Medicare Plan Could Hike Drug Costs, HMOs Say

The nation’s HMOs this week will launch a renewed lobbying blitz against congressional proposals for deep cuts in the payments they receive for Medicare patients, warning that beneficiaries in California and other high-cost states could lose one of their most cherished benefits--free prescription drugs.

The health maintenance organizations will try to persuade a House-Senate conference committee to drop a Senate plan that would force deep cuts in payments to HMOs serving Medicare beneficiaries. The financial cost to the industry and the possible impact on beneficiaries would be felt all across the country, but they would be greatest in states such as California, where HMOs have enrolled huge numbers of senior citizens.

Health maintenance groups in Los Angeles County, which enroll 35% of the resident Medicare-age population, would suffer a 23% cut in payments compared with what they would receive under current law. Orange County, where 40% of all seniors belong to HMOs, would have a 10% cut. San Diego, with a 46% enrollment rate, would take a 14% hit.

Similarly, Dade County in Florida, which includes Miami, would be hit with a 37% reduction compared with current law, and Broward County, home to Ft. Lauderdale, would face a 36% loss, according to HMO industry calculations.

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The HMOs argue that the Senate plan, which cuts reimbursement for new enrollees in HMOs and shifts money to rural counties at the expense of urban areas, could force them to curtail benefits drastically. Nationally, about 14% of the nation’s 38 million Medicare beneficiaries are enrolled in HMOs.

“We will have to look at reducing benefits or increasing premiums or both,” warned Nick Franklin, senior vice president for public affairs at PacifiCare Health Systems Inc., the Cypress-based giant of Medicare HMOs. Its Secure Horizons plan has 1 million people enrolled nationwide, including 346,000 in Los Angeles County and 107,000 in Orange County.

“Lots of low- and middle-income people” join HMOs because they otherwise cannot afford expensive prescription drugs, Franklin said.

Under the regular Medicare system, patients may choose any doctor or hospital participating in Medicare. They pay $760 for the first day of a hospital stay, a $100 deductible for doctor bills, and then 20% of additional doctor charges. In addition, most Medicare beneficiaries buy additional private coverage to pay for these deductibles and doctor bills.

HMO patients, on the other hand, agree to stay within a health plan’s list of approved doctors and hospitals. In return, they get extra benefits not included in Medicare, such as prescription drugs, dental coverage, eyeglasses, physical exams and, in some areas, free transportation to and from the doctor’s office.

In competitive markets such as Southern California, these benefits are free, with no co-payments or deductible, making it unnecessary to buy the private Medi-Gap policies.

The HMOs contend that the plan approved by the Senate, if enacted into law, would cut so deeply into their revenues that they might no longer be able to afford to give away such benefits.

Congress could “pull the rug out from under the more than 100,000 seniors who are voluntarily joining private health plans each month,” said Tom Mahowald, vice president for public affairs at United HealthCare, another major HMO.

The final decision on HMO payment cuts will be made by the conference committee, which hopes to complete work this week on $115 billion in Medicare savings over five years. The money is a key ingredient in the plan to balance the federal budget by 2002.

HMOs say they are willing to absorb the lesser cuts proposed by two House committees but cannot take the much more severe losses approved by the Senate.

PacifiCare, which has two lobbying firms under contract to work the issue, also is part of a Coordinated Care Coalition of some of the most powerful HMOs, including Aetna U.S. Healthcare, Cigna, Health Net/QualMed, Prudential HealthCare and United HealthCare.

The conference committee will, in effect, make a judgment on whether the HMOs are crying wolf and can absorb the cuts, or whether the present level of benefits for Medicare participants would truly be jeopardized.

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Medicare’s payment system for HMOs is linked to the cost of caring for beneficiaries in regular fee-for-service Medicare, where the patient can select any doctor or hospital.

Suppose Medicare, which covers those older than 65 and the disabled of all ages, spends an average of $500 a month in County A for beneficiaries. An HMO serving that county will get 95% of the regular cost, or $475 a month, to care for each person it enrolls.

Government economists think that the HMOs tend to get healthier people enrolling and therefore collect more from the government than it actually costs to treat their patients.

HMOs dispute this, saying they enroll a good representation of the Medicare population, especially in areas such as Los Angeles, where more than one in three Medicare enrollees has joined an HMO.