The Medicare Modernization Act of 2003, which brings a comprehensive drug benefit to the senior health-insurance program beginning Jan. 1, 2006, requires that the CMS provide a fallback drug plan in U.S. regions that fail to have at least one Medicare Advantage managed-care plan with a drug benefit and one drug-only plan available.
"All areas of the nation are on track" to have health plans available, McClellan told the Senate Committee on Governmental Affairs Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia.
Lawmakers were concerned about the availability of plans, given the history of Medicare+Choice, which began in 1997 and was rolled into Medicare Advantage. M+C started out strong, with many HMOs offering drug coverage and extra benefits that traditional Medicare did not cover.
Health plans soon found out, however, it was difficult to deal with the CMS and Congress, and their payment rates did not cover their costs, so hundreds pulled out of the program or reduced coverage areas. By last year, there were were major coverage holes nationwide and the plans that remained operated in geographic pockets eligible to receive payments at least equal to -- and many times up to 107 percent above -- traditional Medicare rates.
Plans apparently are giving the CMS another chance -- pushed to do so by the financial perks contained in the Medicare Modernization Act of 2005, along with encouragement from their lobbying group and lawmakers.
Even before the new drug benefit begins in 2006, health plans are responding to the additional reimbursement monies available and the potential to tap into billions of dollars in MMA incentives to participate in Medicare Advantage or as a drug-only provider.
McClellan said Medicare Advantage now has 5 million enrollees, "about 14 percent (of Medicare) and growing substantially," with about 50,000 new members now joining each month.
He said the CMS has received 130 new Medicare Advantage applications this year, including 50 new plans and 80 new preferred-provider organizations, which will enter Medicare through the MMA in 2006. The PPOs will have to provide a drug-benefit option for seniors.
He also said this ramped-up interest means 49 of the 50 states will have a Medicare Advantage managed-care plan available this year and more than 90 percent of Medicare's 43 million seniors will have access to them -- the highest level ever.
New risk-adjustment rules that pay plans higher reimbursements for caring for more sickly or chronically ill seniors are resulting in insurers developing coverage for these populations, McClellan said.
That action is expected to help protect the program from health plans that cherry-pick by targeting their enrollment toward only healthier seniors.
CMS EXTREME MAKEOVER
Adding the new prescription drug benefit to Medicare has required the CMS undergo "an extreme makeover of our most important resources -- our human resources," McClellan told a Senate Governmental Affairs subcommittee.
Since passage of the Medicare Modernization Act of 2003, the CMS has added 345 new staff members, with plans for adding at least 150 more. Many of these staffers bring expertise in areas directly covered by the new Part D drug benefit: pharmacy, retiree health plans, disease management, quality measurement and quality improvement.
McClellan said along with the new hires, the CMS has undergone a structural reorganization to coordinate the drug benefit implementation better. Drawing on the Federal Employee Health Benefit Program, he added that the CMS has sought to set up transparent processes in its operations.
The result has been more interaction between health plans and CMS "to help make sure we answer questions and overcome obstacles with drug plans being developed," McClellan said. "That's paying off with the tremendous response we've seen."
PART B DRUGS WORRIES FOR BOTTOM LINE
Pharmaceutical and biotech companies that rely on Medicare Part B drug revenues could have bottom-line worries. A study by the international consulting firm Wood Mackenzie said the Medicare Modernization Act of 2003 allows the Centers for Medicare and Medicaid Services to implement controls for Part B costs, which have been growing by 20 percent per year.
Wood Mackenzie also reports Part B drugs, which are administered to patients by physicians at their offices or at a clinic, make up the majority of the most expensive drugs to hit the market in recent years -- the bulk coming from the biotech sector.
Of the 60 companies covered in Wood Mackenzie study, the key five that derive more than 40 percent of their U.S. pharmaceutical revenues from Medicare Part B drugs are Genentech, Amgen, Hoffmann-La Roche, Johnson & Johnson and Allergan.
Firms such as Merck & Co. and Pfizer have little reliance on Part B drug revenues, but will compete in the Part D Medicare drug benefit that begins in January 2006, the researchers said.
"Developments in Medicare Part B drug benefits should be top of mind for firms like Amgen, Genentech and Roche, because these companies' U.S. revenues are heavily reliant on Part B drugs," Wood Mackenzie's Mike Ratcliffe said in a statement. "Because many Part B drugs are biologics and currently the (Food and Drug Administration) has no process to approve cheap generic versions, costs have remained high. We anticipate far greater scrutiny on these costs by CMS."
ABOUT THOSE PHYSICIAN PAYMENT CUTS
A lot of people earlier this year confidently predicted that cuts planned in physician Medicare payments would never happen -- that Congress simply would find a way to come up with another $100 million or so.
Perhaps the docs relaxed too soon.
Cuts of around 5 percent are to begin in 2006 and continue for six years, according to budget plans everyone has known about for a long time. The fact that they still are in the budget now, however, has launched the American Medical Association into overdrive, advising reporters in Washington on Tuesday that such reductions would mean even more physicians will reduce the number of Medicare patients they see.
An AMA survey shows 38 percent would reduce the number of new Medicare patients they accept. Some 61 percent of doctors responding to the survey said they would defer purchases of new medical equipment and 54 percent would put off investments in information technology -- at a time when the government is pushing healthcare toward electronic records.
There is not much disagreement among policy experts that the physician payment structure is out of whack and needs fixing. Part B Medicare covers doctor visits and is funded by general tax revenue. It has been seeing double-digit increases, so the CMS really is looking to hold down costs. One plan for physicians is to implement pay-for-performance, tying Medicare payments to quality of care and best practices.