As the new Obama Administration and the 111th Congress focus on health care issues, here is a quick list of some of the Medicare policy changes Democrats will likely seek in 2009-2010:

Likely Changes in Medicare Advantage:

1. Phase-out of difference between Medicare Advantage plan rates and Medicare fee-for-service:

  • Some Medicare Advantage (MA) plans will see lower annual increase. Others a net decrease in rates.
  • The private fee-for-service (PFFS) plans, which tend to serve rural areas, will see the biggest hit.
  • Of course, because of the unique characteristics of Medicare Advantage bidding and ratesetting process, beneficiaries will see the biggest hit. That’s because the rate difference goes mostly toward lower cost sharing and greater benefits for those beneficiaries deciding to receive their Medicare Part A and Part B services through plans instead of traditional fee-for-service.
  • Likely a three to five-year phase down period. Perhaps starting in 2010, especially if Congress acts before the bids arrive in June, 2009.
  • Congress will use savings (~$60 billion over five years) to help fix physician payment formula.

2. Significant increase in MA plan oversight, especially on marketing, quality, data reporting, and process compliance. Expect new CMS requirements via both rules and guidelines, plus tighter audits and faster action on plan sanctions.

3. Special Needs Plan (SNP) law sunsets on December 31, 2010. Reauthorization prospects depend largely upon:

  • How well SNPs work with state Medicaid programs.
  • If SNPs stay focused on their target market segments (especially dual eligibles), build more enrollment (increase from current ~1.3 million), and better differentiate themselves (politically and otherwise) from other Medicare Advantage plans.

Likely Changes in Medicare Part D Drug Benefit:

1. Federal negotiation of prescription drug prices in Medicare Part D. Political symbolism with no budget savings unless feds unwisely use the authority to:

  • Create a national drug formulary (like VA) or preferred drug list (like some state Medicaid programs), thereby limiting access to drive better rebate deals.
  • Regulate prices. May include further use of AMP and/or ASP to set baseline for drug and biologic prices in U.S. market.
  • Mandate minimum rebates (see below).

2. Create a “Public Plan” option in Part D. This would be a government-run Part D drug plan to compete with commercial plans (MA-PDs and PDPs). Would mean federal government getting far more and directly involved in marketplace and key decisions over formularies and pricing. Huge implications for health plans, drug plans, PBMs, pharma manufacturers, and pharmacies.

3. Require Medicaid-like best price drug rebates in the Medicare Part D benefit. Initially, this will likely apply only to prescription drugs used by dual eligibles. However, in future, it will likely extend to all of Part D. The political temptation will be too great.

4. Like with Medicare Advantage plans (for Part A and Part B services), increased federal compliance oversight of MA-PDs and PDPs for Part D benefits.

Other Likely Changes in Medicare Program:

1. Development of new payment models in Medicare, notably demos of bundled hospital-physician payments, episode-based payment, and gainsharing. These reform will create new opportunities, realign incentives in the marketplace, and could help focus federal policy makers on fixing the biggest drivers to high costs.

2. More transparency. Public reporting of prices, quality, and safety. Reporting will be increasingly tied to payment penalties for non-reporting. Policy makers are losing patience with provider trade groups balking at disclosure.

3. Promote use of patient-centered care models and medical home concept, especially for the chronically ill.

4. Reform Medicare physician payments, either another temporary fix or permanent change. Otherwise, docs face an automatic 20% rate cut in 2010. The current system is absurd but permanent fix will cost $262 billion to $460 billion over ten years (depending on whether rates are frozen or docs get modest annual increases).

The changes described here range from the necessary to the useful, from the shortsighted to the unwise. But the Obama Administration and Dem leaders in the House and Senate have a long, ambitious wish list of changes for Medicare. And it is still unclear how the tough economy, budget realities, and larger health reforms will affect their Medicare agenda. Regardless, buckle up for a wild ride.