[Congressional Record (Bound Edition), Volume 145 (1999), Part 7]
[House]
[Pages 9984-9986]
[From the U.S. Government Publishing Office, www.gpo.gov]



                              COMPETITION

  The SPEAKER pro tempore (Mr. Shimkus). Under a previous order of the 
House, the gentleman from Washington (Mr. McDermott) is recognized for 
5 minutes.
  Mr. McDERMOTT. Mr. Speaker, today I want to talk about competition. 
In this Chamber the word ``competition'' is often used in the context 
of the phrase ``making government run more like a business.'' Together 
these two words are used repeatedly and loosely because they sound 
good. But the fact is that no one who uses these phrases really ever 
knows what it actually means.
  ``Competition'' and the term ``making government work more like a 
private industry'' is not only the mantra for some politicians, it also 
comes from the mouths of representatives of private industry that 
usually want something.

                              {time}  2230

  For example, earlier this year, the National Commission on the Future 
of Medicare, on which I sat, failed to recommend a proposal to 
strengthen the long-term solvency of the Medicare program.
  However, some members of the Commission advocated a radical proposal 
called, quote, premium support, which is really just a euphemism for a 
voucher program; that is, its proponents say it would bring competition 
to the Medicare program so that it could run like a business. Many 
observers from the health care industry agree. They, too, say they want 
to bring competition to Medicare so that it will run more like a 
business.
  The irony of all this, of course, is that Congress has already passed 
laws that establish demonstration projects for both traditional 
Medicare and Medicare plus choice; that is, those plans that have 
managed care in them that would inject some competition into the 
Medicare bidding process.
  The Health Care Financing Administration, we call it HCFA around 
here, the agency that runs Medicare dutifully, is attempting to 
implement these demonstration projects because it will help Congress 
understand what competition in Medicare really means. So when it comes 
time to be serious about Medicare reform, we will know what works and 
what does not work.
  Unfortunately, none of these demonstration projects have been fully 
implemented due to both legal and political challenges. What is 
appalling to me is that the same people who say they want to bring the 
magic word ``competition'' to Medicare are the same people who are 
desperately trying to kill any attempt to determine what Medicare 
competition really means.
  Last Friday, Laurie McGinley of the Wall Street Journal wrote an 
article, an excellent article, detailing how the industry working with 
Federal law matters is seeking to prevent Medicare competition in 
Phoenix, Arizona. She also notes that similar demonstration projects 
were stopped by the health care industry in Denver and Baltimore, most 
likely with help from Members in Congress, before HCFA got close to 
getting started.
  In addition to the attempts by the industry to prevent Medicare 
competition reported by the Wall Street Journal, just yesterday the 
Kansas City Business Journal reported that industry representatives in 
Kansas City also are seeking to derail Medicare competition because 
they fear it will disrupt the ability of Medicare beneficiaries to 
receive care.
  So why is the health care industry afraid of Medicare competition? 
The answer: because it will cost them money. For years now, HMOs in 
most areas have been living off overpayments from the Federal 
Government. It has been estimated by HCFA that they overpay private 
health plans by 6 percent a year, an overpayment of roughly $2 billion 
to $3 billion in subsidies to the HMO industry.
  Earlier this year, in fact, the industry successfully lobbied the 
administration to delay the implementation of risk adjustment. Now, if 
an HMO takes a patient and they do not cost them very much, they get a 
benefit because they got a lot of money, but they did not have to pay 
anything. If they get a sick patient, then they have to put out a lot 
of money or they just get a little bit and they spend a lot more.
  So the industry said we want to have risk adjustment. If we take sick 
patients, we should get more money. If we take healthier patients, we 
should get less money. But when the Congress

[[Page 9985]]

passed the law and said we want to do this and HCFA began to try and 
implement it, the industry successfully lobbied the administration to 
delay the implementation of risk adjustment, the variation of 
reimbursements to reflect the amount of care given that was mandated by 
the Congress in 1997. They did not want the very thing they asked for.
  This delay will cost the taxpayers $5 billion over the next 5 years, 
and some in Congress want to delay risk adjustment altogether, a 
giveaway to the health care industry of over $11 billion.
  So the moral of this story without morals is that ``competition,'' 
unless it's done in a way the industry wants it to be done; where it 
protects their overpayments and protects their ability to ``cherry 
pick'' healthy beneficiaries and leave the sick to be treated by the 
government, would mean plans get less, not more, money.
  So, that is the irony. On the one hand, industry and politicians say 
they want to bring ``competition'' to Medicare so that it can ``run 
more like private industry.''
  On the other hand, the same industry and those same politicians are 
fighting tooth and nail to derail any attempt to ensure that plans get 
paid for the care they actually provide.
  Either you want competition and you want Medicare to run more like a 
business or you don't.
  But, what is simply dishonest, disingenuous, an disconcerting, is the 
hypocrisy of the for-profit HMO industry and their protectors in 
Congress to continue to speak from both sides of their mouths.
  Let's give HCFA a chance to do their job. Let's see what Medicare 
``competition'' really means. Until then, I would caution members to 
think twice before they rant about bringing so-called ``competition'' 
to Medicare.
  Mr. Speaker, I think everybody ought to think about competition.
  Mr. Speaker, I include for the Record the two articles which I 
recommended my colleagues to read, as follows:

         [From the Kansas City Business Journal, May 17, 1999]

        Business Group Suspends Local Medicare Coverage Project

                          (By Bonar Menninger)

       A local group charged with overseeing a controversial 
     Medicare pilot program voted unanimously this week to seek an 
     indefinite suspension in the project's timetable until 
     safeguards are established to limit widespread disruptions in 
     Medicare HMO services for approximately 50,000 area 
     residents.
       The vote represents a significant setback for the Health 
     Care Financing Administration, which is relying on the Area 
     Advisory Committee for assistance in implementing the 
     project, called the Competitive Pricing Demonstration 
     Project, by Jan. 1, 2000.
       Although work on the project's components will continue, it 
     remains unclear whether the fast-track deadline will be met. 
     Wednesday's vote was prompted by mounting concerns among 
     committee members about the program's potential impact on 
     beneficiaries.
       On a separate front, the head of the American Association 
     of Health Plans was in Kansas City this week to warn that the 
     local Medicare HMO market--already weakened by federal budget 
     cuts--could deteriorate rapidly if the pilot project goes 
     forward.
       Kansas City and Phoenix are test sites for an experimental 
     process that will, for the first time, use a competitive 
     bidding mechanism to set the HMO reimbursement rate.
       HCFA, overseer of the Medicare program, contends the 
     approach will increase health care options for beneficiaries 
     while reducing federal expenditures.
       But committee members apparently are increasingly skeptical 
     that the former goal can be achieved through the proposed 
     benefits package developed for the demonstration project 
     within the constraints of HCFA's specifications.
       ``With the proposed benefit package, beneficiaries are 
     going to see less benefits and higher costs than virtually 
     every plan in the market right now,'' said Kathleen Sebelius, 
     Kansas Insurance Commissioner and member of the AAC. ``That's 
     100 percent negative disruption, and I'm not very comfortable 
     with that. I think we're making a step back, not forward.''
       Following a recommendation by committee member Dick Brown, 
     president and chief executive officer of Health Midwest, the 
     AAC voted to recommend that HCFA suspend the implementation 
     timetable until it can be determined at what level 
     disruptions caused by the project will become untenable for 
     enrollees.
       That process will be undertaken by the AAC, HCFA and 
     Competitive Pricing Committee, the HCFA advisory body that 
     developed the Kansas City and Phoenix projects.
       Separately, Karen Ignagni, president and chief executive 
     officer of the Washington-based American Association of 
     Health Plans, said this week that the experiment likely will 
     exacerbate financial pressures many area Medicare HMOs 
     already face as the result of payment cuts triggered by the 
     Balanced Budget Act of 1997.
       Ultimately, Ignagni said, this reimbursement squeeze could 
     lead to disruptions in retiree benefit plans, higher costs 
     and fewer benefits for enrollees, and a retreat from the 
     Medicare marketplace by managed care firms. Ignagni was in 
     Kansas City as part of a multicity tour aimed at drawing 
     attention to the growing problems in the Medicare HMO 
     marketplace nationwide.
       ``There is a fundamental design flaw in (the Kansas City 
     demonstration project), and I think it ought to be fixed 
     before we roll it out in any community,'' Ignagni said. 
     ``People need to think very carefully about what the 
     inadvertent consequences of this policy will be.''
       Ignagni said the demonstration projects in both Kansas City 
     and Phoenix, along with the ratcheting-down of Medicare HMO 
     reimbursement rates nationwide, inadvertently will undermine 
     the one portion of the Medicare program that has produced the 
     greatest savings and benefit enhancements in recent years.
       At the same time, she said, no significant efforts are 
     being made to rein in the traditional fee-for-service side of 
     Medicare, which accounts for approximately 87 percent of 
     enrollees nationwide and the vast proportion of Medicare's 
     $220 billion annual budget.
       ``We don't mind competition, but we want a level playing 
     field,'' Ignagni said. ``If you want cost reductions and you 
     want to test competitive bidding, then fee-for-service should 
     be part of it.''
       The Balanced Budget Act does mandate some reductions in 
     Medicare fee-for-service reimbursements, but the cuts on the 
     managed care side are considerably deeper, Ignagni said.
       The resulting disparity between the amount paid for HMO 
     service and the amount paid for fee-for-service will widen to 
     $1,200 per person in Kansas City by 2004, according to 
     statistics compiled by the American Association of Health 
     Plans.
       ``At that rate, it becomes extremely difficult to retain 
     the best doctors, to retain the best hospitals and to remain 
     competitive,'' Ignagni said. ``And the beneficiaries will be 
     the losers.''
       Nationwide, more than 100 managed care firms have 
     downsized, adjusted or withdrawn their Medicare HMOs from the 
     market in response to the first wave of reimbursement 
     reductions triggered by the Balanced Budget Act, Ignagni 
     said. Approximately 450,000 beneficiaries have been affected.
                                  ____


                     [From the Wall Street Journal]

   Medicare Tests of Competitive Bidding Rile HMOs Fearing a Drop in 
                                Payments

                          (By Laurie McGinley)

       The health-care industry loves to say Medicare should act 
     more like a business. But now that the program is trying to 
     adopt private-sector strategies, many in the industry are 
     squawking.
       Consider Medicare's efforts to try out alternative payment 
     schemes for health-maintenance organizations. Currently, HMOs 
     are paid according to a complicated formula set by Congress. 
     But the 1997 Balanced Budget Act directed Medicare to 
     experiment with competitive bidding to see if it would be a 
     cheaper, more efficient way of reimbursing HMOs for caring 
     for the elderly.
       As a first step, federal advisers to Medicare selected 
     Phoenix and Kansas City as sites for pilot projects for 
     competitive bidding. Under the plan, Medicare HMOs must 
     submit bids indicating how much they would accept from the 
     government for each patient. Even though the effort has 
     barely started, one result is in: The HMOs are unhappy.
       In Phoenix, where 40% of seniors are enrolled in HMOs, 
     health plans and local officials have been demanding the 
     project be delayed at lest a year or killed outright. In 
     Kansas City, where HMOs have a smaller chunk of the seniors' 
     market, health plans have been unenthusiastic but less vocal. 
     At a meeting in Detroit yesterday, federal advisers to 
     Medicare rejected the Phoenix requests, but agreed to allow a 
     delay of as long as three months, until next April, for 
     implementing the pilot projects in the two cities.
       In opposing the projects, the Phoenix health plans argue 
     that the market already is highly competitive because senior 
     citizens have a number of HMOs to choose from, all offering 
     generous benefits. The competitive bidding process. they 
     claim, would drive down their federal payments, forcing them 
     to charge seniors premiums or reduce benefits. ``We think our 
     customers are being penalized and told, `We will use you as 
     an experiment in an effort to figure out how to continue to 
     cut Medicare,' '' says Gay Ann Williams, executive director 
     of the Arizona Association of Health Plans.
       A similar flap involves medical equipment. Currently, 
     Medicare sets prices for a wide range of durable medical 
     equipment, including wheelchairs and hospital beds. To 
     simplify the byzantine system and save money, the program 
     launched a competitive-bidding demonstration project in Polk 
     County, Fla. Supplies are to be selected on price and 
     quality.
       But the Florida Association of Medical Equipment Services, 
     an Orlando group that

[[Page 9986]]

     represents equipment suppliers, says the bidding process 
     inevitably will reduce prices and hurt small suppliers. The 
     group sued to block the effort but was recently rebuffed by a 
     federal judge.
       The Health Care Financing Administration, which runs 
     Medicare, has long been urged by the health-care 
     establishment, as well as Congress and health analysts, to 
     become a savvier buyer. But the industry opposition to 
     competitive bidding shows how hard it is to make fundamental 
     changes in the federal health program for 39 million elderly 
     and disabled. The Medicare system is due to run out of money 
     by 2015, and both Congress and the Clinton administration are 
     weighing alternatives to overhaul the program.
       The bottom line, says Ira Loss, senior vice president at 
     Washington Analysis, an equities-research firm, is that 
     Medicare providers are ``interested in the free market only 
     if it means the government is getting away from bothering 
     them. But when it comes to the government actually forcing 
     them to compete for business, they are unhappy about it.''
       HMO officials vehemently dispute that. Karen Ignagni, 
     president of the American Association of Health Plans, which 
     represents HMOs, says the government's bidding procedure is 
     flawed--``a jury-rigged proposal masquerading as free-market 
     competition.'' She says the bidding process isn't fair, 
     because it doesn't include Medicare's traditional fee-for-
     service program, so the HMOs would bear the brunt of any 
     payment reductions.
       No matter what the fate of the pilot projects, HMO 
     officials are determined to prevent competitive bidding from 
     being used on a national scale. The industry says any 
     reduction in payments to health plans will roil the HMO 
     market, which already is grappling with reductions in federal 
     reimbursements. Some believe the competitive bidding could 
     cause more HMOs to drop out of Medicare. Instead, HMOs want 
     Medicare to stop spending more on patients in the traditional 
     fee-for-service program than on those in HMOs. Such a move, 
     though, would force people in the traditional program to pay 
     more for their care, Medicare officials say.
       The contretemps is occurring even as there is widespread 
     agreement that Medicare's reimbursement system is cumbersome. 
     Some government studies, moreover, have suggested Medicare 
     has overpaid HMOs and medical-equipment suppliers. ``Who 
     benefits from competitive bidding?'' asks Robert Reischauer, 
     a senior fellow with the Brookings Institution and a member 
     of the advisory board on competitive bidding. ``The taxpayer. 
     But the taxpayer doesn't always have a voice in this.''
       In Phoenix where 158,000 senior citizens are enrolled in 
     HMOs, the health plans have enlisted an array of allies, 
     including the Chamber of Commerce, doctors and beneficiaries. 
     They all believe the current system works fine: HMOs offer 
     generous benefit packages that include prescription-drug 
     coverage--and no supplemental premium.
       In a recent letter to HCFA Administrator Nancy-Ann DeParle, 
     the entire Arizona congressional delegation warned that 
     competitive bidding ``would only disrupt a market in which 
     competition is already vigorous, costs are low and 
     participation is high.'' The lawmakers have signaled they may 
     block the project by legislation.
       Such resistance irks those who believe Medicare badly needs 
     to experiment with new cost-containment tools, including 
     increased competition among health plans. Given the debate 
     over Medicare, ``this is the kind of demonstration that is 
     directly relevant and should be conducted to give Congress 
     information about what way the program should go,'' says 
     Robert Berenson, a top HCFA official.
       In 1996 and 1997, the HCFA was forced to abandon HMO 
     bidding projects in Baltimore and Denver because of industry 
     opposition.
       Here's how competitive bidding would work: No matter what 
     they bid, all HMOs would be permitted to take part in 
     Medicare, as they generally are now. The government would 
     then calculate a median of all the submitted bids and pay 
     every HMO that amount. The health plans are worried that such 
     a system would further reduce their reimbursements, forcing 
     them to either charge a premium or reduce benefits, making 
     them less competitive. HCFA officials say that benefits won't 
     decline but acknowledge some patients may have to pay 
     premiums for services they now get for free.

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