Posts Tagged ‘HMO’

California Court Says Patients Can Sue Medicare HMOs

JULY 16, 2001 VOLUME 9, NUMBER 3

George and Barbara McCall, California residents, sued their HMO and their primary care physician. They claimed that the HMO (PacifiCare of California) refused to refer Mr. McCall to a specialist when he needed a lung transplant, and that he was ultimately forced to disenroll from PacifiCare and seek medical care through Medicare. PacifiCare, for its part, claimed that Mr. McCall’s sole remedy was to appeal through the Medicare process, and that he could not bring a separate lawsuit.

Mr. and Mrs. McCall signed up with PacifiCare as a Medicare HMO—they were covered by Medicare and chose the HMO in order to reduce co-payments and deductibles. Their lawsuit alleged that PacifiCare violated its duty to provide referrals consistent with good medical practice, allowed its medical decisions to be guided by fiscal and administrative decisions, and encouraged Mr. McCall to leave the program when he appealed the denial of medical care. The trial judge agreed with PacifiCare that those questions had to be addressed only to the Medicare agency, since that was the source of funding and control of the McCalls’ medical care.

The California Supreme Court disagreed. It pointed out that the review provided through Medicare is limited—Medicare HMOs are required to offer an administrative review process only to patients who are “dissatisfied because they do not receive health care services to which they believe they are entitled, at no greater cost than they believe they are required to pay.” That provision addresses only the availability and cost of services, and does not provide any review for medical malpractice, or breach of the HMO’s duty to provide care. Since those items are not covered in the Medicare appeals process, reasoned the Court, the common-law right to sue the health care provider must still be available to the patient. McCall v. PacifiCare of California, Inc., May 3, 2001.

The McCall case comes at a critical time for the Medicare program. Congress is currently discussing a “patient’s bill of rights” concept which incorporates the same ideas. Critics of the legal system claim that leaving HMOs open to litigation is just another way of driving up the cost of health care while lining the pockets of trial lawyers. Critics of the HMO and managed-care industry argue that refusing to allow Mr. McCall, and people like him, to sue their HMOs will lead to more abuses like those the McCalls believe they suffered.

Two of the Court’s seven justices dissented from the ruling. They argued that the law provides only one remedy for Medicare patients who are upset by the availability or quality of care—to appeal the denial through the Medicare process. In Mr. McCall’s case, that appeal would have been made to PacifiCare itself.

Medicare HMOs Continue To Cut Programs Across Country


Three short years ago Congress was pushing for increased use of “managed care” plans as one way to stave off a looming financial crisis for the federal Medicare program. Today the promise of managed care continues to be unmet—largely because of Congress’ own actions.

The federal government picks up almost 40% of all health care costs in this country, with almost half of that amount (just under 19%) paid by the Medicare program. Medicare covers over 13% of all American citizens. The program offers hospitalization, out-patient care, hospice and home health care, together with a limited nursing home benefit, to most citizens over age 65, the totally disabled and a handful of other beneficiaries.

Medicare HMOs (Health Maintenance Organizations) first began to sign up significant numbers of participants in 1995, and by 1996 Tucson had more of its Medicare recipients enrolled in HMOs than nearly any other community in the country. The New York Times, in an article published in March, 1996, predicted that the Tucson experience would soon sweep the nation, and that Medicare HMOs would continue to grow as seniors learned they could save money and still get good care.

Then Congress derailed its own HMO plans. In passing the Balanced Budget Act of 1997, Congress made it much more difficult to operate a profitable Medicare HMO. The result: in the next year (1998), over 400,000 HMO members were dropped when their health plans curtailed coverage in particular areas, especially in rural communities.

HMOs did not end their flight away from Medicare programs in that year, either. In 1999 another 327,000 enrollees were dropped by their HMOs, and almost a million more will lose coverage in the year 2000.

None of those HMO participants will actually lose Medicare coverage, of course. As HMOs pull out of the Medicare market, individual plan members are free to switch to another HMO (assuming another HMO offers coverage in their area) or return to “traditional” Medicare. They may find the choice of doctors or the extent of coverage sharply curtailed, however.

The 1996 New York Times article cited strong HMO competition in Tucson, with four companies offering different programs. That competition has now shrunk to just two HMOs in the Tucson area: Intergroup of Arizona, Inc., and PacifiCare of Arizona, Inc. (PacifiCare actually offers three slightly different programs under its Secure Horizons name). One HMO (Intergroup) offers coverage in Nogales, and four are active in parts of Pinal County, but the rest of Southern Arizona has no Medicare HMO coverage available. That experience is mirrored across the country as HMOs pull out of Medicare, particularly in rural areas.

State Court Declines To Act On Medicare HMO Denial Of Care


Gilbert Levy, like many Medicare beneficiaries, was attracted by the promise of HMO coverage for his Medicare benefits. The California man shopped carefully, and only signed up with PacifiCare Health Systems after he was sure that he would be able to choose his own primary care physician, and that he would be entitled to all treatment recommended by that doctor. Mr. Levy chose Empire Physicians Medical Group, and particularly Dr. Frankel, to be his primary physician. Then Mr. Levy got sick.

In October, 1996, Mr. Levy was diagnosed with lung cancer. Dr. Frankel referred him to PacifiCare’s oncology expert. That physician, Dr. George, advised Mr. Levy that the tumor was too close to his heart, and was therefore inoperable. According to Dr. George, the only choice for Mr. Levy was chemotherapy and radiation.

Dr. George was an oncologist, not a surgeon, and so Mr. Levy requested a second opinion. He chose Dr. Morton, a thoracic surgeon at John Wayne Cancer Institute. His primary care physician, Dr. Frankel, prepared the necessary paperwork for the consult. Empire Physicians denied the request, saying that Mr. Levy must see a local physician associated with the plan instead.

Mr. Levy paid Dr. Morton out of his own pocket for an evaluation, and got both good and bad news. Dr. Morton believed the cancer was operable, but insisted that the surgery be performed immediately, since the tumor could be expected to double in size within thirty days. Mr. Levy returned to his primary care physician, who obligingly prepared the paperwork to request approval for Dr. Morton to operate.

Mr. Levy’s HMO once again refused, insisting that the surgery must be performed by an in-group physician. Since the group’s oncologist had already told Mr. Levy there was no physician in the group who would perform the surgery, he instead chose to disenroll from the HMO and return to regular Medicare coverage. Dr. Morton operated successfully the day after the disenrollment was effective.

Mr. Levy not only sued PacifiCare and Empire Physicians for damages, but also asked the California state court to enjoin both groups from continuing the same behavior. In his lawsuit, he raised several of the most common criticisms of Medicare HMO policies and practices:

  • Because of the way Medicare pays HMOs, there is a built-in incentive for denial of coverage in circumstances like Mr. Levy’s. For example, PacifiCare is reimbursed for care it provides its Medicare customers based not on how much medical care they need, but strictly on how many of them there are. PacifiCare receives approximately $570 per month for each Medicare beneficiary it signs up, regardless of how many are sick, or how much medical care they require. When a Medicare beneficiary becomes ill, the HMO does not receive any additional income to help pay the cost of caring for that member.
  • The arrangement between PacifiCare (the HMO) and Empire (the doctor’s group) compounded this problem, according to Mr. Levy. Like PacifiCare, Empire received its income based only on how many PacifiCare members it enrolled, not on the basis of how much care they needed. When outside services (such as Mr. Levy’s second opinion and the proposed surgery itself) are called for, Empire must pay for those services from its share of the $570 per patient per month. Consequently, according to Mr. Levy’s lawsuit, Empire has the same built-in incentive to deny authority for the referral to a non-participating doctor, especially when there is some prospect that the doctor might recommend treatment that is not provided within the Empire group.
  • Because of those built-in conflicts, alleged Mr. Levy, PacifiCare and Empire withheld the outside referrals, denied authorization for testing, failed to provide adequate diagnosis, testing and treatment, and failed to pay for treatment Mr. Levy needed. All of that, argued Mr. Levy, was a breach of the duty of good faith and fair dealing owed by the medical providers to their patients. That denial, according to Mr. Levy, went further—it caused him substantial emotional distress, which PacifiCare and Empire knew (or should have known) would flow from their denials of coverage.
  • Because both PacifiCare and Empire knew that they would behave the way they did if a claim like Mr. Levy’s was made, he alleged that PacifiCare had made serious misrepresentations to him when it first signed him up for the HMO program. He had been told that he would receive all the treatment he needed, and that his primary care physician would be able to access that care for him. As it turned out, Mr. Levy alleged, that wasn’t true, and PacifiCare knew it wasn’t true when they recruited him.

Both PacifiCare and Empire vigorously denied that they had mistreated Mr. Levy in any way. Although medical providers often complain about the cost and difficulty of operating in the legal system, both also took full advantage of that system. PacifiCare first caused the case to be transferred to federal court, and then agreed to return it to the California state courts. Both providers then moved to dismiss, alleging that Mr. Levy’s only recourse was to pursue an administrative proceeding under federal Medicare law.

The California trial court agreed, and last week the Court of Appeals concurred. Although the judges were not unsympathetic to Mr. Levy’s plight, the message is clear: he (and other Medicare HMO beneficiaries) must make their claims within the Medicare system, not in the state courts. “The conduct about which plaintiff complains is a serious matter,” wrote the court. “However, redress for the disquieting issues raised by the complaint does not lie with this court. The Legislature has created a scheme by which the senior and disabled citizens of this country, who are of more modest means, receive their medical care. That scheme leaves state courts no avenue to rectify the concerns raised by the plaintiff.” Levy v. PacifiCare, December 22, 1999.

Three Common Myths About Paying For Nursing Home Care


The possibility of nursing home placement terrifies many seniors and their families. The specter of loss of control and dignity is part of the problem, but financial concerns may also be overwhelming. It does not help that accurate information is so difficult to obtain. Myths about nursing home costs, long term care insurance and government benefits persist, making the situation more frightening and difficult.

Remembering that Arizona law may differ from that of other states (and, of course, from the systems in other countries), a few of the more common myths about nursing home costs include:

Myth: Long term care insurance is too expensive, and is only for the elderly anyway.

For many people, long term care insurance is the best choice for protecting against the exhaustion of assets required to qualify for government assistance with nursing home care. Although premiums can be expensive, the cost for younger applicants is dramatically lower. The average long term care insurance purchaser is in his or her late 60s or early 70s, but financial advisers recommend that insurance be considered by those twenty years younger.

Myth: Medicare will take care of my medical care if I should need to go to a nursing home.

Medicare is an extensive federal government program providing medical care to the elderly and disabled. Most American citizens and resident aliens over age 65 qualify for its excellent coverage. But Medicare’s nursing home benefit is almost entirely illusory.

Many Medicare beneficiaries believe that the program covers 100 days of nursing home care. But only the first 20 days are fully covered; the next 80 days require the patient to pay the first $96 of care each day. The program also limits its coverage to care which leads to improvement. In other words, once it is clear that the patient will not be likely to return home, Medicare coverage will end.

Medicare supplemental insurance policies and Medicare HMOs may help some nursing home residents. But neither kind of plan increases the length of coverage–most simply provide for the payment of the $96 per day charged to the beneficiary.

Myth: If either my spouse or I enter the nursing home, we will lose our home.

Neither the nursing home nor the government has any ability to “take” the home of a nursing home resident. If no long term care insurance is in place, and the patient does not qualify for Medicaid, the nursing home will expect to be paid each month. That does not mean, however, that the nursing home can “take” away the home–in fact, one’s homestead is exempt from the claims of unsecured creditors including the nursing home.

Once assets (and income) are diminished, the patient may qualify for Medicaid. If the patient’s spouse is still living in the home, Medicaid is not permitted to count the home as an available asset, and may not seek to recover the cost of care it provides by forcing sale of the home (or any other asset, for that matter). If the patient is not married, Medicaid may not force the sale of the home until after the death of the recipient, and even then only in some circumstances.

HMO Patient’s Survivors Not Limited To Medicare Appeal


William and Cynthia Ardary lived in rural California. In 1991, they attended a seminar sponsored by Aetna Health Plans of California; the seminar was part of Aetna’s marketing plan for its Medicare HMO, Aetna Senior Choice.

Mr. and Mrs. Ardary were interested in the HMO alternative, but were concerned about the availability of care in their rural area. They particularly asked about access to emergency care and more sophisticated treatment. According to Mr. Ardary, the Senior Choice representative reassured them that, if the need arose, they would immediately authorize transfer to a larger hospital or more specialized treatment facility.

Attracted by the excellent benefits and lower prices (compared to Medigap coverage), the Ardarys changed from “regular” Medicare to the Senior Choice HMO. Two years later, Mrs. Ardary suffered a serious heart attack.

Mrs. Ardary was first treated at a small rural hospital near her home. The local facility did not have either cardiac or intensive care capabilities. According to Mr. Ardary, both he and his wife’s physician repeatedly requested that Aetna authorize an airlift transfer to a larger medical center, but Aetna declined. Mrs. Ardary died in the local hospital.

Mr. Ardary and his children brought a wrongful death action against Senior Choice and Aetna. In their lawsuit, they alleged that the HMO was negligent in denying the transfer to a larger, more advanced treatment facility. Aetna argued that the Ardarys’ only recourse was to appeal the alleged denial of Medicare benefits through the administrative appeal process.

The U.S. District Court agreed with Aetna and dismissed the Ardarys’ lawsuit. The Ardarys appealed, arguing that they were not seeking review of the denial of Medicare benefits itself, but the alleged negligence of the treatment team in failing to secure proper medical care.

The Ninth Circuit Court of Appeals now agrees with the Ardary family. The appellate court finds that the claims are not “inextricably intertwined” with the denial of benefits, and the Ardarys may seek to prove their claims at a trial in the District Court. Ardary v. Aetna Health Plans of California, October 21, 1996.

[Note: The Ninth Circuit includes Arizona, so the same result would clearly be reached in Arizona.]

ALTCS and SS Figures for the New Year

Last week, Elder Law Issues reported on the new 1997 figures for Medicare copayments and benefits. Many Medicaid and Social Security figures will also change with the new year. Some new numbers:

Income Cap (single applicants earning more than this amount do not qualify for long-term care Medicaid–ALTCS– unless they create special trust arrangements) $1,452.00 /mo

Minimum Community Spouse Resource Allowance (in Arizona this is called the CSRD–this is the minimum amount a community spouse is permitted to retain while permitting the institutionalized spouse to still qualify for long-term care/ALTCS) $15,804.00

Maximum Community Spouse Resource Allowance (the community spouse is permitted to retain one-half the total available resources of the couple, up to this amount–but always retains at least the minimum amount above) $79,020.00

One other ALTCS eligibility number will not change. The Minimum Monthly Maintenance Needs allowance (the MMMNA), the figure used in calculating share of cost for married ALTCS recipients, will remain at $1,295 until July 1, 1997.

Monthly exempt earning amount (Social Security retirees may earn this amount without having any reduction in benefits):

Under age 65 $720.00

Ages 65-69 $1,125.00

Family Care-Givers of Elderly Recognized for Budget Impact


National policy considerations regarding long-term care of the elderly and disabled are beginning to be noticed by business and political leaders. When the business-oriented Wall Street Journalwrites about the issue, conservative politicians and policy makers can not be far behind.

In a December 11, 1996, article titled Families of Elders Have a Lot Riding On Budget Debates, the Journal recognizes the profound effect Congressional action can have on the quality of life for elders and their caregivers. Of particular interest is the analysis of the recent Kassebaum-Kennedy law criminalizing some gifts by those facing long-term care expenses (see Elder Law Issues, August 19, 1996). The Journal article refers to the new law as the “throw-Granny-in-jail” law.

Although Medicaid now pays for approximately half of all formal long-term care for seniors and the disabled, the Journal article points out a more profound statistic: as much as 80% of long-term care is provided directly by family members. Nearly all of that care is provided in the home, where Medicaid is the least likely to be considered as a possible substitute.

Government involvement in long-term care has focused primarily on nursing home placement. In the past five years, however, the government’s role has begun to shift. While Medicaid provided $3.4 billion in home care services in 1990, by 1995 the figure had tripled (to $10.33 billion). At the same time, Medicare (which has traditionally provided more home care services than Medicaid, but still has focused on institutional care) increased its home care benefits from $3.66 billion to $14.90 billion, a four-fold increase.

Now Congress is seeking ways to cut the federal budget, and particularly the federal-state commitment to Medicaid care. The “throw-Granny-in-jail” law is an early attempt to restrict payments for long-term care (though some discussion is being undertaken in Congress about repealing the new law altogether). Any significant change in government benefits is likely to have a devastating effect on the ability of families to provide some care to their aging seniors. As theJournal article points out, it could also lead to the paradox of increasing nursing home costs as the family members providing 80% of care find themselves unable to make their care plans work.

1997 Medicare Figures

Beginning with the Social Security checks due January 3, 1997, Medicare premium deductions will increase to $43.80 per month (up from $42.50 per month in 1996). Since the new year also brings a 2.9% increase in the Social Security benefit, most people will still see a larger total check.

Other Medicare figures will also change beginning with the new year. The initial hospitalization deductible increases from $736 (1996) to $760 (1997). Coinsurance (the amount which Medicare beneficiaries must pay for their 61st through 90th days in the hospital) will increase from $184/day (1996) to $190/day (1997). “Lifetime reserve” days will have a copayment increase from $368 (1996) to $380 (1997).

Skilled nursing care copayments will also increase, from $92/day (1996) to $95/day (1997). Since Medicare has no deductible or copayment from the first twenty days of skilled nursing care, however, the copayment amount only applies to the 21st through 100th day of nursing home placement.

Medicare HMO participants will not be affected by the new copayments and deductibles. HMO programs are permitted to charge less than Medicare copayments and deductibles, and most (in the Tucson area, at least) charge only a single per-visit copayment. Similarly, Medicare beneficiaries with Medigap coverage will not be directly affected by the increases.

Tucson Judge Orders Medicare to Improve HMO Notices


As the federal government increasingly turns to “managed care” programs to hold down the cost of Medicare and Medicaid, patients’ rights become a more important issue. Market forces in Health Maintenance Organizations (the principal managed care alternative) regularly place the patient and the health care provider in conflict; while HMOs always have systems to resolve those conflicts, consumer organizations fear that they may not be utilized frequently enough, and that the HMOs may not be required to give patients enough information to be their own advocates for good health care.

A recent case decided in Tucson’s Federal District Court illustrates this inherent conflict. The case involves only Medicare HMOs, so its holding will not directly affect providers under AHCCCS, Arizona’s Medicaid alternative, but the principles may be similar. It may also have a long-term effect on private HMO practices, since most of the Medicare HMOs are also in the business of providing health services through employers and private insurance companies.

Plaintiffs in the Tucson litigation sought a court order requiring Medicare HMOs to change their way of communicating with patients. According to the plaintiffs, when the HMOs denied or terminated coverage for a particular procedure, the notices were illegible, non-specific and inadequate. After reviewing a sampling of the notices, Tucson’s Judge Alfredo Marquez agreed that notices mailed to participants:

  • Were unreadable. Most notices were in tiny type, particularly difficult for elderly clients to read.
  • Were too vague. Almost two-thirds of denial notices failed to describe the reason for denial, instead listing non-specific reasons like “beneficiary no longer receiving ‘skilled nursing care,'” which failed to give patients any real notice of what they would have to prove in order to continue to receive coverage.
  • Failed to tell patients how they could appeal. Medicare law provides for an appeal process, and HMOs must provide information on the process. While the vast majority of denials did describe appeal rights, fewer than 10% provided information about Peer Review Organizations (PROs), one of the mechanisms available for review of HMO decisions.
  • Failed to tell patients they would be personally liable. After the Medicare HMO’s denial, patients are personally liable for care they continue to receive. Fewer than half of the notices explained that fact to patients.

Medicare’s principal defense against the allegations: since HMOs are private entities, they can not be compelled to provide the same kinds of notices required by law for government-run health programs. Judge Marquez dismissed this argument summarily, noting that HMOs perform the role of both health care provider and insurance company; while the former may not be subject to Federal Court review, the latter certainly would be.

Because of the notice shortcomings, Judge Marquez has ordered that notices from Medicare HMOs must:

  • Be timely
  • Be readable (in at least 12-point type)
  • Be written in language understandable enough to permit the recipient to “argue his or her case”
  • Include a description of appeal rights, including information about PROs
  • Inform the patient of the right to a hearing and explain how to secure an informal hearing
  • Provide information to the patient about how to obtain medical records, affidavits from physicians, and other evidence.

Judge Marquez has retained jurisdiction to make sure that the changes he has ordered are implemented. Grijalva, et al., v. Shalala, October 17, 1996.

Will Your End-of-Life Health Care Wishes Be Honored?

JUNE 23, 1996 VOLUME 3, NUMBER 52

While advance medical directives are increasingly common, disturbing studies suggest that they are too frequently ignored. The recent SUPPORT study, funded by the Robert Wood Johnson Foundation and reported on in Elder Law Issues last December 11, illustrates the problem. It found that doctors are likely to follow the written wishes of patients only about half the time.

While the conclusions of that study may be unnecessarily pessimistic, patients have legitimate concerns about how to maximize the likelihood their wishes will be carried out. A few suggestions for patients:

  • Execute both a living will and a health care power of attorney. The former sets out what health care choices you want, the latter permits someone to advocate on your behalf, sign releases and discuss issues with your medical treatment team.
  • Select your health care agent carefully. Rather than naming all your children (honest, they won’t be offended if you select one), or the one closest geographically (the daughter who lives in town may or may not be the best equipped to argue with doctors and health care administrators), choose the most articulate and like-minded candidate. While geographical proximity is a plus, assertive and well-informed advocacy is more important.
  • Discuss the issues with your family. No matter how well you have written your directives, they are worthless if your children do not believe you really meant them. Make it clear that you are not asking that they “put you to sleep” but that you are demanding the right to die with dignity.
  • Discuss the issues with your physician. If she has not heard your views from you, she is more likely to question whether your agent truly speaks for you.
  • Be specific. The more detail you put into your living will, and the more you customize its language, the more likely your wishes will be followed.
  • Consider pain management issues (thorough pain management may hasten death in some cases, and if pain control is important you should say so) and organ donation (advance directives may actually make organ harvesting more difficult).

Medicare HMOs Provide Less Home Care

Medicare participants who choose to enroll in HMOs receive fewer home health care visits than fee-for-service Medicare recipients. That is the conclusion of research completed at the behest of the Health Care Financing Administration and the Agency for Health Care Policy and Research.

The study examined 1,260 Medicare patients nationwide, and compared both health improvement and costs for those participants. Researchers tried to determine whether those studied benefited from home health care by determining whether they were better able to perform basic activities of daily living (ADLs) such as eating and bathing.

According to the researchers, 56.5% of the fee-for-service beneficiaries had improved ADLs as a result of home health care. Among HMO participants, 43.4% showed similar improvement. While HMO-provided home health care may have been less expensive to the Medicare system, the study demonstrated that the savings may have come partially at the expense of better outcomes for patients.

Medicare recipients (whether enrolled in HMOs or in traditional fee-for-service plans) are entitled to home health care benefits in some circumstances. Such services may include skilled nursing care, physical, speech and occupational therapy, and other services.

New York Times: Tucson “A Model For Medicare’s Future?”


Nationwide, fewer than ten percent of Medicare recipients belong to Health Maintenance Organizations. In Pima County, HMOs serve 42% of participants in the federal health care program for the elderly and disabled.

Last Tuesday, a front-page article in the New York Times analyzed the Pima County experience with Medicare HMOs. According to the Times‘ headline, “H.M.O.’s [sic]in Tucson May Offer A Model for Medicare’s Future: Many Retirees Pick Managed Care and Like It.”

Only a handful of other communities (including Riverside and San Diego in California and Portland, Oregon) have HMO participation above 40% among Medicare recipients. Arizona’s HMO penetration into Medicare is generally high, and Pima County has the highest participation in Arizona.

Because Tucson has four vigorous and competitive HMO providers, their programs tend to provide more benefits than in some other communities. Pima County’s elderly residents can choose between Partners Health Plan, Intergroup, FHP and Cigna Health Care of Arizona. The competition has generated some real savings for participants.

Benefits for Members

HMO participants in Pima County have come to expect $5 doctor’s visits, free hospitalization, free X-rays, mammograms and lab tests, $26 eyeglasses, and even free rides to medical appointments. More recently, the competition has resulted in coverage for medications; some participants pay as little as $7 for a three-month supply of most drugs, while “traditional” Medicare provides almost no coverage for prescriptions.

Medicare HMO participants seem generally to be pleased with their plans. Just over 1% of plan participants quit and return to regular Medicare coverage each month. Polls show customer satisfaction with Medicare HMOs is higher than traditional Medicare, employer-sponsored HMOs or even regular indemnity insurance plans.

Future of Medicare?

The Pima County experience with Medicare HMOs may become the national norm in the next few years. An analysis prepared by an HMO industry trade group predicted that national participation at 40% (just below Pima County’s level) would save Medicare 21% of its annual costs. Since this represents almost exactly the $270 billion in savings promised by the Republic Congress, the allure of HMOs is obvious.

The New York Times article also notes that HMOs may save less money than anticipated for one simple reason: they market their alternative services to the relatively younger, healthier population of Medicare recipients who require the least medical care. Since HMOs are paid 95% of the average cost of Medicare for each enrollee, such “skimming” could easily cause the total cost of Medicare to actually rise, as the average cost of providing care to the relatively healthy HMO participants could be less than that 95% figure.

Government studies have attempted to determine whether the payments to HMOs are fair, given the patient population attracted to HMOs. The results have been inconclusive, with some evidence suggesting that the cost of care may be increased. It is clear, however, that the average cost of care in Arizona is lower than the national average for Medicare.

HMOs and Hospice

MAY 8, 1995 VOLUME 2, NUMBER 44

In recent years HMOs have come to dominate the Medicare field in Arizona. Although marketing sometimes suggests that Medicare recipients “give up” their Medicare benefits to join an HMO, it is important for consumers to realize that the HMO is simply an alternative method of delivering Medicare services.

“Medicare HMOs” (those HMOs providing coverage to Medicare recipients under special arrangements with the federal government) are required to provide the same range of services available to traditional Medicare participants. Of particular significance to many seniors is the requirement that Medicare HMOs provide full hospice benefits.

Medicare Hospice Benefit

Traditional Medicare does not pay for prescription drugs at all and has limited benefits for counseling. In addition, Medicare patients must pay an annual deductible and (in most cases) 20% of the cost of their care. For those enrolled in traditional “fee for service” Medicare plans, these limitations do not apply to hospice benefits.

For the past decade, Medicare has provided full coverage for hospice patients, including prescription drugs, supportive care and counseling (including grief counseling for family members). There is no deductible or copayment for these services. Eligibility does require a diagnosis of terminal illness, with less than approximately six months to live and a desire to “forego curative treatment options.”

The HMO Connection

For those patients who have elected to join a Medicare HMO, the rules may seem to have changed. Since prescription medications may now be partially covered (many plans provide coverage with a modest per-prescription copayment) and the HMO focuses on preventive care, the consumer may be misled into believing that Hospice benefits are treated differently as well.

In fact, Medicare requires that participating HMOs provide full Hospice benefits under the same terms as traditional Medicare coverage. Most HMOs contract with one of the private or non-profit Hospice organizations to provide the required services, and the patient will perceive the transition as having been moved “back on to” Medicare.

Medicare HMOs are discouraged from selecting only the healthiest Medicare beneficiaries. Consequently, they are required to accept nearly all applicants; one of the two major exceptions to this principle is that those already receiving Hospice benefits may not transfer to an HMO. Since the benefits are the same for Hospice patients, however, that should not present any problems for consumers.

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