Feds Want An End To Medicare Bonus Program
April 23, 2012

Feds Want An End To Medicare Bonus Program

Federal investigators are calling for an end to an $8 billion Medicare bonus program that rewards providers of second-rate healthcare, charging that the program is a political ploy by the Obama administration.

The report, issued today by the nonpartisan Government Accountability Office (GAO), states that the $8.3 billion pledged for quality bonuses to Medicare Advantage insurance plans would postpone the pain of cuts to the plans under the new healthcare law. Most of the money would go to average mediocre plans, it said.

The administration, however, is defending its program, saying they would not cancel it because without the bonuses many plans wouldn´t have an incentive to improve quality of care for older Americans.

The GAO states that the Medicare Advantage program, which was enacted in 2010, was adopted to authorize bonus payments to those that provide high-quality care, but found that most of the money was being paid to “average-performing plans” rated lower than the standards set by Congress.

Senator Orrin Hatch, R-Utah, along with Representative Dave Camp, R-Michigan, said the GAO report suggests that the administration abused its authority, pumping money to the plans to avoid more criticism over unpopular cuts.

Hatch and Camp said in a statement that they were concerned that the government might be “using taxpayer dollars for political purposes, to mask the iMedPACt on beneficiaries of cuts in the Medicare Advantage program.”

The program has also been met with criticism from the independent Medicare Payment Advisory Commission (MedPAC). It said it increases “spending at a time when Medicare already faces serious problems with cost control and long-term financing.”

According to the New York Times, MedPAC denounced Medicare´s “overly broad use of demonstration authority” and said “limited Medicare dollars should go to truly high-performing plans.” It added that “the extension of quality bonuses to the vast majority of plans is likely to result in far greater program costs than the reward system enacted” by Congress, and that by spreading the rewards so broadly, “the demonstration lessens the incentive to achieve the highest level of performance.”

The GAO said the Medicare Advantage program is so poorly designed that researchers couldn´t tell whether the bonus payments actually led to improved care or not. As a result, the GAO said, it is unlikely to produce positive results. Insurers could better use the bonuses to offer extra benefits, like vision and dental care, or to lower premiums.

Medicare Advantage, a popular private insurance alternative to traditional Medicare coverage, serves nearly 12 million beneficiaries, or about a fourth of all Medicare recipients. It offers lower out-of-pocket costs, usually in exchange for some limitations on choice. About a third of the 12 million Medicare Advantage users are in plans that would receive bonuses under the 2010 law. By contrast, under the demonstration program, 90 percent are in plans eligible for bonuses, the GAO report said.

Obama´s healthcare law originally trimmed Medicare Advantage to compensate for years of overpayments that had allowed plans to offer more attractive benefits -- and pocket healthier profits.

Republicans showed fierce opposition to the cuts and fought to reverse them during a successful campaign to regain control of the House of Representatives in the 2010 midterm elections. Seniors, a key electorate of swing voters, backed the GOP candidates.

After the election, the administration announced its “demonstration program” to test whether a generous bonus program would lead to faster, broader improvements in quality.

The GAO didn´t address GOP allegations that the bonuses are politically motivated. However, it did find that the program “dwarfed” all other Medicare institutions undertaken in nearly 20 years, an unusual move, according to the GAO.

Most of the bonus money is going to plans that receive three to three-and-half stars on Medicare's five-star rating scale, the report said.

The administration said the bonuses are scheduled to be available to providers through 2014, and should soften much of the initial impact of the Medicare Advantage cuts, acting like a temporary reprieve. This year, the bonus program offset more than 65 percent of the cuts in the health care law. And Medicare Advantage enrollment is up 10 percent, while premiums have gone down.

But the GAO questioned whether the bonus program will achieve its goal of finding better incentives to promote quality. “The design of the demonstration precludes a credible evaluation of its effectiveness in achieving (the administration's) stated research goal,” it said in its report.

However, the administration remains adamant that the bonuses will improve the quality of care.

Medicare “believes the demonstration supports our national strategy to improve the delivery of health care services, patient health outcomes, and population health,” the Health and Human Services (HHS) department said in its formal response to the GAO report. “Absent this demonstration, we believe that many plans would not have an immediate incentive to improve the quality of care delivered to (Medicare Advantage) enrollees.”

Hatch questioned whether the administration actually had the legal right to create the program in the first place.

“The Obama administration seems to be using a technicality to sidestep Congress and write itself a blank check to spend more money for political purposes leading into this year's elections,” Hatch said in a statement to Business Week. “The White House does not have the authority to green-light spending on whatever program it wants “¦ This report is just the beginning -- I will be demanding answers,” he added.

The Medicare Advantage bonus program is the costliest demonstration program in Medicare history. Money for the program comes directly from the Medicare trust fund. On Monday, the Medicare and Social Security trustees are scheduled to release their annual report on the status of the programs, both of which face a long-term financial crisis.