Medicare Fee-for-Service Issues and Innovations

This issue focuses on selected developments in the Medicare fee-for-service program. Two of the articles provide new estimates of the effect of Medicare supplemental insurance on total Medicare utilization and costs: One addresses utilization differences under alternative forms of supplemental insurance, and the other reports on utilization experience under the Medicare SELECT Demonstration. Two other articles discuss specific payment innovations: The first presents findings from the Medicare Participating Heart Bypass Center Demonstration, and the second describes the appeal and the challenges of moving from administered fee setting to competitive bidding for clinical laboratory services. Finally, there are two articles about tools with potential for improving the management of care under fee-for-service (FFS). The first of these describes how distinct but closely related patient classification systems for medical rehabilitation might be used for quality and outcomes monitoring as well as payment. The second analyzes the relationship between types of case manager activities and service utilization in the Medicare Alzheimer's Disease Demonstration. The Balanced Budget Act of 1997 attempts to increase beneficiary cost-sharing in the FFS program through the creation of two new high-deductible, standard medigap policies. Research has consistently found that medigap supplemental insurance is associated with higher Medicare utilization and expenditures—a result usually associated with the fact that in its most common form, supplemental insurance eliminates beneficiary costsharing. Christensen and Shinogle provide some new estimates of this effect using 1994 data from the National Health Interview Survey. The article expands upon past work by comparing inpatient and outpatient utilization among beneficiaries with three types of private insurance supplements—medigap plans, employment-based indemnity plans, and health maintenance organizations (HMOs)—and those with no supplemental insurance. These plan types often differ not only in the extent of their costsharing features, but also the range of benefits covered, and the extent to which managed care techniques are used to influence utilization. As expected, Christensen and Shinogle find higher utilization of both inpatient and outpatient services among beneficiaries with medigap and employment-based indemnity plans. Controlling for a variety of other factors, including some health status measures, the effect averages 28 percent for medigap and 17 percent for employmentbased plans. For HMO members, utilization averages about 4 percent less than that for beneficiaries with no supplemental insurance. The Medicare SELECT program represents an attempt by Congress to inject some managed care incentives into the Medicare FFS program. Congress expected that Medicare expenditures could be reduced by inducing Medicare beneficiaries to use selective provider networks established by medigap insurers. SELECT policies only pay full benefits when network providers are used. Lee, Garfinkel, Philip Cotterill is with the Office of Strategic Planning, Health Care Financing Administration (HCFA). The views and opinions expressed are those of the author and do not necessarily reflect those of HCFA.