TH

E G

EO

RG

E

WA

SH

ING

TO

N

UN

IVE

RS

ITY

M

ED

ICA

L C

EN

TE

R

SC

HO

OL

OF

PU

BL

IC H

EA

LT

H &

HE

AL

TH

SE

RV

ICE

S

DE

PA

RT

ME

NT

OF

HE

AL

TH

PO

LIC

Y

CE

NT

ER

FO

R H

EA

LT

H S

ER

VIC

ES

RE

SE

AR

CH

& P

OL

ICY

PA

YM

EN

TS

TO

ME

DIC

AR

E A

DV

AN

TA

GE

PL

AN

S E

XC

EE

D F

EE

-FO

R-S

ER

VIC

E C

OST

S:

OP

TIO

NS

FO

R M

ED

ICA

RE

SA

VIN

GS

FR

OM

200

7 T

HR

OU

GH

201

1

BR

IAN

BIL

ES

and

EM

ILY

AD

RIO

N

DE

PA

RT

ME

NT

OF

HE

AL

TH

PO

LIC

Y

TH

E G

EO

RG

E W

AS

HIN

GT

ON

UN

IVE

RS

ITY

S

CH

OO

L O

F P

UB

LIC

HE

AL

TH

& H

EA

LT

H S

ER

VIC

ES

Sep

tem

ber

15,

20

06

The

aut

hors

wou

ld li

ke t

o ac

know

ledg

e th

e C

omm

onw

ealt

h F

und

for

its s

uppo

rt o

f the

ana

lysi

s o

f Med

icar

e A

dvan

tage

pay

men

ts.

PA

YM

EN

TS

TO

ME

DIC

AR

E A

DV

AN

TA

GE

PL

AN

S E

XC

EE

D F

EE

-FO

R-S

ER

VIC

E C

OS

TS

:

OP

TIO

NS

FO

R M

ED

ICA

RE

SA

VIN

GS

FR

OM

200

7 T

HR

OU

GH

201

1

Bri

an B

iles

an

d E

mil

y A

drio

n S

epte

mbe

r 15

, 200

6

I

2

For

mor

e in

form

atio

n on

this

rep

ort,

plea

se c

onta

ct D

r. B

rian

Bil

es a

t bbi

les@

gwu.

edu

or E

mil

y A

drio

n at

ead

rion

@gw

u.ed

u.

I'

3

CO

NT

EN

TS

Intr

od

uct

ion

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

7

Pri

mer

on

Ext

ra P

aym

ents

to M

A P

lan

s...

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

..

13

MA

cou

nty

benc

hmar

k ra

tes.

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

. 13

In

dire

ct M

edic

al E

duca

tion

(IM

E)

pay

men

ts..

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

..

14

Bud

get n

eutr

al r

isk

adju

stm

ent p

aym

ents

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

...

15

MA

pla

n b

ids.

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

...

16

Reg

iona

l PPO

sta

biliz

atio

n fu

nd

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

..

19

Opt

ions

for

Med

icar

e Sa

ving

s in

200

7 th

roug

h 2

01

1..

....

....

....

....

....

....

....

....

....

....

... .

....

....

....

....

....

... .

....

....

....

....

....

21

Med

icar

e sa

ving

s fr

om t

he b

ench

mar

k ex

tra

pay

men

ts..

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

..

21

Opt

ion

la.

Set M

A p

lan

stat

utor

y/be

nchm

ark

extr

a pa

ymen

ts a

t 10

0% o

f cou

nty

FFS

cost

s...

....

...

21

Opt

ion

1 b. P

hase

-out

MA

pla

n st

atut

ory/

benc

hmar

k ex

tra

paym

ents

at 2

5% p

er y

ear.

....

....

....

....

. 23

O

ptio

n 1 c

. Dec

linin

g ce

iling

on

extr

a pa

ymen

ts f

rom

200

7 to

20

10

....

....

....

....

....

....

....

....

....

...

24

Med

icar

e sa

ving

s fr

om I

ME

ext

ra p

aym

ents

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

25

Opt

ion

2. R

emov

e IM

E e

xtra

pay

men

ts f

rom

MA

ben

chm

arks

in

2007

and

fut

ure

year

s...

....

....

...

25

Med

icar

e sa

ving

s fr

om D

RA

bud

get n

eutr

al r

isk

adju

stm

ent p

aym

ents

....

....

....

....

....

....

....

....

....

....

....

....

....

26

Opt

ion

3a. E

limin

ate

BN

RA

pay

men

ts i

n 20

07 a

nd f

utur

e y

ears

....

....

....

....

....

....

....

....

....

....

..

26

Opt

ion

3b. P

hase

-out

ofB

NR

A p

aym

ents

at 2

5% p

er y

ear.

....

....

....

....

....

....

....

....

....

....

....

....

27

Med

icar

e sa

ving

s fr

om t

he r

egio

nal P

PO s

tabi

lizat

ion

fun

d..

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

28

Opt

ion

4. E

limin

ate

MM

A r

egio

nal

stab

iliza

tion

fun

d..

....

....

....

....

....

....

....

....

....

....

....

....

....

28

Co

ncl

usi

on

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

....

..

31

Ii

4

FIG

UR

ES

Fig

ure

1.

Proj

ecte

d P

aym

ents

to M

A P

lans

in E

xces

s of

FF

S C

osts

, 200

7 to

20

11

....

....

....

....

....

....

....

....

....

....

....

....

....

....

9

Fig

ure

2.

Est

imat

ed A

nnua

l E

xtra

Pay

men

ts to

MA

Pla

ns p

er P

lan

Enr

olle

e, 2

00

7..

....

....

....

....

....

....

....

....

....

....

....

....

....

. 10

Fig

ure

3.

Est

imat

ed S

hare

of T

otal

$4.

7 B

illi

on in

Ext

ra P

aym

ents

to M

A P

lans

by

Cou

nty

Pay

men

t Cat

egor

y, 2

00

7..

....

....

. ...

11

Fig

ure

4.

Est

imat

ed E

xtra

Pay

men

ts to

MA

Pla

ns f

ollo

win

g 4%

Red

uctio

n D

ue to

Bid

s 16

% B

elow

Ben

chm

arks

, 2

00

7..

....

....

18

AB

ST

RA

CT

The

Med

icar

e M

oder

niza

tion

Act

of2

00

3 (

MM

A)

and

the

Def

icit

Red

ucti

on A

ct (

DR

A)

of20

05 i

nclu

de p

rovi

sion

s in

tend

ed t

o in

crea

se th

e ro

le o

f pri

vate

hea

lth

plan

s in

Med

icar

e. T

hese

pro

visi

ons

set M

edic

are

Adv

anta

ge p

lan

paym

ent r

ates

at

leve

ls h

ighe

r th

an a

vera

ge c

osts

wou

ld b

e in

trad

itio

nal

fee-

for-

serv

ice

Med

icar

e in

eve

ry c

ount

y in

the

nati

on.

The

tot

al a

mou

nt o

f ext

ra p

aym

ents

to

Med

icar

e A

dvan

tage

pla

ns r

esul

ting

fro

m t

hese

pro

visi

ons

is p

roje

cted

at $

5.7

bill

ion

in 2

007

and

near

ly $

30 b

illi

on o

ver

the

five

ye

ar p

erio

d, 2

007

to 2

011.

5

Thi

s br

iefi

ng p

aper

out

line

s th

e sp

ecif

ic M

MA

and

DR

A p

rovi

sion

s th

at g

ener

ate

thes

e ex

tra

paym

ents

and

pre

sent

s op

port

unit

ies

for

revi

sed

poli

cies

that

can

red

uce

Med

icar

e sp

endi

ng in

exc

ess

of f

ee-f

or-s

ervi

ce c

osts

. T

he o

ptio

ns e

xplo

red

here

add

ress

the

four

bas

es

for

Med

icar

e A

dvan

tage

pla

n ex

tra

paym

ents

: M

MA

sta

tuto

ry p

rovi

sion

s, i

nclu

ding

cou

nty

benc

hmar

k ex

tra

paym

ent r

ates

and

In

dire

ct M

edic

al E

duca

tion

pay

men

ts th

at in

crea

se th

e co

unty

ben

chm

ark

rate

s; b

udge

t neu

tral

ris

k ad

just

men

t pay

men

ts;

and

paym

ents

fro

m a

reg

iona

l P

PO

sta

bili

zati

on f

und.

In v

iew

of c

once

rns

abou

t the

Fed

eral

bud

get d

efic

it o

f ove

r $2

50 b

illi

on a

yea

r an

d ot

her

mor

e sh

ort-

term

con

cern

s fa

cing

Med

icar

e,

such

as

the

cost

sav

ings

nee

ded

to p

ay f

or a

mod

ific

atio

n o

f the

Sus

tain

able

Gro

wth

Rat

e (S

GR

) po

lici

es s

o th

at M

edic

are

paym

ents

to

phys

icia

ns d

o no

t dec

line

by

5 pe

rcen

t in

200

7, r

educ

tion

s in

ext

ra p

aym

ents

to M

edic

are

Adv

anta

ge p

lans

cou

ld p

rovi

de s

ubst

anti

al

Med

icar

e sa

ving

s. F

urth

erm

ore,

red

ucti

ons

in e

xtra

pay

men

ts to

Med

icar

e A

dvan

tage

pla

ns m

ay b

e se

en a

s ap

prop

riat

e, a

s th

ese

extr

a pa

ymen

ts c

lear

ly r

un c

ount

er to

the

oft

-sta

ted

purp

ose

of

incr

easi

ng th

e en

roll

men

t of

bene

fici

arie

s in

pri

vate

pla

ns: t

o lo

wer

tota

l M

edic

are

cost

s.

I'

6

r

PA

YM

EN

TS

TO

ME

DIC

AR

E A

DV

AN

TA

GE

PL

AN

S E

XC

EE

D F

EE

-FO

R-S

ER

VIC

E C

OST

S:

OP

TIO

NS

FO

R M

ED

ICA

RE

SA

VIN

GS

FR

OM

200

7 T

HR

OU

GH

201

1

Bri

an B

iles

and

Em

ily

Adr

ion

Sept

embe

r 15

, 200

6

INT

RO

DU

CT

ION

Pro

visi

ons

of t

he M

edic

are

Mod

erni

zati

on A

ct o

f200

3 (M

MA

) ar

e in

tend

ed to

inc

reas

e th

e ro

le o

f pri

vate

hea

lth

plan

s in

Med

icar

e.

Par

t of t

he s

trat

egy

to a

ccom

plis

h th

is i

s an

incr

ease

in

paym

ents

to M

edic

are

Adv

anta

ge (

MA

) pl

ans.

7

Und

er th

ese

poli

cies

, Med

icar

e no

w p

ays

priv

ate

MA

pla

ns m

ore

per

enro

llee

tha

n av

erag

e co

sts

wou

ld b

e in

tra

diti

onal

fee

-for

­se

rvic

e (F

FS

) M

edic

are.

Thi

s di

ffer

ence

-he

re r

efer

red

to a

s ex

tra

paym

ents

-is

ant

icip

ated

to a

vera

ge I

0.9

per

cent

, or

$828

per

MA

pl

an e

nrol

lee,

in

2007

. T

he to

tal

amou

nt o

f ext

ra p

aym

ents

to M

A p

lans

is p

roje

cted

at $

5.7

bill

ion

in 2

007

and

near

ly $

30 b

illi

on

duri

ng t

he f

ive

year

s 20

07 th

roug

h 20

11.

Ext

ra p

aym

ents

to M

A p

lans

occ

ur a

gain

st th

e ba

ckgr

ound

of a

per

sist

ent i

nter

est i

n M

edic

are

cost

sav

ings

.

One

im

med

iate

dif

ficu

lty

faci

ng t

he M

edic

are

prog

ram

is t

he p

roje

cted

dec

reas

e in

pay

men

ts to

phy

sici

ans

in 2

007

caus

ed b

y th

e S

usta

inab

le G

row

th R

ate

(SG

R)

poli

cies

in t

he B

alan

ced

Bud

get A

ct o

f 19

97.

The

SG

R w

ill,

if n

ot m

odif

ied,

red

uce

phys

icia

n pa

ymen

ts b

y 5

perc

ent i

n 20

07 a

nd s

ubse

quen

t yea

rs.1

Som

e be

liev

e th

at a

red

ucti

on in

Med

icar

e pa

ymen

ts to

phy

sici

ans

wil

l re

duce

th

e ac

cess

to p

hysi

cian

s by

sen

iors

and

the

disa

bled

.

Rec

entl

y, p

ropo

sals

hav

e be

en d

iscu

ssed

tha

t wou

ld m

odif

y th

e S

GR

for

2007

by

sett

ing

the

upda

te f

rom

0 to

1.5

per

cent

. T

hese

pr

opos

als

have

bee

n es

tim

ated

to c

ost,

over

fiv

e ye

ars,

bet

wee

n $1

0.8

and

$18.

4 bi

llio

n.

Giv

en th

e F

eder

al b

udge

t def

icit

of o

ver

$250

bi

llio

n, th

ere

is s

ome

pres

sure

to p

ay f

or t

hese

inc

reas

ed c

osts

by

off-

sett

ing

savi

ngs

from

oth

er p

arts

of t

he M

edic

are

prog

ram

. S

ome

SG

R p

ropo

sals

hav

e in

clud

ed a

red

ucti

on in

ext

ra p

aym

ents

to M

A p

lans

as

the

pay-

for

poli

cy.2

11

As

a pr

eced

ent,

last

yea

r th

e D

efic

it R

educ

tion

Act

(D

RA

) pr

ovid

ed a

SG

R fi

x o

f no

decr

ease

in

phys

icia

n fe

es p

lus

a ne

t fiv

e ye

ar

redu

ctio

n o

f Med

icar

e sp

endi

ng o

f $6.

4 bi

llio

n.

The

DR

A a

chie

ved

its n

et M

edic

are

savi

ngs

from

a r

educ

tion

in p

roje

cted

pay

men

ts

to M

A p

lans

of $

6.5

bill

ion

in F

Y s

07 t

hrou

gh 1

0.

Thi

s M

A p

aym

ent p

rovi

sion

cod

ifie

d in

sta

tute

a r

educ

tion

in M

A p

lan

budg

et

neut

ral

risk

adj

ustm

ent p

aym

ents

in 2

007

-20

11 t

hat h

ad b

een

anno

unce

d by

CM

S i

n ea

rly

2005

and

mod

ifie

d in

Sep

tem

ber

2005

.

8

Bey

ond

the

shor

t-te

rm c

ost s

avin

gs n

eede

d to

pay

for

a s

olut

ion

to t

he S

GR

pro

blem

, the

Fed

eral

bud

get d

efic

it o

f ove

r $2

50 b

illi

on a

ye

ar h

as l

ed to

dis

cuss

ions

of m

ore

sign

ific

ant r

educ

tion

s in

fut

ure

Fed

eral

spe

ndin

g in

a m

ajor

bud

get r

econ

cili

atio

n bi

ll s

imil

ar to

the

on

es a

dopt

ed i

n 19

90,

1993

, and

199

7. A

ll o

f tho

se b

ills

der

ived

sub

stan

tial

sav

ings

fro

m r

educ

tion

s in

pro

ject

ed M

edic

are

spen

ding

. B

BA

'97

achi

eved

73

perc

ent o

f its

net

sav

ings

fro

m M

edic

are.

3 4

In l

ight

of t

he c

onsi

dera

tion

of p

ossi

ble

Med

icar

e sa

ving

s fo

r 20

07, t

his

brie

fing

pap

er d

escr

ibes

the

spe

cifi

c M

MA

and

DR

A p

olic

ies

that

pro

vide

ext

ra p

aym

ents

to M

A p

lans

in

2007

and

fut

ure

year

s. It

revi

ews

a se

ries

of o

ptio

ns to

red

uce

the

extr

a pa

ymen

ts to

MA

pl

ans

and

proj

ects

the

am

ount

s o

f pos

sibl

e re

duct

ions

in

Med

icar

e sp

endi

ng f

rom

200

7 -

2011

.

Thi

s an

alys

is f

ocus

es o

n M

A e

xtra

pay

men

ts r

elat

ed to

thr

ee p

olic

ies:

• M

MA

sta

tuto

ry M

A c

ount

y be

nchm

ark

paym

ent r

ates

tha

t are

the

bas

is f

or t

he b

ench

mar

k-ba

sed

plan

bid

ding

sys

tem

;

• T

he D

RA

sta

tuto

ry p

rovi

sion

s th

at c

onti

nue,

wit

h a

phas

e-ou

t, th

roug

h 20

11 t

o pr

ovid

e ad

diti

onal

pay

men

ts to

MA

pla

ns to

m

ake

the

new

ris

k ad

just

men

t sy

stem

bud

get n

eutr

al;

• M

MA

aut

hori

zed

paym

ents

fro

m a

nat

iona

l st

abil

izat

ion

fund

to

regi

onal

PP

Os

in a

ddit

ion

to t

heir

bas

ic M

A p

aym

ents

fro

m

2007

to 2

013.

The

se th

ree

poli

cies

pro

vide

a p

roje

cted

$30

bil

lion

in e

xtra

pay

men

ts to

MA

pla

ns f

rom

200

7 th

roug

h 20

11.

The

cou

nty

benc

hmar

ks

cont

ribu

te a

lmos

t $17

bil

lion

, the

BN

RA

pay

men

ts $

6 bi

llio

n an

d re

gion

al s

tabi

liza

tion

fun

d pa

ymen

ts $

6 bi

llio

n.

9

Fig

ure

1.

Pro

jec

ted

Pa

ym

en

ts t

o M

A P

lan

s i

n E

xc

es

s o

f F

FS

Co

sts

, 2

00

7 t

o 2

011

2007

-11

2007

20

08

2009

20

10

2011

5-

yr T

ota

l

To

tal

MA

ext

ra p

aym

ents

$5

.7 b

5.

6 b

5.

5 b

5.

2 b

7.

5 b

MM

A s

tatu

tory

/ben

chm

ark

$2.7

3.

1

3.4

3.7

3.9

DR

A B

NR

A p

has

e-o

ut1

$2.0

1.

4 0.

9 0.

2 2.

2

Reg

ion

al P

PO

sta

bili

zati

on

fu

nd

$1

.0

1. 1

1.

2 1.

3 1.

4

1 N

ote:

Th

e D

RA

ph

ase

-ou

t of t

he

bu

dg

et

neut

ral r

isk

ad

just

me

nt p

rovi

des

a co

ding

int

ensi

ty a

dju

stm

en

t onl

y fo

r 20

07 -

10.

Thi

s D

RA

pro

visi

on

resu

lts in

hig

he

r pr

ojec

ted

paym

ents

to

MA

pla

ns in

201

1 an

d su

bseq

uent

yea

rs.

5

$29.

5 b

$16.

8 b

$6.7

b

$6.0

b

The

pro

ject

ed c

osts

pre

sent

ed h

ere

are

base

d on

our

ana

lysi

s o

f ext

ra p

aym

ents

to M

A p

lans

in

2007

. T

he a

mou

nt o

f the

ext

ra

paym

ents

in 2

007

are

proj

ecte

d to

sub

sequ

ent y

ears

bas

ed o

n th

e C

ongr

essi

onal

Bud

get O

ffic

e's

Mar

ch 2

006

esti

mat

es o

f the

inc

reas

e in

Med

icar

e P

art A

and

B c

osts

and

the

enr

ollm

ent i

n M

A p

lans

to 2

011.

6

As

disc

usse

d be

low

, the

cou

nty

benc

hmar

k sy

stem

set

s M

A ra

tes

at d

iffe

rent

lev

els

for

seve

n ca

tego

ries

of c

ount

ies.

In

Fig

ures

2 a

nd

3, c

ount

ies

are

grou

ped

acco

rdin

g to

the

MM

A b

ench

mar

k po

licy

und

er w

hich

MA

pla

ns in

the

cou

ntie

s re

ceiv

e th

e hi

ghes

t pay

men

t ra

tes.

F

igur

e 2

pres

ents

est

imat

ed a

vera

ge e

xtra

pay

men

ts a

bove

fee

-for

-ser

vice

cos

ts p

er e

nrol

lee

for

MA

pla

ns in

the

se s

even

ca

tego

ries

for

200

7. F

igur

e 3

pres

ents

the

esti

mat

ed s

hare

of t

otal

ext

ra p

aym

ents

in 2

007

for

each

of t

hese

sev

en c

ateg

orie

s o

f co

unti

es. 7

As

illu

stra

ted

in F

igur

e 3,

an

esti

mat

ed 4

2 pe

rcen

t of t

otal

MA

ext

ra p

aym

ents

wil

l go

to

plan

s in

urb

an f

loor

cou

ntie

s in

200

7. T

his

is

an a

vera

ge o

f $1,

382

in a

nnua

l ex

tra

paym

ents

for

eac

h o

f the

1.4

mil

lion

MA

pla

n en

roll

ees

in t

hese

cou

ntie

s.

Ove

r 24

per

cent

of

tota

l ex

tra

paym

ents

go

to p

lans

in t

he 1

00 p

erce

nt o

fFF

S in

200

5 co

unti

es w

ith

$514

per

enr

olle

e in

ext

ra p

aym

ents

and

2.2

mil

lion

en

roll

ees.

r:

Fig

ure

2.

Est

ima

ted

An

nu

al

Ext

ra P

aym

en

ts t

o M

A P

lan

s p

er

Pla

n E

nro

llee

, 2

00

7

$1

,60

0

$1

,40

0

$1

,38

2

$1

,20

0

$1

,00

0

Nat

ion

al A

vera

ge

= $8

28

$8

00

$6

00

$4

00

$2

00

$

45

$0

R

ura

l U

rba

n

Ble

nd

M

inim

um

10

0%F

FS

10

0%F

FS

100

% F

FS

F

loo

r F

loo

r U

pd

ate

in

200

4 in

200

5 in

200

7

Sour

ce:

GW

U a

naly

sis

of C

ente

rs f

or M

edic

are

and

Med

icai

d S

ervi

ces

Med

icar

e M

anag

ed C

are

Qua

rter

ly S

tate

, Cou

nty,

Pla

n D

ata

File

for

the

quar

ter

endi

ng D

ecem

ber 2

005

and

Med

icar

e A

dvan

tage

200

7 R

ate b

ook.

N

ote:

Fig

ures

abo

ve i

nclu

de B

NR

A a

nd F

FS n

orm

aliz

atio

n. A

ssum

es p

lan

bids

in a

ll co

untie

s fa

ll 16

% b

elow

the

benc

hmar

k.

10

Fig

ure

3.

Est

ima

ted

Sha

re o

f To

tal

$4.7

Bill

ion

in E

xtra

Pa

yme

nts

to

M

A P

lan

s b

y C

ou

nty

Pa

yme

nt C

ate

go

ry,

2007

Urb

an

Flo

or,

42

.0%

Ble

nd

, 6.

8%

Min

imu

m U

pd

ate

, 7.

8%

100%

FFS

200

4,

10.0

%

100%

FF

S 2

005,

24

.7%

__

_ 10

0% F

FS

200

7,

0.4%

Rur

al F

loo

r, 8

.3%

Sou

rce:

Ge

org

e W

ash

ing

ton

Uni

vers

ity a

naly

sis

of C

ente

rs f

or

Me

dic

are

and

Med

icai

d S

ervi

ces

Me

dic

are

Man

aged

Ca

re Q

ua

rte

rly

Sta

te,

Co

un

ty P

lan

Dat

a F

ile f

or

the

qu

art

er

en

din

g D

ece

mb

er

2005

, M

ed

ica

re M

an

ag

ed

Ca

re

Qu

art

erl

y S

tate

Co

un

ty M

arke

t P

enet

ratio

n F

ile f

or

the

qu

art

er

endi

ng D

ece

mb

er

20

05

and

Me

dic

are

Ad

van

tag

e 2

00

7 R

ateb

ook.

Not

e: F

igur

es a

bo

ve in

clud

e B

NR

A a

nd F

FS

nor

mal

izat

ion.

Ass

um

es

plan

bid

s in

all

coun

ties

fall

16%

be

low

the

ben

chm

ark.

11

12

T

EX

TR

A P

AY

ME

NT

S T

O M

A P

LA

NS

In 2

005

and

earl

ier

year

s, M

A p

lans

wer

e pa

id a

t the

lev

el o

f the

cou

nty

benc

hmar

k. B

egin

ning

in 2

006,

the

MM

A s

peci

fies

tha

t M

edic

are

pay

MA

pla

ns o

n a

benc

hmar

k-ba

sed

bidd

ing

syst

em.

13

Und

er th

is s

yste

m, C

MS

cal

cula

tes

a co

unty

ben

chm

ark

each

yea

r fo

r ea

ch c

ount

y.

Thi

s be

nchm

ark

is t

hen

adju

sted

by

a bu

dget

ne

utra

l ri

sk a

djus

tmen

t fac

tor.

The

res

ulti

ng f

igur

e is

ess

enti

ally

the

base

rat

e ag

ains

t whi

ch M

A p

lans

bid

. E

very

MA

pla

n fi

les

a bi

d ea

ch J

une

to p

rovi

de A

and

B s

ervi

ces

for

the

next

cal

enda

r ye

ar th

at r

efle

cts

the

cost

s to

the

pla

n o

f pro

vidi

ng P

art A

and

B s

ervi

ces

in th

e ca

lend

ar y

ear.

8

Thi

s se

ctio

n w

ill

exam

ine

the

four

fac

tors

res

pons

ible

for

the

lev

el o

f ext

ra p

aym

ents

to M

A p

lans

in

2007

and

fut

ure

year

s:

MA

co

unty

ben

chm

ark

rate

s; !

ME

pay

men

ts th

at i

ncre

ase

coun

ty b

ench

mar

ks;

budg

et n

eutr

al r

isk

adju

stm

ent p

aym

ents

; an

d M

A p

lan

bids

.

MA

cou

nty

ben

chm

ark

rat

es.

The

MM

A p

rovi

des

spec

ific

ins

truc

tion

s fo

r C

MS

to f

ollo

w e

ach

year

whe

n it

pos

ts M

A c

ount

y le

vel

benc

hmar

ks a

s th

e fo

unda

tion

for

the

cal

cula

tion

of M

edic

are

paym

ents

to M

A p

lans

.

Fol

low

ing

MM

A p

olic

ies,

the

MA

cou

nty

benc

hmar

k ra

tes

for

2007

, po

sted

by

CM

S i

n A

pril

200

6, a

re m

ore

than

the

aver

age

cost

s in

F

FS

in

ever

y co

unty

in t

he n

atio

n.9

Cou

nty

benc

hmar

k ra

tes

in 2

007

are

proj

ecte

d to

exc

eed

FF

S c

osts

by

an a

vera

ge o

f $1,

161

per

M

A e

nrol

lee

or 1

4.9

perc

ent.

Ben

chm

ark

rate

s va

ry f

rom

$1,

693

mor

e th

an F

FS

cos

ts i

n th

e ur

ban

floo

r co

unti

es to

jus

t $42

7 m

ore

in

the

coun

ties

pai

d ac

cord

ing

to 1

00 p

erce

nt o

f 200

7 F

FS

cos

ts.10

MM

A p

rovi

sion

s sp

ecif

y th

at th

e M

A b

ench

mar

k pa

ymen

t rat

e fo

r ea

ch c

ount

y is

set

at t

he h

ighe

st o

f se

ven

diff

eren

t am

ount

s fo

r 20

07.

The

sev

en c

ount

y pa

ymen

t typ

es a

re:11

• A

rur

al f

loor

rat

e fo

r ru

ral

coun

ties

set

at,

incl

udin

g B

NR

A,

$8,0

73 i

n 20

07;

• A

n ur

ban

floo

r ra

te i

n ur

ban

coun

ties

wit

h a

popu

lati

on o

f mor

e th

an 2

50,0

00 s

et a

t, in

clud

ing

BN

RA

, $8

,992

in

2007

;

• A

ble

nded

rat

e fo

r th

e co

unty

cal

cula

ted

as t

he a

vera

ge o

f 50

perc

ent o

f loc

al F

FS

cos

ts a

nd 5

0 pe

rcen

t of n

atio

nal

FF

S i

n 20

04

tren

ded

forw

ard

to 2

007;

14

• A

min

imum

inc

reas

e ra

te b

ased

on

the

coun

ty p

aym

ent

leve

l in

200

3 tr

ende

d fo

rwar

d to

200

7;

• 10

0 pe

rcen

t of a

vera

ge F

FS

cos

ts i

n th

e co

unty

in 2

004

tren

ded

forw

ard

to 2

007;

• 10

0 pe

rcen

t of a

vera

ge F

FS

cos

ts in

the

cou

nty

in 2

005

tren

ded

forw

ard

to 2

007;

and

• 10

0 pe

rcen

t of a

vera

ge c

ount

y F

FS

cos

ts in

the

coun

ty in

200

7 12

Indi

rect

Med

ical

Edu

cati

on (

IME

) pa

ymen

ts.

MM

A d

irec

ts t

hat p

aym

ents

to t

each

ing

hosp

ital

s fo

r th

e co

sts

of i

ndir

ect m

edic

al

educ

atio

n (!

ME

) be

inc

lude

d in

the

calc

ulat

ion

of p

er c

apit

a FF

S co

sts

for

sett

ing

the

MA

pla

n co

unty

ben

chm

ark

rate

s. H

owev

er, a

n ea

rlie

r M

edic

are

poli

cy e

nact

ed in

199

7 pr

ovid

es f

or M

edic

are

to p

ay te

achi

ng h

ospi

tals

dir

ectl

y fo

r th

e !M

E c

osts

of M

A p

lan

enro

llee

s w

ho a

re i

npat

ient

s, r

athe

r tha

n le

avin

g th

e de

term

inat

ion

of t

hose

pay

men

ts to

the

MA

pla

ns.

As

a re

sult

, M

edic

are

now

ef

fect

ivel

y pa

ys tw

ice

for

the

!ME

cos

ts o

f MA

pla

n m

embe

rs.13

In th

e ag

greg

ate,

ext

ra p

aym

ents

est

imat

ed d

ue t

o th

e do

uble

pay

men

t for

!M

E a

ccou

nt f

or s

omew

hat l

ess

than

20

perc

ent o

f the

tot

al

MA

pla

n pa

ymen

ts i

n ex

cess

of F

FS

cos

ts,

whe

n av

erag

ed a

cros

s th

e co

untr

y.

!ME

pay

men

ts a

re e

stim

ated

at $

800

mil

lion

in 2

007

and

$5 b

illi

on o

ver

five

yea

rs i

nclu

ding

the

redu

ctio

n o

f pay

men

ts to

acc

ount

for

M

A p

lan

bids

.14

Bec

ause

the

!ME

pay

men

t am

ount

s ar

e in

clud

ed in

the

ben

chm

ark

paym

ent r

ates

, the

se p

aym

ents

are

inc

orpo

rate

d in

est

imat

es o

f the

am

ount

of e

xtra

pay

men

ts d

ue t

o th

e be

nchm

ark-

base

d bi

ddin

g sy

stem

dis

cuss

ed a

bove

.

Sin

ce te

achi

ng h

ospi

tals

are

not

spr

ead

even

ly a

cros

s ge

ogra

phic

are

as, !

ME

pay

men

ts a

nd,

cons

eque

ntly

, the

con

trib

utio

n o

f!M

E

paym

ent a

mou

nts

to e

xtra

pay

men

ts to

MA

pla

ns,

vary

sub

stan

tial

ly b

y ar

ea.

In N

ew Y

ork,

!M

E e

xtra

pay

men

ts to

MA

pla

ns in

som

e co

unti

es a

re e

stim

ated

at 6

per

cent

, or

$600

per

cap

ita;

in

othe

r st

ates

wit

h lo

wer

!M

E p

aym

ents

for

FF

S i

npat

ient

s, s

uch

as F

lori

da

and

Tex

as, !

ME

ext

ra p

aym

ents

to p

lans

are

est

imat

ed a

t un

der

1 pe

rcen

t, o

r $9

0 pe

r ca

pita

; in

sti

ll o

ther

are

as, !

ME

pay

men

ts h

ave

alm

ost n

o ef

fect

on

Med

icar

e sp

endi

ng.

As

a sh

are

of e

xtra

pay

men

ts to

MA

pla

ns, t

here

is

also

gre

at v

aria

tion

by

coun

ty p

aym

ent t

ype.

In

the

100

perc

ent o

f FFS

cou

ntie

s,

!ME

cos

ts a

ccou

nt f

or a

ll o

f the

ben

chm

ark

extr

a pa

ymen

ts to

MA

pla

ns a

nd a

ppro

xim

atel

y 59

per

cent

of t

otal

ext

ra p

aym

ent r

ates

. In

ur

ban

floo

r co

unti

es, !

ME

cos

ts a

re e

stim

ated

to a

ccou

nt f

or l

ess

than

10

perc

ent o

f tot

al e

xtra

pay

men

t rat

es t

o M

A p

lans

.

I'

Bu

dge

t Neu

tral

Ris

k A

djus

tmen

t (B

NR

A)

paym

ents

. T

he D

efic

it R

educ

tion

Act

inc

lude

d pr

ovis

ions

that

spe

cifi

ed th

at b

udge

t ne

utra

l pa

ymen

ts to

MA

pla

ns s

houl

d be

con

tinu

ed i

n 20

07 w

ith

a ph

ase-

out t

hrou

gh 2

011.

T

his

poli

cy p

rovi

des

for

MA

pay

men

ts

over

and

abo

ve t

he b

ench

mar

k ex

tra

paym

ents

spe

cifi

ed b

y th

e M

MA

, as

par

t of t

he i

mpl

emen

tati

on o

f the

new

ris

k ad

just

men

t sy

stem

that

is i

nten

ded

to a

djus

t eac

h pl

an's

pay

men

ts f

or t

he a

ntic

ipat

ed c

ostl

ines

s o

f its

enr

olle

es.15

15

The

new

ris

k ad

just

men

t sys

tem

, whi

ch is

bas

ed o

n re

tros

pect

ive

clin

ical

dat

a on

eac

h en

roll

ee,

is m

ore

accu

rate

tha

n th

e pr

evio

us

syst

em,

whi

ch w

as b

ased

onl

y on

a f

ew b

road

dem

ogra

phic

cha

ract

eris

tics

and

was

use

d un

til

1997

. T

he i

mpl

emen

tati

on o

f the

new

sy

stem

was

exp

ecte

d to

mak

e pa

ymen

ts to

pla

ns m

ore

clos

ely

refl

ect t

he a

ntic

ipat

ed c

ostl

ines

s o

f the

ir e

nrol

lees

, the

reby

red

ucin

g th

e ad

vers

e in

cent

ive

unde

r th

e pr

evio

us s

yste

m f

or p

lans

to a

void

enr

olli

ng b

enef

icia

ries

exp

ecte

d to

hav

e hi

gh c

osts

(e.

g.,

olde

r be

nefi

ciar

ies

and

bene

fici

arie

s w

ith

chro

nic

cond

itio

ns)

and

recr

uit

bene

fici

arie

s an

tici

pate

d to

hav

e lo

w c

osts

. B

ecau

se r

esea

rch

indi

cate

d th

at p

lans

did

, in

fac

t, te

nd to

enr

oll

bene

fici

arie

s w

ith

low

er r

isk

of h

igh

cost

s, r

isk

adju

stm

ent w

as e

xpec

ted

to r

educ

e pl

an

paym

ents

.

To

mit

igat

e th

e ef

fect

of t

his

chan

ge o

n pl

ans,

CM

S ph

ased

-in

the

new

cli

nica

lly-

base

d sy

stem

as

a bl

end

wit

h th

e ol

der

dem

ogra

phic

sy

stem

; in

200

5, th

e ri

sk a

djus

ter

was

app

lied

to 5

0 pe

rcen

t of t

he M

A p

aym

ent r

ate,

wit

h th

e pr

opor

tion

ris

ing

to 7

5 pe

rcen

t in

2006

an

d I 0

0 pe

rcen

t in

200

7 an

d th

erea

fter

.

In a

n ad

min

istr

ativ

e po

licy

dec

isio

n, C

MS

im

plem

ente

d th

e ne

w r

isk

adju

stm

ent s

o th

at it

wou

ld n

ot r

educ

e ag

greg

ate

paym

ents

to

MA

pla

ns b

egin

ning

in 2

000.

16

Thi

s w

as d

one

by i

ncre

asin

g pa

ymen

ts to

all

MA

pla

ns b

y a

unif

orm

per

cent

age

-th

e B

NR

A

paym

ent -

to c

ompe

nsat

e fo

r th

e fa

ct t

hat t

he a

vera

ge M

A e

nrol

lee

has

a lo

wer

ris

k sc

ore

(is

anti

cipa

ted

to b

e le

ss c

ostl

y) t

han

the

aver

age

FFS

bene

fici

ary.

Bec

ause

of t

he B

NR

A p

aym

ents

, Med

icar

e pa

ys M

A p

lans

mor

e th

an th

e ri

sk a

djus

tmen

t mod

el i

ndic

ates

it w

ould

be

expe

cted

to p

ay

for

the

sam

e be

nefi

ciar

ies

in F

FS

.

In J

anua

ry o

f200

5, C

MS

ind

icat

ed, a

s pa

rt o

f the

pre

sent

atio

n o

f Med

icar

e in

the

bud

get f

or F

Y 2

006,

tha

t it

inte

nded

to p

hase

-out

the

BN

RA

pay

men

ts f

rom

200

7 th

roug

h 20

11.

Thi

s ph

ase-

out p

olic

y w

as r

evis

ed i

n S

epte

mbe

r o

f 200

5 by

CM

S to

a s

ligh

tly

mor

e ra

pid

phas

e-ou

t.

The

Def

icit

Red

ucti

on A

ct (

OR

A)

enac

ted

in F

ebru

ary

2006

cod

ifie

d in

sta

tute

the

Sep

tem

ber

2005

CM

S B

NR

A p

olic

y.

Ii

16

The

DR

A m

anda

ted

phas

e-ou

t con

tinu

es t

he e

arli

er p

olic

y in

200

6 by

app

lyin

g th

e B

NR

A a

djus

tmen

t to

75 p

erce

nt o

f the

MA

pa

ymen

t rat

es c

onsi

sten

t wit

h th

e ne

w r

isk

adju

ster

app

lyin

g to

75

perc

ent o

f the

MA

pay

men

t rat

es.

The

DR

A p

olic

y w

ould

beg

in to

ph

ase

out t

he B

NR

A a

djus

tmen

t by

app

lyin

g it

to o

nly

55 p

erce

nt o

f the

MA

pay

men

t rat

es i

n 20

07,17

40 p

erce

nt in

200

8, 2

5 pe

rcen

t in

200

9, 5

per

cent

in 2

010

and

0 pe

rcen

t in

201

1.18

19

Ext

ra p

aym

ents

to M

A p

lans

are

pro

ject

ed to

inc

reas

e in

201

1 be

caus

e th

e D

RA

pha

se-o

ut o

f the

bud

get n

eutr

al r

isk

adju

stm

ent

spec

ific

ally

pro

vide

s fo

r a

codi

ng i

nten

sity

adj

ustm

ent f

or p

aym

ents

to M

A p

lans

onl

y fo

r 20

07 -

I 0.

Thi

s D

RA

pro

visi

on r

esul

ts i

n hi

gher

pro

ject

ed p

aym

ents

to M

A p

lans

of $

2.2

bill

ion

in 2

011

and

mor

e in

sub

sequ

ent y

ears

.20

In 2

007,

the

MA

pla

n bu

dget

neu

tral

ris

k ad

just

men

t (B

NR

A)

poli

cy w

ill a

dd a

n es

tim

ated

3 p

erce

nt to

MA

pla

n pa

ymen

ts a

nd t

he

tota

l co

st o

f the

BN

RA

pol

icy

is p

roje

cted

to b

e ab

out $

2 bi

llio

n. 21

T

he t

otal

am

ount

of e

xtra

pay

men

ts to

MA

pla

ns i

n 20

07 t

o 20

11

prov

ided

by

the

curr

ent B

NR

A p

olic

y is

pro

ject

ed a

t $6.

7 bi

llio

n.

MA

pla

n bi

ds.

Beg

inni

ng in

200

6, t

he M

MA

pro

vide

s th

at p

aym

ents

to M

A p

lans

cha

nge

from

a s

yste

m t

hat p

ays

plan

s at

the

leve

l o

f the

cou

nty

benc

hmar

ks p

lus

BN

RA

pay

men

ts to

one

tha

t com

bine

s co

unty

ben

chm

arks

plu

s B

NR

A p

aym

ents

wit

h a

bid

by e

ach

indi

vidu

al M

A p

lan.

22

F

or th

e re

mai

nder

of t

his

sect

ion,

the

ter

m 'c

ount

y be

nchm

ark'

wil

l in

clud

e B

NR

A p

aym

ents

. In

200

7, t

he

BN

RA

wil

l add

3 .9

per

cent

to e

very

cou

nty

benc

hmar

k.

The

new

ben

chm

ark-

base

d bi

ddin

g sy

stem

in 2

006

allo

cate

s 75

per

cent

of t

he d

iffe

renc

e be

twee

n th

e co

unty

ben

chm

ark

and

the

MA

pl

an b

id to

the

pla

n an

d 25

per

cent

to t

he F

eder

al g

over

nmen

t. M

A p

lans

mus

t use

the

ir 7

5 pe

rcen

t sha

re to

pro

vide

add

itio

nal

bene

fits

to

MA

pla

n en

roll

ees.

Ana

lyst

s w

ho h

ave

stud

ied

Med

icar

e pr

ivat

e pl

an p

aym

ents

and

cos

ts h

ave

esti

mat

ed th

at th

e av

erag

e M

A p

lan

bid

is a

ppro

xim

atel

y 16

per

cent

less

tha

n th

e co

unty

ben

chm

ark

in 2

006.

23

If th

e bi

ds c

onti

nue

to a

vera

ge 1

6 pe

rcen

t les

s th

an t

he b

ench

mar

ks, t

here

wou

ld b

e an

ave

rage

red

ucti

on i

n M

A p

lan

paym

ents

of 4

pe

rcen

tage

poi

nts,

whi

ch w

ould

red

uce

the

aver

age

leve

l o

fMM

A s

tatu

tory

ext

ra p

aym

ents

fro

m 1

4.9

perc

ent t

o 10

.9 p

erce

nt in

200

7.

Wit

h bi

ds a

t thi

s le

vel,

MM

A s

tatu

tory

ext

ra p

aym

ents

are

est

imat

ed a

t $4.

7 bi

llio

n in

200

7 an

d $2

4 bi

llio

n ov

er th

e fi

ve y

ears

200

7 th

roug

h 20

11.

n

17

The

im

pact

of t

he b

id p

roce

ss w

ill

like

ly v

ary

by i

ndiv

idua

l M

A p

lan

and

by l

ocat

ion.

E

ven

if th

e na

tion

al a

vera

ge d

iffe

renc

e be

twee

n th

e be

nchm

ark

rate

s an

d th

e pl

an b

ids

nati

onw

ide

is 1

6 pe

rcen

t, th

ere

wil

l be

wid

e va

riat

ion

by p

lans

aro

und

this

ave

rage

, de

pend

ing

on th

e co

unty

ben

chm

ark

paym

ent r

ate,

the

am

ount

by

whi

ch th

e co

unty

ben

chm

ark

exce

eds

FFS

cost

s, t

he M

A p

lan'

s m

anag

emen

t of

heal

th p

rice

s an

d ut

iliz

atio

n, a

nd t

he a

mou

nt o

f com

peti

tion

am

ong

MA

pla

ns in

eac

h m

arke

t.

If an

MA

pla

n bi

d is

4 p

erce

nt le

ss t

han

the

benc

hmar

k, th

e M

edic

are

paym

ent w

ould

be

redu

ced

by 1

per

cent

age

poin

t whi

le a

bid

th

at is

20

perc

ent l

ess

than

the

benc

hmar

k w

ould

red

uce

the

Med

icar

e pa

ymen

t by

5 pe

rcen

tage

poi

nts.

The

im

pact

of t

he n

ew b

iddi

ng s

yste

m o

n ex

tra

paym

ents

to M

A p

lans

wil

l, o

f cou

rse,

var

y by

the

extr

a pa

ymen

ts a

vail

able

to p

lans

in

each

type

of c

ount

y.

For

exa

mpl

e, a

16

perc

enta

ge p

oint

dif

fere

nce

betw

een

plan

bid

s an

d th

e co

unty

ben

chm

ark

stil

l wou

ld l

eave

pay

men

ts to

MA

pla

ns in

ru

ral

floo

r, u

rban

flo

or,

blen

d an

d 10

0 pe

rcen

t of2

00

4 F

FS

cos

t cou

ntie

s m

ore

than

10

perc

ent a

bove

ave

rage

FFS

cos

ts.

App

roxi

mat

ely

60 p

erce

nt o

f MA

ext

ra p

aym

ents

in 2

007

go t

o pl

ans

in t

hese

cou

ntie

s.

In c

ontr

ast,

a 16

per

cent

age

poin

t dif

fere

nce

betw

een

plan

bid

s an

d th

e co

unty

ben

chm

ark

in c

ount

ies

in t

he 1

00 p

erce

nt o

f 200

7 F

FS

cos

ts c

ateg

ory

wou

ld l

eave

pla

n pa

ymen

ts

less

tha

n 1

perc

ent a

bove

ave

rage

FF

S c

osts

. (F

igur

e 4)

.

I'

18%

12%

6%

0%

Fig

ure

4.

Est

ima

ted

Ext

ra P

aym

en

ts t

o M

A P

lan

s F

ollo

win

g 4

%

Re

du

ctio

n D

ue t

o B

ids

16%

Be

low

Be

nch

ma

rks,

200

7

19.8

%

Ru

ral F

loo

r U

rba

n F

loo

r B

len

d

Min

imu

m

Up

da

te

Na

tion

al A

vera

ge

= 1

0.9o

/o

0.5%

100%

FF

S

100%

FF

S

100%

FF

S

in 2

004

in 2

005

in 2

007

Sou

rce:

Ge

org

e W

ash

ing

ton

Uni

vers

ity a

naly

sis

of C

ente

rs f

or

Me

dic

are

and

Med

icai

d S

ervi

ces

Med

icar

e M

anag

ed C

are

Qu

art

erl

y S

tate

, C

ou

nty

Pla

n D

ata

File

fo

r th

e q

ua

rte

r e

nd

ing

De

cem

be

r 20

05,

Me

dic

are

Ma

na

ge

d

Car

e Q

uarte

rly S

tate

Cou

nty

Mar

ket

Pen

etra

tion

File

for t

he q

uarte

r end

ing

Dec

embe

r 200

5 an

d M

edic

are

Adv

anta

ge 2

007

Rat

eboo

k; T

ran

scri

pt

of P

ub

lic M

eetin

g, M

ed

ica

re P

aym

en

t Ad

viso

ry C

omm

issi

on,

Apr

il 21

, 20

05.

Not

e: F

igur

es a

bo

ve in

clud

e B

NR

A a

nd F

FS

nor

mal

izat

ion.

Ass

um

es

plan

bid

s in

all

coun

ties

fall

16%

be

low

the

be

nch

ma

rk.

18

Ext

ra p

aym

ents

thr

ough

the

reg

iona

l PP

O s

tabi

lizat

ion

fund

. In

add

itio

n to

the

sta

tuto

ry p

rovi

sion

s th

at p

rovi

de s

peci

fic

extr

a pa

ymen

ts to

all

MA

pla

ns, t

he M

MA

als

o pr

ovid

es C

MS

wit

h th

e au

thor

ity

to m

ake

extr

a pa

ymen

ts to

new

reg

iona

l P

PO

s fr

om a

st

abil

izat

ion

fund

bet

wee

n 20

07 a

nd 2

013.

Pay

men

ts f

rom

the

fun

d du

ring

thi

s pe

riod

may

tota

l up

to

$10

bill

ion.

24

CM

S d

esig

nate

d 28

sta

te a

nd m

ulti

-sta

te r

egio

ns f

or t

he r

egio

nal

PP

Os

that

beg

an o

pera

tion

in 2

006.

CM

S m

ay u

se t

he r

egio

nal

PP

O s

tabi

liza

tion

fun

d to

mak

e ex

tra

paym

ents

to r

egio

nal

PP

Os

in t

hree

ins

tanc

es:

• T

he f

irst

spo

nsor

ofr

egio

nal P

P O

s in

eve

ry r

egio

n in

the

nat

ion

wou

ld r

ecei

ve a

bon

us o

f 3 p

erce

nt o

f the

ben

chm

ark

in e

ach

regi

on;

• R

egio

nal

PP

Os

that

wou

ld b

e th

e fi

rst

to s

erve

a r

egio

n m

ay b

e pr

ovid

ed e

xtra

pay

men

ts;

and

• R

egio

nal

PP

Os

that

indi

cate

the

y pl

an to

lea

ve a

reg

ion

resu

ltin

g in

few

er t

han

two

regi

onal

PP

Os

plan

s in

the

reg

ion

may

be

prov

ided

ext

ra p

aym

ents

.

The

pat

tern

of r

egio

nal

PP

Os

mea

ns t

hat C

MS

may

mak

e pa

ymen

ts to

reg

iona

l P

PO

s un

der

each

of t

hese

thr

ee c

ondi

tion

s. I

n 20

06,

ther

e is

no

spon

sor

ofre

gion

al P

PO

s in

eve

ry r

egio

n; t

here

are

fiv

e re

gion

s w

itho

ut a

ny r

egio

nal

PP

O p

lans

; an

d th

ere

are

no r

egio

ns

wit

h m

ore

than

two

regi

onal

PP

O p

lans

.

It is

im

?ort

ant t

o no

te t

hat C

MS

rep

orte

d th

ere

wer

e ap

prox

imat

ely

50,0

00 e

nrol

lees

in

Reg

iona

l P

PO

s na

tion

wid

e as

of M

ay 2

5,

2006

.2

19

The

dis

cret

iona

ry n

atur

e o

f the

PP

O s

tabi

liza

tion

fun

d an

d th

e le

ngth

of t

he t

ime

peri

od i

nv

olv

ed-2

00

7 to

201

3 -m

akes

it d

iffi

cult

to

proj

ect t

he c

osts

of t

he f

und

in s

peci

fic

year

s.

One

rea

sona

ble

assu

mpt

ion

is t

hat C

MS

may

use

the

se f

unds

at

roug

hly

equa

l am

ount

s o

f $1

-$1

.4 b

illi

on i

n ea

ch o

f the

sev

en y

ears

of t

he f

und'

s av

aila

bili

ty.

Und

er th

is a

ssum

ptio

n, th

e to

tal

amou

nt o

f ext

ra p

aym

ents

to

MA

pla

ns in

200

7 to

201

1 pr

ovid

ed b

y th

e re

gion

al P

PO

sta

bili

zati

on f

und

poli

cy is

pro

ject

ed a

t $6.

0 bi

llio

n.

20

r·

21

OP

TIO

NS

FO

R M

ED

ICA

RE

SA

VIN

GS

IN

200

7 T

HR

OU

GH

201

1

Ext

ra p

aym

ents

to M

A p

lans

are

pro

ject

ed to

tot

al m

ore

than

$5

bill

ion

in 2

007

and

as m

uch

as $

30 b

illi

on in

the

five

yea

r pe

riod

fro

m

2007

thro

ugh

2011

.

The

spe

cifi

c M

MA

and

DR

A p

rovi

sion

s th

at g

ener

ate

thes

e ex

tra

paym

ents

pre

sent

opp

ortu

niti

es f

or r

evis

ed p

olic

ies

that

can

red

uce

this

Med

icar

e sp

endi

ng in

exc

ess

ofF

FS

cos

ts.

The

opt

ions

des

crib

ed h

ere

are

grou

ped

acco

rdin

g to

the

thr

ee b

ases

for

MA

pla

n ex

tra

paym

ents

: M

MA

sta

tuto

ry p

rovi

sion

s; D

RA

bud

get n

eutr

al r

isk

adju

stm

ent p

olic

es;

and

the

regi

onal

PP

O s

tabi

liza

tion

fun

d.

Dep

endi

ng o

n th

e ex

tent

and

the

tim

ing

of a

ny n

ew p

olic

ies,

the

am

ount

of s

avin

gs f

rom

200

7 to

201

1 co

uld

tota

l fr

om a

few

to t

ens

of b

illi

ons

of d

olla

rs.

Med

icar

e sa

ving

s fr

om t

he

ben

chm

ark

ex

tra

paym

ents

. M

edic

are

savi

ngs

may

be

achi

eved

by

chan

ging

the

MM

A p

olic

es t

hat

expl

icit

ly s

et c

ount

y be

nchm

arks

at

leve

ls a

bove

ave

rage

FFS

cos

ts.

Pos

sibl

e fi

ve y

ear

savi

ngs

of u

p to

$16

bil

lion

are

pos

sibl

e fr

om

sett

ing

MA

pay

men

t cou

nty

benc

hmar

ks c

lose

r to

FF

S c

osts

.

Opt

ion

la.

The

gre

ates

t sa

ving

s fr

om r

evis

ing

the

MM

A e

xtra

pay

men

t pro

visi

ons

wou

ld b

e ge

nera

ted

by e

lim

inat

ing

all

benc

hmar

k ex

tra

paym

ents

as

of J

anua

ry 2

007.

The

new

pol

icy

coul

d sp

ecif

y th

at th

e M

A p

lan

benc

hmar

ks w

ould

be

set a

t 10

0 pe

rcen

t of t

he

cost

s o

f FFS

at t

he c

ount

y le

vel.

Any

Fed

eral

sav

ings

fro

m p

lan

bids

bel

ow th

e ne

w b

ench

mar

ks w

ould

con

trib

ute

tow

ard

pay-

for­

perf

orm

ance

pay

men

ts to

MA

pla

ns.

Sav

ings

wou

ld b

e m

ost s

igni

fica

nt in

the

urb

an f

loor

cou

ntie

s w

here

ann

ual

Med

icar

e M

A p

aym

ents

abo

ve F

FS c

osts

wou

ld b

e re

duce

d by

an

aver

age

of o

ver

$1,0

00.

Thi

s op

tion

is p

roje

cted

to r

educ

e M

edic

are

spen

ding

by

$2.7

bil

lion

in

2007

and

ove

r $1

6 bi

llio

n ov

er f

ive

year

s.

22

Op

tio

n 1

a: S

et M

A P

lan

Sta

tuto

ry/B

ench

mar

k P

aym

ents

at

100%

of

Co

un

ty F

FS

Co

sts

in 2

007

and

Fu

ture

Yea

rs

2007

-11

2007

20

08

2009

20

10

2011

Cu

rren

t b

asel

ine:

MM

A s

tatu

tory

/ben

chm

ark

extr

a p

aym

ents

$2

.7

3.1

3.4

3.7

3.9

Res

idu

al M

edic

are

cost

s: b

ench

mar

k at

100

% o

f F

FS

-0

--0

--0

--0

--0

-

Med

icar

e sa

vin

gs

$2.7

3.

1 3.

4 3.

7 3.

9

Not

e:

Ass

um

es

MA

pla

n be

nchm

ark

is s

et a

t 10

0% o

f cou

nty

FF

S c

osts

in 2

007

and

sub

seq

ue

nt y

ears

. A

ssu

me

s th

at a

ll fu

nds

tha

t re

sult

from

MA

pla

n bi

ds a

t le

ss t

han

the

benc

hmar

k ar

e re

turn

ed t

o M

A p

lans

as

pay-

for-

perf

orm

ance

pay

men

ts.

5-yr

T

ota

l

$16.

8 b

-0-

$16.

8 b

Sou

rce:

Geo

rge

Was

hing

ton

Uni

vers

ity a

naly

sis

of C

ente

rs f

or M

edic

are

and

Med

icai

d S

ervi

ces

Med

icar

e M

anag

ed C

are

Qua

rter

ly S

tate

, C

ount

y, P

lan

Dat

a F

ile

for

the

qu

art

er

endi

ng D

ece

mb

er

2005

, M

edic

are

Man

aged

Car

e Q

uart

erly

Sta

te C

ount

y M

ark

et P

enet

ratio

n F

ile f

or th

e q

ua

rte

r en

ding

De

cem

be

r 20

05 a

nd

Med

icar

e A

dvan

tage

Rev

ised

200

7 R

ateb

ook;

Med

icar

e P

aym

en

t Ad

viso

ry C

omm

issi

on,

Med

icar

e A

dvan

tage

Be

nch

ma

rks

an

d P

aym

en

ts C

om

pa

red

with

A

vera

ge

Fee

-For

-Ser

vice

Spe

ndin

g (W

ashi

ngto

n, D

.C.:

Med

PA

C,

Jun

e 2

006)

.

r:

23

Opt

ion

lb.

An

appr

oach

to t

he g

radu

al r

educ

tion

of t

he M

MA

ext

ra p

aym

ents

wou

ld b

e to

pha

se-d

own

the

benc

hmar

k ex

tra

paym

ents

ove

r a

num

ber

of y

ears

. A

red

ucti

on o

fMM

A b

ench

mar

k ex

tra

paym

ents

cou

ld b

egin

in

2007

and

run

ove

r fo

ur y

ears

at

25

perc

ent p

er y

ear.

U

nder

this

app

roac

h, b

ench

mar

k ex

tra

paym

ents

in

ever

y co

unty

wou

ld d

ecli

ne f

rom

the

200

6 le

vels

to

75 p

erce

nt i

n 20

07,

50 p

erce

nt in

200

8, a

nd 2

5 pe

rcen

t in

2009

, w

ith

paym

ents

at

100

perc

ent o

f ave

rage

cou

nty

FF

S c

osts

in

2010

and

sub

sequ

ent

year

s.

Thi

s ap

proa

ch w

ould

pro

vide

sub

stan

tial

Med

icar

e sa

ving

s w

hile

giv

ing

plan

s in

the

coun

ties

wit

h th

e gr

eate

st e

xtra

pay

men

ts f

our

year

s to

gra

dual

ly ti

ghte

n m

anag

emen

t pra

ctic

es a

nd r

evis

e th

eir

prov

ider

pay

men

ts a

nd b

enef

it p

acka

ges.

Thi

s op

tion

is p

roje

cted

to r

educ

e M

edic

are

spen

ding

by

arou

nd $

12 b

illi

on o

ver

five

yea

rs.

Op

tio

n 1

b: P

has

e-o

ut

MA

Pla

n S

tatu

tory

/Ben

chm

ark

Ext

ra P

aym

ents

at

25%

per

yea

r fr

om

200

7 to

201

O

Cu

rren

t b

asel

ine:

MM

A s

tatu

tory

/ben

chm

ark

extr

a p

aym

ents

Res

idu

al M

edic

are

cost

s: b

ench

mar

k p

has

e-d

ow

n a

t 25

%

Med

icar

e sa

vin

gs

2007

$2.7

2.0

$0.7

2008

3.1

1.5

1.5

2009

20

10

2011

3.4

3.7

3.9

0.9

-0-

-0-

2.5

3.7

3.9

2007

-11

5-yr

T

ota

l

$16.

8 b

$4.5

b

$12.

3 b

Not

e: A

ssu

me

s M

A b

ench

mar

k ra

tes

are

phas

ed-d

own

at th

e co

unty

lev

el f

rom

100

% M

MA

sta

tuto

ry le

vels

to

100%

of c

ount

y F

FS

cos

ts a

t th

e p

ace

of 7

5% o

f diff

eren

ce in

20

07,

50%

of d

iffer

ence

in 0

8, 2

5%

in 0

9, 0

% in

10

an

d 1

1.

Ass

um

es

tha

t all

fund

s th

at

resu

lt fr

om M

A p

lan

bids

at

less

tha

n th

e b

en

chm

ark

are

ret

urne

d to

MA

pla

ns a

s p

ay­

for-

perf

orm

ance

pay

men

ts.

Sou

rce:

Geo

rge

Was

hing

ton

Uni

vers

ity a

naly

sis

of C

ente

rs f

or M

edic

are

and

Med

icai

d S

ervi

ces

Med

icar

e M

anag

ed C

are

Qua

rter

ly S

tate

, C

ount

y, P

lan

Dat

a F

ile

for

the

qu

art

er

endi

ng D

ece

mb

er 2

005,

Med

icar

e M

anag

ed C

are

Qua

rter

ly S

tate

Cou

nty

Ma

rke

t Pen

etra

tion

File

for

the

qu

art

er

endi

ng D

ece

mb

er

2005

and

M

edic

are

Adv

anta

ge R

evis

ed 2

007

Rat

eboo

k; M

edic

are

Pay

men

t Ad

viso

ry C

omm

issi

on,

Med

icar

e A

dva

nta

ge

Be

nch

ma

rks

an

d P

aym

en

ts C

om

pa

red

with

A

vera

ge

Fee

-For

-Ser

vice

Spe

ndin

g (W

ashi

ngto

n, D

.C.:

Med

PA

C,

Jun

e 2

006)

.

24

Opt

ion

le.

Ano

ther

app

roac

h to

the

gra

dual

red

ucti

on o

f the

MM

A e

xtra

pay

men

ts w

ould

be

to s

et a

dec

lini

ng c

eili

ng o

n co

unty

be

nchm

ark

rate

s ov

er a

num

ber

of y

ears

. A

dec

lini

ng c

eili

ng o

n be

nchm

ark

coun

ty r

ates

in

exce

ss o

fFF

S c

osts

cou

ld b

egin

at

15

perc

ent i

n 20

07 a

nd d

ecli

ne to

10

perc

ent i

n 20

08,

5 pe

rcen

t in

2009

, and

zer

o in

201

0 an

d su

bseq

uent

yea

rs.

Thi

s ap

proa

ch w

ould

pro

vide

sub

stan

tial

Med

icar

e sa

ving

s w

hile

giv

ing

plan

s un

til

2011

to

plan

for

cou

nty

rate

s at

the

leve

l o

ffee

­fo

r-se

rvic

e co

sts

in t

he c

ount

y.

Und

er th

is a

ppro

ach,

pla

ns in

the

cou

ntie

s w

ith

benc

hmar

k ra

tes

the

grea

test

exc

ess

of r

ates

--

mos

tly

urba

n fl

oor

coun

ties

--

wou

ld

have

a g

radu

al t

hree

yea

r ph

ase-

out f

rom

200

7 to

20

I 0 o

f the

ir e

xtra

pay

men

ts t

hat a

re n

ow e

stim

ated

to

aver

age

over

15

perc

ent m

ore

than

FF

S c

osts

bef

ore

BN

RA

. P

lans

in

the

I 00

perc

ent o

f 200

5 fe

e-fo

r-se

rvic

e co

sts

coun

ties

, w

ith

coun

ty b

ench

mar

k ra

tes

that

are

es

tim

ated

to a

vera

ge a

roun

d 2

perc

ent m

ore

than

FF

S c

osts

in

2007

bef

ore

BN

RA

, w

ould

not

be

affe

cted

unt

il 2

011.

Thi

s ap

proa

ch is

pro

ject

ed to

red

uce

Med

icar

e sp

endi

ng b

y ne

arly

$I 0

bil

lion

ove

r fi

ve y

ears

.

Op

tio

n 1

c: D

eclin

ing

Cei

ling

on

Ext

ra P

ay

me

nts

fro

m 2

00

7 t

o 2

01

0

Cu

rren

t b

asel

ine:

MM

A s

tatu

tory

/ben

chm

ark

extr

a p

aym

ents

Res

idu

al M

edic

are

cost

s: c

eilin

g o

n ex

tra

pay

men

ts

Med

icar

e sa

vin

gs

2007

$2.7

2.7

$0.0

3

2008

20

09

3.1

3.4

2.4

1.8

0.7

1.6

2007

-11

5-yr

20

10

2011

T

ota

l

3.7

3.9

$16.

8 b

-0-

-0-

$6.9

b

3.7

3.9

$9.9

b

Not

e: A

ssu

me

s M

A p

lan

be

nch

ma

rk is

pha

sed-

dow

n at

the

coun

ty l

evel

fro

m 1

00%

MM

A s

tatu

tory

leve

ls t

o 10

0% o

f cou

nty

FF

S c

osts

with

a c

eilin

g se

t at

115

% o

f FF

S c

osts

in

2007

, 11

0% in

08,

105

% in

200

9 an

d 10

0% in

201

0.

Ass

um

es

tha

t all

fund

s th

at

resu

lt fr

om M

A p

lan

bids

at

less

than

the

be

nch

ma

rk a

re r

etur

ned

to M

A p

lans

as

pay-

for­

perf

orm

ance

pay

men

ts.

Ass

um

es

plan

bid

s in

all

coun

ties

fall

16%

be

low

the

benc

hmar

k. F

igur

es d

o n

ot in

clud

e B

NR

A.

Sou

rce:

Geo

rge

Was

hing

ton

Uni

vers

ity a

naly

sis

of C

ente

rs f

or M

edic

are

and

Med

icai

d S

ervi

ces

Med

icar

e M

anag

ed C

are

Qua

rter

ly S

tate

, C

ount

y, P

lan

Dat

a F

ile

for

the

qu

art

er

endi

ng D

ece

mb

er

2005

, M

edic

are

Man

aged

Car

e Q

uart

erly

Sta

te C

ou

nty

Ma

rke

t P

enet

ratio

n F

ile f

or th

e q

ua

rte

r en

ding

De

cem

be

r 20

05 a

nd

Med

icar

e A

dvan

tage

Rev

ised

200

7 R

ateb

ook;

Med

icar

e P

aym

en

t Ad

viso

ry C

omm

issi

on,

Med

icar

e A

dvan

tage

Be

nch

ma

rks

an

d P

aym

en

ts C

om

pa

red

with

A

vera

ge

Fee

-For

-Ser

vice

Spe

ndin

g (W

ashi

ngto

n, D

.C.:

Med

PA

C,

Jun

e 2

006)

.

I'

25

Med

icar

e sa

ving

s fr

om I

ME

ext

ra p

aym

ents

. A m

ore

focu

sed

appr

oach

to t

he r

educ

tion

ofM

MA

ext

ra p

aym

ents

wou

ld r

evis

e th

e cu

rren

t pol

icy

that

pro

vide

s do

uble

pay

men

t for

Ind

irec

t Med

ical

Edu

cati

on c

osts

at t

each

ing

hosp

ital

s fo

r M

A p

lan

enro

llee

s.

Opt

ion

2.

IME

cos

ts c

ould

be

elim

inat

ed f

rom

the

cal

cula

tion

of M

A c

ount

y be

nchm

ark

rate

s, s

ince

Med

icar

e di

rect

ly p

ays

teac

hing

ho

spit

als

for

the

cost

s o

f Med

icar

e in

pati

ents

tha

t be

long

to M

A p

lans

.

Thi

s IM

E p

olic

y w

ould

red

uce

paym

ents

to M

A p

lans

by

abou

t 2

perc

ent i

n th

e ag

greg

ate

alth

ough

pay

men

ts in

a f

ew c

ount

ies

wou

ld

be r

educ

ed b

y as

muc

h as

6 p

erce

nt.

The

cou

ntie

s w

ith

the

grea

test

red

ucti

on in

rat

es w

ould

be

in N

ew Y

ork,

Bos

ton,

and

oth

er a

reas

w

ith

high

con

cent

rati

ons

of t

each

ing

hosp

ital

s.

The

sho

rt-t

erm

im

pact

of t

his

poli

cy m

ight

be

mit

igat

ed b

y li

mit

ing

the

redu

ctio

n in

an

indi

vidu

al M

A c

ount

y be

nchm

ark

rate

s to

2

perc

ent i

n an

y on

e ye

ar.

Thi

s w

ould

pha

se-d

own

paym

ents

ove

r tw

o or

mor

e ye

ars

to M

A p

lans

in

the

smal

l num

ber

of c

ount

ies

wit

h hi

gher

am

ount

s o

f ext

ra p

aym

ents

rel

ated

to I

ME

cos

ts.

The

eli

min

atio

n o

fIM

E d

oubl

e pa

ymen

ts w

ould

red

uce

Med

icar

e sp

endi

ng b

y an

est

imat

ed $

800

mil

lion

in

2006

and

$5

bill

ion

over

fi

ve y

ears

.

Op

tio

n 2

: R

emo

ve l

ME

Ext

ra P

aym

ents

fro

m M

A B

ench

mar

ks i

n 20

07 a

nd

Fu

ture

Yea

rs

2007

-11

5-yr

20

07

2008

20

09

2010

20

11

To

tal

Cu

rren

t b

asel

ine:

lM

E P

aym

ents

$0

.8

0.9

1.0

1.1

1.2

$5.0

b

Res

idu

al M

edic

are

cost

s: R

emo

ve I

ME

fro

m b

ench

mar

ks

-0-

-0-

-0-

-0-

-0-

-0-

Med

icar

e sa

vin

gs

$0.8

0.

9 1.

0 1.

1 1.

2 $5

.0 b

Not

e: A

ssum

es t

hat

MA

pla

n pa

ymen

ts in

urb

an a

nd r

ural

flo

or c

ount

ies

are

redu

ced

by IM

E c

osts

in t

he s

peci

fic c

ount

y.

Ass

umes

pla

n bi

ds in

all

coun

ties

fall

16°/o

bel

ow th

e be

nchm

ark.

Sou

rce:

Geo

rge

Was

hing

ton

Uni

vers

ity a

naly

sis

of C

ente

rs f

or M

edic

are

an

d M

edic

aid

Ser

vice

s M

edic

are

Man

aged

Car

e Q

uart

erly

Sta

te,

Cou

nty,

Pla

n D

ata

File

fo

r th

e q

ua

rte

r en

ding

De

cem

be

r 20

05,

Med

icar

e M

anag

ed C

are

Qua

rter

ly S

tate

Cou

nty

Ma

rke

t Pen

etra

tion

File

for

the

qu

art

er e

ndin

g D

ece

mb

er 2

00

5 a

nd M

edic

are

Adv

anta

ge R

evis

ed

2007

Rat

eboo

k.

26

Med

icar

e sa

ving

s fr

om D

RA

bud

get

neut

ral

risk

adj

ustm

ent

extr

a pa

ymen

ts.

Med

icar

e sa

ving

s w

ere

incl

uded

in t

he D

RA

by

prov

idin

g th

at B

NR

A e

xtra

pay

men

ts w

ould

be

phas

ed-o

ut o

ver

the

next

five

yea

rs.

DR

A p

rovi

des

that

the

sche

dule

for

the

pha

se-o

ut

of t

he B

NR

A p

aym

ents

is 5

5 pe

rcen

t in

2007

, 40

perc

ent

in 2

008,

25

perc

ent i

n 20

09,

5 pe

rcen

t in

20

!0 a

nd z

ero

perc

ent i

n 20

11.

A m

ore

rapi

d ph

ase-

out o

f BN

RA

pay

men

ts w

ould

pro

vide

Med

icar

e sa

ving

s o

f ove

r $5

bil

lion

in 2

007

-20

11.

The

se s

avin

gs w

ould

in

clud

e ov

er $

2 bi

llio

n in

201

1 th

at w

ould

res

ult f

rom

the

ext

ensi

on o

f the

DR

A c

odin

g in

tens

ity

adju

stm

ent p

olic

y.

Opt

ion

3a.

The

gre

ates

t sa

ving

s fr

om r

evis

ing

the

DR

A B

NR

A p

rovi

sion

s w

ould

be

gene

rate

d by

the

elim

inat

ion

of a

ll B

NR

A e

xtra

pa

ymen

ts a

s o

f Jan

uary

200

7. T

he n

ew p

olic

y co

uld

spec

ify

that

no

MA

BN

RA

ext

ra p

aym

ents

wou

ld b

e pa

id i

n 20

07 o

r su

bseq

uent

ye

ars

and

the

DR

A c

odin

g in

tens

ity

adju

stm

ent p

olic

y w

ould

be

exte

nded

to 2

011.

A

ny s

avin

gs f

rom

pla

n bi

ds b

elow

the

new

be

nchm

arks

wou

ld b

e re

turn

ed to

pla

ns a

s pa

y-fo

r-pe

rfor

man

ce p

aym

ents

.

Op

tio

n 3

a: E

lim

inat

e B

NR

A P

aym

ents

in

2007

an

d F

utu

re Y

ears

Cu

rren

t B

asel

ine:

DR

A B

NR

A p

has

e-o

ut

pay

men

ts 1

Res

idu

al M

edic

are

cost

s: e

lim

inat

e B

NR

A p

aym

ents

Med

icar

e sa

vin

gs

2007

$2.0

-0-

$2.0

2008

20

09

1.4

0.9

-0-

-0-

1.4

0.9

2007

-11

5-yr

20

10

2011

T

ota

l

0.2

2.2

$6.7

b

-0-

-0-

-0-

0.2

2.2

$6.7

b

1 The

DR

A p

ha

se-o

ut o

f th

e b

ud

ge

t ne

utra

l ris

k a

dju

stm

en

t pro

vide

s a

codi

ng i

nten

sity

ad

just

me

nt o

nly

for

2007

-1

0.

Thi

s D

RA

pro

visi

on r

esul

ts in

hig

he

r pr

ojec

ted

paym

ents

to

MA

pla

ns in

201

1 a

nd

su

bse

qu

en

t yea

rs.

Not

e:

Ass

um

es

base

line

for

calc

ulat

ion

of s

avin

gs is

DR

A p

aym

ents

at 7

5% o

f ful

l B

NR

A c

osts

in 2

006,

55%

in 0

7, 4

0% in

08,

25%

in 0

9, a

nd 5

% in

201

0 an

d 0%

in

11;

optio

n as

sum

es e

limin

atio

n of

BN

RA

pay

men

ts in

Jan

uary

of 2

007

and

futu

re y

ears

and

the

ext

ensi

on o

f the

MA

cod

ing

inte

nsity

adj

ustm

ent

for

2011

.

Sou

rce:

Geo

rge

Was

hing

ton

Uni

vers

ity a

naly

sis

of C

ente

rs f

or M

edic

are

and

Med

icai

d S

ervi

ces

Med

icar

e M

anag

ed C

are

Qua

rter

ly S

tate

, C

ount

y, P

lan

Dat

a F

ile f

or th

e q

ua

rte

r en

ding

De

cem

be

r 20

05,

Med

icar

e M

anag

ed C

are

Qua

rter

ly S

tate

Cou

nty

Ma

rke

t P

enet

ratio

n F

ile f

or th

e q

ua

rte

r en

ding

De

cem

be

r 20

05 a

nd M

edic

are

Ad

van

tag

e R

evis

ed

2007

Rat

eboo

k.

27

Opt

ion

3b.

The

sch

edul

e fo

r th

e ph

ase-

in o

fBN

RA

ext

ra p

aym

ent w

as,

in r

ecen

t yea

rs,

set a

t an

incr

ease

of2

5 p

erce

nt p

er y

ear:

25

perc

ent

in 2

004,

50

perc

ent i

n 20

05 a

nd 7

5 pe

rcen

t in

2006

. A

par

alle

l pha

se-o

ut o

fBN

RA

ext

ra p

aym

ents

wou

ld b

e at

the

rate

of2

5

perc

ent p

er y

ear.

Thi

s w

ould

be

set B

NR

A p

aym

ents

at 7

5 pe

rcen

t in

200

6, 5

0 pe

rcen

t in

2007

, 25

perc

ent

in 2

008,

and

zer

o pe

rcen

t in

200

9 an

d su

bseq

uent

yea

rs.

The

DR

AM

A c

odin

g in

tens

ity

adju

stm

ent

poli

cy w

ould

be

exte

nded

to 2

011.

Med

icar

e sa

ving

s w

ould

beg

in in

200

7 an

d w

ould

be

$3.2

bil

lion

thro

ugh

2010

wit

h th

e ex

tens

ion

of t

he D

RA

cod

ing

inte

nsit

y ad

just

men

t pol

icy

2011

con

trib

utin

g $2

.2 b

illi

on in

201

1 fo

r a

tota

l o

f $5

.4 b

illi

on.

A t

hree

-yea

r ph

ase-

out s

ched

ule

wou

ld p

rovi

de M

edic

are

savi

ngs

from

the

DR

A f

ive

year

sch

edul

e w

hile

con

tinu

ing

to g

ive

MA

pl

ans

until

200

9 to

ful

ly a

ccom

mod

ate

to t

he c

hang

es f

irst

ann

ounc

ed in

200

5.

Op

tio

n 3

b: P

has

e-o

ut

of

BN

RA

Pay

men

ts a

t 25

% p

er y

ea

r fr

om

200

7 to

200

9

2007

20

08

2009

20

10

2011

Cu

rren

t b

asel

ine:

OR

A B

NR

A p

has

e-o

ut

pay

men

ts 1

$2.0

1.

4 0.

9 0.

2 2.

2

Res

idu

al M

edic

are

cost

s: B

NR

A p

has

e-o

ut

at 2

5%

1.0

0.3

-0-

-0-

-0-

Med

icar

e sa

vin

gs

$1.0

1.

1 0.

9 0.

2 2.

2

1 The

OR

A p

ha

se-o

ut o

f th

e b

ud

ge

t ne

utra

l ris

k ad

just

men

t pr

ovid

es a

cod

ing

inte

nsity

ad

just

me

nt o

nly

for

2007

-10

. T

his

OR

A p

rovi

sion

res

ults

in

hig

he

r pr

ojec

ted

paym

ents

to

MA

pla

ns in

201

1 an

d su

bseq

uent

yea

rs.

Not

e: A

ssu

me

s ba

selin

e fo

r ca

lcul

atio

n o

f sav

ings

is O

RA

pay

men

ts a

t 75

% o

f ful

l B

NR

A c

osts

in 2

006.

55%

in 0

7, 4

0%

in 0

8, 2

5%

in 0

9, a

nd 0

%

in 2

01

0 a

nd 1

1; o

ptio

n as

sum

es p

ha

se-o

ut o

f B

NR

A p

aym

en

ts a

t rat

e o

f 75%

in 0

6, 5

0% in

07,

25%

in 0

8, 0

% i

n 09

, 20

10,

and

11.

2007

-11

5-yr

T

ota

l

$6.7

b

$1.3

b

$5.4

b

Sou

rce:

Geo

rge

Was

hing

ton

Uni

vers

ity a

naly

sis

of C

ente

rs f

or M

edic

are

and

Med

icai

d S

ervi

ces

Med

icar

e M

anag

ed C

are

Qua

rter

ly S

tate

, C

ount

y, P

lan

Dat

a F

ile f

or th

e q

ua

rte

r en

ding

De

cem

be

r 20

05,

Med

icar

e M

anag

ed C

are

Qua

rter

ly S

tate

Co

un

ty M

arke

t P

enet

ratio

n F

ile f

or th

e q

ua

rte

r en

ding

De

cem

be

r 20

05 a

nd M

edic

are

Adv

anta

ge R

evis

ed

2007

Rat

eboo

k.

28

Med

icar

e sa

ving

s fr

om

th

e re

gion

al P

PO

sta

bili

zati

on f

und.

M

edic

are

savi

ngs

from

the

$I 0

bil

lion

reg

iona

l P

PO

sta

bili

zati

on f

und

may

be

gene

rate

d by

eli

min

atin

g on

e or

mor

e o

f the

thre

e pu

rpos

es f

or w

hich

the

fun

d m

ay b

e us

ed.

Sav

ings

of a

ppro

xim

atel

y $5

bi

llio

n m

ay b

e po

ssib

le i

n th

is a

rea.

Op

tio

n 4

. T

he e

lim

inat

ion

of a

ll t

hree

pur

pose

s fo

r su

ppor

t fro

m t

he f

und

-na

tion

wid

e re

gion

al P

PO

, P

PO

pla

ns e

nter

ing

regi

ons,

an

d P

PO

pla

ns th

reat

enin

g to

lea

ve r

egio

ns -

wou

ld p

rovi

de t

he l

arge

st s

pend

ing

redu

ctio

n.

Und

er th

is p

olic

y, r

egio

nal

PP

Os

wou

ld

cont

inue

to r

ecei

ve e

xtra

pay

men

ts b

y co

unty

at t

he s

ame

leve

l as

oth

er M

A p

lans

.

To

the

exte

nt th

at P

PO

s em

phas

ize

serv

ice

to b

enef

icia

ries

in r

ural

are

as, t

he P

PO

s w

ould

sti

ll b

enef

it f

rom

MA

ext

ra p

aym

ents

in

rura

l fl

oor

coun

ties

tha

t ar

e es

tim

ated

at

17 p

erce

nt a

nd $

1,10

0 an

nual

ly i

n 20

07.

Thi

s ne

w p

olic

y w

ould

pro

vide

for

PP

Os

to c

ompe

te

wit

h lo

cal

PP

Os

and

othe

r M

A p

lans

on

a le

vel

play

ing

fiel

d.

The

pos

sibl

e 20

07 to

201

1 M

edic

are

savi

ngs

for

the

elim

inat

ion

of a

utho

rity

for

the

PP

O s

tabi

liza

tion

fun

d co

uld

be $

6 bi

llio

n, o

r ju

st

unde

r tw

o-th

irds

of t

he $

10 b

illi

on a

utho

rize

d to

be

expe

nded

bet

wee

n 20

07 a

nd 2

013.

A m

ore

focu

sed

appr

oach

to

savi

ngs

from

reg

iona

l P

PO

sta

bili

zati

on w

ould

ret

ain

CM

S a

utho

rity

to m

ake

extr

a pa

ymen

ts to

reg

iona

l P

PO

s th

at w

ere

the

firs

t to

ser

ve a

reg

ion

whi

le e

lim

inat

ing

the

extr

a pa

ymen

ts to

the

fir

st n

atio

nwid

e re

gion

al P

PO

and

to r

egio

nal

PP

Os

that

ind

icat

e th

ey p

lan

to l

eave

a r

egio

n.

Thi

s ap

proa

ch m

ight

res

ult

in p

oten

tial

Med

icar

e sa

ving

s o

f ove

r $4

bil

lion

bet

wee

n 20

07 a

nd 2

011.

Op

tio

n 4

: E

limin

ate

MM

A R

eg

ion

al

PP

O S

tab

iliza

tio

n F

un

d

Cu

rre

nt

ba

selin

e:

reg

ion

al s

tab

iliza

tio

n f

un

d

Re

sid

ua

l M

ed

ica

re c

ost

s: e

limin

ate

sta

bili

zati

on

fu

nd

Me

dic

are

sa

vin

gs

Sou

rce:

Geo

rge

Was

hing

ton

Uni

vers

ity

2007

$1.0

-0-

$1.0

2008

1.1

-0-

1.1

2009

20

10

1.2

1.3

-0-

-0-

1.2

1.3

29

2007

-11

5-y

r 20

11

To

tal

1.4

$6.0

b

-0-

-0-

1.4

$6

.0 b

Not

e: F

or

mor

e in

form

atio

n on

th

e r

egio

nal

PP

O s

tabi

lizat

ion

fund

, se

e: M

edic

are

Pay

men

t Adv

isor

y C

omm

issi

on,

Re

po

rt to

the

Con

gres

s: I

ssue

s in

a M

od

ern

ize

d

Med

icar

e P

rogr

am.

(Was

hing

ton,

D.C

.: M

edP

AC

, Ju

ne 2

005)

.

30

31

CO

NC

LU

SIO

N

Thr

ee b

road

set

s o

f Med

icar

e po

lici

es,

incl

uded

in t

he M

MA

and

DR

A,

now

set

MA

pay

men

t rat

es a

t le

vels

hig

her

than

FFS

cos

ts i

n ev

ery

coun

ty in

the

nati

on.

As

a re

sult

of t

hese

pro

visi

ons,

Med

icar

e no

w p

ays

Med

icar

e A

dvan

tage

pla

ns o

ver

$5 b

illi

on a

yea

r m

ore

than

cos

ts i

n tr

adit

iona

l fe

e-fo

r-se

rvic

e M

edic

are.

Ext

ra p

aym

ents

to M

A p

lans

in 2

007

are

proj

ecte

d to

am

ount

to a

dif

fere

ntia

l o

f $8

28 p

er p

lan

enro

llee

. M

A e

xtra

pay

men

ts a

re p

roje

cted

at n

earl

y $3

0 bi

llio

n fr

om 2

007

thro

ugh

2011

.

At t

his

tim

e, t

here

are

eff

orts

to i

dent

ify

sour

ces

of s

avin

gs in

the

Med

icar

e pr

ogra

m.

In th

e sh

ort-

run,

the

se e

ffor

ts f

ocus

on

sum

s to

of

f-se

t the

cos

ts o

f mod

ifyi

ng th

e ph

ysic

ian

paym

ent S

usta

inab

le G

row

th R

ate

(SO

R)

so t

hat M

edic

are

paym

ents

to p

hysi

cian

s do

not

de

clin

e by

5 p

erce

nt in

200

7. I

n th

e lo

ng-r

un, t

here

are

con

cern

s ab

out

Fed

eral

def

icit

s in

exc

ess

of $

250

bill

ion

a ye

ar.

In 2

005,

ove

rall

def

icit

con

cern

s le

d to

the

Def

icit

Red

ucti

on A

ct o

f200

5 th

at r

educ

ed M

edic

are

spen

ding

by

$6.4

bil

lion

and

Fed

eral

M

edic

aid

spen

ding

by

$4.7

bil

lion

fro

m 2

006

to 2

010.

Pre

side

nt B

ush'

s bu

dget

for

FY

200

7 co

ntin

ued

this

eff

ort b

y pr

opos

ing

$36

bill

ion

in M

edic

are

spen

ding

red

ucti

ons

betw

een

2007

and

201

1.

Am

ong

the

area

s th

at m

ay b

e id

enti

fied

for

pot

enti

al M

edic

are

savi

ngs

are

the

curr

ent p

olic

es th

at p

ay M

A p

lans

mor

e th

an c

osts

in

FFS

Med

icar

e. R

epre

sent

ativ

e M

icha

el B

urge

ss,

a m

embe

r o

f the

Hou

se E

nerg

y an

d C

omm

erce

Com

mit

tee,

inc

lude

d pr

ovis

ions

to

redu

ce s

pend

ing

from

MA

pay

men

ts a

ssoc

iate

d w

ith

!ME

pay

men

ts a

nd t

he R

egio

nal

PP

O s

tabi

liza

tion

fun

d as

the

pay

-for

in H

R

5866

, a b

ill t

o ad

dres

s th

e S

OR

phy

sici

an p

aym

ent d

ecre

ase

for

2007

.26

Sen

ator

Cha

rles

Gra

ssle

y, th

e C

hair

of t

he S

enat

e F

inan

ce C

omm

itte

e, m

enti

oned

pos

sibl

e re

duct

ions

in

extr

a pa

ymen

ts to

MA

pla

ns

in h

is s

tate

men

t in

resp

onse

to t

he P

resi

dent

's F

Y 2

007

budg

et:

"Con

gres

s ju

st fi

nish

ed r

educ

ing

the

grow

th o

f Med

icar

e an

d M

edic

aid

by $

11.1

bil

lion

ove

r the

nex

t fiv

e ye

ars,

and

it w

asn'

t an

easy

leg

isla

tive

acc

ompl

ishm

ent.

Any

mor

e re

duct

ions

of a

si

gnif

ican

t sco

pe c

ould

be

diff

icul

t thi

s ye

ar.

If M

edic

are

redu

ctio

ns d

o en

d up

on

the

tabl

e, t

he M

edic

are

Adv

anta

ge r

egio

nal

stab

iliz

atio

n fu

nd h

as t

o be

fro

nt a

nd c

ente

r. "27

Red

ucti

on i

n pa

ymen

ts to

MA

pla

ns i

n ex

cess

of f

ee-f

or-s

ervi

ce c

osts

may

be

seen

as

appr

opri

ate

sinc

e ex

tra

paym

ents

to p

riva

te M

A

plan

s cl

earl

y co

ntra

st w

ith

the

ofte

n st

ated

goa

l th

at"

... p

riva

te p

lans

and

com

peti

tion

wil

l he

lp d

rive

dow

n th

e ex

plos

ive

grow

th o

f M

edic

are

spen

ding

."28

T

he e

arli

est p

ropo

sal t

o de

velo

p H

MO

s by

the

Nix

on A

dmin

istr

atio

n in

197

1 re

port

ed th

at "

... H

MO

s ar

e sa

ving

as

muc

h as

15

perc

ent o

n th

eir

elde

rly

enro

llee

s, i

n co

mpa

riso

n w

ith

cost

s un

der

trad

itio

nal

mod

es o

fpra

ctic

e."29

32

Red

ucti

ons

in e

xtra

pay

men

ts to

MA

pla

ns w

ould

be

cons

iste

nt w

ith

the

Bus

h A

dmin

istr

atio

n's

cita

tion

of t

he r

ecom

men

dati

ons

of t

he

Med

icar

e P

aym

ent A

dvis

ory

Com

mis

sion

as

a ba

sis

for

Med

icar

e sa

ving

s, a

s M

edP

AC

has

con

sist

entl

y re

com

men

ded

that

MA

pla

ns

be p

aid

amou

nts

cons

iste

nt w

ith

aver

age

cost

s in

the

fee-

for-

serv

ice

syst

em.

Set

ting

MA

cou

nty

benc

hmar

ks a

t 10

0 pe

rcen

t of a

vera

ge F

FS

cos

ts i

n 20

07 a

nd l

ater

yea

rs c

ould

red

uce

Med

icar

e sp

endi

ng b

y ov

er

$16.

8 bi

llio

n fr

om 2

007

to 2

011.

A

dvan

cing

the

phas

e-ou

t of t

he b

udge

t neu

tral

ris

k ad

just

men

t pay

men

ts p

rovi

ded

by th

e D

RA

and

el

imin

atin

g th

e st

abil

izat

ion

fund

aut

hori

ty f

or e

xtra

pay

men

ts f

or r

egio

nal

PP

Os

coul

d sa

ve M

edic

are

$12.

7 bi

llio

n ov

er f

ive

year

s.

The

tot

al s

avin

gs o

f$29

.5 b

illi

on f

rom

MA

pla

n ex

tra

paym

ents

cou

ld a

mou

nt to

mor

e th

an t

he t

otal

of M

edic

are

2007

-11

sav

ings

pr

opos

ed b

y th

e B

ush

budg

et.

r:

33

BAC

KG

RO

UN

D

AN

NU

AL

IN

CR

EA

SE

IN M

ED

ICA

RE

A+

B C

OS

TS

PE

R C

AP

ITA

2005

20

06

2007

20

08

2009

20

10

2011

To

tal A

+B

co

sts

$328

b

$356

.9

$381

.7

$401

.2

$425

$4

50. 1

$4

69.5

b

Incr

ease

in A

+B

co

sts

8.8%

6.

9o/o

5.

1 O/

o 5.

9o/o

5.

9°/o

4.

1 O/

o

Incr

ease

in

ben

efic

iari

es

1.4°

/o

1. ?o

/o

1.8°

/o

1.8%

1.

9%

2.2o

/o

Incr

ease

in P

er

cap

ita

A+

B c

ost

s 7.

3o/o

5.

1 o/o

3.

2°/o

4.

1%

3.9o

/o

1.9o

/o

Sou

rce:

Fa

ct S

he

et f

or

CB

O's

Mar

ch 2

006

Bas

elin

e: M

ED

ICA

RE

, C

ongr

essi

onal

Bud

get

Offi

ce,

Mar

ch 2

006

AN

NU

AL

IN

CR

EA

SE

IN M

ED

ICA

RE

PA

YM

EN

TS

TO

MA

PL

AN

S

2006

20

07

2008

20

09

2010

20

11

Incr

ease

in p

er c

apit

a A

+B

co

sts

7.3o

/o

5.1

o/o

3.2°

/o

4.1%

3.

9°/o

1.

9o/o

Incr

ease

in

MA

pla

n e

nro

llm

en

t 6.

0o/o

10

.9%

10

.2%

5.

8o/o

4.

0°/o

4.

1°/o

Incr

ea

se in

to

tal

pa

yme

nts

to

MA

pla

ns

13.7

%

16.6

%

13.8

%

10.1

%

8.1

o/o

6.1°

/o

Sou

rce:

Fa

ct S

he

et f

or

CB

O's

Mar

ch 2

00

6 B

asel

ine:

ME

DIC

AR

E,

Con

gres

sion

al B

udge

t Offi

ce,

Mar

ch 2

006

Not

es

1 C

BO

Tes

tim

ony

July

25,

200

6 S

ubco

mm

itte

e on

Hea

lth,

Com

mit

tee

on E

nerg

y an

d C

omm

erce

2 H

.R.5

866:

Med

icar

e P

hysi

cian

Pay

men

t Ref

orm

and

Qua

lity

Im

prov

emen

t A

ct o

f200

6. I

ntro

duce

d 7/

24/2

006.

Spo

nsor

: R

ep. M

icha

el B

urge

ss [

TX

-26]

. A

vail

able

at:

http

://t

hom

as.lo

c.go

v/

·

3 M

. Moo

n, B

. G

age,

and

A.

Eva

ns, A

n E

xam

inat

ion

of K

ey M

edic

are

Pro

visi

ons

in t

he B

alan

ced

Bud

get A

ct o

f 19

97 (

New

Yor

k: T

he C

omm

onw

ealt

h F

und,

S

ept.

1997

).

34

4 P

resi

dent

Bus

h's

FY

07

budg

et p

ropo

sed

new

Med

icar

e sp

endi

ng r

educ

tion

s in

Med

icar

e to

tali

ng $

36 b

illi

on f

or t

he y

ears

200

7 -2

01

1.

The

maj

or c

ost

savi

ng

Med

icar

e pr

opos

als

wou

ld r

educ

e th

e an

nual

inf

latio

n in

crea

se i

n pa

ymen

ts t

o ho

spita

ls, n

ursi

ng h

omes

and

hom

e he

alth

age

ncie

s.

5 S.

193

2: D

efic

it R

educ

tion

Act

of 2

005

Con

fere

nce

Agr

eem

ent a

s pa

ssed

by

the

Sen

ate,

Cos

t Est

imat

e. C

ongr

essi

onal

Bud

get O

ffic

e, W

ashi

ngto

n, D

C,

Janu

ary

27, 2

006.

Not

e th

at w

e ha

ve r

educ

ed C

BO

's 2

011

figu

re o

f $2.

9 bi

llio

n by

25%

to a

ccou

nt f

or th

e re

duct

ion

for

the

bids

.

6 C

ongr

essi

onal

Bud

get O

ffic

e. F

act S

heet

for

CB

O's

Mar

ch 2

005

Bas

elin

e: M

edic

are.

Ava

ilab

le a

t htt

p://

ww

w.c

bo.g

ov/f

acts

heet

s/20

05/M

edic

are.

pdf

Acc

esse

d Ju

ly 2

5, 2

005.

7 T

he e

xtra

rat

es i

n th

ese

tabl

es i

nclu

de th

e be

nchm

ark,

BN

RA

pay

men

ts, t

he f

ee-f

or-s

ervi

ce n

orm

aliz

atio

n ad

just

1nen

t and

a 4

% r

educ

tion

to a

ccou

nt f

or th

e bi

ddin

g sy

stem

.

8 M

A p

lans

tha

t off

er p

resc

ript

ion

drug

cov

erag

e (M

A-P

D p

lans

) al

so f

ile a

bid

to p

rovi

de P

art D

cov

erag

e.

Sin

ce P

art D

pay

men

ts a

re n

ot r

elat

ed to

cos

ts i

n FF

S M

edic

are,

the

se p

aym

ents

are

not

incl

uded

in t

his

anal

ysis

.

9 C

ente

rs f

or M

edic

are

and

Med

icai

d S

ervi

ces

(CM

S).

Rat

e C

alcu

lati

on D

ata

(Bal

tim

ore,

M.D

.: C

MS

, Dec

embe

r 20

05).

Ava

ilab

le a

t: ht

tp:/

/ww

w.c

ms.

hhs.

gov/

Med

icar

eAdv

tgS

pecR

ateS

tats

/

10 T

hese

rat

es r

epre

sent

ben

chm

ark

paym

ent

rate

s w

ith

FP

S n

orm

aliz

atio

n an

d B

NR

A o

f 3. 9

per

cent

.

11 C

ente

rs f

or M

edic

are

and

Med

icai

d S

ervi

ces

(CM

S).

Rat

e C

alcu

lati

on D

ata

(Bal

tim

ore,

M.D

.: C

MS

, Dec

embe

r 20

05).

Ava

ilab

le a

t: ht

tp:/

/ww

w.c

ms.

hhs.

gov/

Med

icar

eAdv

tgS

pecR

ateS

tats

/

12 F

or 2

007,

the

ben

chm

arks

are

, ex

cept

for

the

177

100

perc

ent o

fFF

S c

ount

ies

that

wer

e re

base

d fo

r 20

07, t

he a

mou

nt o

f the

200

6 be

nchm

ark

incr

ease

d by

4.8

pe

rcen

t. (S

ee:

Cen

ters

for

Med

icar

e an

d M

edic

aid

Serv

ices

, "A

nnou

ncem

ent

of C

alen

dar

Yea

r (C

Y)

2007

Med

icar

e A

dvan

tage

Cap

itatio

n R

ates

and

Med

icar

e A

dvan

tage

and

Par

t D P

aym

ent P

olic

ies

Fac

t She

et"

(Was

hing

ton,

D.C

.: C

MS

, 200

6). A

vail

able

at:

http

://w

ww

.cm

s.hh

s.go

v/M

edic

areA

dvtg

Spe

cRat

eSta

ts/)

I'

Cou

nty

rate

s tr

ende

d fo

rwar

d fr

om 2

003

wer

e in

crea

sed

by 6

.3 p

erce

nt i

n 20

04, 6

.6 p

erce

nt in

200

5, 5

.5 p

erce

nt in

200

6 an

d 4.

8 pe

rcen

t in

200

7 fo

r a

tota

l co

mpo

unde

d in

crea

se f

rom

to

2003

to

2007

of2

5.3

perc

ent.

35

13 T

o ca

lcul

ate

the

effe

ct o

f the

se d

oubl

e pa

ymen

ts o

n th

e le

vel

of p

aym

ents

to M

A p

lans

, Med

P A

C a

nd o

ther

ana

lyst

s re

duce

the

per

capi

ta F

FS

cos

ts i

n a

coun

ty

by t

he p

er c

apit

a !M

E c

osts

in

the

coun

ty.

Thi

s an

alys

is f

ollo

ws

a m

etho

dolo

gica

l co

nven

tion

dev

elop

ed b

y M

ED

PA

C in

add

ress

ing

the

Med

icar

e po

licy

of

mak

ing

dire

ct p

aym

ents

to

teac

hing

hos

pita

ls f

or th

e co

sts

of i

ndir

ect

med

ical

edu

cati

on (

!ME

) fo

r M

edic

are

Adv

anta

ge e

nrol

lees

. It

adju

sts

fee-

for-

serv

ice

cost

s at

the

coun

ty l

evel

by

rem

ovin

g th

e av

erag

e !M

E e

xpen

se. T

his

is d

one

by d

efla

ting

the

coun

ty f

ee-f

or-s

ervi

ce a

vera

ge b

y a

fact

or o

f I

-(0

.65

* GM

E),

whe

re

GM

E is

the

cou

nty

grad

uate

med

ical

edu

catio

n ca

rve-

out.

A n

atio

nal a

vera

ge o

f 65

perc

ent o

f gra

duat

e m

edic

al e

duca

tion

paym

ents

goe

s to

ind

irec

t m

edic

al

educ

atio

n; c

ount

y-sp

ecif

ic d

ata

are

unav

aila

ble.

Bec

ause

Med

icar

e m

akes

ind

irec

t m

edic

al e

duca

tion

paym

ents

dir

ectly

to

teac

hing

hos

pita

ls f

or p

atie

nts

who

are

en

roll

ed in

Med

icar

e A

dvan

tage

, Med

icar

e A

dvan

tage

pla

n -p

aym

ent r

ates

are

mos

t app

ropr

iate

ly c

ompa

red

wit

h fe

e-fo

r-se

rvic

e co

sts

adju

sted

in

this

man

ner.

M

edic

are

Pay

men

t Adv

isor

y C

omm

issi

on. R

epor

t to

the

Con

gres

s: M

edic

are

Pay

men

t Pol

icy

(Was

hing

ton,

D.C

.: M

edP

AC

, Mar

. 20

02).

14 T

he p

roje

cted

cos

ts o

f MA

pla

n ex

tra

paym

ents

for

!M

E c

osts

are

cal

cula

ted

as p

art

of t

he c

ount

y be

nchm

ark

rate

s an

d th

is p

roje

ctio

n as

sum

es th

at th

e !M

E

cost

s in

clud

ed in

the

cou

nty

benc

hmar

k ra

tes

are

then

red

uced

by

25 p

erce

nt to

acc

ount

for

pla

n bi

ds a

s de

scri

bed

abov

e.

15 R

isk

adju

stm

ent

of M

edic

are

priv

ate

plan

pay

men

ts i

s im

port

ant

beQ

ause

the

cos

t o

f car

e fo

r M

edic

are

bene

fici

arie

s va

ries

gre

atly

. T

he m

ost

expe

nsiv

e 5

perc

ent o

f Med

icar

e be

nefi

ciar

ies

acco

unte

d fo

r 43

per

cent

of t

otal

spe

ndin

g at

an

aver

age

cost

of$

63,0

00 in

200

1 w

hile

the

lea

st e

xpen

sive

50

perc

ent o

f be

nefi

ciar

ies

acco

unte

d fo

r on

ly 4

per

cent

of t

otal

spe

ndin

g at

an

aver

age

cost

of $

550.

In

the

abs

ence

of e

ffec

tive

ris

k ad

just

men

t o

f pay

men

ts, p

lans

tha

t en

roll

heal

thie

r be

nefi

ciar

ies

can

gain

sub

stan

tial s

urpl

uses

. Con

gres

sion

al B

udge

t Off

ice,

Hig

h C

ost

Med

icar

e B

enef

icia

ries

, (W

ashi

ngto

n, D

.C.:C

BO

, May

200

5).

Whi

le t

he d

evel

opm

ent

and

impl

emen

tatio

n o

f an

impr

oved

sys

tem

to a

djus

t pa

ymen

ts t

o in

divi

dual

Med

icar

e pl

ans

was

man

date

d by

the

Bal

ance

d B

udge

t A

ct

of

1997

and

sub

sequ

ent

legi

slat

ion,

the

dec

isio

n to

mak

e ex

tra

paym

ents

to M

A p

lans

ass

ocia

ted

wit

h th

e ne

w r

isk

adju

stm

ent

syst

em w

as m

ade

by C

MS

offi

cial

s fo

llow

ing

lang

uage

in t

he c

onfe

renc

e re

port

for

the

Bal

ance

d B

udge

t Ref

inem

ent A

ct o

f 19

99 th

at u

rged

HH

S to

im

plem

ent t

he r

isk

adju

stm

ent "

wit

hout

re

duci

ng o

vera

ll M

edic

are+

Cho

ice

paym

ents

".

16 R

ober

t A.

Ber

enso

n. "

Med

icar

e D

isad

vant

aged

and

the

Sea

rch

For

the

Elu

sive

'Lev

el P

layi

ng F

ield

': W

hat t

he c

hang

es t

o M

edic

are

real

ly m

ean

for

com

peti

tion

and

the

futu

re o

f the

pro

gram

." H

ealt

h A

ffai

rs,

Web

Exc

/usi

ve (

Dec

. 15

, 200

5):

W4-

572.

17 T

he r

isk

adju

ster

fir

st a

ppli

es t

o 10

0 pe

rcen

t of t

he M

A r

ates

in

2007

18 C

ente

rs f

or M

edic

are

and

Med

icai

d Se

rvic

es, "

Not

e to

Med

icar

e A

dvan

tage

Org

aniz

atio

ns, P

resc

ript

ion

Dru

g Pl

an S

pons

ors

and

Oth

er I

nter

este

d P

artie

s. Su

bjec

t: A

dvan

ce N

otic

e o

f Met

hodo

logi

cal

Cha

nges

for

Cal

enda

r Y

ear

(CY

) 20

06 M

edic

are

Adv

anta

ge (

MA

) P

aym

ent R

ates

" (W

ashi

ngto

n, D

.C.:

CM

S, 2

005)

. A

vail

able

at h

ttp:

//w

ww

.cm

s.hh

s.go

v/he

alth

plan

s/ra

tes/

2006

/45-

day.

pdf.

Cen

ters

for

Med

icar

e an

d M

edic

aid

Ser

vice

s, "

Not

e to

Med

icar

e A

dvan

tage

O

rgan

izat

ions

and

Oth

er I

nter

este

d P

arti

es.

Subj

ect:

Ann

ounc

emen

t of C

alen

dar Y

ear

(CY

) 20

06 M

edic

are

Adv

anta

ge P

aym

ent R

ates

" (W

ashi

ngto

n, D

.C.:

CM

S,

2005

). A

vail

able

at h

ttp:

//w

ww

.cm

s.hh

s.go

v/he

alth

plan

s/ra

tes/

2006

/cov

er.a

sp

19

Sid

e-by

-Sid

e C

ompa

riso

n o

f Med

icar

e, M

edic

aid

and

SC

f/IP

Pro

visi

ons

in t

he D

efic

it R

educ

tion

Act

of 2

005,

Dom

esti

c So

cial

Pol

icy

Div

isio

n, C

ongr

essi

onal

R

esea

rch

Ser

vice

, Lib

rary

of C

ongr

ess,

Was

hing

ton,

DC

Jan

uary

27,

200

6.

20 S.

193

2: D

efic

it R

educ

tion

Act

of 2

005

Con

fere

nce

Agr

eem

ent

as p

asse

d by

the

Sen

ate,

Cos

t Est

imat

e. C

ongr

essi

onal

Bud

get O

ffic

e, W

ashi

ngto

n, D

C,

Janu

ary

27, 2

006.

N

ote

that

we

have

red

uced

CB

O's

201

1 fi

gure

of $

2.9

bill

ion

by 2

5% to

acc

ount

for

the

redu

ctio

n fo

r th

e bi

ds.

36

21 T

he 3

per

cent

and

$1.

7 bi

llio

n fi

gure

s pr

esen

ted

here

rep

rese

nt th

e es

tim

ated

am

ount

ofB

NR

A e

xtra

pay

men

ts a

fter

MA

pla

n bi

ds.

Acc

ordi

ng t

o C

MS

, in

20

07, B

NR

A a

dds

3.9

perc

ent t

o th

e be

nchm

ark

rate

bef

ore

the

bid.

See

: C

ente

rs f

or M

edic

are

and

Med

icai

d Se

rvic

es, "

Ann

ounc

emen

t of C

alen

dar

Yea

r (C

Y)

2007

Med

icar

e A

dvan

tage

Cap

itat

ion

Rat

es a

nd M

edic

are

Adv

anta

ge a

nd P

art D

Pay

men

t Pol

icie

s F

act

She

et"

(Was

hing

ton,

D.C

.: C

MS

, 200

6).

Ava

ilab

le a

t: ht

tp:/

/ww

w.c

ms.

hhs.

gov/

Med

icar

eAdv

tgS

pecR

ateS

tats

/

22

Med

icar

e P

aym

ent

Adv

isor

y C

om1n

issi

on, R

epor

t to

Con

gres

s: I

ssue

s in

a M

oder

niz

ed M

edic

are

Pro

gram

. (W

ashi

ngto

n, D

C.:

Med

.PA

C, J

une

2005

).

23 M

edic

are

Pay

men

t A

dvis

ory

Com

mis

sion

, "M

edic

are

Adv

anta

ge B

ench

mar

ks a

nd P

aym

ents

Com

pare

d w

ith A

vera

ge F

ee-F

or-S

ervi

ce S

pend

ing"

(W

ashi

ngto

n, D

.C.:

Med

PA

C, J

une

2006

).

24 M

edic

are

Pay

men

t Adv

isor

y C

omm

issi

on, R

epor

t to

the

Con

gres

s: I

ssue

s in

a M

oder

nize

d M

edic

are

Pro

gram

. (W

ashi

ngto

n, D

.C.:

Med

PA

C, J

une

2005

).

25 "M

A E

nrol

lmen

t C

lim

bs 1

2% S

ince

Dec

embe

r, w

ith

PF

FS

Acc

ount

ing

for

52%

of G

ain.

" M

edic

are

Adv

anta

ge N

ews

Vol

ume

12, N

umbe

r 10

. (M

ay 2

5, 2

006)

: 7.

26 H

.R.5

866:

Med

icar

e P

hysi

cian

Pay

men

t Ref

orm

and

Qua

lity

Im

prov

emen

t Act

of2

006.

Int

rodu

ced

7/24

/200

6. S

pons

or:

Rep

. M

icha

el B

urge

ss [

TX

-26]

. A

vail

able

at:

http

://t

hom

as.lo

c.go

v/

27 S

enat

or C

huck

Gra

ssle

y. "

Pre

ss R

elea

se:

Pre

side

nt's

Bud

get P

ropo

sal"

Feb

ruar

y 6,

200

6. A

vail

able

at:

http

://g

rass

ley.

sena

te.g

ov/in

dex.

cfm

?Fus

eAct

ion=

Pre

ssR

elea

ses.

Vie

w&

Pre

ssR

elea

se i

d=50

01.

28 E

. M. K

enne

dy a

nd B

. Tho

mas

. "D

ram

atic

Im

prov

emen

t or

Dea

th S

pir

al-T

wo

Me1

nber

s o

f Con

gres

s A

sses

s th

e M

edic

are

Bill

." N

ew E

ngla

nd J

ourn

al o

f M

edic

ine

350

(Feb

. 19

, 200

4):

747-

51.

29 D

epar

tmen

t of H

ealt

h, E

duca

tion

and

Wel

fare

, T

owar

ds a

Com

preh

ensi

ve H

ealt

h P

olic

y fo

r th

e 19

70s:

A W

hite

Pap

er.

(Was

hing

ton,

D.C

.: H

HS

, May

197

1).