Although the drama in Washington, D.C. has dominated the health industry news (because of the focus on the Affordable Care Act), there has been life (and news) as normal. Of particular interest to us over the last week has been legal action, or the threat of legal action, by providers against insurers over rate cuts or exclusion from health exchange plans.
Narrow Network Plans Predominate in Marketplaces/Exchanges
The Healthcare Financial Management Association (HFMA) reported on a lawsuit by Seattle Children’s Hospital against the state’s insurance regulator for approving few marketplace plans that include it as a preferred provider. “. . . the move reflects widespread hospital concern about the negative financial impacts for them and their patients from the growing use of such narrow provider networks, which can leave enrollees who seek care at non-network providers to bear a significantly higher share of the cost of their care.” (“Hospital Lawsuit Underlines Provider Concerns with Marketplace Plans,” HFMA Weekly News, October 19, 2013)
Limited-provider networks seem to be the norm under the marketplaces/exchanges. In the 34 federally run exchanges, nearly 2,000 plans are available; about 800 are HMOs and about 700 are PPOs. The expansion of available HMOs is unprecedented; for example, until now, HMO plans have comprised less than 5 percent of individual insurance plans sold through online insurance. But research indicated that low premium plans would be more popular among exchange enrollees; hence the proliferation of HMOs on the exchange.
“The narrow network design gave insurers a tool to keep prices down in marketplaces where many of their traditional underwriting practices were barred, according to health policy experts.” (“Hospital Lawsuit Underlines Provider Concerns with Marketplace Plans,” HFMA Weekly News, October 19, 2013)
Excluding more expensive hospitals such as children’s hospitals and academic medical centers from these marketplaces/exchanges could affect the ability of parents or patients to secure or afford specialty care such as acute cancer care or level IV neonatal intensive care.
Medicare Advantage Plans Seek to Pass On Sequestration Cuts
When sequestration went into effect for Medicare, the rate cuts affected both providers and insurers. Now, most Medicare Advantage plans are “unilaterally” passing along the 2 percent rate cuts to providers, and hospitals, physician groups and post-acute care providers are threatening to sue. Legal action could begin by the end of the year. (“Providers threaten lawsuits: Advantage plans pass along 2% sequester rate cuts,” Modern Healthcare.com, October 14, 2013)
A 2 percent sequester cut to Medicare Advantage plans represents a large chunk of money; last year the federal government spent approximately $135 billion on this program. Providers say they would feel the cut more keenly. But insurers claim that passing along the cut makes sense where “contractually allowed,” and that providers reimbursed on current-year Medicare allowable rate fee schedules are subject to the same reduction required under sequestration. (“Providers threaten lawsuits: Advantage plans pass along 2% sequester rate cuts,” Modern Healthcare.com, October 14, 2013)
Several provider associations have asked CMS to confirm that the sequestration cuts should not be passed on to providers. In May of this year, CMS issued a guidance memo that noted that Medicare Advantage plans should review their individual contracts to determine how sequestration would affect payments. Providers say this statement in the CMS memo demonstrates that the sequestration cuts were intended for insurers, not providers, and that plans could not automatically pass along the cuts.
Medicare Advantage insurers say they have to pass along the cuts because they’re increasingly squeezed by reduced payments because of sequestration and Medicare spending reductions included in the Affordable Care Act. But hospitals can make the same claim; they face significant reductions from Medicare and private sector payers.
Here are a few facts about Medicare Advantage plans (from “Providers threaten lawsuits: Advantage plans pass along 2% sequester rate cuts,” Modern Healthcare.com, October 14, 2013):
- About 14.4 million people, or 28 percent of Medicare beneficiaries, are currently enrolled in Medicare Advantage plans, and participation has more than doubled since 2006, according to the Kaiser Family Foundation and CMS data.
- The government pays the plans on a per-beneficiary, per-month basis. It spent 24 percent of the $562 billion Medicare budget last year, or about $135 billion, on Medicare Advantage. Because payments to providers vary by plan, it’s unclear how much of that figure trickles down to hospitals.
- A March report from the Government Accountability Office found overpayments to Medicare Advantage plans of up to $5.1 billion in years 2010 to 2012, heightening political pressure to reduce payments to the plans.
- The plans had been facing a 2.3 percent cut for 2014—until the CMS reversed course in April and gave them a 3.3 percent rate hike. Nevertheless, the ACA still mandates a $156 billion payment reduction to Medicare Advantage plans over 10 years.
This issue has hit most providers in most states, but it appears to be most significant in states where Medicare Advantage plans have the greatest penetration, such as Florida (34% of beneficiaries) and Arizona (37%).
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