Elizabeth Simpkin

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Medicare Prescription Drug, Improvement and
Modernization Act of 2003
HFMA Medical Groups and Physicians
Committee February 19, 2004

• Elizabeth Simpkin

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Profitability - out of physicians' hands?
REVENUE
COST

• Malpractice premiums

• Medicare payments

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Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA)

• 400 billion, 10-year Medicare reform bill
• prescription drug benefit
• bigger role for private health plans
• incentives to employers to continue retiree
  benefits
• increases payments to rural hospitals and
  physicians
• health savings accounts (HSAs) for healthcare
  expenses
• Paid for by
• new money (cut from other programs)
• beneficiary cost sharing and means-testing
• provider reimbursement cuts

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MMA Impact

• Health Plans paid more immediately and in future
  incentives to encourage enrollment
• PBMs compete for the drug discount card and drug
  benefit opportunities
• Pharmaceutical industry changes in demand and
  pricing due to drug discount cards and drug
  benefits
• Employers reevaluate retiree benefits in light of
  drug benefit and employer subsidies
• Providers payment changes in short and long term
  changes in beneficiary demand possible shift to
  managed care enrollment and increased health plan
  leverage

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Funding concerns for providers

• Medicare funding warning Title VIII, subtitle A,
  secs 801-804
• kicks in when Medicare spending accounts for 45
  of general revenue
• Once the 45 trigger is reached two years in a
  row, the president must submit recommendations to
  improve Medicare solvency
• After that Congress has a limited time to act or
  the program faces automatic cuts in payments to
  providers and services to beneficiaries
• Huge discrepancies between White House and
  Congressional estimates 534 billion vs. 395
  billion over 10 years
• Payment and/or service cuts appear possible as
  early as 2006

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Implications for physicians or --

• Drug benefit - Part D
• Part B benefit changes
• Medicare Advantage
• Physician-administered drugs
• Physician fee schedule and the update formula

waiting for the other shoe to drop!
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The prescription drug benefit

• Drug Discount Cards 2004-2005
• Beneficiaries can purchase a drug discount card -
  30
• Estimated 15-25 savings per prescription
• Subsidies for low-income seniors
• Part D Prescription Drug Benefit 2006
• Voluntary, additional 35 monthly premium,
  penalty for late enrollment
• 250 Deductible, 25 coinsurance between 251 and
  2,250
• Beneficiary 100 responsible for drug costs to
  3,600 in out-of-pocket expenditures - the "donut
  hole"
• After 3,600, catastrophic coverage kicks in with
  5 coinsurance
• Protections for low-income seniors
• Sale of new Medigap policies with Rx prohibited
  after 2005

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Drug benefit and employer "incentives"

• Employer retiree Rx coverage subsidy 2006
• 28 of drug costs between 250 and 5,000 per
  person 
• Will it be enough to induce employers to continue
  to provide retiree benefits?

Percentage of large firms (over 200 employees)
offering retiree coverage has declined
significantly over time 66 in 1988 38 in
2003 Kaiser Family Foundation Employer Health
Benefits 2003 Annual Survey
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Part B changes

• Benefit changes
• 2005 preventive services
• physical exams for new beneficiaries
• cardiovascular and diabetic screening tests
• mammography rate increases
• disease management for chronic conditions
• Increased cost-sharing and means-testing
• 2004 deductible increases to 110
• 2005 deductible indexed to Part B spending
  increases
• 2007 high income beneficiaries (gt80,000) will
  pay greater percentage of Part B premium
• capped at 80 for incomes gt200,000

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MedicareChoice and Medicare Advantage

• 2004-2006 1.6 billion in rate increases to
  health plans to stay in or get back into managed
  Medicare
• March 1, 2004 Medicare HMO rates will climb an
  average of 10.6
• 2006 Medicare Advantage
• expands existing program to include PPOs
• competitive bidding by region
• 12 billion "stabilization fund" for private
  insurers to operate in otherwise unprofitable
  markets
• 2010-2016 Private Competition demonstrations
• Competition between private insurers and
  traditional fee-for-service Medicare
• 6 regions (TBD) with 25 of the population in
  private Medicare plans
•  

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Implications for physicians

• If enrollment shifts from FFS to managed care...
• Need to reevaluate participation in managed care
  plans to maintain access to patients
• Expect increased negotiating leverage by health
  plans, and pressure on payment rates across all
  products

• How Medicare HMO plans will spend the money
• Boost provider payments (Plans representing 75
  of Medicare HMO enrollees)
• Lower monthly premiums (Plans representing 93 of
  enrollees)
• New or enhanced benefits (Plans representing 60
  of enrollees)
• AAHP-HIAA survey January 2004

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But will beneficiaries enroll in MA?

• Only 4.5 million (11) enrolled today, down from
  6.3 million (17) in 1999
• Considerations
• Increased Part B deductibles and premium
  contributions
• No new Medigap policies with prescription drug
  coverage after 2005
• Richer drug benefits - no "donut hole"
• Part D late-enrollment penalty
• MC pullouts left many seniors wary of joining
  private plans
• PPOs may be more attractive, and serve previously
  unserved markets

The Bush Administration expects 32 of Medicare
beneficiaries to enroll in MA by 2013 The CBO
estimated 9 would enroll
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Price "reform" for physician-administered drugs

• 2004 reduce payment to 85 of AWP
• maintain some categories at 95 of AWP
• cut rates further for drugs found to be
  "extremely overpriced" in 2004
• 2004-5 transitional payment increase for drug
  administration
• 32 increase in 2004 and 3 in 2005
• 2005 Average Sales Price (ASP) 6
• Expect significant drop!
• 2006 "competitive acquisition" model -
  physicians acquire drugs from third party
• as yet undefined

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Impact on physician practices?

• Practice expense increases unlikely to offset
  decreases

• US Oncology
• Houston-based practice management company
• 850 physicians, 450 sites, 30 states
• Medicare accounts for 38 of revenue for
  affiliated physicians
• Estimates 2 drop in net revenue and 30 drop in
  net income in 2005
• Modern Physician Stat
• 2/9/04

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Physician fee schedule - good news/bad news

• Blocks the scheduled 4.5 reduction in RBRVS for
  2004
• Ensures 1.5 increase in 2004 and 2005
• Floor of the work GPCI brought to 1.0 for
  2004-2006
• all doctors paid at least 100 of the national
  average for work units
• "win" for rural area providers
• Increased practice expense RVUs for drug
  administration
• Technical changes to the SGR - 10 year rolling
  average of GDP instead of single year
• BUT does not fix the underlying update formula

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Payment formula and The Cliff

• DIMA Sets minimum 1.5 increases in 2004 and 2005
• Rural bonuses and new benefits will also be
  included in the physician spending
• But that extra spending will have to be recouped
  in 2006 and beyond
• Unless the payment formula is revised or
  eliminated, physicians can expect a sharp
  reduction in payment --- a.k.a.
• THE CLIFF!

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How we got here

• 1997 SGR - Sustainable Growth Rate formula
• Congress seeking to rein in double-digit Medicare
  spending growth
• Devised complex formula that relied on estimates
  of spending growth to establish a yearly spending
  target
• If estimates hit their mark, the target would
  rise at the same rate as the Gross Domestic
  Product
• If estimates miss, or if spending for physician
  services exceeds the target, the formula makes a
  correction in the next update
• Both bad estimates and higher spending did happen
• 2002 - 5.4 cut
• 2003 - 4.4 cut planned, averted by Congressional
  action
• 2004 - 4.5 cut planned, again averted by Congress

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MedPAC's recommendation

• At its January meeting, the Medicare Payment
  Advisory Commission (MedPAC) has recommended that
  Congress approve a 2.5 percent payment increase
  for physician services in 2005
• Currently, physicians are scheduled to receive no
  less than a 1.5 percent update in 2005.
• The recommendations would maintain current
  beneficiary access to physician care and current
  physician supply for Medicare beneficiaries,
  MedPAC contends

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Solutions?

• Drop the SGR formula and revert to an annual
  update based on the change in physician costs
• MedPAC recommended scrapping the formula in 2002
• Redefine the SGR based on other than GDP
• GDP measures growth in the overall economy
• does not consider Medicare population
  demographics, technology, or changes in the
  practice of medicine
• MedPAC's annual recommendations consider whether
  current level of pay is adequate and estimates
  how much costs will increase

"The medical needs of our Medicare patients do
not wane when the economy slows." Donald J.
Palmisano, M.D. President, American Medical
Association
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What should we do?

• Reconsider participation annually - both managed
  Medicare and fee-for-service
• Maintain relationships with MCOs to assure
  patient access
• Prepare for increased beneficiary responsibility
  and collection issues
• Monitor commercial insurer contracts tied to
  RBRVS
• Specialists in particular - monitor "competitive
  bidding" arrangements for drugs as they are
  defined
• Lobby for equitable changes to SGR and drug
  pricing

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What ELSE should we do?

• As a citizen
• Think beyond the payment issues
• How do you believe social programs should be
  structured and funded?
• Support your vision through the political
  process!

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• QUESTIONS?
• COMMENTS?
• THANK YOU!
• Elizabeth Simpkin
• [phone]
• elizabethsimpkin_at_msn.com

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Elizabeth Simpkin

• Elizabeth Simpkin is President and a founder of
  The Lowell Group, Inc. The Lowell Group provides
  expert managed care strategy and performance
  improvement assistance to physician
  organizations, hospitals, integrated delivery
  systems, health plans, and managed care
  organizations. Ms. Simpkin has more than 15
  years experience in healthcare, including
  extensive experience in managed care contracting
  and operations. Ms. Simpkin has particular
  expertise in strategic planning, development, and
  business operations for provider organizations
• Prior to forming The Lowell Group, Ms. Simpkin
  was a senior consultant and project manager in
  the Chicago office of Towers Perrin. Previously,
  Ms. Simpkin spent six years with Blue Cross Blue
  Shield of Illinois, where she held management
  positions in traditional, PPO and HMO product
  lines. Her responsibilities included provider
  contracting and reimbursement, provider
  relations, and network operations in metropolitan
  Chicago and throughout Illinois.
• Ms. Simpkin has a Masters degree in Healthcare
  Economics from Arizona State University. She is
  an active member of the Healthcare Financial
  Management Association and is a frequent author
  and speaker on managed care issues.