Beneficiaries in PFFS Plans Were Healthier and Younger Than Beneficiaries in Other MA Plans and Medicare FFS and Differed in Other Ways

Relative to beneficiaries in other MA plans and Medicare FFS in April  2007, beneficiaries in PFFS plans were healthier, generally younger, and  more likely to live in rural areas with fewer MA options. Beneficiaries in PFFS  plans had projected health care expenditures that were 7 percent less than  those of beneficiaries in other MA plans and 10 percent less than  beneficiaries in Medicare FFS. About 81 percent of new enrollees in  PFFS plans were in Medicare FFS prior to joining their plan, compared to  65 percent of new enrollees in other MA plans (see table 2). PFFS Beneficiaries May Have Faced Certain Financial Risks Generally Not Assumed by Beneficiaries in Other MA Plans and Medicare FFS

In contrast to most beneficiaries in other MA plans and Medicare FFS,  beneficiaries in PFFS plans may have faced certain financial risks if they  or their providers did not contact their plan before receiving services. However, CMS guidance for PFFS plans related to prior  authorization has been inconsistent and sometimes incorrect. PFFS Beneficiaries Who Did Not Contact Their Plans to Determine Service Coverage before Receiving Services May Have Faced Unexpected Costs

If PFFS beneficiaries or their providers did not contact their plan before  receiving a service to obtain an advance coverage determination,  beneficiaries may have been responsible for the entire cost of the service if  coverage for it was later denied by the plan because it was not medically  necessary. One plan  increased the coinsurance rate for durable medical equipment and  prosthetic devices from 30 percent to 70 percent for items that cost more  than $750 if beneficiaries or their providers did not prenotify. CMS officials stated that PFFS plans should  not have used the term prior authorization because PFFS plans are not  permitted to deny service coverage due to lack of prior plan approval. PFFS Plans Had Relatively High Beneficiary Disenrollment Rates and CMS Did Not Comply with Statutory Requirements to Mail Current Rates

From January through April 2007, beneficiaries in PFFS plans disenrolled  at an average rate that was more than twice that of other MA plans, and we  conclude that CMS did not comply with statutory requirements to mail  disenrollment rates to Medicare beneficiaries for the previous 2 years for  MA plans in their area. However, PFFS beneficiaries were more likely  than other MA beneficiaries to be in a plan with high disenrollment rates. However, given  the recent growth in PFFS plans, from about 109,000 beneficiaries in June  2005 to about 2.3 million beneficiaries in June 2008, disenrollment rates  and reasons for disenrollment based on disenrollment in 2004 and 2005  may not accurately represent the experience of PFFS plans available to  beneficiaries in 2008. Recommendations for Executive Action

We recommend that the Acting Administrator of CMS take the following  three actions:  investigate the extent to which beneficiaries in PFFS plans are faced with  unexpected out-of-pocket costs due to the denial of coverage when they  did not obtain an advance coverage determination from their plan;    ensure that CMS guidance on prior authorization accurately reflects CMS  policy and that PFFS plan materials conform to CMS requirements; and   mail to Medicare beneficiaries MA plan disenrollment rates for the  previous 2 years for MA plans that are or will be available in their areas, as  required by statute, and update disenrollment rates provided to Medicare  beneficiaries through MOC. Appendix I: Scope and Methodology

This appendix explains the scope and methodology that we used to  address our reporting objectives that (1) compare the characteristics of  beneficiaries in private fee-for-service (PFFS) plans to the characteristics  of beneficiaries in other MA plans and Medicare FFS; (2) describe the  financial risks that beneficiaries in PFFS plans face, compared to  beneficiaries in other Medicare Advantage (MA) plans and Medicare fee- for-service (FFS), if they do not contact their plan prior to receiving  services; and (3) compare the rates at which beneficiaries in PFFS plans  disenroll to the rates for other MA plans and evaluate whether the Centers  for Medicare & Medicaid Services (CMS) met statutory requirements to  mail disenrollment rates to beneficiaries. We also interviewed officials  from CMS and the plan sponsors.
Why GAO Did This Study

Medicare Advantage (MA) plans are an alternative to the original Medicare fee-for-service (FFS) program. Private fee-for-service (PFFS) plans--one type of MA plan--give beneficiaries an option that is more like Medicare FFS than other MA plans, with a wider choice of providers and less plan management of services and providers. PFFS enrollment increased from about 35,000 beneficiaries in June 2004 to about 2.3 million in June 2008. This report compares PFFS plans to other MA plans and Medicare FFS in three areas: (1) characteristics of beneficiaries, (2) financial risks for beneficiaries who do not contact their plans before receiving services, and (3) disenrollment rates. To do this work, GAO reviewed materials from a selected sample of nine PFFS plan sponsors, analyzed Medicare data, and interviewed officials from CMS, which administers the Medicare program, and other organizations.

What GAO Found

In April 2007, beneficiaries in PFFS plans tended to be healthier and generally younger than beneficiaries in other MA plans and Medicare FFS. Specifically, projected health care expenditures for PFFS beneficiaries were 7 percent less than the projected average for beneficiaries in other MA plans and 10 percent less than the projected average for beneficiaries in Medicare FFS. Beneficiaries in PFFS plans also generally were more likely than beneficiaries in other MA plans and Medicare FFS to reside in rural areas where fewer other MA plans were available. In addition, about 81 percent of beneficiaries who were new enrollees in PFFS plans were in Medicare FFS before enrolling in their plan, compared to 65 percent in other MA plans. PFFS beneficiaries may have faced certain financial risks if they did not contact their plan before receiving services. These risks were generally not assumed by beneficiaries in other MA plans and Medicare FFS. Specifically, if beneficiaries or their providers did not contact their PFFS plans before obtaining a service to make sure it would be covered, beneficiaries unexpectedly may have had to pay for the entire cost of the service if coverage was later denied by their plan. CMS officials told GAO they did not have data on the extent to which PFFS beneficiaries were faced with such costs. Furthermore, some beneficiaries likely experienced higher out-of-pocket costs for covered services if they did not contact their plan before obtaining the services. For example, one sponsor of PFFS plans increased the share of the cost for which beneficiaries were responsible from 30 percent to 70 percent if the beneficiaries did not contact the plan before obtaining certain durable equipment. GAO found that some PFFS plans were inappropriately using the term prior authorization, which can involve denying service coverage if prior plan approval is not obtained, in their informational materials. CMS officials stated that PFFS plans should not have used this term because these plans were not permitted to deny service coverage due to lack of prior plan approval. However, CMS guidance on this issue has been inconsistent and sometimes incorrect. From January through April 2007, beneficiaries in PFFS plans disenrolled at an average rate of 21 percent compared to 9 percent for other MA plans, and GAO concludes that CMS has not complied with statutory requirements to mail disenrollment rates to Medicare beneficiaries. Disenrollment rates can reflect factors such as beneficiary satisfaction and CMS is required by law to mail this information to Medicare beneficiaries to help them compare available MA plans in their area. Although CMS has not mailed disenrollment rates to beneficiaries since 2000, the agency did provide disenrollment rates through Medicare's Web site. However, this information was based on disenrollment in 2004 and 2005 and, given the enrollment growth since then, may not accurately reflect plans available to beneficiaries in 2008.