[Congressional Record (Bound Edition), Volume 145 (1999), Part 7]
[Extensions of Remarks]
[Page 10520]
[From the U.S. Government Publishing Office, www.gpo.gov]



     INTRODUCTION OF MEDICARE MODERNIZATION #4 MEDICARE PERMANENT 
                     COMPETITIVE BIDDING AUTHORITY

                                 ______
                                 

                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                         Thursday, May 20, 1999

  Mr. STARK. Mr. Speaker, on behalf of myself and Representative 
McDermott, I am pleased today to introduce the fourth bill in my 
Medicare modernization package: permanent competitive bidding 
authority. As with the other bills in this series, competitive bidding 
will save money for Medicare, while also improving the quality of 
health services provided to Medicare beneficiaries. These 
modernizations are a template for meaningful Medicare reform that 
allows us to avoid radical, untried theories that could endanger the 
program's future.
  The promise of managed care is coordinated, comprehensive, cost-
effective health services. Medicare+Choice plans are not currently 
living up to this promise. For some time now, Medicare has over-paid 
Medicare+Choice plans. Current overpayments are estimated to cost 
Medicare and taxpayers $2 to $3 billion per year. This is because 
Medicare+Choice has attracted only the healthiest beneficiaries--people 
who would have cost next to nothing had they stayed in the traditional 
fee-for-service plan--leaving a much sicker population in the 
traditional program.
  In addition, managed care plans are disenrolling beneficiaries who 
need expensive services, such as heart surgery, and then re-enrolling 
the beneficiary after the fee-for-service plan has paid the bill. The 
OIG estimates that in 1991 through 1996, Medicare spent $224 million 
for inpatient services furnished to beneficiaries within three months 
of their disenrollment. Had these beneficiaries not disenrolled, 
Medicare could have spent only $20 million in capitation payments. 
That's $204 million in savings Medicare could have realized. ``Cherry 
picking'' such as this has forced fee-for-service costs to rise.
  Because Medicare+Choice payments are tied to fee-for-service cost, 
rather than the actual cost of providing care to beneficiaries enrolled 
in managed care, Medicare continues to over-pay health plans. De-
linking Medicare+Choice payments from the fee-for-service program will 
enable Medicare to pay a more realistic price for managed care 
services. Fostering greater competition through competitive bidding 
will help to achieve this goal.
  Competitive bidding would take place in both the managed care and 
fee-for-service Medicare programs. Under this bill, the Secretary of 
DHHS would have the explicit authority to select items, services, and 
geographic areas to be included in a bidding or negotiation process 
based on the availability of providers and the potential to achieve 
savings. To protect quality, the bill would require that providers meet 
specified quality standards in order to participate in the bidding 
process.
  Competitive bidding is almost universal throughout the private sector 
and in many other areas of government contracting. However, HCFA is 
still forced to go through tortured demonstration processes to ``test'' 
this basic tool of capitalism.
  At this moment, HCFA is trying to get three competitive bidding 
demonstration projects off the ground: two Medicare+Choice 
demonstrations, one in Phoenix and one in Saint Louis; and one fee-for-
service demonstration for durable medical equipment (DME). 
Unfortunately, the industry is blocking HCFA's attempt because they 
know that competitive bidding will force them to charge a more 
realistic price. This is not about cutting services to beneficiaries or 
lowering quality standards. It's about helping the taxpayer so that 
society has the money to improve Medicare for everyone while extending 
the life of the program. Competitive bidding can work. It has worked in 
the public and private sectors for centuries. We should make it work 
for Medicare too.
  As we search for ways to secure and improve Medicare, it is 
appropriate to consider increasing the efficiency of the program 
through competition. Introducing competition into the managed care 
equation will achieve greater efficiencies, higher quality, and cost 
savings, and will enable Medicare managed care to live up to its 
promise.
  Following is a portion of an interview from the May/June 1999 issue 
of Health Affairs by Princeton professor Uwe Reinhardt with HHS 
Secretary Donna Shalala which describes how different it has been to 
make progress on this simple, basic, free enterprise approach to health 
care:

                The Controversy Over Competitive Bidding

       Reinhardt: In my time, Medicare has been a pioneer in 
     innovating with the DRG (diagnosis-related group)--based 
     hospital payment system, which has been copied worldwide, and 
     the Medicare physician fee schedule, which has been copied by 
     private American payers. If we are ever going to really test 
     managed competition by having health plans compete fairly for 
     enrollees, only HCFA (the Health Care Financing 
     Administration) can actually show the way, because the 
     private sector has not yet done it so far. Do you share that 
     view?
       Shalala: I share that view, but the political system has to 
     buy into it. For instance, we've announced a competitive-
     bidding demonstration in which we have some consensus among 
     the experts as to where we ought to go and how to organize 
     our experiment with managed competition. Phoenix and Kansas 
     City are our two sites.
       Reinhardt: HCFA has attempted such demonstrations in 
     Baltimore and Denver but was forced to abandon both efforts 
     by private interests that were opposed to them.
       Shalala: Yes, in Denver we had bipartisan support to try 
     it. But when we got specific and picked the places, we 
     immediately had political opposition. However, Congress 
     directed us (in the Balanced Budget Act [BBA] of 1997) to try 
     again. We set up an advisory panel on which all of the 
     political interests were represented. And now we're 
     proceeding again.
       Reinhardt: I suppose that we should never expect the 
     managed care industry to voluntarily acquiesce to a 
     competitive-bidding process because people instinctively 
     don't like to compete. They prefer administered prices 
     because such prices can be manipulated politically. Who is 
     it, in general, that opposes competitive bidding?
       Shalala: One source of opposition is the managed care 
     industry. The companies in that industry believe that such a 
     process will undermine their profits. So the private sector--
     the famed competitive marketplace--doesn't want competition. 
     They keep saying things like, ``Health care is different; we 
     can't predict our costs.'' We have to have a system that is 
     more nimble, more flexible. Managed care plans would not 
     oppose a competitive-bidding process if they could modify the 
     package of benefits. But if HCFA locks them into a benefits 
     package, they want to be able to negotiate the price, rather 
     than making competitive bids.

     

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