Private Medicare Fee-for-Service Plans Criticized at Senate Hearing

WASHINGTON — Private fee-for-service Medicare plans, the fastest-growing form of Medicare, are both excessively costly and medically inefficient, a Senate panel was told Wednesday.

The plans cost 17 percent more than traditional Medicare and do not meet the same quality care standards imposed on other private plans such as health maintenance organizations (HMOs), the Senate Finance Committee was told.

In the past two years, enrollment in private fee-for-service plans has grown from 200,000 to 1.7 million beneficiaries. The plans are popular because in return for a beneficiary's Medicare premium, the plans allow members to receive care from any doctor, cover many of the expenses generally covered by private Medigap plans, and offer additional benefits such as vision, hearing and dental care.

But the plans have been plagued by questionable marketing techniques, low payment rates to health-care providers, and confusion among beneficiaries, the committee was told.

"These products give the private sector a bad name," said Sen. Ron Wyden, D-Ore., who compared private fee-for-service plans to "Dodge City before the marshal arrives."

Mark E. Miller, executive director of the nonpartisan Medicare Payment Advisory Commission — created by Congress to recommend changes in Medicare payments — told the committee that the high payment rates for private fee-for-service plans come "at an unacceptably high cost to Medicare."

In a report accompanying his testimony, Miller noted that private fee-for-service plans "are among the least efficient plans" while HMOs "are the most efficient" managed care plans.

Miller told the committee the private fee-for-service plans have a competitive advantage over other managed care plans because they do not have to meet stringent quality standards and they receive larger payments from Medicare for the same services.

"We are concerned that private fee-for-service plans might undermine more efficient managed care plans," he said.

The Senate hearing was composed exclusively of critics of private fee-for-service plans.

Mohit Ghose, a spokesman for the American Association of Health Plans, said private fee-for-service plans were specifically created by Congress to provide care in rural areas where other managed care plans historically have been unable to establish networks of health providers.

Ghose said the choice of plans, including private fee-for-service plans, still save beneficiaries money when compared to traditional Medicare. He pointed to a study released Wednesday by the independent Kaiser Family Foundation that found that private fee-for-service plans save more than $3,000 for beneficiaries who most use Medicare.

That study also found that the value of extra benefits provided by private fee-for-service plans was less than those provided by other managed care plans, and that about half of private fee-for-service plans are in counties served by other managed care plans.

Although private fee-for-service plans generally offer increased benefits, the Senate panel was told that many plans charge beneficiaries more than traditional Medicare for copayments for services such as hospital care and medical equipment.

In addition, doctors may refuse to accept private fee-for-service patients even if they take traditional and other managed care Medicare patients.

Dr. Albert W. Fisk, medical director of the Everett Clinic in Everett, Wash., told the panel that his clinic no longer accepts private fee-for-service patients because the plans pay doctors less than traditional Medicare and are slower to pay their bills.

"I'm concerned that my constituents may have difficulty getting access to doctors," said Sen. Charles Grassley, R-Iowa, the panel's ranking GOP member.

The Medicare Payment Advisory Commission has repeatedly recommended that all private managed care plans — including private fee-for-service plans — be paid at the same level as for traditional fee-for-service Medicare.