U.S. Overpaid HMOs $1 Billion, GAO Report Says
In a stinging critique of government spending for health maintenance organizations, the General Accounting Office said Tuesday that the Medicare program paid HMOs $1 billion more than it should have in 1995 to care for beneficiaries in California.
The government overpays because HMOs generally enroll people who are healthier than the typical Medicare beneficiary, said the GAO, the investigative arm of Congress. But the HMOs’ payments are linked to what the government spends for the typical Medicare recipient, and these people have more expensive medical bills, the GAO said.
In Los Angeles County, where HMO penetration is highest, the government suffers the biggest financial setbacks: With every additional senior citizen joining an HMO, the government loses more money, the study said.
“As enrollment grows, the problem gets worse,” William J. Scanlon, director of the GAO health financing unit, told the health subcommittee of the House Ways and Means Committee.
The GAO estimated that during 1995, the $2.1 billion that Medicare paid to HMOs in L.A. County was $429 million too much.
Orange County outlays totaled $605 million, with $121 million considered excess.
The GAO picked California for its special study because the state has 36% of all U.S. Medicare beneficiaries enrolled in HMOs. It is the first government estimate of the seriousness of the problem.
Nationally, the report is likely to seriously undercut HMOs in their lobbying against a Clinton administration plan to cut back their reimbursements. The president’s budget calls for reductions of $46 billion over six years in payments to HMOs enrolling Medicare patients.
The GAO report calls for an immediate change in the way government payments to HMOs are calculated, a step it said could recoup $276 million of the estimated $1-billion loss in the state. Further financial recoveries would require a complex new system to adjust payments to the HMOs based on the health of each individual enrolled, the GAO said.
A cutback in reimbursements to HMOs would have a major impact on such health-care firms as PacifiCare Health System of Cypress, the nation’s biggest Medicare contractor.
The managed-care industry denounced the report, saying it provides good care without “cherry-picking” members from among healthy senior citizens.
“We challenge” the report, said Craig S. Schub, senior vice president of PacifiCare Health System, whose nearly 1 million members include 600,000 in California with its recent acquisition of FHP International.
There is no difference in the health status of people who join HMOs compared with those who remain in the regular Medicare program, said Susan Pisano, spokeswoman for the American Assn. of Health Plans, the industry trade group.
Medicare covers 38 million people--those over 65 and the disabled of all ages. About 13% are enrolled in HMOs nationally, but the figure is higher in California--32% statewide, 33% in Los Angeles County and 38% in Orange County.
Medicare recipients who are not in HMOs are able to choose virtually any doctor or hospital and pick specialists without a referral from a primary care physician.
But HMOs are increasingly popular among the Medicare population because they offer coverage without any co-payments or deductibles and throw in extras such as prescription drugs, eye care and dental care. In return for the financial and medical benefits of an HMO, a member is restricted to using doctors and hospitals in the HMO network.
For each person who joins a Medicare HMO, the government pays 95% of the cost of caring for an average person under the traditional fee-for-service Medicare system. President Clinton has proposed cutting that reimbursement figure to 90%.
As more of the healthier people join HMOs, those remaining under regular Medicare are the sicker ones, whose yearly bills are larger, said Scanlon of the GAO.
The government has not found an effective way to adjust HMO payments because Medicare spending varies tremendously. Outlays increase with age, but are not predictable. There are healthy 85-year-olds who never see a doctor, and 65-year-olds with chronic ailments who run up huge bills.
In any given year, the healthiest 20% of Medicare enrollees incur no bills at all. At the same time, the sickest 10% of beneficiaries cost an average of $36,957 a year, and, as a group, they consume 70% of all Medicare outlays.
“No one wants to pay more than we should,” said Rep. Bill Thomas (R-Bakersfield), chairman of the health subcommittee. “We want to be smart buyers.”
* HEALTH REFORM
State Democrats will introduce bills to tighten managed-care regulation. D2
