October 2, 2000

Medi-Minutes
Report Claims Medicare Overpaid HMOs

A new government report may make it difficult for managed care companies and their trade associations to convince Congress that their Medicare+Choice payments are too low. According to the report, released by the Department of Health and Human Services’ (HHS’) inspector general’s office, Medicare actually overpaid managed-care companies by $1.8 billion in fiscal 2000.

The inspector general’s report indicated that the new methods for determining Medicare managed-care payments (under the Balanced Budget Act of 1997) equaled 95.5% of Medicare fee-for-service reimbursements, rather than the 90.5% required under the law. The difference resulted in extra government expenses of $1.8 billion, given that the beneficiaries those Medicare HMOs serve are healthier and less costly to treat than the average Medicare beneficiary.

But according to Susan Pisano of the American Association of Health Plans, the report "does not square with the reality for 1.5 million beneficiaries (that have lost coverage since 1998) and plans operating in the real world." Dozens of plans, claiming insufficient reimbursements, have already withdrawn from the Medicare program this year. Pullouts this year are expected to affect more than 900,000 beneficiaries.