Private Fee-for-Service Plans Experiencing
High Disenrollment Rates, GAO Report Finds

Medicare beneficiaries in private fee-for-service (PFFS) plans disenroll at higher rates than other Medicare managed care plans and can be left with larger bills for medical care than other managed care or traditional fee-for-service plans, according to a Government Accountability Office report released Dec. 15.

GAO in a report requested by House Democrats found that beneficiaries in a six-month period in 2007 disenrolled from PFFS plans at an average rate of 21 percent, compared with 9 percent for other Medicare managed care plans.

Beneficiaries who left PFFS plans were sicker compared with other PFFS enrollees and had health care expenses about 6 percent higher than those remaining in the plans, GAO reported.

GAO said the higher disenrollment rates in PFFS plans could be an “indicator of beneficiary dissatisfaction with access or quality of care or could indicate that other plans with more attractive benefit packages are available.”

GAO said the Centers for Medicare & Medicaid Services has not complied with statutory requirements to mail Medicare beneficiaries disenrollment rates for managed care plans in their areas.

Prior Authorization.

Beneficiaries in PFFS plans also can be left on the hook for the cost of a medical service if they or their provider do not seek prior authorization for treatment from Medicare, the report said.

If authorization for the service is later denied, the beneficiary could have to pay the entire cost of the service or a higher cost-sharing amount than under other managed care or fee-for-service plans, GAO said in Medicare Advantage: Characteristics, Financial Risks, and Disenrollment Rates of Beneficiaries in Private Fee-for-Service Plans (GAO-09-25).

For example, the share of the cost for which beneficiaries are responsible changed from 30 percent to 70 percent of the total bill if a beneficiary did not contact the plan before obtaining certain durable medical equipment, GAO said.

GAO said PFFS plans are paid up to 17 percent more than Medicare pays fee-for-service providers. About 2.3 million beneficiaries were enrolled in a PFFS plan as of June 2008, according to the report.

GAO recommended CMS investigate the extent to which PFFS beneficiaries face unexpected costs for failure to get prior notification for care and said the agency should notify beneficiaries by mail about PFFS disenrollment rates.

The report was requested by outgoing House Energy and Commerce Committee Chairman John D. Dingell (D-Mich), and incoming Chairman Henry A. Waxman (D-Calif.); and Health Subcommittee Chairman Frank J. Pallone (D-N.J.). Also requesting the report were House Ways and Means Committee Chairman Charles B. Rangel (D-N.Y.) and Health Subcommittee Chairman Fortney “Pete” Stark (D-Calif.).

Imminent Risk.

“PFFS plans pose an imminent risk to the financial health of their enrollees,” Dingell said in a Dec. 15 press release. “We pay these plans a fortune to provide Medicare benefits. They say ‘thank you' then turn around and go looking for excuses to deny claims.”

“Beneficiaries need to be warned about the dangers of enrolling in these plans,” Rangel said. “Clearly these plans don't work if you actually get sick and need health care.”

“The behavior of these plans is deeply troubling—they cost us almost 20 percent more than traditional Medicare and promise us they're providing extra benefits to their enrollees,” Waxman added.

Congressional Democrats are expected next year to try to reduce Medicare spending on Medicare managed care plans, known as Medicare Advantage.

Congress earlier this year took aim at PFFS plans. Provisions in the Medicare Improvements for Patients and Providers Act (Pub. L. No. 110-275) require that, as of 2011, private fee-for-service plans serving beneficiaries in areas having at least two network-based plans, such as PPOs and HMOs, enter into written contracts with providers. PFFS plans have been exempt from network formation requirements.

CMS Comment.

In a response contained in the report, CMS said it is examining coverage denials and complaints from PFFS enrollees, adding that it has taken several steps, including issuing new guidance, to clarify plan rules on prior authorization issues.

The agency also said it had awarded a contract to obtain information on PFFS disenrollment rates by late 2009. But GAO said CMS did not specify how it would get that information to Medicare beneficiaries.

A spokesman for America's Health Insurance Plans, which represents Medicare managed care plans, told BNA Dec. 15 that PFFS plans “are an important coverage option for seniors, especially those living in rural areas.”

“Seniors enrolled in these plans receive additional benefits and services not available in original Medicare,” the spokesman said. “Plans offer disease management and care coordination services that are helping seniors get the care they need. Moreover, many plans provide coverage for eye and hearing exams, have no cost-sharing for preventive care, and have annual limits on beneficiaries' out-of-pocket costs.”

The GAO report is available at http://www.gao.gov/cgi-bin/getrpt?GAO-09-25.