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54–435—PDF 2008

S. HRG. 110–994

PRIVATE FEE-FOR-SERVICE PLANS IN MEDICARE

ADVANTAGE: A CLOSER LOOK

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

JANUARY 30, 2008

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

DEBBIE STABENOW, Michigan

MARIA CANTWELL, Washington

KEN SALAZAR, Colorado

CHUCK GRASSLEY, Iowa

ORRIN G. HATCH, Utah

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

PAT ROBERTS, Kansas

JOHN ENSIGN, Nevada

JOHN E. SUNUNU, New Hampshire

RUSSELL SULLIVAN, Staff Director

KOLAN DAVIS, Republican Staff Director and Chief Counsel

(II)

(III)

C O N T E N T S

OPENING STATEMENTS

Page

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee

on Finance ............................................................................................................ 1

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 3

WITNESSES

Miller, Mark E., Ph.D., Executive Director, Medicare Payment Advisory Commission (MedPAC), Washington, DC .................................................................. 4

Politi, Elyse, State Health Insurer Program counselor, New River Valley

Area Agency on Aging, Pulaski, VA ................................................................... 6

Fisk, Dr. Albert W., medical director, The Everett Clinic, Everett, WA ............. 8

Fillman, David, executive director, AFSCME Council 13, Harrisburg, PA ........ 9

Weaver, Daryl, administrator and CEO, King’s Daughters Hospital, Yazoo

City, MS ................................................................................................................ 11

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:

Opening statement ........................................................................................... 1

Fillman, David:

Testimony .......................................................................................................... 9

Prepared statement .......................................................................................... 27

Fisk, Dr. Albert W.:

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 32

Responses to questions from committee members ......................................... 37

Grassley, Hon. Chuck:

Opening statement ........................................................................................... 3

Prepared statement .......................................................................................... 42

Miller, Mark. E., Ph.D.:

Testimony .......................................................................................................... 4

Prepared statement .......................................................................................... 44

Responses to questions from committee members ......................................... 57

Politi, Elyse:

Testimony .......................................................................................................... 6

Prepared statement .......................................................................................... 67

Responses to questions from committee members ......................................... 73

Smith, Hon. Gordon H.:

Prepared statement .......................................................................................... 76

Weaver, Daryl:

Testimony .......................................................................................................... 11

Prepared statement .......................................................................................... 77

Responses to questions from committee members ......................................... 84

COMMUNICATIONS

American Federation of Labor and Congress of Industrial Organizations

(AFL–CIO) ............................................................................................................ 89

American Medical Association (AMA) .................................................................... 90

National Committee to Preserve Social Security and Medicare .......................... 95

(1)

PRIVATE FEE-FOR-SERVICE PLANS IN

MEDICARE ADVANTAGE: A CLOSER LOOK

WEDNESDAY, JANUARY 30, 2008

U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC.

The hearing was convened, pursuant to notice, at 10:10 a.m., in

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus

(chairman of the committee) presiding.

Present: Senators Rockefeller, Lincoln, Wyden, Stabenow, Cantwell, Salazar, Grassley, and Smith.

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. The hearing will come to order.

On July 30, 1965, when he signed the law creating Medicare,

President Johnson said, ‘‘No longer will older Americans be denied

the healing miracle of modern medicine. No longer will illness

crush and destroy the savings that they have so carefully put away

over a lifetime. No longer will this Nation refuse the hand of justice

to those who have given a lifetime of service, and wisdom, and

labor to the progress of this progressive country.’’

Today we are here again to make sure that Medicare is keeping

these promises. We are here to examine the effects of what are

called private fee-for-service plans in Medicare, and we are here to

make sure that these plans are doing their part to keep the promise of Medicare.

People with Medicare have a choice of how to receive their health

care benefits. They receive Medicare through the traditional fee-forservice program or they can sign up for what is called Medicare

Advantage. Private health insurers contract with the government

on an annual basis to provide Medicare Advantage plans. Insurers

receive a monthly payment from Medicare for each beneficiary enrolled.

In 2003, Congress changed the way that private insurers contract with Medicare, and in 2003 Congress also significantly increased Medicare payment rates for private plans. As a result of

these changes and the way that the administration implemented

them, the number of Medicare Advantage plans and beneficiaries

enrolled in them has grown rapidly. Four years ago, only 1 in 10

Medicare beneficiaries got care through a private plan; today, more

than 1 in every 5 do.

This new enrollment in Medicare Advantage is due mostly to

growth in private fee-for-service plans. In 2005, 200,000 beneVerDate 11-MAY-2000 14:50 Feb 18, 2010 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 54435.000 SFIN1 PsN: SFIN1
2

ficiaries enrolled in these types of plans. Last year, nearly 1.7 million did. That is a growth rate of nearly 1,000 percent over just 2

years.

In my home State of Montana, more than 90 percent of all Medicare Advantage enrollees are in private fee-for-service plans rather

than in health maintenance organizations or preferred provider organizations. Most rural areas have similar statistics. Even urban

and suburban areas with historically high enrollment in private

plans has seen the most explosive growth from new private fee-forservice plans.

These trends far exceed any predictions that Congress received

when we passed legislation to create them. We will gather more

data on these plans from MedPAC today. Growth rates like these

raise concerns. They require us to take a closer look at what drives

them. Last year, Senator Grassley and I decided to do just that.

Here is what we learned. The law gives private fee-for-service

plans several allowances that make them easier to get up and running than any other type of Medicare Advantage plan. First, the

law does not require private fee-for-service plans to have relationships with providers to ensure that the providers will serve the

people enrolled in private fee-for-service plans. Doctors and hospitals who do not have a contract with the plan can decide not to

treat a patient in one of these plans at any time, and providers can

deny treatment even if those providers participate in traditional

Medicare.

Second, the law does not require private fee-for-service plans to

submit any data about the quality of care that the enrollees receive. That is different from health maintenance organizations or

preferred provider organizations.

The Centers for Medicare and Medicaid Services cannot oversee

and regulate the benefits of private fee-for-service plans as they do

other Medicare Advantage plans. That means that private fee-forservice plans can require the beneficiary to pay more than traditional Medicare.

In my home State of Montana, providers like the Billings Clinic

tell me that they are more than frustrated with private fee-forservice. They feel that these plans are burdensome, less transparent, and pay less than traditional Medicare.

Critical access hospitals like Fallon Medical Complex in Baker,

MT are especially concerned. The lack of a contractual relationship

means that providers have little protection and recourse when

these plans under-pay or deny care. We will hear more about provider problems from our witnesses today.

Providers in my State also tell me that these private fee-forservice plans are confusing beneficiaries. We will hear more about

problems beneficiaries face from our witnesses today.

Scores of advocates, family members, and reporters from across

the country have told us about deceptive and abusive marketing

tactics used by these private fee-for-service plans. Plans have employed these tactics to enroll seniors and people with disabilities.

The administration’s lax oversight of sales and marketing tactics is

another factor that has led to extensive growth in private fee-forservice plans. We will delve into issues of marketing in Medicare

Advantage at a separate hearing in coming weeks.

3

Today, we will take a close look at private fee-for-service plans.

We will look at the real problems with the most rapidly expanding

type of Medicare Advantage plan. We will consider what we need

to do to reform private fee-for-service plans. We will consider

whether we need to check their growth, and we will consider

whether we can better design the law to ensure that these plans

serve the needs of beneficiaries.

We must ensure that Medicare continues to allow older Americans ‘‘the healing miracle of modern medicine,’’ we must ensure

that Medicare continues to ‘‘protect the savings that they have so

carefully put away over a lifetime,’’ and we must ensure that Medicare continues to ‘‘extend the hand of justice to those who have

given a lifetime of service, wisdom, and labor to the progress of our

country.’’

I would now like to turn to my colleague, Senator Grassley.

OPENING STATEMENT OF HON. CHUCK GRASSLEY,

A U.S. SENATOR FROM IOWA

Senator GRASSLEY. Mr. Chairman, I think you have covered most

of the points that I was going to cover in my statement, so I am

going to put the entire statement in the record.

But I just wanted to refer to a situation in my State that gives

me concern, and why we need to look at this and get some of these

things under control. When I say this, I want to emphasize, before

I refer to the specific Iowa example, that I and you, 3 or 4 years

ago, and for years before that, worked very hard to make sure that

our constituents had the same access to Medicare Advantage that

people in California, big cities, and in Florida, Texas, et cetera, had

to it, because we did not have access to it except for one Iowa county out of 99. That is because they were across the river from

Omaha, where there is Medicare Advantage.

So we want equal access, but we want to make sure that it is

not abused. So we are looking at these things and what maybe can

be corrected without reducing this access. I want to make that very

clear.

But one example of why we have to do something. In December,

a large physician group in Des Moines announced that it was refusing to treat beneficiaries with private fee-for-service plan coverage.

It even took out an ad in the State’s biggest newspaper, the Des

Moines Register. It took this extraordinary step because the physicians did not think that the payment situation was fair. They

thought if a plan was paid the benchmark, at the very least it

should have a contract with them. I have heard from some Iowans

who are worried that their doctors now will not treat them.

One Iowan who contacted me has bladder cancer, but fortunately

his wife saw this ad in the newspaper in time and was able to get

him to a different plan. If physicians had decided mid-year not to

accept the plan, it could have spelled disaster.

I am disturbed that my constituents may have a hard time getting access to doctors; because these plans do not really have participating providers, it is hard to figure out. But those are things

that we are going to have to work on. I want to make sure that

my constituents have access to Medicare Advantage just like they

do in other States.

4

Thank you. I will put my entire statement in the record.

[The prepared statement of Senator Grassley appears in the appendix.]

The CHAIRMAN. Thank you, Senator, very much.

I would like to now welcome our witnesses. First we will hear

from Mark Miller, the Executive Director at MedPAC, a nonpartisan Federal agency that advises the U.S. Congress very

often—and I might say very well—on Medicare payment, quality,

and access issues. We depend very much on MedPAC, as you know,

Dr. Miller. We thank you very much for your service.

Second is Ms. Elyse Politi, State Health Insurer Program counselor at New River Valley Area Agency on Aging in Pulaski, VA.

She has been helping beneficiaries navigate Medicare for over 13

years.

Third, Dr. Albert Fisk, medical director at the Everett Clinic in

Washington State. Thank you, Dr. Fisk, for coming here.

Fourth is Mr. David Fillman, who is executive director of the

American Federation of State, County, and Municipal Employees,

Council 13, in Harrisburg, PA.

Fifth, Mr. Daryl Weaver, administrator and CEO of King’s

Daughters Hospital in Yazoo City, MS.

To all witnesses, I ask that you limit your oral remarks to 5 minutes. Your prepared statements will automatically be included in

the record. Just let ’er rip.

Dr. Miller?

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

(MedPAC), WASHINGTON, DC

Dr. MILLER. Chairman Baucus, Ranking Member Grassley, distinguished committee members, I appreciate you asking MedPAC

to testify today.

The original intent of the managed care program in Medicare

was for plans to use networks and care coordination to deliver care

more efficiently than the fragmented fee-for-service system. From

these efficiencies, plans would be able to provide additional benefits

to beneficiaries and, in turn, attract beneficiaries into managed

care plans.

For this reason, the Commission has long supported managed

care plans as a choice in Medicare. Plans have the flexibility to use

managed care techniques that fee-for-service does not, and, if paid

appropriately, they have incentives to be efficient.

With respect to payment, the Commission supports the principle

that Medicare payments should be neutral. It should be the same

for whether a beneficiary chooses fee-for-service or managed care.

Like our other payment recommendations, we try to recommend to

Congress payment amounts that will produce efficiency among all

providers, whether it is fee-for-service or managed care.

The current managed care payment system is not neutral to beneficiary choice and it does not encourage efficiency. It is based on

an inflated set of administrative benchmarks that plans bid

against. Those benchmarks are 18 percent above fee-for-service,

and, through the bidding process, that results in payments that are

5

13 percent above fee-for-service, in other words, $10 billion a year

more for these beneficiaries than had they been in fee-for-service.

Now, this 13 percent does pay for additional benefits for beneficiaries, but the issue that we raise is that these benefits come out

of the trust fund, general revenues, and beneficiary premiums and

they are paid by beneficiaries regardless of whether the beneficiary

is in a managed care plan or not.

Furthermore, these benefits are fully loaded in that they include

administrative marketing and profit in addition to the benefits that

go to beneficiaries. This committee knows that we have recommended reducing the benchmarks to traditional fee-for-service payments. The Congress faces difficult choices regarding Medicare’s future, and it is in that spirit that we offer the recommendation. We

believe there are managed care plans that can be efficient, and reducing the benchmarks will encourage efficient managed care

plans.

With respect to private fee-for-service plans, they do not have the

characteristics originally conceived, though, for managed care

plans. They do not have coordinated care networks. They do not negotiate contracts with providers. They generally pay traditional feefor-service rates. There are also exceptions in law that give them

competitive advantages over other plan types. They do not have the

same quality reporting requirements. Their bids and benefits are

not reviewed in the same way that other plans are, and they have

no restrictions on offering employer-only plans, which I can explain

on questioning.

Because there are no contracts with providers—and this is the

point that you made, Senator—the provider makes the decision at

the point of contact whether to accept the patient or not, and this

has led to confusion among beneficiaries and providers, and I suspect other people on the panel will address that.

It is useful to recall the original intent of private fee-for-service

plans. The law explicitly contemplated them as not managing care.

The higher costs that they were expected to incur were expected to

be borne by the beneficiary, but because of changes in law and the

MMA, those costs are now borne by the program. Medicare pays 17

percent more than fee-for-service for these plans. This is in part

based on where they draw their enrollment and in part based on

their bids, which are inefficient. Private fee-for-service plans bid 8

percent more than traditional fee-for-service to provide the same

standard benefit package.

Of particular concern to the Commission is that private fee-forservice plan enrollment is growing very rapidly. It increased 120

percent last year. It accounted for nearly 60 percent of all new enrollment in managed care, and there are now 1.7 million private

fee-for-service enrollees. Private fee-for-service plans are the dominant managed care model in rural areas, but more recently they

are now available in all parts of the country, and the most rapid

growth rates are in urban and suburban counties.

In closing, both MedPAC and CBO have testified in front of this

committee expressing concern over this rapid enrollment. It results

in higher Medicare expenditures and puts beneficiaries in plans

that are poorly organized to either contain costs or to improve quality. The current payment mechanism is flawed. It invites inefficient

6

plans to join Medicare, and private fee-for-service plans are a serious example of the program.

I look forward to your questions.

[The prepared statement of Dr. Miller appears in the appendix.]

The CHAIRMAN. Thank you, Dr. Miller.

Ms. Politi?

STATEMENT OF ELYSE POLITI, STATE HEALTH INSURER PROGRAM COUNSELOR, NEW RIVER VALLEY AREA AGENCY ON

AGING, PULASKI, VA

Ms. POLITI. Thank you, Chairman Baucus. Chairman Baucus,

Senator Grassley, and members of the committee, thank you very

much for this opportunity to testify regarding private fee-forservice plans in the Medicare Advantage program.

My name is Elyse Politi. I am the current State Health Insurer

Program counselor for the New River Valley Agency on Aging. I

provide services to seniors in the counties of Montgomery, Pulaski,

Giles, Floyd, and the city of Radford, VA. I am sure everybody

knows about Radford.

The SHIP program was established in 1993 in Virginia, and I am

one of the original coordinators, having spent 13 years in Northern

Virginia until last fall, when I transferred to the southwest part of

Virginia. In Virginia, the SHIP program is called VICAP, Virginia

Insurance Counseling and Assistance Program.

The SHIP program was established to help Medicare beneficiaries and their families, whether over or under 65, understand

and navigate through the Medicare, Medicaid, Medigap maze, as

well as provide counseling on the impact of other forms of health

insurance on their Medicare status.

During the last 3 years, as a result of the MMA of 2003, the burden on the SHIPs to constantly reeducate ourselves on the Medicare Advantage plan offerings and the stand-alone prescription

drug plans has increased exponentially, and our efforts at outreach

and education with the Medicare population, regardless of where

they live, have grown at the same rapid rate. Added to this burden

is the imperative to find low-income beneficiaries who qualify for

the extra help.

My testimony will focus on five points: the private fee-for-service

promises of reduced costs to rural residents; marketing problems

which continue to plague beneficiaries; Medicare beneficiaries’ need

for qualified, knowledgeable counselors; frustration of providers in

dealing with private fee-for-service plans; and concerns about additional funding levels appropriated for the SHIP program.

Private fee-for-service promised reduced costs. Many people were

very encouraged and excited in 2006 to find that there were some

plans that were planning no premiums through either health insurance other than the Part B premium, and no premium for their

medications. Since there was little oversight at the time, rampant

poor sales techniques were used to enroll the rural folk in several

private fee-for-service plans in my area.

People were told that there were extra benefits, such as hearing,

dental, and vision coverage, in addition to exercise programs that

they could join. They were not told, however, that there could be

an out-of-pocket maximum of up to $5,000 per year beyond their

7

prescription costs, much greater than with a Medigap policy, or

that their hospital co-pays for one plan in particular could be $525,

another plan is $185 for the first 5 days. In addition, there would

be daily co-pays for skilled nursing facilities after 5 days instead

of after 20 days, as the original Medicare plan.

The durable medical equipment and Medicare Part B drugs

would have the same 20 percent that would have been payable

under original Medicare. Most of the private fee services are also

charging high ambulance co-pays and are requiring substantial copays for people receiving dialysis and diabetic supplies.

People who gave up their Medigap policies suddenly had to pay

these large, unexpected costs out of their own pocket. One woman

I spoke with found that she had to pay the $525 hospital bill, and

then received a bill for her 100-day skilled nursing facility stay in

the amount of $8,000. She thought the end of the world had come

and realized what a bad decision she had made. I helped her, first,

by contacting the plan to advise them that they needed to work out

the billing issue because she had gone over her $4,000 out-of-pocket

maximum.

I then disenrolled her from the plan, got her back into original

Medicare, a Part B plan, and also helped fill out a Medicaid application, since she had earned enough to spend down to meet the requirements for Medicaid. Had she stayed with her Medicare and

Medigap policy, her out-of-pocket costs would have been equal to

her original Medigap premium, or $1,800 a year.

Other people find that a health care provider will not accept

their private fee-for-service plans just as they are scheduled to receive a needed health care service. On Friday afternoon this past

December 28th, I was contacted by a frantic son whose mother was

scheduled to enter a skilled nursing facility the following week.

The nursing home had advised him that they would not accept

the private fee-for-service that she was enrolled in, and, even if

they did, she would be responsible for the co-pays for the first 5

days she was there. This nursing home was the closest facility to

her home in Stanley, and the son was worried that other facilities

further away might not take the private fee-for-service plan also.

After talking with his mother, they decided that she needed to be

disenrolled.

Marketing problems. I had a beneficiary that was approached by

a salesman in a local Wal-Mart. When she told him that she had

Tricare and the Federal Blue Cross/Blue Shield Standard Option,

he advised her that she needed to also sign up for the private feefor-service plan because neither of those plans offered her full protection. He did not indicate that she could suspend her Federal

plan.

I counseled her on the benefits of both the Tricare and the Blue

Cross/Blue Shield plan, advised her that she definitely did not need

the private fee-for-service plan, and possibly could actually suspend

her Blue Cross/Blue Shield since the Tricare plan is pretty inclusive. She is going to investigate and make her own decision.

Another person was told by a marketing contact that the plan

wanted to meet with the enrollee—and I am going to run out of

time—about, that he needed to change his plan. He had talked

8

with the SHIP last year. He knew that he needed to further investigate these problems.

Beneficiaries need knowledgeable counselors. Counseling sessions

can be difficult and time-consuming because they need to be individualized. They require more knowledge about private fee-forservice plans and other Medicare Advantage options. They require

knowledge of original Medicare, Medigap, Medicare savings plans,

and Medicaid.

I have been contacted by two doctors in rural areas who asked

us to please set up individual counseling programs for his 40 patients so that they could understand the private fee-for-service that

they were in and try to convince them that they needed to get out

because he no longer wanted to deal with it because of the burdens

that the private fee-for-service plans had put on him, paper-wise,

not getting paid at the same time, at the right time, at the right

fees. He just wanted out. The other doctor felt the same way.

The CHAIRMAN. Thank you, Ms. Politi, very much.

Ms. POLITI. I am sorry that I did not finish.

The CHAIRMAN. No, that is fine.

Ms. POLITI. It is all here.

The CHAIRMAN. Thank you very, very much. I appreciate that.

[The prepared statement of Ms. Politi appears in the appendix.]

The CHAIRMAN. Dr. Fisk?

STATEMENT OF DR. ALBERT W. FISK, MEDICAL DIRECTOR,

THE EVERETT CLINIC, EVERETT, WA

Dr. FISK. Mr. Chairman and distinguished members of the committee, thank you for inviting me to discuss Medicare Advantage

private fee-for-service plans.

I am Dr. Al Fisk, Medical Director of the Everett Clinic. The

Everett Clinic serves more than 250,000 patients throughout Snohomish County, WA, which is 30 miles north of Seattle.

The Everett Clinic is a physician-owned group practice that has

been operating for more than 80 years. We have more than 270

physicians and offer 40 diverse specialty services. We have received

national recognition for innovative approaches to patient care and

medicine. For example, we just received the 2007 Acclaim Award

for Quality, which is the most prestigious award presented by the

American Medical Group Association.

Medicare is a subject that concerns us deeply. We serve more

than 20,000 Medicare patients, and the number is growing rapidly.

Last year we lost more than $7.5 million on Medicare. We need to

find a sustainable model that will allow us to meet our ethical obligation to care for all those Medicare patients who choose to seek

care with us.

A portion of our losses can be traced directly to private fee-forservice plans. Since the private fee-for-service plans were the most

rapidly growing part of our Medicare business, it became clear to

us that we could not afford to continue to offer care under this program. So last fall, we informed 1,400 patients that, beginning in

January of 2009, we would no longer accept private fee-for-service

plans. We encouraged these patients to enroll instead in managed

Medicare Advantage plans.

9

The decision to curtail the program led to increased communication with our patients. We openly shared our dilemma with the patients and our reasoning for curtailing the program. In addition to

written material, we also held workshops, attended by more than

400 patients. We laid the rationale for our decision on the table

and shared the economics in a very transparent manner. We explained that we were losing money on private fee-for-service plans.

The feedback we received was reassuring. Patients understood

why we needed to make the change. They had no idea that their

program, if allowed to grow unchecked, would ultimately threaten

the economic health of the clinic and make it impossible to continue to provide the best possible care to our patients. They were

very surprised to learn that the program did not cover its costs.

Economics are important, but the problem here extends far beyond the financial burden that we have experienced. Among our

core values is to do what is right for every patient. This means delivering coordinated care and promoting health and wellness. Candidly, this approach is difficult with private fee-for-service plans.

Efficient, effective health care is provided when the primary care

physicians and specialists consult with each other on an ongoing

basis, view the same medical histories, and coordinate treatment

plans. Coordinated care ensures that effective disease management

and preventative care can be delivered to each and every patient.

This approach benefits the patient and ultimately saves money

for the payor. Give us the tools and the resources to provide coordinated care and you will have a program that provides better outcomes at lower cost. The system must be structured so patients can

receive both preventative care and optimal management of chronic

disease.

In the current reality where private fee-for-service plans can

deem providers to be part of their network, none of the increased

funding over traditional Medicare is shared with providers, which

makes it difficult for us to sustain these needed cost-saving services.

In addition, unlike the Medicare Advantage HMO and PPO plans

that we participate with, the private fee-for-service plans do not

share cost of care and quality information with providers. It makes

no sense to structure a Medicare plan that provides additional

funding only to health plans, not to providers, and does not support

improving quality while managing the cost of care.

Thank you very much for your time. I am happy to answer questions.

The CHAIRMAN. Thank you, Dr. Fisk.

[The prepared statement of Dr. Fisk appears in the appendix.]

The CHAIRMAN. Next, Mr. Fillman?

STATEMENT OF DAVID FILLMAN, EXECUTIVE DIRECTOR,

AFSCME COUNCIL 13, HARRISBURG, PA

Mr. FILLMAN. Thank you. Chairman Baucus and Senator Grassley, members of the Senate Finance Committee, I want to thank

you for the opportunity to testify today.

My name is David Fillman. I am an international vice president

of the American Federation of State, County, and Municipal Employees, AFSCME, which includes 1.4 million working members, a

10

majority of current and former employees of State and local governments, and 230,000 retirees. I am also the executive director of

AFSCME Council 13 in Pennsylvania, representing more than

65,000 employees. My testimony today focuses on our union’s perspective on Medicare Advantage private fee-for-service plans.

The root of many of the problems with private fee-for-service

Medicare Advantage plans stems from the 2003 change in Medicare

law, which gave insurance companies significant profit incentives

to offer Medicare Advantage plans as a replacement for traditional

Medicare. In the past, Medicare Advantage-like plans were products that competed on a level payment playing field with traditional Medicare. We are concerned that the current enhanced incentives for private products as a replacement to Medicare come at

too great a cost to beneficiaries, taxpayers, and the integrity of the

Medicare program.

Current estimates are that, for every dollar spent for benefits under traditional Medicare, it costs $1.17 when a private fee-forservice plan provides the benefits. Not surprisingly, with that enhanced profit, MA private fee-for-service has grown at an alarmingly rapid rate over the past year, to more than 1.9 million beneficiaries.

These significant incentives have led to predatory marketing

practices by insurance companies on the individual market, but

they have also distorted the group retiree health care market. Offers to pass through some of the Federal subsidies to State and

local governments are being made.

The new accounting laws issued by the Governmental Accounting

Standards Board, or GASB, place a tremendous strain on public retiree health benefits and add to the lure of these private Medicare

plans. To reduce this paper liability, more public employers are

proposing a switch from their own Medicare retiree health plans to

these private Medicare plans.

In my State, Governor Rendell plans to replace our retired employees’ health program for State government retirees with the

Medicare Advantage private fee-for-service plan. He is removing retirees who are aged 65 and older from the secure State plan and

forcing them out of the traditional Medicare program. Although

these private Medicare replacement plans must be the actuarial

equivalent of Medicare, they have a broad hand in shaping the details and setting co-payments, premiums, and the real value of benefits from year to year.

We oppose this forced switch, both from our understanding of its

impact on Medicare generally, as well as our fellow AFSCME members’ experiences in West Virginia and Ohio. West Virginia retirees

were forced out of Medicare and into an MA private fee-for-service

plan last July.

In West Virginia, 37,000 retired State employees and teachers

were forced out of traditional Medicare and stripped of their supplemental plan. They were enrolled in Advance for Freedom, an

MA plan administered by the for-profit giant, Coventry Health

Care, the same as being offered in Pennsylvania.

Specifically, AFSCME is concerned about the following complaints we received from West Virginia and other States regarding

PFFS plans. Even though these plans are marketed as nationwide,

11

this is false. They limit access to care and choice because significant numbers of doctors and hospitals have refused to accept the

card. For example, many West Virginia retirees who moved out of

State could get no doctor to accept the private MA plan.

MA private fee-for-service plans may offer additional benefits

such as gym memberships or hearing aids, but they modify other

benefits to cut corners in more important areas, such as limiting

hospital stays or charging higher co-pays for nursing homes than

Medicare. PFFS plans more frequently deny claims in order to hold

down costs, and the appeals process is more difficult under the private plans. Retirees are no longer enrolled in traditional Medicare

and must go through the company rather than Medicare’s transparent appeals process.

The plans are not stable. They can, and do, pull out of markets,

disrupting health care services. There is a lack of quality and accountability. These private replacements for Medicare are exempt

from basic quality reporting requirements. When Congress opened

up Medicare to private plans, it was based on a claim that the

health insurance industry would be more efficient, provide more

care coordination, and do so at less cost to taxpayers. These plans

do none of the above. State and local governments see money on

the table and are going after it.

We concur with the recommendations made by MedPAC that MA

private plans should compete on a level payment playing field.

AFSCME urges you to act quickly this year and pass legislation to

stop corporate greed from ruining our retirees’ health care.

Thank you again for the opportunity to appear here today.

The CHAIRMAN. Thank you very much, Mr. Fillman.

[The prepared statement of Mr. Fillman appears in the appendix.]

The CHAIRMAN. Mr. Weaver, you are next. Thank you.

STATEMENT OF DARYL WEAVER, ADMINISTRATOR AND CEO,

KING’S DAUGHTERS HOSPITAL, YAZOO CITY, MS

Mr. WEAVER. Mr. Chairman, distinguished members of the committee, thank you for the opportunity to testify regarding the impact of Medicare Advantage private fee-for-service plans in rural

America.

My name is Daryl Weaver, and I am honored today to represent

the National Rural Health Association and King’s Daughters Hospital in Yazoo City, MS, and to express our concerns over the

growth and implementation of private fee-for-service plans in rural

America.

Last week in my home State of Mississippi, the sole provider of

ambulance service to 23 of our rural counties went out of business,

literally overnight. EmergyStat’s closure also impacted counties in

Kansas and five other States in the southeast. One of the factors

contributing to this crisis was the lack of cash flow from Medicare

Advantage plans, over $200,000 in unpaid claims.

For rural providers of all stripes, cash flow is a critical issue, and

it is not uncommon for it to take as long as a year to receive payment from Medicare Advantage plans, and this only after multiple

phone calls, letters, and e-mails by myself and my billing staff,

which has increased by 20 percent over the last year, to deal speVerDate 11-MAY-2000 14:50 Feb 18, 2010 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 54435.000 SFIN1 PsN: SFIN1
12

cifically with this issue. Contrast this with traditional Medicare

which pays claims within 15 days and you can begin to understand

our predicament. Congress must act to ensure that EmergyStat is

the anomaly and not the proverbial canary in a coal mine. Mr.

Chairman, I do not have to tell you that canaries in coal mines are

useless during a cave-in.

When speaking about MA plans, the rural experience is almost

exclusively with private fee-for-service, especially in the most rural

parts of our Nation. In my State, almost 99 percent of rural MA

beneficiaries are in these types of plans, the private fee-for-service

ones.

The NRHA has long embraced, and continues to support, efforts

to offer rural seniors choice, especially managed care offerings. But

we are concerned that the only plans available in most of our rural

communities really offer no choice at all.

The challenges of beneficiary confusion and unscrupulous marketing tactics by these plans have been well documented; therefore,

I will simply add these two points. First of all, many of the MA patients my hospital sees are not even aware that they have been enrolled in anything other than traditional Medicare with a prescription drug plan.

Second, last year, both then-Senator Lott and a Mississippi State

Insurance Commissioner issued strong statements warning seniors

to avoid private fee-for-service plans. Not only did this advice protect seniors, it also helped prevent these plans from literally unraveling the entire fragile rural health care safety net.

For instance, these plans have not always paid critical access

hospitals like mine the very minimum amounts to which we are entitled. Hospitals are not alone in dealing with these issues. Not one

of my admitting physicians electively admits Medicare Advantage

patients. This is also the case with most of our local home health

care agencies and skilled nursing facilities.

I cannot tell you how often my hospital provides care to critically

ill patients in the emergency department only to learn after the

fact that he or she is an MA enrollee. Simply by doing the right

thing for a sick individual, we become a deemed provider and

thereby agree to accept whatever payment is offered.

Mr. Chairman, the NRHA and the 62 million people we serve ask

that this committee implement the following recommendations:

(1) Ensure that rural providers receive equitable and prompt reimbursement from MA plans. At a minimum, this reimbursement

must be no less than what would be paid under traditional Medicare.

(2) Eliminate deemed status, especially in the case of emergency

care.

(3) Policymakers must hear the rural voice. We encourage you to

expand the authority of the Office of Rural Health Policy to provide

technical assistance to rural providers and mandate proportionate

representation on MedPAC.

(4) Require greater scrutiny and oversight of MA plans by both

CMS and State insurance regulators.

(5) Finally, require more transparency on the part of MA plans

so choices and changes are better understood by all interested parties.

13

Mr. Chairman, Medicare must continue to improve, but the fragility of both our seniors and the rural health care infrastructure

demands something more than the Medicare Advantage plans of

today. We can, and must, do better for our seniors.

Thank you again for the opportunity to speak with you today.

[The prepared statement of Mr. Weaver appears in the appendix.]

The CHAIRMAN. Dr. Miller, I just want to clear up a point that

I think MedPAC is making. It gets to efficiency, a point that you

made. Is it true that in your judgment, MedPAC’s judgment, that

Medicare pays private fee-for-service plans, on average, about 108

percent of the cost of traditional Medicare provided to beneficiaries

with the same level of benefits offered in traditional Medicare?

That is, stripping away profits and everything else, the payments

that Medicare pays for beneficiaries under private fee-for-service

versus Medicare.

Dr. MILLER. Yes, that is correct. Just to be clear, this is our calculation using the data as opposed to a judgment. What happens

is, plans come in and bid on the basic hospital and physician benefits in Medicare. On average, across the country, private fee-forservice plans bid 8 percent more than traditional fee-for-service to

provide the same benefits. Then we pay more on top of that

through the rebate price, 9 points on top of that, for a total payment to these plans of 117 percent, or 17 percent more than feefor-service.

The CHAIRMAN. And compare that with what Medicare pays

HMOs for the same level of benefits offered under traditional Medicare.

Dr. MILLER. For HMOs, the bid on HMOs is 99 percent of feefor-service, so they actually do bid below fee-for-service. We actually pay 12 percent more than fee-for-service to HMOs. They actually bid, when they submit their bid, below fee-for-service. So the

comparative numbers are: HMOs, on average across the country,

are 99 percent on their bid for the standard benefit compared to

private fee-for-service, which are 8 percent above fee-for-service;

and then our payment system gives 12 percent more to HMOs and

17 percent more to private fee-for-service. Then there are whole

sets of differences about the requirements, which we can talk

about.

The CHAIRMAN. I was quite surprised to learn that sometimes

providers are paid at less than the reimbursement rate under traditional fee-for-service. How prevalent is that, and by how much

are those payments lower than those received under traditional

Medicare? Mr. Weaver?

Mr. WEAVER. My experience has been that most of these plans

do not understand critical access hospitals, which is my experience.

So the typical approach is to come in the door. If they present a

plan to us and our Medicare payment rate is the starting point and

they want to negotiate downward from there, usually they will

offer you 90 percent of your Medicare rate. We have to explain to

them, we are paid cost plus 1 percent. You are asking me to literally take a loss on every patient that I care for. I would say every

plan that I have talked to regarding a contract in the last 2 years

has offered something less than Medicare, and we just have to tell

14

them we cannot provide service at that rate. It literally is a loss

for every patient.

The CHAIRMAN. From a beneficiary’s perspective, is the problem

this? Say I am a senior. I come in for some kind of procedure provided at a clinic, by a doctor, or something, and I belong to a private fee-for-service plan. I guess the problem is that there is no

guarantee that that doctor, that provider, is going to take me because I belong to private fee-for-service. So from a beneficiary’s perspective, it is very unsettling that a provider does not necessarily

have to take me. Is that correct?

Mr. WEAVER. Rural enrollees have never, for the most part, dealt

with managed care. They are always surprised inevitably to find

that their doctor, who has cared for them for 30 years, has to look

them in the face and say, I cannot be your doctor anymore because

I do not participate in this plan. The patient says, but I have Medicare.

The CHAIRMAN. All right. But let us say now that the provider

does take me. The next problem is, as I understand it, that the

plan may not reimburse the provider, either adequately or promptly, and it would be very frustrating for the provider. Is that correct

or not correct?

Mr. WEAVER. That is correct.

The CHAIRMAN. Is that basically correct?

Mr. WEAVER. Yes.

The CHAIRMAN. And it is because there is no networking, that is,

among providers. That is not a requirement? Private fee-for-service

plans do not have to set up networks, is that correct?

Mr. WEAVER. Correct. The other issue that affects hospitals is, 80

percent of my patients come through the emergency department.

We have to provide care first in emergency situations and worry

about payor source later. So this whole idea of deemed status for

hospitals is, frankly, sort of ludicrous because we do not have the

opportunity in many cases to discuss what sort of payment, if there

is payment, for the care we are providing until we have dealt with

the crisis at hand.

The CHAIRMAN. And the quality requirements are much lower

compared with other Medicare Advantage plans. Is that correct,

too?

Mr. WEAVER. It can be, yes.

The CHAIRMAN. All right.

Senator Grassley?

Senator GRASSLEY. Dr. Miller, employers seem to be more interested in moving retirees to private fee-for-service plans and other

types of plans than retaining their current plans, which usually

wrap around Medicare. Can you explain the benefit to an employer

of transitioning to a private fee-for-service plan?

Dr. MILLER. I will do my best. I would organize the information

into kind of two categories. One is that these plans have a competitive advantage to other products. So, since they do not establish

networks, since they do not generally have provider contracts, they

do not have the same kinds of quality requirements, some of which

has been stated here, it is much easier to set up a plan across

State lines, across the country, if your retirees have moved around.

So, relative to other plans trying to get into the employer market,

15

they have some advantage there to say, I can do this more quickly

and easily.

The second concern that we have has to do with the competitiveness of what the bid is and, ultimately, what Medicare pays. The

concern here is that, unlike the individual market, the beneficiary

is not choosing between plans, which is what is supposed to put a

downward pressure on the premium because you want to offer a

low premium to get people in, but in this market you are taking

whole groups of people from an employer at a given time.

So our concern is, and we are trying to look into this now, there

is not as much pressure on the bid so that the bid ends up being

higher and what we pay tends to be higher. Then the plan can

come to the employer—sorry this is so complicated, but I am assuming this is what you want—and basically say, I can offer you

either the same or perhaps a better benefit and at a cost that is

lower to you than the wrap-around that you are currently paying.

So, if I have this wrap-around and I am an employer, I pay a

premium for that wrap-around. But if the cost sharing, for example, is much lower in private fee-for-service because we pay so

much, I can say to the employer, I can remove that cost for you.

So that is why I think it is two reasons. It is easier in terms of

their competitive advantage and they can buy out some of the employer’s cost.

Senator GRASSLEY. We are substituting taxpayers’ dollars for

what would have been private dollars.

Dr. MILLER. And I want to be clear what I am talking about

here. This is the incentive structure that is concerning us. We are

trying to look at this now. That is the concern, that these payment

rates are subsidized by taxpayer dollars, and that that is why it

is attractive.

Senator GRASSLEY. Yes.

Also, Dr. Miller, private fee-for-service plans are not required to

have networks. That has been emphasized here. In suburbs and

cities, there are usually plenty of providers to provide a network,

and yet private fee-for-service plans appear to be gaining ground

even in urban areas.

Dr. Miller, do these plans undermine Medicare Advantage plans

that have to form networks and pay provider-competitive rates and

coordinate care?

Dr. MILLER. Yes. I mean, what we would say is, for the vast majority of people who are enrolled in these plans, in private fee-forservice plans, there are other alternative managed care plans in

the area for them. Not in all areas. Particularly in remote rural

areas, that may not be the case. But overwhelmingly for the number of people who are enrolled in these plans, there is another

managed care alternative.

The point I am trying to drive at is, there may be some competitive advantage. We have made the point here that plans should be

on a level playing field and we do not see these plans on a level

playing field with other plans, so we think the competitive advantage is unfair relative to other managed care plans.

Senator GRASSLEY. Dr. Fisk, you testified that your experience

with private fee-for-service plans on care coordination has been

abysmal. Care coordination is obviously very important for patients

16

with chronic conditions like diabetes and heart disease and, quite

frankly, an advantage of having people in Medicare Advantage.

Would you elaborate on how private fee-for-service plans differ

from other Medicare Advantage plans in terms of patient care?

Dr. FISK. Yes, Senator. I think that the private fee-for-service

plans differ in two ways that fail to support coordinated care. First

of all, the Medicare Advantage HMO and PPO plans, since they

have to contract with us, they share some of their increased funding that they receive over fee-for-service Medicare with us so we

can begin to afford to provide these extra services.

Second, the HMO and PPO plans share quality information with

us and share cost of care information with us so that we can learn

to perform better, whereas, the private fee-for-service plans pay us

exactly the fee-for-service rate, none of that extra funding, and they

do not share any quality or cost of care information with us.

Senator GRASSLEY. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator.

Next, Senator Wyden.

Senator WYDEN. Thank you, Mr. Chairman. And thank all of

you.

For those of us who believe that fixing health care requires a

wide array of private choices, this product gives the private sector

a bad name. What is striking to me is how removed this product

is from the Medigap model, and I want to discuss that with you.

Before I came to Congress, I was co-director of the Gray Panthers at home for 7 years. Back then, it was common for a senior

to have a shoe box full of private insurance policies that were not

worth the paper they were written on. Then, as you will recall, in

the early 1990s we wrote this law that standardized the market.

You can walk in now to any senior citizen’s center in the United

States and people can walk a senior and their family through their

choices, and the market has worked for older people, it has worked

for private insurers, it has worked for taxpayers. It has made a lot

of sense.

Now we have this private fee-for-service market. I think that you

all are describing it as something kind of like Dodge City before the

marshals showed up. I really appreciate you going into the detail.

We asked the Centers for Medicare and Medicaid Services for a

spreadsheet on this, and they reported to us that there were 1,189

individual plans in my small State.

Now, of course they vary county by county because that is how

at least we get some assistance in place. But to me, the bottom line

is, unlike Medigap or even the traditional Medicare Advantage,

here we have no oversight on the way they do their business, no

scrutiny on quality or what kind of provider networks they have,

or even if there is a network in the first place.

So what I would like to ask you—this product is different than

Medigap. Maybe we will start with you, Ms. Politi.

Would it not make sense to take some of the principles from

Medigap: more standardization, easy disclosure, comparability? It

is a different product than traditional Medigap. But I think most

of the same common-sense principles of consumer protection can

apply here in private fee-for-service. Does that make sense to you

as somebody who is on the front lines?

17

Ms. POLITI. Actually, it absolutely does. There are 46 plans in my

five counties. Not all 46 plans are in all counties. The biggest problem that I have is, I have 10 pages of spreadsheets with the same

kind of information for all of the benefits, for all of the plans. I

would love to see, if these things are going to stay around, that the

benefits be standardized so that when I talk about one plan I can

talk about the other one and say this one has this, this one has

that.

My biggest concern, really, is the fact that every one of these

plans, with the exception of a few, has basically the same co-insurances and deductibles that exist under original Medicare, which

means that if a person has original Medicare they can pick up a

Medigap policy and they pay a premium which is standardized

every month, and all of their co-insurances and deductibles are

taken away.

With these plans, they can pay up to the $1,000 hospital fee.

They can pay the $120, $135 for skilled nursing facilities. Just

about every one of them requires the durable medical equipment

20 percent co-pay; with original Medicare it would be paid by the

beneficiary. There is no option, other than with the private fee-forservice to pick up another supplemental insurance, that will cover

those co-insurances. So even though the private fee-for-services

have no premiums for the most part, they still have to pay exactly

what they would have to pay with original Medicare, and that just

seems terribly wrong.

Senator WYDEN. Mr. Weaver, I am pretty sure that providers are

with the seniors on this. What is your assessment of that?

Mr. WEAVER. With the seniors from the perspective of their frustration. We deal with it every day. As I stated in my comments,

we have increased our business office staff significantly just to sit

and counsel—and there are other resources in the community as

well—patients about what they have gotten themselves into, the

best way to get out of it. One of the other interesting things in my

State of Mississippi——

Senator WYDEN. So moving towards more standardization.

Mr. WEAVER. Oh, absolutely.

Senator WYDEN. All right. Thank you.

Mr. WEAVER. If I could make one other comment.

Senator WYDEN. Please. Please.

Mr. WEAVER. For the first 2 years of these plans in Mississippi,

Mississippi Medicaid refused to coordinate benefits for patients

who were dually eligible. So for a patient who was dually qualified

for Medicare and Medicaid, who under traditional Medicare would

have had their co-pay and deductible for their hospital stay picked

up, when they switched over to these MA plans the patients found

out, much to their chagrin, that they are now responsible, a Medicaid-eligible patient, for co-pays and deductibles. That has now

been resolved in the State of Mississippi after a lot of complaining,

but it was a huge issue.

Senator WYDEN. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator, very much.

Senator Lincoln, you are next.

Senator LINCOLN. Thanks, Mr. Chairman.

18

To touch a little bit on what the Chairman had asked, and any

of you all can answer, Mr. Weaver, you talked about, from the provider’s standpoint—I have to say, my granddaddy was from Yazoo

City, MS.

But I have heard from some of the providers like yourself who

have been really frustrated with the length of time that it takes to

get the reimbursement from the private fee-for-service plans.

Maybe you might comment on the length of time that it is taking

for plans to pay. Do you see a trend in that? I mean, is there a

trend in terms of how much time it is taking them to pay? Where

do you think the issue falls in the priority for providers who choose

not to accept it? Maybe they are not reimbursing enough. But is

the timeliness an issue that is causing them not to contract with

them?

Mr. WEAVER. This is probably the biggest issue. Rural hospitals

and rural providers are different than our urban counterparts for

the most part, especially in poorer areas of the country like the

Mississippi delta. The money that we collect from Medicare and

other payors this week, in many cases, is literally what we use to

make payroll and pay our accounts payable to our vendors the next

week. It is embarrassing that you function on that narrow a margin, but that is just life in rural Mississippi for health care providers.

So when you take a plan, switching payments from Medicare for

15-day turnaround—we call it the bait-and-switch—where you

start dealing with these MA plans, and we never got your claim,

you did not submit a clean claim, we are not set up to take electronic claim submissions, and that is one of the big problems we

do face. The thing gets drug out forever. At the point that my billing folks are so frustrated that I have to take my time to start

making phone calls and being unpleasant with people, and suddenly we will seem to get paid. Many times it is 9 months or more

later.

Senator LINCOLN. Oh, that is phenomenal. That is definitely an

issue.

Mr. WEAVER. It does improve as the plans get set up. It seems

like early on there is a huge issue. Then they sort of get their act

together. They will get a little better about paying us, but nowhere

near what we are used to getting from traditional Medicare.

Senator LINCOLN. All right.

Ms. Politi, in your testimony you mentioned concerns that CMS

may be considering keeping funds that we have allocated to the

SHIP in the appropriations bills and the Medicare extender bills

that we have done. Maybe you could elaborate on this. I know

when we had our dual eligibles on the Medicare Part D, our SHIPs

were enormously helpful, our Area Agencies on Aging. We pulled

everybody into the fold to make sure that we did as much as we

possibly could to expedite what was happening there.

I think both a number of our colleagues here and outside the Finance Committee—I know I have—worked hard to increase the

funding for our SHIPs and for our AAAs for that reason, because

they are facilitators and they are helpful. As you mentioned, there

are others in the community besides what you all provide in counVerDate 11-MAY-2000 14:50 Feb 18, 2010 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 54435.000 SFIN1 PsN: SFIN1
19

seling, Mr. Weaver. But could you elaborate on some of your comments there?

Ms. POLITI. Well, the latest news bulletin I got is that that is no

longer an issue, that money will be distributed out to all the SHIPs

across the country. I do appreciate your support tremendously, because it has been an overwhelming job. Most of the SHIP counselors work part-time. We do not have consistent and stable funding, so therefore none of us can sit and say, well, in 5 years we can

grow our program and include more than one staff person most of

the time. I work in a nonprofit Area Agency on Aging at the moment and I basically get paid what I get through the SHIP program, and it is not a whole lot.

Senator LINCOLN. Right.

Ms. POLITI. My understanding is that CMS will go there. But I

would ask and would plead with you once again to make sure that

that funding stays in place and is consistently given out year to

year, and that maybe you might consider us for a cost of living increase also.

Senator LINCOLN. Well, we will keep a watch on it as well as you,

because I know our staff, particularly in our State offices—I mean,

I have one or two staffers who are devoted to working with these

individuals who have in many ways been duped, almost, into these

policies, and then all of a sudden find that their doctor of 30 or 40

years is not going to see them. Where do they go? How do they

change? And then spending the time with CMS to get them back

into traditional Medicare has been a nightmare. So we need your

help. We cannot do it all in our offices as well.

Ms. POLITI. Thank you.

Senator LINCOLN. You bet.

Ms. POLITI. We pretty much enjoy what we are doing.

Senator LINCOLN. Good.

Dr. Miller, just a quick question. Senator Grassley brought up

the issue of the plans without networks and why that is important,

or why it is not important, or whether it is working or not. There

has been some argument as well in terms of the right to life, that

the plans have to be without networks so that life-sustaining or

lifesaving treatment will not be withheld. I have some concern

about that and would love to hear what you all have found, if anything. Is there evidence of care rationing to any degree in any of

the Medicare Advantage plan types, like the HMOs or others? Do

the beneficiaries who enroll in them seem to be satisfied with those

plans?

Dr. MILLER. Yes. I think satisfaction on the part of the beneficiaries is relatively high in managed care plans across the board.

Some of that might be expected, given the fact that, if they get additional benefits and they can kind of go into a plan with a zerobased premium, they often are satisfied.

Senator LINCOLN. Of course, their costs when they actually seek

services——

Dr. MILLER. That is a different thing. That is where I was going.

When you look at a plan, and a plan, say, has a zero-based premium or an out-of-pocket cap, you think this is a good deal. I have

to say, for many beneficiaries, let us be clear. We are talking about

additional benefits, so they are getting extra benefits and they are

20

happy about it. But what has happened, and I think there are people at the table who are much more versed in this than I, is you

can change the benefit structure.

So we have found things like Part D cancer drugs, very high coinsurance amounts, higher than traditional fee-for-service, or copayments for inpatient days. So depending on the patient and their

particular health status, they might find themselves in a plan that

has a cost sharing structure that they had not anticipated.

Senator LINCOLN. Well, I just know from our experience in Arkansas, we are seeing anywhere from 16 to 19 percent in terms of

additional costs over the traditional Medicare fee-for-service. So my

hope is that we will get some more efficiency in the plans if they

are going to continue to be marketed. Our next hearing will be on

the marketing aspect of that, so I will not go into that today.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator Lincoln.

Senator Cantwell?

Senator CANTWELL. Thank you, Mr. Chairman.

Dr. Fisk, thank you for traveling here from the Pacific Northwest. Are you seeing other providers in the region making the

same decision that you have made in not accepting private fee-forservice?

Dr. FISK. Yes. There are several that are doing this. I mean, for

example, the Polyclinic in Seattle has done the same thing, and

there are a number even outside the State that have contacted us

to understand the process that we have gone through of giving patients 15 months’ notice. So, I know there are a lot of organized

groups that are thinking that and will be doing this in the future.

Senator CANTWELL. Could you elaborate? I know Senator Grassley asked you about this issue of private fee-for-service and its incompatibility with coordinated care, but could you give us a specific

example of how that impacts the Everett Clinic or an example of

a certain type of care that ends up costing more to the system because you do not have that continuity with private fee-for-service?

Dr. FISK. Sure. First of all, we treat all our patients the same,

so even if they are in a private fee-for-service plan we are not going

to treat them differently. It is just a question of figuring out a way

for us to afford to do what is right.

Examples would be, we have a hospital coach, a nurse who visits

every patient as they are about to leave the hospital to make sure

they understand their diagnosis and understand the medicines

they are on, and then makes sure they have a follow-up appointment with their primary care physician.

Another example is, we have nurse case managers for the most

complex sick patients to try to coordinate their care optimally. Another example is that we have multi-disciplinary teams of physicians and nurses and other individuals that work on specific diseases, like diabetes or coronary disease or asthma, to figure out

how to improve our quality. That all costs us money. Then last of

all, we have a dedicated team of physicians and nurse practitioners

that cares for our patients who are in skilled nursing facilities, because those people these days are pretty ill. On that alone, we lose

$200,000 annually.

21

Senator CANTWELL. Not to interrupt, but is that where you see

the biggest costs, if you had to say where they were across the

board? Is it for the elderly in nursing care?

Dr. FISK. Well, that is just one. I mean, I think the problem is,

as you well know, that Medicare in the State of Washington pays

maybe 60 percent of commercial payment for taking care of the

most complex sick patients. It is hard to make it pencil out. That

is why we appreciate the Medicare Advantage HMO and PPO

plans, because they share some of that increased funding with us.

Senator CANTWELL. Dr. Miller, we obviously are seeing a great

proliferation of these plans in the market, the private fee-forservice. I think, for example, in Spokane County—Spokane is the

second largest city in our State—there were 22 private fee-for-service plans a year ago, and that number has jumped to 45 this year.

The same for King County—where Seattle is located—which saw a

jump from 22 to 39.

So what is going to happen if more patients are lured into these

private fee-for-service plans who do not pencil out economically to

providers and more providers like the Everett Clinic make these

decisions not to do business with them? What is going to happen?

Dr. MILLER. Well, I mean, I think there are at least two reactions

to that. I mean, our concern also is that, in general, we now have

across the country an average choice of 35 plans per county, just

about in every county in the United States. To the extent that it

increases—and private fee-for-service is rapidly growing just like

you said—you are going to get more people enrolled in these plans.

The first thing I would say, and I tried to say this in my opening

comments—and it is not quite to your question—is we are going to

be paying more and more for these plans out of Medicare generally

and we are going to start to encounter the fiscal stresses that come

from that: trust funds being exhausted, 45-percent trigger being

hit, beneficiaries paying higher premiums. More and more, we are

going to be in these kinds of meetings, discussing what to do about

Medicare spending.

To the extent in these plans we sort of hope money moves down

to the provider, to the penciling it out point, we pay the managed

care plans. The managed care plans have an administrative structure, marketing, profit, then they pay additional benefits to the

beneficiary, and then if they choose, they pay more to the provider.

So, if our concern here is to pay more to providers—and I will not

go into this in detail—we have whole sets of recommendations that

we have not discussed here in MedPAC to try to move money out

into the fee-for-service sector, and it is very much what Dr. Fisk

was talking about.

If we could reward providers on the basis of higher quality, the

efficiency, the coordination of care—and I am blowing through

things very quickly here because I know you have a time limit—

that is how we think the type of practice of medicine that Dr. Fisk

is talking about should be rewarded. We have tried to make recommendations for the last 3 years in fee-for-service to move that

money out to reward providers who do that type of work.

Senator CANTWELL. And HMOs are doing that. Is that correct,

Dr. Fisk?

22

Dr. FISK. Yes. They do share some of the increased funding with

us.

Senator CANTWELL. Thank you.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator.

Next, is——

Senator ROCKEFELLER. Senator Rockefeller.

The CHAIRMAN. You are right. Senator Rockefeller. [Laughter.]

Welcome back to the committee.

Senator ROCKEFELLER. Thank you.

The CHAIRMAN. Welcome back to the committee after all of your

intelligence and FISA work.

Senator ROCKEFELLER. Yes. Yes. Yes.

A couple of questions, one taking off of what Senator Lincoln was

talking about. Just, when you read this, these private fee-forservice plans are proliferating in rural counties, and I think in

West Virginia, this cannot be. They are more expensive, whatever,

whatever, whatever, whatever. It does not make sense to me. The

idea—and Senator Lincoln began to advance it—was that we started this in 1997 and then we took off some of the regulations, I

guess, in 2003 or something of that sort. The Right to Life movement was very active in promoting all of this because they did not

want to see anything done with euthanasia.

Now, I have no way of understanding any of this, but I am mystified by why a poor county in rural West Virginia would be attacked by these plans. Dr. Miller?

Dr. MILLER. Yes. May I take a shot at that, unless somebody else

wants to.

Ms. POLITI. I would like to take a shot, too.

Senator ROCKEFELLER. Quick shots.

Ms. POLITI. A very big quick shot. Buckshot.

Dr. MILLER. All right. I think what the history here is that, when

managed care was growing very rapidly in the mid-1990s, it was

the concern that many, many people would be enrolled in managed

care and there was a concern that there should be an option that

you could go into in which people would not make decisions about

the type of care that you get, that it would not be managed. The

private fee-for-service option was created at that time to say there

will be such an option, and the beneficiary, if they choose to go

away from managed care, would go into this plan and pay the difference so that no management of my care would occur.

When the MMA came along, the law changed. What happened is,

instead of the beneficiary payment difference, the program stepped

in and paid that difference. So what we created was a mechanism

where the managed care—and this is true of managed care plans

generally and private fee-for-service plans too—program subsidized

additional benefits, but the private fee-for-service mechanism is

this ‘‘no managed care’’ mechanism. So the history was, it was not

supposed to be a managed care plan. It was explicitly in law not

managed care and the beneficiary was to pay the difference, but

now the program is paying for the difference.

I am getting that look like I did not answer the question.

Senator ROCKEFELLER. No, you did not, but it was still interesting. [Laughter.]

23

Dr. MILLER. I get a lot of that. [Laughter.]

Senator ROCKEFELLER. Your shot.

Ms. POLITI. All right. I will see if I can answer this one. I think

there are a couple of key words in how quickly these plans would

proliferate, and one of them is ‘‘free.’’ When a salesperson comes to

you and says I have the greatest thing that could ever happen to

you and it is not going to cost you anything, most people in rural

communities have a problem paying what they have now, and

‘‘free’’ sounds even better than fruit, especially if they are having

problems paying for their medications and their fuel bills and getting from their little house on the top of the hill down to wherever

they are going to get services.

A lot of people in my area go from Radford, VA all the way into

Richmond, which is a 4-hour one-way trip, to get their health care.

That is an entire day to see one doctor. So when somebody says

‘‘free,’’ this is the best thing since ice cream. Once they get in it——

Senator ROCKEFELLER. It is. The second question really perplexes

me, and either of you can answer it. Two, I remember a fight, and

the President did not want to do this and was very abrasive about

it, on dual eligibles. West Virginia has a whole lot of dual eligibles.

These are the poorest of the poor that quality for both Medicare because of their age, and Medicaid because of their lack of income.

Private fee-for-service is making specific inroads into dual eligibles.

That, to me, is unconscionable. But I want to make sure that you

feel that that is the case.

Ms. POLITI. It is unconscionable. When a person gets all of their

services through Medicaid and Medicare, I have a hard time justifying why they need to go into another form of administration and

pay situations where Medicaid may not pay that provider and the

beneficiary ends up with a co-payment when they would not have

had one in the past. That is probably the hardest thing that I have

to educate dual eligibles on because a lot of them are not highly

educated.

Senator ROCKEFELLER. No.

Ms. POLITI. They may not even have a good grasp of the English

language. So trying to tell them that they just joined a plan that

is not going to pay what they got with Medicaid and Medicare is

ludicrous. It is absolutely ludicrous. It does happen. It happens

more often than not.

Senator ROCKEFELLER. That alone is a reason to eliminate that

whole program.

Ms. POLITI. I have a university in Virginia that is sponsoring a

dual eligible Medicare Advantage plan. They are targeting the fully

dual eligibles. When the salesperson came to talk to me because

she thought this was a great plan, my question to her—and I do

this all the time—is, why should the university get the additional

funds to provide services that would normally happen under Medicare and Medicaid? Why do we need another set of administrative

levels to provide the same services that are being done efficiently?

And even more so, if we had more money to support Medicare and

Medicaid, why bring a third party in?

Senator ROCKEFELLER. When you talk to them, do you go to the

press afterwards or do you just hold your counsel?

24

Ms. POLITI. No, I do not do that. I send them away and I tell

them that if they can answer my question, I will be more than

happy to introduce them to people who might benefit from their

services. But they never come back, so I do not think they can come

up with a good excuse.

Senator ROCKEFELLER. Thank you.

Senator Stabenow?

Senator STABENOW. Thank you very much. Thank you to each of

you for being here.

In my State, most of the private fee-for-service plans are in a

group market. I am wondering, Dr. Miller, have you found any differences between the group market and the individual market in

looking at this and how they are operating, or costs, concerns?

Dr. MILLER. Well, the data that I have suggests that—I think

this might answer your question. I am not doing too well here.

[Laughter.]

Senator STABENOW. But make it interesting. [Laughter.]

Dr. MILLER. Good one. All right.

What we do find is that employer plans across the Nation—so I

am not speaking of Michigan specifically—tend to have higher bids

for any of the plan types. So we are seeing—and this is a point that

I was trying to make in my opening statement, or somewhere along

the line—and we are concerned that the same incentives to hold

premiums down, because you are trying to attract beneficiaries, are

not present in the employer market, that in fact the pressure may

be much less. You come in with a high bid so that then, as a plan,

you can go to an employer and say, I can offer you a lot of benefits

and I might be able to buy out some of what you are currently paying.

So one of the concerns we have—and I do not have hard evidence

on this except that employer plans’ bids tend to be pretty uniformly

higher—is that the same economic pressures to restrain costs do

not exist in those markets when they bid.

Senator STABENOW. When we talk about the higher payments

and over-payments, and of course, you have very eloquently talked

about how that impacts the Part A trust fund and what that means

for other beneficiaries as well, but when we look at this, these

types of plans are not required to provide quality data.

Dr. MILLER. Private fee-for-service.

Senator STABENOW. Right. Private fee-for-service. Or offer chronic care improvement plans which other MA plans are required to

do. Again, in our own Michigan experience, Blue Cross/Blue Shield

does in fact provide chronic care management, but it is not required to do that. I am wondering, when we look at the fact that

the Urban Institute says 20 percent of Medicare beneficiaries have

five or more chronic conditions—we all know this—and account for

over two-thirds of Medicare spending, as we look at all of this,

what are your thoughts about adding benefits that they are required to provide to beneficiaries at this point if they are receiving

more dollars? We can certainly address the whole issue of their receiving more dollars, but they are not even required to provide additional services with those dollars.

Dr. MILLER. Well, they are required to take a portion of the

money that comes back to them and provide additional benefits,

25

but you are correct that there is no specific set of benefits that they

have to require.

Senator STABENOW. So they are, in general, required.

Dr. MILLER. Yes.

Senator STABENOW. But it is not focused on chronic care management.

Dr. MILLER. It does not say you have to do this or you have to

do that. In fact, the tension there is, do you want to be specific and

say, ‘‘here are our sets of benefits you have to provide.’’ What some

of the thought of private plans is in innovation, so that the plan

can kind of innovate different types of coordination strategies for

controlling costs and improving quality. The way I would answer

your question is, what the Commission’s view of this is, look, set

the payment at a rate that drives efficiency. And not just managed

care plans, but fee-for-service, too. We are only talking about managed care here, but that is our principle in fee-for-service as well.

Then this is what managed care was supposed to be about: I take

the risk, I get this payment, and then what I do are some of the

things, for example, that Dr. Fisk was referring to, where I coordinate care, I avoid hospital readmissions, I manage beneficiaries

with multiple conditions by making sure when they are discharged

from the hospital they know what their follow-up care is, because

as a matter of course it is good clinical and business sense. That

is what the managed care plans were supposed to be about. But we

are paying more than that and then not saying that you have to

do a particular set of benefits.

Senator STABENOW. And finally, when folks from Michigan found

out we were doing this hearing today, I received an e-mail from one

of our hospitals about private fee-for-service and the concerns they

have because of the deeming process. The e-mail basically indicated

that this particular plan was not allowing patients treated in the

hospital to see the hospital’s orthotic or prosthetic services division.

They said they can be down the hall receiving services from the

physician, therapy, or clinic services, but then have to leave and go

to another provider to get these other services.

I am wondering, when there is a conflict at this point, is there

any mechanism for resolving disputes? Should CMS have some

kind of a system that would resolve disputes, with accountability

as it relates to these kinds of decisions?

Dr. MILLER. I am not sure I can speak to whether there is a

mechanism at CMS to resolve these disputes. I do not know if anyone else on the panel can.

Senator STABENOW. And right now, what happens in this circumstance, the patient just has to abide by the decision. Correct?

Ms. POLITI. If I can comment on that.

Senator STABENOW. Yes.

Ms. POLITI. Ten years ago, I found it a lot easier to deal with

HMOs and PPOs to try to get appeals filed and get health care decisions worked out so that best practices could be followed. I find

it very difficult to find the appropriate person in these private feefor-services. One plan, they have six different plans. One insurance

company may have six different plans. My experience has been,

there are different people for each one of these plans who do one

of these things, and trying for me, as a coordinator, a SHIP coordiVerDate 11-MAY-2000 14:50 Feb 18, 2010 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 54435.000 SFIN1 PsN: SFIN1
26

nator, to negotiate to try to find that right person that I need to

talk to, is virtually impossible. I end up going to CMS.

Senator STABENOW. Thank you.

Senator ROCKEFELLER. It is a sad way to end up a question.

Senator STABENOW. I know. Does anyone else want to respond or

have a suggestion?

Ms. POLITI. Can I add one comment, please?

Senator STABENOW. Yes.

Senator ROCKEFELLER. Yes.

Ms. POLITI. Yesterday afternoon before I came down here, I received a letter from one of the people that I work with from

Humana. If you want copies, I brought the letter. Humana wrote

to this person, who lives in the Meadows of Dan. Meadows of Dan

is kind of exactly what it sounds like. Their closest pharmacy is 14

miles away. Humana wrote to them and told them that this individual pharmacy out in the middle of nowhere was being dropped

from the preferred network, that they would have to go out and

find another: ‘‘You can choose from a wide variety of pharmacy

chains, as well as many independent pharmacies.’’

The next pharmacy closest to this person was 18 miles away. It

does not sound like much, but it is an additional eight-mile round

trip to go to this other pharmacy. My question to you all is, does

this person pay the additional fuel costs to get the discounted price,

the deep discounted price, or do they continue going to their local

pharmacy and pay the increased pharmacy price? That is it.

Senator ROCKEFELLER. That is a better way to end up the question.

Ms. POLITI. Well, that is one for you to resolve for me, please.

Senator ROCKEFELLER. All right.

This has been very helpful and very useful, as hearings tend to

be, because you are talking to people who are on the ground and

who understand exactly what the consequences are. So, I thank

you all very much.

The hearing is adjourned.

[Whereupon, at 11:32 a.m., the hearing was concluded.]

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