Medicare Advantage Cuts?

The highly profitable Medicare Advantage business is vulnerable to payment cuts to HMOs.

Any of you that read this blog know that I have been predicting big changes for the Medicare Advantage business ever since the Democrats took control of the Congress--particularly for the controversial Private Fee-For-Service (PFFS) part of the program.

But I have often felt alone in that opinion so a recent news story from TheStreet.com coming to much the same conclusion caught my eye. It pretty much reflects my thinking on the subject:

• "Medicare Advantage players better count their blessings while they still can."
• It's not whether there will be cuts but just how deep.
• Private Fee-For-Service plans, and the few companies who emphasize them, are particularly vulnerable.
• Medicare Advantage payments continue to be the plump target Congress needs to find a way to fix the Medicare physician fee problem that is on autopilot to cut doc payments 15% by January 1, 2009.
• If Medicare Advantage companies saw their payments equalized with the traditional Medicare program, they would see their reimbursement fall by $65 billion over the next five years and $160 billion over the next ten.
• "Clearly, then investors should weigh both a company's exposure to MA in general and to PFFS in particular before placing their bets next year [2008]."

The Medicare HMOs dodged a bullet last month when Congress decided not to cut the MA program to fix the Medicare physician fee problem. But the bad news is that they decided to fix the fee problem for just six months and cuts from 2007 and 2008 just got deferred until July 1. On top of that, there is another cut scheduled for January 1, 2009--a total of 15% in cuts.

The Medicare Advantage payment problem hasn't been solved, it has just been made more critical.

From the looks of Medicare Advantage-heavy HMOs' share prices, there's apparently lots of sand on Wall Street and a great many people have their heads buried in it.