>To preserve profits, Medicare Advantage health insurance plans must focus on medical management as President Barack Obama and Democrats in Congress try to slash the federal government’s reimbursement payments to the plans.

The U.S. Senate’s health-reform bill, as passed on Christmas Eve, contains $120 billion in cuts in payments to private Medicare Advantage plans over 10 years, according to America’s Health Insurance Plans.

The separate bills passed by the Senate, and the House of Representatives, seek to restructure payments to bring them more in line with traditional, fee-for-service Medicare. As of March 18, the Senate bill is the basis for a final version of reform being modified in the House.

Previous cuts by Congress caused a rise in premiums for millions of seniors as well as a “reduction in benefits, or loss of their coverage altogether,” said Robert Zirkelbach, a spokesman for AHIP.

John Gorman, chief executive officer of Gorman Health Group, a Washington, D.C.-based managed care consulting firm, said if health reform “crashes and burns,” the Obama administration is likely to issue numerous regulations on MA plans instead. These include an increase in clinical-reporting requirements so Washington can assess whether plans are lowering the costs of chronically ill seniors, he said.

The “lost art” among MA plans has been medical case management as they “took their eye off the ball” when the Part D drug benefit launched in 2006, Gorman said.

They were getting double-digit reimbursement increases so they focused on marketing, selling and growing enrollment, Gorman said, noting MA has accounted for much of the earnings of many publicly traded companies over the past several years.

But now, the party’s over, he said. Plans are shifting their strategy from trying to enroll as many seniors as possible to one of medical management and care coordination to address the 5% of their membership that accounts for more than 60% of their costs, Gorman said.

MA plans offer coverage for physician care, hospital services and prescription drugs, and often include benefits for dental, vision and hearing. But they can be more costly than traditional Medicare if seniors get care outside their plan’s network. About 10.2 million beneficiaries receive coverage through MA plans (BestWire, Nov. 25, 2009).

Humana Inc. (NYSE: HUM) last month said it would cut about 1,400 positions — or 5% of its work force — this year, citing enrollment losses in its commercial health plans. But it said it’s “balancing” the overall 2,500 job reductions with 1,100 new jobs in areas such as medical-cost containment services and pharmacy management (BestWire, Feb. 17, 2010).

Tom Noland, a Humana spokesman, said medical cost management is a growth area for the company. “We believe we have taken the appropriate operational steps to succeed long-term in an environment of changing Medicare payments,” he said. Humana, the second-biggest seller of Medicare Advantage plans in the United States, has more than 1.5 million members in MA plans that include a drug benefit and nearly 2 million members in Part D plans.

Subsequently, the Medicare Payment Advisory Commission, a congressional agency that provides independent policy and advice to Congress on issues affecting the Medicare program, recently said it “reiterates its recommendations for financial neutrality” between MA and fee-for-service payments (BestWire, March 2, 2010).

Humana’s experience with Medicare “will, we believe, make us one of a very short list of successful national competitors,” Noland said. That’s because of its long-term focus on network development; its 15% solution in which Humana has made significant progress toward its goal of providing benefits and services to MA members at a cost 15% less than what it costs the federal government without reducing quality; and on balancing premiums and benefits, he said.

The Medicare doctor payment fix is another area of big concern for MA plans, according to Gorman (BestWire, March 1, 2010). Every year Congress “kicks this can down the road,” the reimbursement problem only gets worse for both plans and doctors, he said.

(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)

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