Payment Reduction and Medicare Private Fee-for-Service Plans by ProQuest


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									                    Payment Reduction and Medicare Private

                             Fee­for­Service Plans

                     Austin B. Frakt, Ph.D., Steven D. Pizer, Ph.D., and Roger Feldman, Ph.D.

   Medicare private fee-for-service (PFFS)                         Payment Advisory Commission, 2007b). In
plans are paid like other Medicare Ad­                             particular, they are not required to manage
vantage (MA) plans but are exempt from                             care or establish networks of providers. In
many MA requirements. Recently, Congress                           addition PFFS plans must pay physicians at
set average payments well above the costs of                       least the same rate as traditional Medicare
traditional fee-for-service (FFS) Medicare,                        (Blum, Brown, and Frieder, 2007; Miller,
inducing dramatic increases in PFFS plan                           2008). Because PFFS plans do not build
enrollment. This has significant implica­                          networks, they have been willing to enroll
tions for Medicare’s budget, provoking calls                       beneficiaries in rural areas that other MA
for policy change. We predict the effect of                        plan types avoid due to the high costs of
proposals to cut PFFS payments on PFFS                             network contracting in those areas.
plan participation and enrollment. We find                            The Medicare Prescription Drug, Im­
that small reductions in payment rates                             provement, and Modernization Act of 2003
would reduce PFFS participation and en­                            (MMA), best known for establishing a
rollment; if Congress reduces payments to                          Medicare outpatient drug benefit, also
traditional FFS levels it would cause the vast                     made significant changes to the MA pro­
majority (85 percent) of PFFS plans to exit                        gram. In the MMA, Congress created
the market.                                                        conditions favorable for rapid growth of
                                                                   MA plans in general and PFFS plans in
introduCtion                                                       particular. Between 2005 and 2006, PFFS
                                                                   enrollment increased 932 percent, while
  MA is the Medicare Program that pays                             overall MA enrollment grew 37 percent
private plans capitated rates to insure                            (Gold, 2007a, 2008). The Congressional
beneficiaries. The most familiar MA plan                           Budget Office (CBO) estimates that Medi­
type is the HMO, but the program also                              care spending on PFFS plans will increase
includes preferred provider organizations                          as a proportion of total MA spending from
(PPOs) and PFFS plans. PFFS plans                                  21 to 30 percent between 2008 and 2017
assume risk like other MA plans but do not                         (Orszag, 2007).
employ all the cost control mechanisms                                Increases mandated by the MMA and
required of other MA plan types (Medicare                          prior legislation have pushed payments
                                                                   to MA plans, including PFFS plans, well
Austin B. Frakt and Steven D. Pizer are with the VA Boston
Healthcare System and BU School of Public Health. Roger Feld­
                                                                   above average per beneficiary costs for
man is with the University of Minnesota School of Public Health.   traditional FFS Medicare. Payments are
The research in this article was supported by Grant Number
63744 from the Robert Wood Johnson Foundation’s Changes
                                                                   especially high relative to FFS expenditures
in Health Care Financing and Organization Initiative. The state­   in counties that were subject to the rural
ments expressed in this article are those of the authors and do
not necessar
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