Generally, M+C  plan types differed by the extent to which they used provider networks. 1.) Examples of such services include skilled nursing and home health, which  are covered under FFS Medicare, and dental care and routine physical  examinations, which are not covered under FFS Medicare. Demonstration PPOs Did Little to Expand Health Plan Options, and Have Enrolled Relatively Few Beneficiaries

Demonstration PPOs did little to expand access to private Medicare health  plans for beneficiaries who lacked such access. About 98 percent of the beneficiaries  who lived in counties with demonstration PPOs had other Medicare  private health plans available. Of the 10.1 million  eligible Medicare beneficiaries living in demonstration PPO counties,  about 98,000, or less than 1 percent, had enrolled by October 2003. 3.) Demonstration PPOs Left Beneficiaries Exposed to Relatively High Total Out-of- pocket Costs, but Offered Slightly Better Coverage for Some Benefits

According to CMS estimates available on the Medicare Web site, an  average beneficiary aged 65 to 69 enrolled in a demonstration PPO could  expect to incur $391 per month in health care expenses for premiums, cost  sharing, and utilization of noncovered items and services. Despite the same or higher estimated out-of-pocket costs,  demonstration PPOs may have offered slightly better coverage for certain  items and services, such as prescription drugs and inpatient  hospitalization. 4.) Specifically, OACT projected that  the PPO plan in the M+C Alternative Payment Demonstration would  increase Medicare spending by a total of $25.2 million over 2002 and 2003  combined, or $750 per enrollee per year, due to higher plan payments and  CMS’s sharing in the plan’s financial risk. The Medicare PPO  Demonstration was projected to increase Medicare spending by a total of  $75 million in 2003, or $652 per enrollee per year, due to plan payments. Actual Spending Due to Demonstration PPOs Cannot Yet be Determined

At present, it is too early to determine the actual costs of the  demonstrations in 2002 and 2003. According to the estimates available to beneficiaries  on the Medicare Web site, enrollees in demonstration PPOs could expect  out-of-pocket costs that were higher than those they would have incurred  in FFS Medicare or M+C plans, other than M+C PFFS plans, and no less  than those they would have incurred with Medigap plans F and I. We based our evaluation on enrollment in demonstration  PPOs, the out-of-pocket costs Medicare beneficiaries could expect in  demonstration PPOs relative to other types of coverage, and the effect of  demonstration PPOs on Medicare spending. Overall, we found that less  than 1 percent of the beneficiaries living in counties where demonstration  PPOs operated had enrolled in demonstration PPOs, that most of the  enrollees came from M+C plans, and that demonstration PPOs did not  offer lower estimated out-of-pocket costs than most other types of  Medicare coverage, even if beneficiaries obtained services only from  network providers. Fourth, CMS stated that our legal finding—that the agency exceeded its  authority by allowing plans in the Medicare PPO Demonstration to cover  certain services only if beneficiaries obtained them from the plans’  network providers—should be discussed in the context of the  demonstration’s objectives. Appendix I: Analysis of PPO Demonstration Participants’ Restriction on Enrollee Choice of Provider

In 2003, the Centers for Medicare & Medicaid Services (CMS) initiated the  Medicare Preferred Provider Organization (PPO) Demonstration. The Social Security Act defines a  private-fee-for service plan, in part, as a “Medicare+Choice plan” that  “does not restrict the selection of providers among those who are lawfully  authorized to provide the covered services.” A “Medicare+Choice plan,”  for purposes of the definition of a private fee-for-service plan, is defined,  in part, as “health benefits coverage offered under a policy, contract, or  plan by a Medicare+Choice organization.” Furthermore, CMS guidance  also provides that enrollees in M+C private fee-for-service plans can obtain  “plan covered health care services from any entity that is authorized to  provide services under parts A and B and who is willing to accept the  plan’s terms and conditions of payment.” The act, therefore, does not  distinguish between Medicare covered services and other covered services  in specifying the private fee-for-service plan’s obligations to cover plan  benefits. Third, it  describes CMS data sources used to compare 2003 benefits between the  six types of coverage.
Why GAO Did This Study

Preferred provider organizations (PPO) are more prevalent than other types of health plans in the private market, but, in 2003, only six PPOs contracted to serve Medicare beneficiaries in Medicare+Choice (M+C), Medicare's private health plan option. In recent years, the Centers for Medicare & Medicaid Services (CMS), the agency that administers Medicare, initiated two demonstrations that include a total of 34 PPOs. GAO (1) described how CMS used its statutory authority to conduct the two demonstrations, (2) assessed the extent to which demonstration PPOs expanded access to Medicare health plans and attracted enrollees in 2003, (3) compared CMS's estimates of out-of-pocket costs beneficiaries incurred in demonstration PPOs with those of other types of coverage, including fee-for-service (FFS) Medicare, M+C plans, and Medigap policies in 2003, and (4) determined the effects of demonstration PPOs on Medicare spending.

What GAO Found

CMS used its statutory authority to offer health-care organizations financial incentives to participate in the two demonstrations. CMS, however, exceeded its authority when it allowed 29 of the 33 plans in the second demonstration, the Medicare PPO Demonstration, to cover certain services, such as skilled nursing, home health, and routine physical examinations, only if beneficiaries obtained them from the plans' network providers. In general, beneficiaries in Medicare PPO Demonstration plans who received care from non-network providers for these services were liable for the full cost of their care. The demonstration PPOs attracted relatively few enrollees and did little to expand Medicare beneficiaries' access to private health plans. About 98,000, or less than 1 percent, of the 10.1 million eligible Medicare beneficiaries living in counties where demonstration PPOs operated had enrolled in the demonstration PPOs by October 2003. Further, although one of the goals of the Medicare PPO Demonstration was to attract beneficiaries from traditional FFS Medicare and Medigap plans, only 26 percent of enrollees in its plans came from FFS Medicare, with all others coming from M+C plans. About 9.9 million, or 98 percent, of the 10.1 million eligible Medicare beneficiaries also had M+C plans available in their counties. Virtually no enrollment occurred in counties where only demonstration PPOs operated. According to CMS's 2003 estimates, on average demonstration PPO enrollees could have expected to incur total out-of-pocket costs--expenses for premiums, cost sharing and noncovered items and services--that were the same or higher than those they would have incurred with nearly all other types of Medicare coverage. However, relative costs by type of coverage varied somewhat depending on beneficiary health status. For certain services and items, such as prescription drugs and inpatient hospitalization, demonstration plans provided better benefits relative to some other types of Medicare coverage. Although it is too early to determine the actual program costs of the two demonstrations, CMS originally projected that the first demonstration would increase Medicare spending by $750 per enrollee per year and the second demonstration would increase Medicare spending by $652 per enrollee per year. Based on the agency's original enrollment projections, which exceed 2003 actual enrollment, CMS estimated the demonstration PPOs would increase program spending by $100 million for 2002 and 2003 combined.