Watchdog Agency Questions Benefits of Medicare PPOs

Preferred provider organizations (PPOs) may not be the answer to reforming Medicare that the Bush administration hopes them to be.

That's one finding in a Government Accountability Office report titled“ Medicare Demonstration PPOs: Financial and Other Advantages for Plans, Few Advantages for Beneficiaries.”

The GAO report examined demonstration projects launched by the federal Centers for Medicaid and Medicare Services (CMS) that were designed to attract PPOs to Medicare+Choice, the program that provides beneficiaries a choice of private plans. The report found that, contrary to expectations, the demonstration projects attracted relatively few beneficiaries.

The GAO also stated that CMS “exceeded its statutory authority” when it allowed 29 of 33 of the health plans in the Medicare PPO Demonstration to pay for certain services only if beneficiaries obtained those services from network providers—a violation of provisions governing the health plans' participation in Medicare.

“In general, beneficiaries in Medicare PPO Demonstration plans who received care from non-network providers for these services were liable for the full cost of their care,” the GAO wrote. “Examples of such services include skilled nursing and home health, which are covered under fee-forservice Medicare, and dental care and routine physical examinations, which are not covered under fee-for-service Medicare.”

A goal of the Bush administration has been to increase beneficiary enrollment in Medicare+Choice. Though PPOs are more prevalent than any other type of health plan in the private insurance market, only six PPOs had contracted to serve Medicare beneficiaries in Medicare+Choice as of 2003.

To attract more PPOs to the program—particularly beneficiaries currently enrolled in the fee-for-service plan—two demonstration projects were started that included a total of 34 PPOs.

But the GAO report stated that the PPO demonstration projects attracted relatively few enrollees from the fee-for-service plan and did “little to expand Medicare beneficiaries' access to private health plans in 2003.”

According to the report, only about 98,000 of the 10.1 million eligible beneficiaries living in counties where demonstration PPOs were available enrolled in the demonstration projects. “Further, although one of the goals of the Medicare PPO Demonstration was to attract beneficiaries from FFS [fee-for-service] Medicare and Medigap plans, only 26 percent of enrollees in Medicare PPO Demonstration plans came from FFS Medicare, with all others coming from Medicare+Choice plans.”

The GAO recommended that CMS instruct plans in the Medicare PPO Demonstration to provide coverage for all plan services furnished by any provider that is authorized to provide Medicare services and accepts the plans' terms and conditions of payment.

CMS Administrator Mark B. McClellan, M.D., Ph.D., responded that the agency would seek to implement the GAO recommendations and is working with PPO demonstration plans to ensure that they comply with the provisions that govern their Medicare participation.

But in a letter to GAO after reviewing the report, McClellan also expressed concern about the “tone” of the report, including the title of it, which he called “misleading, unfair, and not supported by the information presented in the report itself.” He reiterated the administration's optimism about PPOs. “We believe beneficiaries benefit substantially from increased access to the PPO model and will, in the long run, be better off for the availability of these types of plans in the new Medicare Advantage program.”

McClellan also said criticisms about enrollment in a demonstration project overlook the experimental nature of demonstration projects.

“It is important to note that the PPO Demonstration is just that, a demonstration,” McClellan wrote. “The financial arrangements developed for the project were intended to encourage plans to participate in this experiment, and they should be viewed as a first step in the development of better ways to establish partnerships between the Medicare program and private plans for the benefit of Medicare beneficiaries.”

The GAO report is posted online at<www.gao.gov/new.items/d04960.pdf>.▪