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An expanded role for contractors could ensure that FFS Medicare remains a vital option for beneficiaries.
ABSTRACT:
The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) provides economic incentives that favor health plans over traditional fee-for-service (FFS) Medicare. This reflects an ideological preference for private plans rather than government-administered pricing and recognition that private plans can use tools effectively to improve quality. However, enrollment projections indicate that FFS will continue to attract the majority of beneficiaries for years to come. We argue that MMA's contractor reform provisions create the opportunity to build critical FFS infrastructure, and contractors have the potential to encourage quality and manage utilization to compete with private plans in a modernized Medicare. [Health Affairs 25, no. 3 (2006): 864-868; 10.1377/hlthaff.25.3.864]
THE MEDICARE Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 promotes a new Medicare Advantage (MA) private health plan option over fee-for-service (FFS) through overpayments to plans relative to FFS and other economic incentives.1 The design reflects both an ideological preference for private plans over government-administered pricing and recognition that private health plans can use health care management techniques effectively to improve efficiency and quality-one hallmark of a modernized approach to health care.2
Although a health plan option in Medicare has coexisted with FFS for twenty years, traditional FFS Medicare has been the mainstay of the program, allowing beneficiaries a wide choice of doctors and hospitals. Despite Medicare's long-term focus on health plan options, 88 percent of Medicare beneficiaries (thirty-six million) chose FFS in 2004.3 The Congressional Budget Office (CBO) projects that FFS wul still account for 84 percent of enrollment by 2013; the U.S. Department of Health and Human Services (HHS), an ardent advocate of MMA, projects a 70 percent FFS share over the same time period.4 Additional beneficiaries might land in FFS if policymakers succumb to fiscal pressures to reduce MMA's economic incentives for plans.
Although it is hard to argue that private plans are more efficient than FFS, given the economics of the MA program, it is fair to ask whether FFS Medicare severely constrains the ability of the program to use management tools to improve quality of care and resource use. John Wennberg has noted that FFS Medicare might, "at least in theory, adopt a population-based...