Hearing on the Medicare+Choice: Lessons for Reform

May 1, 2001

I. INTRODUCTION

Good afternoon Mr. Chairman and members of the Committee, I am William L. Roper, Dean of the School of Public Health, The University of North Carolina at Chapel Hill. Today, I hope to contribute to the Committee's dialogue from the perspective of one who has served as HCFA administrator as well as an individual who has interacted with the agency as a chief medical officer for an organization regulated by the agency.

Prior to my current post at UNC Chapel Hill, I was the senior vice president for Prudential HealthCare where I was responsible for medical management and other services supporting Prudential's health plans nationwide, including their Medicare+Choice plans. In this role I observed first-hand the intricate web of HCFA's regulatory processes and the inefficiencies and burdens they can create.

Before my tenure at Prudential, I served as the Administrator of the Health Care Financing Agency (HCFA) under President Reagan. During this time, I was responsible for managing Medicare and Medicaid through a period of significant change in these programs.

My thoughts about giving Medicare beneficiaries choices are long-standing. In 1987, I wrote an article for the Wall Street Journal editorial page on this subject entitled, "Medicare's Private Option." My message was simple: keep traditional Medicare intact, but increase choices available to Medicare beneficiaries by expanding the role of private sector health plans. At that time I wrote--and still believe today--that private plans, including managed care and indemnity plans, should compete with the traditional program on the basis of quality and cost. I oppose forcing older Americans to leave traditional Medicare in favor of private health plans. What I support is giving them choice. Do not take away the current Medicare system--just give beneficiaries more choices.

When I served at HCFA, we believed that well-managed private health plans offered an attractive alternative to traditional Medicare coverage. We were committed to giving private health plans a fair opportunity to compete and letting beneficiaries decide what option works best for them. Under this vision for Medicare reform, we at HCFA advocated a Private Health Plan Option, or PHPO, based on five goals:

(1) Ensuring appropriate access to quality care;

(2) Increasing incentives for efficiency;

(3) Reducing government's role in deciding how much to pay for individual health care services;

(4) Reducing government's role in micromanaging medical practice; and

(5) Expanding the range of choices available to both Medicare beneficiaries and health care providers.

These five goals--quality, efficiency, less government involvement in unit pricing and practice decisions, and more choice--might be useful to the Committee as guiding principles as you consider how to modernize Medicare.

II. MEDICARE+CHOICE NEEDS THE RIGHT REGULATION, NOT MICRO-REGULATION

As the Administration and Congress consider options for modernizing the Medicare program, it is critically important for decision-makers to ensure that the program has a strong administrative infrastructure that puts beneficiary interests first. To achieve this important goal, HCFA should adopt a new vision--a vision that places a strong emphasis on building cooperative partnerships with health plans, health providers and other private sector partners.

The goal of policy makers should be to create a more effective and efficient administration of the Medicare+Choice program. This includes a balanced approach to regulation that:

· Stimulates growth and innovation in Medicare+Choice, and provides the maximum benefit and choice to the population it was designed to serve. The healthcare system is evolving rapidly and the framework that regulates Medicare+Choice needs to be flexible enough to allow health plans to respond to these changes with new and advanced techniques in order to optimize beneficiary services and choices and improve quality.

· Sets priorities for policy-making based on the costs and benefits of different regulatory options. The costs of compliance are opportunity costs borne directly by Medicare beneficiaries. For every dollar Medicare+Choice plans spend on regulatory compliance, there is one dollar less to spend on enrollee benefits. Adding or changing program regulations should be considered in this context. Also, periodic assessments should be made to ensure that the benefits of compliance requirements exceed their costs.

· Embraces flexible regulatory strategies for achieving program goals. Health care is a dynamic industry where technologies to manage information, improve the delivery of services, and control costs are constantly evolving. A regulatory framework should promote, rather than impede these efforts. For example, the implementation of HCFA's risk adjustment approach is making excessive demands on Medicare+Choice organization resources and their provider partners that are not necessary to achieve the initiative's purpose. The approach is based on collection of 100% encounter data from inpatient and outpatient settings and requires Medicare+Choice organizations to develop all of the systems and staffing necessary to process claims in the same way as the fee-for-service Medicare program. The current system is extremely burdensome, costly and error-prone and needs complete re-evaluation.

· Builds upon and utilizes existing, successful public and private sector initiatives. An efficient regulatory framework will build upon existing and successful private sector oversight models and encourage the development of private sector best practices that can dovetail easily and effectively with program regulations. All too often we have seen a "not invented here" mentality in public programs that can impede the fulfillment of program goals.

III. RECOMMENDED COURSE OF ACTION

Based on these four principles of effective and efficient program administration, I recommend a four-point course of action:

1) Create a single office for oversight of the Medicare+Choice program. Medicare+Choice currently is governed separately by three HCFA Centers - the Center for Health Plans and Providers, the Center for Beneficiary Services, and the Office of Clinical Standards and Quality. The result has been a complex and needlessly confusing policy making process. All Medicare+Choice oversight responsibilities should be consolidated into one single center.

2) Streamline oversight responsibilities. The Medicare+Choice program is hindered in its efforts to serve beneficiaries because, since its inception, there has been a fragmented administrative structure that has been unable to set priorities or develop a clear, effective administrative strategy. The result has been a micromanaged and constantly changing regulatory environment that places equal - but arbitrary - emphasis on every requirement. Medicare+Choice needs right regulation, not micro-regulation.

Priorities should be established for the Medicare+Choice program for the balance of 2001, and each year thereafter, to reduce the number of regulations and focus HCFA and Medicare+Choice organizations on ensuring beneficiary rights and plan accountability. For example, there should be an immediate reexamination of the numerous and duplicative plan audits and the site visit schedule should be converted to a two-year schedule. A new oversight approach should be implemented that reduces reviews of organizations that are performing well, and concentrates on those organizations that merit closer review.

3) Improve decision-making. HCFA's decision-making process involves many different parties at varying levels of seniority and in different Centers. Despite creation of cross-Center task forces, the complexity of this process and the lack of clear decision-making authority below the level of the Administrator's office results in delays that are frequently costly to M+C organizations and disadvantageous to beneficiaries. HCFA should consolidate and simplify its decision processes to respond quickly and correctly to the rapidly changing health care environment.

4) Create consistency between HCFA Central and Regional offices. M+C organizations across the country frequently receive different instructions and policy interpretations from the ten HCFA Regional Offices and the HCFA Central Office. Regional Office Administrators and HCFA Center Directors report directly to the HCFA Administrator with no direct authority on the part of the Centers to require consistent implementation of Central Office policies in the Regions. HCFA should establish communication procedures to ensure that the Agency and its regional offices speak with one voice.

There are, no doubt, many specific recommendations that would improve the administration of the Medicare+Choice program. I have mentioned only a few.

It is important to note that these administrative changes, which can be implemented quickly to improve the regulatory environment in Medicare+Choice, do not speak to payment issues or other legislative matters health plans must face as they determine the future of their participation in the Medicare+Choice program. Administrative reform is only one element of a comprehensive reform package that places the Medicare+Choice program on a pathway of sustainable growth.

However, I would be remiss if in addition to the administrative issues I have described, I didn't address the issue of payment. Adequate payment is critical in order to attract health plans. Any payment methodology that departs significantly, either up or down, from local fee-for-service spending will cause market distortions. If Medicare+Choice rates are held below fee-for-service levels--essentially impeding the ability of Medicare+Choice from competing in local markets with traditional Medicare--ultimately the market response will result in fewer options for beneficiaries--options that could provide them with additional benefits.

IV. CONCLUSION

The Medicare+Choice program has the potential to serve as a foundation for the Medicare program of the future. With its focus on beneficiary choice and private sector participation, the Medicare+Choice program is designed to offer Medicare beneficiaries similar health care options that are available to Americans who obtain their health coverage through the private sector. Unfortunately, the Medicare+Choice program has suffered because of payment issues and administrative burdens.

An opportunity exists now to create a new regulatory framework that will assist Medicare+Choice in fulfilling its promise of preserving and expanding health care choices for all Medicare beneficiaries.