Harvard Pilgrim Health Care, one of the nation’s leading private health plans, has announced that it will drop its Medicare Advantage health insurance program at the end of the year. The headlines, bashing Obama and blaming health care reform legislation, were predictable.
- “Obamacare victims” ( Boston Herald.com, Sept. 30, 2010)
- “No, You Can’t Keep Your Current Health Coverage” (The American Spectator, Sept. 30, 2010)
- “The Obamacare Nightmare Begins: 22,000 Seniors Lose Their Current Coverage,” (Las Vegas ReviewJounral.com, September 28, 2010)
- “22,000 lose their health insurance due to Obamacare,” (examiner .com, September 29, 2010)
- “The Heavy Hand of Kathleen Sebelius,” (Forbes, September 30)
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But the headlines were not just predictable–they were dead wrong.
Pilgrim did not decide to “cancel its Medicare Advantage coverage specifically because of new regulations imposed by Obama's health care law,” as the American Spectator, like so many others, suggested.
Another law, the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA), passed two years before health reform legislation, drove Harvard Pilgrim’s decision to shut down its “First Seniority Freedom Plan” says Harvard Pilgrim CEO Eric Schultz.
In a phone interview this afternoon, Schultz explained: “First Seniority” is a “private fee-for-service plan" (PFFSP) and the 2008 law said that as of 2011, Medicare Advantage insurers could no longer offer “fee-for-service” plans. If we wanted to continue with First Seniority, we would have turn it into an HMO with a "network" of physicians, and negotiate contracts with them. Rather than paying fees for each service, we would begin paying providers a fixed lump sum to care for patients over the course of a year.” Patients could no longer go to any doctor that they chose—they would have to see providers that were in the network. (Many thanks to the Incidental Economists’s Austin Frakt for pointing out the major factor behind Pilgrim’s decision. His is a blog that everyone should read. )
To satisfy the 2008 legislation, Pilgrim would be required to completely restructure its Medicare Advantage plan. Not only would this mean creating networks of hospitals and doctors, Pilgrim would have report on the quality of care they offered, and provide a prescription drug benefit in the three states where it operates. All of this would be challenging, costly and time-consuming. It’s not easy to manage a network of doctors and hospitals in the Northeast—particularly in Massachusetts where many providers have king-size reputations, and market clout to match. Moreover, as one insider noted, seniors who live in Massachusetts scatter in the winter to Florida and Arizona. In order to provide coverage in the winter months, Harvard Pilgrim might need networks in at least one or two other states.
It is true that, under the reform legislation, Medicare will freeze its very generous payments to all Medicare Advantage plans this year, and cut over-payments in the years that follow (unless insurers can show that they are providing good value for Medicare dollars). But this was not the major factor behind Pilgrim’s decision, says Schultz. “Certainly it was a factor, but if we could continue with fee-for-service, I doubt that we would have gotten out the Advantage business–definitely not this year.”
It’s worth noting that most insurers are not giving up on Advantage —nor will there be a mass exodus in future years, the Urban Institute’s Robert Berenson said in a recent phone interview. Under reform, the former Medicare official expects that most Medicare Avantage plans will survive: "They will modestly reduce their benefits and learn how to live with lower reimbursements,” he explained.
The crux of the problem for Pilgrim was this: it was operating a very popular and lucrative private fee-for-service plan that, like other PFFSPs cost taxpayers a fortune. Under the PFFSP rules, patients can see whomever they like—they don’t have to stay “in network.” And referrals are not required before making an appointment with a specialist. Patients appreciate the freedom: this is one reason Pilgrim was so popular. But for Medicare (i.e. taxpayers) the end result is costly. Patients see more specialists—even when a primary care physician might be able to diagnose their problem. Too often, when patients self-diagnose, they see two or three specialists before finding the right one. Moreover, when physicians are paid fee-for-service, the incentives encourage “doing more”—more tests and more treatments. This is not to say that physicians make a conscious decision to call for more tests in order to make more money. But when financial incentives are aligned in one direction, most human beings respond to them.
By contrast, physicians working for Medicare HMOs receive a fixed annual payment for every beneficiary. These HMOs "bid" for patients, telling Medicare how much they think they will need to care for the average patient in a given year. It's up to the HMO to figure out how to use that money to keep patients healthy. If doctors fail, the cost of patient care may exceed the yearly payment. This encourages efficient, high quality care.
The Incidental Economist’s Austin Frakt sums up the problem with PFFSPs: “They do almost nothing the Medicare Advantage program was designed to do. They do not manage care. They do not control costs. . . . They are not expected to report on quality . . . Because they do not establish networks, as HMOs do, they do not serve as a counterweight to provider consolidation.” The insurer cannot tell a hospital: “if you don’t provide high quality, safe and efficient care, we won’t include you in our network.” Meanwhile, Frakt reports, “they have been the fastest growing type of plan, responsible for most of the recent increase in cost of the MA program.”
According to the Commonwealth Fund, enrollment in PFFSPs grew from 220,000 enrollees in December 2005 to nearly 2 million in February 2008. Meanwhile, the number of health insurance firms offering Medicare grew from four firms in 2004 to 70 in 2008. Commonwealth also complains that PPFFS plans are exempt form disclosure requirements to which other plans are subject, and are not subject to bid review or negotiation with Medicare.
PFFSPs Cost 16.6 percent More than Traditional Medicare
All Medicare Advantage plans cost Medicare more than it would spend if it cared for the patients itself. This is in part because Medicare’s administrative costs are lower, in part because Medicare Advantage plans offer some extras that are not included in traditional Medicare. But PFFSPs p are super-expensive. The Commonwealth Fund observes that while the average MA plant costs 11. 6 percent more per beneficiary, a private fee for service MA plans costs 16.6 percent more.
Harvard Pilgrim’s First Seniority Freedom plan did offer some freebies not available with traditional Medicare, such as coverage for yearly routine physical exams, routine eye exams and $100 to $200 toward eyeglasses. But this is not enough to justify the 16.6 percent premium that Medicare hands over to the average PFFS. Keep in mind that PFFS plans are not required to offer an option that includes a drug benefit, and, as Frakt notes, “the extra benefits they do offer are “generally less generous than those available from HMOs.”
This is why, in 2008, Congress passed the Medicare Improvements for Patients and Providers Act (MIPPA), legislation which decreed that, as of 2011, PFFs plans would no longer be exempt from the requirement that MA plans create networks and provide a prescription benefit. President Bush vetoed the bill, but in July (before President Obama was elected) Congress over-rode the veto.
Pilgrim Patients Will Not Lose Their Doctors
Contrary to some media reports, there is no reason to believe that former Pilgrim patients will be forced to give up the physiicans that they know. Some will choose another Advantage plan, picking an Advantage HMO that their favorite doctor has chosen. Many will probably decide to switch back to traditional Medicare, and buy a MediGap policy to fill in the holes. (Pilgrim will be offering MediGap plans to seniors, and will make it easy as possible for them to make the transition. ) Under traditional Medicare, a senior can go to any doctor who takes the governement's insurance–and most do. It is important to recognize that Pilgrim, like other PFFSPs, pays physicians exactly the same fees that Medicare pays. Thus, there is no reason that a doctor who accepted Pilgrim would reject Medicare.
Opponents of reform like to pretend that reform legislation calls for wholesale cuts in payments to Medicare physicians, and that, thanks to "Obamacare, " doctors will begin shunning seniors. This is not true. In fact the Affordable Care Act (ACA) calls for higher fees for primary care doctors and other physicians who provide preventive care. The ACA also provides bonuses for those who create medical homes or join "Accountable Care Organizations."
When physicians talk about worries that Medicare will slash fees, they are referring to the “Sustainable Growth Rate” (SGR) rule, which threatened a 20% across the board cut in physicians’ fees some months ago. But the SGR was not created by the Affordable Care ACt; it is part of a separate piece of legislation, passed in the late 1990s when GDP growth was much higher. At the time no one thought it would ever be used. (The SGR formula is tied to GDP growth). The SGR is a crude tool; no one in the Obama administration supports it and Congress has made it clear that it will not implement the SGR law. Year after year, legislators have voted against implementatoin. When President Obama sent his first budget to Congress, he did not include savings from the SGR legislation in his budget. Yet, conservatives refuse to repeal the rule because they hope that the public—and some physicians—will confuse the SGR legislation with the reform legislation that President Obama signed in March.
Harvard Pilgrims's Customers Will Miss Their Medicare Advantage Plan, But . . .
Of course, none one of this means that seniors who enjoyed Harvard Pilgrim’s Advantage coverage are not disappointed. The treasured the freedom it gave them. Though it is worth noting that medical research does not show that such freedom leads to better care –or better health. According to the Medicare Payment Advisory Comission (MedPAC) the Medicare Advantage plans that lead to the the best outcomes tend to be well-established HMOs. These HMOs select excellent doctors and hospitals for their networks, and provide the incentives and the support needed to encourage coordinated, patient-centered care.
Nevertheless the demise of Harvard Pilgrim will be “disruptive to beneficiaries,” Frakt acknowledges. “But one shouldn’t blame the Accountable Care Act, the current Congress [or President Obama] for it. Blame the MIPPA Medicare Improvements for Patients and Providers Act of 2008 and the prior [Congress]. Or thank them. They’re saving taxpayers a lot of money, $47.5 billion over 2009-2018 according to Peter Orszag. I wish we could save a lot of money and cut a lot of waste out of the health system without inconveniencing people, but we can’t.”
In part 2 of this post, I’ll explain why Congress created the pricey fee-for-service Medicare Advantage option in the first place. (Hint: politics played a role.) I’ll also discuss why seniors should be glad that reform legislation will cut over-payments to Medicare Advantage programs—even those who now enjoy low co-pays under MA programs. Finally, I’ll talk about complaints about Medicare Advantage palsn—and where seniors are likely to find the best plans.
So the right wing press trumpets this as a failure of the heathcare act, the one that is only a week old in implementation of its first provisions? I’m shocked.
Chris–
This is, indeed, part of a well-worn pattern.
But what is shocking is that virtually no one told the true story. (This includes the Boston Globe, which is not, traditionally, part of the right wing press.
Yet, the Boston Globe told this as a story about what reform legislation caused Pilgrim to do, burying the effect of the earlier law in the second half of a sentence–and never explaining that Pilgrim was runnign a fee-for-service plan, which made all of the difference.
The CEO of Pilgrim told me that many people “wanted to use” Pilgrim’s decisions in different ways.
When we talked on the phone, he was taking a close look at look at the Boston Globe story and was dismayed. (My word, not his, describing his response.)
No surprise, many other papers just picked up on the Boston Globe story–without every looking into the second half of that one sentence.
This was a pretty big story–so many people affected at one of the nation’s leading insurers.
Yet the only story that I could find telling the truth was the Incidental Economist’s blog.
(I searched blogs and news nationwide.)
The executives would always blame something else other than the truth. What part don’t you get about executives and PR?
Joe Says–
Harvard Pilgrim is a non-profit and Eric Shultz, Harvard Pilgrim’s CEO is not your typical CEO.
While at Barron’s, I interviewed a great many. Ted Turner is very different from Jack Welch who, in turn, has virtually nothing in common with Bill Gates. Yes, the vast majority of CEOs are money-driven, and to quote the chief economist at a white-shoe WAll Street money-management firm: “dumb as dirt.”
But there are some who are extremely intelligent, imaginative, and honest.
Before I called Pilgrim, a friend who is a medical ethicist at Harvard medical school gave Shutlz high marks. Then, when I called Pilgrim (not expecting to interivew Shultz on very short notice), the PR person said “I think our CEO would want to talk to you — He reads your blog and likes it very much.”
This is not what PR people usually tell me when I call insurance companies.
I might not have believed her–until I talked to Shultz.
By that time, I had figured out why Pilgrim had gotten out of the Advantage business (with great help from the Incidental Economist.)
So when I talked to Shultz, I said “Let me cut to the chase. This is why I think you decided to cancel your Medicare Advantage plan. Then I outlined what I write in the opening pargarphs of this post.
He said “Bingo. You’re absolutely right.”
He also acknolwedged that this was a business decision. If they tried to turn Harvard Pilgrim into an HMO it wasn’t wasn’t going to be a viable product–in terms of making money.
And he confirmed that many in the media wanted to use the story for their own purposes (to bash Obama and health care reform.) Many CEOs would not want to alienate the media by saying this.
Shultz was totally candid-no posturing, no pretending.
And, trust me, after spending more than 16 years covering Wall Street for Barron’s, and writing Bull!, I’m not naive.
Joe Says–
Harvard Pilgrim is a non-profit and Eric Shultz, Harvard Pilgrim’s CEO is not your typical CEO.
While at Barron’s, I interviewed a great many. Ted Turner is very different from Jack Welch who, in turn, has virtually nothing in common with Bill Gates. Yes, the vast majority of CEOs are money-driven, and to quote the chief economist at a white-shoe WAll Street money-management firm: “dumb as dirt.”
But there are some who are extremely intelligent, imaginative, and honest.
Before I called Pilgrim, a friend who is a medical ethicist at Harvard medical school gave Shutlz high marks. Then, when I called Pilgrim (not expecting to interivew Shultz on very short notice), the PR person said “I think our CEO would want to talk to you — He reads your blog and likes it very much.”
This is not what PR people usually tell me when I call insurance companies.
I might not have believed her–until I talked to Shultz.
By that time, I had figured out why Pilgrim had gotten out of the Advantage business (with great help from the Incidental Economist.)
So when I talked to Shultz, I said “Let me cut to the chase. This is why I think you decided to cancel your Medicare Advantage plan. Then I outlined what I write in the opening pargarphs of this post.
He said “Bingo. You’re absolutely right.”
He also acknolwedged that this was a business decision. If they tried to turn Harvard Pilgrim into an HMO it wasn’t wasn’t going to be a viable product–in terms of making money.
And he confirmed that many in the media wanted to use the story for their own purposes (to bash Obama and health care reform.) Many CEOs would not want to alienate the media by saying this.
Shultz was totally candid-no posturing, no pretending.
And, trust me, after spending more than 16 years covering Wall Street for Barron’s, and writing Bull!, I’m not naive.
PFFS plans were introduced at a high cost to the taxpayer to subsidize health plans to build networks and ultimately SAVE the taxpayers money while delivering high quality care. The big question is why did Harvard Pilgrim not build the network? They spent a lot of money to build the program and then flush it all away. Policyholders should be demanding answers.
Perhaps the Boston provider monopoly that yields the highest health costs per capita in the world would not allow an efficient network? Our best quality providers and health plans in the country don’t want to take responsibility for the health care dollar, but rather proceed with fee-for-service medicine and put off the day of reckoning. It reflects poorly on Harvard Pilgrim, Partners and CMS that they cannot make this work.
Bill–
PPFS plans were not required to build networks. Medicare advantage HMOS were required to build networks.
So the question you are really asking is : Why didn’t Harvard Pilgrim create a Medicare Advantage HMO, with a network, and a payment structure (lump sum for the year) that would encourage doctors to think carefully before ordering redundant or unnecessary tests and treatments?
Because patients don’t like networks.
It’s worth noting that Pilgrim does have an HMO for the insurance that it offers through large employers. In that case, they are selling to employers, and employers are willing to buy a plan that limits their employees to a large network of hospitals and physicains.
But when it sells Medicare Advantage, Pilgrim is selling directly to seniors, and they all want access to the “brand name” hospitals and doctors.
Meanwhile, in Massachusetts, those brand-name providers have been charging insurers a fortune.
As I explained in January “in 2000, two of Massachusetts’ brand-name providers flexed their muscle and gained new power for marquee medical names throughout the state. That was the year that Partners Healthcare Systems, the result of a marriage between two of Boston’s most prestigious hospitals (Brigham and Woman’s Hospital and Mass. General), demonstrated that, in the words of the Boston Globe, “it could bend insurers to its will.” http://www.boston.com/news/local/articles/2008/11/16/a_healthcare_system_badly_out_of_balance/?page=3
Tufts’ Health Plan decided to stand up to Partners and refuse its demand for a substantial rate increase. Partners countered by declaring it would no longer accept Tufts’ insurance at its hospitals.
Within days, “as thousands of Tufts customers threatened to change insurance rather than lose the right to treatment at the two famous hospitals, Tufts gave in to Partners’ demand,” the Globe reported.
“Since then, Partners has negotiated one big pay increase after another from insurance companies fearful of a similar humiliation.”
In its 2008 Spotlight investigation the Boston Globe demonstrated that, following that debacle , hospitals with elite reputations were being paid more for identical services.
Dr. James D. Alderman, for example, is an interventional cardiologist who routinely opens patients’ clogged coronary arteries by inserting a flexible tube with a tiny balloon at the tip. Sometimes he does the angioplasties, at MetroWest Medical Center in Framingham. Sometimes he operates at Brigham and Women’s Hospital as part of a research program.
When he does the procedure in Framingham, the insurance company will pay the hospital about $17,000, not counting the physician’s fee. If Alderman is sent to Brigham and Women’s in Boston, that hospital will receive about $24,500 — 44 percent more , even though the patient’s care will be the same in both places.
“It’s the exact same doctor doing the procedure,” said Andrei Soran, MetroWest’s chief executive told the Globe. “But the cost? It’s unjustifiably higher.”
Often, different hospitals charge very different prices for relatively simple tests. “Children’s Hospital typically gets about $1,100 for making an MRI of an ankle or a knee, not counting the physician’s fee,” the Globe noted. “Insurers pay Boston Medical Center $490 for the same procedure, using a similar high-tech machine”.
“The technician who makes a simple chest X-ray to help diagnose pain or an insistent cough brings in $75 at Anna Jaques Hospital in Newburyport. Mass. General earns more than twice as much, $160, for producing the same image.”
In other words, are over-charging insurers. Even if Pilgrim’s Medicare ADvantage plan was an HMO,
those providers would refuse to negotiate anything less than exorbitatnt contracts. If PIlgrim tried to get tough, they would simply say “fine we won’t be in your network.”
And Pilgrim would get phone calls from thousands of Medicare Advantage patients who wanted to cancel their policies.
That’s the rub. Particularly in the Northeast, patients want the freedom to go to any doctor or hospital they choose–and they believe the ads they read in the newspapers–that certain hospitals are providing “the best” service–even if it is a simple procedure. (Sometimes that is true; sometimes it isn’t. )
In other parts of the country (the Northwest, the upper Middle West) patients are accustomed to belonging to an HMO or a system (Kaiser Permanente, Peugot Sound) with a good network of doctors and hospitals. But that isn’t the case in the Northeast.
But you shouldn’t blame CMS–or Pilgrim. If seniors don’t want the HMO Advantage product, and if providers prefer to be paid fee for service, Partners cannot force them to buy the product, or accept lump sum payment.
As for CMS, it had no say over any of this.
Congress passed the Medicare Modernization Act which let private insurers create Medicare Advantage private fee-for-service plans (PFFS) that require no networks, no quality reporting, not prior authorization or referrals to see a doctor.
Why did Congress do this?
Two reasons.
First, Newt Gingrich wanted Medicare Advantage to be as attractive as possible to seniors so that more seniors would shift from traditional Medicare to Medicare Advantage. His goal: to privatize the entire Medicare program. If enough seniors left traditional Medicare and signed up for Advantage (say 70%) traditional Medical would go broke (becuase it was over-paying Advantage) and everyone would have to go into the Advantage program, leaving all American seniors to the mercy of private insurers.
Gingrich and other Republicans didn’t think that the federal government should be in the “entitlements” business– they also wanted to privatize Social Security.
In addition, the religious right formed a powerful lobbying, pushing for fee-for-service Medicare ADvantage plans.
Why would the religoius right care? They felt that is providers were paid fee for service, they would do “everything possible” when a patient was dying–prolonging the dying process. Terry Shiavo would live forever.
I’ll explain this in part 2.
But if you’re going to blame someone for extravantly expensive PFFS plans, blame Congress– and patients who want complete freedom, whatever it costs taxpayers, and providers that use their brand-name clout to over-charge.
What’s the easiest way to spread misinformation? Agree with the misinformed.
Maggie,
At the risk of being argumentative, I did not say that health plans were required to build networks, but that was certainly Congress’ intent and every health plan knew it. Without a network, and without managing care (I know, a dirty word) the health plan cannot save money or improve care. What was Harvard Pilgrim’s intent in the first place?? PFFS plans and the higher reimbursement were to be transitional.
Medicare Advantage HMO’s are hugely popular in many regions of the country from New York City to Florida to Southern California. I think we agree that Partners is a monopoly and charges unsustainable amounts from insurers, THEREFORE, a HMO is not viable in Mass.
I do blame Harvard Pilgrim in that they lost a huge amount of money on the PFFS endeavor and should have seen it coming. I do blame CMS because as a hyper-regulatory body they have a lot of influence on insurers and providers. And finally Partners is short-sighted: if they don’t start managing costs on their own, CMS will, and the only thing CMS knows how to do effectively is cut fees. The noise will be deafening, but Partners will have earned it!
By the way does the government have an antitrust division? Partners is flagrant.
Your cynicism on the PFFS plans and their creators is over the top. Growth in Advantage plans does not somehow get the government out of the entitlement business. And if you give physicians lump sum payments to manage care they will get serious about end of life care – not “everything possible” up until the end. That’s what happens now given that the family has no cost sharing and the providers can increase revenue.
HP pulled the plug because in a Medicare Advantage program, HP stands between the provider/hospital and Medicare.
In 2011 the government payment to Medicare Advantage plans were cut and there was no profit for HP to act as a go between.
Pretty simple. HP figured they would make less or no $$ in 2011 with this plan.
Furthermore, they were Paying Partners handsomely since Partners does not usually accept Advantage programs.
No reason in 2011 that HP could not have offered a Medicare Supplemental with PDP for the same price as their now defunct First Seniority. BCBS does.
Bill–
You are entirely right, Advantage fee-for-service plans that have no networks were supposed to be transitional.
And as you say, they are very expensive and don’t manage care.
Whey then did Congress create them, even as transitional plans?
“It was a sop to the religious right,” Bob Berenson told me. Others confirmed this.
What do fee-for-service plans have to do with the religious right? The religious right feared that if doctors were paid lump sums they might not so “everything possible” in end of life cases. People who were brain-dead could “live” forever.
Finally, yes Partners over-charges. And I suspect that as insurance regulators in Mass put pressure on insurers (refusing to let them raise premiums) insurers will begin to put pressure on the hospitals. Though the hospitals are so big and powerful–it may well take help from the media exposiing how brand-name hospitals are over-charging for simple services. (The Boston Globe did a nice job in the first series that broke the story–we’ll need more reporting like that.)
Finally I am told that there are Advantage HMOs in Mass. But patients are not as eager to sign up for them because they like the freedom of not having a network . . .
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Thanks