ISSUE BRIEF MEDICARE ADVANTAGE: CONSIDERATIONS FOR CONTRACTING WITH HEALTH PLANS

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1 ISSUE BRIEF MEDICARE ADVANTAGE: CONSIDERATIONS FOR CONTRACTING WITH HEALTH PLANS I. Introduction An increasing number of Federally Qualified Health Centers ( FQHCs or health centers ) are being approached by private health plans that are interested in contracting with health centers for services provided to Medicare beneficiaries as part of the new Medicare Advantage program (formerly the Medicare+Choice program). Under the existing Medicare Advantage program, FQHCs have been negotiating payment rates for health care services provided to Medicare beneficiaries enrolled in private plans as they would do for health care services provided to enrollees of any commercial health plan. Effective January 2006, however, Medicare will begin to provide supplemental wrap-around payments to FQHCs for Medicare managed care patients similar to the wrap-around payments currently paid by State Medicaid agencies to health centers treating Medicaid managed care patients. As with the wrap-around payments under Medicaid, the new Medicare wrap-around payment is intended to ensure that health centers do not lose money in caring for Medicare beneficiaries and that health centers do not use their grant dollars to subsidize inadequate managed care payments. This issue brief will describe the new Medicare wrap-around payments and suggest approaches FQHCs might consider in contracting with Medicare Advantage plans. Health centers would do well to consider contracting with Medicare health plans so that they may continue to serve their current (and new) Medicare patients who decide to enroll in Medicare Advantage plans and make full use of the wrap-around payments available to them. II. Medicare Wrap-Around Payments A. Eligibility Requirements Congress created the Medicare wrap-around payments in Section 237 of the Medicare Prescription Drug Improvement and Modernization Act (P.L ). To receive wrap-around payments from the Centers for Medicare and Medicaid Services ( CMS ), a health center must meet three requirements. First, the health center must have a written contract with the health plan to provide services to Medicare beneficiaries. 42 U.S.C. 1395w- 27(e)(3). 1

2 Second, that written contract must provide payment rates to health centers that are comparable (or better) than payment rates to non-health center providers. The payment rates may not be less than the level and amount of payment that the plan would make for such services if the services had been furnished by an entity providing similar services that was not a federally qualified health center. 42 U.S.C. 1395w-27(e)(3)(A). Third, the written contract must state that the health center accepts the health plan s payment amount and wrap-around payment as payment in full for services covered by the agreement, although the health center may also collect cost-sharing amounts established by the plan so long as those amounts are consistent with Medicare requirements. 42 U.S.C. 1395w-27(e)(3)(B). B. Amount of Medicare Wrap-Around Payment If the above three conditions are met, CMS makes payments directly to the health center that cover the difference between a health center s reasonable costs (up to the Medicare per visit payment limit, known as the cap ) and the sum of the health plan payments to the health center and any patient cost-sharing charged to the enrollee. In other words, total payment to the health center should equal 100 percent of the reasonable costs of providing services, up to the Medicare cap. CMS must make wrap-around payments to health centers on at least a quarterly basis. 42 U.S.C. 1395w- 23(a)(4)(A). The formula for calculating the Medicare wrap-around payment is as follows: Wrap-around Payment = [Health Center s Reasonable Costs] [(Health Plan Payments) + (Patient Cost-Sharing Charges)] In calculating the amount of wrap-around, CMS will not include financial incentives provided by health plans such as risk pool payments, bonuses, or withholds as health plan payments. 42 U.S.C. 1395l(a)(3)(B)(ii). Rather, health plan payments are defined as only those payments received for health center services covered under the agreement. That means that health centers should view financial incentives paid by health plans as an additional source of revenue over and above 100 percent of reasonable costs. In contrast, CMS will subtract patient cost-sharing amounts charged to patients (regardless of whether the amounts are collected) from the wraparound payment. 42 U.S.C. 1395l(a)(3)(B). CMS assumes that health centers will receive these payments from patients. Health centers that fail to collect these payments from health plan enrollees will not recover 100 percent of 2

3 their reasonable costs. To this end, health centers should have policies in place to ensure collection of cost-sharing amounts and should use best efforts to follow these policies and collect amounts due to the health center. III. Contracting with Medicare Advantage Organizations A. Payment Rates As noted above, health centers must contract in writing with health plans. This means that health centers will not receive wrap-around payments as non-contracted providers to health plans. Further, under that written contract, health plans must agree to pay health centers at least the same amount and level the plan would pay if the same services were furnished to Medicare patients by a non-health center provider. The purpose of this second requirement is to ensure that health plans do not benefit by using Medicare s supplemental wrap-around payments to reduce their level of payments to health centers. From a practical perspective, health centers are not in a position to determine whether a health plan is paying the same rate, or better, than other providers for services provided to Medicare enrollees. Health centers simply do not have access to information about health plan payments to other providers. Consequently, health centers may wish to consider requiring health plans to warrant or represent in their written contracts with health centers that, as required under federal law, the payment rates to the health center are at least the same amount and level the plan would pay if the same services were furnished by a non-health center provider. This may provide health centers a basis for seeking remedies in the event that CMS determines that health plan payment rates to health centers were too low. B. Patient Cost-Sharing Because CMS offsets its wrap-around payments to health centers by patient cost-sharing amounts, it is important for health centers to know a health plan s current cost-sharing requirements in advance and determine whether they are reasonable. If cost-sharing amounts are set too high, then a health center will be unlikely to collect them from patients. 1 Since CMS will not make up that difference in its wrap-around payment to the center, the center s failure to collect them will ultimately result in less reimbursement for the health center. 1 A health center should apply its normal financial policies to these charges, which may include a waiver of, or reduced, cost-sharing amounts for patients demonstrating financial need. 3

4 Consequently, a health center s contract should clearly state the patient cost-sharing requirements and, if these are not reasonable amounts, then the health center should, to the extent consistent with federal law, consider negotiating with the plan to reduce any cost sharing requirements. Health centers should also consider requiring plans to obtain a health center s approval before the plan alters patient cost-sharing amounts, if such change could result in the center having to collect additional amounts from patients. C. Financial Incentives If the contract includes any financial incentives, health centers should be certain that the contract clearly distinguishes those amounts from reimbursements for services so that any amounts paid as financial incentives do not reduce the wrap-around payment. It may be wise for health centers to insist that bonus payments, withholds, or risk-pool amounts are described in a section of the contract separate from health plan payments for health services in order to distinguish between the two. D. Timing The new Medicare Advantage program goes into effect on January 1, That is the same day that wrap-around payments will first become available. Although Medicare Advantage plans will enroll beneficiaries before that date, they will not begin to provide benefits until that date. To align themselves with the provision of supplemental wrap-around payments, health centers should make their contract terms begin on January 1, In contrast, Medicare health plans that had already been operating in 2005 may want their contracts with health centers to go into effect sooner. Health centers that begin their contract terms prior to January 1, 2006 should realize that they will not receive the benefit of wrap-around payments from CMS for services provided prior to that date, but they may also want to make sure that their contract recognizes or acknowledges that such payment will be provided to the health center as of January 1, 2006, and that such payments from CMS do not in anyway affect the health plan s payment obligations to the health center under the contract. E. Payments for Non-FQHC services Health centers that contract with health plans and agree to provide non- FQHC services to Medicare beneficiaries should recognize that those non- FQHC services are not eligible for Medicare wrap-around payments. That is because Medicare wrap-around payments only apply to FQHC services that fall under the all-inclusive rate. 42 U.S.C. 1395l(a)(3)(B); 42 C.F.R

5 Medicare defines FQHC services as services furnished to an individual who is an outpatient of a health center by a physician, physician assistant, nurse practitioner, clinical psychologist, and clinical social worker as well as preventive primary health services that health centers are required to provide. 42 U.S.C. 1395x(aa)(3). Part B services that are not FQHC services include, for example, certain outpatient diagnostic services (e.g., x-rays and laboratory tests) and durable medical equipment (e.g., iron lungs, oxygen tents, and wheelchairs). 42 C.F.R. Part 410. As a result, this creates a possible downside for health centers that contract with Medicare health plans to provide certain Part B services not covered as FQHC services. Health centers currently reimbursed fee-for service for these non-fqhc services through Medicare Part B will not receive the wrap-around payment for those non-fqhc services. That means that health centers will receive only the contracted payment rate from the health plan and any cost-sharing amount from the patient as reimbursement for non- FQHC services. Health centers should be aware that Part B intermediaries will probably deny payment for non-fqhc services that are furnished to health plan enrollees. IV. Conclusion Health centers that contract with Medicare health plans have the potential to increase revenue earned and collected by health centers in two ways. First, if the contracts between health centers and health plans satisfy certain contractual requirements, Medicare wrap-around payments for FQHC services will reimburse health centers at 100 percent of reasonable costs rather than at only 80 percent of costs. Second, because health plan financial incentives are not deducted from the wrap-around payments, health centers have the opportunity to earn additional revenue from health plans if they meet the goals of the health plan s incentive programs. For more questions about contracting under the Medicare Advantage program, contact Roger Schwartz, NACHC s Legislative Counsel, at rschwartz@nachc.com. 5

6 Checklist for Reviewing Medicare Advantage Contracts To ensure that a health center receives the benefits from Medicare wrap-around payments, each of the following questions should be answered affirmatively. Is the health center s contract with the health plan in writing? o Does the health plan warrant or represent that the health plan payments to the health center are equal or better than payments to non-health center providers for the same or similar services? o Does the health center agree to accept the health plan s payment, Medicare wrap-around payments, and patient cost-sharing charges as payment in full for services provided under the contract? Does the contract clearly state the patient cost-sharing amounts? o Are such cost-sharing amounts reasonable for collection from patients? o Is the health plan required to obtain the health center s approval before altering patient cost-sharing amounts? Are health plan payments for health services clearly distinguished from any financial incentive payments? Is the contract effective after January 1, 2006? 6