influences medical practice to the detriment of beneficiaries and long-term costs. Focusing on evidence-based care benefits and reimbursement levels, a new public-private Medicare Commission that investigates and promotes evidence-based practice methods could ensure implementation of proven new technologies and treatment modalities. Contrary to the present system, this new Commission would facilitate a revised reimbursement structure with incentives that encourage and reward the delivery of evidence-based care in the context of quality and outcomes measurements. 

The prospective payment system should be based on fair-market values to encourage innovation on the part of providers, as well as developers of new technologies. Payment for performance, based upon the quality of delivered care and associated outcomes, should provide incentives for improved care quality and outcomes.           

Medicare incentives should direct beneficiaries to the enhanced care benefits provided by the integrated care and continuity of care systems in large multispecialty medical group practices. This amplified level of care coordination offered by these medical group practices provides high-quality care in a cost-effective, efficient delivery system.

Recommendation:
Full recognition of Medicare reimbursement’s influence on medical practice dictates a revised payment method directed to rewarding evidence-based care improvements. This would encompass reimbursement incentives for providers and patients that acknowledge: the accrued benefit from high-quality, efficient care; the advantages of the continuity of care offered by multidisciplinary medical group practices and integrated medical systems; the need for disease management programs’ cost and care advantages; the benefits derived from proven new diagnostic and treatment modalities; and the influence of pay for performance to improve care quality and outcomes. 

To achieve this goal, an independent, multidisciplinary, nonpolitical public-private Medicare Commission should be established to investigate and approve evidence-based practice methods, as well as assess private-sector reimbursement of new technologies. Not unlike the Medicare Payment Advisory Commission, this Commission would forward its public recommendations to Congress and CMS. Further, it could serve as an adjunct to HHS’ Agency for Health Services Research and Quality by coordinating investigations, recommendations, demonstrations, and implementation.

Physicians are concerned about Medicare patients’ prescription drug costs.  Studies show that many seniors’ jeopardize their health by limiting their out-of-pocket medicine expenses when confronted with more medications, and ones of higher cost and dose frequency.  Additionally, physicians, in concert with their patients, must have the latitude to prescribe the specific therapeutics that work best for their patients. Any Medicare drug benefit must be structured so as not to offset its costs against funding for other reimbursable services.

Recommendation:
An adequately funded Medicare prescription drug benefit should be established that provides increasing subsidy levels according to beneficiary income level and prescription drug expenses. This benefit would encompass federally subsidized stop-loss provisions and an annual catastrophic coverage threshold.

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