Table Of Content

Report to Congress by the Competitive Pricing Advisory Committee of the U. S. Department of Health and Human Services January 19, 2001 3 Competitive Pricing Advisory Committee Reportto Congress Table of Contents Executive Summary Iv Chapter 1. Introduction tothe Congressional Report, including A Summaryof Lessons Learned 1 1.0 Introduction 1 1.1 Historyof the MedicareCompetitive Pricing Demonstrations, 1989 - 1999 3 1.1.1 Baltimore, 1996 4 1.1.2 Denver, 1997 5 1.1.3 The BBA-mandated demonstrations: Kansas Cityand Phoenix, 1999 6 1.2 General lessons ofthe Competitive Pricing Demonstration to date 1 1.2.1 Designing and implementing competitive pricing 14 1.2.2 Education, communications, and building consensus 16 1.2.3 Providing information critical tothe Medicare reform discussion 20 1.2.4 Solving whatwas, within the constraints of the demonstration, the main problem with competitive pricing: political opposition 20 1.3 Conclusion 26 Chapter2. Including Fee-for-Service Medicare in theCompetitive Pricing Demonstration....28 2.0 Introduction 28 2.1 What does it mean to incorporatefee-for-service in the demonstration? 30 2.2 Linking traditional FFS and M+C rates in the CPAC demonstration design: reimbursementcaps and premium rebates 30 2.3 Howto incorporate FFS more completely 31 2.3.1 The political challenge 32 2.3.2 Howwould FFS Medicare participate in a Competitive Pricing Demonstration? 33 2.3.3 On what benefit package would FFS Medicare bid? 33 2.3.4 How should the government's contribution to premiums and beneficiaries* out-of-pocket premiums be determined? 36 2.3.5 How"level"can the playing field be? 38 2.4 Summaryand possible changes in demonstration design 39 2.4.1 Ensure thatthe FFS bid is less than the governmentcontribution to premiums 41 2.4.2 Lump-sum payments to hold the demonstration area harmless 42 2.4.3 Lump-sum payments and a suspension of budget neutralityto hold beneficiaries harmless from financial impacts of the Demonstration 42 Chapter3. The Nature and Extent of Quality Monitoring Activities 45 3.0 Introduction 45 3.1 Background: currentquality reporting and monitoring requirementsfor M+C plans and FFS providers 46 3.1.1 Quality monitoring of Medicare+Choice organizations 47 3.1.2 Quality-related data collection from fee-for-service providers 50 3.2 The Competitive Pricing Demonstration: content and costof added reporting and monitoring requirements for M+C plans 53 3.2.1 Basic monitoring and reporting requirements 53 3.2.2 Quality incentive pools 53 3.3 Answersto Congress' questions 55 3.4 Other quality monitoring and reporting in the demonstration 56 3.5 Conclusion 56 January 19, 2001 Page ii Competitive Pricing Advisory Committee Reportto Congress Chapter4. A Rural Demonstration ofCompetitive Pricing in Medicare 58 4.0 Introduction 58 4.1 Problems with the BBA mandate 59 4.1.1 What is "rural"? 59 4.1.2 What is the"problem" in rural areas? 59 4.1.3 Can competitive pricing help? 60 4.2 An achievable objective 61 4.3 Implementation 62 4.3.1 Altering the level of paymentto M+C plans 62 4.3.2 Altering the structure of payments to M+C plans and FFS providers 63 4.4 Summary 67 Appendix 70 Introduction and general market areacharacteristics 71 I Medicare managed care data 71 II III Medicaid managed care data 76 IV Commercial managedcare data 78 A Commercial enrollment 78 B Relationship between presence in an HMO service area and commercial enrollment in counties with commercial data 79 C Relationship between commercial and Medicaid managed care enrollment in counties with commercial data 80 Chapter 5. The BenefitStructure 81 5.0 Introduction 81 5.1 CPAC and AAC decisions about the benefit package 82 5.2 Requiring a standard benefit packageof all plans 84 5.3 Expanding producerandconsumerchoice: unlimitedsupplements, benefit enhancements by low bidders, and mid-cycle corrections 86 5.4 CPAC action on alternatives to allow high-bidding plans to avoid charging a premium 87 5.4.1 Waiving nuisance premiums 88 5.4.2 Allowing high-bidders to take a reduction in reimbursement 88 5.4.3 Allowing high-bidders to reduce elements of the standard benefit 89 5.5 Setting the level ofthe benefit 90 5.6 The role of the AACs in setting the standard benefit package 92 5.7 Benefit structure issues: summaryand conclusion 95 Chapter 6. Recommendations 102 January 19, 2001 Page iii Competitive Pricing Advisory Committee Reportto Congress Competitive Pricing Advisory Committee Report to Congress Executive Summary Medicare has provided capitated payments for managed care services since the mid- 1980s. These capitated payments are administrative prices, based on calculations from Medicare's fee-for-service administrative records. These administrative prices have been criticized by virtually all serious observers from the beginning of the program. Competitive pricing is one promising alternative that - if it worked well - could set equitable and efficient prices. It could give beneficiaries the assurance of clearer plan choices, more adequate and more stable benefits, and improved quality. To confirm that it works well in the Medicare setting, a series of demonstrations have been attempted, first in Baltimore (1996), then Denver (1997), and most recently in Kansas City and Phoenix (1999). In each case, political opposition and Congressional intervention (in one case aided by judicial action) stopped these tests before they began. The Kansas City and Phoenix tests had special legislative authority. Under the Balanced Budget Act of 1997 (BBA, Public Law 105-33, Section 4011), the Department of Health and Human Services (DHHS) was required to establish at least four (and up to seven) competitive pricing demonstration projects forMedicare+Choice (M+C) plans. At least one ofthe initial fourprojects was to be in a rural area. The BBA also required DHHS to set up a national Competitive Pricing Advisory Committee (CPAC) comprised of national experts and stakeholders. The CPAC was tasked to select the demonstration sites, to advise DHHS on the design of the demonstration, and to make recommendations on monitoring and evaluating the demonstration. Area Advisory Committees (AACs) composed of local interests in each site were to assist in implementing the CPAC design and adapting it to local circumstances. The demonstration was required under the BBA to be budget neutral in each site each yearofthe demonstration, an important constraint. When Congress stopped the BBA demonstrations in 1999, it also required the CPAC to answer a series ofquestions about how the competitive pricing demonstration might best be done, concerning: (A) Incorporation ofthe original Medicare fee-for-service (FFS) program into the project. (B) The nature and extent of the quality reporting and monitoring activities that should be required of plans participating in the project, especially in comparison to traditional Medicare fee-for-service (FFS). (C) The challenge of initiating a project site in a rural area, and recommendations on howthe project might best bechanged sothat such a site is viable. January 19, 2001 Page Iv