Medicare HMO rates in for a reshuffling

New formula could affect practice management

Physician practices may see another round of patient benefit cutbacks, withdrawals from the Medicare Plus Choice managed care program, and miserly rate adjustments in provider contracts.

The Health Care Financing Administration’s recent announcement that next year’s federal payments to Medicare HMOs will increase only an average 2% drew a pointed response from the top HMO lobbyist. Karen Ignagni, president of the American Associ ation of Health Plans, commented in a press release that the small increase "amounts to a government-initiated benefit take-away."

With commercial health plans getting double-digit raises in their premiums from employers, Medicare managed care contractors feel as though HCFA is leaving them out in the cold.

The major reason for the proposed minuscule pay raise is that Medicare wants to change the way it establishes rates and pays HMOs. Instead of the basic age-, sex-, and location-based formula used to set risk rates, Medicare wants to make health factors the determining element in its payment policy. The basic idea behind HCFA’s revised rate structure is simple: It will pay more to care for sicker patients and less for healthier ones.

For instance, under the health-based approach, HMOs could receive more than $26,000 per year for each member with a severe disease, according to estimates from the American Society of Internal Medicine-American College of Physicians. How ever, those same plans also could see current payments drop as much as 20% for healthy members.

That means practices could receive better reimbursements rates from plans for treating those sicker Medicare patients. However, doctors with a healthier clientele might face a pay cut.

Because HCFA intends to take the next four years to phase in the new managed care rates, look for several more twists and turns.