Health Hippo: Reform

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Analysis of Managed Care Provisions in the Balanced Budget Act of 1997

For better or for worse, the Balanced Budget Act of 1997 is now law and patients and providers must prepare themselves for the imminent and momentous changes in Medicare. Cuts to the program will adversely affect both groups.

The Fiscal Year 1998 Budget legislation will reduce Medicare spending by $115.1 billion over five years, according to a July 30 analysis by the Congressional Budget Office (CBO). Hospitals will be hit hard with a payment reduction of $39.8 billion over five years. Managed care plans will be hit with a reduction in Medicare payments of about $19 billion. Home health is next in spending cuts with $16.2 billion trimmed from projected expenditures. The new budget reduces spending for skilled nursing facilities by $9.5 billion. Physician payments under the resource-based relative value scale will be cut by $5.3 billion over five years, according to CBO. It is widely believed that physicians came out of the budget process relatively unscathed because of a deal between Congressional Republicans and the American Medical Association, which came out in favor of a ban on "partial birth abortions" earlier this year.

To pay for the shift of most of the Medicare home health benefit from Part A to Part B, beneficiaries will see their premiums rise to $105.40 a month by fiscal year 2007 -- compared to an expected premium of $59.70 under the previous law. This huge increase in the premium might be the intentional result of an unspoken strategy behind the shift of the home health benefit to Part B of Medicare: such a high premium will force many senior citizens into managed care plans.

The Balanced Budget Act refines current Medicare managed care operations, creating one program called Medicare+Choice (pronounced Medicare plus choice). The legislation allows for three kinds of health plans to offer coverage to Medicare beneficiaries who choose to leave traditional fee-for-service Medicare. These are: (1) Coordinated care plans like health maintenance organizations (HMOs), preferred provider organizations (PPOs), and provider-sponsored organizations (PSOs); (2) Medical Savings Account (MSA) plans, which combine required contributions into a Medicare+Choice MSA and purchase of a catastrophic illness insurance policy. (The MSA option is limited to 390,000 individuals as part of a demonstration project.); and (3) fee-for-service plans outside of traditional Medicare. Under this option, an insurance carrier could provide more services than the current Medicare program, and could charge more for them. Current limits against balanced billing would apply to all of those services covered by traditional fee-for-service Medicare, however.

Beneficiaries will be allowed to enroll in and disenroll from Medicare+Choice plans only during certain periods of the year. They will be provided with information concerning the number and types of Medicare+Choice plans in their geographic area. This information will be mailed to all beneficiaries 15 days prior to each annual plan election period. According to the legislation, the information disseminated "shall be written and formatted using language that is easily understandable by medicare beneficiaries."

The Balanced Budget Act of 1997 allows for provider-sponsored organizations to provide care to Medicare beneficiaries. This PSO option under Medicare+Choice won't take effect until January 1, 1999, however, to give the Department of Health and Human Services time to develop solvency requirements for such organizations. The required minimum enrollment for a PSO would be 500 in rural areas and 1,500 in non-rural areas. Beneficiaries will be able to contract with physicians outside of Medicare. Medicare's limits on balance billing would not apply to this health plan option. If a physician chooses to join a Medicare PSO, he or she won't be allowed participate in regular Medicare for two years.

The legislation implements a number of beneficiary and provider protection measures for Medicare+Choice plans.

• Beneficiaries cannot be turned down by a Medicare+Choice plan based solely on health status. Plans must disclose a clear and accurate description of benefits offered under the plan, and information on the mix and distribution of plan providers, out-of-network coverage, and emergency services. Plans must also have grievance and appeals procedures in place and explained to beneficiaries.
• The legislation establishes the "prudent layperson" definition of emergency care. The legislation states: "The term 'emergency medical condition' means a medical condition manifesting itself by acute symptoms of sufficient severity (including severe pain) such that a prudent layperson, who possesses an average knowledge of health and medicine, could reasonably expect the absence of immediatemedical attention to result in placing the health of the individual in serious jeopardy."
• Medicare+Choice plans are also prohibited from establishing contractual prohibitions on physician communications with patients -- the so-called "gag clauses." For providers, the legislation offers the following antidiscrimination language:
  "A Medicare+Choice organization shall not discriminate with respect to participation, reimbursement, or indemnification as to any provider who is acting within the scope of the provider's license or certification under applicable State law, solely on the basis of such license or certification."
• However, the legislation clearly states that the above paragraph must not be construed as an "any-willing-provider" provision.

The Act establishes two commissions, the National Bipartisan Commission on the Future of Medicare and the Medicare Payment Review Commission.

The Commission on the Future of Medicare (The "Baby Boom Commission") will consist of 17 members appointed by the President, the Speaker of the House, and the Senate Majority Leader, and will make recommendations by March 1, 1999, to Congress and the President on actions necessary to ensure the long-term fiscal health of the Medicare program. The Commission is also charged with making recommendations on financing for graduate medical education; the impact of over-indexing on the status of the Trust Fund; and the feasibility of allowing persons between ages 62 and 65 to "buy into" Medicare.

The 15-member Medicare Payment Review Commission will replace the existing Physician Payment Review Commission and the Prospective Payment Review Commission. The new commission will submit an annual report to Congress on the status of Medicare reforms, and make recommendations on Medicare payment issues and related issues affecting the Medicare program. The members of this commission will be appointed by the Comptroller General of the United States.

Author: Robert Raible

Web Site: Fight Managed Care!

Link to Article: August Journal

August 14, 1997

For other views on managed care in America, see Citizens for Choice in Health Care; HMO Horror Stories; HARP; DOCTORINFORM; Tenet Healthcare; Physicians Who Care; Ad Hoc Committee To Defend Healthcare.

• New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 115 S. Ct.1671, 131 L. Ed. 2d 695 (1995). (ERISA did not preempt hospital surcharges used to fund care for the uninsured).

• Regulatory Reform: Changes Made to Agencies' Rules Are Not Always Clearly Documented. GGD-98-31. 25 pp. plus 2 appendices (7 pp.) January 8, 1998. Reviews the regulatory review process, focusing on the Office of Information and Regulatory Affairs (OIRA).
• Individual Market Health Insurance Reform: Portability From Group to Individual Coverage; Federal Rules for Access in the Individual Market; State Alternative Mechanisms to Federal Rules, [Federal Register: April 8, 1997 (Volume 62, Number 67)] [Rules and Regulations] [Page 16985-17004]. This interim final rule with comment period implements section 111 of the Health Insurance Portability and Accountability Act of 1996, which sets forth Federal requirements designed to improve access to the individual health insurance market.
• Medicare Managed Care: HMO Rates, Other Factors Create Uneven Availability of Benefits (Testimony, 05/19/97, GAO/T-HEHS-97-133). GAO discussed aspects of Medicare managed care, including greater choice and equity across the program.
• Health Insurance: Management Strategies Used by Large Employers to Control Costs (Chapter Report, 05/06/97, GAO/HEHS-97-71). Pursuant to a congressional request, GAO reviewed the strategies of large, innovative purchasers who have attempted to stem the rapid escalation in health insurance costs while maintaining or enhancing the quality of care for their employees.
• Medicaid: Recent Spending Experience and the Administration's Proposed Program Reform (Testimony, 03/11/97, GAO/T-HEHS-97-94). GAO discussed recent Medicaid spending trends and their potential implications for future outlays.
• Employment-Based Health Insurance: Costs Increase and Family Coverage Decreases (Letter Report, 02/24/97, GAO/HEHS-97-35). Pursuant to a congressional request, GAO provided information on the decline in employment-based health insurance.
• Private Health Insurance: Millions Relying on Individual Market Face Cost and Coverage Tradeoffs (Chapter Report, 11/25/96, GAO/HEHS-97-8). Pursuant to a congressional request, GAO provided information on the private individual health insurance market.
• Health Care: Employers and Individual Consumers Want Additional Information on Quality (Letter Report, 09/29/95, GAO/HEHS-95-201). Pursuant to a congressional request, GAO provided information on health care quality issues, focusing on: (1) how consumers use health care performance reports that contain comparative data on the quality of health care providers; and (2) what information consumers consider most important.
• Medicare Spending: Modern Management Strategies Needed to Curb Billions in Unnecessary Payments (Letter Report, 09/19/95, GAO/HEHS-95-210). Pursuant to a congressional request, GAO examined Medicare's vulnerability to provider exploitation and ways to remedy Medicare fraud and abuse.
• Health Insurance Portability: Reform Could Ensure Continued Coverage for Up to 25 Million Americans (Letter Report, 09/19/95, GAO/HEHS-95-257). Pursuant to a congressional request, GAO provided information on: (1) the protections offered by current state and federal health insurance portability reforms; (2) the number of people who could be affected by broader national portability standards; and (3) other issues related to the design of national portability standards.
• Medicaid: States' Efforts to Educate and Enroll Beneficiaries in Managed Care (Letter Report, 09/17/96, GAO/HEHS-96-184). Pursuant to a congressional request, GAO provided information on state efforts to enroll Medicaid beneficiaries in managed care.
• Practice Guidelines: Overview of Agency for Health Care Policy and Research Efforts (Testimony, 07/25/95, GAO/T-HEHS-95-221). In 1989, Congress created the Agency for Health Care Policy and Research--part of the Public Health Service--to serve as the federal government's focal point for effectiveness and outcomes research.
• Medicaid: State Flexibility in Implementing Managed Care Programs Requires Appropriate Oversight (Testimony, 07/12/95, GAO/T-HEHS-95-206). Requiring states to obtain waivers to broaden use of managed care may hamper their efforts to aggressively pursue cost-containment strategies.
• Health Insurance Regulation: Variation in Recent State Small Employer Health Insurance Reforms (Fact Sheet, 06/12/95, GAO/HEHS-95-161FS). Pursuant to a congressional request, GAO provided information on state legislation to improve portability, access, and rating practices for the small-employer and individual health insurance markets.
• Cost of Health Care Task Force Related Activities (Testimony, 03/14/95, GAO/T-GGD-95-114). In January 1993, President Clinton established a task force on health care reform.
• German Health Reforms: Changes Result in Lower Health Costs in 1993 (Letter Report, 12/16/94, GAO/HEHS-95-27). Compared with the United States, Germany has successfully controlled the growth rate of health care costs. Since 1980, it has kept its percentage of national wealth spent on health care between eight and nine percent of gross domestic product while covering a broad range of health care services for virtually the entire population.
• Hospital Costs: Cost Control Efforts at 17 Texas Hospitals (Letter Report, 12/09/94, GAO/AIMD-95-21). This report provides information on how the increased use of managed care may have influenced cost control efforts at 17 urban hospitals in Texas.
• Health Care Reform: "Report Cards" Are Useful but Significant Issues Need to Be Addressed (Chapter Report, 09/29/94, GAO/HEHS-94-219). As part of the debate over health care reform, Congress is considering requiring health plans to provide prospective purchasers with information on the quality of care they furnish.
• Health Care Reform: Considerations for Risk Adjustment Under Community Rating (Letter Report, 09/22/94, GAO/HEHS-94-173). As part of the debate over health care reform, some have proposed prohibiting insurers from denying coverage or charging different premiums to persons on the basis of their health status.
• Small Business: SBA's Health Care Reform Activities (Letter Report, 09/06/94, GAO/RCED-94-240). In late September 1993, anticipating strong interest in the administration's health care reform proposal, the Small Business Administration (SBA) and the Commerce Department jointly produced a brochure describing how health insurance would be provided and what role small employers would play in financing insurance for their workers under the proposed Health Security Act.
• Hospital Compensation: Nationally Representative Data on Chief Executives' Compensation (Letter Report, 08/16/94, GAO/HEHS-94-189). Hospital-reported data showed that chief executives received an average of $129,000 in compensation for overseeing hospital operations in 1991.
• Health Care Reform: Potential Difficulties in Determining Eligibility for Low-Income People (Letter Report, 07/11/94, GAO/HEHS-94-176). To obtain basic health care, more than 30 million people depended on Medicare in fiscal year 1992.
• Health Care Reform: Proposals Have Potential to Reduce Administrative Costs(Letter Report, 05/31/94, GAO/HEHS-94-158). Americans today receive health insurance from a multitude of sources, including more than 1,200 commercial insurers; 550 health maintenance organizations; 69 Blue Cross and Blue Shield plans; thousands of self-insured plans run by private employers; and government programs, such as Medicaid and Medicare.
• Access to Health Insurance: Public and Private Employers' Experience With Purchasing Cooperatives (Letter Report, 05/31/94, GAO/HEHS-94-142). One of the few areas of widespread agreement in the health care debate is that small businesses and other small organizations have a tough time buying and keeping health insurance for their employees.
• Health Care Reform: School-Based Health Centers Can Promote Access to Care (Letter Report, 05/13/94, GAO/HEHS-94-166). GAO's work suggests that school-based health centers--facilities located on a school's grounds that provide preventive, medical, and mental health care services to students--do improve children's access to health care.
• Health Care in Hawaii: Implications for National Reform (Letter Report, 02/11/94, GAO/HEHS-94-68). For nearly 20, years, Hawaii has been a leader in the effort to achieve universal access to health insurance.
• Hospitals: Chief Executives' Compensation, 1989-1991 (Testimony, 12/07/93, GAO/T-HRD-94-70). In recent years, the media have scrutinized the high salaries--some approaching $1 million annually--paid to health care executives, in some cases linking them to the rising cost of health care.
• Health Insurance: How Health Care Reform May Affect State Regulation (Testimony, 11/05/93, GAO/T-HRD-94-55). Most health care reform proposals before Congress expect the states to implement and enforce new requirements on private health insurers--a responsibility that may require states to undertake new regulatory tasks and regulate new organizations.
• 1993 German Health Reforms: Initiatives Tighten Cost Controls (Testimony, 10/13/93, GAO/T-HRD-94-2). Expensive new technologies, an aging population, administrative waste, structural inefficiencies, and unnecessary medical procedures have all fueled soaring health care costs in most industrialized nations.
• Arent Fox: Health Law Trends
• NCPA: HEALTH ISSUES Something you can sink your teeth into...
• Citizens for Choice in Health Care Safeguarding excellence -- Opposing government control.
• The HMO Page If a medical practitioner practices less, the company makes more. Kind of like paying farmers not to grow crops. HMOs make money by not providing a product.
• MCOL Managed Care Book of World Records MCO long jumps, discus throws and three-legged races. Quite impressive really.
• Fight Managed Care Here's a place where MCOs have skulls and cross-bones next to their names.
• HealthPartners: Consumer Choice Consumer Choice is best experienced with: Microsoft Internet Explorer 3.0 or greater.... TO THE FULLEST EXTENT PERMISSIBLE PURSUANT TO APPLICABLE LAW, HEALTHPARTNERS DISCLAIMS ALL WARRANTIES.
• FACS: Information on Patient Choice That Patient/Consumer thing.
• FACS: Statement of Recommendations to Ensure Quality of Surgical The surgeon must be the patient advocate so that all patients will be ensured access to high-quality and the appropriate range of surgical care...
• FACS: Statement on Managed Care and the Trauma System Unfortunately, in some situations, managed care systems or insurers have interfered with and defeated the purpose of trauma system networks...
• Canadian Health Expenditures: 1975-1994 The National Health Expenditures in Canada 1975-1994 report allows health researchers and others to assess health expenditure trends over the last two decades.
• Health Care Costs in Australia Total Medicare expenditure by the Federal Government in 1994-95 will be $13.3 billion. Medical benefits expenditure will be $5.930 billion; pharmaceutical benefits $2.044 billion; hospital funding $4.632 billion, and health care grants $0.730 billion.
• Health Care Reform: listserv@ukcc.uky.edu Health Care Reform. Send the following message: subscribe healthre Your Name
• Libertarian Party Platform - HEALTH CARE We oppose the efforts of Washington politicians to place all the spending on health in American society within a federally-planned overall health budget.
• National Health Care Reform: majordomo@world.std.com National Health Care Reform Topical Evaluation Network - impact on delivery of mental health care and drug abuse treatment services at the state and local level. Send the following message: subscribe nhcten
• Shalala: Health Care Crisis Perhaps the most astounding assertion I've heard during the current debate over health care reform is that there is "no health care crisis in America."
• Shalala: Reform is Alive Like Twain's demise, the death of health care reform has been greatly exaggerated. There are, of course, those who would like to believe that the national movement for health reform is dead and buried.
• Health Reform News Updates: LIST.HEALTHPLAN provides summaries of current news reports on U.S. national health-policy reform. To subscribe, send email to: list.healthplan-subscribe@igc.topica.com. You can also read the list online at: (free registration may be required).

ETHICAL CONSIDERATIONS IN MANAGED CARE ~ MEDICAL MATRIX- HEALTHCARE POLICY ~ National Organization of Physicians Who Care ~ Paul Starr's Health Reform Page ~ Physicians for a National Health Program ~ The Change Project: Change in Healthcare ~ The Robert Wood Johnson Foundation ~ Viewpoints