The need for changes in the Medicare payment system has been growing over the past few years, particularly for frail and elderly patients. “No matter who is providing services, whether it be private insurance or Medicare, 5% of all patients generate about 50% of the costs,” said Berenson. Yet, while the new payment formula “ is needed because each patient’s burden of illness varies,” it may be too burdensome to implement within a short period of time.
The federal government has been looking at changing the Medicare payment structure since the 1990s, when the payment structure first called for diagnostic related group (DRG) criteria. DRG payment requirements created problems that were remedied by the new payment system of the Balanced Budget Act of 1997.
Initiated last January, the new approach calls for payments to be risk adjusted to account for the health status of each enrollee. “Under the new changes, all related diagnoses are to be included,” said Berenson. “Instead of focusing on a narrow picture of the health status of the patient, the risk adjustment method allows for the total picture to be presented.”
On the surface, the new system will pay more for seriously ill patients who need the money, and less for healthier patients. It still has problems. While the data used for risk adjustment are based on either demographic or health status reports from hospitals, questions remain regarding data collection. By the end of the transition period in 2004, managed care plans should be submitting data collection information, but “for small plans, the task of implementing such a collection system may be overwhelming and costly,” said Berenson. As a result, larger insurance companies, which already have such systems in place, may be rewarded while smaller companies may be penalized.
Yet data collection isn’t the only concern, especially when dealing with an older population. “Risk assessment allows providers to get resources they need to serve frail and elderly patients,” said Valerie Wilbur of the Wilbur Group, a private consulting firm in Washington, DC. “Medicare+Choice and other managed care programs have the potential to help the elderly if the risk assessment is done right.”
Wilbur suggested that Medicare must adapt its model to reflect the chronic care needs of aging people. Her group, working with the Medicare Payment Coalition for Frail Beneficiaries, conducted a study using a database of 90,000 patients to examine health care costs of chronic illnesses. Previous work conducted by the Institute of Medicine and the RWJ/Hopkins Partnership for Solutions found that chronic conditions are the highest-cost, fastest growing health problem in the United States today, consuming over 77% of direct medical expenditures. In particular, they found that two-thirds of the elderly have multiple chronic conditions, accounting for 95% of Medicare costs.
The Coalition’s recent study found that the new Medicare payment system does not permit specialization for frail and at-risk patients. “There is a growing sense that risk adjustment alone is not enough,” said Wilbur. “We need a payment approach that targets specific diseases or populations.” As a result, the Coalition has suggested that a “specialized” Medicare+Choice category be established to target frail and elderly patients. The Coalition will be conducting further research, focusing on improving risk adjustment methodologies and evaluating complementary payment methods.
“The first step for HCFA was starting a comprehensive plan,” said Wilbur. “The next goal is to find out how the plan can work for everyone.”
ABCD's Lunch Briefings will resume in the fall. All events are open to the public. Organizations are encouraged to cosponsor sessions.
To be added to the invitation list or to cosponsor a program, e-mail Roshon Gibson.
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