- THE MEDICARE ADVANTAGE PROGRAM

[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]

THE MEDICARE ADVANTAGE PROGRAM

=======================================================================

HEARING

before the

SUBCOMMITTEE ON HEALTH

of the

COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

__________

MARCH 21, 2007

__________

Serial No. 110-27

__________

Printed for the use of the Committee on Ways and Means

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COMMITTEE ON WAYS AND MEANS

CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan WALLY HERGER, California
JIM MCDERMOTT, Washington DAVE CAMP, Michigan
JOHN LEWIS, Georgia JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee JERRY WELLER, Illinois
XAVIER BECERRA, California KENNY HULSHOF, Missouri
LLOYD DOGGETT, Texas RON LEWIS, Kentucky
EARL POMEROY, North Dakota KEVIN BRADY, Texas
STEPHANIE TUBBS JONES, Ohio THOMAS M. REYNOLDS, New York
MIKE THOMPSON, California PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon DEVIN NUNES, California
RON KIND, Wisconsin PAT TIBERI, Ohio
BILL PASCRELL JR., New Jersey JON PORTER, Nevada
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama

Janice Mays, Chief Counsel and Staff Director

Brett Loper, Minority Staff Director

______

SUBCOMMITTEE ON HEALTH

FORTNEY PETE STARK, California, Chairman

LLOYD DOGGETT, Texas DAVE CAMP, Michigan
MIKE THOMPSON, California SAM JOHNSON, Texas
RAHM EMANUEL, Illinois JIM RAMSTAD, Minnesota
XAVIER BECERRA, California PHIL ENGLISH, Pennsylvania
EARL POMEROY, North Dakota KENNY HULSHOF, Missouri
STEPHANIE TUBBS JONES, Ohio
RON KIND, Wisconsin

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C O N T E N T S

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Page

Advisory of March 14, 2007, announcing the hearing............... 2

WITNESSES

Leslie V. Norwalk, Acting Administrator, Centers for Medicare and
Medicaid Services.............................................. 6
Mark Miller, Ph.D., Executive Director, Medicare Payment Advisory
Commission..................................................... 45
Peter R. Orszag, Ph.D., M.Sc., Director, Congressional Budget
Office......................................................... 60

SUBMISSIONS FOR THE RECORD

Center on Budget and Policy Priorities, statement................ 96
National Center for Policy Analysis, statement................... 98
Pennsylvania Health Law Project, PA, statement................... 99
SCAN Health Plan, statement...................................... 101
The Center for Medicare Advocacy, Inc., statement................ 105
Visiting Nurse Associations of America, Boston, MA, statement.... 107

THE MEDICARE ADVANTAGE PROGRAM

----------

WEDNESDAY, MARCH 21, 2007

U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.

The Subcommittee met, pursuant to notice, at 2:51 p.m., in
room 1102, Longworth House Office Building, Hon. Fortney Pete
Stark (Chairman of the Subcommittee), presiding.
[The advisory announcing the hearing follows:]

ADVISORY

FROM THE
COMMITTEE
ON WAYS
AND
MEANS

SUBCOMMITTEE ON HEALTH

CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
March 14, 2007
HL-6

Health Subcommittee Chairman Stark

Announces a Hearing on Medicare Advantage

House Ways and Means Health Subcommittee Chairman Pete Stark (D-CA)
announced today that the Subcommittee on Health will hold a hearing on
the Medicare Advantage Program. The hearing will take place at 2:00
p.m. on Wednesday, March 21, 2007, in Room 1100, Longworth House Office
Building.

In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only. However,
any individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing.

BACKGROUND:

Of the 43 million Medicare beneficiaries, 8.3 million (19%) are
enrolled in what are currently known as `Medicare Advantage' (MA)
plans. These private health plans must provide benefits covered under
traditional fee-for-service (FFS) Medicare (Parts A&B). Medicare
Advantage plans often limit the network of providers that are available
to beneficiaries, may charge an additional premium and often have
different cost-sharing requirements than traditional FFS Medicare.
Medicare Advantage plans can provide additional benefits that are not
covered by traditional Medicare, such as eyeglasses and yearly physical
exams, but often finance these benefits through changing the coverage
structure of FFS benefits.

The number of private plans available to Medicare beneficiaries has
grown steadily since 2003, as plan payments and options have increased.
There are now eight different types of MA plans: Health Maintenance
Organizations (HMOs); Provider Sponsored Organizations (PSOs);
Preferred Provider Organizations (PPOs); Regional PPOs; Private Fee For
Service Plans; Cost Contract Plans; Special Needs Plans (SNPs); and
Medical Savings Account plans.

According to the Medicare Payment Advisory Commission (MedPAC),
`Medicare Advantage' program payments were on average 112 percent of
FFS expenditure levels in 2006. To create financial neutrality between
private plan and FFS payment rates, MedPAC has recommended setting MA
benchmarks equal to 100 percent of FFS.

``In the past five years, the Ways and Means Health Subcommittee
has failed to conduct oversight of the so-called `Medicare Advantage'
program,'' said Chairman Stark in announcing the hearing. ``We are long
overdue for an analysis of this program. I look forward to discussing
who is enrolled in these plans--and how beneficiaries are recruited to
these plans. We should also review what benefits they do and don't
provide, and at what cost to America's taxpayers. I'm pleased to offer
CMS, MedPAC and CBO the opportunity to testify on the MA payment system
at this first of what will be numerous hearings on the Medicare
Advantage program.''

FOCUS OF THE HEARING:

The hearing will focus on the structure and costs of the Medicare
Advantage program.

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Chairman STARK. If our guests would find seats, we can
begin the hearing. Certainly begin it with an apology for the
unexpected voting series that makes us almost an hour late. For
that I, to the witnesses and our guests, I apologize, but it
was entirely unavoidable and we will proceed.
The Medicare Modernization Act of 2003 (MMA) (P.L. 108-173)
made changes in how private plans are paid in Medicare and the
types of plans that exist and it dramatically increased the
number of plans. Now Medicare Advantage (MA) covers about 19
percent of the Medicare beneficiaries back to the highs that it
enjoyed perhaps 8 years ago, still less than one in five
Medicare beneficiaries.
We spent about $56 billion on these plans in 2006 and
without any changes, were informed that the growth in
enrollment and spending will continue to increase.
In spite of these changes, we have as a Committee never
held a hearing on the Medicare Advantage Program and so this is
the first of what will be a series of hearings on the program.
When private plans asked to join Medicare in 1982, they
told us they could provide Medicare benefits better and cheaper
than the Government. As we fast forward 25 years, we are now
losing money for every person who enrolls in a private plan.
The latest analysis by the Medicare Payment Advisory Commission
(MedPAC) indicates that Medicare is on average overpaying
Advantage plans by 12 percent, we are paying 112 percent of
what we otherwise would pay.
Now that number varies geographically and by plan. In some
areas, plans are getting north of 140 percent. Of plan types,
private fee-for-service plans are the highest in the outlier
portion of that, receiving an average of 119 percent of
Medicare fee-for-service plans--payments. We will hear more
from all of our witnesses on these details.
The Academy of Health Information Professionals, Blue
Cross, Blue Shield and others have been claiming that payment
reductions will reduce health care access for lower and
moderate income seniors and decrying a goal they ascribe as
wanting to get rid of the Medicare Advantage program. I would
like to be clear on that.
I know of no one on this Committee who has any intention of
eliminating Medicare Advantage Program plans. However, neither
should we allow any Medicare provider or sector to insulate
itself from both oversight and consideration of payment
changes. To do so would be completely irresponsible for this
Committee and for any Member of Congress.
We have a major task in front of us, between the physician
payment issue, the need to reauthorize and improve the State
Children's Health Insurance Program (SCHIP), the need to manage
and oversee Medicare. To do all of that, I believe that
everything must be on the table, doctor's payments, hospital
payments, post acute payments, drug plan payments. Indeed,
Medicare Advantage payments as well.
Medicare Advantage overpayments raise the part B premiums
for everyone and decrease the part A trust fund faster than
would occur if payments were equalized. In an effort to improve
and protect Medicare, we can't focus on one part of the program
at the expense of others. They must all work together to ensure
that Medicare meets its design and that is providing health
care for America's senior citizens and people with
disabilities, with quality care for the beneficiaries,
reasonable reimbursement for the providers.
We have experts before us representing the Centers for
Medicare and Medicaid Services (CMS), which runs the Medicare
Advantage Program; MedPAC which provides Members of Congress
with expert, nonpartisan, empirical advice on Medicare payment
policies; and the Congressional Budget Office (CBO), which
calculates the costs or savings of proposals that we choose to
enact.
I look forward to today's discussion and to collaborating
with my colleagues to plan additional hearings to investigate
all facets of the Medicare Program. We need to refine the
payment structures to ensure an equitable and efficient program
that serves all the beneficiaries and taxpayers well.
I again apologize to all of the witnesses and to Mr.
Norwalk, who thought she was getting off easy by being first,
going to get out of here by now.
I would make, before you start with your testimony, Ms.
Norwalk, I would make one admonition. It is basically for our
staffs.
Witnesses have generally been asked, where possible, to get
us testimony and/or exhibits at least a day ahead. I can read
quickly and I can read on my way to work. You sent yours last
night, but for the staff, they have to stay until eight or nine
o'clock at night to go through it. So I say this, generally to
all witnesses who will appear before us. If you want to be
friends with the staff, get the testimony in ahead of time. It
will make their job a lot easier and I know your staff
appreciates that as well.
So, we look forward to your testimony. Please enlighten us
in any manner you would like.
I am sorry, Mr. Camp. Mr. Camp.
Mr. CAMP. Thank you, Mr. Chairman. Thank you for holding
this important hearing. I too wanted to thank everyone for
waiting while we had that lengthy series of votes on the Floor.
I think by now we are all well aware of MedPAC's
recommendations to reduce payments to Medicare Advantage plans
to that of traditional Medicare. In doing so, according to CBO,
we would save $65 billion over 5 years. As a result, some
advocates and Members of Congress have indicated that this $65
billion could be an easy and noncontroversial way to fund a
variety of health care spending efforts. I think we have to
consider carefully who will be affected by these proposed
payment cuts.
History has shown that reducing payments to these types of
plans will reduce access for seniors living in rural areas like
mine. Beneficiaries will lose the additional benefits and care
coordination that Medicare Advantage offers. We also know that
low-income seniors may be negatively affected.
Administrator Norwalk has noted that Medicare Advantage
plans have a disproportionately greater number of lower income
beneficiaries enrolled in their plans, which provide assistance
in paying Medicare deductibles, copays and catastrophic costs
that Medicare doesn't cover. We also know that arbitrary
reductions will fall hardest on minority seniors. Twenty-7
percent of Medicare Advantage enrollees are minorities,
compared to just 20 percent in fee-for-service Medicare.
That is why, just last week, national organizations
representing minority groups like the National Association for
the Advancement of Colored People (NAACP) and League of United
Latin American Citizens (LULAC) voiced their opposition to
cutting Medicare Advantage Programs.
Cuts to Medicare Advantage may also affect chronically ill
Medicare beneficiaries. CMS data shows that Medicare Advantage
enrollees are more likely to utilize preventative care and less
likely to delay care because of costs than those enrolled in
traditional Medicare. These proactive steps are the keys to
better managing the health care needs and improving the overall
health of chronically ill Medicare beneficiaries.
I agree with those who have raised concerns about the
various types of plans and whether they provide the same level
of benefits and coordination to justify higher payments. We
must closely examine this issue and I welcome the Chairman for
this hearing to do that, but also we must do so carefully, lest
we risk dramatically reducing access to quality care.
I hope to work with the Chairman on any proposed changes to
the Medicare Advantage program to ensure that beneficiaries
continue to receive access to many of the benefits that many
plans currently offer, while also ensuring taxpayer funds are
being wisely used. I thank the Chairman again and yield back my
time.
Chairman STARK. Ms. Norwalk, please proceed.

STATEMENT OF LESLIE V. NORWALK, ACTING ADMINISTRATOR, CENTERS
FOR MEDICARE AND MEDICAID SERVICES

Ms. NORWALK. Thank you. Chairman Stark, Representative Camp
and distinguished Members of the Subcommittee, thank you for
inviting me today to discuss the Medicare Advantage Program. As
you know, this program is a valued, important option for
millions of people with Medicare.
Working closely with Congress, and this Subcommittee in
particular, we have refined Medicare Advantage (MA) over the
years to promote strong plan participation across the country.
With a vibrant marketplace of plans for 2007, beneficiary
enrollment is now at an all-time high. I am proud of these
successes and stand committed to working with you in the days
ahead to preserve choice for people with Medicare.
I am pleased to report that this year, beneficiaries
selecting a Medicare Advantage plan are receiving, on average,
an estimated $86 per month in benefits, over and above what
original Medicare provides. Such additional benefits vary by
plan but can include lower cost-sharing, enhanced Part D
prescription drug coverage, part B and D premium reductions,
and access to items and services like hearing aids, routine
physicals, or vision exams that original Medicare does not
cover.
All Medicare Advantage plans offer care coordination and
disease management services currently not available through
original Medicare. These added benefits yield important
results. For example, MA beneficiaries are more likely than
those in original Medicare to receive necessary preventative
services, including pneumococcal vaccines and influenza
vaccines, mammography, colorectal cancer screening and prostate
screening.
Seventy-three percent of Medicare Advantage enrollees
receive immunizations to protect them against pneumonia,
compared to 64 percent of beneficiaries in the traditional
Medicare program. These findings are corroborated by MedPAC and
others.
MedPAC's March 2007 report to Congress stated that private
plans have the flexibility to use care management techniques
that fee-for-service Medicare does not encourage, and they have
greater incentive to innovate.
Thanks to the hard work of this Subcommittee, CMS and many
others, legislation has significantly impacted plan
participation and beneficiary interest in Medicare Advantage
over the years.
Chart 1, up on the screen, demonstrates payment reforms
enacted by the MMA have helped propel beneficiary enrollment in
Medicare health plans to nearly 8.3 million people, up from a
low of 5.3 million in 2003.
In other words, nearly 20 percent of beneficiaries are now
enrolled in a private plan, which includes Medicare Advantage
and other plan options such as pace or cost plans. Clearly, we
have learned from two sentinel pieces of legislation that
preceded the MMA, the Balanced Budget Act 1997 (BBA) (P.L. 105-
33) and the Benefits Improvement and Protection Act of 2000
(BIPA) (P.L. 106-554).
The BBA increased rural payment rates, but also
significantly restrained payment in areas that historically had
relatively high private plan participation. Following the BBA,
BIPA attempted to stop the decline in the program by increasing
the national floor and creating a second, higher urban floor.
Unfortunately, plan offerings remained compromised and
enrollment continued to decline.
Not until the MMA's immediate payment improvements took
effect in 2004, did plan participation and enrollment rates
begin to improve. In addition, the MMA's payment refinements
have helped smooth over some of the geographic payment
differences we see in original Medicare. I appreciate how
important resolving such differentials is to many on this
Subcommittee.
Concurrently, both enrollment and plan participation are
better distributed geographically than ever before. Prior to
the MMA's program refinements, beneficiaries in many States,
and rural areas in particular, lacked access to a Medicare
Advantage plan.
As Chart 2 shows in red and yellow, a vast majority of the
country either had no plans or just a single Medicare Advantage
plan option in 2003. Los Angeles County and South Florida were,
in fact, the only areas in the country with 10 or more plans.
In contrast, today 10 or more plans are available almost
nationwide as indicated by the blue area in Chart 3. A
significant portion of the country has more than 25 plan
offerings, and rural areas in the upper Midwest, New England,
and even Alaska, have multiple plan offerings.
Improved choice and plan availability lead, in turn, to
strong enrollment. Chart 4 highlights the current distribution
of Medicare Advantage enrollees across the country. As you can
see, people with Medicare from California to the Carolinas,
from Minnesota to Miami, in Michigan, North Dakota, Texas and
Illinois all are relying on Medicare Advantage plans and the
valuable benefits that they provide.
For example, one plan available for no premium in
California provides the following: a zero deductible drug
benefit, including generic drug coverage in the gap; coverage
for lengthy hospital stays with no copayment including days
beyond what original Medicare allows; $1,000 aggregate
deductible in contrast to the original Medicare $992 hospital
deductible per illness and the $131 part B deductible; a $10
copayment for network physician visits rather than 20 percent
coinsurance; and a $3,000 catastrophic limit on out-of-pocket
expenses for Part A and B benefits. Then finally, vision
services and physical exams that are not covered by original
Medicare.
These benefits are not unique. Beneficiaries in North
Dakota who, prior to the Medicare Modernization Act, had
virtually no private Medicare plan option, now have access to
very similar plans, including: a zero premium plan that
features zero dollar deductible for prescription drugs;
coverage for an unlimited number of hospital days each benefit
period; a $15 copayment for primary care physician visits;
dental, hearing, and vision benefits; and, coverage for
preventive services.
To further demonstrate the significance of this program,
Medicare Advantage plans are also a valuable choice for low-
income and minority beneficiaries. A higher proportion of low-
income beneficiaries and minorities have chosen Medicare
Advantage plans over traditional fee-for-service.
We have prepared for each of you an initial packet of
background information showing the status of Medicare Advantage
in your State.
In closing, I believe Medicare Advantage is a critical
component of Medicare's future. Beneficiaries are turning to
Medicare Advantage plans at unprecedented rates for better
benefits, better care management, and better protection against
catastrophic expenses.
I look forward to continuing this discussion with each of
you to preserve these choices for current and future
beneficiaries.
Thank you, and I am happy to take any questions.
[The prepared statement of Ms. Norwalk follows:]

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Chairman STARK. Let us do some numbers. You have a real
advantage over me, because I have my shoes and socks on, but
you have several times in your testimony, and I can't find the
exact wording, but you have implied that there is a higher
percentage of both minority and low-income beneficiaries in
Medicare Advantage plans, disproportionately so. The numbers
that I am looking at, and tell me where I am wrong, suggest
that among all Medicare beneficiaries, approximately, for
example, 11 percent are African American. Does that jive with
your----
Ms. NORWALK. Sir, the number I have is almost 4.3 million
out of 43, so just under----
Chairman STARK. So, somewhere around 10 percent.
Ms. NORWALK. Right.
Chairman STARK. Then what I am showing is that among all
Medicare beneficiaries, less than 20,000 a year in income, we
have about 47 percent, 20 percent less than 10, 27 percent in
the 10 to 20 range.
Ms. NORWALK. I think that is--yes.
Chairman STARK. Then I am showing that in the Medicare
Advantage programs, which is only 20 percent or a little less
than 20 percent of the entire Medicare population, 10 percent
are African Americans.
Ms. NORWALK. I actually have a slightly higher number. So,
I have 851,000 versus just under 8.3. So, actually, it is over
10 percent.
Chairman STARK. Okay, but not very much different from the
11 percent. So, what I would----
Ms. NORWALK. Slightly under fee-for-service and over----
Chairman STARK. What I would suggest to you is the makeup
ethnically of Medicare Advantage plans is no different than the
makeup of the entire Medicare Program. Would you stipulate to
that?
Ms. NORWALK. The proportion is slightly more in Medicare
Advantage for African Americans, also for Hispanics.
Chairman STARK, but slightly. Like 1 percent of 20 percent,
which by my numbers is a half a percent of the entire
population. The same thing would hold true for lower income.
Now less than $10,000, I am reading that people under
$10,000 in income make up 16 percent of Medicare Advantage but
they make up 20 percent of all Medicare beneficiaries. So,
there are slightly fewer poor people.
Ms. NORWALK. I actually think that is because of Medicaid,
the Medicaid provisions that----
Chairman STARK. I would just go on to tell you that
Medicaid in Qualified Medicare Beneficiary (QMB) and Specified-
Low Income Medicare Beneficiary (SLMB) is a whole heck of a lot
better than any Medicare Advantage plan.
Ms. NORWALK. They are very important programs.
Chairman STARK. Much more. You haven't mentioned them,
which I think is somewhat--I won't call it disingenuous;
somebody got their words taken down for that, but to ignore the
fact that a majority of the lower income people, particularly
those in the less than $10,000 group are dual eligibles or QMBs
and SLMBs, which have the best possible economic--the dual
eligibles pay nothing.
Ms. NORWALK. As they should.
Chairman STARK. It doesn't get much better than that.
Ms. NORWALK. Right.
Chairman STARK. Okay. Well, I just wanted to suggest this
idea that there is a huge number of people--now, that is not to
suggest that in the urban areas where there is a larger
concentration by number of low income and, unfortunately,
minority population, there are a large number of Medicare
Advantage members and for many of them, their premiums are
lower, but what you don't mention is that in many of these
plans, that is great if they don't get sick.
You have said, for instance, Medicare Advantage
beneficiaries face lower hospital copayments, but I could tell
you there are a lot of plans out there that charge more than
$200 a day for the first 10 days in the hospital. Now that, by
my math, is a whole heck of a lot higher than the $992 the fee-
for-service deductible covers.
So, what I would further, and I wonder if you would agree,
there is a wide difference in the efficiency and generosity of
these plans. That they are not monolithic. Is that a fair
assessment?
Ms. NORWALK. It is a fair assessment that the benefit
packages from plans vary greatly across either areas across the
country and so forth. So, I can tell you generally, in terms of
the extra benefits, that 90 percent of all plans do provide
additional hospital day stays. All regional Preferred Provider
Organization (PPO) plans are required by statute to provide
catastrophic coverage across-the-board.
So, other than that, I think generally they do need to
provide A, B benefits. I know that, in the past, you have been
concerned about discrimination and whether or not plans have
set up their benefit packages that may be in a way that is
discriminatory.
Chairman STARK. Sure. Offering health club memberships as
an extra benefit is not apt to appeal to a sedentary person
like myself. If I got a discount at Thank God It's Friday's on
the first pint, that might be different.
Okay, well, I have used up more than my time and I would
like to hear what Mr. Camp has to say.
Mr. CAMP. Thank you very much.
Going back to this issue of who gets served by Medicare
Advantage plans, I notice in the letter that the NAACP
released, they said 40 percent of African Americans without
Medicaid or employer coverage rely on comprehensive benefits
and lower cost-sharing in Medicare Advantage that they don't
find in traditional Medicare. Is that an accurate statement?
Ms. NORWALK. I don't know if I have the numbers with me--
that focus specifically--I don't know if I have them here, that
have the employer plan piece taken out, but we can certainly
get them to you. I think that is an important point.
With all the questions that we ask today, there are often
differences in everything from payments--or everything from the
bids that plans submit and the employer community often does
things differently than what people may have access to in the
individual Medicare Advantage market. So, I think they are
important questions to ask.
I don't think we have it here today, but I will see if I
can get it for you for the record.
[The information follows:]

I don't find that figure at all surprising since Medicare Advantage
offers great value, especially to individuals of limited means who
don't have supplemental Medicare coverage through Medicaid or a former
employer. We have not done an analysis looking specifically at the
proportion of minorities who don't have other supplemental coverage who
have joined MA plans. My written statement indicates that we have
looked at MA enrollment of individuals from minority groups. That
analysis showed that MA enrollees are more likely to be from minority
groups than beneficiaries in FFS Medicare. Specifically, of
beneficiaries in MA plans, 27 percent are minorities, whereas in FFS
Medicare, 20 percent are minorities.

Mr. CAMP. All right, I appreciate that.
I guess to try to highlight some people that have argued
that there really aren't additional benefits in Medicare
Advantage compared to those in traditional Medicare, is that
criticism--there has been criticism of the Medicare Advantage
plan to that effect. Is that criticism accurate and, if not,
could you please describe some of the additional benefits that
plans offer?
Ms. NORWALK. I think that most plans offer, as they are
required to by statute, some very significant additional
benefits. The statute requires if there is a difference between
their bid and the payment benchmark, that they return 75
percent of that difference to the beneficiary in the form of
additional benefits. The other 25 percent reverts back to the
Treasury.
So, what I did is, I took a look at a number of different
types of benefits. So, as I noted earlier, 90 percent of all
plans offer additional day stays in the hospital. Most plans
waive the 3-day hospital stay requirement before they are
admitted to a skilled nursing facility. I have a whole list
here in terms of percentages.
Seventy-seven percent provide routine hearing tests, 98
percent have routine physical exams and so on and so forth.
So, there is a significant range of benefits that are
provided to beneficiaries. Some of the most popular relate to
cost-sharing, such as zero premiums, rebate of the part B
premium, zero premium drug benefits, coverage in the gap,
particularly for generic drugs, and the like. So, there are,
without question, some very important additional benefits
provided to Medicare beneficiaries.
Mr. CAMP. Yes. I think it is important to know that that
goes beyond just sort of optical and physicals.
Ms. NORWALK. I actually have an example in Midland,
Michigan. There is, for a $25.50 premium, a plan that has drug
coverage with no deductible, a $3 copay for preferred drugs, no
inpatient hospital costs at all and no copay when something is
provided in-network. For doctor visits, there is a $7 copayment
for primary care and a $20 copayment for specialists. Not only
that, they have got dental services, hearing services, physical
exams and health and wellness education. So, in your county in
Michigan, I think that beneficiaries have some pretty good
options available to them.
Mr. CAMP. Thank you very much.
In the Balanced Budget Act, Congress reduced and cut the
Medicare Advantage payment. What happened after that?
Ms. NORWALK. I think what--if I recall my history from 10
years ago--do you want to put up that one chart, the first
chart? Thanks.
The Balanced Budget Act was really--one of the things it
wanted to do--the first one--was to pay more to rural areas.
This Committee, this Subcommittee, has discussed with me
earlier in budget testimony the concern about the payment
differentials between fee up front and fee-for-service. A lot
of what the Balanced Budget Act wanted to do was recalibrate
some of that to provide more choice in rural areas, something
that you didn't see very much of before 1997 and, frankly, even
thereafter.
Those payment changes, one of the things that happened was
it reduced payments in other areas. Consequently, as you can
see from this chart, you can see that the enrollment, which is
the left-hand column, peaked after the Balance Budget Act
amendments took effect and then enrollment declined
precipitously thereafter and started to rise after some of the
BIPA changes and then the Medicare Modernization Act changes.
So, there is no question that the legislation that has happened
around Medicare Advantage makes a very big difference in
enrollment and, not only that, additional benefits that are
provided.
Mr. CAMP. All right. Thank you.
Thank you, Mr. Chairman. I see my time has expired.
Chairman STARK. Mr. Thompson, would you like to inquire?
Mr. THOMPSON. Thank you, Mr. Chairman. Thanks for holding
this hearing. Ms. Norwalk, thank you for being here to testify.
In your written statement, you note that Congress created
the Medicare+Choice program to correct perceived flaws,
including significant payment differences across geographic
areas. I don't see this helping. As a matter of fact, I can
point to and hear a lot about disparity in payments between
northern and southern California. I know on this Subcommittee,
we have had discussions, the same issue raised by other
Members.
Why is this still such a huge issue, huge and outstanding
issue, with the Medicare Advantage program?
Ms. NORWALK. Well, I think what these payment changes were
intended to do, particularly the MMA payment changes, were to
increase floor payments. So, for example, in a rural area,
where typically if you compare the payments, for example, Dade
County is one of the most prosperous--or most expensive
counties from a fee-for-service perspective. If you compare,
say, Dade County with any of the number of rural floors, so the
rural floor this year is $692. That is an increase from what
you would be paid in a rural county typically.
Consequently, so if you are looking--if you are in many
areas around the country, the fee-for-service differentials
between fee-for-service and Medicare Advantage generally would
have been even higher if there hadn't been a rural floor
adjustment. So, the rural floor is intended to----
Mr. THOMPSON. Let me just submit for your consideration
that if you are in a northern California county and you are
paying more than someone in--considerably more than someone in
a southern California county, it is little comfort to know that
you could be paying even more. There is a very glaring
disparity that is hurting real people trying to get health
care. I think we need to take a little different approach to
this.
Ms. NORWALK. I actually think the floors, when the MMA was
passed, the floors were really intended to address the fee-for-
service disparities. That is why you have rural floors and
urban floors at a set level without regard to what the fee-for-
service reimbursements are there.
So, that is not to say that there isn't plenty of work to
do generally around fee-for-service differentials, as we have
discussed before. I think that there is, but in the meantime, a
lot of what the discussion is, is going back to basically a
flat fee-for-service rate for Medicare Advantage. My point is,
that merely can perpetuate the differences that you would see
in Dade County, Florida, for example, versus planned payments
in North Dakota or----
Mr. THOMPSON. My point is that there are people who are
being affected because of this disparity and it is a problem.
You had mentioned earlier, made some comments about the
extra benefits on the MMAs and I would just like to know that
if CMS has data on the utilization of the extra benefits in the
plans? It is one thing to have extra benefits. It is another
thing if they are not being used.
Ms. NORWALK. I will have to ask whether or not we--I will
have to check whether or not we--what information,
specifically, we collect on that piece. If we have it, I am
more than happy to give it to you and otherwise figure out if
we have some proxy if we don't have the specifics.
[The information follows:]

In 2007, enrollees in MA plans are receiving, on average,
additional benefits with a value of $86 per month. Plans provide an
average of about $108 in additional benefits, primarily cost sharing
and premium buydowns, as well as specific benefits such as routine
vision and dental care. Plans charge, on average, a monthly premium of
about $22 for these benefits, yielding a net average value for
enrollees of $86 per month.
The Centers for Medicare & Medicaid Services (CMS) monitors the
care delivered by managed care organizations (MCOs) through the
collection and analysis of standardized clinical performance measures
and beneficiary satisfaction surveys. For this purpose CMS has been
collecting MA data via Health Employer Data and Information Set
(HEDIS), Consumer Assessment of Healthcare Providers and Systems
(CAHPS), and Medicare Health Outcomes Survey (HOS) for nearly 10 years.
Additionally, CMS has created the Complaints Tracking module, a tool
that collects and tracks beneficiary complaints. CMS also collects data
from MCOs in conjunction with the annual bidding process.

Mr. THOMPSON. It seems to me it is something we have got to
get because it doesn't really matter if benefits are available
if nobody is using the benefits.
Ms. NORWALK. No, I appreciate that. We should have that for
purposes of considering risk-adjustment and the relative health
of beneficiaries. I am just not sure if it is exactly as you
would describe it, but I will see what we can provide to get
you that.
Mr. THOMPSON. Then I was just informed that the American
Association of Retired Persons (AARP) has come out against the
overpayments for the Advantage plans. Do you have any comment
on that?
Ms. NORWALK. Well, I don't characterize it as an
overpayment. I characterize it as additional benefits for
Medicare beneficiaries as----
Mr. THOMPSON. So, is AARP still against it, irrespective of
what you call it?
Ms. NORWALK. I haven't seen what AARP said, so I am going
to presume that you know better than I do.
Mr. THOMPSON. I didn't mean to interrupt you. Go ahead.
Your comments on that? Irrespective of what you consider it,
what are your comments on their opposition to the overpayments?
Ms. NORWALK. I think it is unfortunate. They have many
beneficiaries--of the 8.3 million, a significant portion, of
course, are going to be those who are members, I would imagine,
of AARP and I think that they do receive important benefits
from that.
Moreover, the importance of the changes that the MMA did is
beyond just the additional benefits. It is really to ensure
that people in rural areas of the country have access to these
sorts of plans. Reverting back to where we were at, the MMA may
lead us to lose a significant amount of ability for many
beneficiaries to sign up for Medicare Advantage plans. So, I
think it really serves a dual purpose.
So, I would have to disagree with the outcome of the AARP
analysis, whatever it happens to be.
Mr. THOMPSON. Thank you.
Chairman STARK. Mr. Hulshof, would you like to inquire?
Mr. HULSHOF. Thanks. Welcome back, Ms. Norwalk.
Looking about the room, I think probably most folks here
are intimately acquainted with many of the acronyms we have
used. I think we chased off a student group who were here
momentarily. Which is interesting, when you consider that as we
move to 78 million senior citizens that will depend on Medicare
when the Baby Boomer generation has retired, it is going to be
the young folks who will be in the work force who will be
supporting this right now unsustainable program down the road.
So, as I do each time you come before us, just for the record
and those that may review the record later, BBA of course is
the Balanced Budget Act. It was signed into law in 1997, I
believe.
Then BIPA is the Benefits Improvement and Protection Act
and that was the year 2000. Again, I would note parenthetically
that each of those two bills was with a divided Government, a
legislative branch of one party, executive branch of another.
There was some give and take in the fact that these changes
were made. Certainly as we move forward, I hope again that
spirit of cooperation is there with this continued divided
Government.
I also acknowledge we have an exceptional panel coming up.
One of the things, Ms. Norwalk, that we are allowed to do is to
anticipate and read their testimony coming up. So let me
mention a couple things and get a reaction from you.
Dr. Miller, in his written testimony, will tell us that the
Medicare Program needs to put some financial pressure on both
fee-for-service and the Medicare Advantage programs, in
addition to bringing quality initiatives in. I think the idea
is to compare apples to apples.
One of the things that Dr. Miller points out in his
testimony is that Medicare Advantage, while they use bidding,
and he puts that in quotation marks, as the means of
determining plan payments and beneficiary premiums, the bids
are against benchmarks which are often legislatively set.
Again, I acknowledge that. As he will tell us later, I am sure,
the commission believes that financial neutrality is important
as we consider possible changes between fee-for-service and
Medicare Advantage or other private plans that we may
contemplate.
I take that point but let me also make sure that my facts
and figures are correct. Is it not true that CMS employs
roughly 4,000 individuals and contracts with about another
22,000 to run Medicare and Medicaid? Are those numbers roughly?
Ms. NORWALK. 4,500 employees and I thought we had 80,000
contractors but maybe it is less than that.
Mr. HULSHOF. I think the information I have is at least in
fiscal year 2006, CMS, Centers for Medicare and Medicaid
Services, spent roughly 3.2 billion in operation costs. How am
I on that number?
Ms. NORWALK. That sounds right.
Mr. HULSHOF. Okay. Medicare Advantage overhead costs are
actually built into their plan bids, is that true?
Ms. NORWALK. That is correct.
Mr. HULSHOF. You mentioned a couple things of actual
legislative mandates or requirements for anyone who wishes to
offer a Medicare Advantage plan. For instance, I think you
mentioned PPOs are required to provide catastrophic coverage.
Is that also true?
Ms. NORWALK. That is correct.
Mr. HULSHOF. Are other Medicare Advantage plans required to
provide disease management programs to enrollees?
Ms. NORWALK. No, they are only required to provide Medicare
part A and Medicare part B benefits.
Mr. HULSHOF. Are there any other requirements that the
Medicare Advantage plans have to factor in, however? The point
of this, Dr. Miller, as you come up later, is we try to talk
about this neutrality. There you are. Good to see you.
What other mandates or legislative requirements are there
that Medicare Advantage plans have to factor in, in addition to
the overhead costs we have talked about and the catastrophic
coverage?
Ms. NORWALK. There are a number of different things. The
first, you alluded to it earlier in terms of the quality
requirements and quality reporting that they do and provide
indications of quality metrics to their enrollees.
In addition, of course, you are automatically in fee-for-
service as a default, but from a Medicare Advantage plan, you
need to market in order to get enrollment to tell people your
existence and so forth. So, there are a fair number of costs
that may be associated with that. You also need to do appeals
and grievances and a lot of other things that can add
additional costs if you are in a Medicare Program that would
have to be included in the bid. So, call centers and all sorts
of things to make sure that beneficiaries can have access to
information, whatever it is that they need.
Mr. HULSHOF. I guess as a final comment I would make, and
Mr. Camp, I think, has brought out the fact that especially in
rural areas and preventive care, and again I know I am flogging
the same dead horse--it is not a dead horse necessarily--but
the frustration that we consistently have that we aren't able
to factor in the inherent costs that we will save through
preventive care. We again touched on this many times as far as
Medicare Part D picking up the costs of certain drugs. Of
course, we know it is going to eventually save lives and have
procedures that don't have to be done. I think if we are truly
trying to find that comparing apples to apples, that preventive
care that is offered through Medicare Advantage, unfortunately
we don't get to count the cost savings as we are trying to make
these comparisons.
Ms. NORWALK. Correct.
Mr. HULSHOF, but that is my editorial comment. I appreciate
it, Mr. Chairman. I yield back.
Chairman STARK. Mr. Kind, would you like to inquire?
Mr. KIND. Thank you, Mr. Chairman. Thank you, Director
Norwalk, for your testimony here today and your patience with
us.
I also appreciate the efforts you have made, and your
staff, as far as getting together with me in the not-too-
distant future to talk about an interest very important to the
State of Wisconsin, and that is the survival of Senior Care,
which is due to expire, the Federal waiver, at the end of June.
It is an incredibly popular program with 103,000 seniors
enrolled in it in the State. It has received bipartisan support
from the creation to the existence to the extension, hopefully,
with the Administration's cooperation later this year.
Just from budgetary terms, it seems like a no brainer,
because if we extend Senior Care for another three years, as
the Governor is proposing in his waiver application, it would
save the Federal Government $403 million that 3 years because,
per beneficiary, it is much cheaper to provide services under
Senior Care than Part D. The combined State and Federal savings
is close to $700 million.
So, I am looking forward to having that meeting so we can
discuss in more detail what the Administration's vision is with
Senior Care, what we can do working together. Hopefully we can
set that up soon.
As a new Member of the Committee, I haven't had a chance to
really wade into the weeds yet in regards to Medicare Advantage
program, certainly not to the extent that you have, but a few
things do jump out at me initially.
If you take a look at the Congressional Budget Office score
with Medicare Advantage plans, for every new enrollee that we
do have going into Medicare Advantage, the budget baseline goes
up. Do you accept that proposition? Is that a fact of budgetary
life that we are facing right now?
Ms. NORWALK. Yes. With the way the program is currently
structured, most Medicare Advantage payments would be higher
than fee-for-service. I might add that our actuaries may have
different assumptions than the CBO and I don't think----
Mr. KIND. I think we will have Mr. Orszag here a little bit
later testify about the budgetary implications. Some call it
the overpayment, you refer to it as more services, which can be
a good thing, but I think at some point, we in Congress need to
wrestle with just the fundamental philosophical fact and that
is, what the goal ultimately is. Is it extending more coverage,
providing more options with more services but at a higher price
to seniors compared to traditional fee-for-service? Or is it,
try to find savings so we can extend some coverage to all
people in this country, including children, the SCHIP program?
We are trying to find tens of billions of dollars right now in
the budget resolution and how we can maintain the integrity of
SCHIP over the next 5 years, but also dealing with the 46
million uninsured. That is just a fact that we are going to
have to come to grips with in regards to where Medicare
Advantage is going, but including these private fee-for-service
plans.
My question for you is, how confident are you that you are
getting--CMS is getting enough data in regards to the
administration of these Medicare Advantage plans, the
efficiencies of these plans, the administrative costs, the
profit margin in order for us as policymakers to make some of
these policy determinations?
Ms. NORWALK. We do have a fair amount of information in
terms of all the things that you listed. I think you each will
have a handout that looks at the ratio of the Medicare
Advantage plan bids to fee-for-service, it looks something like
this. I thought this was important because it looks at the
different types of plans, the local coordinated care plans, the
regional PPOs, the private fee-for-service, and then segments
out the individual plans versus the employer plans.
One of the things that you see here is that local Health
Management Organizations (HMOs) and PPOs submit their bids to
us--and the bid to CMS is basically what are we bidding to pay
for regular Medicare part A and part B benefits. One of the
things you will notice is that the local coordinated care plans
actually come in under Medicare fee-for-service.
Now, it is the legislatively set benchmarks, as Dr. Miller
will testify to later, I am sure, that change the payment
rates. The regional preferred provider organizations are new.
They have basically just started, so they do have some
additional startup costs. They also have to provide the
catastrophic coverage. You will see that their average rate for
individual plans is just under 113 percent of fee-for-service.
Private fee-for-service and regional PPOs also need to
network across an entire----
Mr. KIND. Let me ask you on that in particular, because
based on what little information I know about private fee-for-
service, and I understand they are still in their infancy, this
seems to be on the cusp of really exploding. Especially if
companies figure out the advantages with their retirees out
there under this.
Do we have the capability of gathering enough data to make
some judgments about these private fee-for-service plans?
Ms. NORWALK. I think we do. I was referring to the regional
PPOs, which are yet a separate plan option than private fee-
for-service, and they have different goals in terms of the
reasons why those plans were set up. Now, private fee-for-
service, their average bid is just under 115 percent of regular
fee-for-service, in terms of what they would provide the A, B
benefit for.
We do have a lot of information on each of these plans,
differentiated between individual and employer. I think,
looking at that very carefully, combined with where these plans
are being offered and the access that is available to Medicare
beneficiaries is important to consider, as we look at all the
important----
Mr. KIND. Can we get our hands on information with regards
to administrative costs in administering these plans, profit
margins that these plans are realizing?
Ms. NORWALK. I don't know in terms of what--typically, in
terms of what we collect, specifically as to that, I will have
to go back and ask. I think that what they have asked for
recently has changed, or the past number of years has changed
as the bidding process changed, but I will go back and find out
what is available.
[The information follows:]

CMS has historically published aggregate payments by plan type, and
CMS continues to publish the county rates used to develop plan-specific
benchmarks. However, CMS does not publicly release monthly prospective
payment amounts, administrative costs, or the profit margins by plan
due to concerns about propriety information being distributed.

Mr. KIND. That would be helpful. Thank you.
Thank you, Mr. Chairman.
Chairman STARK. Mr. Becerra, would you like to inquire?
Mr. BECERRA. Thank you, Mr. Chairman. Ms. Norwalk, good to
see you again. Thank you for being with us. I would like to
follow up on Mr. Kind's questions.
Is there any information, any data--are there data that you
would like to have with regard to the administration and
efficacy of the Medicare Advantage program that you are
currently not collecting or not allowed to collect?
Ms. NORWALK. Not that I can think of. I will have to give
that some more thought and get back to you.
[The information follows:]

The Medicare Advantage program would benefit greatly from being
able to collect the HEDIS and HOS measurement sets from Private Fee for
Service (PFFS) plans. HEDIS is the most widely used measurement set in
managed care, and the HOS survey is the only measurement set in use
that produces health outcomes measures. Both of these measurement sets
are used by CMS for internal contractor surveillance purposes, for
audit selection purposes, and for public reporting initiatives.
Currently, all Medicare Advantage contracts except for PFFS and MSA
plan contracts are contractually obligated to report these two
measurement sets at their own expense. A provision in MMA section 722
currently excludes PFFS contracts from these data reporting
requirements. As PFFS continues to grow, it is critical that CMS
collect these measurement sets from these contractors for its internal
contractor assessment programs and for publicly reporting quality of
care information on the various choices available to beneficiaries.

There is nothing that jumps to mind, jeez, if we only had
that piece of information, it would make it much easier to make
these determinations. So, I have a good sense of why I think we
are seeing these different bidding amounts for the different
types of plans.
Medicare Advantage, particularly if you are a local HMO,
typically costs you 97 percent versus 100 percent fee-for-
service to provide the Medicare A and B benefits. They have
been around a long time, so that sort of makes sense.
Mr. BECERRA. Do we have a profile of the people who are
signing up with Medicare Advantage, to get a sense how they fit
the profile of the average senior, of the average individual
that age, health wise, geographically, all the demographic
information?
Ms. NORWALK. We do. We do have a lot of that.
Mr. BECERRA. What about the information about the private
fee-for-service plans? As I understand it, there is some
information that is proprietary that CMS cannot review in
determining how they--how they come up with their level of
reimbursement?
Ms. NORWALK. Yes, the rules around private fee-for-service
are, indeed, different from the regional PPOs and the local
coordinated care plans.
Mr. BECERRA. Is there any information from the private
PPOs----
Ms. NORWALK. I do think that you have raised a good point.
To step back a second, so private fee-for-service, separate
from the other Medicare Advantage plans, one of the concerns
when they initially created----
Mr. BECERRA. I am going to run out of time, and I have one
other very pressing issue.
Might there be, if there is an area, if you can just let us
know, identify that, maybe we can work with you to see if that
is something we can move into.
Ms. NORWALK. Absolutely. Great.
Mr. BECERRA. I want to spend the rest of my time, and Mr.
Chairman, I hope you will indulge me, a more pressing issue for
me back in southern California, in Los Angeles, in the next 10
days, King Hospital, which is a hospital that has helped a very
modest income, a very disadvantaged community for many, many
years, is on the verge of losing its contract with CMS to
provide services under the Medicare provider agreement that it
has with CMS. I know they have been waiting for a while for CMS
to give them word. I know CMS has been working with them
closely to try to help them in this process of radically
reforming their services, because of the difficulties they have
been having.
I think they are doing everything they can to get to the
point where they will be able to pass any type of test about
their services that they are providing, but I know they are
waiting for word. They are asking for an extension until mid-
August, August the 15th. My understanding is that CMS has not
given them word or is telling them perhaps 1 month.
That won't help them do or complete the radical
transformation they are undergoing. It won't help them preserve
the 250 residency slots that they have to help teach the next
generation of physicians, which also provide services to a lot
of folks who have very modest insurance policies that they can
use.
I am wondering if you could tell me today what CMS is
planning to do to make sure that King Hospital continues to
operate, and a lot of folks in southern California continue to
receive services that are critical and of quality?
Ms. NORWALK. As you know, Martin Luther King Hospital
initially had some significant quality issues. So this is
really about the quality of care that is provided.
Mr. BECERRA. I am there with you, if you could fast forward
to----
Ms. NORWALK. I have been working closely with Bruce
Chernof, who is the medical director of LA County. One of the
issues, really the only issue under which we granted them the
initial extension from October until March 31, was so that they
could downsize.
Mr. BECERRA. Yes.
Ms. NORWALK. Their initial assessment to us was, in fact,
that they were on track to downsize by the end of this period.
So, they have recently sent in new information to us saying
that they need more time to downsize. We are reviewing that and
taking a look at that, and that is what we will be basing our
determination on. That is different, by the way, than giving
them more time to pass a survey.
So, we want to be sure that we have a full understanding of
the facts before we make a decision. I also appreciate it is
critical that this decision be made in short order.
Mr. BECERRA. I think that is their point. They are doing
something that most hospitals would never do, in that they are
re-shifting virtually everything, their operation. What they
are finding is that it is not as easy as you think, because
they are also providing care at the same time.
If for 1 day the contract expires, were let to expire, they
lose all 250 of those residency slots, because the contract is
with USC--excuse me, with the county. So they cannot renew a
contract if it is to another provider. So it is essential that
we get word. Not on March 30, the day before it expires. They
need to continue planning, because they are spending millions
of dollars in preparation for this at the behest of CMS.
So, I am hoping that we can get word very quickly from CMS.
Ms. NORWALK. Absolutely. I have every intention of
getting--there is a phone call I have already made today to
figure out if we can resolve the issue.
Mr. BECERRA. Thank you so much.
I yield back, Mr. Chairman.
Chairman STARK. Mr. Johnson, would you like to inquire?
Mr. JOHNSON. Thank you, Mr. Chairman.
Ms. Norwalk, do you know how many plans bid under the
benchmark this past year?
Ms. NORWALK. Well, I know the majority of the Medicare
Advantage plans did, so I think it is a high----
Mr. JOHNSON. Those plans enjoyed extra benefits as well,
did they not?
Ms. NORWALK. Yes, those beneficiaries in those plans do
enjoy significant extra benefits, that is correct.
Mr. JOHNSON. Tell me how the benchmark changes over time.
Ms. NORWALK. The benchmark over time has changed mainly
because of legislative changes. So, one concern, for example,
is that there were not a sufficient number of plans in rural
counties. So those beneficiaries who lived in rural areas did
not have the advantage of choosing a plan. So, what they did
is, they put in a floor which would raise the payment levels to
Medicare Advantage plans and did that above the fee-for-service
rate. So, that was something intentional to increase the plan
participation as well as enrollment in rural areas, and it has
succeeded tremendously. We have much more enrollment in rural
areas and far greater numbers of plans and choices for
beneficiaries in rural areas.
Mr. JOHNSON, but if you raise the benchmark, is it costing
them more in rural areas to run those?
Ms. NORWALK. It doesn't necessarily cost beneficiaries any
more in a rural area. In fact, rural areas often have plans
with low or no premiums and have all the same types of
additional benefits that you might see in other areas. It
really depends on where that floor payment is in terms of the
amount of the additional benefits.
Mr. JOHNSON. Would competition lower the benchmark over
years, do you think?
Ms. NORWALK. The benchmark is legislatively set and it
really focuses on an update to either fee-for-service payments
where Congress says the floor is X. Now, what does impact
changes are the bids. The bids are intended to be competitive.
Mr. JOHNSON. You think the system is okay in that regard?
Ms. NORWALK. Well, I do think it does provide terrific
extra value for Medicare beneficiaries. Many of them count on
it, and particularly those who can't afford additional
supplemental benefits, many who don't have the luxury of
retiree coverage, for example. They, in particular, would miss
additional benefits if there were plan changes, much like what
happened after the Balanced Budget Act.
Mr. JOHNSON. It might be helpful to have information on
clinical outcomes of patients as opposed to traditional
Medicare which pays for whatever services are needed. Are there
steps to move toward capturing that information?
Ms. NORWALK. I think we might be able to provide some of
that. We do know a lot from a Medicare beneficiary survey we
did a couple years ago about the ability to access providers,
for example, the trouble of getting care, how easy it was to
see a doctor, and so forth, as well as preventative services
compared to fee-for-service. Uniformly across all measurements,
the Medicare Advantage plans did a better job with their
beneficiaries in making sure they had their preventive care, or
it was easier for those beneficiaries to see a physician, for
example, or they were more likely to have a regular doctor.
Mr. JOHNSON. It just costs more to go first class, doesn't
it?
CBO indicates there will be consequences of lowering the
payment and plans will leave the areas and beneficiaries will
not have the options that they do now. So, it seems to me that
the 65 billion that seems to be on the table for the taking is
not free. Could you discuss that?
Ms. NORWALK. I do think it is an accurate assessment, if
you look historically at what happened after the Balanced
Budget Act, where they changed the payments, you found plans
did a number of things before they pulled out. The first thing
they did was they basically restricted their provider network,
so fewer providers were available. They reduced the number of
additional benefits that were available to plans, and then
ultimately they pulled out of the market.
I can assure you, having talked to a lot of Medicare
beneficiaries, they were incredibly irate at losing their
Medicare Advantage plan. So, I do think that we, in looking at
these payment streams, do need to consider what the ultimate
effects will be.
Mr. JOHNSON. It probably would effect the rural areas
first?
Ms. NORWALK. It will absolutely affect the rural areas.
Mr. JOHNSON. Thank you very much. Thank you, Mr. Chairman.
Chairman STARK. Mr. Pomeroy, would you like to inquire?
Mr. POMEROY. I would, Mr. Chairman, thank you.
I will begin by saying I don't know much about Medicare
Advantage plans, they haven't been too prevalent in my market.
Even though I have been a Committee on Ways and Means Member
now for three terms, I have had very little traffic into my
office to discuss Medicare Advantage plans.
I used to be an insurance commissioner. In fact, I am the
only former insurance commissioner in Congress, so I am
surprised that those that are advocates of Medicare Advantage
plans filling the room today have not been beating a path to my
office to discuss this interesting new dynamic of health
insurance reimbursements and this value added to Medicare. It
would have been obviously advantageous to them, I think, to
begin the discussion with other Members of the Congress and the
preceding Chairman at an earlier date.
That said, as I try to get a handle on what is represented
in Medicare by the value of this extra payment, I am just not
quite certain. We get extra benefits, some get extra benefits.
Well, that is good. Is it equitable then across Medicare to
offer a Medicare Advantage mechanism that gets some extra
benefits while others don't get extra benefits?
Then other questions that will be before this Congress are,
well, if you look at that extra payment providing these extra
benefits to a few Medicare recipients, would that be--is there
a more compelling aspect of health policy, for example coverage
for children, where that money should be applied instead?
So, as we sort our way through this, your comments I found
very interesting. You are the CMS director, so I don't suppose
it is fair to ask you to weigh whether or not we should put the
extra money here, plussing up a Medicare benefit for a few, or
whether we should redirect it toward uninsured children. That
really goes beyond what we pay you to do on our behalf as the
CMS director.
I would say this, though. You are in charge of
administering a Medicare system. Why should we find it
compelling to continue to support Medicare Advantage plans and
their extra cost when those not in those plans don't get those
extra benefits?
Ms. NORWALK. I think it reminds me a little bit of the
discussion we had during the budget hearing. How, if I recall,
you were very unhappy with the variation in payment rates for
fee-for-service. That, particularly if you look at Dade County
or Miami, Florida, the payments there are significantly higher
than the fee-for-service payments that you see in North Dakota.
Well, if you base the Medicare Advantage payment system
entirely on Medicare fee-for-service, you end up perpetuating
that differential. What the intention was with the MMA and
having a rural floor was to close that gap between fee-for-
service and Medicare Advantage, so that in rural areas of the
country, we could provide benefits that normally you would see
in very populated urban areas like Miami or in any number of
other places across the country, where the fee-for-service rate
was higher----
Mr. POMEROY. Actually, if I might just pursue this, I think
you raised an interesting point. We are very concerned about
this disparity in rural reimbursements. That led me to
negotiate with the then Chairman about a $25 billion addition
to rural reimbursements under fee-for-service. In fact then
Committee Member Nussle and I offered an amendment which was
included in the MMA, plussing up those rural reimbursements. I
incurred some dissatisfaction by some of my Democrat colleagues
in supporting the bill.
Many of those provisions are expiring, having run their 3
years. It was contemplated at the time they would be
reauthorized, but the 3 years are running out. Clearly, they
have had a lot more to do about bringing fairness to rural
reimbursements than Medicare Advantage.
Do you have a position on extending the 3-year
authorizations that are expiring that were initially put in
relative to rural reimbursement rates under the MMA?
Ms. NORWALK. Can I get back to you and get the official
Administration position? I didn't ask that question before I
came today. Perhaps I should have, but I didn't anticipate it.
[The information follows:]

The Centers for Medicare & Medicaid Services (CMS) has made a
strong commitment to rural health issues and has made many significant
regulatory and departmental reforms to address the needs of rural
America.
The Medicare Prescription Drug, Improvement, and Modernization Act
of 2003 (MMA) included a number of provisions to enhance beneficiary
access to quality health care services and improve provider payment in
rural areas. The provisions in the MMA continued two payment policy
trends that have increased rural provider payment rates in recent
years: (1) an expansion of opportunities for rural hospitals to receive
cost-based payments from Medicare and (2) an increase in rural PPS
payment rates so that they are closer to urban payment rates. These
provisions include the creation of a new Physician Scarcity Area bonus
payment program along with an updated Health Professional Shortage Area
bonus payment program, which reward both primary and specialist care
physicians for furnishing services in the areas that have the fewest
physicians available to serve beneficiaries; the development of a
graduated adjustment/add-on payment for low-volume hospitals; the
redistribution of unused resident positions, with hospitals located in
rural areas receiving top priority for such positions; and significant
improvements to the Critical Access Hospital program, including
increased payments to 101 percent of reasonable costs and flexibility
to use up to 25 beds for acute care.
CMS has also been directed to conduct a number of demonstrations
focused on the delivery of care in rural areas. For example, section
409 of the MMA established a demonstration to test the delivery of
hospice care in rural areas; section 410A of the MMA established a 5-
year demonstration for up to 15 hospitals to test the feasibility of
establishing Rural Community Hospitals; and section 434 of the MMA
authorized a new demonstration project under which Frontier Extended
Stay Clinics in isolated rural areas are treated as providers of items
and services under the Medicare program.
Many of the provisions in the MMA were time limited but have been
extended in later legislation, including the Deficit Reduction Act of
2005 (DRA) and the Tax Relief and Health Care Act of 2006 (TRHCA). CMS
has worked expeditiously to implement all of the provisions in recent
legislation, recognizing their importance to rural communities.
Although the President's fiscal year (FY) 2008 Budget did not include
proposals to extend the expiring rural provisions, CMS will continue to
work with Congress to address disparities in rural reimbursement and to
improve the quality and value of care delivered to all Medicare
beneficiaries.

Mr. POMEROY. I would be interested.
Ms. NORWALK. Yes, absolutely.
Mr. POMEROY. I would like your acknowledgment. Obviously,
that has much more to do about rural rate equity than Medicare
Advantage; is that correct?
Ms. NORWALK. I think both are important in terms of rate
equity, but I would not disagree with you that it is a critical
piece, vis-a-vis----
Mr. POMEROY. For example, we have 104,000 Medicare
recipients. We have 4,000 on Medicare Advantage. Obviously,
fixing the Medicare reimbursement has much more to do with
rural equity.
Ms. NORWALK. I think that is in part because the plans are
new to North Dakota.
Mr. POMEROY. I am not saying where the future may go or
whatever. I am asking you a specific question. Which is the
bigger deal?
Ms. NORWALK. For today, that is correct. I would agree,
your point today is correct--that it has a bigger impact today,
but I think that over time, if the program was allowed to
continue, Medicare Advantage would have a bigger impact in
North Dakota because a lot of the plans that you have there
today are new and beneficiaries haven't learned about them.
Mr. POMEROY. It is my understanding you are reimbursing
agents significantly higher to enroll in the Medicare Advantage
plans. How are companies enrolling? What are the market
distribution reimbursements to get people into a Medicare
Advantage plan? I have had insurance agents tell me it is a
great deal.
Ms. NORWALK. Well, it probably depends on the plan and the
broker. I can't speak to it generically, but I am more than
happy to see if we can find some information and get back to
you.
[The information follows:]

CMS Medicare Marketing Guidelines provide specific guidance
regarding the use of persons employed by an organization to market a
plan. Organizations that directly employ or contract with a person to
market a plan must ensure through monitoring that all marketing
activities comply with applicable MA and/or Part D laws and all other
Federal healthcare laws.
The guidelines explicitly state that compensation structures must:
``Provide reasonable compensation in line with industry standard
for services provided.''
CMS is aware that organizations sometimes use performance-based
compensation, tying compensation of a person performing marketing to
the volume or value of the person's sales. As a result, the rate of
payment may vary between an MA plan, MA-PD plan and a PDP. Based on a
marketing representative's reasonable measure of service and industry
standards, rate of payment may vary among one organization's plans and
between competitors.
It is important to CMS that the beneficiary chooses a plan based on
the beneficiary's needs as opposed to the financial interests of the
person performing the marketing. Therefore, the rate of payment to a
marketing representative should not vary based on the health status or
risk-profile of a beneficiary.
Because an organization is required to use only a State licensed,
registered, or certified individual to market a plan, if a State has
such a requirement, CMS expects an organization to comply with a
reasonable request from a State which is investigating a person that is
marketing on behalf of a organization, if the investigation is based on
a complaint filed with the State. CMS also encourages an organization
to report a person that markets on the plan's behalf to the appropriate
State entity, if an organization believes that the person is violating
a State's licensing, registration, certification, insurance or other
law.

Mr. POMEROY. Are those extra costs coming back into agent
reimbursements?
Ms. NORWALK. No, all additional costs, 75 percent by
statute, need to go back to the beneficiary. The additional 25
percent goes back to the trust funds.
Mr. POMEROY. Thank you.
I yield back, Mr. Chairman.
Chairman STARK. Ms. Tubbs Jones?
Ms. TUBBS JONES. Mr. Chairman, I seek unanimous consent to
be skipped for this round if I can go up first on the next
round.
Chairman STARK. You want to rest up a little?
Mr. Emanuel.
Mr. EMANUEL. I have one question, Ms. Norwalk. Mike
Thompson had asked about this, so I want to follow up. He had
talked to you about the actual benefits side and the payment.
It deals with the reporting by Medicare Advantage plans.
We don't actually have any record of actual benefits that
individuals are receiving. The question I have for you is, yet
we are making the payments with no record. We know that the
benefits exist, a la on paper, but as an option, as a
potential, do we have any way of getting that information so we
know that we are getting what we are paying for?
Ms. NORWALK. We have to know something, because we risk-
adjust every beneficiary. So, the healthier beneficiary,
somebody who is 65 and joins a Medicare Advantage plan, for
example----
Mr. EMANUEL. I am more than willing to yield to the
Chairman of you would like.
Chairman STARK. Yes, that isn't responsive. The risk
adjustment just deals with the beneficiaries and their health
status. It has nothing to do with the benefits they receive or
the extra benefits. That is not used in the compilation of the
risk adjustment.
Ms. NORWALK. Well, actually the point I was making, Mr.
Chairman, is that in order for us to figure out what their
health status is, we actually have to know something about the
services that were provided to them.
Mr. EMANUEL. So, you think this information----
Chairman STARK. No, you don't.
Mr. EMANUEL. I am going to take back my time from both of
you for 1 second.
Ms. Tubbs Jones, she can have also the first question next
time if that works it out.
All right. How do we get to the fact of what actually are
the benefits for the payment in a very specific way? Could you
help me on that?
Ms. NORWALK. I will go back and check and find out exactly
what it is that we have in-house to determine any number of
things and just see what we could either do as a proxy, or see
what we have specifically.
[The information follows:]

Mr. EMANUEL. The only worry we would have, and I don't
think it is by party, I think it is more of a concern from a
side point of being an advocate for taxpayers, we obviously
don't want to be paying for a service if it is not being
provided and only exists on paper. Okay?
Ms. NORWALK. I anticipate that one of the things that we
could look at, for example, are appeals processes. So, if a
beneficiary is in a plan and doesn't have access to a service,
the beneficiary would complain about it.
Mr. EMANUEL. I think that is safe to assume.
Ms. NORWALK. Yes, it is safe to assume. So, that is one of
the things that leads me to think that these plans are actually
providing benefits.
Not only that, when we did the Medicare beneficiary survey
that I referred to earlier, the information we have comparing
Medicare Advantage to Medicare fee-for-service leads me to
believe that they have a usual doctor, and so on and so forth,
they have an easier time finding a doctor, and so forth.
So, whatever else it is that we have in-house, I am more
than happy to figure out a way to provide that.
Mr. EMANUEL. Since you will look at that, just do me one
favor as you ask other folks to look at it and get the
information. The assumption if people aren't complaining about
it, because that assumes, the assumption you made was that they
then are receiving it because they are not complaining, it is a
double negative, basically. Don't assume people know they have
something. I couldn't tell you everything that my Blue Cross
plan offers me in the Federal health employee system. Now,
mainly because I don't have patience. My wife always said if we
had a fourth child, we would name it Patience as a subtle
reminder to me. I don't sit down and study it.
So, don't assume that folks are sitting there studying
that, so therefore if they are not complaining, therefore they
are receiving it. That makes a presumption I am not sure I
would be comfortable with. Okay?
Ms. NORWALK. Fair enough.
Mr. EMANUEL. Thank you very much. I yield back.
Chairman STARK. Mr. McDermott, would you like to inquire?
Mr. MCDERMOTT. Thank you, Mr. Chairman, for allowing me to
sit in on the Committee and participate. I really come because
when we put in the Medicare Advantage plans, we based it on
fee-for-service rates. I come from one of those places where
fee-for-service is considerably less than other parts of the
country. That is true of Oregon and some plans in Minnesota,
perhaps some in Wisconsin. I think it is important for the
Committee to understand that the basing on fee-for-service in
the area makes for huge inequities in this program.
So, part of what we are talking about here is not
applicable to some areas of the United States like the
Northwest. I think you would confirm that?
Ms. NORWALK. Absolutely. There is no question that a lot of
what I wanted to bring to people's attention today is that the
reason you have the legislated floors that we have,
particularly in rural areas, was to address some of the
variation that you see with fee-for-service and to not carry
that over into the Medicare Advantage program. So, that is
correct.
Mr. MCDERMOTT. I would also like to put in a word for the
floor in urban areas.
Ms. NORWALK. Likewise, the urban floor has made a very big
difference. So, both the rural and urban floors, and I don't
mean to put one over the other, but both have the same concept.
Legislatively, let us make sure if there are disparities on the
fee-for-service side, that we don't carry them over into
Medicare Advantage.
Mr. MCDERMOTT. Any kind of proposal that would say, let us
take a percentage reduction as though it was one program in the
country would only increase the problems of areas like mine
where we are barely making it with the floor.
Ms. NORWALK. I think that is correct. There are lots of
difficult choices in front of this Committee. I think it is
important that we appreciate all the different facts. We are
more than happy to get for you, if you would like, some details
about your State and all the specifics in terms of payments. If
that would be helpful, we can provide that.
Mr. MCDERMOTT. I would appreciate it if you would provide
the Committee with some estimate of what an across-the-board
cut would mean to Oregon and Washington and Minnesota and
several others.
Ms. NORWALK. We have that information by State and we are
more than happy to give it to you.
[The information follows:]

Establishing an MA payment policy such that plan payment rates
would not exceed 100 percent of FFS would adversely affect most
counties in the United States. Only 5.5% of counties with about 7% of
enrollment already have benchmarks established at 100% of FFS in 2007.
Capitation rates in all other counties (94.5%) and for all other
beneficiaries (92.7%) would be reduced. The counties where the impact
would be the largest are the counties that were paid on the basis of
either of the floors or the blend in 2004. These categories represent
almost 2/3 of all counties and more than half of all MA enrollment.
In terms of specific impacts on Oregon, Washington, Minnesota, and
other States:

Preliminary estimates of the impact in Minnesota of
limiting payment to 100 percent of FFS are -$629 million over 5 years
(FY 08-12, effective 1/1/09). Ninety-four percent of Minnesota
counties, with 98% of Minnesota MA enrollees, would likely have
benefits or plan choices reduced under a proposal that limits payments
to 100% of FFS.
Preliminary estimates of the impact in Oregon of limiting
payment to 100 percent of FFS are -$1,836 million over 5 years (FY 08-
12, effective 1/1/09). Ninety-seven percent of Oregon counties, with
98% of Oregon MA enrollees, would likely have benefits or plan choices
reduced under a proposal that limits payments to 100% of FFS.
Preliminary estimates of the impact in Washington of
limiting payment to 100 percent of FFS are -$1,275 million over 5 years
(FY 08-12, effective 1/1/09). One hundred percent of Washington
counties, with 100% of Washington MA enrollees, would likely have
benefits or plan choices reduced under a proposal that limits payments
to 100% of FFS.
Preliminary estimates of the impact in California of
limiting payment to 100 percent of FFS are -$6,001 million over 5 years
(FY 08-12, effective 1/1/09). Ninety-eight percent of California
counties, with 100% of California MA enrollees, would likely have
benefits or plan choices reduced under a proposal that limits payments
to 100% of FFS.
Preliminary estimates of the impact in New York of
limiting payment to 100 percent of FFS are -$1,812 million over 5 years
(FY 08-12, effective 1/1/09). Ninety-four percent of New York counties,
with 63% of New York MA enrollees, would likely have benefits or plan
choices reduced under a proposal that limits payments to 100% of FFS.

Mr. MCDERMOTT. I would appreciate that. Thank you very
much.
Thank you, Mr. Chairman.
Chairman STARK. Thank you. I am going to take a second
round here if I may for a minute.
Ms. Norwalk, one of the statements that you made was that
beneficiaries in Medicare Advantage enjoy extra benefits. I
think the operative word there is enjoy. Now, it would seem to
me to enjoy it, you have to use it. You also suggested that
they are doing a better job and implied, because of incentives,
that Medicare Advantage plans are doing disease management,
care coordination, providing--not offering--preventative
services. That they have good clinical outcomes.
I am going to ask you, and I would imagine half that second
row behind you is CMS staff.
Ms. NORWALK. Bless them.
Chairman STARK, but it is my understanding that you have
and receive absolutely no data on service utilization from any
of the Medicare Advantage plans. Is that not correct?
Ms. NORWALK. Well, that has certainly been discussed here
today. I am going to have to go back and find out exactly----
Chairman STARK. No, no, no. Stop.
Is there anybody back there in the CMS staff that can raise
their hand and say you get any service utilization data? The
fact is, you don't. It has never been required.
So, to even suggest that you know what kind of extra
benefits are being used is fallacious. You don't collect the
data.
Now, quit kidding us. They may put the data on their web,
but if people aren't using it, if they are not paying for it,
if they are not doing disease management, if they are not doing
care coordination--and you don't know.
Ms. NORWALK. It certainly is in their best interest to do
disease management.
Chairman STARK. Wait a minute. All right, look, what is in
their best interest is profit. Let us not go down that road.
What I am suggesting is that--and it may not be important.
I am not suggesting it, but to suggest to me that enjoying
extra benefits, I understand that many of them may have it on
their list and in their sales promotion. Certainly if you do
have that utilization data, we would love to see it, but I am,
I think, advised that it is not collected.
So, then I would like to go on one other area. That is, do
you know, and if you don't will you provide us within the next
week, how many marketing complaints? I am getting back to where
Mr. Pomeroy was. How many marketing complaints have you
received on Medicare Advantage plans? Can you tell us whether
any of those people have been penalized? That would be of some
interest. I don't care from whom, but----
Ms. NORWALK. I believe we responded to you in January about
that very same issue with the full panoply of what we are
doing. It concerns me greatly the abuse of marketing agents.
One of the things that we are doing with the National
Association of Insurance Commissioners is we've got an MOU that
has been out, I think 15 States or so have signed it, so that
we can do better coordination to make sure that marketing
agents are properly reprimanded. Of course, they are State
licensed. We have also been working very closely with the plans
and if we find out that there is a problem with a marketing
agent----
Chairman STARK. Well, I guess what I am asking you is have
you found out any? Could we have some indication of how many
complaints there have been? We hear of episodes, but that does
not necessarily give us any idea of if there are marketing
abuses.
Ms. NORWALK. I will update our January letter.
[The information follows:]

The Part C Complaints Tracking module (CTM) contained 242
complaints related to marketing for Medicare Advantage-Prescription
Drug Plans from January 1, 2007 through mid-April 2007. Of these 242
complaints, 78 are still considered ``open,'' while 164 are considered
``closed.''
Where appropriate, CMS takes corrective action against plans who
have had marketing complaints filed against them. Since the fall of
2005, seven Medicare Advantage plans have had actions, including
warning letters and corrective action plans, taken against them in
response to marketing violations.

Chairman STARK. I would like to know the answer. On the
assumption that there is no data collected on service
utilization, my feeling is that that should be done. I don't
think we can make any decisions on the value of these plans
unless we know not what they are offering but what they are
actually doing. I am more concerned about disease management,
preventative services that are actually being carried out
rather than just in the breach.
I would end my second round by asking two questions, I
guess. If, as is suggested in one of the next witness's
testimony, that 32 million people in round numbers are paying
$25 a year extra in their part B premium to support the
overpayments, as they are referred to, to Medicare Advantage
plans, I fail to see the fairness in that. I would lead second
to suggest that if these extra benefits, whatever they may be,
are--and you have mentioned coordination of care, disease
management, which we don't have in fee-for-service, but why
not? If these benefits are, in fact, desirable, disease
management, care coordination, preventative services, clinical
outcomes data, then why don't we get busy to put them into the
service of the vast majority that four out of five
beneficiaries are using? That would be doing something for the
entire country and I think would be fair. We may not be able to
afford it right out of the box, but we could work toward that.
Doesn't that seem reasonable? That if these benefits are
good, they should be in fee-for-service?
Ms. NORWALK. I actually have two points to that. The first
is that all beneficiaries have the option of choosing a
Medicare Advantage plan. That is one of the benefits that the
MMA has done, it has given beneficiaries options when they
didn't have them before.
To your second point, one of the programs that the MMA also
added is the Medicare Health Support Program, or what was then
called the Chronic Care Improvement Program. The intent of the
program was to figure out how we could implement disease
management and chronic care improvements and coordinated care
and so forth in Medicare fee-for-service. Now, we have some
pilot programs that are under way currently. If they end up
providing some positive results, I think that we would do that
across the fee-for-service setting.
Chairman STARK. I will end this, but what you are in effect
saying is the Government is encouraging people if they want
extra services to go into the higher cost programs because, on
average, 112 percent. Therefore, you are depleting the Medicare
trust fund by encouraging people to move that way. The more
that do it, the more financial peril you will put the Medicare
Program into. That doesn't wash either, I'm afraid.
Mr. Camp, would you like a second round?
Mr. CAMP. I would.
Ms. Norwalk, I just wanted to say that there is a
difference between--to follow up on some of the other
questioning--between traditional fee-for-service Medicare and
Medicare Advantage with regard to administrative expenses. The
3.2 billion in administration that CMS has is not factored into
fee-for-service Medicare but is factored into Medicare
Advantage plans; is that correct?
Ms. NORWALK. Correct. Yes.
Mr. CAMP. Also, the disease management, care coordination,
prevention programs and others are important aspects of
Medicare Advantage that could bring down costs in the future.
Is that accurate?
Ms. NORWALK. Absolutely.
Mr. CAMP. The other point I would like to ask you about is
that Medicare Advantage plans, according to your testimony, are
required to collect and apply quality performance data to
quality improvement and chronic care management projects; is
that correct?
Ms. NORWALK. Correct.
Mr. CAMP. They are also required to----
Ms. NORWALK. Except I don't think private fee-for-service
is, but the rest are.
Mr. CAMP. Medicare Advantage plans are required to collect
quality data?
Ms. NORWALK. Generally correct.
Mr. CAMP. They are also required to make this information
public?
Ms. NORWALK. Correct.
Mr. CAMP. That information can be used by beneficiaries in
making a choice of whether or not to enroll in a traditional
fee-for-service or Medicare Advantage plan?
Ms. NORWALK. Absolutely.
Mr. CAMP. Tell me if you could quantify the administrative
expense in Medicare Advantage, what would that be?
Ms. NORWALK. I don't know that I have the number off the
top of my head, but the administrative loss ratio would vary, I
suspect, across plan types. Not only across plan types, but
across individual plans. So, for those regional PPOs, for
example, covering a wider area, they would have a more
expensive administrative package because they need to contract
with providers across a wider area. So, new plans have
typically higher costs and those that are established would
have lower costs.
Mr. CAMP. Following up on Mr. Stark's question, if there is
something we need to address in fee-for-service Medicare, I
would be interested in knowing what you think that is.
Ms. NORWALK. Absolutely. If I might get back to the
Chairman for 2 seconds, if you would indulge me?
Mr. CAMP. Yes.
Ms. NORWALK. My crack staff pointed out that in terms of
the additional benefits of the $86 additional on average, about
$18.40 are the additional benefits. All of the rest of the
benefits relate to cost-sharing. So, in terms of whether or not
they are used, if you actually get a service, most of them buy
down the amount of cost-sharing that you have, buy down the
premium amounts, savings on the basic drug coverage and the
like. So, the----
Chairman STARK, but if they got the service, but if they
don't get the service, there is no savings in cost-sharing.
Ms. NORWALK. Well, for premiums there would be, obviously.
So, premium buydowns and the like.
Thank you, Mr. Camp.
Mr. CAMP. Thank you.
If good value is or is not being provided for fee-for-
service plans, what do we need to address in fee-for-service?
Ms. NORWALK. I think there is a lot that needs to be
addressed in fee-for-service. Quality is top among them. Making
sure that we are paying for quality services.
That is not to say that physicians don't all want to
provide quality services, but oftentimes what we will see is,
for example, the number of hospital readmissions that we have
in this country, of the hospital admits, readmissions in 30
days, half of them haven't seen a doctor since they were
discharged from a hospital.
A lot of things that are happening are far less likely to
happen in the Medicare Advantage world because they are going
to do better care coordination because it is in their best
interest. So, I think there are a lot of things that we could
learn from Medicare Advantage and it would be great to apply
some of those in the traditional Medicare fee-for-service
program. So that is just one example. I could come up with many
if I had more time.
Mr. CAMP. All right, thank you. Thanks very much for your
testimony.
Chairman STARK. If there are not any other Members who wish
a second chance to inquire, I would like to thank you, Ms.
Norwalk, for your patience and again apologize for keeping you
later than I think you ever dreamed you would be here.
Ms. NORWALK. Thanks for having me on the first panel.
Chairman STARK. The second panel will consist of Dr. Mark
Miller who is the executive director of the Medicare Payment
Advisory Commission, who serves as our right and left hand in
advising us in the intricacies of the Medicare system.
Dr. Peter Orszag, who is the director of the Congressional
Budget Office.
Welcome, gentlemen.
Hi-tech testimony here.
Mark, I guess you are first on the list, so we will let you
lead off. How is that? Whenever you are settled, proceed to
enlighten us in any manner you would like.

STATEMENT OF MARK E. MILLER PH.D., EXECUTIVE DIRECTOR, MEDICARE
PAYMENT ADVISORY COMMISSION

Dr. MILLER. Okay, Chairman Stark, Ranking Member Camp,
distinguished Members of the Subcommittee, MedPAC is a
congressional advisory commission charged with making payment
recommendations.
Chairman STARK. Just one question. If you are as sight
challenged as I am, are your slides--do I have them someplace?
Okay, thank you.
Go ahead. I am sorry.
Dr. MILLER. MedPAC is a congressional advisory commission
charged with making recommendations for both fee-for-service
and managed care plans. When we make these recommendations, we
try to consider three perspectives, assuring beneficiary access
to quality of care, assuring that each tax dollar is well
spent, and assuring that providers are paid fairly. When we
make these recommendations, we also keep in mind that our
legislative mandate asks us to consider what is necessary to
pay an efficient provider.
The commission has long supported managed care plans as an
option in Medicare. We believe that plans do have the
flexibility to use care management techniques that fee-for-
service does not have. We believe that if paid appropriately,
they have the incentive to be efficient.
The commission supports a principle that Medicare payments
should be neutral. That is, we should pay the same amount
regardless of whether a Medicare beneficiary enrolls in fee-
for-service or a managed care plan.
The current Medicare managed care payment system is not
neutral to beneficiary choice and does not encourage
efficiency. This is because it is based on an inflated set of
administratively determined benchmarks that plans bid against.
On average, those benchmarks are 116 percent of fee-for-service
payment rates. That is the number that is the upper right-hand
corner of your slide.
If plans bid below these benchmarks, and most plans do,
they keep three-fourths of that payment to use for additional
benefits. Under this system of benchmarks and bids, we estimate
that on average plans are paid 112 percent of fee-for-service.
That is the far right number in the second row of your slide.
It is important for you to understand that this 12 percent
goes to additional benefits, but it is also important for you
to understand that these payments are financed from trust fund,
general revenue and beneficiary premiums, premiums paid by all
beneficiaries regardless of whether they are in managed care
plans or not. We estimate that approximately $2 per month is
charged each beneficiary in Medicare to pay for the 12 percent
above fee-for-service.
For these reasons and others, for the last several years,
MedPAC has recommended that Medicare set the managed care
benchmarks at 100 percent of fee-for-service. The commission
recognizes that this proposal would create disruptions for some
beneficiaries and plans and has pointed to the need for a
transition, but at the same time, the commission recognizes
that current enrollment trends toward the highest paid plans
makes the situation more and more difficult to address as time
goes on.
A second principle that the commission has embraced is that
payments should be equal across plan types. Given the current
system, we have very different payment levels across plans. For
example, HMOs are paid 10 percent above fee-for-service.
Whereas private fee-for-service plans are paid 19 percent above
fee-for-service. Those are the two circled numbers on your
slide.
This is based on where plans draw their enrollment from. As
you have heard, different counties have different payment
rates. That results in significant variation in what we pay and
in what plans offer.
Furthermore, there are other differences among the plans in
terms of administrative requirements. That gives some plans
advantages over other plans. For example, regional PPOs are
protected with risk corridors. Medical Services Account (MSA)
plans do not have to return any money below the bid to the
Treasury. Private fee-for-service plans do not have to report
at the same level quality data and they are not required to
create networks.
The commission has made recommendations to try and level
the payments across plans. One of those recommendations was to
eliminate the PPO stabilization fund. Other recommendations we
have made are in the appendix of your testimony.
A third point that I would like to make is that there is
some good news here. There is evidence that plans can be more
efficient than fee-for-service. Again, you have sort of heard
this. Plans that do submit bids to CMS that essentially say how
much does it cost for us to provide the traditional fee-for-
service benefit? Those bids vary from 97 percent of fee-for-
service--sorry about that--97 percent of fee-for-service to 9
percent above fee-for-service for private fee-for-service
plans. Let me say that again.
HMOs are able to deliver this benefit on average at 97
percent of fee-for-service, whereas private fee-for-service
plans deliver it at 9 percent above.
To put this differently, private fee-for-service plans are
not more efficient than fee-for-service and all additional
benefits, on average, that they provide are through the
additional payments.
In contrast, on average, HMOs are more efficient than fee-
for-service and at least some of the additional benefits that
they provide are provided through efficiency. We believe at the
commission that it is this efficiency that we should be
pursuing through our payment policy.
I know I am over or just out of time. In closing, I would
like to say that given the long run sustainability problems in
Medicare, we think that all steps should be taken to promote
efficiency in fee-for-service and managed care plans. We
acknowledge that there are efficiency losses in fee-for-service
and much of the work that we do at the commission is designed
to create policies to make fee-for-service a better operating
system.
Similarly, we believe that we should be striving for
greater efficiency among managed care plans and paying them
more appropriately.
I look forward to your questions.
[The prepared statement of Dr. Miller follows.]

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Chairman STARK. Thank you very much.
Dr. Orszag.

STATEMENT OF PETER R. ORSZAG, PH.D., M.SC., DIRECTOR,
CONGRESSIONAL BUDGET OFFICE

Dr. ORSZAG. Thank you very much, Mr. Chairman, Congressman
Camp, other Members of the Committee.
I can be brief because many of the key points have been
made, but let me just focus on three primary points.
First, Medicare Advantage plans have grown rapidly both in
terms of enrollment and in terms of Medicare spending. You can
see that in the uptick between 2005 and 2006. CBO now projects
that enrollment in Medicare Advantage plans will continue to
increase rapidly in coming years, rising from roughly 19
percent of Medicare beneficiaries this year to 26 percent of
beneficiaries by 2017.
That projected increase is driven largely by CBO's
expectation of very rapid growth in enrollment in private fee-
for-service plans, which rose from 200,000 members at the end
of 2005 to more than 1.3 million members in January 2007.
Almost all of the difference between our March 2006 projection,
which you can see on the screen, and the March 2007 projection
is because we now expect much more rapid growth in private fee-
for-service and, as the chart shows, in January alone almost
500,000 beneficiaries were added in the private fee-for-service
sector of the Medicare Advantage program.
In terms of spending, payments to Medicare Advantage plans
amounted to almost $60 billion in 2006. CBO projects that those
payments will total $1.5 trillion over the 2007 to 2017 period,
and that the share of Medicare spending on Medicare Advantage
plans will increase from 17 percent last year to more than 25
percent in 2017.
Again, consistent with what I just said about enrollment,
private fee-for-service plans will account for a rapidly
growing share of Medicare Advantage spending with payments to
such plans increasing from approximately $5 billion in 2006 to
almost $60 billion in 2017.
The second point which has come up repeatedly already and I
won't belabor it is that Medicare payments for beneficiaries
enrolled in Medicare Advantage plans are higher on average than
what the program would spend if those beneficiaries were in the
traditional fee-for-service program and, as a result, shifts in
enrollment out of the fee-for-service program and into private
plans increase net Medicare spending. Our estimates are roughly
consistent with the ones that have already been presented by
MedPAC, suggesting that payments to Medicare Advantage plans
are approximately 12 percent higher than per capita fee-for-
service costs this year.
Third, that cost differential underscores a number of
policy options that would reduce spending in the Medicare
program. I will mention two briefly.
The first option would be to reduce the county level
benchmarks under Medicare Advantage to the level of local per
capita fee-for-service spending. Relative to spending under
current law, CBO estimates that this policy would save $65
billion over the next 5 years and $160 billion over the next 10
years.
In addition to this reduction in costs, reducing payment
rates in this way would leave less money for health plans to
offer reduced premiums or potential supplemental benefits. That
change in turn would make the program less attractive to
beneficiaries and lead some to return to the traditional fee-
for-service program. Indeed, by CBO's estimates, enacting this
policy would reduce enrollment in the Medicare Advantage
program by about 6.2 million beneficiaries in 2012, or about
half of the projected enrollment in that year.
I have also shown here the budget savings from other
reductions that are less significant than going to 100 percent
of local fee-for-service costs. One thing that I would point
out is the fact that there are any savings at all in reducing
to say 150 percent of local fee-for-service or 140 percent
shows that there are some counties that are that high, in which
the benchmark is that high relative to the average local fee-
for-service costs.
Another option discussed in the testimony involves
eliminating the double payments for indirect medical education.
As you may know, under traditional fee-for-service, Medicare
pays an additional amount to compensate for the costs
associated with teaching hospitals. Those payments under the
Medicare Advantage program are both included in the benchmark
and then also paid for each Medicare Advantage beneficiary, so
there is a double payment. CBO estimates that if you eliminated
that by taking the Indirect Medical Education (IME) payments
out of the benchmark in most counties, the reduction would be
roughly $13 billion over the next 10 years.
I just want to conclude by noting that the primary, the
central long-term fiscal challenge facing the Nation involves
health care costs. There is a wide variety of evidence
suggesting that health care cost growth can be constrained at
minimal or no adverse consequences in terms of health for most
Americans, and moving the Nation toward that possibility, which
will inevitably be an iterative process, is essential to
putting the country on a sounder long-term fiscal path. So, I
would hope that changes to the Medicare Program would be
evaluated with that broader perspective in mind.
Thank you very much, Mr. Chairman.
[The prepared statement of Dr. Orszag follows:]

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Chairman STARK. I want to thank both of you.
Mark, in addressing the access issue in the service of low-
income people in urban areas, my sense is that Medicaid, QMB
and SLMB would be a far better financial deal for those low-
income people if all the people who were eligible in those
areas put into it, but I am somewhat puzzled as to what we
would do in rural areas.
I am presuming that the rural areas would have at least
primary care physician service and some hospitalization, either
emergency rooms or available acute care, but how do you proceed
to provide in the rural areas the advantages or perceived
advantages of the better--and by better, I mean in terms of
quality of services, preventive care and so forth--how do you
cover that in the rural areas?
I want to say one other thing. Don't you have on your
board--and I am sure they weren't all universally agreeing. You
don't have to name your MedPAC trustees, but you have
representatives who represent rural areas, rural hospitals, as
well as urban centers. I presume that this was not a unanimous
choice among your trustees to level the playingfield on
Medicare. Maybe it was, but I presume it wasn't.
Dr. MILLER. I don't remember the specific vote, but it was
overwhelmingly--there was an overwhelming majority that voted
for this. That is one point.
Another point, you asked about the rural----
Ms. TUBBS JONES. Mr. Miller, could you put your mic down a
little more, because we are having a hard time hearing you over
here. I know you can hear me, because I talk loud.
Dr. MILLER. You can't hear me?
Chairman STARK. That mic is a little weak, so we will let
you squeeze in closer.
Dr. MILLER. Now I can't remember the question.
The vote was--I got it--the vote was relatively unanimous
on the payment rate.
You said something about rural representation. We don't try
to and we don't think of people of rural, urban, but there a
number of people on the commission who have a rural background
and a rural experience and have dealt with rural issues through
their careers. We don't try to categorize people rural, urban,
but there are several people who have rural experience.
Then I think your question was, how do you deal with these
benefits in rural areas. A couple of things. We have made a
series of recommendations on the fee-for-service side in order
to begin to take the fee-for-service sector toward a more
accountable and measurable outcome, with the hope that behind
that, Medicare's fee-for-service payments will also begin to
reflect that. So, that if physicians practice conservative
medicine and practice medicine that results in providing
preventive benefits, they would be paid more or hospitals would
be paid more. That is certainly one way to go at it.
Another thing implied in your question is really, if this
is a question about expanded benefits for people in rural areas
or low income people or whatever the case may be, I think the
question, the way the commission would go at the question is,
what is the benefit that we are getting? Who is eligible for
it? How should we pay for it?
If this mechanism of five different plan types, paying
different amounts of money, providing different benefits
packages, I think the commission's view of that would be this
is not a particularly targeted way of doing that.
You mentioned these other programs like the QMB and SLMB
programs which would be available to beneficiaries whether they
are in urban or rural areas and arguably are more targeted.
Chairman STARK. One more question. You do not, as I
understand it, call for the benchmark of these Medicare
Advantage plans to be immediately dropped to 100 percent? I
think you have some different recommendations of how we could
ease down over time to approach over time getting to parity or
getting to 100 percent. Can you explain what you have in mind
there?
Dr. MILLER. Yes, and it is not real complex. We have
started to have--we made this point when we made the
recommendation. We have discussed it actually some in our last
meeting, but just think about it logically. There are sort of
three ways you could proceed, and there are all kinds of
variants but just to keep it relatively straightforward, you
could freeze the rates at their current levels and let fee-for-
service catch up. That would be a very long transition and that
might be viewed as a positive thing, but on the other hand, it
means that the highest paid areas would remain the highest paid
for the longest.
A second strategy you could use is to bring all of the
rates down at the same rate. So, if you are at a high 140
percent county, you come down at the same rate as, say, a 110
percent county. There again, that has the virtue of being equal
across all of the areas, but probably leaves the highest cost
areas alone the longest.
The third, and you can figure this out logically where I am
going, the third is that you come down fastest on the highest
areas. So, you bring the 1forties, the 1thirties down faster
and then you pick up the twenties and the 10s as you come down.
That would have the effect of hitting the highest cost areas
immediately and the lower cost areas later.
Chairman STARK. Thank you.
Mr. Camp, would you like to inquire?
Mr. CAMP. Thank you, Mr. Chairman.
We have had a lot of testimony about Medicare Advantage
plans providing disease management and there have been several
examples that show that those programs have reduced costs,
emergency room visits, hospitalizations and even some
procedures. Did CBO take into account the ability of Medicare
Advantage plans to control program costs by managing chronic
disease? Something that a traditional fee-for-service program
is not able to do?
Dr. ORSZAG. Briefly, yes, but let me make three quick
points. The first is that CBO, in other contexts, has looked at
disease management and other programs like that. The evidence
is often not as compelling in terms of cost reduction as some
reports would suggest. We are always welcoming more evidence on
that.
The second thing, actually I will just make two points. The
second thing is, as I mentioned in my testimony, most of the
growth that for example explains the difference relative to
last year in our projections involves private fee-for-service
plans where many of the care coordination and disease
management programs are at least a less salient feature of
their activities.
Mr. CAMP. Well, certainly it is going to take some time
before you see cost savings, in that it is a long-term project.
This is part of my problem with MedPAC's recommendation, is
that I don't think that the programs are inherently comparable
because they are different programs. Yet MedPAC continues to
suggest that one is paid differently than the other without
really taking into account, in my view, the difference in the
two programs.
So I guess I would like your comment on that, Dr. Miller.
Dr. MILLER. I think there are a couple of things to say
there. I think some of the thinking at the commission is that
managed care plans, the idea behind them is that they come in
using, let us just say for the moment, a closed network and
care coordination techniques and should be able to underbid
fee-for-service.
When we talk about using fee-for-service as a standard, we
don't necessarily think it is a great, well functioning
program, but why would you actually go and pay more for
something that is not functioning as well as fee-for-service?
So, the philosophy works like this. That if the managed
care plans come in, and can actually underbid fee-for-service,
they can use that money to provide additional benefits, attract
beneficiaries to fee-for-service, and grow their enrollment. We
do see them as very much operating different types of care, but
we think that the payments and the ability to do the additional
benefits should come from efficiencies.
There is one other point that I would like to make. I think
there is another concern on the part of the commission that you
will hear this, that plans will say, I know you are paying a
lot now but we will be efficient in the future and you will
save money. There is a feeling among the commissioners that
there is not a lot of incentive to produce efficiencies in a
system where plans are being paid this much.
Mr. CAMP. Dr. Orszag, which areas of the country would be
affected the most by your assumption of a 100 percent benchmark
as a percentage of fee-for-service costs? How would that affect
the country, not only geographically but also what populations
of the country would be affected and how?
Dr. ORSZAG. In Table One of our testimony, we provide some
evidence or some information about the distribution of, for
example, the difference between plan bids and per capita
expenditures. There is related information on the ratio of
benchmarks to average fee-for-service costs, but clearly, the
distribution will mimic to some degree what you saw with Ms.
Norwalk's charts about the distribution of where Medicare
Advantage beneficiaries are. It is also important to remember
that Medicare Advantage costs vary, or bids, I should say, vary
a lot less across the country than fee-for-service costs do.
So, in high fee-for-service cost areas, you tend to see
Medicare Advantage bids that are not as high than in the lower
cost areas.
Mr. CAMP. So, just to summarize, which areas of the country
would that be?
Dr. ORSZAG. That will often--well, it depends, but it will
often involve many of the things that we mentioned in the
testimony. It include rural areas and other areas where the
previous floor payments are still significant.
Mr. CAMP. I realize my time has expired, but just to
finalize, how many seniors would lose their Medicare Advantage
plans if the benchmark were at 100 percent?
Dr. ORSZAG. As I mentioned in my oral testimony, by 2012,
if you move to 100 percent of fee-for-service in each county,
we project that Medicare Advantage enrollment would be roughly
6 million people lower than in our baseline, and that is about
a 50 percent reduction.
Mr. CAMP. Thank you. Thank you, Mr. Chairman.
Chairman STARK. Ms. Tubbs Jones, who cut a deal.
Forbearance last time earns her second spot.
Ms. TUBBS JONES. It is okay, I cut a deal, Mr. Chairman.
Thank you very much for holding to the deal.
Dr. Miller, how are you this afternoon?
Dr. MILLER. Okay. How about you?
Ms. TUBBS JONES. I am blessed, thank you.
I come from Cleveland, Ohio. In Cleveland, according to the
Census statistics, 13 percent of the individuals age 65 and
older are below the Federal poverty line, and 56 percent of the
population is African American, 2 percent Hispanic.
I want to make inquiries of you with regard to the impact
that the cuts to Medicare Advantage plans will have on the
delivery of health care services to the minority populations in
my congressional district and across the country. What is your
assessment of what impact that will have, sir?
Dr. MILLER. I don't have a specific impact by minority
status or income status, but I think that your point is taken.
It is correct that in areas that are currently paid, where the
counties are currently paid well above fee-for-service, and I
don't know your area specifically, but there may be a floor in
place there, it is likely that plans will have to scale back
their benefit packages or, in fact, have to pull out.
What I would like to say is that we have looked at the data
and we believe, and this is a point that I was trying to make
with the slide, there are managed care plans now and they have,
on average, and they have a lot of the enrollment now, they are
able to deliver fee-for-service benefits below what the fee-
for-service program provides. That means that there would still
be plans that are able to provide benefits and able to provide
additional services.
Ms. TUBBS JONES. Mr. Miller, were you around back in 1997
when the Medicare Advantage plans left Ohio and left people
high and dry with no kind of health care at all, sir?
Dr. MILLER. I was around when the plans exited, yes.
Ms. TUBBS JONES. You realize how many people were left out
there, aged people, concerned about what doctor they would go
to, who would they see, how would they be covered.
I want to, before you go on, are you familiar with a doctor
by the name of Kenneth Thorpe, sir?
Dr. MILLER. Yes, I am.
Ms. TUBBS JONES. From Rollins School of Public Health, sir?
Dr. MILLER. I know where he is.
Ms. TUBBS JONES. Are you familiar with his research?
Dr. MILLER. I have seen a letter that he did for Blue Cross
Blue Shield.
Ms. TUBBS JONES. Even though it was done for Blue Cross or
Blue Shield doesn't mean that his research isn't of value,
though, right?
Dr. MILLER. I am just saying that is what I saw.
Ms. TUBBS JONES. Yes, but I am just trying to make the
record clear that just because it was done for Blue Cross or
Blue Shield doesn't denigrate his research at all?
Chairman STARK. Would the gentlelady yield just on that
point?
Ms. TUBBS JONES. Yes.
Chairman STARK. I have a letter from Mr. Thorpe here
expanding on that. I would like to make it a part of the record
and I will share it with you.
Ms. TUBBS JONES. I thank you very much, Mr. Chairman.
[The information follows:]

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Ms. TUBBS JONES. I thank you very much, Mr. Chairman.
I just want to refer to some of his research. Thanks,
everybody. I got the letter, too. One of my eyes in my glasses
is out, so if I don't read it--as a matter of fact--thanks.
I want you to go to the back of the letter. The back of the
letter says that my 2005 research on this topic found the
following, that Medicare Advantage disproportionately covers
low-income families and that Medicare Advantage serves a high
proportion of minority beneficiaries.
Then on the front of the letter it says that if you reduce
the cost to these Medicare Advantage programs, we are going to
find ourselves in a similar situation as 1997.
The reason that we created or that we went into this new
proposal for health care coverage for seniors was it was to
deliver better services to the seniors. The Medicare Advantage
programs cover seniors who don't fall into the--and I don't
know these acronyms--SLMB and QMB. So, that means they are just
above the low-income level that QMB and SLMB cover.
Meaning that if you take out Medicare Advantage programs or
you address or deal with that funding problem, you are
targeting a group of folks who have nowhere else to go.
I am sure I am almost out of time, so I will give you
whatever time I have to answer my question.
Dr. MILLER. Okay, I think there are three things to say. We
have not independently gone through these numbers, but you did
hear some of the exchange at the beginning. There are a couple
of different ways you can do this analysis and I think Ken's
analysis very much focuses on a specific income group and then
eliminates people who either would be eligible for Medicaid and
have employer coverage and then calculates his numbers. I think
it is just important, because there is confusion and there are
different ways that one can calculate this number.
To that point, we haven't independently done it. So I
don't----
Ms. TUBBS JONES. You haven't done it.
Dr. MILLER. That is----
Ms. TUBBS JONES. Let me finish. Experience says to you that
if you close down the Medicare Advantage programs, there is a
population of people who are without health care coverage and
they are a population who have chronic health problems that are
not covered by other health care plans.
Dr. MILLER. Well, just to be clear, they are not uncovered.
They are eligible for Medicare. For traditional Medicare, first
point. The second point that I would like to make is that what
this comes down to in terms of an argument is a benefit
expansion for a group of people.
I think if the Congress is interested in a benefit
expansion for low-income beneficiaries, and this is part of the
exchange that was over here, I think the question is what
benefit, who is eligible and who pays?
What is happening right now with these particular plans
are, you have very different benefit packages, you are paying
very different amounts of money. I think this is really
important, it is not just available to the low income. A person
of high income can also enroll in these plans.
Ms. TUBBS JONES. I am not arguing that high-income folks
can't enroll in the plan and high-income folks are not my
worry, because high-income folks can buy whatever kind of
health care they want to buy. All they have got to do is walk
up to the Cleveland Clinic and say, I want to buy a heart or I
want to buy whatever it is.
The concern that we are talking about right now is the
people who are at the lower echelon of income, who most often
have access and need for programs like this. See, understand, I
am one of those who support providing health care to everybody
and we figure out how we pay for it, but in light of one of the
fact that I am one of the few people that support that kind of
process, we are stuck with 7,000 different types of plans and
it is as a result of your recommendations and others who said
that this is the way we ought to do health care, that we ought
to package it out and sort it out and different people get
different things and pay different money.
So, all I am saying to you, Dr. Miller, is before we go
down the road of changing what we have right now, let us make
sure we don't change it on the backs of low-income and minority
people who already receive disparate health service and access
to health care. All the studies say that. That is all I am
saying to you, Dr. Miller.
Dr. MILLER. I understand your point.
Ms. TUBBS JONES. I am out of time. I thank you very much
for the opportunity.
Dr. MILLER. I understand your point.
Chairman STARK. Mr. Hulshof, would you like to inquire?
Mr. HULSHOF. Thank you, Mr. Chairman.
I would say to my friend from North Dakota that I have just
been copied by your scheduler, and she has been inundated with
schedule requests for you.
Dr. Miller, just a couple of--see if you agree with these
statements. I recognize the time. I will stick to my 5 minutes.
Does MedPAC believe that Medicare beneficiaries should be
able to choose between the traditional program and the
alternative delivery systems that private plans can provide?
Dr. MILLER. Yes.
Mr. HULSHOF. Does MedPAC believe private plans may have
greater flexibility in developing innovative approaches to
care?
Dr. MILLER. Yes.
Mr. HULSHOF. Does MedPAC believe these plans can more
readily use tools such as negotiated prices, provider networks,
care coordination and other health care management techniques
to improve the efficiency and quality of health care services?
Dr. MILLER. They have the potential to do that, if they are
paid in a way that drives that, yes.
Mr. HULSHOF. No trick question. I took this exactly out
of--this is your testimony. I just wanted for the record to
underscore those points.
Dr. MILLER. Right.
Mr. HULSHOF. In the few minutes I have left, Dr. Orszag,
you said no compelling cost reduction based upon the chronic
disease management or preventive care. So, there are some cost
reductions but what does not compelling mean? Or elaborate when
you said in your response or perhaps in your testimony there
have not been compelling cost reductions that you have seen at
CBO?
Dr. ORSZAG. CBO has done a review of disease management,
the literature on disease management programs. I want to
emphasize, we would welcome additional evidence and additional
studies.
The cost impact as opposed to perhaps the quality impact,
the cost impact from disease management programs has not been
overwhelmingly proven. Which is why, in a lot of CBO scoring
and other things, those programs often do not yield cost
savings.
Mr. HULSHOF. In the period of time, and perhaps we can do
this via letter or maybe later conversation, the period of time
that you considered would have been what period of time to
determine cost savings?
Dr. ORSZAG. That was a CBO report that was based on the
available literature over varying periods of time.
Mr. HULSHOF. Okay, I will get back with you on it, because
what I am mindful of is that it took an act of Congress for us
to force traditional Medicare to have preventative care like
colorectal screenings, pap smears, mammograms and a host of
other things, it took an act of Congress for us to put that
into law. It took another act of Congress for us to have this
pilot program Ms. Norwalk talked about as far as chronic
disease management. That, of course, was just recently done. So
I think the period of time that CBO included is important.
This is not a criticism of you or anybody at CBO. In 1997,
we cut the capital gains tax rate and we heard from joint tax
Committee, here is what we expect the revenue impact to be, and
it was wildly off, just as it was again in the most recent
reduction of the capital gains rate. That is again--you are
bound, as we are bound by you, as your official scorekeeper for
us, we are bound by the limits to which human behaviors or what
have you are included in your assumptions.
So, again, maybe now is not the time----
Dr. ORSZAG. If I could just add very quickly, one of my key
priorities over the next several years is to expand CBO's
health work. We have formed a new panel of health advisors. We
are going to be revisiting all of the evidence on these key
topics. I would again welcome additional evidence. I was just
reporting what CBO has found thus far.
Mr. HULSHOF. Very good. The last few minutes I have is to
underscore again, because I had pulled out on page 15 and 16,
and you have touched on this briefly, and that is eliminating
double payments for IME, indirect medical education.
Dr. ORSZAG. Yes.
Mr. HULSHOF. Now, again, the idea was payments to teaching
hospitals in the traditional fee-for-service sector should
include this adjustment to account for the fact teaching
hospitals often have greater expenses than other hospitals and
often treat more complex conditions. Is that an accurate
statement?
Dr. ORSZAG. That is correct.
Mr. HULSHOF. Now, one of the proposed suggestions you have
for us as policymakers is to eliminate the double payment.
Often the teaching hospitals, I understand it then, are getting
the IME amount to treat patients that are enrolled in Medicare
Advantage; is that right?
Dr. ORSZAG. That is correct.
Mr. HULSHOF. All right. So, we are actually talking about
reducing the IME payments to the teaching hospitals, or just
the way that we are using the county benchmarks?
Dr. ORSZAG. The option that I provided to you is to take
the IME payments out of the benchmarks in the counties where
the fee-for-service spending was the binding constraint on
determining that benchmark in 2004, 2005, or 2007. The
Administration has proposed, instead, doing it on the other
side. That obviously could have different incidents and
different results.
Mr. HULSHOF. Thanks for that. I will yield back to the
Chairman.
Chairman STARK. Mr. Johnson, would you like to inquire?
Mr. JOHNSON. Thank you, Mr. Chairman.
Dr. Miller, in your SGR report, didn't you say that
capitated payments would help encourage more efficient health
care?
Dr. MILLER. Yes.
Mr. JOHNSON. Medicare Advantage plans, I think, provide
those kinds of incentives for efficiency, isn't that true?
Dr. MILLER. That is also what I said here. They can, given
the way that they are structured, they definitely have the
potential for efficiency gains if they are paid an appropriate
amount.
Mr. JOHNSON. So, if CBO is right and these plans will leave
if we take away the extra payment, which means extra benefits,
how can we make sure all Medicare beneficiaries are encouraged
to sign up for anything? Plans are going to leave them and they
will lose benefits. Is that true or not?
Dr. MILLER. What my response to that would be, is that
again, through our analysis, we think that there are plans
currently available that can provide the benefits--can provide
services that are more efficient than fee-for-service and still
provide additional benefits on top of that. It will not be as
many plans as are currently available, and plans will probably
have to adjust their benefit packages, but there are plans that
can provide additional benefits even under 100 percent
benchmarks.
Mr. JOHNSON. Well, are there any particular parts of the
country that would be affected more than others?
Dr. MILLER. Yes, this was touched on earlier. Any part of
the country that has the so-called floor counties, which are
counties where the payment rates are set very high above fee-
for-service, for example, they can be as high as 140 percent
and even more than that in some instances, areas like that
which can be rural areas, but there are also urban areas,
certain urban areas that have what is called an urban floor.
Those payment rates are set well above fee-for-service. Those
would be the areas that would probably feel it first.
Mr. JOHNSON. Okay, but you can't predict for certain what
will happen, can you?
Dr. MILLER. The reason that you can't is because plans
could respond in a number of ways. Plans could respond by
running tighter coordinated care programs and trying to become
a more efficient entity. Or they could respond by leaving the
program. That is why it is difficult to predict.
Mr. CAMP. Will the gentleman yield for just a minute?
Mr. JOHNSON. I yield.
Mr. CAMP. I just want to follow up on something Mr. Johnson
is saying which is, you say that capitation is good because it
brings efficiencies into the system.
Without the enhancements of additional services, why would
anyone go into a capitated plan? That is the real problem with
your testimony today.
Dr. MILLER. I hear you. I think a couple of things. I just
go back to a point that I was making. There are some plans, and
I put that slide up, there are some plans that right now can
deliver traditional fee-for-service benefits more efficiently
than fee-for-service. For many, that was the going in
proposition of managed care plans. In theory, they should be
able to do that. If they are coordinating care, they should be
able to be more efficient. Then, with that efficiency, provide
the additional benefit to the beneficiary, bring more
beneficiaries in and work in that way. That is the underlying
assumption.
The other side, just to try and respond to your question, I
think the dilemma the commission sees to the way that you have
constructed the question is, if you set the higher payments out
and you bring people in through these benefits and ultimately
the program can't sustain it, it is two problems. What
motivation do I have as a plan to be efficient if I am being
paid well above fee-for-service? Two, if in the long run we
can't sustain those payments, then basically we have brought
plans and people in and then had to pull the rug out from under
them again.
Mr. CAMP. I just wanted to make the point. It is Mr.
Johnson's time. So, I yield back.
Mr. JOHNSON. Thank you for your comment.
Thank you, Mr. Chairman.
Chairman STARK. Thank you, Mr. Johnson.
Mr. Pomeroy, would you like to wrap up for us?
Mr. POMEROY. Thank you, Mr. Chairman.
I think there may have been value in the Medicare system in
terms of trying private sector ways of getting the benefit out
to achieve greater cost savings and efficiencies, but if that
was the case, you would expect it to save money, not cost you
more money.
If, on the other hand, the rationale for Medicare Advantage
is we want to extend benefits, then you would think you would
do it in more of a systemic way or systematic way than the
randomness of just having various private sector plans right in
various areas and you hope they get a little better benefit.
To me, it falls short on each point of analysis. It is not
saving us money and it is not delivering in a broad based way
extra benefits.
On the other hand, I feel badly about turning course again.
For those people that are involved, including 4,000 in my
district, and more than a million nationwide, they are about to
see the world change again. This jacking around into a plan,
out of a plan, into a plan under promises and having the
promises be cut because of Congress's action, that is all very
regrettable. For some that are getting almost a Medicare
supplement type benefit now with their Medicare Advantage,
maybe my colleague Tubbs Jones's constituents that can't afford
a Medicare supplement, they are going to be hurt. Again, that
is terribly regrettable, too.
The prospects of taking maybe these extra benefits that
some are benefiting from and trying to do it across the system
would get quite expensive. Dr. Orszag, do you have any notions
in terms of how increasing systemwide the payments to try and
get those extra benefits out there to everybody, what the
implications of that would be on a cost standpoint?
Dr. ORSZAG. Well, I guess you could take the cost numbers
that I gave you for moving to 100 percent of fee-for-service
and then recognize that Medicare Advantage even in the out
years is only projected to be slightly over a quarter of all
beneficiaries and see that it would be many multiples of the
numbers that I gave you for moving in another direction.
Mr. POMEROY. Dr. Miller, do you have any?
Dr. MILLER. I don't have numbers, but, in terms of what
that would cost, but it wouldn't necessarily be, if I am
following the discussion here, it is not necessarily expanding
the benefit to all beneficiaries. If you are trying to target
low-income beneficiaries, then, there is a subset of
beneficiaries that you would be going after.
Mr. POMEROY, but there are ways to target, if we make a
policy decision to target and try and enhance the benefits for
low-income beneficiaries that may not be able to afford
Medicare supplement policies, we can do that in a program
driven way that would be much more equitable across the country
and probably effective at getting people into plans, than just
slapping some money out there to plans and saying please go
take this where you will?
Dr. MILLER. Yes, and there are examples of these things.
What is referred to as the Medicare savings programs, which are
the QMBs and SLMBs. So based on a certain income level, a
beneficiary's premium and copayments are subsidized or just the
premium is subsidized. There is also a low-income subsidy in
the Part D benefit, which are much more--this is who is
eligible for it, this is what they get, here is where the money
comes from.
Mr. POMEROY. Your testimony reveals, and I don't know if
you are reflecting the MedPAC board, a certain lack of
enthusiasm for Medicare Advantage plans. Is that correct?
Dr. MILLER. No, that is not correct. I have to say this in
response to that it is very important to know that first of
all, the commission does support managed care plans and choice.
I am going to say this, the commissioner, republican, comes
from the managed care industry, feels very strong that managed
care plans have the ability to innovate and to provide good,
good services.
Even coming from that orientation, his view is that if you
don't pay properly, you don't create the conditions for those
plans to innovate. What he believes is that if we pay properly,
the plans that will come to the table will have two
characteristics. They will be efficient and able to provide
additional benefits through that efficiency, and they will be
there to stay because the business model is not built on
excessive payments, it is built on efficiency.
Mr. POMEROY. I agree. I think that is a very interesting
perspective, one we ought to pursue. If we want people in
managed care, because it is going to be cheaper, then we
shouldn't pay more than fee-for-service for it. That seems kind
of basic to me.
My time is up and our time is up.
Chairman STARK. We have a minute to the vote.
Mr. POMEROY. All right, thank you, Mr. Chairman.
Chairman STARK. I want to take part of that minute to thank
both of you for your help. Believe me, we will be back to you
often in the next couple of months. Thanks, both of you, very
much. The meeting is adjourned.
[Whereupon, the at 5:01 p.m., the hearing was adjourned.]
[Submissions for the Record follow:]
Statement of Center on Budget and Policy Priorities
According to the Medicare Payment Advisory Commission (MedPAC),
Medicare provides excessive payments to Medicare Advantage plans.
MedPAC estimates, on average, that private plans are paid 12 percent
more than traditional fee-for-service for comparable beneficiaries.\1\
---------------------------------------------------------------------------
\1\ See Medicare Payment Advisory Commission, ``Report to the
Congress: Medicare Payment Policy,'' March 2007.
---------------------------------------------------------------------------
In testimony before Congress on March 1, MedPAC chairman Glenn
Hackbarth stated that these overpayments are driving up Medicare
payments and thereby making the task of sustaining Medicare more
difficult. Hackbarth said Medicare faces ``a very clear and imminent
risk from this overpayment that will put this country in an untenable
position.''\2\
---------------------------------------------------------------------------
\2\ BNA's Health Care Daily Report, ``Growth of Managed Care Plans
Threatens Program's Finances, MedPAC Chairman Says,'' March 2, 2007.
---------------------------------------------------------------------------
In fact, the Congressional Budget Office estimates that enactment
of just one of the MedPAC recommendations related to Medicare Advantage
payments to private plans--a proposal to ``level the playing field,''
by adjusting the payment formula so that private plans essentially are
paid the same amounts (rather than more than) it would cost to treat
the same patients under Medicare fee-for-service--would save $65
billion over five years and $160 billion over 10 years.\3\ Other
Medicare Advantage payment changes recommended by MedPAC could save
tens of billions more.
---------------------------------------------------------------------------
\3\ Specifically, MedPAC has recommended that the benchmarks used
to assess the bids that private plans submit, and to determine payments
to the plans, be set at 100 percent of fee-for-service costs. See
Congressional Budget Office, ``Budget Options,'' February 2007.
---------------------------------------------------------------------------
In response, the private plans argue that curbing these
overpayments will harm low-income and minority Medicare beneficiaries
because those beneficiaries disproportionately rely on Medicare
Advantage plans for help with Medicare premiums and cost-sharing and
for other supplemental benefits not covered by traditional Medicare
fee-for-service.\4\ As evidence, they cite a recent analysis issued by
America's Health Insurance Plans (AHIP) analyzing 2004 data from the
Medicare Current Beneficiary Survey.\5\ Some members of Congress,
including the ranking minority member of the House Ways and Means
Committee, have also made these arguments.\6\
---------------------------------------------------------------------------
\4\ See, for example, America's Health Insurance Plans, ``AHIP
Raises Concerns about New MedPAC Report and its Potential Impact on
Beneficiaries,'' March 1, 2007.
\5\ America's Health Insurance Plans, ``Low-Income and Minority
Beneficiaries in Medicare Advantage Plans,'' February 2007. This report
is similar in many respects to a prior analysis issued by the Blue
Cross and Blue Shield Association. See Adam Atherly and Kenneth Thorpe,
``Value of Medicare Advantage to Low-Income and Minority Medicare
Beneficiaries,'' Blue Cross and Blue Shield Association, September 20,
2005.
\6\ BNA's Health Care Daily Report, ``Medicare Advantage `On the
Table' for Democrats Seeking Budget Savings,'' March 7, 2007.
---------------------------------------------------------------------------
An analysis of AHIP's own data, however, reveals the following:
1. Medicaid, not Medicare Advantage, is the primary form of
supplemental coverage for low-income and minority beneficiaries.
Among all Medicare beneficiaries with annual incomes
below $10,000, some 48 percent were covered by Medicaid. This is nearly
five times the proportion enrolled in Medicare Advantage plans. In
addition, slightly more beneficiaries with incomes below $10,000 rely
on Medigap than on Medicare Advantage.
\7\ Because minority Medicare beneficiaries are
disproportionately low-income, they, too, rely heavily on Medicaid for
supplemental coverage. Some 42 percent of African-American Medicare
beneficiaries, half of Hispanic beneficiaries, and 42 percent of Asian-
American beneficiaries have incomes of less than $10,000 and therefore
may be eligible for Medicaid.\8\ As a result, the majority of Asian-
American Medicare beneficiaries (58 percent) and a plurality of
African-American (30 percent) and Hispanics beneficiaries (34 percent)
receive supplemental coverage through Medicaid. In comparison, much
smaller percentages of minority beneficiaries--13 percent of African-
Americans, 25 percent of Hispanics and 14 percent of Asians,
respectively--are enrolled in Medicare Advantage.\9\
---------------------------------------------------------------------------
\7\ Table 3A in AHIP, ``Low-Income and Minority Beneficiaries in
Medicare Advantage Plans,'' op cit. Among all beneficiaries with
incomes between $10,000 and $20,000, 25 percent are enrolled in Medigap
plans and 22 percent are in employer-based retiree health coverage but
only 16 percent are in Medicare Advantage plans. 13 percent are in
Medicaid.
\8\ Table 1A.
\9\ Table 5A.
---------------------------------------------------------------------------
2. Low-income and minority beneficiaries enroll in Medicare
Advantage plans to a lesser, rather than a greater, degree than other
Medicare beneficiaries.
Beneficiaries with incomes of less than $10,000
constitute 20 percent of all beneficiaries living in areas with access
to a private plan but 16 percent of Medicare Advantage enrollees. (At
the same time, as one would expect, they constitute 69 percent of
Medicare beneficiaries who also receive coverage through Medicaid.)\10\
\10\ African-Americans represent 11 percent of all
Medicare beneficiaries living in areas with access to a Medicare
Advantage plan but 10 percent of all Medicare Advantage enrollees. They
constitute 22 percent of Medicare enrollees who also receive Medicaid
and 18 percent of those who rely on other forms of public coverage,
including military or veteran's health care.
Similarly, Asian-Americans constitute 2 percent of all
beneficiaries with access to a private plan, and 1 percent of all
Medicare Advantage enrollees. (Asian-Americans represent 9 percent of
all dual eligibles.) Hispanics are slightly more likely to enroll in
Medicare Advantage; they constitute 3 percent of Medicare beneficiaries
with access to a private plan and 4 percent of Medicare Advantage
enrollees.\11\

3. If Congress wishes to ensure that low-income, minority
beneficiaries obtain assistance with paying their Medicare premiums and
cost-sharing, and receive needed benefits, the best approach would be
to strengthen aspects of the Medicaid program that assist low-income
Medicare beneficiaries rather than to pay tens of billions of dollars
in excess reimbursements to private plans so that a modest fraction of
the excess payments trickle down to low-income and minority
beneficiaries.

Overpaying private plans in the hope that some of the
overpayments may accrue to low-income and minority Medicare
beneficiaries is not an efficient approach. It also is not equitable,
in that it enables beneficiaries who do not have access to retiree
coverage, Medigap, or Medicaid to obtain some help with their cost-
sharing or benefits only if they switch from fee-for-service to
Medicare Advantage and consequently may have to accept substantial
restrictions on their choice of providers.
MedPAC recommends that the overpayments to Medicare
private plans be eliminated. MedPAC supports competition between fee-
for-service and private plan alternatives, but calls for a level
playing field where fee-for-service and Medicare Advantage compete
fairly with each other. The overpayments skew the competitive landscape
by allowing plans to use some lower cost-sharing and additional
benefits to entice Medicare beneficiaries, particularly those who are
healthier and thus less costly to treat.
As MedPAC chairman Glenn Hackbarth has stated, these
overpayments threaten the federal government's ability to sustain the
Medicare program over time. As a result, these excessive overpayments
are likely, if not rained in, to contribute to growing pressures to cut
Medicare significantly over time. Such cuts could entail increased out-
of-pocket costs and reduced benefits for Medicare beneficiaries. This
could be particularly harmful for low-income and minority beneficiaries
who can least afford to pay more of their health care costs on an out-
of-pocket basis.
A far superior, more targeted approach would be to expand
and improve the existing QMB, SLMB and QI-1 programs in Medicaid that
help low-income Medicare beneficiaries pay Medicare premiums and/or
cost-sharing.\12\ (The Qualified Medicare Beneficiary (QMB) program
pays Medicare premiums and cost-sharing for poor Medicare
beneficiaries, while the Specified Low-Income Medicare Beneficiary
(SLMB) and Qualifying Individual (QI-1) programs together pay for
Medicare premiums for beneficiaries with incomes up to 135 percent of
the poverty line.) Such improvements could be financed by using some of
the savings from curbing the excessive overpayments to private plans.
(Congress also could encourage states to use existing flexibility in
making full Medicaid more available to low-income Medicare
beneficiaries.)
Alternatively (or in addition), because low-income and
minority individuals and families disproportionately lack health
insurance, savings from curbing the excessive payments also could be
used to expand health insurance coverage more generally. As one
immediate example, the resulting savings could be used to help offset
the costs of legislation to reauthorize and expand the SCHIP program so
that most or all low-income and minority children have coverage.\13\
The Leadership Conference on Civil Rights and a host of other civil
rights and religious organizations support providing $60 billion over
five years in additional funding for SCHIP and Medicaid as part of
SCHIP reauthorization, in order to move a long way toward this goal.
---------------------------------------------------------------------------
\10\ Table 7A. Beneficiaries with incomes between $10,000 and
$20,000 constitute 27 percent of all Medicare beneficiaries living in
areas with access to a Medicare Advantage plan. While they represent 33
percent of Medicare Advantage enrollees, such beneficiaries also
constitute 56 percent of individuals with other forms of public
coverage (like military or veteran's health care), 29 percent of
individuals with Medigap coverage, and 28 percent of Medicaid
beneficiaries.
\11\ Table 8A.
\12\ The Medicare Part D drug benefit includes a separate subsidy
for low-income Medicare beneficiaries that pays for Part D premiums
and/or Part D deductibles and cost-sharing. This low-income Part D
subsidy could also be expanded to help low-income Medicare
beneficiaries to a greater degree.
\13\ Edwin Park and Robert Greenstein, ``Options Exist for
Offsetting the Cost of Extending Health Coverage to More Low-Income
Children,'' Center on Budget and Policy Priorities, March 8, 2007.

Those costs will need to be offset, however, if the SCHIP expansion
is to become a reality. Savings from curbing overpayments to private
plans, as MedPAC recommends, could provide some (or even all) of the
---------------------------------------------------------------------------
offsetting savings.

Statement of National Center for Policy Analysis, Dallas, TX

Mr. Chairman and members of the Subcommittee, I am John Goodman,
President of the National Center for Policy Analysis, a nonprofit,
nonpartisan public policy research organization dedicated to developing
and promoting private alternatives to government regulation and
control, solving problems by relying on the strength of the
competitive, entrepreneurial private sector. I welcome the opportunity
to share my views in writing about the current state of Medicare,
specifically how the Medicare Advantage plans are contributing to
provide health coverage to senior citizens.
When Medicare began, the program copied the popular Blue Cross
insurance plan. So for a while, seniors and non-seniors had basically
the same health insurance. But since one plan was controlled by the
marketplace and the other by politicians, the two plans diverged over
time. Practically all of the structural problems of Medicare stem from
this divergence.
Seniors are the only people in our society who must buy a second
health plan (Medigap) to fill in holes in their primary plan
(Medicare). Also, millions of seniors are paying a third premium to a
third plan (Medicare Part D) to get the drug coverage non-seniors have.
Even then, many face ``donut hole'' gaps that no one else faces.
Paying three premiums to three plans is extremely wasteful. In
fact, two studies by Milliman & Robertson showed that if Medicare and
Medigap funds alone were combined, seniors could have the same coverage
non-seniors have--at least in principle.
This is where Medicare Advantage plans come in. They offer seniors
comprehensive coverage, comparable to what the rest of America has.
In the early years, health economist Ken Thorpe found that these
plans attracted low- and moderate-income seniors who did not have
Medigap coverage. In return for a premium of about $250 a year or less,
these enrollees got $1,034 worth of extra benefits, including drug
coverage. A social problem solved, at minimal cost to taxpayers.
With the introduction of (subsidized) Part D coverage, this trend
has continued. Medicare administrators report that:

86% of Medicare beneficiaries have the opportunity to
join a Medicare Advantage plan with no premium charged for drug
coverage.
In addition to free drug coverage, enrollees often get
such extra benefits as hearing aids, vision and preventive care.
Half of Medicare Advantage enrollees have incomes below
$20,000.
About 27% of Medicare Advantage plan members are minority
enrollees.

An AHIP study also found that these plans are especially beneficial
for low-income and minority enrollees. In fact, almost 7 in 10 minority
enrollees have incomes less than $20,000.
There are special needs Medicare Advantage plans (for those with
several chronic illnesses) and medical savings account plans (for those
who want to manage some of their own healthcare dollars). Also, several
studies have found that Medicare Advantage enrollees get higher quality
care than those in standard Medicare.
In all of its guises, Medicare Advantage plans take a rigid,
inflexible Medicare benefit and use those same dollars to create more
benefits better suited to senior citizen needs.
Given this success, we should build on it. Let the market for
senior care be wide open, with the government offering premium support
for seniors who choose from a much wider range of options--including
remaining in, and paying premiums to, a former employer's plan.
Thank you for your consideration.
For CMS study: Medicare Advantage in 2007: http://www.cms.hhs.gov/
HillNotifications/downloads/MedicareAdvantagein2007.pdf
For AHIP study: Low-Income and Minority Beneficiaries in Medicare
Advantage Plans: http://www.ahip.org/content/
fileviewer.aspx?docid=18974&linkid=162349
For Consensus Group/Galen Report: http://www.galen.org/
medicare.asp?DocID =997

Statement of Pennsylvania Health Law Project, Philadelphia, PA

The Pennsylvania Health Law Project ``PHLP'' submits this testimony
to be included in the record of the hearing on Medicare Advantage, held
before the Health Subcommittee of the Committee on Ways and Means on
Wednesday, March 21, 2007.
The Pennsylvania Health Law Project is a statewide, non-profit
public interest law firm that provides free legal services, advice,
information, and advocacy to lower-income individuals, persons with
disabilities and seniors in accessing healthcare coverage and services
through the publicly funded healthcare programs. Our website is
www.phlp.org.
We write on behalf of our clients who are enrolled in Medicare
Advantage Special Needs Plans (SNPs) and who have experienced,
firsthand, problems accessing their medically necessary healthcare as
SNP enrollees. We have substantial experience with Medicare Advantage
SNPs and grave concerns about them. In late 2005, CMS allowed six
Medicare Advantage SNPs in Pennsylvania to ``passively enroll'' over
110,000 of our poorest and most chronically ill individuals out of the
Original Medicare benefit they had chosen and into the Medicare
Advantage SNPs.\1\ The result was a wholesale disruption in the access
to critically needed healthcare coverage. Once the chaos of the abrupt
shift to managed care settled and consumers began actually attempting
to obtain necessary healthcare coverage, the issues surrounding SNPs'
design and function came to the surface.
---------------------------------------------------------------------------
\1\ The Passive Enrollment of Pennsylvania's dual eligibles was
litigated in the Eastern District of Pennsylvania in the matter
entitled Erb v. McClellan, No. 2:05-cv-6201 (E.D. Pa. filed Nov. 30,
2005). Erb v. McClellan alleged violations of the MMA, the Medicare
Act, the Administrative Procedure Act, and constitutional due process
requirements. The subject of the litigation, which was favorably
settled in March 2006, was the agency's statutory authority and lack of
due process in effectuating the passive enrollment. While the Erb
complaint challenged the authority of and process by which CMS
passively enrolled dual eligibles, the underlying merits of Medicare
Advantage SNPs for dual eligibles were not litigated.
---------------------------------------------------------------------------
The MMA included a five year authorization of special Medicare
Advantage plans that exclusively or disproportionately enroll ``special
needs'' populations. SNPs can be designed to serve people who 1) are
institutionalized; 2) are entitled to state medical assistance; or 3)
have a severe or disabling chronic condition. For 2007, CMS has
approved over 470 plans to be Medicare Advantage SNPs, most of which
are focused specifically on the dual eligible population, although a
significant proportion of persons who are institutionalized are or will
become dual eligibles and, similarly, many individuals with chronic
conditions may also be dual eligibles. The arrival of SNPs on the
market since the MMA has been swift; their numbers rapidly increasing
each year.\2\
---------------------------------------------------------------------------
\2\ CMS approved eleven MA SNPs in 2004, 125 in 2005, and 276 in
2006.
---------------------------------------------------------------------------
Our clients believe that dual eligibles, persons with chronic
conditions, and institutionalized individuals could potentially benefit
significantly from coordinated, integrated, and managed care from a
plan specially designed to meet their needs, since they generally have
substantial and complex healthcare needs. Accordingly, SNPs do present
the possibility or opportunity for better care through coordination,
integration, and targeted care management. Please note, however, that
although plans may take steps to deliver these benefits to meet the
special needs of their members, CMS imposes no formal requirements that
a SNP actually take these or any other steps to deliver on the promise
of better care.
We are particularly concerned that CMS has not promulgated
regulations delineating either meaningful standards an MA plan must
meet for initial approval as a SNP nor any requirements an approved SNP
must follow to ensure that it coordinates the care and benefits or, in
fact, meets the special needs of its enrollees. The failure by CMS to
articulate meaningful requirements makes a difference for enrollees who
are trying to access the medically necessary care they require. The MMA
itself requires implementing regulations for SNPs.\3\ Yet, to date, no
substantive regulations have been promulgated.
---------------------------------------------------------------------------
\3\ MMA 223(b), Pub. L. No. 108-173, 117 Stat. 2066, 2207
(2003) (``The Secretary shall revise the regulations previously
promulgated to carry out part C of title XVIII of the Social Security
Act [42 U.S.C.A. 1395w-21 (2006)] to carry out the provisions
of this Act.''); MMA 231(f)(2), 117 Stat. 2066, 2208 (``No
later than 1 year after the date of the enactment of this Act, the
Secretary shall issue final regulations to establish requirements for
special needs individuals.'').
---------------------------------------------------------------------------
It has quickly become clear to our clients in Pennsylvania that the
Special Needs Plans, even those plans expressly for dual eligibles,
which CMS has authorized as specially designed to meet their needs, are
not obligated to require their providers to accept and bill Medicaid
for any amounts unpaid by Medicare which are the responsibility of
Medicaid. SNPs are not obligated to require, or even instruct,
participating providers to comply with state and federal rules
prohibiting them from billing Medicaid recipients for balances unpaid
by Medicare. SNPs are not required to educate or maintain any
accessible system for use by their participating providers to inquire
whether those services that are not covered by the SNP are covered by
Medicaid. SNPs are not obligated to inform their pharmacies of, or to
require their pharmacies to bill, Medicaid programs for Part D excluded
drugs that the state has elected to continue to cover under the state
Medicaid plan. SNPs are not required to inform their enrollees that
Medicaid may cover services or prescriptions not included in their SNP
benefits, and they are not required to assist the enrollees in actually
accessing these services. SNPs are not even required to insure the
accuracy of the information they do publish about what a state Medicaid
program covers or, in the institutional SNP realm, providers must
furnish, and how the SNP coverage interacts with these.
Absent minimum standards for meeting the special needs of the
populations they serve, labeling these plans as specially designed to
do so is misleading. CMS needs to commit to ensuring that coordinated,
integrated care is delivered. Beneficiaries need substantive
regulations that establish minimum standards for what SNPs must do and
how SNPs must function to meet their special needs. These regulations
must clearly set forth the expectation that SNPs will take affirmative
steps to assist enrollees with navigating both their Medicare and
Medicaid coverage to ensure that they receive all needed covered
services regardless of whether the SNPs themselves are responsible for
covering the service. Only then will the potential benefits of
specialized managed care actually inure to beneficiaries.At a minimum,
SNPs serving dual eligibles must be required to:

1. Adopt minimum uniform standards for coordinating and
integrating the Medicare and Medicaid benefits. These standards must be
incorporated into the SNP contracts with CMS, and their compliance with
these standards must be measured during site reviews and other CMS
compliance evaluations.
2. Include in SNP summary of benefits documents accurate
information, as confirmed and approved by the State's Medicaid agency,
describing Medicaid's coverage of services not covered by the SNP as
well as Medicaid's coverage of the beneficiary's cost-sharing
obligations within the SNP.
3. Include as a SNP benefit ``coordination of benefits'' to
include all services involved in coordination and integrating the
enrollees' multiple insurances (primarily Medicare and Medicaid).
Failure to provide these coordination and integration services should
trigger beneficiary appeal rights through the Part C appeals process.
4. Include in SNP marketing materials explanations of the
``coordination of care'' and ``coordination of benefits'' benefits, in
addition to Parts C and D covered benefits, which dual eligibles can
obtain from their SNP.
5. Arrange for an evaluation of Medicaid coverage when a
prescription is denied at the pharmacy, and, where applicable, direct
the pharmacist to bill Medicaid. All SNPs should program their systems
with medications Medicaid will and will not cover.
6. Require network providers to participate in Medicaid or accept
the SNP's payment as payment in full.
7. Instruct all network providers on applicable state and federal
prohibitions against billing Medicaid consumers for Medicare cost
sharing that should be covered by Medicaid.
8. Design prescription drug or medical claims denial letters to
state, ``If you have Medicaid, note that this prescription medication
or service may be covered by Medicaid. Please ask your provider to
obtain this item through Medicaid. For any assistance with this, please
call member services.''
9. Train member services personnel regarding details of what
Medicaid benefits are available and how to obtain them.
10. Make available special needs units and case management
services, and publicize their availability to all enrollees for
obtaining assistance in accessing referrals, understanding plan
policies and procedures and coordinating challenging care needs.
11. Articulate precisely what benefits Institutional SNP enrollees
get above and beyond what is already required by federal Nursing Home
Reform and other laws and how benefits are limited, managed, and
coordinated.
12. Make public exactly what expertise enabled them to qualify as
a SNP.

On behalf of our clients, we thank the Committee for the
opportunity to submit written testimony. We hope that this testimony
will help inform the Committee's understanding of Medicare Advantage
Special Needs Plans.

Statement of SCAN Health Plan

Overview
SCAN Health Plan is a geriatric-focused health plan that has been
participating in the Medicare program for over 20 years. Currently
serving approximately 100,000 beneficiaries in 7 Southern California
counties, SCAN has grown to become one of the largest Medicare health
plans in the State.
As a non-profit health plan, SCAN is committed to providing value
to its members. While SCAN ensures that members receive the health care
benefits to which they are entitled through the Medicare program, the
health plan also provides additional programs and services to promote
health and independence. Examples of some of the ``extra benefits''
offered by SCAN that are not otherwise available under the fee-for-
service program include: vision and hearing benefits, and
transportation services. Because SCAN is a geriatric-focused health
plan, its programs and services are tailored to meet the needs of older
adults. For example, the health plan provides chronic care management
programs, a nurse advice line, and comprehensive prescription drug
benefits.
Collectively, these benefits and services provide value to the
Medicare program and to Medicare beneficiaries. In addition, they help
to ensure that SCAN members have the resources they need to lead a
healthy and independent life.
SCAN Health Plan

History
SCAN was founded in 1977 as the Senior Care Action Network by a
group of twelve seniors in Long Beach, California. In 1984, after being
awarded a contract to operate as a Social HMO demonstration project,
the Senior Care Action Network established SCAN Health Plan as a
501(c)(3) not-for-profit Medicare managed care plan.
Since 1984, SCAN Health Plan has maintained the mission of the
Senior Care Action Network--that of coordinating health and social
services for frail older adults. SCAN aims to continue this mission by
developing partnerships that allow the health plan to deliver the right
health care, in the right setting, and at the right cost.

Today
Over the past 20 years, SCAN has become an increasingly popular
choice for seniors in Southern California. Currently, the health plan
serves almost 100,000 Medicare beneficiaries in seven counties that
include Los Angeles, Orange, Riverside, San Bernardino, Kern, Ventura,
and San Diego. In addition, SCAN recently expanded into the Phoenix,
Arizona area. Demonstrating the success of the health plan, SCAN's
membership has grown nearly 100% in the past 5 years.

Offering Additional Benefits and Services
To participate in the Medicare Advantage program, SCAN provides
coverage for all of the services offered through the traditional
Medicare program. This includes the full range of acute care benefits
and Part D drugs. In addition, SCAN currently offers a number of health
care related programs and services to meet the medical and functional
needs of health plan members. The following is an overview of some of
SCAN's geriatric-focused ``extra benefits'' that are not covered by the
traditional Medicare fee-for-service program:

Transportation--SCAN provides routine transportation to
medical appointments. This benefit helps to ensure that frail members,
such as those who are no longer able to drive, can access needed health
care services.
Nurse Advice Line--With access to registered nurses (RNs)
to assist with medical questions 24 hours a day / 365 days a year, SCAN
members can have their health care concerns addressed outside of
traditional physician office hours.
SCAN Family and Friends Program--This program gives SCAN
Health Plan members the option of designating a friend or family member
to receive non-confidential health plan material. These individuals can
then review important information at the same time as the member to
help ensure informed decision-making.
Community Resource Centers--SCAN has built one community
resource center in Ventura County, and is in the process of building a
second resource center, to provide members of the health plan and the
general community with health-related educational information and
activities.
Health Education Programs--SCAN helps members become
active and engaged in the management of their own health. As such, the
health plan distributes health information through newsletters,
handbooks, and the Internet. Member Review Board--To ensure that health
plan materials are sensitive to member needs, a peer review process is
employed by which current members review current health plan activities
and information.
Chronic Care Management--Specially trained nurse or
social worker case managers assist members from a patient-centric point
of view. The health plan has designed programs for individuals with
particular health needs such as Chronic obstructive pulmonary disease
(COPD), Congestive heart failure (CHF), and diabetes.
Senior Sensitivity--Each of SCAN's approximately 950
employees participate in the industry's foremost ``Senior Sensitivity''
training to help them be more attuned to the needs and challenges of
health plan members.
Continuing Medical Education--SCAN strongly believes that
educating providers of care is a prerequisite for delivering good
quality geriatric care. To this end, SCAN built its own continuing
education capacity. The health plan offers geriatric education through
Geriatric Symposiums as well as on--site trainings.
Additional Drug Benefits--SCAN offers an expanded
prescription drug formulary and a fill-in of the ``doughnut hole'' or
coverage gap.
Senior Friendly Focus--SCAN always has seniors in mind
with every decision that the health plan makes. From the absence of
automated phone systems to the distribution of pill holders, SCAN
Health Plan promotes member health and well-being. In addition, SCAN's
trained member services team provides personalized one-on-one
assistance.

Serving Vulnerable Populations
With the provision of the additional benefits and services listed
above, SCAN offers a health care delivery solution that is unrivaled by
the fee-for-service Medicare program. The health plan provides these
services because of its focus on serving the most vulnerable and frail
Medicare members. The following table provides an overview of SCAN's
membership.

Table 1. SCAN Health Plan
------------------------------------------------------------------------

------------------------------------------------------------------------
Member Statistics
------------------------------------------------------------------------
Average Age Approximately 78 years
------------------------------------------------------------------------
Male/Female Ratio 36%/64%
------------------------------------------------------------------------
Marital Status Married--46%
Unmarried--54%
------------------------------------------------------------------------
Highest Level of Education High school graduate or less--57%
Some college or higher--43%
------------------------------------------------------------------------
Annual Income Less than $20,000--38%
------------------------------------------------------------------------
Medicare and Medicaid Enrollees-- Approximately 7%
--
Dual Eligibles
------------------------------------------------------------------------

As illustrated in Table 1, SCAN's members are predominately female,
unmarried, and have an average annual income of less than $20,000 per
year. In addition, the average age of members in the health plan is
approximately 78 years. As compared to the general Medicare population
in the State of California, SCAN's membership is on average older.

[GRAPHIC] [TIFF OMITTED] T0313E.001

SCAN vs. Other Medicare Advantage Plans
SCAN serves a population that is more frail and chronically ill
than other Medicare managed plans\1\ Specifically, SCAN members are:
---------------------------------------------------------------------------
\1\ As indicated in the April 2006 Health Outcomes Survey (HOS),
Cohort VIII, 2005.
---------------------------------------------------------------------------
More likely to be female and less likely to be male. Less likely to
be married and more likely to be widowed. More likely to be over 80
years of age. Less likely to have 0 chronic conditions and more likely
to have four or more chronic conditions. More likely to report having
high blood pressure, angina, CHF, AMI, stroke, Crohn's disease,
arthritis, and sciatica. More likely to report difficulty on each
surveyed measure of Activities of Daily Living (ADLs) such as: bathing,
dressing, eating, walking, using the toilet, and getting in or out of a
chair.
The following table highlights some membership statistics from a
recent HOS survey.

Table 2. SCAN Health Plan
------------------------------------------------------------------------

Providing Extra Value
SCAN offers considerable extra value to its enrollees by offering
benefits and services, above and beyond those covered by the
traditional Medicare program. Without this coverage, members would have
to pay significantly more out-of-pocket for many of their health needs.
This is a major reason why a significant percentage of SCAN's members
are lower income seniors.
Generally, these are individuals whose incomes are not low enough
to qualify for the Medicaid program but whose financial situation is
such that they are extremely cost conscious. Having low out-of-pocket
costs is also particularly important for members with considerable
health needs who utilize more medical services.
Offering High Quality
SCAN offers multiple quality improvement activities geared to
improve the health care delivery experience for Medicare members. These
include:
A Geriatric Advisory Board--SCAN sponsors a Geriatric Advisory
Board that brings together a group of the nation's foremost geriatric,
clinical, and health policy experts to help guide the health plan in
its offering of geriatric health management programs to seniors.
Coordination of Care--SCAN coaches members with high intensity and
high cost needs through care transitions, or between care settings.
Focus on early identification of conditions, preventative services,
and stratification of patient risks.
Monitoring of quality measurements that are not provided to
Medicare members in the fee-for-service Medicare program.

Conclusion
Because SCAN is a geriatric-focused health plan, its membership is
on average older and more frail than the general Medicare population,
and than other Medicare managed care plans. The numerous additional
benefits and services provided by SCAN Health Plan, above and beyond
the fee-for-service Medicare program, help to ensure that members have
the resources they need to lead a healthy and independent life.
Looking forward, SCAN intends on continuing to provide health care
services to senior Medicare beneficiaries. For the past 20 years,
SCAN's almost 100,000 members, 950 employees, and thousands of
contracted providers have come to depend on us, and us on them. With
your support, we can ensure that managed care plans remain a choice for
Medicare beneficiaries.

The Center for Medicare Advocacy, Inc.

MedPAC has argued consistently for years that private plans could
serve an important role within Medicare, but payments to plans must be
financially neutral when compared to those in the traditional Medicare
program. The Center agrees that financial neutrality would be a more
appropriate position than the current scheme, nevertheless the Center
urges Congress to consider adjusting payments to MA plans to less than
traditional Medicare expenditures as a means to stimulate competition
and efficiency among the private plans. Risk-based and coordinated care
is important but not if it comes at the expense of a social insurance
program that has been consistently successful for over 40 years.
Private Fee-For-Service
HMO's are not the only private plan options participating in
Medicare. Other plan types include Local and Regional Preferred
Provider Organizations (PPOs), Private Fee-for-Service plans (PFFS),
and Special Needs Plans (SNPs). Insurance companies have continued to
offer private plans in more areas and now at least one private plan
alternative is available to every Medicare beneficiary.
PFFS is the fastest-growing plan type, accounting for 46% of total
enrollment growth from December 2005 to July 2006. PFFS was available
to 45% of beneficiaries in 2005 and is now available to almost 100% of
beneficiaries. With payments to PFFS plans averaging 119% of the per
capita traditional Medicare expenditures, it is no wonder that PFFS
plans are growing at such a rapid rate.

Arguments from the Plans
Chairman Stark and other members of Congress have begun to seize on
these overpayments to private plans as a significant source of
potential savings for Medicare. Not surprisingly, the private insurance
companies are very concerned that they might lose billions of dollars.
The plans have argued that cutting funding to the MA plans would
disproportionately hurt low-income beneficiaries. We agree that low-
income beneficiaries need extra help the most. For those who are most
needy, the majority rely on Medicaid or Medigap policies, not MA plans,
to cover what Medicare does not. Extra help is also available to low-
income beneficiaries in the form of Medicare Savings Programs (MSPs).
These programs reduce out-of-pocket expenses for individuals with
incomes below 135% of the Federal Poverty Level ($18,482 for a couple
and $27,878 for a family of four), but these programs could serve even
more beneficiaries. The savings from eliminating the overpayment to MA
plans could be used to provide more benefits to more low-income
beneficiaries, not just those who choose to enroll in an MA plan.
Private plans have also pointed out that people who enroll in an MA
plan receive more benefits than are offered by traditional Medicare. It
is obvious that beneficiaries should receive as many benefits as
possible, but those benefits should be distributed equitably. In the
current system, the vast majority of beneficiaries--who choose
traditional Medicare in the face of a marketing barrage from the
private plans--pay premiums that are inflated by the overpayments made
to MA plans. Why limit extra benefits to just the beneficiaries who
enroll in MA plans at the expense of those who choose not to? How
significant are these additional benefits, actually? The private plans
cannot answer these questions. These additional services should, and
could with efficient spending, be available to all Medicare
beneficiaries.

The Reality of Medicare Advantage for Beneficiaries
Because Medicare Advantage plans, and in particular PFFS plans, are
paid so well, they are engaged in an extensive marketing campaign to
encourage, and sometimes coerce beneficiaries to join their plans.
Indeed, 8.3 million beneficiaries, or 19% of the total number of
beneficiaries, are currently enrolled in a Medicare Advantage plan, as
compared to 7.6 million beneficiaries in 2006 [Medicare Advantage Fact
Sheet, Kaiser Family Foundation (March 2007)]. In the Center's
experience, not all Medicare beneficiaries understand the benefit
structure of Medicare Advantage plans, know that they are enrolling in
Medicare Advantage plans, or even reap ``benefits'' from the additional
services these plans provide with the extra money they receive.

Marketing Practices
The Centers for Medicare & Medicaid Services (CMS) is supposed to
monitor and approve all marketing materials. Nevertheless, these
marketing materials often do not present Medicare Advantage plan
structures in the most accurate light or provide all of the information
a beneficiary needs to make an informed choice. A glossy, two-page
advertisement inserted into the Montgomery County, Maryland,
``Washington Post'' in March 2007 provides an excellent example. The ad
advised that someone who had chosen a Medicare plan with drug coverage
still had time until March 31, 2007 to switch to an Aetna Medicare
Advantage plan with drug coverage. A comparison chart showed that
Medicare Parts A and B, Medicare Supplemental Plan, and Aetna Medicare
Advantage Plan all have a ``wide choice of local doctors/specialists,''
but only the Aetna Medicare Advantage Plan has preventive care with a
$0 co-pay and an allowance for eyewear and hearing aids.
Despite being approved by CMS, the advertisement is not accurate.
The ``network'' of doctors and specialists for Medicare Parts A and B
and most Medicare Supplemental (Medigap) plans is widest because there
actually is no network; beneficiaries can go to any doctor in the
country who accepts Medicare, this includes almost all physicians,
indeed almost all health care providers nationwide. Aetna Plans, on the
other hand, restrict access. According to www.medicare.gov, Aetna
offers four HMOs in Montgomery County, all of which require an enrollee
to use plan doctors. Aetna also offers four PPOs (two local and two
regional), that allow an enrollee to use any doctor, but the enrollee
must pay higher cost sharing to go out of network. It is also
inaccurate to say that only Aetna Medicare Advantage Plans have a $0
co-pay for preventive care. Beneficiaries with Medicare Parts A and B
and a supplemental plan may also have a $0 co-pay if the Medigap plan
covers Part B cost-sharing. Aetna Medicare Advantage Plans may indeed
provide an ``allowance'' for eyewear and hearing aids that is not
available under traditional Medicare, but the allowance for eyewear
under at least one of the Aetna plans is $100 every two years. That
allowance does not justify the premium for the Medicare Advantage Plan
or the additional Medicare payments the plan receives from the Medicare
program.
The advertisement, and most other educational information about
Medicare Advantage plans, also does not adequately explain how Medicare
Advantage plan cost-sharing may differ from the traditional Medicare
cost-sharing structure, particularly for more costly services. For
example, one of the Aetna plans available for beneficiaries who
received the ``Washington Post'' ad, the Aetna Golden Choice Regional
PPO plan, imposes a $150 yearly deductible for all out-of-network
services. A beneficiary who is induced to enroll in this plan after
seeing the ad and who believes she may use any provider will face a
higher deductible than the current Part B deductible of $131. This out-
of-network deductible applies to home health services, even though
Medicare Parts A and B imposes no such cost-sharing. Beneficiaries who
use an out-of-network hospital or skilled nursing facility must pay 20%
of the entire hospital or skilled nursing facility stay; far in excess
of the cost-sharing under traditional Medicare. Beneficiaries who use
an in-network SNF start paying cost-sharing after day 7, rather than
after day 20 in traditional Medicare. The plan imposes a $20 co-pay for
each in-network home health visit and 20% cost-sharing for out-of-
network care; traditional Medicare imposes no cost-sharing for home
health services.

Individual Testimonials
Beneficiaries often do not learn about or understand these cost-
sharing differences until after they have enrolled in a plan. For
example, a Connecticut beneficiary required hospitalization each month
to receive a blood transfusion. She paid the Part A deductible in
January, but because she required monthly hospitalization she never
entered a new benefit period and so paid no other cost-sharing for the
rest of the year. The HMO she chose, like the Aetna PPO described
above, imposed a co-pay for a Medicare-covered hospital stay that was
substantially less than the Part A deductible. What the Connecticut
woman did not understand until her second hospitalization was that the
co-pay is required for each hospital stay, even if it falls within what
would be the same benefit period under traditional Medicare. Thus,
instead of saving money, she was required to pay substantially more for
her hospital care than she would have paid if she was in traditional
Medicare.
A beneficiary from Jasper, Florida enrolled in a PFFS plan at the
beginning of 2007 because of his frustration with his prescription drug
plan. Neither he nor the insurance agent understood the differences
between traditional Medicare and a PFFS plan. The beneficiary expected
only the prescription drug coverage to change. In February, three hours
before a scheduled biopsy of a lump in his pectoral muscle, his doctor
called to cancel the biopsy because the doctor would not accept the
plan's terms and conditions. He was told by his primary care physician
that the doctor would not accept the plan because the plan had not paid
on time in the past. In early March the beneficiary finally received a
welcome packet from the plan and saw for the first time the fine print
explaining that coverage is contingent on his doctors' acceptance of
the plan. He also found that the drug coverage was much more
restrictive than under his previous Prescription Drug Plan (PDP). The
beneficiary was able to get an ``emergency'' transfer back to his old
PDP and original Medicare, effective April 1, 2007. However, he will
have gone more than a month without the needed biopsy and other medical
services.

Special Needs Plans
In addition to marketing problems and cost-sharing issues, some
Medicare Advantage plans may not be providing meaningful additional
benefits to their enrollees. For example, beneficiary advocates have
alerted the Center about SNPs for people with Medicare and Medicaid
(dual eligibles) that do not contract with the largest Medicaid mental
health provider in the community, that include in their networks
doctors who do not accept Medicaid, that assess cost-sharing that
should otherwise be covered by the state Medicaid program, or that do
not inform their enrollees that the state Medicaid program will pay for
some drugs such as benzodiazepines that are excluded from Medicare drug
coverage. Some SNPs provide, as extra benefits, transportation and
dental services that are already covered by Medicaid and thus provide
their enrollees with no extra services for the extra payments the plans
receive.

Conculsion
Private Medicare plans may offer some beneficiaries a useful
Medicare coverage choice, but many beneficiaries find out that the
coverage is not what they expected when they enrolled. The Medicare
Trustees will soon issue their annual report, and will inevitably raise
alarms that Medicare is in financial peril. The payments to these plans
must be at least financially neutral when compared to those made for
people in the traditional Medicare program. Eliminating overpayments to
private plans is a clear way to save Medicare hundreds of billions of
dollars while also making the program more equitable and cost-
effective. Congress should prohibit overpayments and subsidies to
private Medicare plans in order to ensure fair, affordable access to
health care for older people and people with disabilities--now and in
the future.

Statement of Visiting Nurse Associations of America, Boston, MA

The Visiting Nurse Associations of America (VNAA) is the official
national association for non-profit, community-based Visiting Nurse
Agencies (VNAs) across the country. For over one hundred years, VNAs
have shared several common goals: to care for the sick and the
disabled, to help people recover their strength and independence, to
partner with their communities in improving public health care, and to
assure that all people, rich or poor, have access to the home care they
need.
VNAs created the profession of home care over one hundred years
ago, and it is our hope and intention to provide high quality home care
for at least the next one-hundred years. We are pleased to submit this
statement for the record to highlight some of the experiences and
concerns that VNAs have about the Medicare Advantage Program.
Medicare Advantage was implemented with the goal of providing
enhanced benefits for beneficiaries, and intended to save the Medicare
program money; however, VNAs' experience with the program indicates
that this is not always the case.
Enrollment in the Medicare Advantage program accounts for 19% of
all Medicare beneficiaries (8.3 million), and the Medicare Payment
Advisory Commission (MedPAC) has shown that payments to the Medicare
Advantage program are 112% of fee-for-service (FFS) Medicare
expenditure levels, on average. Although the new MA programs are
required to cover all benefits that are offered under FFS Medicare, and
many plans offer enhanced benefits, they also impose additional cost-
sharing requirements and limit beneficiaries to providers in their own
networks.
VNAs from across the country have expressed concern that co-pays
and deductibles on home care often cause patients to self-limit the
care that they get and as a result, go without needed health care. In
other instances, beneficiaries believe that Medicare will pay the cost
of the deductible and do not pay their portion of the claim. For
example, one plan in New Jersey imposed a $35 co-pay per visit on
beneficiaries effective this year, which could be cost-prohibitive to a
beneficiary who requires several visits in one week. As a result of the
co-pay, all the members of that plan who the VNA has tried to set up
services for have declined home health services that they needed.
Another agency, located in Pennsylvania, has experienced problems
collecting beneficiary co-pays/deductibles because beneficiaries think
that Medicare will or should pay and do not understand how their
Medicare Advantage plan works.
Many VNAs across the country are struggling to provide the same
level of services to MA enrollees as enrollees ins traditional Medicare
FFS receive, although VNAs receive reduced payments from the MA plans
that most often do not cover the cost of care. In some instances, there
is a $1200 gap between the amount that a MA plan pays for care and the
amount that FFS Medicare reimburses over a 60 day episode. In addition,
quality information and processes required by traditional Medicare are
often not valued or taken into account for reimbursement by MA plans
and the plans impose additional administrative requirements that
require increased employee resources for VNAs. One VNA in Omaha,
Nebraska estimates that they could reduce their overhead by $45,000 a
year if they did not have to use resources on authorization/
verification of services, denial management and collections on
incorrect payment, which they would prefer use to provide services.
For these reasons, we are concerned about the inevitable erosion of
the Medicare program. For example, if Medicare Advantage plans do not
cover the cost of care, then it is probable that beneficiaries over
time will not receive equal care under the MA program as they would
have if they had stayed with the traditional Medicare program. In some
cases MA enrollees will not have access to home health care as agencies
are forced to stop accepting MA patients for financial reasons.
To understand the difficult financial decisions that VNAs, for
example, have to make when determining whether or not they can absorb
the financial losses associated with many Medicare Advantage plans, it
is important to know the average total operating margins of these
providers. According to a 2006 data study by The Moran Company, 66% of
VNA providers have total operating margins of less than 5% and 39%
percent of VNA providers have negative total operating margin. Much of
the financial difficulties that VNAs are experiencing are due to the
revenue losses that they incur under managed care, including Medicare
Advantage, Medicaid, and the recent sharp increases in the cost of
recruiting and retaining clinicians.
Given this financial environment VNAA is concerned that increased
market penetration of beneficiary enrollment into Medicare Advantage
plans that do not cover the cost of care may financially cripple VNAs
in certain geographic areas. Our greatest concern is that access to
potentially the only ``safety net'' provider of home health services in
a particular area will no longer be an option to many Medicare
beneficiaries, which might be the outcome if those providers are forced
to close or stop accepting MA beneficiaries.
We would like to offer some examples of how the home health benefit
under fee-for-service Medicare generally differs from the home health
services offered by many Medicare Advantage plans as well as
information on some of the problems that VNAs have experienced with
Medicare Advantage that we believe are typical for home health agencies
nationwide.

Home Health under fee-for-Service Medicare
Fee-for-service Medicare ensures continuous home health
care for the entire 60-day episode of care and the episode is
authorized and overseen by a physician.
Episodic payments allow providers to follow evidence-
based best practices for chronic care management, medication
management, etc., which is difficult to do when visit authorizations
are unpredictable and inadequate for the patient's specific
diagnosis(es). Such comprehensive care management is essential to
prevent hospitalizations. Medicare Home Health PPS has made it possible
for providers to manage care for optimal outcomes, including avoidance
of hospitalizations.
Quality data (i.e. Outcome Based Quality Improvement
(OBQI) data from the OASIS assessment instrument) provided to the home
health agencies (HHAs) by CMS are used by the agencies to improve their
quality processes and are used by state surveyors to ensure that HHAs
are providing quality care.

Home Health under Medicare Advantage
MA plans typically authorize only 2-3 visits at a time,
complicating and often disrupting continuous chronic care management.
Under MA, the plan's case manager typically manages the
patient's plan of care and, therefore, clinical decisions are often
made by MA staff whodo not have any clinical experience.
In addition, MA plans typically have their own
administrative paperwork requirements that must be completed in
addition to Medicare's OASIS and other paperwork requirements even
though OASIS data is often not used by MA plans. This over-abundance of
paperwork is inefficient for Medicare, the provider, and the
beneficiary.

General problems experienced by VNAs under Medicare Advantage:
Administrative Requirements--MA plans require an
extensive amount of paperwork and administrative time. The constant
need to seek re-authorizations and check claim status is a drain on
VNAs' resources; the amount of time it takes to gain reauthorization
for more visits could prevent patients from receiving medically-
necessary services. However, VNAs will always provide the medically-
necessary services if a patient is under their care, which may lead to
claim denials because of the ``unauthorized'' status due to time lapses
on the MA administrative side.
Reimbursement--Reimbursement for Medicare Advantage plans
is substantially below cost--on average about $50 less than the actual
cost per visit, but in many cases much more.
Educating Beneficiaries About Their Plan--With the
numerous Medicare Advantage plans that are offered, it is vital that
beneficiaries have adequate information about the plans in order to
make an informed decision about their care. MA plans differ widely in
the amount of home health services they cover. Typically, the only
information provided by the plans simply states that all medically
necessary services are covered, but each plan may have it's own
definition of a ``medically necessary service.'' Therefore, it can be
extremely difficult for beneficiaries who need home health care to
determine which plan will best meet their needs.
Beneficiaries Are Unaware of Enrollment--As MA enrollment
grows, there is an increasing need to coordinate the transition of
patients from traditional Medicare to a MA plan. For example, with the
advent of Part D, many dual-eligible beneficiaries were passively (i.e.
automatically) enrolled into MA plans. Although information informing
them of such enrollment must be sent to them, in reality many of these
beneficiaries are unaware that they have been enrolled into a MA plan.

In addition, whether a beneficiary was passively enrolled into a MA
plan or enrolled knowingly, he or she may not understand the
implications of being enrolled. Consequently, beneficiaries fail to
inform their home health provider of their change in enrollment status,
either because they are not aware of their enrollment, have cognitive
impairments, or do not realize that the MA plan is responsible for
covering all Medicare health care services, including home health. Some
beneficiaries believe that they signed up only for prescription drug
coverage under a MA plan and don't realize that they no longer have
traditional Medicare coverage for all other health care services.

HHAs Not Reimbursed for Services--To avoid the enrollment
problems detailed above, HHAs make every attempt to determine a
patient's Medicare eligibility status during the initial patient visit
or through Medicare's enrollment database, the Common Working File
(CWF). If the patient believes he/she is still covered by traditional
Medicare, and the CWF reflects traditional Medicare enrollment, the HHA
has every reason to believe that the patient is covered by traditional
Medicare but then later finds out this is not the case due to: 1)
patient confusion about his/her coverage as mentioned above, 2) the
patient's retroactive enrollment into a MA plan, and/or 3) delay of
updated information in the CWF. In such situations, many MA plans have
refused to cover services that HHAs have provided in good faith because
the services were not ``pre-authorized'' by the MA plan, or the HHA did
not have a contract.

VNAs across the country continue to experience problems with
reimbursement due to delays in the information that is updated in the
CWF. are refused reimbursement for services they provided in good
faith. VNAs with a high census of Medicare Advantage patients must
devote valuable staff resources to denial claims management, in
addition to the staff resources who are devoted to obtaining pre-
authorizations.
The Visiting Nurse Service of New York (VNSNY) provided the
following example to illustrate their efforts to determine beneficiary
enrollment status. As you will see from the example, the CWF did not
accurately reflect the beneficiary's enrollment status, and as a result
the VNSNY was denied reimbursement for the services they provided in
good faith.
VNSNY Example VNS ID: H4186804
4/19/06: VNS insurance Fiscal Comments state the Medicare
eligibility query shows the patient is enrolled in traditional
Medicare.
4/20/06: Patient admitted
5/17/06: The Medicare batch query indicates the patient enrolled in
Elderplan effective
5/1/06: The patient was not flagged as an Elderplan enrollee on two
previous Medicare batch eligibility reports run in May 2006.
Elderplan denied VNS's request for authorization.
Dollar Amount at Risk: $810
Although this is just one example, this is a widespread issue for
VNAs. Problems with reimbursement issues related to delayed updates to
the CWF are the most common problem that VNAs experience with the
Medicare Advantage program.
Data used by MedPAC and CMS and reports released by the
Congressional Joint Economic Committee, as well as the Annual
Statistical Supplement to the Social Security Bulletin have all shown
that home health is a cost-effective alternative to other settings of
care. Treating patients in the home health setting is significantly
less costly than other settings of treatment such as hospitals,
inpatient rehabilitation facilities, and skilled nursing facilities.
Furthermore, for many patients, receiving the health care and skilled
services that they need in their homes is preferable to receiving care
in other settings that require them to receive care away from their
homes and families. We would hope that Medicare Advantage plans would
see the advantage to ensuring that beneficiaries receive adequate and
appropriate home health care services. VNAA believes that by
appropriately utilizing home health care services, Medicare Advantage
plans will save money by keeping beneficiaries out of hospitals and
other costly settings of care.
To address the issues with Medicare Advantage program that are
detailed in this statement, VNAA offers the following recommendations,
which we believe will ensure increased beneficiary access to
comprehensive home health services:

Educating Beneficiaries About Their Plan
Recommendation: We urge Congress to require that all MA Plans
provide beneficiaries
with specific details of what home health services they cover,
including the average number of home health visits authorized per
patient, if home health services require pre-authorization, and
information about beneficiary cost-sharing requirements such as co-
pays. This information must be available in all marketing materials
used by MA plans. In order to ensure that beneficiaries make informed
decisions, it is imperative that beneficiaries have access to
information on the full scope of covered services, and receive updated
information if the plan changes the services that are covered.

Home Health Agency (HHA) Reimbursement
Recommendation: During the initial month of any person's MA
enrollment (or longer in the case of retroactive enrollment greater
than a month), we urge Congress to require MA plans to waive the pre-
authorization rule for home health services and any similar rule that
would inhibit provider payment in situations where the HHA could not
have reasonably been expected to know of the patient's MA enrollment
status or to establish a hold harmless provision that would allow HHAs
to receive reimbursement for services that they provided in good faith
when they have made every effort to ascertain a beneficiary's
enrollment status before providing services.

Medicare Advantage Should Use an Episodic Care Delivery System
Recommendation: Medicare Advantage plans should provide an episodic
care management home health services benefit that would replace the
current practice of authorizing and reimbursing for only a few visits
at a time. The episodic payment plan in traditional Medicare allows
VNAs to provide beneficiaries with cohesive and continuous care-
management to achieve positive clinical outcomes, including reduced re-
hospitalizations. An episodic delivery system would also ensure that
beneficiaries in traditional Medicare and Medicare Advantage plans
receive an equal home health care benefit.
VNAA is grateful for the opportunity to submit these comments to
the Ways and Means Subcommittee on Health, and we look forward to
working with the Committee on the issues surrounding the Medicare
Advantage program to ensure that all Medicare beneficiaries receive
equal home health benefits and have access to the high-quality,
clinically effective and cost-efficient home health care that VNAs have
provided for over a century.
For more information, please contact Kathy Thompson at 240-485-1856
or Ashley Groesbeck at 240-485-1857.