CMS finally puts the kibosh on Medicare Advantage private fee for service plan marketing

A halt to marketing by the half-dozen or so private plans that cover the Medicare Advantage (MA) private fee for service (PFFS) waterfront (the top seven plans that account for 90% of the market) was announced late last week — a "voluntary" arrangement agreed to by the health plans.

About a month ago, Pete Stark held hearings on the subject of PFFS marketing, and said:  "Given that half of the projected Medicare Advantage growth" is in the area of private fee-for-service plans, "we need to immediately evaluate its value before it gets unmanageable."  He’d like to steer some of the MA PFFS dough to SCHIP funding.

The problem raised by the PFFS plans is that they receive a significant premium above traditional Medicare FFS rates, with little or none of the care management that is the theoretical basis for the bump up in payment.  The issue has been aired in a number of forums, including Health Affairs.

MA PFFS has brought health plans into the Medicare business in markets they had previously avoided.  They were applauded by the NAACP for doing so, but, hey, traditional Medicare was there first and was doing just fine, thank you — and the NAACP eventually backpedaled its support on roughly those grounds.  (See Bob Laszewski’s post for some history and context on PFFS and funding issues.  In a more recent post, he says the health plans can sell PFFS plans during a limited open enrollment period anyway, except to someone who’s just turning 65, so this voluntary ban dosn’t really ban anything just now.)

Rural health experts, pulled together in an HHS National Advisory Committee on Rural Health and Human Services, included MA PFFS in their annual report issued in January. The issues and recommendations concering MA PFFS are discussed here, and start off with this stark statement:

The Committee’s concerns, laid out in detail below, focus on a myriad of instances in which the substitution of MA for traditional Medicare may have the effect of stripping from many of the rural providers critical financial supports embedded in traditional Medicare as a result of more than 20 years of efforts by policymakers to create a stable health care environment in rural areas. CMS needs to monitor the impact of these plans on rural providers closely to assure that they continue to exist and provide access to care for Medicare beneficiaries in rural areas.

The Committee is concerned that if MA is implemented in a manner that is not sensitive to the rural context, it could adversely affect the health care delivery system in rural communities. Medicare payments can account for as much as 80 percent of in-patient revenues for small rural hospitals.

Against this backdrop of need and concern come the sales forces of the major health plans.  Given the fact that MA PFFS enrollees are more profitable to the insurance companies, it is not surprising that individuals are steered into them by sales agents whose commissions for MA PFFS sales are several times higher than commissions for other products — some of which may well be more suitable for the enrollees.  (Click here for more PFFS information from the patient advocacy perspective.)

Some folks, including Michael Catron at Health Care BS, see the retrenchment precipitated by the "blunders" of the health plans in question as a step backward for future market-based Medicare reform.

This episode certainly hurts that cause, and there are things that need to be attended to, pronto.  The government needs to focus on recalibrating the program so that there is concrete value realized in return for any premium above and beyond Medicare FFS rates (e.g., case management), rationalization of sales commissions, and limits on profit-taking by the private sector on what is quintessentially a public sector program.  Without these fixes at a minimum, beneficiaries are better off with traditional FFS Medicare.

— David Harlow