MEDICARE +CHOICE AND MEDICARE BENEFICIARIES

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MONTHLY TRACKING REPORT ON

MEDICARE HEALTH AND PRESCRIPTION DRUG PLANS

May 2005

A Brief Summary of Selected Significant Facts and Activities This Month

to Provide Background for Those Involved in Monitoring and Researching

Medicare Advantage and Prescription Drug Plans

Prepared by Marsha Gold and Lindsay Harris, Mathematica Policy Research Inc.

as part of work commissioned by the Kaiser Family Foundation

PROGRAM STATUS: PRIVATE PLAN OFFERINGS, ENROLLMENT, AND CHANGE

From the CMS Medicare Managed Care Contract Report ():

|Plan Participation, | | |Same Month Last Year |

|Enrollment, and Penetration by type | |Change From Previous | |

| |Current Month: |Month | |

| |May 2005 | | |

| | | | |Change From May 2004 – 2005 |

| | | |May 2004 | |

|Contracts | | | | |

|Total |328 |+8 |287 |+41 |

|CCP* |188 |+6 |146 |+42 |

|PPO Demo |34 |0 |35 |-1 |

|PFFS |9 |+1 |4 |+5 |

|Cost |29 |0 |33 |-4 |

|Other** |68 |+1 |69 |-1 |

|Enrollment |  |  |  |  |

|Total |5,763,113 |+69,488 |5,333,467 |+429,646 |

|CCP* |4,930,578 |+50,021 |4,606,072 |+324,506 |

|PPO Demo |122,447 |+1,965 |97,769 |+24,678 |

|PFFS |99,445 |+11,314 |33,437 |+66,008 |

|Cost |327,044 |+1,208 |331,614 |-4,570 |

|Other** |283,599 |+4,980 |264,575 |+19,024 |

|Penetration*** |  |  |  |  |

|Total Private Plan Penetration |13.3% |+0.3% points |12.5% |+0.8% points |

|CCP + PPO Only |11.6% |+0.2% points |11.0% |+0.6% points |

* CMS’s Monthly Report does not distinguish CCP contracts by type. However the March 2005 GSA report indicates that of the 200 CCP contracts listed, 161 or 81 percent are for HMO products, with the remainder being PPO products separate from the PPO demonstration (33 contracts) or PSO contacts (6). Ninety-eight percent of CCP enrollees are enrolled in an HMO plan.

** Other includes Other Demo, HCPP and PACE contracts.

*** Penetration rates for April and May 2005 are calculated using the number of eligible beneficiaries reported in the March 2005 State/County File. Penetration rates for May 2004 are calculated using the number of eligible beneficiaries reported in the March 2004 State/County File.

DEFINITIONS: Coordinated Care Plans, or CCPs, include health maintenance organizations (HMOs), provider-sponsored organizations (PSOs) and preferred provider organizations (PPOs). PPO Demo refers to PPO demonstration plans. The Medicare PPO demonstration began in January 2003. PFFS refers to private fee-for-service plans. Cost plans are HMOs that are reimbursed on a cost basis, rather than receiving a capitated payment like other private health plans. Other Demo refers to all other demonstration plans that have been a part of the M+C / MA program.

Pending Applications

• There are pending applications for 122 MA plans, 9 PFFS plans, 3 PACE plans, 2 HCPPS plans and 6 Other Demo plans. Service area expansions are pending for 74 MA plans, 8 PACE plans, 5 PFFS plans, 11 PPO Demo plans, 6 Other Demo plans and 5 Cost plans.

• CMS’s report does not distinguish type of MA application (local versus regional, HMO versus PPO for example) and whether it is for a 2005 offering versus 2006. According to the timeline previously issued by CMS (), all new 2005 plans will be approved by June 1, 2005 (after which the 2006-2007 moratorium on new PPOs will apply).

Summary of new MA contracts announced in May:

• CMS’s Monthly Managed Care Contract Report (MMCC) for May 2005 indicates approval of 8 new MA contracts in May (6 for CCPs, 1 for a PACE and 1 for a PFFS plan). CMS’s reports do not distinguish among types of CCPs (e.g. HMO versus PPO). New contracts approved are:

• Leon Medical Centers Health Plans, Miami FL (new CCP)

• First Choice Health Plans of Ct. Inc, North Haven CT (new CCP)

• Health Alliance Medical Plans, Urbana IL (New CCP)

• Mid Rouge Independent Physician Association, Grants Pass OR (new CCP)

• Scan Health Plan, Long Beach CA (new CCP)

• Living Independence for the Elderly, Pittsburgh PA (new PACE)

• Humana Health Benefit Plan of LA, Inc, Metarie LA (new PFFS)

• The report also indicates approval of service area expansions for 11 plans.

NEW ON THE WEB FROM CMS

Relevant to Both Medicare Advantage and Prescription Drug Plans

• On May 10, 2005, CMS released Instructions for the Part D Payment Demonstration (cms.pdps/PmntNtcNRskAdjMdl.asp). Following up on a February 25, 2005 Federal Register notice, CMS’s demonstration authority will be used to help Part D plans provide supplemental prescription drug coverage in the face of the reinsurance provisions of the Part D benefit (e.g. True Out of Pocket Cost threshold calculations) that provide a disincentive for such offerings. All PDPs and MA-PDPs can participate except PACE, MA-PD employer-only plans, and employer-direct contract plans. Three options are detailed: a flexible capitated option, a fixed capitated option, and an MA rebate option. The supplemental benefits can reduce or eliminate cost sharing via the deductible, between the deductible and the coverage limit, and/or in the coverage gap. To meet the budget neutrality requirements, capitated payments will need to be reduced by at least $3.13 per member per year for the capitated option and $7.57 per member per year for the MA rebate option. Supplemental premiums will be required for costs beyond what is in the capitated payment. To accommodate the modified payment method, those in the demonstration will be required to follow different rules in submitting Part D event data because of their nonstandard benefits.

• CMS released a marketing timeline and data submission schedule on 5/10/2005 (Attachment 6 at cms.healthplans/marketing/marketingguide2006.asp) Industry Training on Marketing for MA, MA-PD, and PDP plans was to be offered on June 2-3, 2005 with CMS accepting marketing materials for CY2006 on June 7, 2005. Marketing for 2006 can begin October 1, 2005 and all 2005 marketing through public media must end by October 31, 2005.

Relevant to Medicare Advantage

• On March 4, 2005, CMS issued a memo to plans advising them of its policy for withdrawal of MA bids. (cms.healthplans/letters/deafult.asp). CMS said it was responding to a number of inquires regarding multiple bid submission and the possible withdrawal of bids. In general, the thrust of the memo appears to allow certain types of multiple bid submissions for benefits if the differences are reasonable and based on certain considerations, but to discourage such submissions as a means of handling uncertainty associated with competitive bidding for Part D or for basic benefits in Regional MA plans. CMS indicates that it will regard, with few exceptions, organizations that withdraw some or all of its bids in deference to an announced national benchmark for Part D or MA regional benchmark for basic benefits (each of which is influenced by the submitted bids) to be “either grossly incompetent, failing to negotiate in good faith or both,” and CMS could response to disapproving, terminating or non-renewing organization’s contracts in various ways.

• On May 10, 2005, CMS issued instructions for submitting prescription drug event data for PACE organizations. The instructions can be viewed online at: cms.pdps/MPDBApp Matrls.asp.

• On May 13, 2005, CMS issued draft Marketing Material Review guidelines for 2006 Medicare Advantage organizations, Medicare cost-based plans and Medicare health plan demonstrations for public comments. Comments on these guidelines were due May 24, 2005. The draft guidelines are intended to make it easier for plans to get marketing materials out more quickly to beneficiaries by creating a new path to “file and use.” Plans are encouraged to use this path so that they can begin marketing certain materials 5 days after they have been submitted. The Marketing Timeline attached indicates that CMS will publicly post the revision of Chapter 3 – Marketing – in the Medicare Managed Care Manual by June 1st. The draft guidelines can be accessed online at: cms. /healthplans/marketing /marketingguide2006.asp.

• On May 20, 2005 CMS began mailing letters to Medicare beneficiaries asking them to apply for the new Medicare drug benefit. (Philadelphia Inquirer, May 23, 2005)

Relevant to Prescription Drug Plans

• On May 9, 2005, CMS issued a memo to Medicare PDP applicants providing a timeline and process for issuing determinations on PDP applications (cms.pdps/MPDBAAppMatrls.asp). The schedule is intended to allow PDP applicants as much time as feasible to provide information relevant to licensure waiver and pharmacy access requirements. CMS will notify PDP applicants of the status of their application before plan bids are due June 6, 2005. Any follow-up pharmacy access analyses are due August 1, 2005. August 26, 2005 is the deadline for CMS review of state licensure and pharmacy networks. CMS will sign PDP contracts between September 1 and 14, 2004, which is also the last date to finalize plan-specific pages in “Medicare and You”.

• On May 23, 2005, CMS announced the award of a contract to NDC Health, based in Atlanta, Georgia, to route claims for benefits paid by entities other than Medicare back to PDP plans so that the beneficiary charges reflect their proper level of Medicare coverage (cms.media/press/ release/asp?Counter1466). The press release highlighted the use of the system to help pharmacists determine which Medicare drug plan to bill and whether the beneficiary has other coverage from their own computers.

• In a speech to the Pharmaceutical Care Management Association (that represents pharmacy benefit managers (PBMs)), CMS Administrator Mark McClellan indicated that the 36 pieces of Part D data on pharmacy prescriptions that CMS will be collecting beginning 2006 will be the largest electronic dataset on prescription drugs ever. He noted these data would be very useful to FDA, providers and others in identifying the risks and benefits of drugs prescribed to beneficiaries (Congressional Quarterly May 11, 2005).

ON THE CONGRESSIONAL FRONT

About Medicare Health and Drug Plans Specifically

• None

Broader Medicare Program (in Brief)

• On May 16, 2005, the Alliance for Health Reform and Kaiser Family Foundation convened a Webcast briefing on “Medicare Basics, from (Part) A to D” with panelists Tricia Neuman of Kaiser Family Foundation, Linda Fishman of CMS, and William Scanlon, an independent health policy advisor formally with the GAO. According to Congressional Quarterly (May 18, 2005), audience members raised concerns about the ability of those dually enrolled in Medicare and Medicaid to make a smooth transition when the new drug benefit goes into effect. The WebCast and related information is available at .

• On May 19, 2005, Douglas Holtz-Easkin, Director of the Congressional Budget Office, testified before the House Ways and Means Committee on the Implications of Demographic Changes for the Budget and the Economy”. His testimony is available at: .

• The Congressional Budget Office released a paper on “High Cost Medicare Beneficiaries” in May 2005 (). The paper was prepared in response to a request by Senate Majority Leader Bill Frist. The paper documents “a significant degree of concentration in the spending of Medicare beneficiaries both in a given year and over time.” The paper includes three exploratory analyses that seek to assess the persistence of high costs over time, a potential aid to prospectively identifying such high cost individuals so that intervention strategies that might reduce costs could be pursued. These analyses document a degree of persistence in spending over time (that varies with the type of calculation). CBO notes that whether strategies that focus on high cost beneficiaries would reduce Medicare spending are challenging for two reasons. First, they depend on the ability to identify such individuals prospectively. Yet the characteristics of high cost beneficiaries are not unique but rather shared with many low cost beneficiaries. Hence, many low spenders also may be identified. In addition, savings also depend on the ability to design and implement effective intervention strategies. CBO notes that initial results from disease management programs and other efforts to do so have been disappointing in terms of their cost impact.

• On May 27, 2005, GAO announced the appointment of two new members and reappointment of three members to the Medicare Payment Advisory Commission. New members (whose terms expire 2008) are Jennie Chin Hansen, RN MSN (AARP board member), and Nancy M. Kane, D.B.A, Harvard School of Public Health. Reappointed members (whose terms also expire in 2008) are Nancy-Anne DeParle, David Durenberg, and Nicholas J. Wolter. (The new commissioners replace Carol Raphael, and Mary K. Wakefield whose terms expire this year.)

FROM THE PERSPECTIVE OF BENEFICIARIES

General

• In an article in The New York Times on May 22, 2005, Robert Pear reported that CMS will revise the heavily criticized draft Medicare and You 2006 handbook that had been circulated for comments. The article is available at: 2005/05/22/politics/22medicare.html?pagewanted=print.

• In May 2005, The Commonwealth Fund released Quality of Health Care for Medicare Beneficiaries: A Chartbook prepared by Sheila Leatherman and Douglas McCarthy (). The Chartbook includes multiple charts reviewing care effectiveness, patient safety, access and timeliness, patient and family centeredness, equity, and capacity to improve. Analyses of effectiveness and equity are further divided to address the experiences of patients with different needs (e.g. prevention, acute care, chronic illness, end of life care, multiple chronic conditions). The authors conclude that the data presented in 60 charts reveal signs of progress (especially in areas that are targeted as national priorities) but also significant gaps and deficiencies in care and wide variation in quality across the country. They point to charts on eight exemplary quality improvement interventions to suggest that change is possible with concerted effort.

• In May 2005, the National Academy of Social Insurance released Medicare Brief #12 on “Payment and Participation: A Renaissance for Medicare’s Private Health Plans?” The brief was authored by Reginald D. Williams II. The brief reviews the history of private plans in Medicare. It concludes that plans are interested in participating in Medicare Advantage but only time will tell whether Congress will continue to support the higher payments to plans and whether plan interest will be sustained.

• In an article in The New York Times on May 7, 2005, Robert Pear reported based on an document sent by CMS to Congressional offices that Medicare beneficiaries with low-incomes may lose some of their food stamp benefits if they sign up for new Medicare prescription drug benefit because they will spend less on drugs and thus have less need for food stamps. (The New York Times, May 7, 2005)

• CMS has posted several fact sheets explaining how beneficiaries with limited incomes can apply for additional assistance to pay for their prescription drugs when the Medicare prescription drug benefit goes into effect. The fact sheets explain that individuals with low incomes ($14,355 for a single person or $19,245 for a person who is married or living with a spouse) who also have limited resources (i.e. savings under $11,500 for a single person or $23,000 for a person who is married or living with a spouse) can apply for assistance through the Social Security Administration or his/her State Medical Office. CMS is currently mailing notices to people who are automatically eligible for extra help, including people with Medicare and Medicaid, Supplemental Security Income and Medicare Savings Program coverage. CMS indicates that the Social Security Administration will mail a different letter to other people who do not automatically qualify for the extra help, but may potentially be eligible for it during the summer. More information is available at: cms. medicarereform/lir.asp.

FROM OTHER STAKEHOLDERS

• America’s Health Insurance Plans’ Center for Policy and Research released a pair of reports on “Low Income and Minority Beneficiaries in Medicare Advantage Plans, 2002” and on “Low Income and Rural Beneficiaries with Medigap Coverage, 2002.” Both are based on analysis of Medicare Current Beneficiary Survey data for the non-institutionalized population in 2002. The first report, restricted to areas with at least one MA plan, finds that 27 percent of Medicare beneficiaries with incomes between $10,000 and $20,000 enroll in Medicare Advantage while 23 percent had employer-based coverage, 20 percent had Medigap and 18 percent had no supplemental or outside coverage. Among those in this income category without employer-based or Medicaid coverage, 43 percent choose MA. Over half of Medicare Advantage enrollees (51 percent) and 71 percent of non-white Medicare Advantage beneficiaries had incomes under $20,000. Lower costs and better benefits were the main reasons given for choosing a Medicare Advantage Plan in 2002. In the report on Medigap (which was not restricted to areas with an MA plan), researchers find that Medigap is particularly important to beneficiaries in rural areas. Though such rural beneficiaries are only 24 percent of all beneficiaries, they are 32 percent of Medigap policyholders. In rural areas, 53 percent of Medigap policyholders had incomes below $20,000 versus 45 percent nationwide.

• AHIP released an analysis critical of CBO’s letter to Senate Budget Committee Chair Don Nickles that discounted the prospects for estimated cost savings from disease management in Medicare (). AHIP agreed that comprehensive evidence of savings does not yet exist but argued that such evidence will only emerge as programs evolve and are tested and that full experimental proof is not always practical. AHIP also argued that new peer-reviewed research (described in the brief) provides additional evidence of savings that was not included in the CBO analysis. The paper concludes that disease management is a potential “win win” policy for Medicare.

NEWLY RELEASED RESEARCH STUDIES NOT PREVIOUSLY DESCRIBED

• Adam Atherly, and Bryan Dowd. “Effect of Medicare Advantage Payments on Dually Eligible Medicare Beneficairies.” Health Care Financing Review 26(3): 93-104, Spring 2005.

Using the Medicare Current Beneficiary Survey, researchers modeled how MA payments and state Medicaid policies influence plan choice by Medicare beneficiaries who are also enrolled in Medicaid (those often called dual eligibles). The choices were: MA plan only, fee-for-service (FFS) Medicare with Medicaid, and FFS Medicare alone. They find that higher payments increased MA enrollment by low-income, aged beneficiaries. They estimate that a $10 increase in monthly MA payment reduces the probability of dual enrollment by 4 percentage points and FFS Medicare enrollment by 11 percentage points.

• Randall Brown, Jennifer Schore, Nancy Archibald, Arnold Chen and others. Coordinating Care for Medicare Beneficiaries: Early Experiences of 15 Demonstration Programs, their Patients, and Providers: Report to Congress. Washington DC: Mathematica Policy Research (mathematica-).

This May 2004 report is now publicly available on the CMS and Mathematica Web sites. The report is based on the Medicare Coordinated Care Demonstration, mandated by Congress as a way to test whether the kinds of disease management and case management programs used elsewhere can be used in the traditional Medicare fee-for-service program. The report synthesizes findings from the first year of program operation. The report describes the types of programs and beneficiaries participating in them, the interventions being implemented and how they are doing, and how patients and physicians like the program and are responding to them. First year results show a diverse range of programs being implemented. Virtually all programs experienced problems finding and convincing patients to enroll. However, surveys of the earliest starting programs show that patients are pleased with the programs and the programs appear to have increased their understanding of disease and care satisfaction, though they have not necessarily affected patient behavior. Physicians also were satisfied with the program and would recommend it to patients and providers. Subsequent reports will provide estimates of the effects of the interventions on patients’ service use and costs, a topic it is too soon to address in the first year.

• EP Fraher, RT Slifkin, L Smith, R Randolph, M. Rudolf and GM Holmes. “How Might the Medicare Prescription Drug Improvement and Modernization Act of 2003 Affect the Financial Viability of Rural Pharmacies: An Analysis of Pre Implementation Volume and Payment Sources in Rural and Urban Areas.” Journal of Rural Health 21(2): 114-121, Spring 2005.

Analyzes prescriptions dispensed from retail and mail order pharmacies in 2002 for the US and 17 states, using IMS data. The volume of mail order prescriptions is low. In rural areas, a higher percentage of prescriptions are paid for by cash and Medicaid but there is significant variation in volume and payer sources across states. Authors suggest that rural, independent pharmacies could be negatively affected by the MMA because it shifts from cash to third party reimbursement.

• Rachel Halpern. “M+C Plan County Exist Decisions 1999-2001: Implications for Payment Policy.” Health Care Financing Review 26(3): 105-123, Spring 2005.

Researchers find that payments did not have consistent effects on plan entry or withdrawal though they were important. Decisions varied with the year and intention to continue participating in M+C at all. Simulations show that M+C plans were better off, on average, under the BBA than previously and that large payment increases would have increased retention.

• Mary Laschober. “Estimating Medicare Advantage Lock-In Provisions Impact on Vulnerable Medicare Beneficiaries.” Health Care Financing Review 26(3): 63-79, Spring 2005.

This paper examines patterns of enrollment and disenrollment in Medicare managed care between 1999-2001 to identify implications for the effect of Medicare Advantages’ lock-in requirements on beneficiaries, especially those who are traditionally vulnerable. The findings show that several such groups were more likely to make multiple health plan elections, to leave their managed care plan mid-year and/or have higher voluntary disenrollment rates and transfers to traditional fee-for-service Medicare. The author suggests that lock-in provisions therefore may have more negative impacts on vulnerable beneficiaries and offers three steps CMS could pursue to limit such impacts.

• Lee Mobley, Lauren McCormack, Bridget Booske, Jiantong Wange and others. “Voluntary Disenrollment from Medicare Managed Care: Market Factors and Disabled Beneficiaries” Health Care Financing Review 26(3): 63-79, Spring 2005.

This paper analyzes Medicare CAHPS disenrollment survey data for 2002 on the reasons for disenrollment and compares how the reasons differ between aged beneficiaries (i.e. those over the age of 65) and disabled beneficiaries under the age of 65. Five of the six leading reasons for leaving cited both by disabled and the aged are related to some aspect of the economic trade-off faced by those who buy insurance. The authors find no significant difference between the disabled and aged groups in access problems as reasons for leaving, but their multivariate analysis shows the disabled more likely than the aged to cite problems with coverage and plan information, as were several minority subgroups. The authors suggest that increased competition by health plans may benefit the disabled if they can continue to see their physician.

• Stephen T. Parente, William N. Evans, Julie A. Schoenman, and Michael D. Finch “Health Care Use and Expenditures of Medicare HMO Disenrollees.” Health Care Financing Review 26(3): 45-62, Spring 2005.

This paper presents analysis of the first wave of Medicare HMO withdrawals (between 1998 and 1999) using data from CMS and United Health Group. Compared to those who voluntarily left an HMO, involuntarily disenrolled beneficiaries had higher out-of-pocket expenditures, an 80 percent decrease in physician visits, 38 percent higher emergency room (ER) use and a higher probability of dying. The authors conclude that the results suggest that beneficiaries face significant costs and reduced health outcomes from unstable Medicare managed care markets.

• Cynthia S. Robins, Amy Heller and Mary Anne Myers. “Financial Vulnerability among Medicare Managed Care Enrollees.” Health Care Financing Review 26(3): 63-79, Spring 2005.

This article analyzes findings from focus groups with beneficiaries in four communities on their Medicare managed care experiences. Though focus groups were stratified by race/ethnicity and self described health condition, their concerns were not described in these terms but rather in terms of their access to financial resources. Focus group participants said their choice of enrolling in a managed care plan were based on a combination of factors including self-assessed medical needs and plan benefits, was heavily influenced by the relative cost of managed care benefits compared to potential out-of-pocket expenses, with financial vulnerability a major theme. Concerns for fixed incomes and out-of-pocket costs were particularly visible in focus groups with Black and disabled enrollees; thus race/ethnicity and health status may be reasonable proxies for an individual’s financial well-being. Beneficiaries facing trade-offs between out-of-pocket spending and other uses of funds were resourceful in seeking out community resources (e.g. medication samples, VA benefits, Medicaid). Such resources moderated effects for at-risk beneficiaries. The authors conclude that beneficiary views on insurance products are highly influenced by socio-economic status, making the fact that CAHPS does not collect such data regrettable. They also suggest that more study of community-by-community variation in satisfaction would be valuable.

OTHER SIGNIFICANT EVENTS

• None.

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