Opening Statement of the Hon. Fortney Pete Stark, M.C., California

Hearing on the Medicare+Choice: Lessons for Reform

May 1, 2001

There are many lessons we can and should learn from Medicare+Choice. These lessons provide valuable insights about how to move forward with changes in the Medicare program. I think the most important lesson we can learn from the Medicare+Choice program to date is that it is not a program that will solve Medicare's ills. In fact, it has created a number of new problems, which include Medicare beneficiaries getting dropped out of their health plans on a yearly basis - something that was never experienced prior to the existence of Medicare+Choice.

I have no quarrel with making private plan options available to Medicare beneficiaries. In fact, for decades, Kaiser Permanente has provided health care for fully half of my constituents and most of them are happy with that care. When those people become Medicare-eligible, many of them - like my in-laws - insist on staying with Kaiser. I support making it possible for them to do so. However, the choice to enroll in a private plan should be just that - a voluntary choice. Medicare's policies should be neutral with respect to whether beneficiaries should enroll in such plans. The program's payment policy and other rules should neither discourage nor encourage enrollment in HMOs or other private plans. Yet, while neutrality is desirable, for years plans have been paid beyond their costs and used the excess payments to seek and maintain enrollment by offering extra benefits at no or low extra cost.

Both the General Accounting Office and HHS Office of the Inspector General have confirmed that actual payment rates for M+C plans have risen faster than per capita spending since 1997. Experts believe we are now paying the private plans at least 98 percent of fee-for-service costs, without taking into account risk selection. And remember, HMOs said they could provide savings to Medicare, which is why the rate was set at 95% of the fee-for-service rate in the first place. Those who argue that we should be paying the private plans the same amount that as the fee-for-service costs can rest assured, because in many instances we are already paying more. In fact, the only way most of these plans can survive is to bribe beneficiaries to give up freedom of choice by offering better benefits than the traditional program - usually in the form of prescription drug coverage, lower cost-sharing and coverage for preventive services.

The GAO estimated that HMOs were paid 21 percent more in 1998 than would have been paid under traditional Medicare to provide covered benefits to the HMO enrollees, resulting in excess payments -- relative to traditional Medicare -- of $5.2 billion. The GAO also found that plans which terminated their Medicare contracts in 2000 or 2001 spent 22 percent of their Medicare payments - equal to approximately $1,200 per patient - on additional non-Medicare benefits, including prescription drugs, preventive services and lower cost-sharing.

Another investigation by the HHS OIG found M+C plan administrative costs in 1999 of up to 32 percent. It found numerous questionable administrative costs that plans had submitted to Medicare for payment, including nearly $250,000 for one HMO's costs associated with meetings, more than $800,000 in lobbying costs for seven HMOs, and more than $48,000 in fines and penalties for late tax payments by two HMOs. Yet these same plans tell us they are underpaid. It simply doesn't add up -- for the taxpayers or for the beneficiaries.

Last year, Congress gave the M+C plans a payment boost of more than $12 billion over 10 years, not counting more than $20 billion in indirect increases that result from increased fee-for-service spending. Chairman Thomas took to the floor on October 26, 2000 to promise that "Every dollar that is added must be converted to benefits for individuals." He went on to say, "Let us remember that this is supposed to be not always for providers, it is supposed to be for beneficiaries." But a recent study by HCFA found that just four organizations returned to the program and more than 65 percent of the money is going to enhance provider networks.

While it is clearly important to have strong provider networks, is it really Medicare's responsibility to pay private plans more to contract with providers who generally already serve Medicare beneficiaries in the traditional program? While Medicare margins are generally quite comfortable for many providers, there is no doubt that some providers have signed unacceptably low contracts with private plans. But that's not the taxpayer's fault, nor it is Medicare's fault, nor is it the beneficiaries' fault. Yet all are paying the price as a result. Even so, I am willing to bet that providers will be in here later this year asking for more money. Accordingly, I hope that HCFA and the plans can document the increased provider rates that are being paid by the plans as a result of our most recent investment in the M+C program.

Another cry that we will no doubt hear today is that the M+C plans are over-regulated or inappropriately regulated by an organization that favors their so-called competitor, fee-for-service Medicare. That's pure hogwash.

Just an major employers run their various health plans - often ranging from fee-for-service to PPOs to HMOs - under one umbrella, so should HCFA. To argue that the agency favors one part of the program over another is ludicrous on its face. It would be inappropriate and inefficient to separate out the M+C program to a different regulatory agency. If you think we have trouble monitoring quality now, just try doing it across different agencies.

For years, plans have been asked to provide concrete examples of the regulatory burden. The most frequent complaint appears to be related to the requirement to collect encounter data. But surely many of the plans already monitor these data for commercial populations; if they are not, I believe it is not too much to ask that they do so now. After all, how do they deliver preventive benefits and run disease management programs? How do they coordinate care? How do they manage a business in the absence of this critical information? Shouldn't we instead be asking about the beneficiary burden of not properly risk-adjusted payments or adequately monitoring quality-of-care?

At the end of the day, this much is true: Despite an infusion of reform and resources, enrollment in M+C is about the same now as it was when this stage of the odyssey began in 1997. Industry consolidation has led to fewer plans participating in the program, but that trend is echoed in the private market, Medicaid and the Federal Employees Health Benefits plan, too. Plans freely admit that money is not always the problem. There are other issues that dictate plan participation.

I would say this experiment has failed, but for reasons other than those that will be given by some of today's witnesses. The creation of M+C was a solution looking for a problem, and it's now created one. Let's not repeat this mistake by taking the entire program down the road of radical restructuring in the name of reform. I look forward to today's testimony, and I thank the Chair.