Medicare Payment Advisory Commission (MedPAC) Finds Medicare Advantage Plans “Overpaid” by 12%

Told you so—Part Deux.

On top of this week’s CBO report saying Medicare could save $65 billion by equalizing Medicare Advantage payments made to HMOs with the traditional Medicare plan, MedPAC dropped the second shoe saying the very same thing in their annual report released yesterday.

MedPAC is a commission created by Congress to advise on Medicare payment policy. It is composed of 17 members from throughout the health care economy and is seen as non-partisan and well staffed.

MedPAC is recommending that the Congress implement payment changes for Medicare Advantage plans that create, “Neutrality between types of MA plans, including eliminating the stabilization fund for PPO plans [$3 billion remains in this fund] and making bidding rules consistent across plan types.”

“Further, the Commission has recommended a pay for quality performance program for MA plans, and calculating clinical measures” for the traditional Medicare plan that would better enable the government to compare quality between the traditional plan and the Medicare Advantage plans.

MedPAC also challenged the way CMS pays the Part D Medicare drug plans pointing out that CMS did not fully weight plan bids in 2007, which had the effect of not allowing “the full benefits of competition to be realized and thus, the cost to Medicare will increase.”

MedPAC also made recommendations regarding hospital and physician reimbursement calling for increases at about the “market basket” rate after expected gains from a quality incentive program are accomplished—which means small up-front reductions in payments to hospitals and physicians. The MedPAC report also said that the cuts the Sustainable Growth Rate formula requires of physicians fees would threaten beneficiary access over time.

The bottom line: We need to make Medicare cuts and the best opportunity to find extra fat is in the Medicare Advantage and Part D drug plans.

MedPAC has given the Democratic Congress both the road map and the rational to begin to cut what HMOs get—both for Medicare Advantage and Part D.

No surprise.

The full MedPac Report on Medicare Payment Policy

Why Bush administration support for Medicare Advantage Plans is of little help.

Why Congressional Democrats want to cut Medicare Advantage plans.

Why the Democrats need the Medicare Advantage money.

So why aren't HMOs stocks suffering with all of this news.