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



 
                           MEDICARE ADVANTAGE

                     PRIVATE FEE-FOR-SERVICE PLANS

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


                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

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

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 22, 2007

                               __________

                           Serial No. 110-42

                               __________

         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

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                                                                   Page

Advisory of May 15, 2007, announcing the hearing.................     2

                               WITNESSES

Abby L. Block, Center for Beneficiary Choice, Centers for 
  Medicare and Medicaid Services.................................    73
Mark Miller, Ph.D, Executive Director, Medicare Payment Advisory 
  Commission.....................................................     7

                                 ______

Sean Dilweg, Commissioner of Insurance, State of Wisconsin, 
  Madison, Wisconsin.............................................     9
Patricia Neuman, Sc.D., Vice President, Henry J. Kaiser Family 
  Foundation, Director, Medicare Policy Project..................    18
David Lipschutz, California Health Advocates, Los Angeles, 
  California.....................................................    28
Brock Slabach, Administrator, Field Memorial Community Hospital, 
  Centereville, Mississippi, on behalf of the National Rural 
  Health Association.............................................    38
Catherine Schmitt, Vice President, Federal Government Programs, 
  Blue Cross Blue Shield of Michigan, Detroit, Michigan..........    44

                       SUBMISSIONS FOR THE RECORD

American Medical Association, statement..........................   109
Janet Stokes Trautwein, National Association of Health 
  Underwriters, Arlington, VA, statement.........................   113


                           MEDICARE ADVANTAGE



                     PRIVATE FEE-FOR-SERVICE PLANS

                              ----------                              


                         TUESDAY, MAY 22, 2007

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

    The Subcommittee met, pursuant to notice, at 3:04 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
May 15, 2007
HL-12

                 Chairman Stark Announces a Hearing on

            Medicare Advantage Private Fee-For-Service Plans

    House Ways and Means Health Subcommittee Chairman Pete Stark (D-CA) 
announced today that the Subcommittee on Health will hold a hearing on 
Medicare Advantage Private Fee-For-Service plans. The hearing will take 
place at 2:00 p.m. on Tuesday, May 22, 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 the 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:

      
    Private Fee-For-Service (PFFS) plans have been available in 
Medicare since the Balanced Budget Act of 1997 (P.L. 105-33), but have 
experienced enormous growth following Medicare Advantage (MA) payment 
increases made by the Medicare Modernization Act of 2003 (P.L. 108-
173). In 2003, less than 26,000 beneficiaries were enrolled in PFFS 
plans, but by April 2007 that number had exploded to nearly 1.5 
million--a growth of more than 5600 percent. Exponential growth in PFFS 
raises numerous policy concerns.
      
    According to the Medicare Payment Advisory Commission (MedPAC), MA 
Plans are paid on average 112 percent of fee-for-service Medicare. 
However, PFFS plans are located in geographic areas where payments are 
on average 119 percent of what it would cost to care for the same 
beneficiaries in traditional Medicare. Continued enrollment growth in 
these overpaid plans results in increased premiums for all Medicare 
beneficiaries and shortened solvency of the Hospital Insurance Trust 
Fund.
      
    Private Fee-For-Service plans are very different from other MA 
plans. They are exempt from many of the rules and reporting 
requirements that apply to other MA plans. For example, PFFS plans are 
not required to: collect and report Health Plan Employer Data and 
Information Set (HEDIS') quality data; coordinate care; 
conduct utilization review; or, have standards for timeliness of access 
to care. These plans generally do not have a network of providers, and 
advertise the ability of enrollees to choose any provider.
      
    The law requires PFFS to pay non-contract providers at least the 
original Medicare rate. Providers, however, are not required to accept 
PFFS plan enrollees, and physicians can balance bill patients beyond 
the plan payment. Some providers around the country have refused to 
treat patients in PFFS plans. Like other MA plans, PFFS plans have 
widely varying co-payment structures that may lead to increased or 
decreased out of pocket costs for beneficiaries depending on what type 
of care is required.
      
    Advocates for senior citizens and insurance commissioners across 
the country have reported numerous abuses by insurance agents and 
brokers selling PFFS plans. According to reports, some beneficiaries 
have been enrolled in PFFS plans with little or no knowledge of what 
they were signing up for. Beneficiaries have also reported surprise 
when learning their preferred provider will not accept their PFFS plan.
      
    In announcing this hearing, Chairman Stark said: ``The alarming 
growth in Private Fee-For-Service plans raises serious questions about 
their effect on the Medicare program. These plans are paid an average 
of 119 percent of traditional fee for service, even though 
beneficiaries are being told PFFS plans are no different than 
traditional fee-for-service Medicare. It is our duty to investigate the 
exponential growth and continued overpayments to PFFS plans, and to 
ensure beneficiaries are protected and taxpayer dollars are spent 
wisely.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on Medicare Advantage Private Fee-For-
Service plans.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
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FORMATTING REQUIREMENTS:

      
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    Chairman STARK. The hearing will begin. Today we are going 
to talk about the Medicare Advantage (MA) program. We will have 
a chance to review the Administration's message machine. I 
suspect most of you heard last night what I imagine they will 
repeat today, but I do hope that today's hearing will 
contribute to some rational review of the MA program.
    To that end, I am going to reverse the panels and hope that 
we will have a chance then to have a response from the Centers 
for Medicare and Medicaid Services (CMS) to the witnesses who 
will appear representing a variety of views and concerns, 
including a good deal of support for the MA offerings, which 
are the focus of today's hearing.
    According to the Medicare Payment Advisory Commission 
(MedPAC), the plans are paid, on average, about 119 percent of 
fee-for-service rates--I am referring here to the Private Fee-
for-Service plans--and rising up to, in some cases, 150 percent 
of more in some areas. Since business follows the money, it is 
not surprising that enrollment is growing rapidly, some 5600 
percent between the period 2002 and 2007.
    Even so, there are only about 1,300,000 people, about 3 
percent of all beneficiaries, in the Private Fee-for-Service 
plans now. Given that half of the projected MA growth is in 
this option, I think it is important that we evaluate its value 
before it becomes unmanageable.
    Unlike most of the MA options, these plans don't typically 
have a network of providers. They are marketed as operating the 
same as traditional Medicare, but with supposedly lower cost-
sharing and perhaps other additional benefits. Yet the reality 
often fails to match the sales pitches.
    The plans may offer flat copayments for physician visits, 
but physician copayments of even $15 to $20 can often be higher 
than the 20 percent copayments in traditional Medicare. In 
addition, some of these plans tend to charge higher cost-
sharing for certain Medicare coverage services, like skilled 
nursing facilities, home health, and durable medical equipment. 
My guess is that this is not coincidental. If you don't want 
sick people in your plan, you charge more for services that 
sick people need.
    While these plans promote the able to see any provider, 
they neglect to mention that providers are not required to 
accept the plan's payment terms and that providers can decide 
on a per-visit basis whether to participate, even if it is the 
same patient returning for a second visit. They can decide at 
that point to drop the patient. Beneficiaries who have signed 
up for these plans are just beginning to confront these 
confusing problems.
    I would like to ask unanimous consent to submit for the 
record a letter from the California Medical Association. They 
have become so disgruntled with Private Fee-for-Service plans 
that they are asking us to eliminate this option altogether. I 
will, as I say, put the letter, without objection, in the 
record.
    We will also hear today about the difficulty faced by 
insurance commissioners in attempting to regulate sales 
practices of these products. High profit margins have provided 
incentives for plan sponsors to offer large commissions to sell 
these plans, and I am afraid if you think that used car 
salesmen are bad, they have nothing on some of the hucksters 
who are promoting these plans today. We will hear about 
outright fraud and intentional and unintentional 
misrepresentation.
    Yet the original Medicare Modernization Act of 2003 
prohibited State oversight of these products. The 
Administration has dragged its feet on requiring better 
behavior and enforcing the rules that are in effect. Even 
worse, they have interfered at times with the limited ability 
retained by the States with respect to oversight on agents and 
brokers.
    I understand that in last night's press releases, the 
Administration has suggested they are making some changes. We 
will hear more about those later.
    Private Fee-for-Service plans are exempt from MA quality 
and plan adequacy requirements, so we are unable to determine 
what if any value these plans provide. I look forward to 
discussing this loophole day.
    We will also hear from one actual plan today whose 
situation is unique. It is Mr. Camp's local plan, and it 
deserves credit for their willingness to appear today. I gather 
we were left with no other choices, as most prominent plans 
declined the offer to enlighten us. It is a special plan, and 
it is a product that has an interesting future. I look forward 
to hearing from this Michigan plan and its prospects.
    The Subcommittee has a responsibility to provide oversight 
and ensure that the beneficiaries and the taxpayers are both 
getting value and quality for their investment. The Private 
Fee-for-Service plans appear to provide far better value to 
their shareholders and their companies' bottom lines than they 
do to Medicare and its beneficiaries.
    As I have said all year, we look to improve and protect 
Medicare. All provider payments must be reviewed and are 
subject to change. Given what we know about Private Fee-for-
Service at this time, they are high on the list. I look forward 
to today's testimony, and I would like to yield to Mr. Camp for 
any opening statement he would like to make.
    Mr. CAMP. Thank you, Chairman Stark. In recent months, we 
have heard a steady stream of calls to cut Medicare payments to 
MA plans. In response, the National Association for the 
Advancement of Colored People, League of United Latin American 
Citizens, and the Jewish Guild for the Blind have all come 
forward alerting us that these Medicare cuts would 
significantly and disproportionately harm the minority and low-
income beneficiaries that these groups represent.
    Today we will hear about one type of MA plan, known as 
Private Fee-for-Service. Private Fee-for-Service plans are one 
of the most popular MA choices available for Medicare 
beneficiaries. In fact, 59 percent of all rural MA enrollees 
have chosen a Private Fee-for-Service plan.
    We must recognize the value that Private Fee-for-Service 
plans provide to Medicare beneficiaries. Today we will hear 
from a witness from my home State of Michigan who will talk 
about the 116,000 retired teachers, janitors, bus drivers, and 
school cafeteria workers who are currently enrolled in a 
Private Fee-for-Service plan. These union retirees depend on 
the flexibility their Private Fee-for-Service plan provides, 
because of its ability to provide extra benefits, regardless of 
where they have chosen to retire.
    I'd also like to ask for unanimous consent to submit a 
letter from the Michigan Association of Retired School 
Personnel. In this letter, their Executive Director states that 
their members ``depend on adequate funding'' of Medicare 
advantage, and that any cuts will result in ``reduced coverage 
for much needed medical services for the retirees or reduced 
funding for classroom efforts at educating our children.''
    Their members are also enjoying the ``increased 
simplicity'' that their MA Private Fee-for-Service plan has 
brought. This letter states that ``retired school employees 
previously had to deal with the confusion of coordinating 
Medicare with a supplemental plan.'' Now they receive their 
entire Medicare benefit under one consolidated plan.
    Mr. Chairman, I hope that prior to any effort to cut these 
plans, we will consider the well-being of seniors living in 
rural districts like mine and the thousands of retired public 
school employees that I represent. Congress should seek to 
improve MA for both beneficiaries and taxpayers alike. Let's 
work together to strengthen Medicare's marketing and enrollment 
guidelines and improve MA for America's seniors and people with 
disabilities.
    I yield back the balance of my time.
    [The information follows:]

    [GRAPHIC] [TIFF OMITTED] 40314A.001
    
    [GRAPHIC] [TIFF OMITTED] 40314A.002
    
    Chairman STARK. Thank you.
    I know that in introducing the first panel, Mr. Kind wanted 
to be here to introduce Commissioner Dilweg, the Insurance 
Commissioner of the State of Wisconsin. He was unavoidably 
detained, and I hope that Mr. Dilweg will accept the 
introduction from one who was born in Wisconsin and goes back 
for an occasional wake and wedding.
    We are happy to have you. We are happy to have Ms. Patricia 
Neuman, who used to be with our staff, who is now Vice 
President of the Henry J. Kaiser Family Foundation. She is 
director of the Medicare Policy Project.
    Mr. David Lipschutz of the California Health Advocates of 
Los Angeles. Welcome.
    Mr. Brock Slabach, the Administrator of the Field Memorial 
Community Hospital from Centreville, Mississippi, who is here 
on behalf of the National Rural Health Association. Welcome.
    The last member of the panel, I would yield to my friend 
Mr. Camp for the introduction.
    Mr. CAMP. Thank you, Mr. Chairman. Thank you for the 
opportunity to introduce Ms. Catherine Schmitt, Vice President 
of Federal Programs with Blue Cross Blue Shield of Michigan. 
Blue Cross Blue Shield of Michigan is the largest insurer in 
the state and has touched the lives of nearly every Michigan 
resident.
    I look forward to hearing from Catherine about Blue Cross 
Blue Shield's efforts to provide affordable options in the 
Private Fee-for-Service market and how it has worked with 
unions, businesses, and individuals on these innovative 
policies. Ms. Schmitt, thank you. Welcome to the Committee.
    Thank you, Mr. Chairman. I yield back.
    Chairman STARK. Thank you. Commissioner, would you like to 
lead off?

 STATEMENT OF SEAN DILWEG, COMMISSIONER OF INSURANCE, STATE OF 
                 WISCONSIN, MADISON, WISCONSIN

    Mr. DILWEG. Thank you, Chairman Stark--and I will accept 
your introduction any time--and Members of the Subcommittee. I 
appreciate you taking interest in this important issue.
    My name is Sean Dilweg, and I am Commissioner of the 
Wisconsin Office of the Commissioner of Insurance. Thank you 
for inviting me here to share with you some observations on MA 
Private Fee-for-Service plans as the Insurance Commissioner of 
my home state.
    I also currently serve as Chairman of the Senior Issues 
Task Force of the National Association of Insurance 
Commissioners (NAIC), which represents the chief insurance 
regulators from 50 states, the District of Columbia, and five 
U.S. territories. Although I am not testifying in my NAIC 
capacity, I would like to supplement some of my views with the 
collective views and experiences of our Nation's insurance 
commissioners on today's topic.
    This afternoon, I will highlight marketing abuses 
experienced by Wisconsin consumers participating in MA 
programs, as well as those my fellow commissioners have seen 
across 43 states. I will demonstrate the limitations we are 
experiencing in protecting this vulnerable population from high 
pressure and unethical sales tactics. in addition, I will 
propose a Medigap regulatory model as one solution to the 
problem that seniors are facing under this program.
    First of all, we have begun to see a slew of marketing 
complaints over the last year. Initially, my office was created 
in our state constitution in Wisconsin to protect consumers and 
promote healthy insurance markets. State insurance 
commissioners and regulators are on the frontlines of consumer 
protection when it comes to private health insurance, and our 
departments receive complaints every day from our citizens.
    Annually in Wisconsin we receive over 8,000 complaints 
across all insurance lines. We take each complaint very 
seriously. Wisconsin's insurance complaint process requires 
companies to respond to complaints within ten working days and 
to my office 10 days thereafter. On average, a case is closed 
within 40 days.
    The insurance departments receive a whole spectrum of 
consumer complaints about the Medicare Program. Since January 
1, 2006, my department has received approximately 400 
complaints about marketing and sales problems involving MA and 
Medicare Part D prescription drug plans. I want to emphasize 
that this is only after 1 year, and if this is the baseline and 
if it continues with this trend, we are in trouble.
    The NAIC has surveyed the experience of all members to 
date, and has received responses from 43 of the 50 states. The 
striking similarities to problems I have seen in Wisconsin to 
those of other states indicate troubling patterns and trends. 
Complaints listed were pervasive throughout the states:
    Complaints about inappropriate or confusing marketing and 
sales practices leading seniors to enroll in a MA plan without 
adequately understanding their choice, or even knowing that 
they had been moved out of traditional Medicare.
    Complaints about cross-selling, where insurance agents and 
brokers use Medicare Part D as a pretext to simply get in the 
door with a senior, a situation not prohibited by Medicare 
marketing guidelines. Once inside, agents instead sell the 
senior an unrelated and sometimes unsuitable insurance product.
    Then across all states surveyed, we have consistently 
reported other types of complaints of high-pressure sales 
tactics that could be considered unethical at best and fraud at 
worst; sales by unlicensed agents and brokers; agents 
improperly portraying that they were from ``Medicare'' or 
Social Security in order to gain people's trust; seniors who 
merely asked for more information about a plan, or filled out a 
sign-in sheet at a health fair, to later discover they had been 
disenrolled from their own plan and enrolled in a new plan 
without their consent. Mass enrollments and door-to-door sales 
at senior centers, nursing homes, and assisted living 
facilities have also been seen.
    I believe the driving force behind the confusion and 
misrepresentation in the market today is money--not the cost of 
the product, but what the companies and the agents can make 
selling the product. MA plans are reimbursed at an amount 
significantly higher than the cost of original Medicare. I have 
read of reimbursements being 111 to 113 percent or more of 
original Medicare, with Private Fee-for-Service plans receiving 
as much as 119 percent of original Medicare costs.
    This translates to substantial additional costs and 
financial stresses to the Medicare Program. For example, in 
2005, the Medicare Payment Advisory Commission noted that MA 
plan payments exceeded average local original Medicare fee-for-
service costs by more than $5.2 billion, $1 billion alone in 
the state of California. As long as the profit potential for 
plans and the reimbursement to agents is so high, the marketing 
and the sales abuses, in my opinion, will continue.
    We currently have limited state regulatory authority over 
these plans. Under other circumstances, the types of marketing 
practices I have described are either prohibited by state law 
as unfair or deceptive practices, or would be questioned by 
watchful state regulators.
    However, these cases involve MA plans. The hands of the 
state regulators are often tied because we have lost all 
meaningful regulatory authority over MA plans, except for the 
licensure and solvency, as a result of Federal preemption.
    I have included a table on page 6 of my written testimony 
to demonstrate the limitations we face in protecting MA 
consumers. You will notice that my department has all the tools 
we need in our tool kit to prevent the abuses I have described. 
We simply lack the authority to utilize them to monitor and 
take corrective action against a company for misconduct.
    To be very clear, the states do have regulatory authority 
over insurance agents and brokers selling Medicare Private Fee-
For-Service Plans. With this authority, my department, with 
limited resources, is acting aggressively against rogue agents.
    However, without any ability to regulate the plans, I and 
other commissioners are limited in our ability to prevent sales 
and marketing abuses. We currently cannot hold the companies 
selling MA plans responsible for the acts of their agents, 
thereby severely restricting our ability to respond to 
inappropriate agent conduct. We do successfully utilize this 
authority in regulating other insurance markets. In the end, 
the agent is just that, an agent of the company.
    My suggestion to you, Chairman Stark, and your Subcommittee 
as you work to improve the MA program would be to closely 
examine the Medigap regulatory model as one potential solution 
to the problems I have outlined today.
    Medigap is a proven successful example of shared state/
Federal regulation of a Medicare-related product that works 
well. It is popular with our seniors today. Given the 
opportunity by Federal law, the NAIC worked with CMS, industry 
representatives, consumer advocates, and other interested 
parties to establish a model regulation that included 
standardized benefits, benefit plan design, and regulatory 
standards for all Medigap plans. CMS and the NAIC continue to 
work together in ensuring the consumer protections under this 
model.
    Additionally and very importantly, the Medigap model will 
provide people with greater stability and consistency in their 
health insurance plans from year to year. Wisconsin alone has 
92 MA plans, 50 of which are Private Fee-for-Service, and over 
50 Medicare Part D prescription drug plans offered by 22 
companies.
    Let me say that these products are some of the most 
complicated we have seen. As I review our complaints, I see 
sons and daughters with PhDs and legal degrees struggling to 
navigate these products for their parents. Simplified plans 
under the Medigap model allowed beneficiaries to compare plans 
and costs, and thereby make educated buying decisions. Adoption 
of this model will allow the same to be true for consumers 
shopping for MA and prescription drug plans.
    In conclusion, in order for these programs to be successful 
and to truly be valuable to senior citizens, these issues need 
to be addressed as soon as possible. The baby boomers will hit 
the market in full force by 2010. The fastest growing segment 
of our population is seniors over 85.
    I look to you for action, and I hope we can work together 
with Congress, state regulators, CMS, the insurance industry, 
agent groups, and consumer groups to provide seniors with 
products they can utilize and the protection they deserve.
    Once again, thank you, Chairman Stark and the rest of the 
Subcommittee, for this opportunity to testify.
    [The prepared statement of Mr. Dilweg follows:]
     Statement of Sean Dilweg, Commissioner of Insurance, State of 
                     Wisconsin, Madison, Wisconsin
    Good morning Chairman Stark, Ranking Member Camp, and members of 
the Subcommittee. My name is Sean Dilweg and I am Commissioner of the 
Wisconsin Office of the Commissioner of Insurance. Thank you for 
inviting me here to share with you some observations on Medicare 
Advantage Private Fee-for-Service Plans as Insurance Commissioner of my 
home state of Wisconsin. I also currently serve as chairman of the 
Senior Issues Task Force of the National Association of Insurance 
Commissioners (NAIC), which represents the chief insurance regulators 
from 50 states, the District of Columbia, and five U.S. territories, 
and although I am not testifying in my NAIC capacity today, I would 
like to supplement some of my views with the collective views and 
experiences of the nation's insurance commissioners on today's topic.
Marketing Complaints:
    The primary objective of state insurance regulation is to protect 
consumers and promote healthy insurance markets. State insurance 
commissioners and regulators are on the front lines of consumer 
protection when it comes to private health insurance, and our 
departments receive complaints every day from our citizens. In about 
one-third of the states, the State Health Insurance Assistance Program 
(SHIP) is housed within the department of insurance.
    In this role insurance departments receive the whole spectrum of 
consumer complaints about private Medicare programs, including Medicare 
Advantage and Medicare Part D. In many instances, the consumer 
complaints are routine, and to be expected for these large and complex 
programs. However, I would like to share with you an issue that has 
become of growing concern to me and other state insurance regulators, 
which is abuse in the marketing and sales of Medicare Advantage plans.
    Although this issue is not limited just to Medicare Advantage 
Private-Fee-For-Service plans, the problems that insurance 
commissioners have seen in the states are often most evident when it 
comes to this product because of the tremendous rate of growth in the 
sales and enrollment in these plans. It has been reported that Private-
Fee-For-Service Plans made up 46% of the total enrollment growth from 
2005 to 2006.
    Since January 1, 2006 my department has received approximately 400 
complaints from consumers about marketing and sales involving Medicare 
Advantage plans. This is an extraordinarily high number. The complaints 
I have heard from Wisconsin consumers and in insurance departments 
across the country too often fall along familiar lines. The NAIC has 
surveyed the experiences of departments across the country, and the 
striking similarities to problems I have seen in Wisconsin indicate 
troubling patterns.
    37 out of 43 state insurance departments have reported receiving 
complaints about inappropriate or confusing marketing practices leading 
Medicare beneficiaries to enroll in a Medicare Advantage plan without 
adequately understanding their choice to remain in traditional Medicare 
or without adequate understanding of the consequences of their 
decision. Beneficiaries believed they were signing up for a Medicare 
Part D stand-alone drug plan or a Medigap plan to supplement their 
traditional Medicare, but instead they were enrolled into a Medicare 
Advantage plan. Too often we find that the beneficiary did not know 
that he or she made this choice, or that he or she was not made aware 
of the implications of this decision, such as the fact that they would 
be giving up traditional Medicare, their Medigap policy, and also 
potentially restricting their access to doctors and other providers. We 
have heard instances when a beneficiary continues to send in their 
Medicare supplement premium for several months after they've signed up 
for a Medicare Advantage plan. In the most troubling of these cases, 
unscrupulous agents have enrolled beneficiaries with dementia into an 
inappropriate plan.
    39 out of 43 state insurance departments have reported that they 
have received complaints about misrepresentations and inappropriate 
marketing practices. This includes instances where a plan or an agent 
provides inaccurate or misleading information about the provider 
network associated with a certain plan, or the benefits that the plan 
offers, or the beneficiary cost-sharing involved. This seems to be a 
particular problem with Medicare Private Fee-for-Service plans where 
seniors are being told that they can go to any provider who accepts 
Medicare without being told that, in order to be covered by the plan, 
the provider must have also have agreed to accept the plan's payments. 
States have also reported that agents are describing Medicare Advantage 
plans as ``supplement'' plans with extra benefits, thereby confusing 
the beneficiary into believing they are buying a Medigap plan to 
supplement traditional Medicare, when in fact they are enrolling in a 
Medicare Advantage plan.
    31 out of 43 state insurance departments have also reported cross-
selling, where insurance agents and brokers use Medicare Part D as a 
pre-text to get in the door with a senior, a situation that is not 
prohibited by the Medicare marketing guidelines.\1\ Once inside, agents 
instead sell the senior an unrelated and sometimes unsuitable insurance 
product--including Medicare Advantage plans, annuities, life insurance 
policies, funeral policies, and other types of products. These other 
products are often much more lucrative to the agent than a Medicare 
Part D plan.\2\ In Wisconsin, one insurer paid agents a commission of 
$50 for a Part D sale, whereas the commission for a Medicare Advantage 
sale was $250.  With these types of financial incentives, inappropriate 
steering of beneficiaries to Medicare Advantage is difficult to avoid.
---------------------------------------------------------------------------
    \1\ CMS Medicare Marketing Guidelines, pages 112-113.
    \2\ CMS Medicare Marketing Guidelines, pages 131-132.
---------------------------------------------------------------------------
    States have consistently reported other types of complaints of 
high-pressure sales tactics and tactics that could be considered 
unethical, at best, and fraud at worst:

      door-to-door sales;
      sales by unlicensed agents/brokers;
      agents improperly portraying that they were from 
``Medicare'' or from ``Social Security'' in order to gain people's 
trust;
      seniors who merely asked for more information about a 
plan, or filled out a ``sign-in sheet'' at a health fair, and later 
discovered that they had been disenrolled from their old plan and 
enrolled in a new plan without their consent;
      mass enrollments and door-to-door sales at senior 
centers, nursing homes, or assisted living facilities;
      inappropriate use of gifts or gift cards as enrollment 
incentives;
      forged signatures on enrollment forms;
      improper obtainment or use of personal information.

    These marketing concerns compound the difficulty consumers already 
face with these confusing programs, but are inherently acceptable under 
the Medicare Modernization Act of 2003 (MMA), and are exacerbated by 
troublesome and aggressive marketing tactics.
Limited State Regulatory Authority:
    Under other circumstances, the types of marketing practices I've 
described are either prohibited by state law as unfair or deceptive 
practices in the business of insurance or would be questioned by 
watchful state regulators and controlled by the state regulatory 
structure. However, since these cases involve Medicare Advantage plans, 
or Medicare Part D, the hands of state regulators are often tied, as 
states are largely pre-empted from regulating Medicare Advantage plans. 
The marketing guidelines are established by CMS, and, thus, a large 
regulatory gap exists in the regulation of these plans.
    Since MMA, state regulators have lost all of their regulatory 
authority over Medicare Advantage plans, except for licensure and 
solvency. Prior to MMA states shared some regulatory oversight over 
Medicare Advantage plans, but the MMA scaled back on the ability of 
state insurance regulators to set or regulate marketing and sales 
standards for Medicare Advantage plans, and instead limited state 
regulation of Medicare Advantage plans to licensing and solvency. The 
MMA also established the same limited boundaries of state regulation 
for Medicare Part D plans.
    This means that, unlike Medicare Supplement insurance or other 
types of state-regulated health insurance, the state insurance 
commissioner has very limited authority over the actual insurance 
company. In Medicare Advantage and Medicare Part D a state insurance 
department has no say in whether a marketing strategy or practice (such 
as permitting cross-selling or cold-calls) or advertisement is 
appropriate for this often-vulnerable population. We have limited 
ability to monitor companies in the marketplace and limited ability to 
take corrective action against a company for misconduct.
    In the absence of such constraints imposed by the MMA, state 
regulators could prevent and react to such consumer problems by 
effective state regulation. A good example is Medicare Supplement 
insurance, which is also a Medicare-related product. States typically 
require companies to file their marketing plans and strategies with 
state regulators so that they can be reviewed prior to their use in the 
marketplace. State insurance commissioners also conduct market conduct 
reviews to ensure that consumer needs are being protected and they 
order corrective action if necessary. These are tools that are not 
available to us under Medicare Advantage and Medicare Part D, and I 
believe that there is a direct link to this inability for states to 
regulate and monitor this marketplace and the types of rampant abuses 
we are seeing today.

------------------------------------------------------------------------
 States' Regulatory Authority   Medigap  MedicareAdvantage  MedicarePart
------------------------------------------------------------------------
Evaluation of Market           YES       NO                 NO
 Conductof Plans
========================================================================
Enforcement of Benefit         YES       NO                 NO
 requirements, Enrollment,
 Eligibility, consumer
 protections, claims
 practices
========================================================================
Evaluation of Network          YES       NO                 NO
 Adequacy                       (Select
                                plans)
========================================================================
Review and Approval of Policy  YES       NO                 NO
 Forms, rates, loss ratio
 compliance
========================================================================
Regulation of Company          YES       NO                 NO
 Marketing, Sales,
 Advertising
========================================================================
Regulation of Agent Conduct    YES       YES                YES
========================================================================
Ability to Address Consumer    YES       LIMITED            LIMITED
 Complaints
------------------------------------------------------------------------

State Efforts:
    To be clear, states do have regulatory oversight and authority over 
insurance agents and brokers, including those that sell Medicare-
related products, including Medicare Private-Fee-For-Service plans. 
With this authority, I and my colleagues are acting as aggressively we 
can, with our limited resources, against rogue agents and brokers to 
the best of our ability. However, without the ability to regulate the 
plans themselves, state regulators are very limited in their ability to 
prevent the abuses that I've described earlier, and we can only act on 
the extraordinarily high number of complaints that result from these 
abuses. Most state regulators do not have the resources to track down 
and respond to every inappropriate agent action. In order for me to do 
that I would have to increase my staff. In traditional insurance, I can 
deal with inappropriate agent action by holding the insurance company 
responsible for the acts of its agents and thereby having it supervise 
and discipline its agents. Under the Medicare Advantage regulatory 
model, I cannot hold the companies responsible for the acts of their 
agents thereby severely crippling my ability to respond to 
inappropriate agent conduct. It's like trying to protect our seniors 
with our arms tied behind our backs.
    Additionally, our regulatory authority over agents and brokers has 
been limited by CMS' interpretation that states' appointment laws are 
preempted by the federal law. We were very encouraged to hear at last 
week's hearing held by the Senate Special Committee on Aging that CMS 
is willing to re-examine its interpretation of its position of agent 
appointment laws. By not allowing states to enforce their appointment 
laws, it becomes virtually impossible for state regulators to track 
which agents sell Medicare Advantage products for the Medicare 
Advantage plans.
    Also, due to the regulatory gap in oversight, in many instances 
state departments of insurance have not always received consumer 
complaint information about agent or broker misconduct. To remedy this 
situation, the NAIC has negotiated and finalized a Memorandum of 
Understanding (MOU) to be signed by state departments of insurance and 
CMS, so that they can share compliance related information between 
state and federal regulators. Since December, over 20 states have 
signed a separate MOU, and the NAIC is working with CMS to develop 
implementation procedures. In addition to agent/broker complaints, 
state departments of insurance and federal regulators hope to exchange 
information about enforcement actions, corrective actions, and other 
compliance related information. I hope that CMS will continue to make 
implementation of the MOU a high priority, and get states the 
information we need in a timely way so that we can act quickly to 
protect consumers against unscrupulous agents and brokers.
    Even once the MOU is fully operational, state regulators are still 
very limited in their ability to prevent marketing and sales abuses. 
The preemption of state authority over the operations of Medicare 
Advantage plans--except licensure and solvency--means that consumers 
must go to CMS for assistance, regardless of the fact that state 
regulators have a closer connection to their citizens, more dedicated 
resources, and greater expertise in dealing with insurance consumer 
complaints than CMS. Despite these limitations, states continue to 
assist consumers to the best of their ability.
Financial Incentives:
    Medicare Advantage plans are being reimbursed at an amount that is 
significantly higher than the cost of original Medicare. I have read of 
reimbursements between 111% to 113% or more of the cost of original 
Medicare with Medicare Advantage Private Fee-For-Service plans 
receiving 119% of the cost of original Medicare. In my opinion, these 
higher reimbursement amounts create financial incentives that may very 
well be a major cause for the marketing and sales abuses we are seeing 
today. Under the current reimbursement structure, companies have a very 
strong incentive to participate in the program and a very strong 
incentive to sign up as many enrollees as possible. In addition, 
because of the reimbursement structure, companies can provide generous 
remuneration to agents for enrolling as many people as possible.
    It is my belief from what I have seen in my State and from many of 
my fellow commissioners these incentives have resulted in some 
significant harm to the Medicare-eligible as outlined earlier in my 
testimony. Some plans, and their agents and brokers, have used 
unacceptable sales and marketing techniques to sign up enrollees in 
their plans ignoring what is best for the enrollee. In the worst cases, 
marketing and sales tactics are used that are harmful to enrollees such 
as high pressure sales tactics, misleading and confusing marketing 
material, inappropriate sales, forged signatures, and more.
    Another unintended result of these generous financial incentives is 
that plans may underestimate the utilization of the covered benefits so 
that they actually experience adverse financial results. This will 
occur if the bids submitted to CMS underestimate utilization and 
participation while at the same time include high expenses in acquiring 
business such as high agent commissions. The result is adverse 
financial performance forcing the plan to either get out of the market 
and thereby leaving its enrollees to find new and different coverage or 
change it's benefits and premiums so that the enrollees need to 
reevaluate whether the plan still meets their needs. Such a situation 
has recently been reported in Florida.
    In order to address these problems, the incentives that cause them 
need to be addressed, along with leveling the playing field for the 
enrollee so that enrollee can make an educated buying decision. So long 
as the profit potential is as high as it is with these plans and the 
reimbursement to agents is so disproportionately high compared to Part 
D Prescription Drug Plans and Medigap policies, the marketing and sales 
abuses we are currently experiencing in Medicare Advantage, in my 
opinion, will continue.
Legislative Suggestions:
    Chairman Stark, as you work to improve the Medicare Advantage 
program, I encourage this Subcommittee to closely examine this problem 
of the current regulatory gap over Medicare Advantage and Medicare Part 
D prescription drug plans. I believe that improving states' ability to 
exercise oversight over these plans is a key consumer protection that 
should be considered in any legislative efforts to improve this 
program, and I would like to offer a few specific suggestions.
Medigap as a model for improved plan regulation:
    If Congress decides to continue to give seniors the choice to 
choose a private Medicare Advantage plan, including a Private Fee For 
Service Medicare Advantage plan, I would like to suggest that the 
Subcommittee look at the Medicare Supplement Insurance (or Medigap) 
regulatory approach as a potential model for improving these products. 
You may recall that federal action to standardize Medigap plans came 
about as a result of a history of rampant abuses targeting seniors in 
the marketplace throughout the 1980s. Many people have described the 
marketing and sales abuses that are currently occurring with Medicare 
Advantage plans as strikingly parallel to the abuses reported at that 
time before OBRA '90 was passed. From the Medicare beneficiary 
standpoint, Medigap is a proven successful example of shared state-
federal regulation of a Medicare-related product that works well, and 
is popular with Medicare beneficiaries.
    The most important aspect I believe you can take away from Medigap 
is the strong state regulatory authority. With Medigap, states have the 
ability to regulate both the agents and the companies in the marketing 
and sales of these products, as well as in other areas. We need this 
same ability to hold companies responsible for the acts of their agents 
in Medicare Advantage as we currently have for all other insurance 
products. If you eliminate this current regulatory gap, state insurance 
commissioners will have a greater authority and thereby greater ability 
to serve and protect their Medicare-eligible population, and consumers 
would be able to go directly to their state insurance departments to 
resolve problems, rather than having to call CMS who seems to have 
neither the manpower nor the expertise to deal with many of these types 
of complaints.
    Now, I admit that I am speaking for my own state of Wisconsin on 
this recommendation. At the same time I know that every insurance 
commissioner is concerned with the current situation concerning these 
products that have caused all these problems in virtually every state. 
But, some commissioners may be wary of an unfunded mandate on the 
states to have a more active role in the regulation of these federally 
developed insurance products.
Medigap as a model for simplification:
    I know that this Subcommittee is looking at a wide range of ideas 
to improve the Medicare Advantage program for beneficiaries. Therefore, 
I would like to take my suggestions one step further and suggest that 
you consider looking at the Medigap regulatory model for another reason 
beyond strong state regulation, which is to consider the concept of 
simplification of the benefits and benefit plan designs. As you might 
know, unlike Medicare Advantage or Medicare Prescription drug plans, 
the benefits for Medigap plans are standardized. This enables the 
consumer to make apples-to-apples comparisons so that they can make 
meaningful decisions.
    Although Wisconsin is a relatively small, rural state, we have 92 
Medicare Advantage plans 50 of which are Private Fee For Service Plans 
with premiums, in addition to the Medicare Part B premium, ranging from 
$-0--to $211 per month, and over 50 Medicare Part D prescription drug 
plans offered by 22 companies. Each plan has different benefit options, 
cost share, and formularies. Many of the problems I discussed earlier 
have occurred because these programs are simply too confusing for 
people to understand. Medigap plans were simplified so that 
beneficiaries are able to compare plans and costs, and thereby make 
educated buying decisions. Under the Medigap model, beneficiaries have 
many choices of coverage. I have heard from our Medicare-eligible 
seniors that they or their children, some of whom are attorneys or 
PhD's, are unable to figure out all the various options under Medicare 
Advantage and Part D so that they can make a good decision for their 
coverage. Yet, with simplified and consistent benefits and benefit plan 
designs amongst the plans, beneficiaries are able to truly compare 
plans when making their buying decisions.
    Medigap is a good model, because as a result of federal legislation 
and a partnership of state and federal regulators, we have made the 
product simpler for the consumer to understand and to compare plans, 
yet with many choices of coverage. The standardized benefits were set 
by CMS, in conjunction with the NAIC through a unique delegation from 
Congress. Given the opportunity by federal law, the NAIC worked with 
CMS, industry representatives, consumer advocates, and other interested 
parties to establish a Model regulation that includes benefit, benefit 
design and regulatory standards for all Medigap plans.
Medigap as a model for improved consumer protections:
    In 2006, a major Medicare Advantage company offered several Private 
Fee-For-Service plans in Wisconsin. One of those plans, as an example, 
provided Medicare Part A and Part B coverage along with prescription 
drug coverage at no additional premium to the enrollee. The plan had a 
$180 per day hospital co-pay for the first 3 days of a hospital stay. 
After the third day the plan picked up all hospital charges. That same 
plan in 2007 now charges $39 per month additional premium and has 
changed its hospital cost-share to a $550 deductible for any hospital 
stay whether it is for one day or 30 days. The company informed its 
enrollees through the CMS approved plan amendment document. The plan 
document did not significantly highlight these reductions in coverage 
and increased premium in any way. In addition, to my knowledge, the 
company did not hold informational meetings with its beneficiaries to 
go over the changes to their plan during the open enrollment period. 
For many beneficiaries, the way they found out about the changes is 
when they got their premium payment coupons and if they went to the 
hospital.
    That is one of the major problems with the Medicare Advantage 
plans. They can change the cost-share provisions and the premium 
annually so that the stability in coverage expected by the beneficiary 
is really not there. People are used to stability and consistency in 
their health insurance plans from year-to-year. Medicare Advantage does 
not provide that stability. This could not happen under the Medigap 
regulatory model, as Medigap plans are guaranteed renewable which means 
plans cannot unilaterally change coverage from year-to-year except to 
adjust to original Medicare's changes of its deductibles and co-
payments Although premiums might differ slightly, the benefits for an 
individual beneficiary would not change. Plans could decide to offer a 
different set of benefits or plans for new enrollees, but they would 
not be able to disrupt the coverage they are already providing to 
insureds. I urge you to consider these types of key consumer 
protections.
    Finally, a major problem with Medicare Advantage plans is that they 
do not provide the stability beneficiaries have with original Medicare 
and a Medicare supplement policy. This is because the plans have a one 
year contract with CMS which means that a plan can chose to leave a 
market at any time at the end of any year. This happened in the 90's 
when the then Medicare + Choice reimbursement formulae were changed. We 
have already seen it in 2007 when a major Medicare Advantage provider 
left certain markets forcing its enrollees to switch plans. Senior 
insurance consumers like stability. Under the current Medicare 
Advantage program they have none. Plans can change their benefits and 
cost shares every year and can abandon a market should they chose 
leaving their enrollees high and dry.
Summary:
    In order for these programs to be successful and valuable to the 
market place, these issues need to be addressed with all dispatch. The 
baby boomers will hit the market in full force by 2010. The fastest 
growing segment of the population is the 85+ segment. I look to you for 
action and I hope we can work together; the Congress, state regulators, 
CMS, the insurance industry, the agents' groups, and the consumer 
advocates to provide our Medicare-eligible population with products 
they can compare, with marketing and sales standards that provide 
protection, yet allow for innovation, and an enforcement structure that 
provides assurance that they are protected.
    Thank you again for this opportunity to testify today.

                                 

    Chairman STARK. Thank you, Mr. Dilweg. I was going to--Mr. 
Kind is here, and I did allow as to how Mr. Dilweg would get an 
introduction by an old badger.
    I neglected to mention that if he looks back in records, he 
might find that I once was licensed, I think in 1951, to sell 
life insurance in the state of Wisconsin, but I am sure you are 
much better at regulating who gets licenses now than you were 
then, and I hope that you have improved your thorough 
investigation since then. You did mention----
    Mr. DILWEG. I will have to pull your file.
    Chairman STARK [continuing]. The Medigap legislation. It is 
interesting that the lady sitting to your left was on the staff 
when that was drafted and had her hand in that. With that, we 
will hear from Ms. Patricia Neuman.

 STATEMENT OF PATRICIA NEUMAN, Sc.D., VICE PRESIDENT, HENRY J. 
  KAISER FAMILY FOUNDATION, DIRECTOR, MEDICARE POLICY PROJECT

    Dr. NEUMAN. Thank you, Chairman Stark and Mr. Camp and 
distinguished Members of the Committee. I appreciate being 
invited to come here and talk to you today about Private Fee-
for-Service plans.
    Private Fee-for-Service plans currently enroll 3 percent of 
the total Medicare population, or about 1.5 million 
beneficiaries. CBO projects enrollment levels will double 
within 2 years and nearly triple within ten. This increase is 
notable for many reasons, not the least of which is that 
MedPAC, CBO, and the Department of Health and Human Services 
(HHS) Office of the Actuary report that the shift in 
beneficiaries from traditional Medicare to MA plans, including 
Private Fee-for-Service, will increase Medicare spending.
    Despite initial skepticism about the need for or viability 
of Medicare Private Fee-for-Service plans, all beneficiaries 
today have the option to enroll in one or more Private Fee-for-
Service plans, and half can choose among six or more firms 
offering a Medicare Private Fee-for-Service option, and many of 
those firms offer multiple plans.
    At this point, little is known about the characteristics of 
Medicare beneficiaries who are enrolling in Private Fee-for-
Service plans other than where they live. We know that about 40 
percent are living in rural areas, and the majority, or about 
60 percent, are in urban areas.
    Nationwide, about 5 percent of all beneficiaries living in 
rural areas are in Private Fee-for-Service plans, compared to 
about 3 percent of that enrollment for all Medicare 
beneficiaries. More information is clearly needed to understand 
the characteristics and needs of beneficiaries who enrolling in 
various types of MA plans.
    Private Fee-for-Service plans operate under a different set 
of rules and requirements than the other MA plans, and this 
creates an unlevel playingfield for other plans, and it also 
creates some uncertainty for beneficiaries.
    Private Fee-for-Service plans are not required to provide 
the Medicare drug benefit, as others must. Those that do not 
provide a drug benefit are permitted to enroll beneficiaries 
from traditional Medicare throughout the calendar year for 2007 
and 2008, while others are constrained by the more standard 
open enrollment period. Private Fee-for-Service plans are not 
required to report quality measures, as other plans do.
    Private Fee-for-Service plans are exempt from a provision 
of the law that allows the Secretary to negotiate bids and 
extra benefits, or supplemental benefits, with MA plans, and 
that also is unlike the requirements that pertain to MA plans.
    I want to focus for the next few minutes on issues that 
have emerged which could have important implications for 
beneficiaries, the first of which has to do with out-of-pocket 
spending and benefits. Many Private Fee-for-Service plans waive 
deductibles, offer stop-loss and catastrophic spending, and 
provide additional benefits such as help with eyeglasses or 
dental care or other benefits.
    Even with these additional benefits, sicker beneficiaries 
could face higher cost-sharing requirements under Private Fee-
for-Service plans than under traditional Medicare. For example, 
some Private Fee-for-Service plans impose daily copays on 
hospital stays or on home health visits, unlike traditional 
Medicare. These daily fees can add up. Only about half of 
Private Fee-for-Service plans offered a drug benefit in 2006, 
and none of the plans with a drug benefit covers brand-name 
drugs in the coverage gap.
    With extra benefits, some beneficiaries can spend less than 
they otherwise would, but my written statement illustrates how 
a not very atypical and hypothetical beneficiary could end up 
paying more under Private Fee-for-Service plans than under 
traditional Medicare. It also illustrates the wide variations 
in benefits and cost-sharing that can be seen in Private Fee-
for-Service plans that seniors may encounter. This could make 
it quite difficult for a beneficiary to compare plans when they 
go about making choices so they can understand the value of the 
different plans that are available to them.
    A second issue relates to access to medical providers. A 
key idea behind the idea of Private Fee-for-Service was that 
beneficiaries would have unfettered access to medical care in 
contrast to more managed care types of Medical Advantage plans.
    However, providers are not required to accept Private Fee-
for-Service enrollees even if they accept other Medicare 
patients. Since plans do not have contractual obligations with 
providers, they are unable to guarantee enrollees access to 
physicians, specialists, or other medical providers. Efforts to 
educate providers may be helpful over time, but in the short 
term, decisions by some doctors and or health care providers to 
refuse to see Private Fee-for-Service patients may come as an 
unwelcome surprise to seniors who elected the plan under the 
impression that they could be treated by virtually any 
provider.
    A third issue, as you have heard already, relates to 
marketing practices, a particular concern given the 
vulnerabilities of so many Medicare beneficiaries, particularly 
the 25 percent with cognitive impairments. These marketing 
practices are likely to compound the underlying confusion that 
we have observed in our research and studies by others that 
show that seniors are very unclear about very basic differences 
between MA and traditional Medicare. It is quite easy to see 
how seniors would be challenged to understand the difference 
between Private Fee-for-Service Medicare plans and traditional 
fee-for-service Medicare.
    Last, an overlooked aspect of the MA program and its 
current payment system is the effect on beneficiaries in 
traditional Medicare. Again, according to the HHS Actuary, 
beneficiaries who pay a monthly part B premium pay an 
additional $2 a month to help finance additional payments to MA 
plans. These costs are borne by an estimated 29 million 
beneficiaries on the program.
    With just 3 percent of all beneficiaries enrolled in these 
plans, but a growing number of beneficiaries migrating to them, 
now may be the time to address key issues that have significant 
implications for beneficiaries, for taxpayers, and for the 
Medicare Program itself. Thank you very much.
    [The prepared statement of Dr. Neuman follows:]
 Statement of Patricia Neuman, Sc.D., Vice President, Henry J. Kaiser 
          Family Foundation, Director, Medicare Policy Project
    Chairman Stark, Mr. Camp, distinguished members of the Committee, 
thank you for inviting me here today to discuss Medicare Advantage 
Private Fee-for-Service plans. I am Patricia Neuman, a Vice President 
of the Kaiser Family Foundation and Director of the Foundation's 
Medicare Policy Project.
    Medicare Private Fee-for-Service plans are one among many private 
plan options offered to beneficiaries under the Medicare Advantage 
program. As with other types of Medicare Advantage plans, Medicare 
Private Fee-for-Service plans are offered by health insurance companies 
that receive capitated payments from Medicare to provide health 
benefits for each Medicare enrollee. My testimony draws on a number of 
studies commissioned and conducted by the Kaiser Family Foundation, as 
well as other reports. This testimony reviews the role of Private Fee-
for-Service plans under Medicare; examines how Private Fee-for-Service 
plans differ from other Medicare Advantage plans; and discusses key 
issues for beneficiaries and long-term implications for Medicare.
Why Focus on Medicare Private Fee-for-Service Plans
    Over the past two years, Medicare Private Fee-for-Service plans 
have grown much faster than many expected, and recently we have seen 
signs of growing pains. We have heard and read reports about aggressive 
marketing practices, confused beneficiaries, and doctors and hospitals 
refusing to see patients who are enrolled in Private Fee-for Service 
plans. MedPAC, the Congressional Budget Office and the HHS Office of 
the Actuary are in agreement that the shift of beneficiaries from 
traditional Medicare to Medicare Advantage plans increases Medicare 
spending, leading others to raise concerns about whether the Private 
Fee-for-Service plan option provides adequate value to beneficiaries 
and taxpayers.
    Private Fee-for-Service plans collectively enroll a very small 
share (3 percent) of the total Medicare population and less than 20 
percent of all Medicare Advantage enrollees, yet their role in the 
Medicare program has emerged as a front-burner issue (Exhibits 1 and 
2).
    First, there has been a rapid increase in the number of 
beneficiaries enrolling in Private Fee-for-Service plans since 2005 
(Exhibit 3). Private Fee-for Service plans were first authorized in 
1997, but received minimal attention with enrollment hovering at about 
25,000 enrollees. Today, 1.5 million Medicare beneficiaries are 
enrolled in Private Fee-for-Service plans, up from 209,000 in 2005. CBO 
projects that enrollment levels will double within two years, and 
nearly triple within ten years, and projects that this jump in 
enrollment will lead to an increase in Medicare spending as 
beneficiaries shift from traditional Medicare to Medicare Advantage 
plans (Exhibit 4).
    Second, Medicare pays more for Medicare Advantage enrollees, on 
average, than it would pay for the same beneficiaries in traditional 
Medicare. Medicare pays, on average, 12 percent more for beneficiaries 
who enroll in Medicare Advantage plans than it would pay for the same 
individuals to be covered under the traditional Medicare program, and 
pays 19 percent more, on average, for beneficiaries who enroll in 
Private Fee-for-Service plans, according to MedPAC (Exhibit 5). 
Medicare's payments do not vary by type of Medicare Advantage plan, but 
are higher for Private Fee-for-Service plans because the counties in 
which they operate tend to have high payments relative to costs 
(MedPAC, 2007; Gold, 2007a).
    Third, Private Fee-for-Service plans operate under a different set 
of rules and requirements than other Medicare Advantage plans (Blum, 
2007). Firms that offer Private Fee-for-Service plans are not required 
to provide a plan with a Medicare Part D drug benefit, nor are they 
required to have quality and utilization review and reporting 
procedures. They are also exempt from a provision that allows the 
Secretary to negotiate monthly bid amounts and supplemental benefits 
with plans, unlike other Medicare Advantage plans (Exhibit 6).
    Furthermore, unlike other Medicare Advantage plans, Private-Fee-
for-Service plans are not required to establish networks of physicians, 
hospitals and other providers--and most have elected to operate without 
a network. This makes it easier for Private Fee-for-Service Plans to 
enter the market, but the downside for enrollees is that, without 
contractual relationships, Private Fee-for-Service plans are unable to 
guarantee access to physicians and other providers for their enrollees, 
and have limited ability to coordinate or manage care.
    A recent legislative change gives certain Private Fee-for-Service 
plans a leg up in growing market share by allowing plans that do not 
provide the Part D drug benefit to enroll beneficiaries who are in 
traditional Medicare throughout the entire calendar year in 2007 and 
2008, rather than in the more limited existing open enrollment period 
that applies to other plans.
The Current Medicare Private Fee-for-Service Landscape
    Despite initial skepticism about the need for or viability of 
Medicare Private Fee-for-Service plans, dozens of companies are 
currently offering these plans throughout the country (Gold, 2007b). 
All beneficiaries now have the option to enroll in one or more Private 
Fee-for-Service plans, and half of all beneficiaries (52 percent) can 
choose among six or more firms offering a Medicare Private Fee-for-
Service option (Gold, 2007b). In some areas, such as Madison County, 
Wisconsin, beneficiaries can choose from among 27 Medicare Advantage 
plans, 19 of which are Private Fee-for-Service plans offered by five 
different firms.
    From an insurer's perspective, there are a number of features of 
Private Fee-for-Service plans that make them appealing, relative to 
other Medicare Advantage plans. Unlike Regional Preferred Provider 
Organizations (PPOs) which were authorized under the Medicare 
Modernization Act of 2003, Private Fee-for-Service plans are permitted 
to operate at the county level, rather than serve an entire region, 
giving firms the flexibility to strategically pursue new enrollees in 
relatively high payment areas. However, unlike other Medicare Advantage 
plans that operate at the county level, such as HMOs, Private Fee-for-
Service plans are not required to establish a network of providers, 
which eases the administrative burden of market entry and reduces 
start-up costs. In addition, firms that currently offer Medigap 
policies may see Medicare Private Fee-for-Service plans as an 
attractive alternative for their Medigap policyholders, because they 
can now offer a government-subsidized source of supplemental coverage 
that could help reduce the monthly premiums they charge.
    Looking to the future, some believe that Private Fee-for-Service 
plans will become more popular among employers who offer health 
benefits to Medicare-eligible retirees. Private Fee-for-Service plans 
that have no provider network are uniquely positioned to provide 
coverage to retirees throughout the country. Currently, enrollment 
among retirees in employer plans represents a very small share of total 
Private Fee-for-Service enrollment because employers have been slow to 
take up this option. In fact, more than six of ten large private sector 
employers (62%) that offer benefits to age 65+ retirees said they did 
not offer a Medicare Advantage plan option in 2006 (Kaiser/Hewitt, 
2006).
Characteristics of Beneficiaries in Private Fee-for-Service Plans
    Little is known about the characteristics of beneficiaries who are 
choosing to enroll in Medicare Private Fee-for-Service plans, why they 
are enrolling, the services they receive or the extent to which they 
are able to see their doctors, specialists and other health care 
providers.
    Private Fee-for-Service enrollees are spread throughout the 
country, with roughly three quarters of all enrollees coming from urban 
floor counties (such as Arlington, Virginia or Greensboro, North 
Carolina) and rural floor counties (MedPAC, 2007b). MedPAC also reports 
that the majority of Private Fee-for-Service enrollees live in urban 
areas and that about five percent of all beneficiaries living in rural 
areas are enrolled in a Medicare Private Fee-for-Service plan. In 2006, 
six states (GA, MI, MN, NC, VA, WI) had between 40,000 and 70,000 
enrollees, while 12 states had fewer than 1,000 enrollees and another 
14 states had between 1,000 and 10,000 Private Fee-for-Service 
enrollees (Gold, 2007b).
    Given the absence of publicly-available data on the characteristics 
of Medicare Advantage enrollees, by plan type, it is not possible to 
paint a demographic picture of the Medicare Private Fee-for-Service 
population, nor determine if beneficiaries enrolled in these plans are 
disproportionately vulnerable relative to enrollees in other Medicare 
Advantage plans or traditional Medicare. In general, Medicare Advantage 
plan enrollees tend to be in better health and have fewer chronic 
diseases than their counterparts in traditional Medicare, based on our 
analysis of the 2003 Medicare Current Beneficiary Survey. Medicare 
Advantage plans also enroll a smaller share of beneficiaries who are 
under age-65 who have permanent disabilities. As new data become 
available, it will be important to examine the characteristics of 
beneficiaries who are enrolling in various types of Medicare plans. 
However, there are currently no data available to determine whether 
Private Fee-for-Service enrollees differ from other Medicare Advantage 
enrollees in terms of medical needs or other characteristics, such as 
income or gender.
Key Considerations for Beneficiaries
    Because Medicare Private Fee-for-Service plans are relatively new, 
and because they differ from other types of Medicare Advantage plans, 
beneficiaries have had little time to understand how they differ from 
the traditional fee-for-service Medicare program. A number of issues 
have emerged that have implications for beneficiaries.
Out-of-Pocket Spending and Benefits.
    Many Private Fee-for-Service plans waive deductibles, offer a stop-
loss limit on catastrophic spending for services covered under Parts A 
and B, unlike traditional Medicare, and also provide some additional 
benefits; however, even with these additional benefits, sicker 
beneficiaries could be disadvantaged by high cost-sharing requirements 
under Private Fee-for-Service plans relative to traditional Medicare 
(Gold, 2007a).
    Unlike traditional Medicare, some Private Fee-for-Service plans 
impose daily hospital copayments, daily copayments for home health 
visits, and daily copayments for the first several days in a skilled 
nursing facility. Only about half of all Medicare Private Fee-for-
Service plans offered a drug benefit in 2006, and none of these plans 
covered brand-name drugs in the so-called ``doughnut hole'' (Gold, 
2007a).
    To illustrate the potential for higher out-of-pocket costs under 
Private Fee-for-Service plans than traditional Medicare, consider three 
different Private Fee-for-Service plans offered in Madison County, 
Wisconsin for a hypothetical but not atypical elderly woman on Medicare 
(Exhibit 7).
    Mrs. Rollins broke her hip, was admitted to the hospital for 8 
days, then transferred to a skilled nursing facility (27 days) before 
going home and receiving home health visits to support her 
rehabilitation (47 visits). Mrs. Rollins would pay the monthly Part B 
premium under all three Private Fee-for-Service plans and traditional 
Medicare, and a supplementary premium under two of the Private Fee-For-
Service plans. Under one of the plans, she would pay a supplemental 
premium of $99/month ($1,200/year) but would not get the Part D drug 
benefit.
    Mrs. Rollins would pay $1,860 out-of-pocket in traditional 
Medicare, but $2,688, $2,710 or $3,519.50 under the three Private Fee-
for-Service plans, taking into account the supplemental premiums and 
the stop-loss protection. Under the first plan, she would be helped by 
a $1,500 stop loss, but have higher costs due to the supplemental 
premium.
    In other words, beneficiaries requiring a hospital stay and post-
acute care, such as the hypothetical Mrs. Rollins, would pay more under 
each of the three Medicare Private Fee-for-Service plans than under 
traditional Medicare. This example also illustrates the wide range in 
out-of-pocket spending that beneficiaries may incur, depending on the 
plan they select. Beneficiaries could be hard-pressed to sort out these 
differences and others prior to enrollment in order to choose the 
least-costly plan for themselves.
Access to Physicians and Other Health Care Providers.
    A central notion behind Private Fee-for-Service plans was that 
beneficiaries would have unfettered access to their medical providers, 
in contrast to more ``managed'' types of Medicare Advantage plans. 
However, providers are not required to accept Private Fee-for-Service 
enrollees--even if they accept other Medicare patients. There is 
mounting evidence from press reports that at least some beneficiaries 
enrolled in Private Fee-for-Service plans have been denied care by 
their medical providers (e.g. Wall Street Journal, May 8, 2007; Tampa 
Tribune, April 29, 2007)
    It is not clear why some providers are refusing to treat patients 
who are enrolled in Private Fee-for-Service plans. Some have suggested 
that physicians are not familiar with the terms and conditions of 
Private Fee-for-Service plans, are wary of agreeing to see a patient 
without fully understanding how the plan works, and are concerned about 
administrative hassles. Other issues include concerns about payment 
levels and the amount of time it may take to get paid by such plans.
    Efforts by Private Fee-for-Service plans to educate providers may 
address these issues over time, but in the short-term, providers' 
decisions to refuse to treat Private Fee-for-Service patients may come 
as an unpleasant surprise to seniors who elected this plan option under 
the impression that they could be treated by virtually any provider, 
just as they could under traditional Medicare. The fact that most 
Private Fee-for-Service plans do not have networks makes it difficult 
for beneficiaries to determine if their various doctors, specialists or 
even hospitals will accept a plan.
Questionable Marketing Practices.
    In recent months, there have also been a number of reports and 
press accounts about aggressive, high-pressure marketing activities 
designed to lure beneficiaries into Medicare Advantage plans, including 
but not limited to Private Fee-for-Service plans. For example, a recent 
survey conducted by the National Association of Insurance Commissioners 
reports that 39 of 43 states received complaints about 
misrepresentations and inappropriate marketing practices, and 37 of 43 
states reported that these practices led some beneficiaries to enroll 
in a Medicare Advantage plan without fully understanding the 
implications of their choice (Dilweg, 2007). These marketing activities 
are a particular concern, given the vulnerabilities of so many Medicare 
beneficiaries, including the roughly 25 percent of beneficiaries with 
cognitive impairments, such as Alzheimer's disease.
    The concern, according to senior advocates and insurance 
commissioners, is that beneficiaries are finding themselves enrolled in 
Medicare Advantage plans in which they did not intend to enroll, and 
without a good understanding of how their plan operates. It is easy to 
see how a senior could be confused about the differences between 
traditional fee-for-service Medicare and Medicare Advantage Private 
Fee-for-Service plans, or confused about the different types of 
Medicare Advantage plans. These differences could have significant 
implications for beneficiaries' out-of-pocket spending and provider 
access.
    Efforts to curb overly aggressive and misleading sales practices 
are critical, particularly given beneficiaries lack of understanding 
about the various types of Medicare plans (Hibbard, 2006).
Equity Concerns: Who Pays?
    An often overlooked aspect of the Medicare Advantage program, and 
its current payment system, is the effects on beneficiaries who are 
covered under traditional Medicare. Because Medicare Advantage plans 
cover benefits under Medicare Parts A and B, the financing for Medicare 
Advantage benefits directly affects the Part A Trust Fund and Part B 
premiums.
    According to the Office of the Actuary at HHS, the current payment 
system has the effect of cutting by two years the solvency of the Part 
A trust fund, potentially affecting coverage for current beneficiaries 
as well as pre-65 adults who are approaching the age of Medicare 
eligibility.
    In addition, the HHS Actuary recently announced that the current 
payment system for Medicare Advantage plans has increased Part B 
premiums by an additional $2/month. These costs are borne by an 
estimated 29 million beneficiaries and by all states that contribute to 
Part B premiums on behalf of beneficiaries who are dually eligible for 
Medicare and Medicaid (Exhibit 8).
Summary
    A review of Private Fee-for-Service plans reveals a number of 
issues for beneficiaries, taxpayers and the Medicare program itself. 
With about three percent of all beneficiaries enrolled today, and 
before a growing number of beneficiaries migrate to Medicare Private 
Fee-for-Service plans, now may be the time to focus greater attention 
on a number of issues that have surfaced.
    Private Fee-for-Service plans have given more people on Medicare 
the option of choosing a private plan for their Medicare benefits, and 
have the potential to reduce enrollees' out-of-pocket costs. However, 
Private Fee-for-Service plans also have the potential to increase out-
of-pocket costs for enrollees with serious health needs, and there is 
evidence that at least some patients enrolled in these plans have been 
denied care by physicians, specialists and other providers, despite 
expectations of unfettered access, similar to traditional Medicare.
    With cost pressures facing Medicare and competing priorities for 
limited resources, serious issues for lawmakers to consider include 
whether Private Fee-for-Service plans offer value to Medicare 
constituents, and at what cost; whether Private Fee-for-Service plans 
should be exempt from requirements that apply to other plans; and 
whether sustaining current payment levels for Medicare Advantage plans 
is affordable, given the fiscal challenges that lie ahead.
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    References
    Blum, Jonathan, Ruth Brown, and Miryam Frieder, ``An 
Examination of Medicare Private Fee-for-Service Plans,'' Henry 
J. Kaiser Family, March 2007.
    Dilweg, Sean. ``Medicare Advantage Marketing & Sales,'' 
Testimony before the United States Senate Special Committee on 
Aging, May 2007.
    Gold, Marsha. ``Medicare Advantage in 2006-2007: What 
Congress Intended?'' Health Affairs Web Affairs Exclusive, May 
15, 2007a.
    Gold, Marsha. ``Private Plans in Medicare: a 2007 Update,'' 
Henry J. Kaiser Family Foundation, March 2007b.
    Hibbard, Judith, Jessica Greene and Martin Tusler. ``An 
Assessment of Beneficiary Knowledge of Medicare Coverage 
Options and the Prescription Drug Benefit,'' AARP Public Policy 
Institute, May 2006.
    Kaiser Family Foundation and Hewitt Associates. ``Retiree 
Health Benefits Examined: Findings from the Kaiser/Hewitt 2006 
Survey on Retiree Health Benefits,'' December 2006.
    Medicare Payment Advisory Commission. MedPAC Report to the 
Congress: Medicare Payment Policy, March 2007a.
    Medicare Payment Advisory Commission. Presentation from 
Public Meeting, Washington, D.C., March 8, 2007b.

                                 

    Chairman STARK. Thank you, Trish.
    Mr. Lipschutz is the staff attorney for the California 
Health Advocates from Los Angeles. We know them in California 
as Health Insurance Counseling and Advocacy Program (HICAP). 
They provide advocacy services for Medicare and Medicaid 
beneficiaries. Welcome. Please enlighten us in any manner you 
are comfortable, Mr. Lipschutz.

 STATEMENT OF DAVID A. LIPSCHUTZ, CALIFORNIA HEALTH ADVOCATES, 
                    LOS ANGELES, CALIFORNIA

    Mr. LIPSCHUTZ. Thank you, Mr. Chairman. Good afternoon, 
Chairman Stark, Ranking Member Camp, and distinguished 
Committee Members. Thank you for giving me the opportunity to 
testify this afternoon. My name is David Lipschutz, and I am a 
staff attorney with California Health Advocates, an independent 
nonprofit organization dedicated to education and advocacy 
efforts on behalf of Medicare beneficiaries.
    We do this in part by providing technical assistance and 
training to the network of state health insurance programs, 
known in California as HICAP. Our experience with Medicare is 
based in large part on our close work with the HICAPs and other 
consumer assistance programs that are on the front line 
assisting Medicare beneficiaries.
    We recognize that MA plans can be a suitable option for 
some people with Medicare, but the recent dramatic rise in the 
availability of and enrollment in Private Fee-for-Service plans 
is a cause of major concern for Medicare beneficiaries because 
this rise has come with widespread and abusive marketing 
practices, as well as serious access to care issues faced by 
many who are enrolled in these plans.
    When we talk about marketing misconduct, it is not our 
intent to malign all agents selling Medicare products. We are 
in contact with a number of agents who we know are honest and 
aboveboard, but we take issue with the insurance industry and 
CMS blaming marketing problems on a ``few bad apples.'' To the 
contrary, misconduct is occurring by the bushel load. If you 
will allow me to stretch a metaphor, the entire orchard is 
subject to rot as long as several underlying, systemic problems 
and issues remain.
    These factors include a commission structure that typically 
pays agents up to five times the amount for each MA enrollment 
as opposed to each enrollment in a stand-alone prescription 
drug plan, which creates an incentive to steer individuals 
toward certain products regardless of whether such products are 
the most suitable choice for an individual consumer.
    Also, lack of adequate oversight and training of agents by 
plans leaves many agents ignorant about the products they are 
selling and the impact that enrolling in these products might 
have on prospective enrollees, including potential loss of 
other types of insurance.
    The numbers and types of abuses are many, and include 
Medicare beneficiaries being signed up for plans without their 
consent or knowledge, either by forged signatures or trickery. 
For example, Mrs. D. of rural Placer County, California, a 
Medicare beneficiary who is legally blind, attended a seminar 
at a senior center presented by agents selling a Private Fee-
For-Service plan. She was asked to sign an attendance sheet, 
but at the end of the presentation she decided to stay with her 
current Prescription Drug Plan (PDP) coverage, and when asked, 
made it clear to the agent that she was not interested. 
Nonetheless, she later received a letter from her former PDP 
informing her that she was being disenrolled because she is now 
enrolled in the Private Fee-for-Service plan she did not want.
    Prospective enrollees are told outright lies in order to 
get them to join, such as: ``Medicare is going private,'' or'' 
you will lose your Medicaid unless you sign up.'' Unsolicited 
door-to-door sales continue unabated. Agents misrepresent 
themselves as being from Medicare or Social Security.
    Some agents take advantage of individuals with limited 
English proficiency by making sales when neither the agent nor 
the applicant can adequately communicate with one another. Mass 
enrollments are occurring at subsidized senior housing 
facilities following no or cursory sales presentations.
    Private Fee-for-Service plans are being sold as products 
that allow enrollees to see whatever provider they want; 
however, we have found that many providers are simply unwilling 
to accept these plans, forcing individuals to stop seeing their 
long-term, trusted doctors. Many beneficiaries complain that 
they are unable to find any local providers, including clinics 
and hospitals, that will accept their plan. In addition, some 
Private Fee-for-Service enrollees face higher out-of-plan costs 
than they had previously paid in original Medicare, including 
with a supplement or other plan.
    Perhaps most disturbing of all is a continuing trend of 
plan sponsors and agents marketing Private Fee-for-Service 
plans to individuals who are dually eligible for Medicare and 
Medicaid, although enrollment in such a plan appears to offer 
little if any tangible benefit to dual eligibles and often 
leaves them worse off.
    The following example is common. Mrs. P., a dual eligible 
living in California's Central Valley whose primary language is 
Spanish, was recently widowed and had relied on her husband to 
take care of her health and financial dealings. She visits her 
physician frequently due to a heart ailment. Mrs. P. received 
an unsolicited visit from an agent selling a Private Fee-For-
Service plan who she says pressured her into signing up for the 
plan. Mrs. P. found out that her doctor does not take her plan, 
and she has been charged out-of-pocket costs she did not 
previously have to pay.
    Recent proposed fixes by CMS and the industry are 
inadequate to stem the tide of Private Fee-for-Service 
marketing abuses and access to care issues. Instead, both 
specific and broad reforms are needed, and for these I direct 
you to our written testimony.
    In short, since money is a main motivating factor, there 
must be payment parity between MA and original Medicare, and 
commissions paid to agents must be regulated. Plans need to 
know that they will be held accountable for their and their 
agents' conduct, and States need to be allowed a greater 
regulatory role to achieve this.
    Finally, MA and Part D plans should be standardized and 
simplified so that Medicare beneficiaries can make meaningful 
comparisons and plans can be held accountable for providing 
adequate benefits.
    Thank you for the opportunity to testify this afternoon.
    [The prepared statement of Mr. Lipschutz follows:]
Statement of David Lipschutz, California Health Advocates, Los Angeles, 
                               California
    California Health Advocates (CHA) is an independent, non-profit 
organization dedicated to education and advocacy efforts on behalf of 
Medicare beneficiaries in California. Separate and apart from the State 
Health Insurance Program (SHIP), we do this in part by providing 
support, including technical assistance and training, to the network of 
California's Health Insurance Counseling and Advocacy Programs (HICAPs) 
which offer SHIP services in California. CHA also provides statewide 
technical training and support to social and legal services agencies 
and other professionals helping Californians with questions about 
Medicare. Our experience with Medicare is based in large part on our 
close work with the HICAPs and other consumer assistance programs that 
are on the front line assisting Medicare beneficiaries.
    We certainly recognize that Medicare Advantage plans can be a 
suitable option for some people with Medicare. The recent dramatic rise 
in the availability of and enrollment in a particular type of Medicare 
Advantage plan, private-fee-for-service (PFFS) plans, though, has come 
with alarming abuses surrounding their marketing and sale as well as 
access to care issues for many individuals once enrolled in these 
plans. While we have witnessed marketing abuses concerning stand-alone 
Part D prescription drug plans as well as other Medicare Advantage 
plans, the vast majority of marketing problems we have seen stem from 
the sale of PFFS plans.
    In January of this year, California Health Advocates and the 
Medicare Rights Center released a report entitled ``After the Gold 
Rush: The Marketing of Medicare Advantage and Part D Plans--Regulatory 
Oversight of Insurance Companies and Agents Inadequate to Protect 
Medicare Beneficiaries.''\1\ In that report we: provided an overview of 
the current Medicare landscape; reviewed rules relating to marketing 
Medicare products; discussed advocates' experiences with the marketing 
of PFFS plans to highlight agent misconduct; discussed Medicare's 
oversight of Part D and Medicare Advantage plans; discussed state 
regulation of insurance agents; and provided recommendations for 
stricter oversight and accountability of plan sponsors and their 
agents.
---------------------------------------------------------------------------
    \1\ See: http://www.cahealthadvocates.org/_pdf/advocacy/2007/CHA-
MRC-Brief-AfterTheGoldrush -2007-01.pdf
---------------------------------------------------------------------------
    In this written testimony, we revisit some of the issues 
highlighted in our joint report, and shed light on problems that 
individuals face with both abusive marketing of PFFS plans and provider 
access and coverage issues faced by people once they are enrolled in 
these plans. We also provide recommendations to: 1) address specific 
problems relating to PFFS plans; and 2) improve the Medicare Advantage 
program in general in order to better serve Medicare beneficiaries.
II. FACTORS CONTRIBUTING to MARKETING ABUSES
    The confusing structure of PFFS plans, varying commissions paid to 
agents by plan sponsors, and the lack of adequate agent training all 
contribute to the epidemic of marketing abuses witnessed across the 
county. It is not our intent to malign all agents selling Medicare 
products; we have interacted with a number of honest, ethical, 
knowledgeable agents and brokers who go to great lengths to ensure that 
they serve their clients well. The problem of marketing abuses, though, 
is much deeper and more widespread than just a few ``bad apples'' as 
the industry argues. Instead, as discussed below, underlying systemic 
issues drive this growing problem of marketing misconduct.
PFFS Plan Structure
    When choosing how to obtain coverage through Medicare, an 
individual has a range of variables s/he must consider, based upon any 
current coverage s/he might have. As consumers struggle to find the 
best combination of prescription drug and medical benefits for their 
individual needs, they must navigate a dizzying array of configurations 
and cost-sharing arrangements available through Original Medicare, 
Medicare supplemental insurance plans (Medigaps), Medicare Advantage 
(MA) plans, and retiree or other coverage. Among the choices within MA, 
of course, are private fee-for-service (PFFS) plans. PFFS plans, 
despite their meteoric rise in enrollment over the last couple of 
years, are perhaps the least understood type of MA plan due, in part, 
to their departure from the coordinated care model of other MA plans. 
At the same time, PFFS enrollments have been at the center of many of 
the incidents of marketing misconduct and abuse reported by Medicare 
counselors in California and across the country.
    The main selling point for PFFS plans has been that they do not 
restrict enrollees to a specific network of providers. Instead, PFFS 
plans rely on ``deemed'' providers who knowingly provide services to 
plan members and are therefore required to accept the plan's conditions 
and payments.\2\ Providers who refuse to provide services to plan 
members are non-contracted providers. Generally, plan representatives 
have sought to create the impression that the structure of PFFS plans 
is comparable to Original Medicare or Original Medicare and a Medigap 
because of the absence of network restrictions on providers.
---------------------------------------------------------------------------
    \2\ PFFS can also contract with providers to form a network. Most 
PFFS plans, however, rely on ``deemed'' providers who can choose treat 
enrollees on a per patient, per episode basis.
---------------------------------------------------------------------------
    In the one-on-one marketing pitch, prospective enrollees are told, 
``You can see any doctor you want,'' or ``You can see any doctor that 
accepts Medicare'' without regard to which providers will actually 
accept the plan's payments. The reality is quite different. Enrollees 
can go to any Medicare provider only if the provider is willing to 
accept the specific PFFS plan's fees and terms.\3\ As discussed below, 
our experiences have shown that many PFFS enrollees have had problems 
finding providers who are willing to accept PFFS plans.
---------------------------------------------------------------------------
    \3\ A provider will become a ``deemed'' contracted provider of a 
PFFS plan and treated as if s/he has a contract in effect with the plan 
if: the services are covered in the plan and are furnished, and, before 
furnishing the services, the provider was informed of an individual's 
enrollment in the plan and given a reasonable opportunity to obtain 
information about the terms and conditions of payment under the plan. 
See, e.g. 42 CFR Sec. 422.216(f).
---------------------------------------------------------------------------
Commissions Paid to Agents
    One of the primary forces driving inappropriate sales of certain 
plans, we believe, is the varying commissions that plans can pay agents 
selling Medicare products. The current commission structure employed by 
most (if not all) plans--and allowed by CMS--permits marketing agents 
to steer consumers to plans that generate higher commissions as well as 
revenues for the company, regardless of whether such products are the 
most suitable choice for an individual consumer. We have found that it 
is not uncommon for insurance companies to pay up to five times the 
commission for a Medicare Advantage enrollment versus a stand alone 
Part D prescription drug plan (PDP) enrollment.\4\
---------------------------------------------------------------------------
    \4\ See, e.g., ``Oklahoma Chides Insurer in Medicare Marketing 
Case'' by Robert Pear, New York Times, May 15, 2007--Oklahoma Insurance 
Dept. found that Humana paid agents selling MA plans ``five times as 
much as the commission for selling'' a PDP; also see ``What 
Stakeholders Should Expect from Medicare Part D in 2007,'' presentation 
by Gorman Health Group (December 2006).
---------------------------------------------------------------------------
    The link between aggressive marketing and the level of 
profitability for both agents and insurance companies is clearly 
demonstrated through the marketing of private-fee-for-service (PFFS) 
plans. Based upon our collective experiences with cases of marketing 
misconduct associated with the sale of Medicare products, we believe 
that higher commissions paid for enrolling beneficiaries in PFFS plans 
in particular (and Medicare Advantage plans in general) have rewarded 
overly aggressive and unscrupulous behavior by agents, resulting in 
real harm to beneficiaries. Plans and agents that steer people towards 
PFFS plans may be driving up costs borne by the Medicare program since 
PFFS plans currently receive more in overpayments than other plans. All 
Medicare beneficiaries are therefore subsidizing PFFS plans, whether or 
not they are enrolled in one.
Agent Training
    Consumer advocates have found that many agents selling PFFS plans 
lack adequate training and understanding of the products they are 
selling and are also unaware of the impact that enrolling in these 
products might have on prospective enrollees. This is particularly 
alarming because agents who convince individuals to enroll in a PFFS 
plan can disrupt current drug or supplemental insurance coverage and 
even trigger an irrevocable loss of retiree coverage. Despite much 
apparent effort on the part of plan sponsors to motivate their 
contracting sales-forces to maximize sales, plan efforts to properly 
train their contracting agents fall short as many agents appear to be 
uneducated or even misinformed about the products they are desperately 
trying to sell. As we have experienced in our conversations with 
several agents, even those who are trying to do the ``right thing'' 
sometimes find it hard to obtain adequate information about the plans, 
from the plans themselves.
III. MARKETING MISCONDUCT
    The confusing structure of the PFFS plan model, the commission 
structures that pay agents more money to enroll beneficiaries in MA 
products, and the lack of adequate oversight and training of agents by 
plans offering PFFS products has led to a storm of marketing abuse over 
the last year and a half. While our agency has encountered marketing 
misconduct relating to the sale of other MA plan types as well as 
stand-alone PDPs, the vast majority of misconduct we have seen has 
related to the sale of PFFS plans. As reported by the National 
Association of Insurance Commissioners, 39 out of 41 states responding 
to a recent survey said they had received complaints about 
misrepresentations by insurance agents or companies in marketing 
Medicare-related products.\5\ As discussed below, this marketing 
misconduct has ranged from outright fraudulent sales practices to 
misleading sales due to the general ignorance about PFFS plans among 
many agents.
---------------------------------------------------------------------------
    \5\ ``Oklahoma Chides Insurer in Medicare Marketing Case'' by 
Robert Pear, New York Times, 5/15/07
---------------------------------------------------------------------------
    Most egregiously, there have been reports across the country of 
Medicare beneficiaries being signed up for plans without their consent 
or knowledge.\6\
---------------------------------------------------------------------------
    \6\ See, e.g., ``Oklahoma Chides Insurer in Medicare Marketing 
Case'' by Robert Pear, New York Times, 5/15/07--``Twenty-two states 
reported complaints of fraudulent activity like falsifying signatures 
on applications''; also see ``Insurance Agents Charged with Defrauding 
Elderly'' by Kelli Hernandez, The Valdosta Daily Times (Valdosta, GA)/
Union-Recorder (Milledgeville, GA) 4/12/07--profiles the arrest of two 
former insurance agents selling Medicare Advantage products who ``are 
alleged to have visited nursing homes and convinced seniors to fill out 
paperwork under false pretenses or gained personal information through 
conversation and forged signatures to sign consumers up for the 
products without their knowledge''; also see ``Medicare Plans Under 
Scrutiny--Complaints are Adding Up from Seniors Upset with Private 
Health Care Packages'' by Victoria Colliver, San Francisco Chronicle, 
1/26/07--profiles Mrs. N., a 78 year old dual eligible living in 
Sacramento on less than $800 a month, who was approached by an agent 
selling Secure Horizons PFFS plans outside her housing complex last 
summer asking many questions; Mrs. N. answered the agent's questions, 
but says she did not sign up for the plan, but later received Secure 
Horizons enrollment materials. As she began to rack up hundreds of 
dollars in bills for medical expenses, her daughter asked the company 
for a copy of the enrollment application, and found that her mother's 
signature was forged.
---------------------------------------------------------------------------
    Example: Mrs. D., of rural Placer County, CA, a Medicare 
beneficiary who is legally blind, attended a seminar at a senior center 
presented by agents selling a PFFS plan. She was asked to sign an 
attendance sheet. At the end of the presentation, she decided to stay 
with her current PDP coverage, and when asked, made it clear to the 
agents that she was not interested. The next day she received a 
verification call from the plan sponsor of the PFFS product, and Mrs. D 
repeated that she did not want to join this plan. Nonetheless, she 
later received a letter from her PDP informing her that she was being 
disenrolled because she is now enrolled in the PFFS plan she did not 
want.
    Prospective PFFS enrollees are also told outright lies in order to 
scare them into joining plans, such as ``Medicare is going private'' or 
that they will lose their Medicare or Medicaid unless they sign up for 
a particular plan.
    Example: Ms. L., a dual eligible living in the Sacramento area, was 
told by an agent selling PFFS plans that Medi-Cal (the state Medicaid 
program) ``was going out of business'' and that coverage ``was now 
transferred to private pay plans'' in an effort to convince her to join 
the plan.
    CMS Marketing guidelines prohibit unsolicited door-to-door sales by 
agents selling MA and PDP products. Despite this prohibition, though, 
this practice continues unabated as we regularly hear about Medicare 
beneficiaries who receive such visits. Some agents, perhaps aware of 
this prohibition, will cold call an individual but not appropriately 
identify themselves and/or the purpose of their call, and will later 
show up at the person's house (and, if necessary, use the ``cover'' of 
their previous call to argue that the visit was not unsolicited). Some 
agents misrepresent themselves as being from Medicare, Social Security, 
or even the local State Health Insurance Program (SHIP). Others do not 
identify themselves as agents selling plans, but instead as a 
``Certified Medicare Advisor'' or ``Senior Advisor'' who would like to 
pay a friendly visit to educate you about changes to Medicare.
    Example: Ms. F., a Medicare beneficiary in rural Tehama County, CA, 
was called by someone saying they were ``with Medicare'' and that 
seniors ``do not have to have a Medicare Supplemental insurance plan'' 
and that ``Medicare is calling 65,000 seniors in the area to tell them 
that they should drop their plan, and choose one without a premium.'' 
The caller then said that someone would call Ms. F. to set up an 
appointment to come to her home and explain everything. Ms. F. then 
reports that an agent selling PFFS plans subsequently showed up at her 
door without an appointment after the first solicitation call, however 
Ms. F. did not enroll in the plan. Mr. M., however, who lives nearby 
and who received virtually the same call, was later visited by an agent 
selling a PFFS plan who told him that he could go to any doctor that 
accepted Medicare and as a result he signed up. Mr. M. later found out 
that half his doctors do not accept this plan.
    Some agents have been outright abusive to prospective enrollees 
either in an attempt to make a sale at any cost, or in response to 
complaints made about an agent's previous conduct.\7\ In culturally and 
linguistically diverse states such as California, some agents take 
advantage of individuals with limited English proficiency by making 
sales when neither the agent nor the applicant can adequately 
communicate with one another.
---------------------------------------------------------------------------
    \7\ See, e.g., ``Sales Tactics Unhealthy for Care Plans'' by 
Victoria Colliver, San Francisco Chronicle, 5/16/07--profiles ``strong-
arm tactics used by a health care salesman'' who ``became verbally 
abusive'' with a prospective plan enrollee when she was hesitant to 
enroll.
---------------------------------------------------------------------------
    Example: Ms. S., a dual eligible living in California's Central 
Valley whose primary language is Spanish, received an unsolicited visit 
at her home by an agent selling a PFFS plan but who spoke little 
Spanish. Ms. S. understood the agent to tell her that the PFFS plan 
would not affect her Medicare and Medi-Cal coverage, however if she did 
not sign up for the plan, Medi-Cal would take her house away from her. 
She enrolled in the plan but subsequently found that her doctors do not 
accept this plan, she has had to pay co-payments out of pocket that she 
previously did not have, and found that the PFFS plan does not cover 
all of her prescriptions that she previously had covered.
    A frequent--and disturbing--practice by agents involves going to 
senior or disabled subsidized housing complexes or senior centers 
either without invitation or under false pretenses such as giving a 
presentation about ``Medicare changes.'' After a minimal (or no) 
presentation about a particular plan, the agents enroll a large number 
of beneficiaries all at once, without taking the time to explain the 
plan and the consequences of enrollment to each individual.\8\
---------------------------------------------------------------------------
    \8\ See, e.g., ``A Multitude of Medicare Plans'' by Tom Kisken, 
Ventura County Star, 4/1/07--profiles a sales session at an adult day 
care center by an agent selling PFFS plans, leading to ``about 30 area 
seniors [to] say they were misled by overly aggressive agents and are 
trying to revoke their private Medicare plans.'' ``The agent gave a 
short presentation on the plan and then he and others started signing 
up people, asking for Medicare identification numbers and other 
information--They were very aggressive about going to each table and 
getting people to sign up,' said [a] social worker--They were very 
pushy.' Center administrators and the seniors said they thought the 
agent was selling a supplemental plan that added to their Medicare 
benefits.''
---------------------------------------------------------------------------
    In addition to outright fraudulent sales practices, many PFFS 
marketing misconduct cases stem from the misrepresentation of plans 
that appears to be the result of either an agent not understanding the 
product s/he is selling, and/or the applicant not understanding the way 
the plan works (but the agent makes the sale anyway). The sheer number 
of Medicare Advantage and Part D plan options, the confusing structure 
of PFFS plans, the commissions paid to agents for the sale of certain 
plans and inadequate training of agents by plan sponsors (as discussed 
above) lead to many individuals enrolling in plans that they did not 
want or do not need.
     Example: Mr. S. attended a breakfast sales presentation by an 
agent selling PFFS products at a local coffee shop in rural Northern 
California. Mr. S. wanted a Medigap plan, but the agent showed him 
brochures for several different kinds of plans. Since the agent made a 
PFFS ``sound like it was a Medigap,'' Mr. S. enrolled in the plan but 
later found out that his providers did not take this plan.
    Many agents describe PFFS plans as allowing enrollees to see ``any 
doctor you want''--including prospective applicants' current 
providers--without explaining the crucial caveat that seeing an 
individual provider depends upon that provider accepting the terms and 
conditions of a given plan. As discussed below, many enrollees find 
that their own doctors will not accept such plans, and many have 
trouble finding any local doctor, clinic, hospital or other provider 
willing to do so.
IV. EXPERIENCES of PFFS ENROLLEES
    As an agency that provides technical support to California's SHIP 
network, it is natural for us to primarily hear about problems that 
arise versus successes within the Medicare program. While we do 
occasionally hear about a PFFS enrollee who not only fully understands 
the way his/her PFFS plan works and is satisfied with it, or a doctor 
who is willing to accept a PFFS plan, this scenario is not the norm.
Many Providers Unwilling to Accept PFFS Plans
    While Medicare Advantage coordinated care plans are required to 
maintain an adequate provider network, PFFS plans have no such 
requirement. As a result, our experience with PFFS plans has shown that 
many enrollees have found that they are unable to see their current 
longtime physician or obtain services from trusted hospitals, clinics 
and other providers in their area as they learn that these providers 
are unwilling to accept the terms and conditions of their plan. 
Numerous PFFS enrollees report difficulty in finding any physicians who 
will agree to treat them. Similarly, many physicians are expressing 
frustration with these plans, including feeling ``forced into an 
unacceptable choice of either abandoning established patients who sign 
up for [PFFS plans] or having to accept the terms of 
participation.''\9\
---------------------------------------------------------------------------
    \9\ See American Medical Association House of Delegates, New Mexico 
Delegation, ``Deemed Participation and Misleading Marketing by Medicare 
Advantage Private Fee for Service Plans'' Late Resolution: 1001 (I-06), 
Received 10/25/06
---------------------------------------------------------------------------
    While it is virtually impossible to determine how many providers in 
a given service area are willing to accept any PFFS plans because such 
plans do not rely on established networks, it has become abundantly 
clear that many providers are unwilling to do so. Advocates across the 
country report counseling Medicare beneficiaries who enrolled in PFFS 
plans only to find that their own doctors won't accept their plan, and 
that often they can find no doctors who will do so. This phenomenon is 
reflected in recent media reports as well.\10\
---------------------------------------------------------------------------
    \10\ See, e.g., ``Growing Pains of Private Medicare Plans'' by Jane 
Zhang, Wall Street Journal, 5/8/07--``while most doctors accept 
patients who are in the traditional [Medicare] program, some have 
declined to treat patients in PFFS plans''; the article also profiles 
Mr. S. who signed up for a PFFS plan in Oregon but ``soon discovered 
that his doctor wouldn't accept PFFS payments, though, and that no 
other internists were available in his area''; ``Any, Any, Any Plan May 
be in Trouble'' by Harry Wessel, Orlando Sentinel, 3/15/07--``Many 
doctors and hospitals do not accept the Any, Any, Any plan''; 
``Medicare Headache: Health Care Providers Refuse to Accept Advantage'' 
by Naseem Sowti, Star-Banner (Ocala, Fla.), 3/29/07--the article 
profiles Mr. B., who enrolled in a PFFS plan and ``is yet to find a 
provider here who accepts the plan.'' The article notes that ``many 
providers are now refusing to accept Medicare Advantage plans''; 
``Medicare Advantage Often Useless'' by Karen Garloch, Charlotte 
Observer (NC), 2/25/07--article states ``Some health insurance 
companies are misleading seniors into buying Medicare Advantage plans 
that are not accepted by many North Carolina doctors and hospitals, 
state insurance officials warned Thursday''; ``Promises, Promises--
Better check the fine print on that newfangled Medicare plan'' by 
Michelle Andrews, U.S. News & World Report, 2/19/07 ``Although the lack 
of networks makes the PFFS plans seem similar to original Medicare, 
many doctors and hospitals are wary of these plans and refuse to treat 
patients who sign up for them''; ``Medicare Plans Under Scrutiny--
Complaints are Adding Up from Seniors Upset with Private Health Care 
Packages'' by Victoria Colliver, San Francisco Chronicle, 1/26/07--the 
article profiles a 74-year old Oakland man who signed up for a WellCare 
PFFS plan that was supposed to provide free medication, but found that 
his pharmacy and doctor refused to accept it.
---------------------------------------------------------------------------
Access to Benefits and Out of Pocket Costs
    In addition to problems finding providers who are willing to treat 
them, some PFFS enrollees face higher out of pocket costs for services 
in PFFS plans or find that services that were previously available to 
them are not covered by their new plan. Some Medicare Advantage plans 
in general, and PFFS plans in particular, charge greater out of pocket 
expenses for certain services than the Original Medicare program, such 
as in-patient hospital stays, skilled nursing facility visits, cost-
sharing for drugs covered under Part B, and durable medical equipment. 
Rarely are these caveats explained to prospective enrollees.
    Example: Mr. and Mrs. H. who live in Visalia, CA, signed up for a 
PFFS plan after being promised by an agent that this plan ``would not 
replace their coverage under the regular Medicare plan; it would just 
make it better'', ``all doctors would take'' their plan, and that 
``they'd pay less under the new plan.'' The H.'s found that their 
doctor would not accept the plan, and that Mrs. H.'s $1,600 injection 
she needs every two weeks for her congestive heart failure was not 
covered (as it was under her previous plan). \11\
---------------------------------------------------------------------------
    \11\ Note: the H.'s are profiled in ``Promises, Promises--Better 
check the fine print on that newfangled Medicare plan'' by Michelle 
Andrews, U.S. News & World Report, 2/19/07.
---------------------------------------------------------------------------
Undoing the Damage
    Many victims of marketing abuse as well as PFFS enrollees who 
encounter trouble accessing services in their plans do not know where 
to turn. Plan sponsors--who are charged with policing the activity of 
their agents--often prove less than helpful when beneficiaries complain 
to them about marketing abuse. When new PFFS enrollees complain to 
their plan that they cannot find any providers willing to accept the 
plan, beneficiaries are commonly told that the plan will simply send an 
``information packet'' to their physician, in an attempt to persuade 
the doctor to accept the plan.
    Most Medicare beneficiaries are restricted in their ability to 
switch, change, or disenroll from MA and Part D plans to certain times 
of the year. If a PFFS enrollee wants to get out of a plan that is not 
right for them outside of an applicable enrollment period, they must 
first be aware of their right to do so, and then be able to demonstrate 
to CMS that marketing misconduct has occurred in order to be entitled 
to a special enrollment period (SEP) to disenroll from the plan. Many 
Medicare beneficiaries are unaware of both their rights and their 
ability to get help from SHIP programs and other types of assistance.
    Working with CMS to process these SEPs and retroactive 
disenrollments can be problematic as there are no standard timelines 
for CMS to render decisions, follow up is inconsistent, and often 
decision-making about whether to grant such requests is passed back to 
the plans themselves. Advocates report very mixed results when trying 
to use CMS processes to resolve enrollment and disenrollment disputes, 
with timeliness and level of feedback often dependent upon which CMS 
personnel ends up with a particular case. Sometimes disenrollment due 
to marketing misconduct--or other reasons--can take many weeks (or 
months), and, in some instances in which beneficiaries are 
retroactively disenrolled from a Medicare Advantage plan with Part D 
prescription drug coverage, can leave a beneficiary with no Part D 
coverage at all.
V. DUAL ELIGIBLES and PFFS PLANS
    We continue to see a disturbing trend of plan sponsors and their 
contracting agents marketing PFFS plans to individuals who are dually 
eligible for Medicare and Medicaid, although enrollment in a PFFS plan 
appears to offer little, if any, tangible benefit to dual eligibles. 
Dual eligibles in Original Medicare are already entitled to zero cost-
sharing and benefits ancillary to Medicare. Any potential added 
benefits a dual eligible might receive through enrolling in a Medicare 
Advantage coordinated care plan are diminished by PFFS plan 
enrollments. Enrollment in a PFFS plan can leave, and, in many cases, 
has left, dual eligibles worse off by creating access to care issues, 
including loss of providers, and greater out of pocket expenses. 
Despite repeated requests, neither CMS nor plan sponsors are able to 
explain how the benefits offered to duals are better or more 
comprehensive than what duals already receive under Original Medicare 
and Medicaid (beyond statements such as they will receive ``rich, 
incremental benefits'' beyond Medicaid's).\12\
---------------------------------------------------------------------------
    \12\ Note: our own analysis of the benefits of one PFFS plan being 
marketed towards duals in California--WellCare's Duet plan--has 
revealed that a dual eligible is only entitled to the additional 
nominal benefit of a pair of eyeglasses every year, whereas the state 
Medicaid agency provides eyeglasses every two years.
---------------------------------------------------------------------------
    Example: Mrs. P., a dual eligible living in California's Central 
Valley whose primary language is Spanish, was recently widowed and had 
relied on her husband to take care of her health and financial 
dealings. She visits her physician 3-4 times a month due to a heart 
ailment. Mrs. P. received an unsolicited visit from an agent selling a 
PFFS plan who she says pressured her into signing up for the plan. Mrs. 
P. found out that her doctor does not take her plan, and she has been 
charged co-payments that she did not previously have to pay.
    There is evidence that even some sponsors of PFFS plans realize 
that such plans are not the best option for dual eligibles. In a 
February 2007 memo to agents selling their product, Coventry/Advantra 
states: ``Coventry Health Care believes that our Private Fee for 
Service Advantra Freedom products may not be the best health care 
coverage solution for Medicare beneficiaries who have both Medicare and 
Medicaid coverage (dual eligible).'' The memo goes on to state several 
reasons for this conclusion, including: ``[o]ur Advantra Freedom 
products will in many cases increase their financial exposure for 
covered services in the form of increased co-pays or coinsurance''; 
``[c]oordination of benefits with most states is often arduous and in 
some cases, state Medicaid departments prohibit coordination of 
benefits with Medicare Advantage plans.'' \13\
---------------------------------------------------------------------------
    \13\ See Coventry/Advantra Freedom memoranda to ``Advantra Freedom 
Agents'' entitled ``Private Fee For Service Dual Eligible Enrollment'' 
(http://www.advantrafreedom.com/content/plan/91/
DPDualEligibleGuidance.pdf)
---------------------------------------------------------------------------
    Other sponsors offering PFFS plans, however, have ignored this 
reality and continue to target this vulnerable population. Dual 
eligibles are being signed up for plans that their doctors will not 
accept and do not cover the drugs that they take. They are facing large 
bills that they should not have and cannot afford, and do not 
understand why they cannot get the medical services to which they 
previously had access. Duals have been enrolled without their knowledge 
into new plans, and some duals have been enrolled into many plans, 
which has confused their coverage and billing, their doctors and the 
plans themselves.
VI. RECOMMENDATIONS
    The problems concerning PFFS plans relate not only to their sale, 
but to their structure, requiring both broad and specific changes. In 
our joint report with the Medicare Rights Center entitled ``After the 
Gold Rush'' we made several recommendations about the marketing of PFFS 
plans, including ensuring that enrollees had adequate access to 
providers in their area.\14\ CMS has recently offered some proposals to 
address marketing abuses, but we believe that these measures do not go 
far enough to fix the entire range of problems generated by PFFS plans 
specifically and Medicare Advantage plans generally.
---------------------------------------------------------------------------
    \14\ See: http://www.cahealthadvocates.org/_pdf/advocacy/2007/CHA-
MRC-Brief-AfterTheGoldrush -2007-01.pdf
---------------------------------------------------------------------------
Specific Recommendations re: PFFS Plans
    We would like to acknowledge that CMS has recently identified the 
need to improve beneficiary protections with respect to the marketing 
of Medicare products, as evidenced in their proposed enhanced oversight 
measures outlined in the Final 2008 Call Letter to Medicare Advantage 
and Part D Plans.\15\ CMS does not, however, take immediate, decisive 
action that would send a clear message to plan sponsors. The Call 
Letter states that CMS is ``considering several plan oversight 
features'' including: required disclaimer language in all marketing and 
enrollment as well as sales presentations; requiring plans to provide 
documented training of marketing agents and brokers; using a contractor 
to conduct ``secret shopper'' tests on sales and outreach activities; 
and requiring plans to perform ``outbound verification calls'' to all 
new applicants to verify that they understand the plan features and do 
in fact want to enroll. We strongly encourage CMS to implement and 
strengthen their proposals under consideration, as well as mandate new 
requirements as follows:
---------------------------------------------------------------------------
    \15\ The Final Call Letter is available at: http://www.cms.hhs.gov/
PrescriptionDrugCovContra/Downloads/CallLetter.pdf

      Verification calls--must be scripted by CMS and performed 
by an entity independent of the plan; we continue to hear from 
individuals who received such calls (from companies that have already 
been required to do so through CMS corrective plans) yet still are 
confused about what they were told and who still wish to disenroll.
      Secret shopper programs, while helpful, appear to be 
reliant upon information that plans and agents provide regarding 
scheduled sales presentations. Such efforts will not effectively 
prevent prohibited door-to-door visits or monitor unscheduled, 
unsolicited sales at residences/facilities that often result in mass, 
one-time plan enrollments. In order to curb this practice, we call for 
prohibitions against marketing in these facilities, particularly in 
facilities with large numbers of low income, vulnerable dual eligibles.
      PFFS plans should be required to verify that a 
prospective enrollee's doctor(s) will accept the plan prior to 
processing enrollment.
      PFFS plans should not be sold in areas in which a 
threshold number of providers do not accept the plan. Therefore plan 
sponsors should, prior to selling plans in a given area, poll major 
providers (e.g. hospitals, clinics, physician groups) in that area to 
ensure that enrollees will have sufficient access to 
providers.Mandatory agent training--CMS should require all MA plans 
(and PFFS sponsor in particular) to provide a standard curriculum with 
accompanying testing by an outside 3rd party. Minimum training should 
include: an overview of Medicare and all types of products (MA, PDP, 
Medigap); and how Medicare interacts with other coverage such as 
Medicaid, retiree coverage, VA, etc. In addition, agents should be 
required to provide information to each prospective enrollee about how 
to reach their local SHIP program.
      CMS must standardize and streamline the process through 
which plan enrollment and disenrollment disputes are handled, including 
SEPs and retroactive disenrollment requests. Absent a meaningful, 
standardized appeals process designed for these issues, resolution of 
beneficiary problems will remain inconsistent and incomplete.
      Public disclosure of corrective actions--when advocates 
file complaints with Medicare about plan conduct, the results of these 
complaints, if any, are rarely made available. In an effort to 
encourage Medicare beneficiaries to report bad plan conduct--and to 
deter plans from engaging in such conduct--CMS should make sanctions 
and other corrective plans/efforts it imposes on plans publicly 
available and easily accessible, including through their website.
      Dual eligibles and PFFS plans--as discussed above, 
enrollment in a PFFS plan appears to offer little, if any, tangible 
benefit to dual eligibles, and in many cases leaves them worse off 
regarding access to care and out of pocket expenses. Despite repeated 
requests, neither CMS nor plan sponsors have been able to explain how 
the benefits offered to duals are better or more comprehensive than 
what they already receive through Original Medicare and Medicaid. Dual 
eligibles and those that counsel them should have access to direct 
comparisons between benefits offered by PFFS plans and those available 
through state Medicaid programs. In addition, clear information about 
how and whether state Medicaid programs pay cost-sharing for duals 
enrolled in these plans, what liability duals have for plan co-payments 
when a provider is not participating in the state's Medicaid program, 
and how both enrollees and providers are educated about this process, 
needs to be made available. Unless plans can prove they provide 
meaningfully better and more comprehensive benefits than those 
currently available through state Medicaid programs, we call for a ban 
on the sale of PFFS plans to dual eligibles.
      Special exemptions that allow PFFS plans to operate 
without the basic consumer protections that currently apply to other MA 
plans should be removed. The most egregious of these exemptions forbids 
CMS from reviewing PFFS benefit packages to ensure they fairly and 
equitably reflect the payment they receive from Medicare.

Broad Medicare Advantage Recommendations
    Many Medicare experts--from academics to advocates--question both 
the wisdom of the PFFS plan model and relative expenditures between the 
Original Medicare program and Medicare Advantage plans generally and 
PFFS plans specifically. As a general principle, we believe that PFFS 
plans should play by the same rules as all other MA plans, and should 
be held to the same standards; the value of their benefit package 
should be commensurate with what they are paid. We are convinced that 
much of the marketing abuses flow from money--both paid to PFFS plan 
sponsors by Medicare, and to agents selling these plans through 
commissions. Unless payment to Medicare Advantage is on par with the 
Original Medicare program, and commissions are more uniform, financial 
incentives will continue to contribute to abusive sales of these 
products. In addition, there are several ways in which the Medicare 
Advantage program in general can be improved to better serve enrollees. 
We offer the following broad recommendations:

      Product standards and simplification--we believe that MA 
and Part D plans should be standardized and simplified so that Medicare 
beneficiaries can make meaningful comparisons, and plans can be held 
accountable for providing adequate benefits. Among other things, 
standardization should include limits on out-of-pocket spending, and a 
requirement that MA plans charge no more cost-sharing for services than 
what is charged under Original Medicare (e.g. inpatient and SNF stays, 
home health services, Part B drugs, DME, etc.)
      Apply the standardization and simplification requirements 
of the NAIC Medigap Model Act and Regulation to all Medicare Advantage 
and Part D plans, including:
          Loss ratio standards to limit administrative costs 
        and ensure adequate funds for medical care
          Guaranteed renewability requirements to ensure 
        stability of benefits
          Suitability requirements to ensure the right set of 
        benefits is sold to meet individuals' need
          Required disclosures that include notice of 
        availability of SHIP counseling
          30 day ``free look'' to allow time to examine plan 
        documents and seek counseling
          Replacement disclosure and standards to ensure that 
        people understand differences between current benefits and 
        replacement coverage
      State enforcement of marketing standards--all plans 
supposedly have protections in place, but marketing abuses continue; in 
addition, CMS has so far been lax in its oversight role of plans. 
Unless there is enforcement by state regulators that penalizes plans--
instead of just agents--abuses will continue. States should be 
empowered to enforce marketing guidelines along the same lines as the 
Medigap Model.
      Commission standards--the current commission structure 
employed by plan sponsors creates an incentive to sell certain MA plans 
over PDP plans, regardless of whether it is the best option for an 
individual. Medicare should require plans to adopt the concept of 
limiting replacement commissions to discourage inappropriate 
replacements (in other words, an agent should not get the same 
commission for selling a person a second PDP or MA plan versus the 
first time they enroll in one). Further, because enrollment in PFFS 
plans raise costs to Medicare, commission structures that create 
incentives for sale of PFFS plans over subsidized Medigap plans may 
bear scrutiny under anti-kickback and fraud and abuse statutes.
      Eliminate the lock-in provision--instead of restricting 
most beneficiaries to making plan choices to certain times of the year, 
we believe that all Medicare beneficiaries should be allowed to change 
plans on a monthly basis. Coupled with the recommendations we make 
above re: suitability standards and replacement commissions, this would 
allow enrollees to undo bad choices more easily.
VII. CONCLUSION
    In order to ensure that Medicare beneficiaries are able to access 
timely and quality health care as well as make informed decisions about 
how they wish to access their benefits through the Medicare program, 
Congress and CMS must: 1) act to protect Medicare beneficiaries from 
abusive practices relating to the sale of PFFS plans; and 2) assess the 
overall suitability of the PFFS plan model in relation to enrollees' 
ability to access benefits.
    Thank you for the opportunity to provide these comments.
    and a companion memo entitled ``Institutionalized Member 
Enrollments.'' (http://www.advantrafreedom.com/content/plan/91/
FCInstitutionalMembers.pdf)

                                 

    Chairman STARK. Thank you very much.
    Mr. Slabach, would you like to tell us what happens in the 
rural part of our country.

 STATEMENT OF BROCK A. SLABACH, ADMINISTRATOR, FIELD MEMORIAL 
COMMUNITY HOSPITAL, CENTREVILLE, MISSISSIPPI, ON BEHALF OF THE 
               NATIONAL RURAL HEALTH ASSOCIATION

    Mr. SLABACH. I would, please. Thank you. Mr. Chairman, 
Ranking Member Camp, and distinguished Members of this 
Committee, thank you for the opportunity to testify on the 
impact of MA Private Fee-for-Service plans in rural America.
    My name is Brock Slabach, and I serve as a board member for 
the National Rural Health Association (NRHA), and the privilege 
of being the administrator of a Critical Access Hospital in 
rural Mississippi, which also operates three rural health 
clinics.
    Mr. Chairman, rural Medicare beneficiaries deserve a 
Medicare plan that is sensitive to their needs and provides 
security to the fragile rural health care safety net. The NRHA 
is a national nonprofit membership organization whose mission 
is to improve the health of rural Americans by providing 
leadership on rural health issues. NRHA has a significant 
concern over the implementation of Private Fee-for-Service 
plans in rural America.
    In 2003, Congress fundamentally changed Medicare in ways 
not yet fully understood by both the public and providers. What 
we do now know is that MA plans, as they gain more rural market 
share, the consequences to rural health can be possibly quite 
negative.
    In 1997, the Balanced Budget Act created the Critical 
Access Hospital, which guaranteed cost-based reimbursement. 
This essential provision ensures access to care for those 27 
percent of Medicare beneficiaries that reside in rural America.
    These Private Fee-For-Service plans have the potential of 
completely undoing the reimbursement structure that Congress 
created. Rural America cannot wait to see what MA does or 
doesn't do. Potential problems need to be resolved before the 
MA program becomes entrenched. MA must be implemented in a 
manner that is sensitive to the needs of rural communities. If 
not, the negative impact on the rural health care 
infrastructure could take a generation to rebuild. Seniors 
should not be required to lose access to local health care 
services to gain the promise of increased benefits.
    Can MA Private Fee-for-Service plans impede access in rural 
communities? I believe that the answer is, quite simply, yes. 
These include several items:
    Unfair compensation to providers: Under such plans, 
providers often receive far lower reimbursement than under 
Medicare, and the system is plagued with intrusive 
precertification requirements and denial of claims. Each places 
the provider at risk.
    Confusing for the beneficiaries: This includes questionable 
marketing practices, as has already been discussed, seniors 
that don't fully understand the plan designs around Part D 
coverage, and there are many examples in my own community which 
I can detail later if you would like.
    Potentially place the health care safety net at risk in 
rural areas, and then the deficiency of coverage: While choices 
certainly for our seniors can be considered a good thing, it is 
when the beneficiary actually needs health care services is 
when they discover the gaps in their coverage. Often we in our 
facilities are the ones to communicate to the patient what it 
is that they have enrolled in at the time of service.
    While Congress debates this issue, it is important to 
remember that MA is still unfolding. With its full effect yet 
to be seen, and currently only 5.6 percent of rural 
beneficiaries are enrolled in MA plans, yet this causes concern 
as it is growing.
    In the past year enrollment has doubled, as has already 
been indicated, and 44 percent of Medicare beneficiaries are 
enrolled in MA plans. Therefore, Mr. Chairman, it is imperative 
that rural beneficiaries have the following assurances: 
appropriate access to local care; benefit equivalence to those 
offered in urban communities; and payment rates high enough to 
sustain a viable rural health care system.
    To that end, the NRHA makes the following recommendations 
to Congress:
    1) Ensure that rural providers receive equitable 
reimbursements in amounts no less than what they would have 
been paid by traditional Medicare. Legislation has been 
introduced to assure this.
    2) Payments to MA plans should not rely on payment 
mechanisms that reward regions with high utilizations at the 
expense of regions with lower utilization.
    3) Require CMS to engage with rural health experts 
regarding how to determine and enforce rural community access 
standards and mandate that MedPAC, which advises Congress on 
Medicare, have proportional rural representation.
    Then, finally, provide our own Federal Office of Rural 
Health Policy in HHS expanded authority to provide technical 
assistance and outreach on ways rural providers can collaborate 
in review of MA contracts.
    Mr. Chairman, Medicare must continue to improve, but the 
fragility of both our seniors and the rural health 
infrastructure demands something more than the MA plans offer 
today.
    We can and must do better for our seniors. Thank you for 
this opportunity to testify to this Committee today.
    [The prepared statement of Mr. Slabach follows:]
  Statement of Brock Slabach, Administrator, Field Memorial Community 
 Hospital, Centereville, Mississippi, on behalf of the National Rural 
                           Health Association
    On behalf of the National Rural Health Association (NRHA) and as a 
hospital administrator of a critical access hospital in Centreville, 
Mississippi, thank you for this opportunity to testify before the 
committee on the impact, or lack thereof, of Medicare Advantage (MA) 
plans, especially Private Fee-for-Service (PFFS) Plans, in rural 
America. The NRHA is a national, non-profit membership organization 
whose mission is to improve the health of rural Americans. NRHA 
provides leadership on rural health issues through advocacy, 
communications, education and research.
    Rural beneficiaries enrolled in PFFS disproportionately outnumber 
their urban counterparts and often require greater chronic care. Rural 
Medicare beneficiaries deserve a Medicare plan that is sensitive to 
their needs and provides security to the fragile rural health care 
safety net. This testimony focuses on the NRHA's concerns for MA 
expansion in rural areas across the nation and the NRHA's 
recommendations to Congress on how to best provide for the needs of our 
senior populations in rural America. Our primary concern is payment 
equity and access to care in the Medicare system, especially in 
traditional Fee-for-Service and PFFS, where rural beneficiaries are 
most likely to enroll.
Medicare Advantage for Rural America?
INTRODUCTION
    The enactment of the Medicare Prescription Drug Improvement and 
Modernization Act of 2003 fundamentally changes Medicare in ways not 
yet fully understood by either the public or providers. Medicare 
Advantage (MA) is intended to fulfill the goals of (1) substantially 
increasing the number of Medicare beneficiaries enrolled in private 
health insurance, based on the premise believed by many policy makers 
that competition among these private health plans and between these 
plans and the traditional fee-for-service Medicare program will reduce 
federal spending; and (2) creating opportunities for beneficiaries to 
enroll in richer benefit packages than available through traditional 
Medicare (sometimes with tradeoffs regarding choice of providers and 
drug formularies, and oftentimes at a higher cost than the cost of care 
under traditional Medicare fee-for-service). Policy makers may also 
believe, at least implicitly, that private health plans can be held 
accountable for healthy outcomes for enrollees, as measured against 
benchmarks established by the National Committee for Quality Assurance.
    The focus of my testimony is to address MA implementation in regard 
to PFFS issues relevant to rural communities. It assumes that the 
federal policy of ``privatizing'' Medicare to create a competitive 
structure to cut costs will continue. It is left to others to argue the 
probability of MA taking permanent root in rural America, in a way its 
predecessor, Medicare+Choice, did not. This is a serious question as 
currently only 5.6 percent of rural Medicare beneficiaries have joined 
a MA plan. However, those that join MA plans in rural America are five 
times more likely to join PFFS than their urban counterparts. What we 
know from this is that if MA plans gain rural market share, the 
potential consequences to rural health from PFFS is significant, and 
potentially quite negative.
    Rural America cannot wait to see what MA does or doesn't do. 
Potential problems need to be identified and resolved before the MA 
program becomes entrenched and less readily adjusted. MA must be 
implemented in a manner that is sensitive to the needs of rural 
communities. If not, the negative impact on the rural health care 
infrastructure could take a generation to rebuild. Medicare 
beneficiaries should not be required to lose access to local services 
to obtain the promise of increased benefits.
WHAT IS THE POTENTIAL DOWNSIDE OF MEDICARE ADVANTAGE IN RURAL 
        COMMUNITIES?
    With MA, beneficiaries' access to benefits and to local providers 
is determined by private sector health plan contracts with 
beneficiaries and with providers and only indirectly by Medicare. The 
spread of MA fundamentally changes how beneficiaries, providers, 
private health insurance plans, and the Centers for Medicare and 
Medicaid Services (CMS) will relate to and work with each other. As 
these relationships change, there is a real and significant risk to 
beneficiaries' access to local care and to the ability of rural 
hospitals and doctors to provide local services. Medicare must continue 
to improve, but the fragility of our seniors and the rural health 
infrastructure demand something more than the haphazard approach 
observed to date.
    Regional Preferred Provider Organizations (RPPOs) are MA private 
health insurance plans that must provide uniform benefit packages and 
premiums to all beneficiaries in a state or combination of states--
rural and urban areas alike. RPPO plans are required to gain a certain 
density of network providers within their geographic area or provide 
out-of-network services to beneficiaries at in-network cost-sharing 
levels. They differ from other MA health plans in this respect since 
all other types of MA plans are able to determine their own service 
area. As an incentive for the growth of RPPOs, Congress created a 
``stabilization fund'' that CMS can draw from to make ``extra'' 
payments to the RPPOs to incent their development. Congress was 
explicit in its intent to encourage private plans' growth in rural 
areas. In addition, many of these same insurers have the very real 
advantage of already contracting with beneficiaries for their Part D 
pharmacy coverage--the perfect platform from which to sell RPPO 
products. However, as of November 2006, there is very little enrollment 
in regional plans and the requirement that new PPOs must be regional 
expires on January 1, 2008. Therefore, enrollment in these regional 
plans may remain very low. Furthermore, the Tax Relief and Health Care 
Act reduced funding to the ``stabilization fund'' to $3.5 billion, and 
delayed availability until 2012.
    Private Fee-for-Service (PFFS), unlike other MA plans, are similar 
to traditional Medicare in that they do not include a care management 
component. Presently, PFFS plans are available in 96 percent of rural 
counties, and are the most prevalent type of private Medicare plan in 
rural areas. There are two kinds of PFFS plans that are quite 
different. The first, the ``non-network'' model, allows PFFS plans to 
operate without a contracted network of providers, but these plans must 
pay all providers at rates that are ``comparable to traditional 
Medicare rates.'' For providers whose payments are ``cost-based'' under 
traditional Medicare, this provision appears to be being interpreted as 
the provider's interim payment rate (without the usual year-end cost 
settlement). The second model, still rare, is a PFFS plan with a 
contracted network. Contracted or deemed providers in these plans may 
be paid at rates lower than traditional Medicare, if community access 
standards are met.
    Under both PFFS models, providers can be ``deemed'' (for a 
particular plan enrollee for a particular visit or admission) to be 
PFFS plan providers. This means, without knowing it, the provider may 
have agreed to accept the plan's terms and conditions, including the 
rate of payment. Three conditions must be met for a provider to be 
deemed a PFFS plan provider: (1) the provider must know that the 
patient is a member of a PFFS plan, (2) the provider must be aware of a 
PFFS plan's terms and conditions, and (3) the provider must perform a 
covered service for the patient. As a deemed PFFS plan provider, a 
provider must accept, as payment in full, whatever rate that particular 
PFFS plan pays their other contracted providers. This is a grave 
concern for many rural providers as it may have the effect of reversing 
programs established by Congress, such as Critical Access Hospitals and 
Rural Health Clinics, which have provided payments that allow access to 
care in rural communities. In addition, as ``non-network'' PFFS plans 
gain market share, it is reasonable to assume these plans will convert 
to the ``network'' PFFS model and become aggressive in negotiating 
rates below traditional Medicare payment rates and below the cost of 
care in rural communities.
    MA has the potential for significant beneficiary confusion. Choice 
is generally thought to be good but too much choice, too much variation 
among MA health plans, makes comparison shopping difficult, 
particularly for the elderly. The potential for confusion extends to 
the type of private plans and the relative merits of the type of plans 
in comparison to each other and to traditional Medicare, leading to a 
concern regarding potential abuse of the system. Testimony at field 
hearings by the National Advisory Committee on Rural Health and Human 
Services cited significant confusion by the elderly, an issue that is 
not unique to rural beneficiaries. Recently, the HHS Office of the 
Inspector General announced that the Office is evaluating whether 
certain health insurers are coercing beneficiaries to enroll in an MA 
plan that would include prescription drug benefit (MA-PD) versus a 
stand-alone drug benefit program.
    Enforcement of Community Access Standards is absolutely critical to 
prevent steerage of Medicare beneficiaries and inordinate leverage by 
MA plans against rural providers. The MA program statutes and 
regulations require CMS to ensure that plan enrollees have reasonable 
local access to covered services. How CMS and MA plans interpret what 
is ``reasonable'' is critically important to rural beneficiaries and 
providers as well as to the acceptance of MA plans in rural 
communities. As stated in the CMS Medicare Managed Care Manual: ``Plans 
must--ensure that services are geographically accessible and consistent 
with local community patterns of care.'' It is not known how or whether 
CMS is enforcing this provision with PFFS and RPPO plans. Anecdotal 
evidence to date indicates enforcement is lax at best.
    If beneficiaries enrolled in an MA plan are not well informed about 
their rights to access care locally, they are less likely to exercise 
that right. This knowledge is particularly important for enrollees in 
RPPO plans, since they have the right to obtain services from certain 
non-network providers at in-network rates if the plan's provider 
network is inadequate in the beneficiaries' area. If CMS does not 
diligently monitor and enforce plan compliance, plans will have 
significantly less incentive to contract with a region's rural 
providers, undermining the rural health infrastructure in the effected 
communities. Plans could end up steering rural beneficiaries away from 
their local health care providers, forcing beneficiaries to leave their 
community for care that's available locally. This loss of volume could 
lead to the closure of local services and loss of access to care for 
all beneficiaries in the community as well as all other local 
residents.
    MA has the potential to destabilize the existing rural safety net. 
Whether or not MA plans will honor existing rural add-on payments for 
safety net providers is not known. All MA plans, except ``non-network'' 
model PFFS plans, are permitted to negotiate payment rates with 
providers at levels below amounts the providers would receive under 
traditional fee-for-service Medicare. This is a process that seems to 
favor the MA plans, particularly in rural areas where providers may 
have little managed care contracting experience and little or no 
negotiating power such as in less remote areas where MA plans can 
threaten to steer patients to other contracted providers. In some rural 
areas, individual providers may be able to force fair negotiations 
because of isolation from other providers and therefore a position of 
strength vis-`-vis health plans needing to include them to meet access 
standards.
    Under traditional Medicare, many rural providers receive special 
payment rates to reflect the various financial challenges of providing 
health care in rural areas. These payments were factored into CMS' 
benchmarking process that's described below. There is a concern whether 
the MA plans will recognize these targeted rural special payments that 
have been part of traditional Medicare payments to rural providers.
    The promise of additional benefits to beneficiaries from MA plans 
is unevenly distributed. The technical specifics of the MA bidding 
process create inequities in the availability of plans with reduced 
cost sharing or additional benefits in rural areas. The benchmarks used 
in the bidding process are based on historical Medicare fee-for-service 
payments at the county level, incorporating historical geographical 
variation in Medicare expenditures. In general, urban areas have higher 
physician-to-patient ratios, higher rates of utilization and 
consequently higher benchmark rates. The degree to which rural county 
level payment ``floors'' mitigate this issue is not known. 
Opportunities for additional savings and benefits should not be based 
on a system that primarily rewards areas that historically have excess 
utilization and provides minimal incentives to maintain reasonable 
utilization in those places where the amount of care provided is 
already close to appropriate levels, or in fact too low.
    Traditional Medicare is not a safe harbor. If the past is a guide, 
economic incentives will incent MA plans to expand by attracting 
healthier, lower-cost beneficiaries from traditional Medicare (based on 
the experiences of Medicare HMOs in the 1980s and 1990s). This would 
have a negative effect on the traditional Medicare program, leaving it 
with a disproportionate number of sicker and older patients. 
Traditional Medicare would be left burdened with higher costs, 
increasing the political pressure to reduce traditional Medicare's 
benefits and provider payments. The actual impact of enrollment in MA 
plans will be more complex than earlier managed care efforts because of 
provisions of the 2003 legislations that provided for full 
implementation of risk adjustment, use of corridors to protect plans 
from unpredicted risk associated with adverse selection, and enrollment 
in special needs plans that are marketed specifically for chronically 
ill beneficiaries (the number of such plans grew in 2006 and again in 
2007). Nevertheless, the possibility remains that the earlier 
experience of favorable risk enrollment in MA plans could be repeated.
    CMS needs to walk the transparency talk. CMS's Hospital Compare web 
site is based on the concept that it is good to make provider 
performance available to the public. Similarly, detailed data 
describing CMS and plan performance must be publicly available. Just 
one example: enrollment figures for MA plans in rural communities were 
not made public until almost a year after MA plans began enrolling 
beneficiaries. How plans are managing the communication with 
beneficiaries around the key issue of access standards and how CMS is 
monitoring compliance to these standards is also unknown.
RECOMMENDATIONS of the NRHA
     The Congress should pass legislation that ensures Critical 
Access Hospitals and Rural Health Clinics are paid by MA organizations 
an amount equivalent to or no less than they would be paid by 
traditional Medicare. The Rural Health Services Preservation Act of 
2007 (S. 630, H.R. 1563, and H.R. 2159) is an example of recommended 
legislation.
     CMS must engage with rural health experts regarding how 
best to determine and enforce rural community access standards 
consistent with individual communities' historic/present patterns of 
care. CMS must also engage with rural citizens about these standards by 
developing more user--friendly web sites, train more call center 
workers who understand the ``older learner'' and/or their (mature) 
children or friends who have questions.
     CMS must take action to ensure that beneficiaries are 
given the information and support to allow them to make well-informed 
decisions, particularly for rural beneficiaries who typically have less 
experience with managed care.
     CMS Regional Offices must regain their role as an access 
point by providers in their regions for definitive MA information and 
an ombudsman for dispute resolution with plans.
     CMS needs to continue providing county or equivalent 
specific plan enrollment data and in a timely manner (quarterly over 
time).
     A web site is needed for providers to verify 
beneficiaries' current plan enrollments.
     The approval process of MA plans and amendments needs to 
be transparent, including web-based access to the details of the 
approved applications.
     Payments to MA plans should not rely on a payment 
mechanism that rewards regions with high utilization at the expense of 
regions with lower utilization.
     Administration of PFFS plan payments to non-contracted 
providers needs to be improved. Situations where intermediaries 
artificially keep interim rates low as well as the fact that the CRNA 
pass-through and bad debt are not included in interim rates, need to be 
addressed.
     The Federal Office of Rural Health Policy should be given 
expanded authority to provide technical assistance and outreach on ways 
rural providers can collaborate in the review of MA contracts.
     Congress should increase funding for local organizations 
serving the elderly to provide increased technical assistance to 
beneficiaries enrolling in MA plans.
     State insurance commissioners' offices should be 
encouraged to act as state level ombudsmen for rural beneficiaries 
enrolled with MA plans.
CONCLUSION
    Medicare Advantage is still unfolding, with its full effect yet to 
be seen. If the privatization of Medicare in rural America is only 
partially accomplished, the rural health landscape will be 
significantly transformed. It is imperative that (1) rural 
beneficiaries are ensured appropriate access to local care, (2) rural 
beneficiaries have access to and receive the benefits equivalent to 
those able to be offered by MA in urban communities, (3) payment rates 
are high enough to sustain a viable rural health system, and that (4) 
the relationship among beneficiaries, providers, plans and, CMS be well 
integrated.

                                 

    Chairman STARK. Thank you.
    Catherine Schmitt is the Vice President of Federal Programs 
for Blue Cross Blue Shield of Michigan. Would you care to 
enlighten us in any manner you are comfortable, Ms. Schmitt.

  STATEMENT OF CATHERINE D. SCHMITT, VICE PRESIDENT, FEDERAL 
   GOVERNMENT PROGRAMS, BLUE CROSS BLUE SHIELD OF MICHIGAN, 
                       DETROIT, MICHIGAN

    Ms. SCHMITT. Mr. Chairman, Representative Camp, and Members 
of the Committee, as previously stated, my name is Catherine 
Schmitt and I am Vice President of Federal Programs at Blue 
Cross Blue Shield of Michigan. I appreciate the opportunity to 
testify on the Private Fee-for-Service option in the MA 
program.
    Blue Cross Blue Shield of Michigan is a nonprofit health 
plan that :]serves nearly five million members, of which 
440,000 are beneficiaries enrolled in government-contracted MA, 
Private Fee-for-Service, and Part D products in every county in 
Michigan. My testimony today focuses on the importance of this 
option in meeting the needs of employer and union retirees in 
the state of Michigan.
    We believe that it is critical to preserve the option 
because it is the only MA product available today for bringing 
uniform integrated health benefits nationwide to the retirees 
of major employees and unions. This option allows employers, 
like the Michigan public school retirees, which includes the 
cafeteria workers, bus drivers, and custodians, to provide 
nationwide retiree health plans identical to the benefit 
programs they offer other group members, incorporating the same 
care management features through a single plan.
    There are three key reasons why it is important to preserve 
the product. First, care coordination: There is a common 
misperception that these plans cannot provide any advantages 
with regard to improving member health. In fact, this is one of 
the key reasons why employers are interested in this product. 
Our plans offer care coordination and management for disease 
that commonly afflict the elderly through an integrated benefit 
package. For example, we provide access to 24 by 7 nurse 
consultants, personal health care coaches for chronic 
conditions, as well as complex and care management.
    The second key reason is that these products provide access 
in rural areas. For the first time, all Medicare beneficiaries 
have access to private Medicare plans.
    Third, Private Fee-for-Service plans offer members enhanced 
benefits. In addition to filling gaps with these benefits, 
customized care management plans can be developed for the most 
complex of cases.
    I would also like to address some of the criticisms of 
Private Fee-for-Service plans, starting with the most 
disconcerting, unscrupulous and even fraudulent sales 
practices. I can only imagine the trauma to victimized 
beneficiaries. We strongly support the marketing guidelines 
that CMS has put in place for this product and their efforts to 
strengthen enforcement. Please note, however, that these sales 
problems are not an issue with employer and union accounts.
    Some have questioned the care management exemption Private 
Fee-for-Service plans have from requirements that apply to 
Health Maintenance Organizations (HMOs) and Preferred Provider 
Organizations (PPOs). Some of these exemptions continue to make 
sense for Private Fee-for-Service plans. However, plans should 
report Health Plan Employer Data and Information Set quality 
data. Reporting of quality data will enable Medicare 
beneficiaries to make informed health plan choices. Private 
Fee-for-Service plans should be required to establish chronic 
care improvement programs, with participation voluntary by the 
members.
    Another concern identified by MedPAC is that average 
payments for Private Fee-for-Service plans are 119 percent more 
than traditional Medicare, compared to 12 percent more for all 
plans. Blue Cross Blue Shield of Michigan actuaries have found 
that payments for our employer and union Private Fee-for-
Service products are not higher than the average. For groups, 
all retirees, regardless of county-specific reimbursement, are 
enrolled.
    I urge you to reject further cuts in funding for this 
program. Congress improved payments under the Medicare 
Modernization Act to ensure broader access in rural areas and 
to stabilize the program. The $6.5 billion in cuts already 
enacted under the Deficit Reduction Act (P.L. 109-171) has 
resulted in MA rates that are rising significantly below the 
growth in medical costs.
    If Congress cuts MA funding, the Private Fee-for-Service 
product is unlikely to remain a sustainable product in many 
areas. Members will not be able to sustain the premium 
increases, which is exactly what happened to Medicare+Choice. 
The result may well be most, if not all, of the 1.3 enrollees 
in this product will have a disruption in care, lose access to 
the enhanced benefits, and lose opportunities for care 
management.
    What would the loss of Private Fee-for-Service mean for 
Michigan? It will mean that beneficiaries who do not qualify 
for Medicaid but cannot afford a Medigap policy will be left 
without supplemental coverage. It will mean that employers and 
unions will be forced to make hard choices about reducing 
benefits. It will mean the beneficiaries lose confidence in 
Congress, CMS, and their health plans to ensure continuity of 
care and help them maintain predictable coverage and premiums.
    Thank you for considering my perspective on the MA Private 
Fee-for-Service program.
    [The prepared statement of Ms. Schmitt follows:]
  Statement of Catherine Schmitt, Vice President, Federal Government 
    Programs, Blue Cross Blue Shield of Michigan, Detroit, Michigan
    Mr. Chairman, Representative Camp, and members of the committee, my 
name is Catherine Schmitt and I am Vice President of Federal Programs 
at Blue Cross and Blue Shield of Michigan. I appreciate this 
opportunity to testify on the Private Fee-for-Service option in the 
Medicare Advantage program.
    Blue Cross and Blue Shield of Michigan (BCBSM) is a non-profit 
health plan that serves nearly five million members, of which 440,000 
are enrolled in government contracted Medicare programs. Nearly 70 
years ago, Blue Cross Blue Shield of Michigan started with a purpose to 
provide people with the security of knowing they have health care when 
they need it. Today, that nonprofit mission is the same and we're 
accomplishing it in many ways, including offering access to health care 
coverage for everyone, regardless of circumstances as the insurer of 
last resort.
    Blue Cross Blue Shield of Michigan is committed to offering 
Medicare products that meet the needs of the individual members, 
employers and unions that we serve. We offer a range of plans to 
Medicare beneficiaries in every county of the state of Michigan, 
including Medicare Advantage (MA) Private Fee-For-Service (PFFS) plans, 
Medicare Part D coverage, and supplemental coverage. The BCBSM 
enterprise also offers a MA HMO product in counties where an adequate 
network could be developed. Our Medicare Advantage plans play an 
important role in providing comprehensive, coordinated benefits for 
seniors and disabled members who might not otherwise have affordable 
alternatives for supplemental benefits in Michigan.
    In my testimony today, I will focus primarily on the importance of 
the PFFS plan in meeting the needs of Medicare eligible beneficiaries 
who are retirees of employers and unions in the state of Michigan. We 
believe that it is critical to preserve the PFFS option because it is 
the only product available today for bringing integrated health 
benefits to the retirees of major employers and unions nationwide under 
the Medicare Advantage program.
II. Why did BCBSM offer a Private Fee-for-Service Plan?
    BCBSM has traditionally served the Medicare population through 
Medicare supplemental plans, or Medigap. However, with the passage of 
the Medicare Modernization Act (MMA), which addressed inadequate 
payment levels in Michigan that had made Medicare+Choice plans 
unsustainable, we saw an opportunity to make comprehensive coverage 
through Medicare Advantage and Part D plans available to our customers.
    We chose the private fee-for-service plan for a number of reasons. 
In the individual market, we needed a less costly alternative to 
Medigap, which had become too expensive for many of our customers. Even 
with a dedicated contracting team, broad based network health plans 
take years to develop as the health care providers will not contract 
initially for the Medicare allowable amounts. They want much higher 
payments and re-contracting would have taken considerable lead time. 
So, we found ourselves with many Medicare members who have been with 
Blue Cross and Blue Shield their whole life and we wanted to be able to 
continue to serve them if they were interested in enrolling in a 
Medicare Advantage plan.
    At the same time, employers were asking for alternatives to their 
current arrangements which supplement Medicare but do not coordinate 
care or focus on health improvement. Our employer and union customers 
needed a solution for serving retirees all over the country and using a 
state-wide PPO would leave no choices for the group with retirees 
residing in different parts of the country like Arizona, California, 
Florida and New Mexico. Due to a combination of regulations that 
prevent PPOs and HMOs from offering coverage to retirees outside of 
their state and the lack of nationwide acceptance by providers to 
participate in networks for Medicare Advantage products, PFFS is the 
only option available for serving these members.
    So we did our business analysis and decided that private fee-for-
service would allow our employers to provide retiree health care plans 
identical to the benefit programs they offer active and non-Medicare 
eligible retirees nationwide incorporating the same care management 
features such as care coordination and disease management programs 
through a single Plan eliminating the need to stitch together multiple 
HMO or PPOs that would cover only a portion of their retirees 
nationwide.
    I would like to share with you an example of our largest group 
account enrolled in PFFS and explain why this coverage is so valuable 
to them. The Michigan Public School Employees Retirement System 
(MPSERS) implemented a Medicare Part D Prescription Drug Plan in 2006 
and a Medicare Advantage private fee-for-service plan in 2007 in order 
to lower health care costs and improve health care management and 
outcomes for their Medicare eligible retirees.
    There are more than 115,000 MPSERS members in the Medicare 
Advantage private fee-for-service plan. Many include lower-income 
retired clerical staff, bus drivers, janitors and cafeteria workers. 
Medicare Advantage provided MPSERS with an opportunity to reduce the 
System's cost and integrate coordinated medical and drug management 
programs. This option also allows them to manage health care costs 
without reducing school programs for the students.
III. The Importance of Maintaining the PFFS Option
    In addition to the fact that PFFS is the only option available to 
employers and unions on a national basis, which was the major reason 
that we offered this product in the group market, I would like to 
stress three reasons why it is important to preserve this product: 
opportunities for care coordination, providing rural beneficiaries with 
access to an MA option, and providing enhanced benefits and protection 
from the high out-of-pocket costs of traditional Medicare.
Care Coordination
    There is a common misperception that PFFS plans cannot provide any 
advantages with regard to improving member health over traditional 
Medicare. In fact, as I mentioned, employers are turning to our PFFS 
product in large part because they cannot provide the same care 
management programs that are available to their active and non-Medicare 
eligible retirees.
    Medicare Advantage plans meet a critical need by offering care 
coordination and management for diseases that commonly afflict the 
elderly through an integrated benefit package and this happens in our 
PFFS plan as well. The importance of the integrated benefits available 
under Medicare Advantage plans cannot be understated. With a Medicare 
supplemental plan, inadequate and untimely claim information does not 
allow for any meaningful care management. By the time information is 
received, it may be too long after a major event to reach out to a 
member, their family or providers.
    Our Medicare Advantage members benefit from a variety of voluntary, 
patient-centered programs designed to improve their health through our 
BlueHealthConnection' program. BlueHealthConnection provides 
a spectrum of wellness, disease and symptom management, and case 
management opportunities for Private Fee-for-Service (PFFS) Medicare 
Advantage beneficiaries to take an active role in improving their 
health.
    For example, we provide access to personal health care coaches to 
address a full range of health care decision needs, including 
management of chronic conditions, such as asthma, diabetes, coronary 
artery disease, congestive heart failure, chronic obstructive pulmonary 
disorder, cancer, benign uterine conditions, and back pain. The program 
is focused on building self-reliance, and seeks to inform members by 
providing a range of information, transferring skills, building 
confidence, and enabling members to take action.
    We also provide access to a case management program that focuses on 
high-cost members who are impacted by multiple co-morbidities, those 
who are the most difficult and costly to care for. These initiatives 
provide telephonic and face-to-face assessments, develop collaborative 
care plans with both physicians and members, and use evidence-based 
guidelines to measure success. Through this program, we also provide 
telemonitoring devices to assist health care professionals in the 
management of complex conditions, such as congestive heart failure.
    We believe that programs offered by the Plan a member has selected 
such as BCBSM and is familiar with, will be far more successful than 
efforts by companies contracted by CMS where the beneficiary does not 
know or trust the party contacting them about their health care needs.
Acess for Rural Beneficiaries
    Historically, the existence of private plan options in rural 
America has been virtually non-existent with the benefits of private 
plans only available to beneficiaries in urban cities. Network-based 
products are difficult to construct in rural areas with sparse 
populations and limited provider availability. In rural areas of the 
country, where traditional Medicare rates are very low, providers often 
refuse to join a plan's network unless reimbursement from the plan far 
exceeds what the Medicare rate would be. Unless plans can meet the 
network adequacy requirements of CMS at the time of application when 
enrollment is highly speculative, they will not be approved to 
participate in the MA program.
    Due to the availability of PFFS plans in 2007, for the first time 
all Medicare beneficiaries in the country have the choice of a private 
Medicare plan options: a significant increase from 2004 when one-
quarter of beneficiaries did not have that option. Between 2005 and 
2006, enrollment in PFFS plans by rural beneficiaries accounted for 39 
percent of total MA enrollment growth.
Enhanced Benefits
    Our PFFS plans offer members benefits that are more generous than 
Medicare alone, especially in the group market. We estimate that the 
value of benefits offered among our plans is 21-33 percent more 
generous than original Medicare. This is because our employer and union 
accounts generally want to offer their retirees the same benefits they 
provide to their active workers and are willing to subsidize the group 
product. We also offer individual products with an actuarial value of 
up to 27 percent more than traditional Medicare.
    Our lowest cost plan (with premiums of $0-$61 per month depending 
on one's area) offers a number of additional benefits not available in 
traditional Medicare. This plan has an annual out-of-pocket limit of 
$5,000 that offers the peace of mind that an unexpected illness won't 
result in bankruptcy. This is a benefit that is not available in 
traditional Medicare. Our plan has a $20 copay for doctor visits 
instead of the 20% coinsurance in FFS Medicare. In order to foster good 
preventive care, our plan has no cost-sharing for services such as home 
health visits, diagnostic tests, mammograms, prostate and colorectal 
cancer screenings and immunizations.
    All of our individual plans are comprehensive MA-PD plans and 
groups can select either an MA-PD plan or an MA plan with the Retiree 
Drug Subsidy. In either case we can provide comprehensive, fully 
integrated programs. Additionally, members like the fact that as 
Medicare Advantage members they can continue to carry a single Blue 
card for their Medicare A and B benefits, supplemental and drug 
coverage.
    If Congress cuts MA funding, plans will be forced to increase cost-
sharing for these services, cut benefits, or increase their premiums 
which will most affect those seniors who are living on lower-to-modest 
incomes.
IV. Responding to Issues Raised regaurding the PFFS Product:
    Over the past couple of weeks, a number of criticisms have been 
leveled against PFFS plans. Some of these concerns involve legitimate 
issues that industry and regulators are working to address to ensure 
confidence in this product. My message today is this: let's stop 
vilifying plans that offer the PFFS option and instead focus on 
correcting the abuses and improving the program. I would like to 
address some of these criticisms and point out a few areas where I 
would support improvements:
     Sales Issues: The most disconcerting concerns leveled 
against PFFS plans involve instances of unscrupulous and even 
fraudulent sales tactics involving sales of individual PFFS plans. I 
agree that some of the incidents were appalling and should never have 
happened. While the rapid growth of this relatively new product--which 
enrolled 1.3 million people in a very short time--is likely a 
contributing factor, the industry must do better. We support the 
marketing guidelines that CMS has put in place for this product and 
their efforts to strengthen enforcement of these requirements for 2008, 
including post-enrollment calls to verify that new individual enrollees 
understand the product. We continue to strengthen our agent training 
requirements and have a zero tolerance policy for agents that do not 
follow the rules. Our complaint ratio regarding agents is less than 1 
for every 2,000 enrollees.
    BCBSM and the Blue Cross and Blue Shield Association stand ready to 
work with CMS, the States and Congress to assure that the problems that 
occurred during the rapid growth of this option are addressed and no 
longer tarnish the program.
    It is important to note that these sales problems simply are not an 
issue with employer and union accounts. Group PFFS products do not 
involve the use of agents or brokers for individual sales to their 
members. Employers and unions work with us to ensure that retirees 
understand these products. And, as I mentioned earlier, our group 
customers have a strategy of mirroring the benefits that retirees 
already have, which improves acceptance.
     Exemptions from Requirements that Apply to Other MA plans. 
Some have questioned the value of PFFS plans, given the exemptions that 
they have from certain requirements that apply to Medicare HMOs and 
PPOs. Some of the current PFFS exemptions continue to make sense, given 
the very different nature of PFFS plans as compared to HMO and PPO 
plans. However, we recommend ending two exemptions to inject more 
accountability and provide increased value to beneficiaries.
    As I mentioned earlier in my testimony, employers are demanding 
that PFFS plans work to improve the health of their members and be 
accountable for quality. To this end, the general exemption of PFFS 
plans from the quality improvement provisions should be lifted with 
respect to the following two requirements, providing for standards 
appropriate to PFFS plans:

        Reporting of Quality Data. Currently, PFFS plans are 
encouraged to report HEDIS' quality measures voluntarily. 
CMS indicated in its 2008 call letter to Medicare Advantage 
organizations that it intends to use HEDIS measures in developing its 
MA plan comparisons starting in 2007. Including PFFS plans in this 
requirement will make more meaningful performance information available 
to Medicare beneficiaries, and help better inform their health plan 
choices.
        Chronic Care. MA plans must establish a chronic care 
improvement program that monitors and identifies enrollees with 
multiple or severe chronic conditions. PFFS plans are exempt from these 
requirements. Requiring PFFS plans to establish chronic care 
improvement programs recognizes the importance of addressing chronic 
care in this population. These programs should remain voluntary on the 
part of members.

     Provider Acceptance. The PFFS product is unique in that it 
does not require use of a defined network of providers like a PPO or 
HMO. While this enables us to serve retirees in every area of the 
country, it also means that there is no guarantee that a given provider 
will see a patient. Our rate of provider acceptance is very high and 
our group customers have been more satisfied with the success we have 
been able to achieve for their retirees. We respond to these incidents 
by working to educate providers on the benefits of participation, 
including having the ability to receive a single payment from the 
health plan for all services. We have found that physician offices we 
contact often decide to accept our PFFS patients once they understand 
our products. When a provider still refuses to participate we make 
every effort to locate an alternative provider for the member. Despite 
our success, this is one area where CMS can help educate providers 
about these plans to ensure greater acceptance for the entire industry.
     Payment levels. Another concern leveled at PFFS plans is 
that their average payments are 19% more than claims costs under 
traditional Medicare compared to 12% more for all MA plans, according 
to MedPAC. BCBSM actuaries have found that the government payments for 
our employer and union PFFS products are not higher than MedPAC's 
estimate for the national average for all MA plans. This may be because 
when we offer a product to an employer, we do not target specific 
counties, but rather we enroll all of the company's retirees 
nationwide, regardless of where they live.
    Congress should reject further cuts in funding for this program. 
There is tremendous variation around the nation in FFS Medicare 
payments to providers, which are substantially below payments to 
doctors and hospitals under commercial plans in most parts of the 
country. Congress improved payments under the Medicare Modernization 
Act to ensure broader access to health plan options in rural areas and 
to stabilize the program. Congress has already cut MA base funding by 
$6.5 billion in the Deficit Reduction Act (cuts that will be phased in 
through 2010). This is having an impact on our payments in Michigan, 
which are rising at a rate that is below growth in medical costs, which 
over time will result in increased year-to-year costs or reduced 
benefits for our members. This is exactly what happened in the years 
prior to the MMA, when Medicare+Choice became unsustainable in many 
counties after years of medical cost increases outstripped growth in 
plan payments. The result was widespread loss of coverage for Medicare 
beneficiaries.
    If Congress adopts MedPAC's recommendations for cutting MA funding, 
the PFFS product is unlikely to be viable in many states. The result 
may well be that most, if not all, of the 1.3 million enrollees in this 
product will lose access to the enhanced benefits and opportunities for 
care coordination that come with these products. According to a study 
by Professors Ken Thorpe and Adam Atherly at Emory University, 
equalizing payments could result in 3 million people losing their MA 
coverage, including more than 180,000 in Michigan.
    What would the loss of the PFFS option mean for Michigan? It will 
mean that many Medicare beneficiaries who make too much to qualify for 
Medicaid, but cannot afford a Medigap policy, will be left without an 
option for obtaining affordable supplemental coverage. It will mean the 
loss of care coordination and health improvement opportunities. It will 
mean that employers and unions struggling to maintain retiree benefits 
in light of new accounting rules will be forced to make hard choices 
about reducing retiree benefits. It will mean more confusion for 
beneficiaries who will lose trust in Congress, CMS and plan sponsors.
V. Conclusion
    Thank you for considering my perspectives on the Medicare Advantage 
program. I appreciate this opportunity to testify about the importance 
of the private fee-for-service product. Medicare beneficiaries need 
stable options for supplemental benefits and PFFS plans are a major 
source of that coverage in many areas of the country. We urge the 
committee to ensure the continued viability of this product and to 
support adequate funding for Medicare Advantage plans.

                                 

    Chairman STARK. Thank you very much.
    I recognize Mr. Camp.
    Mr. CAMP. Well, thank you very much, Mr. Chairman.
    Ms. Schmitt, can you just describe some of the additional 
benefits or savings that your plan offers to the 116,000 
retired school employees in Michigan?
    Ms. SCHMITT. Certainly. The benefits come in both what we 
think of as health care benefits as well as convenience 
benefits. As was mentioned in the letter that you read earlier, 
there is a convenience and a benefit to the members in that 
they have one entity that they can go to to get their questions 
answered about their coverage. So, when they have a question, 
instead of first having to call Medicare and then having to 
call their private insurer, they can get all of the questions 
answered at once.
    The next form is the care management programs, as I 
mentioned. By having members enrolled in the MA Prescription 
Drug product, we are able to have all of their data and 
identify those members that would benefit from these programs.
    Then thirdly, the additional benefits that they have are 
the benefits that are the same as their non-Medicare-eligible 
retirees, which fill in the cost-sharing components of 
traditional Medicare as well as provide additional preventive 
services for the enrollees.
    Mr. CAMP. Are you seeing any changes in the mix, if you 
will, of beneficiaries in terms of their demographics or their 
risk factor?
    Ms. SCHMITT. Well, on the group side, the Michigan Public 
Schools Employee Retirement System group decided to make this a 
replacement product. So, it is really the exact same enrollees 
that we had prior to the MA product.
    Mr. CAMP. Thank you. I have a question for Mr. Dilweg. 
Obviously, by law, CMS is limited in their involvement in MA. 
That is something we may need to look at, but you mentioned 
some of the fraudulent and misrepresentation by insurance 
agents, which are governed by state law. What percentage of the 
plans would you say in Wisconsin have you found fraudulent 
activity in?
    Mr. DILWEG. Across the board in Wisconsin, to receive 400 
complaints in a year is very high. I look back to----
    Mr. CAMP. How many total plans then do you have in 
Wisconsin?
    Mr. DILWEG. We have 92 plans.
    Mr. CAMP. How many beneficiaries? If you had 400 
complaints----
    Mr. DILWEG. Oh, we have 833,000. We have a prescription 
drug waiver that is moving off at the end of the year.
    Mr. CAMP. All right. So, less than a tenth of a percent of 
the----
    Mr. DILWEG. Right. So, that is a very high complaint for 
us. When I hearken back to the introduction of credit scoring 
in property and casualty, we would see 42 complaints a year. 
That was a very hot issue three years ago.
    Mr. CAMP. Less than a 3/100ths of a percent is considered a 
high complaint level?
    Mr. DILWEG. No. What I am saying is a big issue like credit 
scoring on your homeowner's policy, that generated in 1 year 42 
complaints. So, here I am dealing with 400 complaints.
    Mr. CAMP, but I am looking at a pool of 800,000 people.
    Mr. DILWEG. Right. Correct.
    Mr. CAMP. So, it looks like it is about.03 percent. So, 3/
100ths of a percent of the policies that have been written have 
had a complaint. Is that what I understand?
    Mr. DILWEG. Correct.
    Mr. CAMP. Ms. Neuman, you mention in your written testimony 
the hypothetical of the person in Wisconsin who had to pay 
higher fees, but is it true that also there would have been 
three plans, that that hypothetical individual would have paid 
less in MA than what she would have been charged in traditional 
Medicare? Is that accurate?
    Dr. NEUMAN. There may well be. The purpose of that exercise 
was to illustrate some of the issues and challenged that a 
beneficiary could encounter. So, those three plans that we 
happened to pick showed how a beneficiary could end up paying 
more, but there are additional benefits, and depending on what 
an individual needs, that person could not have higher 
spending.
    I will say after I worked on the testimony there was an 
article that was published in Health Affairs that did a more 
systematic analysis to show beneficiary spending across 
different types of plans. It did confirm that sicker people 
could end up spending more under Private Fee-for-Service than 
other types of plans.
    Mr. CAMP, but because there are a multiplicity of plans, 
that beneficiary may have chosen a plan that actually had more 
benefits and actually cost less. I think there are three in 
Wisconsin that would have cost less that I know offhand. Is 
that a possibility?
    Dr. NEUMAN. That is certainly a possibility, but I will 
say, Mr. Camp, it is pretty hard for beneficiaries to decipher 
which plan is going to put them in a better place and which is 
going to end up having them spend more money.
    Mr. CAMP. Choices, you mean?
    Dr. NEUMAN. Well, I am not saying the choices are bad. I am 
just saying it is pretty hard to get beyond premiums and then 
to assess hospital copays, home health copays, to figure out 
which three plans are going to have them spending more and 
which three plans will have them spending less.
    Mr. CAMP. Yes. I understand your point. I guess I think it 
is important to say that yes, there could have been plans that 
cost more, but yes, there could have been plans that cost less. 
I think that would have been a little more balanced approach to 
the issue.
    I see my time is running out, and there is a vote on, but I 
want to thank you all for coming, and I appreciate your 
testimony very much.
    Thank you, Mr. Chairman. I yield back.
    Chairman STARK. Thank you. I have just a couple of quick 
questions. One, we have a problem in that we have six votes. I 
will come back, and I ask your indulgence, or let us just 
continue with the questions, if you don't mind. I will ask the 
witnesses, if any of them have to leave, I will certainly 
understand, but if the members choose to come back and inquire.
    I just wanted to inquire of Ms. Schmitt what the medical 
loss ratio on your Private Fee-for-Service line is.
    Ms. SCHMITT. Our plans are very new, and so I can't really 
give you fully incurred benefits or costs at this point in 
time. The employer group we only brought up the first of this 
year, and certainly it takes a while for the claims to come 
through the system.
    Chairman STARK. Yes. So, you haven't been in the Private 
Fee-for-Service business very long?
    Ms. SCHMITT. We introduced the individual product late in 
2005. Then we continued to--the plan grew throughout 2006, and 
that is where the teachers decided to enroll for the first of 
this year.
    Chairman STARK. Do you know what your average bid was in 
relation to fee-for-service Medicare?
    Ms. SCHMITT. As a percent?
    Chairman STARK. Of fee-for-service, what your average bid--
you submit a bid as a percentage of fee-for-service. Do you 
know what that was?
    Ms. SCHMITT. Let me check that. I would like to be sure 
that I give you the exact, correct information because we do 
have multiple plans, and I want to----
    Chairman STARK. How close can you come?
    Ms. SCHMITT. Well, I will get that submitted to you first 
thing in the morning.
    Chairman STARK. I am going to ask Trish--if she was still 
on my staff, I would ask her the same question because she can 
do this kind of math with her shoes and socks on, but what I am 
hearing about the Michigan plan is that Blue Cross of Michigan 
has figured out that if Private Fee-for-Service overpays them, 
that they can cost-shift, use this overpayment--which I call 
cost-shifting--to Medicare, so that basically Medicare is 
chipping in to pay the Medigap, if you will, for as many public 
employees or retired public employees as Blue Cross covers.
    Now, I would guess that in California, in our California 
Public Employees' Retirement System, we probably have four or 
five million people. What a good idea. If we put them all in 
MA, then we bill in at about 120 percent of fee-for-service. 
That 20 percent would save the California taxpayers a lot of 
money.
    Could you comment on the equity of that approach?
    Ms. SCHMITT. I certainly whether or not comment on your 
math because I am sure it is perfect. I think the broader issue 
that you may be raising, Mr. Stark, is that because of the 
current payment system, that payments to Private Fee-for-
Service plans, including payments to plans that are serving 
retirees, do end up using higher government payments in order 
to help subsidize coverage for people in retiree health 
systems. Employers who are under a lot of pressure may find it 
appealing because it will help them save some money.
    Chairman STARK. Costs the rest of us taxpayers----
    Ms. SCHMITT. I am. The other equity issue that you raised, 
I am sorry, was that--and as I said in my testimony, and 
probably with more power, the actuary has said these higher 
payments to plans are paid for by beneficiaries. In general, I 
think the Office of the Actuary has said that all beneficiaries 
who pay premiums pay an additional $2 per month, and taxpayers 
pay more through general revenues in order to stay in the 
current payment system.
    Ms. SCHMITT. Could I comment?
    Chairman STARK. Do you want to respond to that? Sure.
    Ms. SCHMITT. Yes. I would like to make a comment. Our 
retention on these products is 6.4 percent. Out of that, 1.9 
percent is considered to be the risk factor, both insurance 
risk as well as operational risk. So, that lives a balance of 
4.5 percent for administrative costs, of which 1 percent is 
estimated to be the cost for the care management programs.
    Chairman STARK. I have no question that it is financially 
helpful for the state of Michigan. Don't misunderstand me for a 
moment. I would much rather help the state of Michigan than 
some for-profit operator, but nonetheless, by overpaying--in 
other words, you could go in and provide Medicare fee-for-
service, and go out into the market and by Medigap policies, 
and accomplish the same benefit coverage.
    What you are doing, unless I misunderstand, is collecting 
an overpayment--and I don't say that pejoratively, but a higher 
than the fee-for-service--from Medicare, and that overpayment, 
in effect, is putting you into the supplemental insurance 
business and paying your costs for the supplements.
    If we were to do that for everybody, if we had the money, I 
suppose that would be nice to do, but the fact is that when we 
just have a small group of people collecting this what amounts 
to some $60 billion over 5 years, then we are taking that--we 
are cost-shifting.
    The question is, is that fair? What do we get back for it? 
I say I suspect we get a better value out of the state of 
Michigan than we do out of some high binder who has just got a 
laptop and two or three employees and is peddling this in rural 
areas.
    Basically, unless I am wrong, Blue Cross is getting much 
more than the fee-for-service cost, and with that extra money, 
or some of it, providing what amounts to supplemental benefits. 
Without pegging the percentages, isn't that what is happening?
    Ms. SCHMITT. Well, I do believe, as you are stating, that 
all of the private plans, or the vast majority, are providing 
some form of supplemental benefits.
    Chairman STARK. Oh, no question.
    Ms. SCHMITT. Yes. The other thing, though, that I would 
like to just mention is the fact that we have people who are 
moving from active coverage or non-Medicare retiree coverage, 
and they have had coordinated care. They have been accustomed 
to this. If there is ever an opportunity to move them into 
similar plans before they move to traditional Medicare, where 
there is no coordinated care, it is going to be very difficult 
to do it later and that opportunity is going to be lost.
    Chairman STARK. I hear what you are saying. I am just 
suggesting to you that if we did this across the country for 
every retiree plan automatically, we would break Medicare in a 
couple of years. We just wouldn't have the money to afford it. 
Therein lies the problem. If the good news of what happens to 
the retirees under the Michigan plan and the savings that it 
may have even for private employers, not to mention the school 
districts and others who would otherwise have to pony up for 
this retirement, we couldn't afford it.
    So, the question is, if we can't afford it for everybody, 
how do we limit it? That is therein--I am not trying to pick on 
Michigan. You are to be commended for creative financing, but 
as I interpret what your plan is doing, that is what I see. I 
don't know how we can sustain that financially.
    Mr. Doggett, would you like to inquire?
    Mr. DOGGETT. Surely. Mr. Slabach, I was concerned by your 
testimony because I represent a number of rural communities and 
I know how stretched these small hospitals are to just try to 
stay in operation and provide services so people won't have to 
travel long distances to get their care.
    If I understand the thrust of your testimony, and I believe 
you are talking about more than your own experience but what 
you are hearing from hospitals across the country, the same 
Medicare advantage plans that cost the taxpayer $120 per person 
more than traditional Medicare, they aren't satisfied with that 
margin. They are squeezing, especially the smaller rural 
hospitals, on what they pay, and they don't want to pay as much 
as traditional Medicare pays the rural hospital. Is that 
correct?
    Mr. SLABACH. That is essentially correct. I think that what 
occurs in our experience, and it is replicated around the 
country, because we don't have a prospective contract with 
these countries, we are left to the retrospective evaluation of 
the insurance company to decide what they will pay us.
    In one case--I have several cases--it has taken four to 6 
months to receive payment on the services rendered. Then after 
we received payment on those services, the payments were 
inaccurate. When we had to go with the appeals processes with 
these companies to try to get the money that we think we were 
owed.
    The other interesting fact is that we have a number of 
patients that require precertification in order to receive 
hospital care. Since we didn't know at the time of their 
admission, and the patient didn't know they were even in the 
plan, we assumed because they gave us their traditional 
Medicare care that they were traditional Medicare.
    The fact-checker, the passport services, didn't tell us 
they were in another plan. We missed the precertification 
deadline. So, we could be out several thousand dollars' worth 
of care.
    Mr. DOGGETT. Well, it is not only the amount that you get, 
but you have the same kind of delays from these plans that many 
of our community pharmacists are complaining about.
    Mr. SLABACH. It is precisely that.
    Mr. DOGGETT. Thank you. Since our time is short, Mr. 
Lipschutz and Mr. Dilweg, I was very concerned about your 
testimony as well. What is the general attitude of the people 
you deal with at the Center for Medicare about the kind of 
abuses that our seniors are experiencing that you have found in 
your work?
    Mr. LIPSCHUTZ. Well, the response from CMS has, frankly, 
been mixed. Efforts to try to solve problems once they are 
identified have also been met with mixed results. One of the 
most frustrating things from the beneficiary and beneficiary 
advocacy standpoint is trying to find out the results of 
complaints and the results of inquiries that are made about 
certain issues.
    Mr. DOGGETT. I have had the same experiences. Members of 
this Committee have written CMS. They take forever to provide a 
nonresponse. You have had some of those kind of same 
experiences when you are inquiring about the needs of a 
particular senior who appears to have been abused by some 
insurance salesman. Right?
    Mr. LIPSCHUTZ. Yes. Sometimes things are resolved quickly. 
Oftentimes things take much longer than they should.
    Mr. DOGGETT. Mr. Dilweg, have you had a similar experience?
    Mr. DILWEG. We have had a similar experience. We are 
obviously forced, if it is not agent-related, to simply hand it 
off to CMS. Then we have recently signed an Memorandum of 
Understanding (MOU) to share information, confidential 
information, on what may actually happen.
    I just want to emphasize that with any other health insurer 
in my state, I would see these abuses and be going into the 
insurer, auditing their marketing practices, auditing their 
agent relationships. This is preventive approaches that I take 
with a health insurer. It is not simply punishing the agent. 
That is very reactive.
    Mr. DOGGETT. Your comment goes to another concern that I 
have. This bill, this law, of course, is the product of a crowd 
up here that talked states' rights and then eliminated them 
regularly. One of the rights preempted here was the right of 
the state to enforce any regulations in this area. Is the 
preemption a problem for you in your work?
    Mr. DILWEG. It is very frustrating because it ties our 
hands. I point to the Medigap model because it is a very good 
working model between CMS and the states. I think all states 
have adopted it, but initially some states just allowed CMS to 
continue regulating. So, it is a----
    Mr. DOGGETT. Or nonregulating, as the case may be.
    Mr. DILWEG. Correct.
    Mr. DOGGETT [Presiding]. I believe that our time for votes 
is about up, and so I will formally recess subject to the call 
of the Chair. We will recess subject to the call of the Chair. 
We would expect it probably will be about half an hour. Thank 
you.
    [Recess.]
    Chairman STARK [Presiding]. Thank you. The Committee will 
reconvene, and I apologize for the interruption.
    Mr. Becerra, would you like to inquire? Let me also suggest 
that for this panel and the next panel, I understand there are 
some travel plans. If anybody has to leave, please leave 
without--just absent yourself when you must to make your travel 
connections.
    Mr. BECERRA. Thank you, Mr. Chairman. To the panelists, 
thank you very much for being so patient with us here.
    Let me see if I can get some general background real 
quickly. Does anyone in the panel here believe that there is 
something special or particular about these Private Fee-for-
Service plans that makes them so attractive to the industry 
today, other than the fact that you are able to get more 
reimbursement from Medicare for the services you are about to 
provide?
    Ms. SCHMITT. Could you expand on your question 
specifically?
    Mr. BECERRA. We have seen such a migration, rapid 
migration, toward these Private Fee-for-Service plans, a 
massive increase, in the thousands of percentage increase, in a 
short period of time. It is not that they are now doctors. It 
is not that we found some new innovations in health care. It is 
not that there are new therapies and drugs that are going to be 
used under Private Fee-for-Service that would not be used under 
traditional fee-for-service or by the regular HMO plans.
    Something is driving the industry to want to use Private 
Fee-for-Service. I am trying to find out if anyone could 
explain to me if there is anything other than the fact that 
there is a better, a richer reimbursement for the product or 
service you are about to offer a senior on Medicare.
    Ms. SCHMITT. Well, we believe that it really does provide a 
service opportunity to beneficiaries. If you keep in mind 
before MA Private Fee-for-Service, members had a Medicare 
identification card. Then they had a private carrier 
supplemental card. Then they were introduced with a Part D 
card.
    We find that our beneficiaries like the idea that they are 
able to carry a single Blue Cross card that provides all of 
their care, where they can get all of their services taken care 
of. They like----
    Mr. BECERRA. So, Ms. Schmitt, if Blue Cross Blue Shield 
were to offer all of these different services, and if Private 
Fee-for-Service did not exist, would you go ahead and offer 
these services without a Private Fee-for-Service plan?
    Ms. SCHMITT. Are you asking me would we offer an HMO or PPO 
option?
    Mr. BECERRA. You have just said that one of the attractions 
is that you can avoid having three separate cards, one for 
regular Medicare services, one for your Medigap coverage, and 
one for your prescription drug coverage. Without Private Fee-
for-Service, you would not try to provide those three services 
within one shop within Blue Cross Blue Shield?
    Ms. SCHMITT. Well, there are regulations around what you 
can combine and what you can do. It is not that easy without 
having the integration available through the MA Private----
    Mr. BECERRA. So, if we made the integration possible but we 
didn't offer the money, would you still do it?
    Ms. SCHMITT. It would--we would have to look at all of the 
rules and requirements. Could we do the care management? Could 
we share the data that is available for prescription drugs?
    Mr. BECERRA. So, there are some regulations that you are 
liberated from having to follow under the Private Fee-for-
Service model that you see as preferable to the traditional 
Medicare fee-for-service or the regular HMO service under 
Medicare advantage?
    Ms. SCHMITT. We would clearly have to look at the entire 
business model and determine if it is sustainable.
    Mr. BECERRA. I hope you will because you haven't clarified 
anything by not being able to give me more specifics. It leaves 
me with the conclusion that it is the money, that you are 
getting more money to offer services. You can offer a few more 
services because you are getting a lot more money.
    Until someone can tell me otherwise--or perhaps it is 
regulations, the lack of regulations that makes it attractive 
to go into these Private Fee-for-Service plans, but I see 
nothing to show that there is a reason why we have seen such a 
dramatic migration toward Private Fee-for-Service except for 
the fact that there is a bigger dollar for the requirement of 
services that you need to provide.
    Dr. Neuman, you wanted to say something?
    Mr. CAMP. Well, if gentleman would yield, I think she said 
there were regulatory issues involved as well. So, I just 
think, to be fair to the witness----
    Mr. BECERRA. Right. I asked her if it were a loosening of 
regulations, then would that be okay? Would they still then 
provide that service if we had no Private Fee-for-Service? Ms. 
Schmitt said, I believe, that she would still have to take a 
look.
    Ms. SCHMITT. Well, but do keep in mind, part of the problem 
that we have is that Medicare is paying the primary claim, and 
then later on we get a supplemental claim, and then you are 
trying to do care management. That whole model of being able to 
deliver the care management is--I don't know. I would need to 
see whether or not it could even be put together.
    Mr. BECERRA. That is fair. That is fair, but again, you are 
not talking about the money. So, I am assuming that the money 
is not what is driving Blue Cross Blue Shield in Michigan 
toward this Private Fee-for-Service model, from your testimony.
    Ms. SCHMITT. There is a cost for some of the added 
services.
    Mr. BECERRA. I know my time has expired, but perhaps, Dr. 
Neuman you might--no? Okay. Thank you.
    Well, Mr. Chairman, I know my time is expired and I will 
yield back.
    Chairman STARK. I guess the only person I can ask this of 
is Ms. Schmitt. You may want to respond at a later date. We may 
have to make some adjustments in MA plans. We may have to make 
some adjustments of what we pay hospitals, doctors, and 
everybody else, before we are done to keep the Medicare plan 
fiscally sound, financially sound.
    My suspicion is from what we know, certainly anecdotally, 
there is a wide variety in MA plans, both in terms of what we 
pay them relative to fee-for-service and in what kind of 
benefits they provide or offer. We have no idea of how many 
people use them. It is one thing to offer a benefit, but if 
nobody takes it, it obviously is a great benefit to offer 
because it doesn't cost the plan any money.
    How would you suggest, as I have said to some of the plans 
in my district, that we sort the wheat from the chaff? The 
plans have been rather reluctant to give us any detailed 
information, which is their right, I guess, to keep everything 
secret, but if we don't know, if we don't really have the 
details of how to differentiate, then the only option open to 
us is across-the-board cuts. I have never thought those were 
the fairest way to achieve savings.
    So, what would you suggest that we look at? Loss ratios? 
Standardized benefits? Cost of benefits? How would you like to 
be measured against your competitors, say? What is the area 
that you think we should rank plans on? Any ideas on that?
    Ms. SCHMITT. Well, I will take your first option to get 
back to you, but in the meantime off the top of my head, I do 
believe the market is going to very quickly sort out those 
plans where members are not feeling that they are getting----
    Chairman STARK. I am not talking about the market because 
the people you are selling to don't know that the taxpayers are 
paying plans a substantial amount over fee-for-service. So, 
what I am suggesting is that some plans are getting as high as 
150 percent of fee-for-service. Some maybe getting 102, 104 
percent of fee-for-service.
    We are unable to get that into focus in terms of what do we 
get? What are we getting for the extra 2, 4, or 50 percent? If 
we were to say, if you eliminated the plans completely we would 
save the taxpayers 50-, $60 billion over 5 years, well, what 
about if we just eliminated the least efficient plans? How 
would we determine that? As people who set the rates that are 
paid to plans, how can we better distinguish between the plans? 
Any ideas? Not what you sell to the public because that has no 
relationship often to what Medicare is paying you.
    Ms. SCHMITT. As I mentioned in my testimony, I think that 
it is very reasonable for you to expect that the Private Fee-
for-Service plans do have care management features the same, 
and that they do meet some of the other requirements that are 
there so that you do have a more equal playing field between 
the plans. I think it is very reasonable.
    Chairman STARK. Versus perhaps standardizing benefits?
    Ms. SCHMITT. I don't believe in standardizing benefits. Let 
me give you a couple reasons.
    Chairman STARK. Well, how about standardizing them as we 
did, say, in Medigap? So, we started with a dozen plans.
    Ms. SCHMITT. Well, what was mentioned about the Medigap, I 
think there is one very significant difference. That is 
individual beneficiaries were able to enroll in multiple 
Medigap plans, not realizing that they had the same benefits 
overlapping; where with MA, a person can only be enrolled in 
either traditional Medicare or one MA plan.
    So, I don't know that it is the same situation that they 
started with. Also, the Medigap plans did evolve for a number 
of years before it was determined what appropriate standard 
benefits are. So, A, I don't think it is the right solution; 
but even if it were, I think it needs to play out a little 
longer before anyone could really say, this is the right set of 
benefits or the right combination of benefits.
    Chairman STARK. I am just asking for your advice as to how 
we determine which plans are more worthy of taxpayers' dollars 
than others because arguably some are getting bigger spreads, 
bigger margins than others. We are looking for a way hopefully 
to determine which are better plans than others. You might 
think about it, and we would certainly appreciate any advice 
you could give us.
    Ms. SCHMITT. Thank you.
    Chairman STARK. I want to thank all of you for waiting for 
us. I apologize for keeping you here for this extra length of 
time while we voted.
    We will dismiss this panel, and our next panel will be 
comprised of--and I don't know whether Mark--did he leave?
    [The prepared statement of Mr. Miller follows:]
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    So, we will now hear from CMS and Ms. Abby Block. Having 
saved the best for last, we will find out what information Ms. 
Block has to favor us with.
    Ms. Block, thank you for your patience and we have your 
prepared testimony, which will appear in the record in its 
entirety--Perhaps you would like to summarize your testimony 
and/or comment if you will--if you would like on any of the 
testimony in the previous panel.

  STATEMENT OF ABBY L. BLOCK, CENTER FOR BENEFICIARY CHOICE, 
           CENTERS FOR MEDICARE AND MEDICAL SERVICES

    Ms. BLOCK. I think I will start with reading my oral 
statement and then I am sure there will be questions and we can 
proceed with the dialog.
    Chairman STARK. Please.
    Ms. BLOCK. Good afternoon, it is still afternoon. Chairman 
Stark and Ranking Member Camp and distinguished Members of the 
Subcommittee, thank you for inviting me here today to discuss 
MA Private Fee-for-Service Plans. MA offers an affordable high 
value-choice in comprehensive health care coverage for all 
Medicare beneficiaries. 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 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 and plans are available in every State across the country, 
including rural areas. In particular, growth in Private Fee-
for-Service plan offerings has been a key factor in expanding 
access to MA plans for rural beneficiaries. At the same time, a 
majority of beneficiary complaints regarding MA are about 
Private Fee-for-Service plans and the way they have been 
marketed. For these reasons, CMS appreciates your interest in 
looking carefully at this segment of the MA market.
    It is important to note that Private Fee-for-Service 
differs in several ways from other MA products. Key differences 
are the statutory exemptions from quality reporting and CMS bid 
review, as well as the requirement to offer at least one option 
with Medicare prescription drug coverage as other MA plans are 
required to do. As you know, Private Fee-for-Service plans were 
authorized by the Balanced Budget Act (P.L. 105-33). Generally, 
they were intended to be less restrictive as a type of private 
plan than the HMO model plans that were available under risk 
contracting until then. While traditional HMO model plans rely 
on gatekeepers and a closed network of providers, the Private 
Fee-for-Service model gives enrollees greater flexibility in 
choosing and accessing providers.
    Although the Medicare law permits Private Fee-for-Service 
plans to meet access requirements by entering into written 
contracts with a network of providers and permits Private Fee-
for-Service plans to negotiate lower reimbursement rates for 
such network providers, virtually none of the existing Private 
Fee-for-Service plans have opted for that approach. Instead, 
they operate under the provision of the law that provides that 
Private Fee-for-Service plans are deemed to have a contract in 
place with any provider eligible to provide Medicare-covered 
services if that provider is given an opportunity to get 
information on the Private Fee-for-Service plan's payment terms 
and conditions and agrees to provide services to the plan's 
enrollees.
    Enrollees in these plans can go to any provider in the 
United States eligible to bill Medicare and willing to accept 
their plan's payment terms. They will pay the same cost sharing 
regardless of which provider they see. In contrast to 
coordinated care plans, a sponsor may offer a MA-only Private 
Fee-for-Service plan, which does not include Part D coverage as 
its only option. Beneficiaries enrolled in MA-only Private Fee-
for-Service plans also may enroll in a stand-alone prescription 
drug plan. Over 60 percent of Private Fee-for-Service plan 
enrollees are in a plan that includes Part D coverage. The 
others may be receiving prescription drug coverage from other 
sources, such as a former employer or union.
    While the overwhelming majority of MA enrollment is in 
coordinated care plans, such as HMOs and PPOs, Private Fee-for-
Service plan enrollment current comprises about 18 percent of 
total MA enrollment. Although initial enrollment in Private 
Fee-for-Service plans was low, growth has been very strong in 
the last 2 years with enrollment reaching over 1.3 million, 
excluding employer plans or 1.55 million in total for 2007.
    Recent rapid growth in Private Fee-for-Service enrollment 
may be a reflection of the perceived value of this product to 
beneficiaries, particularly in rural areas. Fifty-9 percent of 
all MA enrollees in rural areas are in Private Fee-for-Service 
plans.
    The Private Fee-for-Service product because it is typically 
not network-based also offers a particular advantage to 
employers who want to cover their retirees regardless of where 
they live. The percentage of Private Fee-for-Service enrollees 
in employer-sponsored plans increased from 5 percent in 2006 to 
15 percent in 2007. Like other MA enrollees, Private Fee-for-
Service plan enrollees can receive benefits beyond what 
traditional Medicare provides. On average, Private Fee-for-
Service plan enrollees receive about $63 per month in 
additional benefits. As referenced in the handout you were 
given and on page seven of my written statement, there is a 
chart outlining the specific benefits to which Private Fee-for-
Service beneficiaries have access. The rapid growth of Private 
Fee-for-Service in recent years has raised some concerns. One 
issue is that the Medicare Program pays more for beneficiaries 
enrolled in MA plans, including Private Fee-for-Service, than 
it would if they stayed in original Medicare. By statute, 75 
percent of the difference between a plan's bid and the 
benchmark must be returned to plan enrollees in the form of 
additional benefits, including lower cost sharing. The other 25 
percent remains in the treasury. However, on average Private 
Fee-for-Service plan bids are higher than local coordinated 
care plan bids or than MA plan bids in general.
    While Private Fee-for-Service plans provide valuable 
additional benefits to many enrollees, the average monthly 
dollar value of additional benefits provided is lower than the 
$86 dollar average for all MA enrollees. Second, as I mentioned 
earlier, Medicare law explicitly exempts Private Fee-for-
Service plans from most of the quality assessment and reporting 
requirements that MA-coordinated care plans must meet. Many of 
the requirements were designed with network-based plans in 
mind, making certain types of reporting difficult for Private 
Fee-for-Service plans. However, a handful of plans have 
reported voluntarily and we are encouraging all plans to report 
quality data so that they can be included in our 2008 quality 
reporting initiatives.
    Finally, there have been numerous complaints about the 
marketing practices of Private Fee-for-Service plans and 
enrollee issues with access to services. As described in my 
written testimony, CMS takes these concerns very seriously and 
we are taking steps to ensure that beneficiaries are protected 
and that they, as well as providers, better understand the 
Private Fee-for-Service product.
    Mr. Chairman, thank you again for this opportunity to 
testify regarding Medicare Private Fee-for-Service plans. I 
would be happy to answer any of your questions. I think in my 
statement I have in fact addressed some of the issues that were 
raised by some of the previous panel, and I think I would like 
to stop for some water if you wouldn't mind.
    [The prepared statement of Ms. Block follows:]
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    Chairman STARK. You just mentioned that if a plan receives 
over the fee-for-service amount that they have got to 
distribute 75 percent of that spread to beneficiaries in extra 
benefits. What records do you have that indicate for each plan 
how they have distributed this 75 percent?
    Ms. BLOCK. Well, let me say that some of those extra 
benefits are automatically received by the people who enroll in 
the plan because their reductions in premium or reductions in 
cost sharing that a beneficiary would receive automatically.
    Chairman STARK. Yes, I understand that.
    Ms. BLOCK. Others of those benefits are ones that we would 
hope that beneficiaries would never need to use.
    Chairman STARK, but what I am asking you is that this money 
is supposed to be spent, is it not, the 75 percent, on the 
beneficiaries?
    Ms. BLOCK. Yes, it is.
    Chairman STARK. So, where it isn't in a premium reduction, 
it must be in other say eyeglasses, hearing aids, dental 
benefits. Do you keep a record or do the plans submit to you a 
record of what they spend?
    Ms. BLOCK. Well, actually they don't but I can tell you 
that in terms of those benefits every survey that is done 
says----
    Chairman STARK, but then the answer is that you don't know 
whether----
    Ms. BLOCK [continuing]. There are the benefits that the 
beneficiaries want and therefore we can assume----
    Chairman STARK [continuing]. They are spending it or not. 
Excuse me.
    Ms. BLOCK [continuing]. That they use those benefits.
    Chairman STARK. The answer is you don't know that they are 
spending----
    Ms. BLOCK. The answer is we don't specifically record those 
extra--the utilization of those extra benefits.
    Chairman STARK. So, you do not know? You do not know 
whether they are spending that money or not, do you?
    Ms. BLOCK. We can make a very accurate presumption that 
beneficiaries are using the benefits that they want.
    Chairman STARK. I asked you a simple question, you don't 
have any records of how the money is spent.
    Mr. CAMP. I would like to hear her answer.
    Chairman STARK. Yes, okay, but she said she does not know. 
She is not answering it.
    Mr. CAMP. She is trying to answer the question if she was 
not continually interrupted.
    Chairman STARK. Let me rephrase the question just so it is 
very simple, do you have records for each plan of how they 
spend the 75 percent on extra benefits?
    Ms. BLOCK. No, I do not have records. However, I have 
customer satisfaction surveys that tell me that they easily 
access those benefits. I have every indication through surveys 
of what beneficiaries say they want, that they want benefits 
like eyeglasses, hearing aids, and other things that are 
typically provided. So, I think it is a safe assumption to make 
that when you give people benefits that they have asked for, 
they are likely to use them.
    Chairman STARK, but you still do not know whether they do 
or not so I will stipulate that the answer is you do not know.
    Ms. BLOCK. The answer is I do not record specifically the 
use plan by plan and beneficiary by beneficiary of every 
additional benefit.
    Chairman STARK. Do the plans record that?
    Ms. BLOCK. The plans would have to in order to do their bid 
estimates. They have to know how to cost their bid.
    Chairman STARK. So, you believe that the plans would have 
actual information about how they take their 75 percent and 
spend it on beneficiaries other than through reduced premiums, 
is that correct?
    Ms. BLOCK. If I were a plan actuary and I had to prepare a 
bid every year, I think I would need to know what my potential 
costs are. Otherwise, I cannot make my bid.
    Chairman STARK. I guess what I am asking you is to your 
knowledge do you know that plans keep those records?
    Ms. BLOCK. I can only assume that they do.
    Chairman STARK, but you do not know?
    Ms. BLOCK. I have not asked them since it would be 
irrelevant other than for bid purposes.
    Chairman STARK, but it might be relevant to us who are 
responsible for the taxpayers' dollars. It may not be relevant 
to you.
    Ms. BLOCK. Well, we could possibly ask Ms. Schmitt who was 
on the previous panel who represents a plan.
    Chairman STARK. Okay. Let's assume for a minute that we are 
spending let's say give or take a few billion, $60 billion 
extra, in what are classified as overpayments or additional 
payments above the fee-for-service cost, let's say that we 
decided that we had to reduce that overpayment by $30 billion 
or $6 billion a year over five, how would you suggest that we 
reduce the payments to plans, in other words, we just cut it 
across the board or would you recommend to us ways that we 
might differentiate between plans and apportion these savings 
differently?
    Ms. BLOCK. Well, I think if you are talking about the 
various products within the MA program, is that what we are 
talking about?
    Chairman STARK. How do we know which ones--should we cut 
across the board or how could we be selective?
    Ms. BLOCK. I think that we could look at some of the things 
that have already been mentioned and some of those things, as I 
have said in my statement and as other have said, Private Fee-
for-Service plans are by statute exempted from, I think it be 
probably a wise idea to look at performance measures, quality 
of performance and certainly it might be a good idea to letting 
CMS review those plans' bids in the same way that we review 
other plans' bids. Those are some things that we might think 
about for starters. There are other things that we could 
certainly talk about in a more extensive discussion.
    Chairman STARK. Do you review the plan bids now?
    Ms. BLOCK. We do not review the Private Fee-for-Service 
plans. The statute does not allow us to.
    Chairman STARK. Do you review the other, the MA plans?
    Ms. BLOCK. Our actuaries review every MA plan, yes, the CMS 
actuaries review other plan bids.
    Chairman STARK. Thank you. Mr. Camp?
    Mr. CAMP. Well, thank you. It is statute that does not 
allow you to review the Private Fee-for-Service plans and the 
reason being the concern about what the government in 
connection with HMOs might do with regard to end of life 
decisions, is that an accurate statement?
    Ms. BLOCK. Yes, I believe so.
    Mr. CAMP. Are you familiar with--of the 75 percent that is 
put into additional benefits, I understand that MedPac has 
information on that, I do not know if you are aware of this but 
is it accurate that 65 percent of that additional money goes to 
lower co-pays, 15 percent goes to lower premiums, and 14 
percent goes to additional benefits?
    Ms. BLOCK. I think that is approximately correct.
    Mr. CAMP. So, we do have some information in terms--in a 
macro sense where the additional dollars go for these plans. 
Ms. Block, yesterday, CMS announced a number of initiatives to 
address some of the marketing of uses by rogue sales agents and 
brokers. Can you discuss some of those new efforts?
    Ms. BLOCK. Yes, we have announced a series of efforts. In 
our call letter for 2008, we have put in place some very 
specific requirements that we think will be significant in 
terms of curtailing some of what we consider to be the abusive 
practices of what we hope is a small minority of brokers and 
agents who are marketing the product. In addition to requiring 
much more extensive documentation of broker and agent training, 
we are requiring plans specifically to give every single person 
who is being sold a Private Fee-for-Service policy a tear 
sheet, which is essentially a disclaimer that tells them 
clearly the difference between a Private Fee-for-Service plan 
and original Medicare so that it is very, very clear to the 
potential purchaser that this is not original Medicare, that 
the provisions of the policy are different and access to 
providers is different.
    We are also requiring them to provide a tear sheet for 
providers so that they will better understand the nature of the 
Private Fee-for-Service product. We are also requiring outbound 
call back to every beneficiary who enrolls or in some cases 
unfortunately, as I understand it, may not know that they have 
enrolled in a Private Fee-for-Service plan. Those beneficiaries 
will be called, they will be asked to verify that in fact that 
they signed that enrollment form, and they will be asked to 
clearly assert that they understand the nature of the product 
and that it meets their needs.
    In addition to that we issued a Notice of Proposed Rule-
making yesterday, which again streamlines our process by 
eliminating redundant procedures, by modifying the reporting 
requirements of fraud and misconduct so that plans will 
mandatorily have to report such action, and it will go through 
the normal regulatory process, but we believe it is a very good 
start in terms of strengthening our ability to manage this 
product. By the way, the regulations apply to MA plans and 
Medicare prescription drug plans across the board.
    Mr. CAMP. Thank you. Can you tell me about the satisfaction 
of Medicare beneficiaries and if you have detail of various 
plans, I would be interested in that as well as Part D if you 
have it?
    Ms. BLOCK. Well, in terms of MA, the satisfaction rate from 
our cap survey is 95 percent and that is really quite 
remarkable. In terms of Part D, we have not yet done our own 
survey, the cap survey that will actually assess satisfaction 
with Part D is being fielded right now, but other surveys talk 
about between 75 and 85 percent satisfaction rates.
    Mr. CAMP. Do you have an opinion about the concept of 
requiring care management in Private Fee-for-Service?
    Ms. BLOCK. I think care management is very important, and I 
think that there are many ways to accomplish care management 
even without contracting with network providers. I think that 
care management can be achieved by working directly with the 
patients, with the beneficiaries, in many ways that are 
positive. Given the incidence of people in Medicare with 
multiple chronic illnesses, I think this is a very important 
feature and one that I would like to see strengthened.
    Mr. CAMP. All right, thank you very much. Thank you, Mr. 
Chairman.
    Mr. POMEROY. Mr. Chairman?
    Mr. CAMP. I yield back.
    Mr. POMEROY. I did not want to impose upon the gentleman's 
time, I wanted him to get all his questions in but he led with 
a question, I did not understand it at all, the question on end 
of life care? I am wondering if the gentleman would allow Mr. 
Camp extra time to inform those of us new to the Committee what 
that is all about.
    Mr. CAMP. There is a lot in the public record about that 
and the background of the legislative history as to why CMS is 
not allowed to ask these questions. That was in statute really 
with a concern about what HMOs might do in terms of managing 
end of life decisions in that the government would be a part of 
that decision and so there was a wall put up legislatively, 
statutorily, between those two. That is the only question I was 
asking.
    Chairman STARK. Mr. Doggett?
    Mr. DOGGETT. Thank you very much. Ms. Block, exploring 
first some other areas, I had some concerns expressed by local 
health care providers, specifically physicians, that they do 
not--they are not able to access up-to-date information about 
which specific MA program a patient might have or whether they 
have traditional Medicare, and they may bill thinking it is 
traditional Medicare because they cannot access current 
information on the database. Is that a problem of which you are 
aware?
    Ms. BLOCK. That is a problem, sir, that I have heard about 
and it is a problem that I believe has been fixed. It has to do 
with how the patient's enrollment is recorded on the common 
database, on the common working file.
    Mr. DOGGETT. Physicians that have discussed it with me have 
been experiencing that problem very recently. I would just ask 
you to check and see what might be done to address that 
concern. Then another area we have not discussed yet is the 
area of cost contracts. I understand that while they are not as 
efficient as traditional Medicare, they are not as expensive as 
the MA plans and are beneficial in some rural communities. What 
is your assessment of the way cost contracts have been working?
    Ms. BLOCK. Well, as you know, there is a statutory 
provision that would sunset cost contracts under certain 
circumstances. As of this point in time, there are some cost 
contracts still functioning and where they are functioning 
efficiently and so long as the statute permits them to continue 
to exist, I have no problem with their being there.
    Mr. DOGGETT. Well, I suppose since you have some oversight 
of the quality and efficiency of health care you would not just 
be waiting to see when the statute runs out but might want to 
offer some opinion as to whether such contracts should continue 
in the future, is not that the case?
    Ms. BLOCK. Well, that is something that we could certainly 
discuss but frankly cost contracts have some of the same 
limitations as some of the other things we are discussing in 
terms of how they function, what kind of coordinated care they 
do or do not provide, what they report to CMS in terms of their 
quality and so on so there are similar issues.
    Mr. DOGGETT. There are certainly similar issues, my 
question is then whether CMS is doing any evaluation of the 
desirability of continuing the cost contract approach and how 
well it is operating?
    Ms. BLOCK. Well, it is not something that we have 
particularly focused on at the moment but is certainly 
something we can look into in the future.
    Mr. DOGGETT. The local paper from Austin, one of the 
communities that I serve, had some comment this morning about I 
guess the press availability that you and Ms. Norwalk had 
yesterday, noting that while we were--I would reflect that 
while we were told when this bill was passed that these private 
plans would be cheaper and better, that they certainly have not 
been cheaper, it is about $120 more per beneficiary. Let me 
just quote from this, this was actually yesterday, ``By law, 
the Private Fee-for-Service plans must provide an average of 
$61 worth of extra benefits per enrollee but Norwalk and Block 
said Medicare cannot account for the remaining $79 per 
beneficiary paid to the plans. They acknowledge that much of 
the money goes into management and profit for the plans.'' Is 
that accurate that you do not know where the $79 per 
beneficiary goes other than for management and profit of the 
plans?
    Ms. BLOCK. Well, I think what is being alluded to, and 
again it comes back to the fact that unlike other MA plans, we 
do not review the bids of Private Fee-for-Service plans so we 
do not have the same sense nor do we have the same authority to 
negotiate those bids that we do with other MA plans.
    Mr. DOGGETT. So, since you do not know, it is certainly 
possible that they may be getting $79 per beneficiary in profit 
and management costs?
    Ms. BLOCK. Well, again, this is a competitive market and I 
really believe that in order----
    Mr. DOGGETT. It does not seem like a competitive market.
    Ms. BLOCK [continuing]. To succeed in a competitive market, 
you have to offer people something.
    Mr. DOGGETT. As far as that competition, I believe you told 
Mr. Camp that you had acted on the eve of this hearing to 
address abusive practices of brokers and agents, I trust you 
would not have acted had you not determined that there were 
significant abusive practices that needed to be stopped?
    Ms. BLOCK. We acted before the eve of this hearing. We 
issued our call letter for 2008 some time before this hearing. 
As we have become aware of the abusive practices, we have been 
very concerned about them and are still very concerned about 
them and have and will continue to take very strong action to 
make those abusive actions stop.
    Mr. DOGGETT. What report or evaluation do you have to 
indicate how extensive these abusive practices have been?
    Ms. BLOCK. Well, we have the complaints that we receive. We 
have also, and unfortunately it was not mentioned by the 
gentleman from Wisconsin who was on the previous panel, but we 
have put in place after working very closely with the NAIC a 
policy of signing of memoranda of understanding with the 
States, 20 States and Puerto Rico have signed that MOU so far.
    Mr. DOGGETT. Actually, I believe one of the witness 
referred to the Memorandum of Understanding but what I am 
seeking with my time expiring is to know if there is a report, 
a memo, something from CMS that details the extent of abusive 
practices that produced the action that you have described?
    Ms. BLOCK. We track complaints, we track through 
interaction with the States, what the States are hearing, we 
talk extensively to beneficiaries, to beneficiary advocates, we 
have multiple sources for learning about problems and clearly 
we have learned about problems in the marketing of the Private 
Fee-for-Service products.
    Mr. DOGGETT. Which individual entity, office, department or 
section of CMS recommended that this action to discourage 
abusive practices needed to be taken by CMS?
    Ms. BLOCK. Well, this was a CMS agency decision. It was not 
a single----
    Mr. DOGGETT. Who started----
    Ms. BLOCK. Excuse me?
    Mr. DOGGETT. Where did it start, where did emanate from?
    Ms. BLOCK. I am not sure I understand your question.
    Mr. DOGGETT. Well, I suppose that there was some individual 
that said this problem is sufficient that we need to move 
forward with this new action and how did that start?
    Ms. BLOCK. Well, the division, the center that I head, the 
Center for Beneficiary Choices, is responsible for 
administering both the MA and the Medicare prescription drug 
program. It is my office that receives the complaints, that 
deals with the complaints, working closely with the CMS 
regional offices, by the way, because they have an active role 
in this. It was the consensus within CMS that we needed to take 
action and we have done so.
    Mr. DOGGETT. So, you started this, your office?
    Ms. BLOCK. Well, I personally as the director of that 
office, along with many other people in CMS, certainly had 
input into that decision.
    Mr. DOGGETT. You have no problem then in providing to the 
Committee all of the intra-office, inter-agency as well 
memoranda that gave rise to this recommendation?
    Ms. BLOCK. I am not sure what recommendation you are 
referring to, sir. We took multiple action that I have already 
mentioned. If you are talking specifically about the compliance 
rule or are you talking about the call letter for 2008, I am 
not sure what action specifically we are discussing?
    Mr. DOGGETT. Both of those, all of the documents that 
reflected the problem that you saw needed to be attended to by 
both of those actions.
    Ms. BLOCK. I really would have to consult with my general 
counsel about providing inter-office memos.
    Mr. DOGGETT. Why don't you do that and we will try and get 
you a specific request on it. Thank you.
    Chairman STARK. Mr. Becerra, would you like to inquire?
    Mr. BECERRA. Thank you, Mr. Chairman. Ms. Block, thank you 
for being here with us this afternoon and thank you for your 
patience as well. The California Medical Association (CMA) has 
apparently contacted CMA on several occasions and asked that 
with regard to the Private Fee-for-Service program that CMS 
require that these Private Fee-for-Service plans offer on a 
website or in some consolidated fashion information on their 
payment schedules for physicians because physicians are 
complaining left and right, up and down that they have no way 
of knowing what the payment schedules are like. They are 
concerned that CMS has ignored their solicitations in that 
regard. I am wondering if you could tell me whether or not CMS 
has taken on this issue that was raised by California Medical 
Association?
    Ms. BLOCK. I am happy to say that contrary to ignoring the 
issue, what we have just done, and I think it is just a 
beginning, we have posted on our own website information on 
accessing the websites of each of the plans that offers this 
product and specifically the place on those websites where 
providers can in fact access that information.
    Mr. BECERRA. So, you are saying to me that there is a 
single website for these Private Fee-for-Service plans that 
offers the terms and conditions readily viewable for physicians 
to see on these Private Fee-for-Service plans?
    Ms. BLOCK. There is now a single website, a CMS website, 
that provides links to every single plan.
    Mr. BECERRA. Okay, that is fine that CMS has a website. I 
do not think the physicians are asking CMS to have a website, 
they are asking for these Private Fee-for-Service plans to have 
a website.
    Ms. BLOCK. Yes, but since there are several hundred of 
these plans, what our website does is give you a link to each 
plan's website so that a physician can go from our website to 
that plan's website and access all of the information.
    Mr. BECERRA, but, Ms. Block, I do not think that is the 
California Medical Association, the physicians, the thousands 
of physicians in California who belong to the California 
Medical Association, I do not think they are concerned or 
interested in having to access your website to find out the 
payment terms and conditions of a Private Fee-for-Service plan.
    Ms. BLOCK. What I am telling you is that every Private Fee-
for-Service plan, sir, must have on their website the 
information available. What we are doing is----
    Mr. BECERRA. If I could ask you, Ms. Block, as of when have 
those plans been required to post that information?
    Ms. BLOCK. Absolutely.
    Mr. BECERRA. As of when?
    Ms. BLOCK. They are required to post that information and 
our website will take the provider from our website to the 
plan's website.
    Mr. BECERRA. As of when have those plans been required to 
post that information on a website?
    Ms. BLOCK. It is my understanding that they always had to 
make that information available.
    Mr. BECERRA. Always, since the beginning of the program?
    Ms. BLOCK. That is my understanding.
    Mr. BECERRA. Okay, and can you provide me with the statute 
or regulation that requires them to post that information, the 
terms and conditions on their website?
    Ms. BLOCK. Yes, the statute----
    Mr. BECERRA. You do not need to do it right now, you can 
just provide it later on. You say that they are required, I 
will take you at your word if you can just provide me with the 
regulation or the statute that requires them to post it.
    Ms. BLOCK. I just want to make it clear what the statute 
says is the information must be available and having it 
available on a website is a satisfactory way of providing the 
information.
    Mr. BECERRA. So, if you have a website that has billions of 
bits of information and in one little section you might have 
information about one reimbursement for service and in another 
section of the website you might have hidden some information 
about how you get paid for another service, it could take a 
physician scores of hours to try to make sense of the terms and 
conditions under which that physician might be operating under 
that Private Fee-for-Service plan. So, let me ask it more 
specifically, to your understanding, is there anything under 
the law that requires these Private Fee-for-Service plans to 
make available in a single readable document information about 
terms and conditions for reimbursement that these physicians 
would have to abide by if they were to work with this Private 
Fee-for-Service plan?
    Ms. BLOCK. Let me try to expound----
    Mr. BECERRA. No, no, I asked a pretty specific question. If 
you do not know, that is fine, you can tell me that.
    Ms. BLOCK. No, no, the answer is very simple, a provider 
does not have to accept the terms and conditions of a Private 
Fee-for-Service plan.
    Mr. BECERRA. That is fine, that is fine. I will accept 
that.
    Ms. BLOCK. So, a provider who does not want to do that----
    Mr. BECERRA. Ms. Block? Ms. Block?
    Ms. BLOCK [continuing]. Does not have to.
    Mr. BECERRA. Ms. Block, I am asking you specifically if you 
can guide me on what the law requires you to require of the 
plans, I do not need for you to explain to me all sorts of 
other things. That is fine if I were asking you questions about 
that but right now I am trying to figure out why thousands of 
physicians in California are asking for the elimination of the 
Private Fee-for-Service plans because they say with all the 
fraud, with the disruption, that they would prefer not to see--
and these are physicians that are treating a lot of Medicare 
patients, and so what I am trying to get from you is some 
guidance as to why they say, and I will quote, ``CMA, the 
California Medical Association, has repeatedly asked CMS to 
require Private Fee-for-Service plans to post their payment 
rules on a single website where physicians can readily obtain 
this information. Unfortunately, patients who see deemed 
physicians,'' and we will not get into the categorization of 
deemed physicians, ``must pay higher copayments.'' They go on 
to say that you have--CMS has ignored their request for that 
requirement that that information be posted on a website. So, 
let's do this, my time has expired.
    Ms. BLOCK. I would love to have a dialog with you about 
this. Why don't we try to do that?
    Mr. BECERRA. Excellent and then maybe you can provide me 
with the information about the rules and regulations when we 
follow up. I appreciate that very much. Mr. Chairman, thank you 
for the time.
    Chairman STARK. Thank you. Mr. Pomeroy, would you like to 
inquire?
    Mr. POMEROY. I would. Thank you, Mr. Chairman. I am a 
little perplexed on the State of regulation of plans. The 
insurance commissioner said he could regulate agents but not 
company activity in this Private Fee-for-Service market, is 
that correct?
    Ms. BLOCK. That is correct.
    Mr. POMEROY. Who regulates the companies?
    Ms. BLOCK. CMS does.
    Mr. POMEROY. What kind of staffing additions did you have 
to undertake this new insurance regulatory responsibility upon 
the passage of this portion of the Medicare Modernization Act?
    Ms. BLOCK. Well, depending on what we are talking about, we 
have contracted with the so-called Medics.
    Mr. POMEROY. Have you outsourced regulation?
    Ms. BLOCK. We have outsourced to the Medics, some of this.
    Mr. POMEROY. What have you outsourced to Medics?
    Ms. BLOCK. The Medics are contractors who have 
investigative authority in terms of program integrity, and we 
have outsourced----
    Mr. POMEROY. Does Medics evaluate caliber of coverages 
proposed to be sold by companies?
    Ms. BLOCK. No, no.
    Mr. POMEROY. Who regulates that? Who regulates that?
    Ms. BLOCK. We regulate----
    Mr. POMEROY. I do not care about Medics at this moment, who 
regulates that?
    Ms. BLOCK. There is no----
    Mr. POMEROY. There is no regulation of plan content, okay.
    Ms. BLOCK. There is very careful review of plan content by 
my staff, sir.
    Mr. POMEROY. Okay, now what kind of staffing--so every plan 
sold by every company in Private Fee-for-Service is very 
closely reviewed by your staff. How many staff did you get for 
this function?
    Ms. BLOCK. Let's separate MA from Private Fee-for-Service. 
Our review of Private Fee-for-Service, as we have kept saying, 
is different than our review of other MA products.
    Mr. POMEROY. What really bugs us is when you blow our 5 
minutes with not answering the questions.
    Ms. BLOCK. I am trying to answer your question.
    Mr. POMEROY. I am going to try and make my questions so 
incredibly clear that you cannot miss it.
    Ms. BLOCK. In terms of Private Fee-for-Service,----
    Mr. POMEROY. I asked you how many you hired for this 
function.
    Ms. BLOCK [continuing]. We review benefits only in terms of 
making sure that the cost-sharing is not discriminatory.
    Mr. POMEROY. So, the only review--thank you, I appreciated 
getting right to the question. The only review you do of 
private plans is----
    Ms. BLOCK. Private Fee-for-Service plans.
    Mr. POMEROY [continuing]. To look at the pricing to make 
sure the pricing is not discriminatory, is that what you 
answered?
    Ms. BLOCK. That the cost-sharing is not discriminatory.
    Mr. POMEROY. The cost-sharing is not discriminatory. Do you 
review whether or not the benefits in the plan change on a 
yearly basis?
    Ms. BLOCK. We review the benefits each year.
    Mr. POMEROY. Can they be changed each year?
    Ms. BLOCK. Yes, they can. As with any other MA plan, they 
can be changed.
    Mr. POMEROY, but quite differently from the----
    Ms. BLOCK. By the way, like as with every other commercial 
insurance product.
    Mr. POMEROY. Well, there is a guaranteed right of 
renewability for some coverages or an option of other coverages 
in the event that the existing coverage has changed and that is 
a protection commonly added at the State level for the senior 
market. Now, how about level commissions, do you address the 
commission structure that these companies reimburse their 
agents?
    Ms. BLOCK. Only in terms of the fact that the commission 
structure has to be reasonable in terms of the complexity of 
the product being sold.
    Mr. POMEROY. Is a first year commission allowed to be sold 
that is at a higher rate than a renewal commission?
    Ms. BLOCK. We do not specifically regulate commissions.
    Mr. POMEROY. You do not. Can the private insurance 
commissioners--the insurance commissioners, they cannot 
regulate commissions because that is an insurance company deal 
so we do not have regulation of commission structures?
    Ms. BLOCK. We do not currently have regulations of 
commission structures.
    Mr. POMEROY. Do you review advertising and marketing?
    Ms. BLOCK. Yes, we do.
    Mr. POMEROY. So, every policy marketed by Private Fee-for-
Service writers is filed with your staff?
    Ms. BLOCK. It is filed with the regional office in which it 
operates.
    Mr. POMEROY. Is that an outsourced activity or is that an 
activity by your staff?
    Ms. BLOCK. It is not my particular staff, it is CMS staff. 
It is done by the CMS regional offices.
    Mr. POMEROY. How many personnel were added at the regional 
offices for this function?
    Ms. BLOCK. I do not have an exact number.
    Mr. POMEROY. Well, do you have an estimate?
    Ms. BLOCK. No, I really----
    Mr. POMEROY. Was anyone hired, was anyone additionally 
hired for this function?
    Ms. BLOCK. Yes, additional people were hired in the 
regional office, but I do not have an exact number.
    Mr. POMEROY. Were hundreds hired? I would like that number. 
Would you please submit that number following the hearing?
    Ms. BLOCK. Certainly.
    Mr. POMEROY. Thank you. There is another matter and that is 
you talked about how great this is for the rural areas, first 
of all, by the way, did it ever occur to you that it light of 
the elaborate protections presently in place on the senior 
market, including the MediGap market by the States, that you 
might have worked with State commissioners to embrace some of 
these protections?
    Ms. BLOCK. We are working with State commissioners and, as 
I explained, we have a Memorandum of Understanding process in 
place. We are eager to work with State commissioners and will 
continue to do that.
    Mr. POMEROY. Well, I believe that if you had been working 
with State commissioners, you would have some of these 
fundamental protections in place as well as working 
relationships so these policies are reviewed by staff 
sufficient to accomplish that task. My belief is you would have 
working relationships with State insurance departments charged 
with consumer protection rather than outsourcing to private 
vendors. My belief is you would have working relationships with 
State insurance departments charged with consumer protection 
rather than outsourcing to private vendors. My belief is you 
would have a very different situation than what you have got 
today.
    Now, the issue of reimbursement. In a rural area, you have 
critical access hospitals that are reimbursed at a 100-percent 
rate of cost. Are you doing any plan oversight for Private Fee-
for-Service to make certain these hospitals are recovering what 
they need as a judgment of the Medicare program to stay open?
    Ms. BLOCK. We are doing exactly what we need to do to 
ensure that payment is made in accordance with the provisions 
of the statute.
    Mr. POMEROY. What are those provisions?
    Ms. BLOCK. The provisions of the statute are that a Private 
Fee-for-Service plan may not pay less in reimbursement than 
would be paid under original Medicare.
    Mr. POMEROY. What if they pay at the interim rate and 
settle up at the end of the year, your staff will help 
determine that the settlement at the end of the year is at 
Medicare rate?
    Ms. BLOCK. I do not believe we have been asked to do that.
    Mr. POMEROY. Really? Since I have six different hospitals 
in North Dakota that I inquired, it was a small matter, I do 
not have a large staff for this matter, and I called and none 
of them are getting the Medicare rate. Additionally, how about 
prompt payment, do you oversee that?
    Ms. BLOCK. All of the provisions that are in place for 
resolving disputes apply.
    Mr. POMEROY. What does that mean?
    Ms. BLOCK. It means that all of the provisions that would 
be in place under traditional Medicare applies to this product 
as well.
    Mr. POMEROY. Do you have a call center where my hospital 
that has not been paid since April 2006 on a claim can call and 
report the insurance company?
    Ms. BLOCK. They could call my office, sir. I have not to my 
knowledge received such calls but if you have examples or there 
are hospitals in that situation, by all means have them call 
me.
    Mr. POMEROY. I have many examples, one hospital called one 
insurance company ``a royal pain,'' another hospital called 
another company ``a billing nightmare.'' This other one is 
waiting until April 2006. So, I am pleased to hear that your 
office responds to queries from hospitals that have not been 
promptly paid and you are telling me that virtually you have 
not known that hospitals are out there not receiving prompt 
payment. This is news to you that some have not received prompt 
payment from a Private Fee-for-Service provider, is that what 
you are telling me--from a Private Fee-for-Service insurer?
    Ms. BLOCK. I am telling you that I personally have not been 
made aware of such situations. If someone wishes to make me 
aware of them, I would appreciate it.
    Mr. POMEROY. All right, thank you. I yield back, Mr. 
Chairman.
    Chairman STARK. Thank you. Ms. Block, I just wanted to go 
back. You kindly in your testimony provided us with a chart 
that suggested that 68 percent of the plans charge no more than 
Medicare for hospitalization. I cannot find the exact testimony 
here but I think that is, if my memory serves me, close enough. 
Does that in fact imply that 32 percent of the plans charge 
more than Medicare for hospitalization?
    Ms. BLOCK. I am sorry, I am trying to find the chart that 
you are referring to.
    Chairman STARK. It is on page seven of your testimony.
    Ms. BLOCK. Yes, I have it.
    Chairman STARK. You show the attributes and you show the 
benefit structure and the percent of beneficiaries enrolled in 
a plan of this type. Then you say the benefit structure is 
$1,000 or less for a 90 day hospital stay. Now, when you say 
that 68 percent of the beneficiaries that are enrolled in a 
plan of that type, does that mean that 32 percent of the 
beneficiaries are enrolled in a plan that has more than $1,000 
for a 90 day hospital stay?
    Ms. BLOCK. I would presume so, yes.
    Chairman STARK. Okay.
    Ms. BLOCK. That would be what the arithmetic would imply.
    Chairman STARK. What you do not mention is that there are 
plans that we understand that charge co-pays for home health or 
durable medical equipment or skilled nursing facilities, which 
Medicare does not charge for. Do you have records on those 
benefits for which people are charged more than they would pay 
under Medicare fee-for-service?
    Ms. BLOCK. Private Fee-for-Service, like MA plans, have to 
provide comparable actuarial value for Medicare part A and B 
benefits through original Medicare.
    Chairman STARK. I think I understand that.
    Ms. BLOCK. However, they can arrange those copayments in 
different ways.
    Chairman STARK. So, they can in fact charge much more if 
they wanted to to certain beneficiaries for certain procedures?
    Ms. BLOCK. They can charge more for certain procedures, 
less for others.
    Chairman STARK. Could that become discriminatory, do you 
suppose?
    Ms. BLOCK. I suppose it could and that is why we review 
benefits specifically with that in mind.
    Chairman STARK. You do review them then?
    Ms. BLOCK. Specifically in terms of----
    Chairman STARK. So, you review all the co-pays?
    Ms. BLOCK. In order to determine whether benefits are in 
fact or have the potential of being discriminatory.
    Chairman STARK. I wanted to go back just for a minute 
because, as you say, you are in charge of part B and MA, and we 
talked about the 75 percent and since we talked about that, I 
am advised that its current year, and I imagine this of 2006, 
the 75 percent would amount to $8.3 billion that is the 75 
percent that should be spent on beneficiaries, you have no 
record of that $8.3 billion but over 5 years at a very minimum 
because I think, as many people have indicated, these plans are 
growing rapidly, are they not? Many people are signing up. So, 
at a bare minimum over the next 5 years, there is going to be 
$41 billion to be spent under this 75 percent that is supposed 
to be spent for extra benefits. Do you not think that it would 
be a good idea for us to have some idea of where this more than 
$8 billion a year of taxpayer money is going and to review and 
audit to see whether these plans are really spending it?
    Ms. BLOCK. Are we talking specifically about Private Fee-
for-Service plans?
    Chairman STARK. I am just talking about the fact that there 
is $8.3 billion that is supposed to be spent in the 75 percent 
extra and you do not know whether it is being spent or how it 
is being spent. So, basically we are handing out more than $8 
billion a year to these plans and you do not know whether they 
are just putting it in their pocket or whether they are 
spending it. Don't you think it would be a good idea for us to 
regulate that?
    Ms. BLOCK. I think I need clarification, sir, are we 
talking about all MA plans or are we talking specifically about 
Private Fee-for-Service?
    Chairman STARK. Yes, we are talking about all plans, all MA 
plans.
    Ms. BLOCK. Well, for all MA plans we do have information. 
Our actuaries view----
    Chairman STARK. No, no, ``actuaries-schmactuaries,'' you do 
not have records, as you just testified a few moments ago, on 
how the 75 percent is spent or if it is spent, do you?
    Ms. BLOCK. I think we do and I think----
    Chairman STARK. Oh, you think you do now?
    Ms. BLOCK. Yes, I think we have provided you with 
information on the Healthcare Effectiveness Data Information 
Set measures that we collect,----
    Chairman STARK. I am not talking----
    Ms. BLOCK [continuing.] Other resources----
    Chairman STARK. Ma'am, can I go back a minute?
    Ms. BLOCK. --that have an actuarial review----
    Chairman STARK. Stop, stop, let me just try this very 
simply. I am not talking about polling or satisfaction, I am 
talking about dollars and the law as I understand it, correct 
me if I am wrong, requires that this 75 percent we are talking 
about be spent on additional benefits, as you said some of it 
may be in lower premiums but not all of it. So, I am saying 
that in the parlance that we are using for our 5 year budget 
that we are looking for some savings, there are $41 billion 
that you are unable to identify, you cannot tell me how it is 
being spent or if indeed it is being spent as the law requires 
on beneficiaries. You presume it is because nobody is 
complaining but I am sorry I cannot presume that everybody is 
filing their income taxes just because they are not 
complaining. What I want to know is is it being spent, can we 
verify that? If we were talking about a few thousand bucks a 
year, I would not be--but this $8 billion a year, ma'am, and 
you do not know where it is going. You are only presuming it is 
being spent. Now, do you not think it would be a good idea that 
we had accurate records of how it was being spent and that we 
audit that?
    Ms. BLOCK. I think I have answered your question. I think 
that we have a very good indication of how that money is being 
spent. I think we do take steps to understand how it is being 
spent. I think that from year to year in the bid process, that 
is in fact reviewed. I think that if the Committee and the 
Congress decides that it wants to monitor in a different way, 
then you will pass legislation to do that.
    Mr. CAMP. If the gentleman would yield?
    Chairman STARK. Sure.
    Mr. CAMP. I think what the Chairman might be asking is 
while CMS does not have individual records, is it true that you 
are able from other data to composite and determine whether for 
example co-pays are lower or other such information from the 
data that you have available?
    Ms. BLOCK. Well, for one thing we do do financial audits of 
health plans so plans are audited. There are provisions in 
place to do regular and periodic auditing of the finances of 
plans. Certainly we have information, again based on our review 
of benefit packages, on our review of bids, that gives us a 
clear indication of how plans are spending the Government's 
money.
    Mr. CAMP. Yes, but I think it is this individual data that 
the Committee is interested in that has been referred to 
several times that we do not have available, but I understand 
what you are trying to say is that you are able to surmise from 
the research and investigation that you do. Thank you. Thank 
you, Mr. Chairman.
    Chairman STARK. Well, I appreciate your assistance. I would 
hope, Ms. Block, dinner time has come and gone, you have been 
very kind and I apologize for keeping you here so late, perhaps 
you could review and your staff, who are studiously taking 
notes there, could review and give us an indication--oh, Mr. 
Becerra wanted another question--but perhaps you could give me 
an outline of how we might ascertain exactly what is being--how 
this $8.3 is being spent and whether the information actually 
exists on a plan by plan basis so that we would have some idea 
of what this extra money over above fee-for-service is actually 
going toward.
    I appreciate that you feel that the beneficiaries are 
satisfied, but I want to know maybe they are buying them all 
medical marijuana, that would satisfy a lot of Californians, 
but could we get some more detail as to which plans are 
providing which benefits? That would help us as we try and 
decide how we might adjust the payments, you could also help us 
in that regard, to save money to keep Medicare alive. That is 
what we are trying to do, your help would be appreciated. Mr. 
Becerra, do you want to have the last word?
    Mr. BECERRA. I do not know if it is the last word, Mr. 
Chairman, but I do appreciate it and I will try to rather than 
go into an elaborate question, I will see if I can just keep 
straight to the point to give Ms. Block a chance to try to 
respond just specifically and succinctly to that. Going back 
again to the whole issue that the doctors from California have 
raised, we will follow up--Ms. Block, we will follow up in that 
discussion. Again, I am going to try to find out if there is 
anything that CMS has done to require that Private Fee-for-
Service plans are offering information about the terms and 
conditions that they offer to physicians for payment are within 
a specific website for that Private Fee-for-Service plan, and 
we will follow up.
    Secondly, a quick question, Mr. Pomeroy asked a line of 
questions with regard to your oversight responsibilities and 
your ability to make sure that these MA plans and specifically 
Private Fee-for-Service plans are following the rules because 
we have heard of many, many cases of abuse and so forth. Do you 
believe you have the resources and staff necessary to do the 
sufficient oversight you must do to make sure that the plans 
are abiding by the rules and regulations currently in place for 
MA?
    Ms. BLOCK. I have an exceedingly hardworking staff, and I 
can assure you that they are doing everything that they need to 
do and will continue to do that to make sure that everybody is 
acting in accordance with the rules.
    Mr. BECERRA. Does that exceedingly hardworking staff have 
all the resources it needs to perform the compliance work, the 
oversight work, that the taxpayers and Medicare beneficiaries 
except CMS to perform?
    Ms. BLOCK. My staff is doing everything that it is required 
to do.
    Mr. BECERRA. Okay, that is not my question, and I think all 
of us understand that, we all have staff who work very, very 
hard and do everything they can. I am asking you as the 
director of CMS if you have all the resources and staff that 
you need to provide the taxpayers and Medicare beneficiaries 
with the oversight that is required by law on these plans as 
they go out and provide services to our public?
    Ms. BLOCK. That is a really difficult question to ask 
because I do not think that any of us would given the 
opportunity not like to have more and more resources.
    Mr. BECERRA. Here is your opportunity.
    Ms. BLOCK. I think we are working within the resources 
allocated to us to do everything that we are required to do.
    Mr. BECERRA. I appreciate your dilemma of having to try to 
work within the budget that you are provided. Let me ask the 
question a different way. With the budget that you are given 
for the staff and tools that you have or need, are you able to 
perform responsibly the work of oversight that you are charged 
with at CMS to protect not just the taxpayer dollars but the 
Medicare beneficiaries services that CMS oversees?
    Ms. BLOCK. Well, with the caveat that none of us are 
perfect, and I would not want to suggest for a moment that we 
are perfect either, but I think that we are doing a really good 
job.
    Mr. BECERRA. Okay, so there is no reason that later on in 
this year you would be coming up here to explain to us why you 
need more resources or you needed more staff to do oversight 
because of abuses that are alleged against certain Private Fee-
for-Service or other MA plans?
    Ms. BLOCK. That would not be my decision.
    Mr. BECERRA. Well, you are saying that are able to do with 
your exceedingly hardworking staff the work that you are 
supposed to do for the public and the taxpayers and Medicare 
beneficiaries, I am assuming that means that you have what you 
need, otherwise you should tell us because we would love to be 
able to know that we are providing you with the resources you 
need to do the oversight so we do not waste taxpayer dollars or 
allow Medicare beneficiaries to go without when they are paying 
for those services?
    Ms. BLOCK. I think I have answered your question to the 
best of my ability given my position in the agency.
    Mr. BECERRA. Okay, if that is the best of your ability, 
than that we will accept. Final question, Mr. Chairman, the 
marketing abuses that have been raised, the way that some of 
these plans have gone after certain types of Medicare 
beneficiaries to enroll in their plans, you highlight that CMS 
will be requiring or has required specific, let me quote from 
your testimony, ``specific CMS-developed disclaimer language on 
all pre-enrollment materials as well as sales presentations 
explaining how Private Fee-for-Service plans work with respect 
to obtaining care from doctors and hospitals.'' Do you have 
that disclaimer language now written?
    Ms. BLOCK. Yes, we do.
    Mr. BECERRA. Would you be able to provide that for the 
Committee so we can see what the disclaimer language is?
    Ms. BLOCK. Yes, we could do that.
    Mr. BECERRA. With regard then to the marketing abuse issue, 
one of the problems that oftentimes we find is that for what we 
call the dual-eligible Medicare beneficiaries, those who are 
eligible for Medicare services and Medicaid services, so they 
are supplemented because they are more modest income 
individuals, they really do not need to apply to these Private 
Fee-for-Service plans for coverage since they are receiving the 
Medicaid benefits on top of the Medicare benefits to make sure 
they have what they need. Yet, some of these Private Fee-for-
Service plans are actually soliciting that these dual-eligible 
Medicare beneficiaries apply to their plans, which is not only 
an abuse but it is an over-use of taxpayer dollars. I am 
wondering if you can tell me what CMS is doing to try to make 
sure that that type of abuse of the dual-eligible population is 
not occurring?
    Ms. BLOCK. Well, I think again it is a market-based program 
and dual-eligibles, like everyone else, have the option of 
choosing how they wish to obtain services and where they wish 
to be enrolled. I do not know that I have any authority 
anywhere to preclude a plan being offered or marketed to dual-
eligibles.
    Mr. BECERRA. So, you are saying that it is your belief that 
CMS can do nothing about the marketing practices of those plans 
that are going after individuals who are low income and because 
they are low income are given a taxpayer subsidy under the 
Medicaid program to help supplement their Medicare coverage and 
that we have nothing we can do under CMS?
    Ms. BLOCK. If the product is being marketed fairly and 
beneficiaries are getting complete and accurate information, 
then the plan is meeting all of the requirements.
    Mr. BECERRA. I want to stop because I do not want to use up 
the time but let me try to understand, someone who is dual-
eligible has access to a physician because he or she not only 
has Medicare but can turn to Medicaid, in California we call it 
MediCal, for provision of his or her health care services. The 
attraction of these Private Fee-for-Service plans is that they 
profess to offer services additional to those that traditional 
Medicare might offer someone who would have to then supplement 
through some other insurance, MediGap or some other form of 
payment, the coverage for services that are not included within 
traditional Medicare.
    For the dual-eligible, who has Medicare and Medicaid, that 
is not an issue. When these Private Fee-for-Service plans that 
we have determined are overcharging by one-fifth or are 
receiving payment beyond what traditional Medicare providers 
are receiving, by one-fifth so they are receiving 20 percent 
more dollars on average, some far more than that, go out and 
try to recruit, to market to these dual-eligible individuals 
and recruit them to be part of their plan, they are in essence 
feeding at the trough because the taxpayer has already said to 
these modest income individuals, you are going to get not just 
Medicare but Medicaid and so there are taxpayer dollars from 
two sources providing the health care for that modest income 
individual, and you have a Private Fee-for-Service plan which 
is already getting on average at least 20 percent more from 
taxpayers through Medicare now going after people who have 
subsidized care through Medicare or Medicaid and having them 
enroll in their program, it seems like a dual abuse of the 
system and you are saying that CMS cannot do anything about it 
because it is a market-based program?
    Ms. BLOCK. I have no authority to preclude someone from 
marketing to dual-eligibles?
    Mr. BECERRA. Would you like that authority?
    Ms. BLOCK. I would have to look into the specifics of what 
you are talking about.
    Mr. BECERRA. I see, okay. Well, I appreciate your 
testimony. Mr. Chairman, thank you for the time.
    Chairman STARK. I thank everybody for their patience and 
the hour is late, the hearing is adjourned. I will reconvene 
just long enough to say that the record will remain open for 2 
weeks for Members to submit written questions to witnesses.
    [Whereupon, at 6:30 p.m., the hearing was adjourned.]
    [Questions submitted by the Members to the witnesses 
follow:]
                 Questions from Mr. Stark to Mr. Dilweg
    Question: How many new MA policies have been sold in Wisconsin 
during the time period in which you received the 400 Medicare 
complaints?

    Answer: The 400 complaints referenced in my testimony were for the 
period January 1, 2006 through April of 2007. My testimony indicated 
that according to the CMS website there are 92 MA Plans available in 
Wisconsin for 2007, 50 of which are MA Private Fee for Service plans. 
In Wisconsin in 2007, there are 130,645 enrollees in MA plans. In 2006, 
according to the Kaiser Family Foundation, there were 128,494 persons 
enrolled in MA plans in Wisconsin, 83,311 of which were in a Private-
Fee-for-Service Plan.
    It is from this increasing population in MA products did we receive 
the complaints referenced in my testimony. As you can see in our 
response to your next question, the 400 complaints are very high for a 
particular product line when compared to health insurance products in 
general. In 2005 there were approximately 3.2 million people covered by 
health insurance products in Wisconsin. That year we received 3,500 
complaints concerning accident and health insurance business.

    Question: How does the complaint rate for Medicare products compare 
with other health insurance product complaints in the State?

    Answer: It is difficult to compare complaint rates between 
Medicare-related products and other health products due to the lack of 
jurisdiction over enrollment and claims complaints for MA and Medicare 
Part D products. These complaints are forwarded to CMS for handling and 
are counted as inquiries or referrals in our records. Of the complaints 
that we did handle, there was a 71% increase in complaints about 
Medicare-related products between 2005 and 2006. There were 277 
complaints in 2005 and 477 in 2006. In comparison there was about an 
18% increase in individual health insurance complaints between 2005 and 
2006. There were 376 complaints in 2005 and 440 complaints in 2006.
    Another way to look at the complaints rate between MA and other 
health insurance is by population covered. In 2007, 130,645 people are 
covered by MA. This block of business, generated 400 complaints or.3% 
of the population in the block filed complaints. In 2005, approximately 
3.2 million Wisconsinites were covered under other health insurance. We 
received 3,500 health insurance complaints in 2005, not counting 
Medicare complaints, or.1% of that population filed complaints. This 
shows that, on a comparative basis, more MA insureds filed complaints 
by 3 times the rate than other health insurance.
    Finally, to put the complaint numbers in a sharper perspective, the 
400 complaints are formal written and filed complaints. This office 
takes many MA complaints by phone and, because of the Federal 
preemptions, these phone calls are referred to CMS.
    Thank you for the opportunity to address the Subcommittee and I 
look forward to working with you.

                Questions from Mr. Stark to Ms. Schmitt

    Question: What is the Medical loss ratio for your Private Fee-For-
Service plan? How does that compare with the loss ratio for other 
Medicare and non-Medicare products you sell? Please also provide 
information on administrative expenses and retained earnings for 
Private Fee-For-Service, other MA products and non-Medicare products.

    Answer: In 2006, Blue Cross Blue Shield of Michigan (BCBSM) 
observed a medical loss ratio of 96.8 percent ($223.0 million in 
benefit expenses compared to $230.4 million of revenue). Administrative 
expenses incurred for 2006 were $19.1 million (8.3 percent of revenue) 
leaving BCBSM with a loss of $11.7 million (5.1 percent of revenue).
    The only other MA product BCBSM has is an HMO through its 
subsidiary, Blue Care Network of Michigan (BCN). BCN's observed medical 
loss ratio in 2006 was 96.7 percent. Due to the fact that enrollment 
was limited in this plan (less than 5,000 beneficiaries) the 
administrative expenses were 33 percent of revenue leaving BCN with a 
loss of $10.9 million.
    BCBSM's other non-Medicare insured lines of business generally have 
medical loss ratios of 85-90 percent, with administrative expenses 
running 8-12 percent of revenue and retained earning of 1-4 percent of 
revenue.

    Question: What is your enrollment weighted average bid in your 
Private Fee-For-Service product as a percent of FFS? Please provide the 
same information for your other MA products as well.

    Answer: Based on June 2007 enrollment, BCBSM's weighted average bid 
for 2007 is 105 percent of estimated FFS costs with 2.7 percent 
accounting for retained earning and 2.3 percent accounting for BCBSM's 
incremental administrative costs over FFS administration and medical 
education costs. The weighted average CMS payment to BCBSM (including 
the rebate payments for 75 percent of the difference between the bid 
and the benchmark) is 113 percent with the 8 percent difference (113 
percent versus 105 percent) going toward supplemental benefits and 
lower cost sharing provisions for beneficiaries.
    These amounts are similar for BCBSM's HMO subsidiary MA plan.

    Question: The care coordination program in Private Fee-For-Service 
is voluntary. What percentage of your Private Fee-For-Service enrollees 
voluntarily sign up for your care coordination program?

    Answer: BCBSM offers two care coordination programs for its MA 
individual members. Its disease management program, administered 
through Health Dialog, provides members with access to personal health 
coaches who supply members with up-to-date, evidence-based health 
information that focuses on transferring skills and teaching members 
how to make better health care decisions. All MA Private Fee-For-
Service individual enrollees qualify for disease management services 
and are considered enrolled in the program unless they ``opt out''. To 
date, almost 52,000 members, or over 99.75 percent of BCBSM MA 
individual enrollees participate in the disease management program. 
Additionally, over 3,000 individual and group members meet Medication 
Therapy Management eligibility criteria.
    BCBSM's other care coordination program--case management and 
complex care management--is provided through CareGuide. The case and 
complex care management program provides a full range of health care 
management services for members, including comprehensive medical and 
psychosocial care management services for the highest-risk, medically 
complex members.
    Approximately 1,500 members, or 2.8 percent of BCBSM's total MA 
individual membership, are enrolled in the CareGuide program.

                 Question from Mr. Doggett to Ms. Block

    Question: Please provide us with specific documentation of the 
process by which CMS identified and acted to curb marketing abuses. 
Include the number of complaints, all corrective action plans against 
specific plans and a full detail of other intermediate sanctions levied 
against plans for marketing abuses. Also provide any interagency memos 
or reports detailing the extent of abusive marketing practices and 
possible solutions to the problem.

    Answer: (1) Complaints. Data derived from the CMS complaints 
tracking module (CTM) representing the period January 1, 2006 through 
May 21, 2007 are summarized below.
MA Marketing Complaints Logged in CTM

 
------------------------------------------------------------------------
 
 
------------------------------------------------------------------------
94                                   69                163
------------------------------------------------------------------------

    Recognizing that these numbers might only be capturing complaints 
where the caller specifically said the word ``marketing,'' CMS also 
conducted a focused analysis in April 2007 of the CTM data that 
involved a word search for ``agent'' or ``broker'' in the complaint 
description. The results of that analysis showed that for the period 
December 2006 through April 2007, there were approximately 2700 (2679) 
agent/broker complaints across all CTM categories. Typically the agent/
broker complaints had been categorized in the CTM as ``enrollment / 
disenrollment'' complaints, rather than in the marketing category.
    (2) Corrective action plans (CAPs). This information may be 
sensitive and confidential so we are unable to provide it for the 
record. The information will be delivered to Committee staff under 
separate cover. In addition, CMS intends to make summary information on 
open CAPs publicly available through the CMS website later this year.
    (3)  Intermediate sanctions. CMS imposed 69 sanctions on MA plans 
in 2006 and 2007 (plus 7 voluntary Private Fee-For-Service marketing 
suspensions occurring subsequent to this hearing). Of the 69 sanctions 
imposed, 66 were civil monetary penalties issued in 2007 for delayed 
Annual Notice of Change (ANOC) deliveries, totaling $308,150. The other 
three sanctions did not relate to marketing.
    (4) Memos or Reports. This information may be sensitive and 
confidential so we are unable to provide it for the record. The 
information will be delivered to Committee staff under separate cover.

                 Question from Mr. Becerra to Ms. Block

    Question: Please provide for the Committee the pre-enrollment and 
sales presentation disclaimer language that according to your testimony 
will be required on all materials so that beneficiaries understand 
provider access rules in Private Fee-For-Service.
    Answer: The language is copied in italics below.
    A MA Private Fee-for-Service plan works differently than a Medicare 
supplement plan. Your doctor or hospital must agree to accept the 
plan's terms and conditions prior to providing healthcare services to 
you, with the exception of emergencies. If your doctor or hospital does 
not agree to accept our payment terms and conditions, they may not 
provide healthcare services to you, except in emergencies. Providers 
can find the plan's terms and conditions on our website at: [insert 
link to Private Fee-For-Service terms and conditions].
    This language is also required in sales presentations in public 
venues and private meetings with beneficiaries. Any statement 
indicating that enrollees may see any provider must also include, the 
phrase ``. . . who agrees to accept our terms and conditions of 
payment.'' CMS approval of this language prior to use is not required. 
Plans should begin using the disclaimer language immediately in sales 
presentations and as soon as possible in printed materials.

                Questions from Mr. Pomeroy to Ms. Block

    Question: How many FTEs has CMS added to review all the new Private 
Fee-For-Service plans to ensure that the cost sharing in these plans is 
not discriminatory? How many FTEs were added at CMS regional offices to 
review advertising and other marketing materials of Private Fee-For-
Service plans?
    Answer: The rapid growth in Private Fee-For-Service plans is not 
something that was anticipated, which would have been required in order 
add FTEs for this specific purpose. CMS resources across-the-board are 
at times stretched very thin, and there certainly is no exception in 
the MA context. The Agency's ordinary approach for responding to 
increases in workload is to draw upon existing resources in our central 
and regional offices to ensure adequate workforce to handle the 
workload. Staff routinely works overtime and FTEs can be temporarily 
detailed from other Agency components and provided training to augment 
existing capabilities. Based on information available, we cannot state 
that new FTEs were added to the CMS workforce specifically for the 
purpose of Private Fee-For-Service plan reviews. Plan oversight is and 
will continue to be a very high priority at CMS, however, as detailed 
in previous testimony before this Committee and others.
    Question: What type of oversight/audits is CMS conducting to ensure 
that providers are receiving prompt and adequate payment from Private 
Fee-For-Service plans?
    Answer: CMS audits Private Fee-For-Service organizations as part of 
its routine program oversight activity. One aspect of the Agency's 
Private Fee-For-Service audit activity is testing to determine whether 
Private Fee-For-Service organizations appropriately process claims and 
make payments to providers and suppliers that are not less than the 
rates that apply under original Medicare. It is important to note, 
however, that it is very challenging to replicate with 100% accuracy 
Medicare fee-for-service payments given the regional variations that in 
part comprise Medicare fee-for-service payment policy. CMS is committed 
to improving its oversight of this aspect of the Private Fee-For-
Service program. In the meantime, CMS responds quickly to resolve all 
complaints or concerns regarding provider payment.
    [Submissions for the Record follow:]
               Statement of American Medical Association
    The American Medical Association (AMA) appreciates the opportunity 
to provide our views regarding Medicare Advantage (MA) Private Fee-For-
Service (PFFS) plans. We commend Chairman Stark and Members of the 
Subcommittee for your leadership in recognizing the need to examine the 
impact of the PFFS plans on Medicare patients and the long-term 
financial viability of the Medicare program. While the MA program 
offered great promise when first introduced, it is in need of some 
serious surgery. The precursor to MA, Medicare+Choice (M+C), was 
created to deliver Medicare benefits at lower cost than the regular 
Medicare fee-for-service program. As Congress has modified the MA 
option over time, other goals have gained added emphasis, including 
improving care coordination, increasing beneficiary choices, and, 
particularly with respect to PFFS plans, expanding access to health 
plan options for rural communities. The MA program, and especially PFFS 
plans, have fallen short of these goals in significant, and in some 
cases, alarming ways.
    The AMA supports providing patients with options so that they are 
able to select the health insurance plan that is tailored to meet their 
specific needs. The MA option was originally conceived as a strategy to 
promote efficiency through private competition as well as a vehicle to 
increase diverse plan offerings that would dovetail with the varied 
needs of beneficiaries. The AMA has been and continues to be a strong 
proponent of greater competition in the Medicare program to help 
strengthen patient choice and the program's long-term financial 
sustainability. However, rather than competition, the subsidies paid to 
MA plans tip the balance in favor of the private plans. The average 
reimbursement to MA plans--112 percent of regular Medicare 
expenditures--has created significant market distortions and undermined 
competition. This distortion is magnified by the payments to the PFFS 
plans, which average 119 percent of Medicare FFS expenditures. PFFS 
plans are tilting the playing field even further off course than the 
rest of the MA program. Testimony presented to this Subcommittee by the 
Congressional Budget Office (CBO) has made it clear that PFFS plans are 
a significant contributor to its projections of more rapid growth in 
Medicare spending per beneficiary, just as the baby-boom generation 
begins to reach the age of Medicare eligibility. The CBO estimated that 
21 percent of MA spending goes to private plans that receive between 
120 percent and more than 150 percent of regular Medicare rates. The 
large disparity in payment between PFFS plans and regular Medicare is a 
particularly troubling development because it is difficult to detect 
any meaningful benefits either to patients or to rural communities that 
is derived from these enormous government subsidies. In fact, there is 
mounting evidence that PFFS plans are luring their enrollees with false 
promises, skimping on benefits and reimbursement rates, and using their 
government subsidies primarily to increase profits for their 
shareholders.
    There are real tradeoffs involved in the public policy choices that 
Congress currently faces. An average 12 percent add-on payment is being 
provided to plans in which only 19 percent of Medicare beneficiaries 
are enrolled, while the physicians who care for all Medicare 
beneficiaries face a 10 percent cut next year. All seniors, not just 
those in MA plans, are paying $2.00 a month in higher premiums to help 
fund a subsidy for highly profitable managed care companies. With the 
PFFS plans, which are the fastest growing component of MA receiving a 
19 percent average subsidy, CBO and the Medicare Actuary have noted 
that Medicare cost growth, which was already a cause of major concern, 
is now projected to rise even more rapidly.
    The AMA joins other health care stakeholders, including the AARP 
and the Medicare Rights Center, as staunch supporters of financial 
neutrality between the regular Medicare program and the MA program. As 
a related corollary the AMA is committed to the goal articulated by the 
Medicare Payment Advisory Commission (MedPAC) of ``having Medicare 
payments cover the costs that efficient providers incur in furnishing 
care to beneficiaries, while ensuring that providers are paid fairly 
and beneficiaries have access to the care they need.'' The AMA concurs 
with MedPAC that ``the Medicare program should pay the same amount, 
adjusting for the risk status of each beneficiary, regardless of which 
Medicare option a beneficiary chooses.''
AMA Surveyed Physicians and Patients Report Problems with PFFS Plans
    With payments that average 119 percent of regular Medicare, 
patients in PFFS plans should be able to obtain coverage that is 
superior to regular Medicare. In addition, the law requires PFFS plans 
to pay physicians at least as much as the regular Medicare physician 
payment rates. Sadly, the results of a recent AMA survey of physicians 
indicates that patients and their physicians are being shortchanged by 
these plans. In brief, physicians and their patients have experienced 
significant obstacles and challenges to receiving health care and/or 
receiving payment for the health care services that are paid by regular 
Medicare. The widespread reports about problems faced by physicians and 
patients have been corroborated by the 2,156 physicians who responded 
to the AMA survey concerning their experience with MA plans and the 
PFFS plans in particular. The results illuminate serious and ongoing 
problems with PFFS plans that are neither isolated nor limited, but are 
faced by a significant number of physicians and their patients.
    Nearly half of the physicians who had patients in PFFS responded 
that the payment that they received from the PFFS plan was below the 
regular Medicare rate. Equally troubling, 45 percent reported that they 
have experienced denial of services that are typically covered in the 
regular Medicare program. Contrary to the widely reported claim that MA 
plans provide more benefits to patients, physicians are telling us that 
patients in MA PFFS plans may be getting even fewer benefits than they 
receive in regular Medicare.
    The AMA survey results also lend credence to the reports from 
beneficiary advocates that marketing by PFFS plan representatives is 
often misleading and confusing to beneficiaries. An overwhelming number 
of physicians--eight out of ten--who treated PFFS plan patients stated 
that their patients have difficulty understanding how the plan works. 
Providing patients with choices is important, but patients must be 
provided the tools to make informed choices. PFFS plans have failed in 
their obligation to provide patients basic information in an accessible 
and comprehensible fashion. This failure has real consequences for 
seniors who may have their health care services interrupted or incur 
significant unanticipated costs when they are least able to afford it.
    Good information about PFFS plans is also inaccessible to 
physicians, so it is no surprise that patients have had difficulty 
finding physicians who will accept these plans, despite the promises 
made by sales representatives that patients would be able to go to any 
doctor. In the AMA survey, over half of the physicians treating PFFS 
patients stated that they did not have access to or knowledge of the 
PFFS plans' Terms and Conditions. This alone is cause for a serious 
examination of PFFS plans, as ready access to Terms and Conditions of 
payment and coverage is a cornerstone of the PFFS plan concept. If 
physicians--who are more likely than their patients to have access to 
resources to secure such information--are experiencing significant 
difficulty in obtaining this basic information, the hurdles faced by 
patients--the most vulnerable in particular--should be obvious.
    Physicians report a number of additional problems with PFFS plans 
where they must overcome additional financial and administrative 
burdens when accepting PFFS beneficiaries. Three out of five plans do 
not reimburse providers in a timely or accurate fashion. An important 
underpinning of robust competition is that it should promote 
streamlining of the administrative process, remove bureaucratic red 
tape, and enhance the efficient operation of health care delivery. Here 
again, the responses of the AMA surveyed physicians highlight that PFFS 
plans are not delivering. Nearly six out of ten physicians indicated 
that they had experienced excessive hold times when attempting to 
contact the PFFS plans. Over half stated that PFFS plans have requested 
excessive or additional documentation for payment of claims. Finally, 
30 percent report that PFFS plans use proprietary claims editing 
software to down code or bundle claims--administrative billing 
practices that Medicare has not approved for use in regular Medicare. 
In addition, four out of ten surveyed physicians report they 
experienced inappropriate payment of claims by PFFS plans. These 
responses demonstrate that PFFS plans have not enhanced, but instead 
hampered operational efficiency on the front lines of health care 
delivery--physician offices--to the detriment of physicians and their 
patients.
    Given physicians' experiences with PFFS plans, it is not surprising 
that only 52 percent of physicians who have treated patients covered by 
PFFS plans currently accept all Medicare patients covered by these 
plans. About a third of these physicians still take some PFFS patients, 
and 12 percent no longer accept any Medicare patients covered by PFFS 
plans.
Minority and Rural Patients
    Although the insurance industry has issued reports touting the 
benefits of the MA program to minority and rural beneficiaries, an-even 
handed look at the data and related analysis paints a different 
picture. The Center for Budget and Policy Priorities (CBPP) pointed out 
that Medicaid, not MA, is the main form of supplemental coverage for 
low-income and minority Medicare beneficiaries. It noted that 58 
percent of Asian Americans, 30 percent of African Americans, and 34 
percent of Hispanics receive supplemental coverage through Medicaid. In 
addition, the CBPP analyzed the data offered by America's Health 
Insurance Plans (AHIP) in a report outlining the benefits of MA. The 
CBPP concluded based on the AHIP data that low-income and minority 
beneficiaries participate in MA plans less than other Medicare 
beneficiaries.
    In another AHIP report issued on the same day as the one concerning 
the MA program, but with far less fanfare, AHIP concluded that the 
supplemental coverage offered by Medigap plans is ``particularly 
important to low- and moderate-income beneficiaries, especially those 
living in rural areas.'' As PFFS plans are the most common MA plan for 
patients in rural areas--the patients that AHIP reports are most 
reliant on Medigap for their supplemental coverage--it is important to 
note that Medigap plans do not provide any coverage for MA services. In 
some cases, therefore, MA plans may actually put patients at higher 
risk for out-of-pocket costs than they would face if they had remained 
in the regular Medicare program and kept their Medigap policy. For 
example, PFFS patients who develop cancer could find the 20 percent 
cost-sharing for their chemotherapy drugs to be a significant financial 
burden, whereas the supplemental coverage that even AHIP says is most 
common among low- and moderate-income rural patients would have covered 
the cost-sharing for chemotherapy drugs.
MA Plans Have Increased Costs to All Beneficiaries
    MA has resulted in higher premiums across the board for all 
beneficiaries. MedPAC has estimated that on average every Medicare 
beneficiary pays approximately $2.00 per month extra to finance the 
higher MA payments that only benefit 19 percent of beneficiaries. 
Equally troubling, PFFS patients who experience a significant health 
event are subjected to a heightened risk that they will incur higher, 
unexpected, out-of-pocket costs if they are hospitalized or placed into 
a nursing home. It has been reported that a number of PFFS plans offer 
low premiums to attract beneficiaries, but require substantial co-
payments. A beneficiary who is hospitalized for a week would be liable 
for thousands of dollars in out-of-pocket costs. Where patients have 
regular Medicare and a supplemental Medigap plan, their out-of-pocket 
expenses would be substantially less in many cases, yet PFFS plans are 
aggressively marketed and agents receive large commissions in contrast 
to Medigap. MedPAC and the Medicare Rights Center have reported that MA 
plans have higher cost-sharing for ``nondiscretionary'' services such 
as chemotherapy. This is yet another indicator of the deceptive 
marketing, financial risks, and consequences patients face, often when 
they least able to manage the financial burden and interruptions to 
care.
PFFS Marketing Abuses
    There have been rampant PFFS plan marketing abuses reported by 
physicians and other health care stake holders. Testimony to the 
Senate's Special Committee on Aging by state insurance commission 
representatives concerning widespread MA marketing abuses corroborate 
reports that the AMA has received from physicians. Some of the accounts 
include a common practice among PFFS plans of signing up patients for 
plans that end up costing the beneficiary more in out-of-pocket 
expenses and misleading patients regarding which physicians accept the 
PFFS plans. Reportedly, many PFFS plans market themselves as providing 
patients the freedom'' to choose any provider that accepts Medicare. As 
a result, regular Medicare patients sign-up for PFFS with the 
expectation that they will be able to continue receiving their health 
care from the same physician they have always had. Although CMS allows 
patients who have been misled to drop the PFFS plan and re-enroll in 
regular Medicare and supplemental Medigap plan, this is a difficult, 
time-consuming process and can impact the delivery of health care 
services. In addition, once patients willingly drop supplemental 
Medigap, they are not able to obtain that supplemental coverage if they 
elect to re-enroll in regular Medicare until and unless they 
demonstrate that they meet a host of criteria. Even after meeting these 
requirements the Medigap plan may have less favorable terms. Neither 
Congress nor CMS have addressed the patient burdens in the past. These 
abuses have gone uncurbed and have both short-term and long-term 
consequences to patients.
Government Oversight of PFFS Plans
    The AMA first expressed concern to CMS officials about MA PFFS 
plans in the Fall of 2005, when only an extremely small proportion of 
seniors had enrolled in these types of plans. A number of state medical 
societies and individual physicians had already raised questions and 
concerns about PFFS plans, and the AMA met with CMS officials to 
discuss them. These officials stated that the most important factor in 
whether or not a PFFS plan would be successful is physician education.
    Many of the early concerns raised by the physician community 
focused on whether health plans that had employed onerous practices in 
their private lines of business (such as deeply discounted payment 
rates, use of claims editing software to bundle or down-code claims, 
coverage denials, and misleading marketing materials) would be 
permitted to employ these practices in their PFFS plans. CMS officials 
made it clear that PFFS plans were expected to ensure that physicians 
had access to plan Terms and Conditions and that payment rates and 
coverage were required to mirror that of the regular Medicare program, 
not the plans' private lines of business. The plans have not met these 
standards, as evidenced by the AMA survey, and it is clear that the 
marketing practices of these plans have continued to mislead patients. 
Further, it does not appear that CMS has increased its scrutiny of 
these plans or its enforcement.
    In its 2004 comment letter on the proposed regulations for MA 
plans, the AMA urged CMS to actively monitor the MA plans to ensure 
that laws and regulatory standards that protect patients and physicians 
in the traditional Medicare program were applied to MA plans. The AMA 
also expressed a concern, which is now clear was well-founded, that 
patients might not understand that they had switched from regular 
Medicare to a MA plan nor be aware that their benefits had changed. At 
the time AMA provided a number of recommendations--none of which have 
been implemented--to ensure that beneficiaries had the necessary 
information to make informed choices about the plan that best suited 
their needs. Yet, physicians continue to report problems obtaining 
information concerning their patients' plans, and this is likely one of 
the reasons that patients have found that their physicians are 
unwilling to accept the plans. Although CMS officials told the AMA that 
plans were being encouraged to engage in outreach to physicians in 
their market areas before marketing of the plans began, there is no 
evidence that this occurred. In fact, the CMS Call Letter to Medicare 
Advantage Plans for 2008 bids specifically cited problems with PFFS 
plans' physician relations. Problems due to lack of outreach are 
compounded by problems physicians may experience when attempting to 
navigate PFFS plans' Web sites to locate their Terms and Conditions. As 
noted in the survey results, the Terms and Conditions can be difficult 
to find. In addition, certain key information, such as patient cost-
sharing amounts, is often not included in the Terms and Conditions. At 
the AMA's request, CMS has recently been working to rectify these 
problems and make all PFFS plan Terms and Conditions available in one 
place.
    Information we have received from specific physician practices 
confirms the findings from our survey that the government is simply not 
holding PFFS plans to the same standards as regular Medicare. For 
example, one physician practice wrote to the AMA indicating that a 
particular PFFS plan was requesting that every laboratory test be 
submitted as if it were a waived test. They shared further that their 
radiology procedures were not paid by the MA plan after an extended 
period of time. When the practice called the private insurance plan 
customer relations office (based overseas), they were asked by the plan 
representative whether regular Medicare normally pays for the items in 
question. In addition, the practice reported that the plan's claims 
department had no telephone. According to the physician practice, 
instead of the situation improving over time, the confusion has 
increased as additional PFFS plans have entered the market.
    A Texas nurse wrote to the AMA about her experience as the practice 
manager of a rural health clinic (RHC). She shared that the RHC 
received a per visit rate from regular Medicare of $68.13--this amount 
covers everything provided by the RHC and all codes. However, an 
administrative and financial nightmare has ensued because while MA 
plans have informed patients that they can see any physician in the 
clinic, some of the plans have been unwilling to pay the RHC at the 
higher rates that it is entitled to receive because it serves a rural 
community. In fact, the nurse manager wrote that one MA is paying a 
rate that is less than half the clinic's RHC rate. Far from increasing 
access to rural beneficiaries, MA plans could well result in fewer 
rural physicians being able to accept Medicare patients.
    Likewise, a physician from Georgia complained about a plan 
representative going door-to-door signing up beneficiaries for their 
PFFS plan. She said seniors then arrive for treatment and have no idea 
that they signed up for PFFS. The beneficiary will still present their 
old regular Medicare card. When the physician receives coverage 
denials, she phones the plan's customer service center, which is based 
in another country. She has concerns that she must provide patient 
Social Security Numbers and other personally identifiable information 
to an entity based in a foreign country. She is wondering what CMS 
plans to do about these issues.
    These examples underscore that the failure of the government to 
provide oversight results in serious and real consequences for 
physicians and patients alike. PFFS have established time consuming, 
confusing, and burdensome procedures and processes that create 
inefficiencies and detract from the provision of health care.
PFFS Plans Have Generated Large Profits for Private Insurance Companies
    When Congress set up the payment system for MA plans, it may have 
intended for the extra payments to support health care services. In the 
AMA physician survey and reports by patient advocates, the PFFS plans 
are not delivering on this promise. The subsidies to PFFS plans are 
substantial, create market distortions, and are inefficient. Who then 
benefits from the subsidies? As of November 2006 the MA market was 
dominated by four firms that accounted for 58 percent of all MA 
enrollment. There have been reports that private insurance companies 
have reaped substantial profits from the Medicare program. For example, 
in February 2007 the Associated Press reported that one of the 
companies ``fourth-quarter profit more than doubled on the strength of 
its burgeoning Medicare business'' and the company had ``a record year 
in revenue and profit.'' Recently, Goldman Sachs reported that the same 
company ``will earn 66 percent of its net income from Medicare 
Advantage this year . . . which comes to between $670 million and $705 
million.''
Medicare FFS Remains the Primary Medicare Option and It Must be 
        Preserved
    Physicians were there before the M+C and MA programs were created, 
they continued providing care to patients when many private health 
plans did not participate because M+C was not profitable enough, and 
physicians will be there should the health plans find a better business 
opportunity. Although many physicians provide health care to MA 
patients, they have many more patients who are in regular Medicare--81 
percent. Huge subsidies are going to MA plans that serve 19 percent of 
Medicare beneficiaries, while physicians who take care of the rest of 
the population face cuts of 10 percent in 2008 and about 40 percent 
over the next decade. If Congress does not take action to provide 
Medicare physician payment updates that keep up with cost increases, 
the physicians will not be able to sustain their practices, resulting 
in significant access problems for all patients, not just those in 
regular Medicare or even just those in Medicare. There is a tradeoff 
between adequate payment updates for physicians and subsidies for 
private health insurance plans such as PFFS. Congress must now decide 
whether adequate payment updates for regular Medicare physician 
services are provided or whether MA plans should continue to receive 
these substantial subsidies. Until MA plans are placed on equal footing 
with regular Medicare, the market distortions will continue to 
encourage inefficient behavior by MA plans, patients and physicians 
will face added financial risks, delivery of health care will be 
compromised, and taxpayers will pay more (seemingly for less).
    The AMA appreciates the opportunity to provide our views to the 
Health Subcommittee concerning PFFS plans. We look forward to working 
with the Subcommittee and Congress to preserve patient access to high 
quality, cost-effective health care and to find solutions to address 
the long-term financial sustainability of the Medicare program.

                                 
  Statement of Janet Stokes Trautwein, National Association of Health 
                   Underwriters, Arlington, Virginia
    The National Association of Health Underwriters (NAHU) is the 
leading professional trade association for health insurance agents and 
brokers (``producers''), representing more than 20,000 health insurance 
producers nationally. Our members service the health insurance policies 
of millions of Americans and work on a daily basis to help individuals 
and employers purchase health insurance coverage. We have thousands of 
members across the country who specialize in the sale of ``senior 
products,'' including all Medicare-related insurance products such as 
Medigap and all of the options under Medicare Advantage.
    While NAHU commends the Subcommittee for taking up this important 
issue, we hope that in the course of its work the Subcommittee does not 
undertake any actions that would limit the ability of seniors to access 
either Medicare Advantage plans or the services of licensed 
professional health insurance producers. Medicare Advantage may not be 
the right choice for every senior, but there are many Medicare 
beneficiaries who are very happily insured under these plans. NAHU 
feels it is very important that all Americans, including Medicare 
beneficiaries, have a wide range of health plan choices available to 
them and are able to pick the policy that best suits their individual 
needs.
    Medicare Advantage private fee-for-service plans can provide 
enrollees with the flexibility to choose their own provider while 
offering them a number of benefits that traditional Medicare does not 
cover. Medicare Advantage fee-for-service policies offered by many 
carriers often include coverage of prescription drugs as well as other 
benefits, such as world travel coverage, full coverage of preventive 
care, vision benefits, chiropractic coverage and more. These plans also 
offer seniors fixed co-payment and coinsurance amounts for services, 
rather than the uncertainty of what their 20 percent responsibility 
would be under traditional Medicare. It is not surprising that many 
seniors who have not been able to afford supplemental coverage due to 
their limited incomes find these plans particularly attractive and 
sales have increased over the past year.
    Another population that Medicare Advantage private fee-for-service 
plans ably serves are Medicare beneficiaries who are under the age of 
65, such as certain disabled individuals and those with end-stage renal 
disease. There is no federal requirement for health insurance carriers 
that sell Medicare supplemental policies, which are also known as 
Medigap plans, to this population, as these polices are designed for 
the traditional senior Medicare beneficiary. So in most states, these 
individuals are unable to purchase Medicare supplemental coverage. In 
the few states where they can purchase Medigap policies, beneficiaries 
under the age of 65 are faced with state-mandated limited-enrollment 
windows, limited product availability and costs that are frequently 
very high.
    On the other hand, Medicare disabled beneficiaries are able to 
purchase Medicare Advantage plans in every state. The availability of 
these plans has helped thousands of beneficiaries who otherwise would 
be completely exposed to the out-of-pocket costs that regular Medicare 
doesn't cover. These individuals are of all ages and, in many cases, 
they are very ill and appreciate the flexibility of provider choice 
offered under the Medicare Advantage private-fee-for-service plans. 
Medicare Advantage fee-for-service plans regularly help them 
financially and with quality-of-life issues by providing them with 
affordable access to benefits not covered under Medicare Parts A and B.
    NAHU also thinks it is crucial that all Americans have the ability 
to use licensed health insurance professionals to help them choose the 
health plan products that best meet their specific needs. The vast 
majority of licensed producers who sell Medicare Advantage plans to 
seniors specialize in this unique market. These professionals spend 
countless hours advising their clients, answering questions and helping 
to select the best possible plan options based on their clients' 
budgets and personal preferences.
    NAHU is well aware of some recent publicity depicting a few ``bad 
apples'' in our industry who have been behaving in what appears to be 
an unethical manner concerning Medicare Advantage private fee-for-
service product sales. However, it is important to note the vast 
majority of health insurance producers work very hard every day to find 
quality and appropriate health coverage at the best possible price for 
millions of employers, individuals and families. It would be a 
disservice to the thousands of high-caliber health insurance producers 
out there, and their millions of happily insured senior clients, if 
access to licensed health insurance producers was in any way limited. 
The actions of a dishonest few should not be interpreted as 
representative of our entire industry.
    NAHU members are committed to education. As a result, our 
association has spent considerable time, effort and resources educating 
our members about the rules concerning Medicare-related product sales, 
and we will continue to do so. To ensure that NAHU members are equipped 
with the most up-to-date and accurate information on marketing Medicare 
plans, during the past year NAHU, along with America's Health Insurance 
Plans (AHIP), established a four-part education program on Medicare, 
Medicare Part D and Medicare Advantage. The NAHU/AHIP course teaches 
the marketing rules and responsibilities of each program and, like all 
of NAHU's many education programs, it covers and encourages ethical 
professionalism. This class has been approved for continuing-education 
credit in more than forty states, and we are actively promoting the 
course to NAHU members and non-members alike.
    NAHU is also committed to working with the Centers for Medicare and 
Medicaid Services (CMS) and individual states on producer education, as 
we feel that there are many producers out there who may not specialize 
in Medicare or senior products and who are not NAHU members. To try to 
reach these producers, NAHU has published a vast amount of Medicare-
related product sales information on our website, which is open to the 
public. We would also be happy to post any additional information on 
our site that CMS or state departments of insurance develop, as well as 
link to other sites or reach out to non-member producers for education 
purposes in collaboration with CMS and state departments of insurance. 
We would also be happy to help spread the word to seniors, to make sure 
they know the warning signs of an unethical agent and what to expect 
from a responsible health insurance producer.
    NAHU wants to be as helpful as possible to policymakers as they 
consider ways to sustain and enhance the integrity of the Medicare 
Advantage program and, in the process, protect beneficiaries from 
unscrupulous producers. Two initiatives in particular that would help 
to improve the regulation of Medicare Advantage plans and communication 
processes about these plans are the appointment of health insurance 
producers and the expansion of the Medicare Advantage/Part D open-
enrollment window. In the vast majority of states, health insurance 
producers not only have to be licensed, but they also must be appointed 
with the carriers for which they sell products. This appointment 
information is made available to the state departments of insurance so 
that the state knows which producers are approved to sell which 
products offered by particular companies operating within its borders. 
While producers selling Medicare Advantage policies are required to be 
licensed, under current law they do not have to be appointed. Some 
carriers have voluntarily completed the appointment process with their 
producers and provided this information to the states. NAHU feels that 
mandatory appointments for Medicare Advantage plans would help the 
state departments of insurance, and help to weed out the number of 
unethical producers preying on this market.
    NAHU would also like to see the annual open-enrollment period for 
beneficiaries lengthened, perhaps from October 1st through December 
31st of each year. Millions of Medicare beneficiaries are asked to 
review their benefits and possibly change plans each year. Many of 
these beneficiaries need assistance with the open-enrollment process 
and are afraid of making a bad decision. Ethical producers need more 
time to personally counsel each client, but the limited open-enrollment 
time period makes it very difficult. Compounding the problem is that 
the Medicare open enrollment coincides with the holiday season, with 
Thanksgiving, Hanukkah and Christmas to work around. Also, many 
Medicare beneficiaries (so-called ``snowbirds'') maintain second 
residences and spend the colder months of November and December in 
warmer climates, making them less able to see a plan representative or 
agent at this time of year.
    CMS actively encourages Medicare beneficiaries and their insurance 
producers to complete the open-enrollment process as early as possible, 
as those who sign up late in the month of December are not able to be 
fully processed and have ID cards sent to them until well after their 
plan's January 1st effective date. Making the open-enrollment period a 
little longer and a little earlier in the year would make the process 
much easier on beneficiaries and those providing enrollment support. It 
also would enable more seniors to seek counsel from a high-quality 
insurance producer and not feel as susceptible to pressure and the 
aggressive sales tactics should they encounter a ``bad apple.''
    NAHU sincerely appreciates the opportunity to provide comment on 
Medicare Advantage plans to the Subcommittee. If you have any 
questions, or if NAHU can be of further assistance, please do not 
hesitate to contact me or our vice president of congressional affairs, 
Peter Stein.
            Respectfully submitted,
                                                    Janet Trautwein
                                   Executive Vice President and CEO

                                 
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