Private Fee for Service (PFFS) Plans: How They Differ from Other Medicare Advantage Plans

^Pr^ep^ar^{ed f}^o^r^M^e^m^b^ers^an^d^Com^mⁱ^t^t^ees^of^C^ong^r^e^ss

The Balanced Budget Act of 1997 (BBA, P.L. 105-33) established the Medicare+Choice program
(now called Medicare Advantage), creating new options for the delivery of required benefits
under Medicare. One of these options is a Private Fee-For-Service plan (PFFS), statutorily
defined as a plan that (1) reimburses hospitals, physicians, and other providers on a fee-for-
service basis without placing the provider at financial risk; (2) does not vary rates for a provider
based on utilization relating to that provider; and (3) does not restrict the selection of providers
from among those who are lawfully authorized to provide services and agree to accept the terms
and conditions of payment established by the plan.
Recently enrollment in PFFS plans has increased dramatically. In April 2003, there were 22,344
Medicare beneficiaries enrolled in one of the three available PFFS plans and one PFFS
demonstration program. In April 2004, CMS had contracts with six PFFS organizations, with total
enrollment of 31,550. By April 2007, CMS had 47 PFFS contracts and enrollment had jumped to
1.5 million, an increase of over 4,000% in three years. Approximately 18% of all Medicare
Advantage beneficiaries are enrolled in a PFFS plan, and CBO projects this number to grow to
approximately one-third of all MA enrollment by 2017. Plans operate in nearly all United States
counties, giving every Medicare beneficiary access to at least one PFFS plan.
The majority of PFFS enrollees reside in urban areas. However, close to half of all rural
beneficiaries participating in Medicare Advantage plans are enrolled in a PFFS plan. Unlike
coordinated care plans, which tend to serve more densely populated areas, PFFS plans also
choose to serve rural areas. PFFS plans may choose their service areas because (1) Medicare
private plan payments are higher than the average cost of traditional Medicare in many of the
counties a PFFS plan chooses to serve, and (2) PFFS plans are not required to form networks.
Establishing and maintaining networks of providers can be costly, particularly in rural areas.
Congressional attention to these plans has increased this past year for a number of reasons. First,
enrollment in these plans has risen significantly. Second, payments to PFFS plans are typically
higher than payments to other managed care plans and higher than expenditures in FFS Medicare.
Third, the marketing and sales tactics of PFFS plans has raised concerns related to beneficiary
protection. Lastly, PFFS plans are subject to different statutory requirements than other Medicare
private plans.
This report examines the differences between PFFS plans and other Medicare private plans,
specifically local health maintenance organizations (HMOs) and regional preferred provider plans
(PPOs). Some of the reasons for growth in PFFS plans are also discussed, as well as advantages
and disadvantages of these plans. The report concludes with a brief discussion surrounding
current issues.

Introduc tion ..................................................................................................................................... 1
Backgr ound ..................................................................................................................................... 2
Differences Between PFFS and Other Plans...................................................................................6
Access to Providers.............................................................................................................7
Quality Assurance...............................................................................................................8
Review of Plan Premiums...................................................................................................9
Medicare Part D Prescription Drug Coverage....................................................................9
Balance Billing...................................................................................................................9
Reasons for Growth in PFFS Plans...............................................................................................10
Payment ........................................................................................................................ .... 10
Network Exceptions..........................................................................................................10
Beneficiary Choice.............................................................................................................11
Marketing ...................................................................................................................... ..... 11
Advantages and Disadvantages of Participating in a PFFS Plan...................................................12
Advantages to Providers...................................................................................................12
Disadvantages to Providers...............................................................................................12
Advantages to Beneficiaries.............................................................................................12
Disadvantages to Beneficiaries.........................................................................................13
Current Issues................................................................................................................................14
Increasing Costs................................................................................................................14
Access to Providers...........................................................................................................14
Benefit Structure/Cost Sharing.........................................................................................15
Marketing ...................................................................................................................... .... 16
Qualit y ........................................................................................................................ ...... 16
Conclusion ..................................................................................................................................... 17
Figure 1. Number and Proportion of Medicare Beneficiaries Enrolled in Medicare
Advantage Plans, by Plan Type, April 2007.................................................................................3
Figure 2. Enrollment in Medicare Private Fee-for-Service Plans, 1997 to 2007.............................5
Table 1. Medicare Advantage Enrollment in Local HMOs, Regional PPOs, and PFFS
Plans, by State, February 2007.....................................................................................................3
Table 2. Percentage of Private Fee-for-Service Enrollees with Specified Benefit
Structure/Cost Sharing, 2007.....................................................................................................15

Appendix. Comparison of Major Differences Between Local HMOs, Regional PPOs, and
PFFS Plans.................................................................................................................................18
Author Contact Information..........................................................................................................30

Medicare is the nation’s health insurance program for the aged, disabled, and persons with End
Stage Renal Disease. Medicare part A, the Hospital Insurance program, covers hospital services,
post-hospital services, and hospice services. Part B, the Supplementary Medical Insurance
program, covers a broad range of complementary medical services, including physician,
laboratory, outpatient hospital services, and durable medical equipment. Beneficiaries choosing
traditional fee-for-service Medicare may receive covered benefits from any qualified provider
who participates in the Medicare program. Alternatively, beneficiaries eligible for Medicare part
A and enrolled in part B may choose to enroll in a Medicare private plan, under part C of
Medicare (the Medicare Advantage program), and receive all required parts A and B benefits
(except hospice services) through a private plan. Medicare part D provides prescription drug
coverage available through either a stand-alone drug plan (PDP), or for most Medicare Advantage ¹
enrollees through their plan.
Medicare has offered its beneficiaries enrollment in a private plan as an alternative to the
traditional fee-for-service (FFS) program since the 1970s, not long after the establishment of
Medicare. Over the years, Congress has continued to legislate an increasing number of private
plan options for Medicare. In 1982, Congress created Medicare’s risk contract program, allowing
private entities, mostly health maintenance organizations (HMOs), to contract with Medicare. In
1997, Congress passed the Balanced Budget Act of 1997 (BBA, P.L. 105-33), creating the
Medicare+Choice (M+C) program, offering new types of private plans, including private fee-for-
service (PFFS) plans. The Medicare Prescription Drug, Improvement, and Modernization Act of
2003 (MMA, P.L. 108-173) changed the name of the program to Medicare Advantage (MA) and
further expanded Medicare’s private plan options with the addition of new regional preferred
provider organizations (PPOs), among others. Further modifications to the MA program were
made in the Deficit Reduction Act of 2005 (P.L. 109-171, DRA) and the Tax Relief and Health
Care Act of 2006 (P.L. 109-432).
Recently, congressional attention has turned to the MA program, focusing in large part on PFFS
plans. There are a number of reasons for this attention. First, enrollment in these plans has risen
significantly—increasing from 22,344 beneficiaries in April of 2003 to almost 1.5 million four
years later. Second, payments to PFFS plans are typically higher than payments to other MA
plans and higher than expenditures in FFS Medicare. Recent analysis conducted by the Medicare
Payment Advisory Commission (MEDPAC) demonstrated that in 2006, payments to PFFS plans
averaged 119% of FFS expenditures. This is in contrast to payments to all MA plans, which ²
averaged 112% of expected FFS expenditures, and payments to HMOs, which averaged 110%.
Complaints have also been made related to allegedly aggressive and potentially misleading ³
marketing practices of PFFS plans, leading some to question Medicare’s oversight of these plans.

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Most recently, in an agreement with the Centers for Medicare and Medicaid Services (CMS),
seven health care organizations representing 90% of the non-group PFFS market voluntarily
agreed to suspend marketing of their PFFS products because of complaints and accusations of ⁴
deceptive marketing practices. According to CMS, the suspension for a given plan will be lifted
when the plan meets specified conditions.
Finally, PFFS plans are subject to different statutory and administrative requirements than other
Medicare private plans, specifically those related to access, quality, review of plan premiums,
Medicare prescription drug benefits, and balance billing. Policy makers and beneficiary advocates
are questioning whether beneficiaries fully understand these differences when they enroll in a
PFFS plan and what their implications are for beneficiary spending, access to providers, and
adequacy of benefits.
This report focuses on PFFS plans and how they differ from two other widely available MA ⁵
options, local HMOs and regional PPOs. Background information related to enrollment and the
characteristics of these plans is presented, as well as a discussion surrounding current issues.
Appendix provides a side-by-side comparison of the major statutory differences between these
three types of plans. It does not include all provisions of the law, rather only those for which there
are significant differences. Some regulatory differences are also included, when applicable.

About 8.5 million of Medicare’s 44.6 million beneficiaries (19%) are enrolled in a MA plan. Most
MA enrollees choose a local HMO. Figure 1 shows enrollment as of April 2007 by plan type,
with 5.7 million beneficiaries in local HMOs, 1.5 million beneficiaries in PFFS plans, 136,000
beneficiaries in regional PPOs, and the remaining 1.2 million beneficiaries divided among other ⁶
types of plans. However, the proportion of beneficiaries enrolled in each plan type varies by ⁷
state.

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Figure 1. Number and Proportion of Medicare Beneficiaries Enrolled in Medicare
Advantage Plans, by Plan Type, April 2007
^Source:^{Figure c}^{reated by t}^{he C}^{ongressional Research Service}^ba^{sed on data from the}^Center^{s for}^Medicare
^{and Medicaid Services.}
Table 1 shows that in some states, the proportion of MA enrollees enrolled in PFFS plans may be
as low as 0% or 1% or over 90%.
Table 1. Medicare Advantage Enrollment in Local HMOs, Regional PPOs, and PFFS
Plans, by State, February 2007
^Percentage
^{of MA}
^Medicare^{Total MA}^Local^Regional^{enrollees in}
^State^{beneficiaries}^enrollees^a^HMO^{PPO PFFS}^PFFS
^{Alabama 775,}⁵⁶⁰^105,⁴⁴⁰^83,1⁷⁶⁰^14,4²⁵^14%
^{Alaska 55,0}⁵⁹³⁹¹¹⁰²⁸^72%
^{Arizona 819,}⁷²⁸^283,²³⁵^245,⁹⁴⁵^2,59³^28,4⁶²^10%
^{Arkansas 487,}²⁶³^32,8⁶⁴^5,31⁹²⁷⁰^26,5⁵⁹^81%
^{California 4,30}^1,71⁴^1,43^9,88⁸^1,28^0,16⁶^21,7²⁸^22,5⁴⁹^2%
^Colorad^{o 544,}⁰²³^160,⁷⁷⁶^118,⁵⁷⁶⁰^13,0³⁰^8%
^{Connecticut 530,}⁴¹⁹^45,3⁸²^42,6⁰⁸⁰⁸¹³^2%
^{Delaware 73,7}³⁴^2,25⁶²⁴⁴⁵¹⁸^1,14²^51%
^{District of}
^{Columbia 132,}⁴⁹⁷^6,88³⁷⁶⁸⁰¹⁸⁹^3%
^{Florida 3,08}^8,47⁴^778,⁸⁹⁶^609,⁰⁷⁹^44,3⁷⁷^42,9⁵⁷^6%
^{Georgia 1,08}^4,00⁴^102,²⁸²^18,6⁸⁵⁹¹⁷^64,8⁸⁵^63%
^{Hawaii 186,}⁵³²^66,7²³^21,9⁸⁹^1,52²⁹⁸⁸^1%

^Percentage
^{of MA}
^Medicare^{Total MA}^Local^Regional^{enrollees in}
^State^{beneficiaries}^enrollees^a^HMO^{PPO PFFS}^PFFS
^{Idaho 200,}⁶⁹⁵^35,1⁴⁸^14,7⁶⁴⁰^15,5¹⁶^44%
^{Illinois 1,71}^9,00⁵^145,⁶⁰⁰^67,2³⁸^2,27⁰^35,5²⁷^24%
^{Indiana 925,}⁵¹⁷^76,4⁹³⁷⁰^1,84⁴^51,4³⁵^67%
^{Iowa 495,}³⁰⁴^50,6⁸⁴^4,61²^2,41⁴^28,8⁵⁶^57%
^{Kansas 407,}¹¹¹^27,2⁴⁹^10,0⁶³³⁶^10,0³⁷^37%
^{Kentucky 697,}⁹⁷²^69,9⁵⁷^18,2⁹⁸⁸⁹⁹^40,6⁵⁷^58%
^{Louisiana 626,}⁶⁹⁶^98,6³³^80,6⁷⁷⁵⁵⁷^16,3⁵⁴^17%
^{Maine 241,}⁷⁹⁵^3,41¹²⁶¹⁰^1,97⁹^58%
^{Maryland 712,}⁶⁸⁴^52,1⁹⁶^12,0¹⁰²⁰²^1,22⁶^2%
^Massach^{usetts 984,}⁷⁶⁴^166,⁸³⁷^134,³⁹⁵⁰^14,7⁷⁴^9%
^{Michigan 1,51}^7,69⁷^200,⁶²⁴^38,5¹⁶⁹⁵⁸^159,⁹³³^80%
^{Minnesota 717,}²³⁴^199,⁹³¹^37,6⁶⁶^6,66⁸^52,0¹⁶^26%
^{Mississippi 462,}⁹⁶²^41,9²⁹^1,78⁶⁹⁵^24,1³⁷^58%
^{Missouri 933,}³⁵⁸^142,¹⁰⁸^106,⁶⁶³³³⁰^23,9⁶²^17%
^{Montana 152,}⁷¹¹^15,0³⁵⁰²⁴⁷^13,7⁵¹^91%
^Nebras^{ka 265,}¹⁶⁵^21,8⁸⁹^9,01⁷⁸³⁴^10,1⁰⁸^46%
^{Nevada 309,}⁷²²^91,2⁵⁷^33,1⁶⁶^1,59¹^2,81⁶^3%
^New
^Hamps^{hire 193,}⁹⁸⁸^2,25²²⁷⁰^2,18⁸^97%
^{New Jers}^ey^1,24^6,79³^110,⁴⁰¹^100,³¹³¹²⁵⁹⁰⁹^1%
^{New Me}^xico^278,⁰⁴⁶^57,6⁷⁴^42,6⁵⁶⁰^6,38⁰^11%
^{New York}^2,81^7,40⁰^649,⁸²⁷^548,⁷³⁶^5,38³^17,6⁹⁰^3%
^{North Carolina}^1,32^4,00⁸^160,⁰⁸⁹^76,6⁰¹¹¹²^80,0⁴³^50%
^{North Dakota}^104,¹⁸¹^5,43⁰⁰¹¹^4,56⁰^84%
^{Ohio 1,78}^2,10⁹^297,⁸²⁹^203,⁰⁹⁹^4,63⁶^51,6³²^17%
^{Oklahoma 555,}⁸⁵³^60,8⁰⁵^46,2⁸⁵⁰^13,3⁵³^22%
^{Oregon 555,}¹⁸⁰^210,⁸²⁷^126,¹⁹³⁰^12,8⁴⁴^6%
^{Pennsylvania 2,16}^1,16²^708,⁹⁰⁶^572,⁶⁵⁰²⁰⁰^36,8⁰⁸^5%
^{Puerto Rico}^604,¹⁷⁶^333,⁴⁹⁰^309,⁶²¹⁰²⁵⁶^0%
^{Rhode Island}^173,⁸³¹^60,3⁷⁹^58,4⁸³⁰⁴³⁴^1%
^{South Carolina}^677,²⁶⁰^50,7⁵³⁵⁴⁷^1,73⁵^47,3⁴¹^93%
^{South Dakota}^127,⁰⁸²^5,46⁹^1,72⁰⁵⁷²^3,14⁴^57%
^{Tennessee 952,}⁰⁹⁶^162,⁶⁵⁸^118,⁰⁸²³⁹^32,8⁷⁶^20%
^{Texas 2,64}^7,53³^355,³⁶⁶^214,⁷⁷⁵^8,75⁸^51,5²⁴^14%
^{Utah 247,}¹⁹³^46,9⁰⁷^5,58⁷⁰^29,1⁰⁶^58%
^{Vermont 99,6}³²⁴⁸⁷⁰⁰⁴⁸⁷¹⁰⁰^%

^Percentage
^{of MA}
^Medicare^{Total MA}^Local^Regional^{enrollees in}
^State^{beneficiaries}^enrollees^a^HMO^{PPO PFFS}^PFFS
^{Virginia 1,02}^5,90⁶^82,3⁵⁶^6,11⁴⁸⁶^60,7⁶⁹^74%
^{Washington 852,}⁶⁰²^155,⁶⁴⁴^115,⁰²⁴⁰^28,9³⁷^19%
^{West Virginia}^362,⁶⁰⁶^34,3⁸⁹^4,09⁸⁰^9,25⁰^27%
^{Wisconsin 843,}²⁰⁴^151,⁴⁰³^41,5⁹⁴⁴³⁰^86,6⁰⁰^57%
^{Wyoming 72,8}⁰⁹^2,78⁸⁰²⁶^1,89³^68%
^UNITED
^{STATES 43,1}^54,0⁴⁹^8,17^2,77⁴^5,58^7,97³^112,⁹⁸³^1,29^8,13⁶^16%
^Source:^{Table created}^{by t}^{he C}^{ongressional Research Service}^ba^{sed on data from the}^Center^{s for}^{Medicare and}
^{Medicaid Services.}
^a.^{Total enrollment also includes lo}^{cal PPOs, PSOs, Cost plans, Dem}^{onstrations, MSAs, and HCPPS.}
Figure 2 shows PFFS enrollment over time. Interestingly, PFFS enrollment was only 22,344 in
April, 2003, and 31,550 as of April 2004. By April 2007, enrollment jumped to 1.5 million, an
increase of over 4,000% in three years. Comparatively, enrollment in all other MA plans was 5.3
million in December 2004 and 6.9 million in April 2007, an increase of about 30%.
Figure 2. Enrollment in Medicare Private Fee-for-Service Plans, 1997 to 2007
^Source:^{Figure c}^{reated by t}^{he C}^{ongressional Research Service}^ba^{sed on data from the}^Center^{s for}^Medicare
^{and Medicaid Services.}

Local HMOs, regional PPOs, and PFFS plans, while sharing many characteristics, also have
many differences that may be important in determining who enrolls, the average generosity of
benefits, and payment and geographic differences. First, it is important to understand the basic
structure of each of these types of plans:
^• Local HMO—A local HMO is a public or private entity that meets all of the
required solvency and other standards and has a contract with CMS to provide
required and other health benefits. Members receive services mainly through the
plan’s network, although plans may allow out-of-network coverage. HMO’s
typically serve one county, but are allowed to expand their service area to more
than one county if they wish. Each MA participating organization offering a local
HMO is required to provide at least one MA plan with qualified Part D ⁸
prescription drug coverage in its service area.
• Regional PPO—In addition to requirements for local plans, a regional PPO must
provide for reimbursement for all covered benefits, regardless of whether the
benefits are provided in or out of the network. At a minimum, a regional PPO
must cover an entire region. It must also have aunified part A and B deductible ⁹
and a catastrophic cap on out-of-pocket expenses. Like MA participating
organizations that offer local HMOs, each regional PPO must offer a plan with
qualified prescription drug coverage.
• PFFS plan—In addition to the solvency and other standard requirements for
local plans, a PFFS plan (1) must reimburse hospitals, doctors, and other
providers at a rate determined by the plan on a fee-for-service basis without
placing the providers at financial risk; (2) can not vary rates based on utilization
relating to the provider; and (3) can not restrict the selection of providers among
those who are lawfully authorized to provide the covered services and agree to
accept the terms and conditions of payment established by the plan. Enrollees in
PFFS plans are generally not restricted to a network of providers, although PFFS
plans have the option to form networks. In contrast to other MA participating
organizations, PFFS plans are not required to offer qualified prescription drug
coverage.

In some aspects, PFFS plans are more closely related to traditional fee-for-service Medicare, than
to other MA private plans. While almost all MA plans provide a full range of services to enrollees ¹⁰
in exchange for a monthly capitated payment, local HMOs act as both the insurer and provider
of health care services. To receive benefits, the enrollee must get medical care through a network
of providers managed by the plan, with very few exceptions, such as emergency care.

⁸^CMS^de^fⁱ^ne^{s a}ⁿ^MA^org^a^niz^a^{tion a}^s^a^pu^blic^or^priv^a^t^e^eⁿ^tity^orga^niz^e^d^a^nd^lic^eⁿ^se^{d by}^a^sta^t^e^a^s^a^risk^be^a^r^ing
^eⁿ^tity^tha^t^{is c}^e^r^tif^ie^{d by}^{CMS a}^s^m^e^e^ting^the^MA^c^ontra^c^t^re^quire^m^e^{nts. Ea}^c^h^MA^org^a^niz^a^{tion m}^a^y^o^f^f^e^r^m^u^ltiple
^h^eal^t^h^pl^an^{s i}ⁿⁱ^t^s^servi^{ce area.}
⁹^For^a^dis^c^us^sⁱ^oⁿ^of^Me^dic^a^r^e^P^a^r^t^A^a^{nd B}^aⁿ^d^de^d^u^c^tib^le^s^un^de^r^t^hos^e^pa^r^t^s^of^Me^dic^a^r^e^,^ple^a^s^e^s^e^e^C^R^S^R^e^por^t
^R^L³³⁷¹^2,^M^e^dic^a^re^{: A}^Prime^r^{, b}^y^J^e^nnif^e^{r O’Sulliv}^aⁿ^.
¹⁰^T^h^e^e^x^c^e^p^{tion is}^f^o^r^c^o^s^t^plaⁿ^s^,^w^h^ic^{h a}^r^e^r^eⁱ^m^bur^s^e^{d on}^a^c^o^s^t^b^a^sⁱ^s^r^a^the^r^thaⁿ^a^m^onth^l^y^c^a^p^ita^te^{d a}^m^ount.

In contrast, PFFS plans cover enrollees through a private indemnity health insurance policy. The
insurer reimburses hospitals, doctors, and other providers on a fee-for-service basis at a rate
determined by the plan. The structure of PFFS plans allows enrollees greater flexibility in
choosing a provider than in other MA plans. In HMOs, for example, beneficiaries typically have
to visit their primary care physician and get a referral before seeing a specialist. In PFFS plans,
beneficiaries can visit a specialist or any provider, who agrees to the terms and conditions of the
plan, without prior authorization. Enrollees can also receive services from providers outside of
their service area.
Regional PPOs operate somewhere in between, in that members can choose in or out-of-network
coverage. Members, however, save in out-of-pocket costs when selecting in-network providers.
While regional plans have a low enrollment compared to other types of MA plans, they are
included in this analysis because they are a new option with unique requirements under the
statutes, and because they may also have exceptions to network requirements. Also, similar to
PFFS plans, regional PPOs are providing access to Medicare managed care plans in areas that
traditionally have not been served by managed care in the past.
Appendix provides a detailed comparison of local HMOs, regional PPOs, and PFFS plans,
following the sequence of the Social Security statues for Medicare Advantage, including
information on residency requirements, information requirements, required benefits, beneficiary
financial liability, access to services and networks, quality, payments to plans, premiums, and
prescription drugs. These differences are important in determining the key issues surrounding
these plans and their implications for beneficiaries. The most significant statutory differences are
highlighted below.
Enrollees in a PFFS plan may obtain covered services from any Medicare eligible provider who is ¹¹
willing to furnish services and accept the PFFS plan’s terms and conditions of payment.
Although a PFFS plan does not have to establish a provider network, it must meet certain access
requirements and demonstrate to the Secretary that professionals and providers are willing to
provide services under the terms of the plan. The plan may satisfy this requirement by (1)
establishing payment rates that are not less than those under traditional fee-for-service Medicare,
or (2) having signed (direct) contracts with a sufficient number and range of providers in a
particular category that agree to the plan’s fee schedule. Most PFFS plans are meeting access
requirements by paying providers at the Medicare rates.
Most PFFS plans deliver services through “deemed contracting” providers. A deemed provider is
a provider who, before delivering a service, knows that a beneficiary is enrolled in the PFFS plan
and has been given, or has reasonable access to, the PFFS plan’s terms and conditions for ¹²
participation. In general, if a PFFS enrollee notifies the provider that he or she is in a PFFS plan

¹¹^A^Me^dic^a^r^e^e^lig^ible^prov^ide^r^m^u^{st be}^sta^t^e^lic^eⁿ^se^{d a}ⁿ^{d ha}^v^e^a^Me^dic^a^r^e^billi^ng^num^be^{r. Insti}^t^uti^oⁿ^a^{l prov}^ide^r^{s, s}^u^c^h
^a^s^hospita^{ls a}^{nd sk}^ille^dⁿ^u^rsing^f^a^c^ilitie^{s, m}^u^{st be}^c^e^r^tif^ie^{d to tre}^a^t^Me^dic^a^r^e^be^ne^fⁱ^cⁱ^a^r^ie^s.
¹²^A^P^FFS^plaⁿ^is^r^e^q^u^ir^e^d^{to m}^a^k^e^its^te^r^m^s^a^{nd c}^onditⁱ^oⁿ^s^of^pa^r^ticⁱ^p^a^tio^{n r}^e^a^s^ona^bly^a^v^a^ila^ble^{to pr}^o^vⁱ^de^r^s^.
^A^c^c^o^r^d^ing^to^the^C^M^S,^pos^ti^ng^th^e^te^r^m^s^a^{nd c}^oⁿ^d^iti^ons^{on a}^w^e^bs^ite^a^{nd m}^a^kⁱ^ng^them^a^v^a^ila^ble^upo^{n r}^e^que^s^t^is
^s^u^ff^ic^ie^{nt. T}^h^e^te^r^m^s^a^{nd c}^oⁿ^d^iti^oⁿ^s^s^p^e^cⁱ^fy^{(1) the}^a^m^{ount t}^h^e^P^F^F^S^org^a^niz^a^tio^{n w}^{ill pa}^y^f^o^{r c}^o^v^e^{red s}^e^rv^ic^e^s^{, (2)}
^prov^ide^r^billi^ng^pr^oc^e^dure^s^{, (}³^{) th}^e^am^{ount t}^h^e^pr^ov^ide^r^is^pe^rm^{itted to}^c^o^lle^c^t^f^r^om^the^eⁿ^rolle^e^,^aⁿ^d^{(4) w}^h^e^t^he^{r the}
^pr^ov^ide^r^m^u^s^t^o^b^ta^{in a}^d^v^a^nc^e^a^u^thor^iz^a^tio^{n f}^r^om^the^P^FFS^or^g^a^niz^a^tion^be^f^o^r^e^f^u^rⁿ^is^hing^a^pa^r^tic^ula^r^s^e^r^v^ic^e^.^Oⁿ^c^e^the
^prov^ide^r^kⁿ^o^w^s^aⁿ^eⁿ^rolle^e^is^a^PFFS^plaⁿ^m^e^m^b^e^r^{, the}^pr^ov^ide^r^h^a^s^the^re^s^ponsⁱ^b^ili^ty^to^{access t}^h^{e p}^l^an^{’s w}^e^b^sⁱ^t^e^o^r
⁽^c^onti^nue^d.^..)

and the provider chooses to furnish services, the provider automatically becomes a deemed
provider for that service. If the provider furnishes services to a PFFS enrollee but the deeming
requirements are not met, generally because the provider does not know that the patient is a PFFS
enrollee (i.e., an emergency situation), the provider becomes a “non-contracting” provider. A
“non-contracting” provider is entitled to receive the same amount the provider would have
received under traditional Medicare as payment in full for a given service.
Local HMOs, in contrast, are required to form provider networks to meet access requirements.
Each provider has a written contract or agreement to furnish services to enrollees in the plan’s
network. Care is generally not covered if received from a provider who is not in the HMO’s ¹³
network. Regional PPOs have less restrictive networks; enrollees can see a provider outside the
plan’s network but must pay a greater portion of the cost of their care for doing so. Further if the
plans demonstrates that it can not set up a network in part of the region, it has the option, with
CMS pre-approval, to use methods other than written agreements to establish that access
requirements are met.
All Medicare Advantage health plans, except PFFS plans and Medical Savings Accounts (MSAs),
are required to have a quality improvement program. As part of the quality improvement
program, plans must collect, analyze, and report data to measure health outcomes and other
indices. Specific requirements include designing a chronic care improvement program,
conducting quality improvement projects, and encouraging providers to participate in quality
initiatives. Plans are required to annually assess the impact and effectiveness of their quality
improvement programs and take timely action to correct any systemic problems that come to their
attention.
CMS requires that MA plans collect and report on a subset of performance measures from the
National Committee for Quality Assurance’s (NCQA) Health Plan Employer Data and
Information Set (HEDIS), the Consumer Assessment of Health Plans Study (CAHPS), and the ¹⁴
Medicare Health Outcomes Survey (HOS). Beginning in 2006, CMS began using this data to
develop report cards to assist beneficiaries in choosing a health plan. Data is also used to support
the plan’s internal quality improvement programs and evaluate plan performance by CMS. CMS
encourages, but does not require, PFFS plans to report the same HEDIS performance measures as
other Medicare Advantage plans. Those that do not report performance measures will not be
included on the report cards, which will be available to the public in November 2007.

^(...c^on^tin^ue^d)
^m^a^k^e^a^phone^c^a^{ll to}^de^te^r^m^ine^th^e^plaⁿ^’^s^te^r^m^s^a^{nd c}^oⁿ^d^iti^ons^of^pa^r^tic^ipa^tion^.
¹³^Som^e^H^M^O^s^of^f^e^r^a^point-^o^f^-^s^e^r^v^ic^e^pr^oduc^{t w}^h^ic^{h a}^l^l^o^w^s^eⁿ^r^o^lle^e^s^{to o}^b^ta^{in s}^e^r^v^ic^e^s^f^r^o^m^pr^ov^ide^r^s^outsⁱ^de^of^the
ⁿ^e^t^w^o^r^k,^b^u^t^t^h^{e en}^rol^l^{ee m}^u^st^p^a^y^{a h}ⁱ^gh^{er p}^r^op^o^r^tⁱ^oⁿ^o^f^t^h^{e c}^o^st^of^t^h^{e servi}^c^e^s^recei^ved^.
¹⁴^{HEDIS m}^easu^r^{es h}^ealth^p^l^an^p^e^r^f^o^r^m^an^{ce in}^th^{e areas o}^f^e^f^f^ectiv^eⁿ^{ess, access, b}^eⁿ^e^fⁱ^ci^ar^y^satis^f^a^ctioⁿ^,^p^l^an^stab^ility^,
^utiliz^a^tio^{n, a}^{nd c}^o^{sts. T}^h^e^CA^HP^{S surv}^e^y^{is a}^surv^e^y^of^be^ne^fⁱ^cⁱ^a^rⁱ^e^{s on t}^h^eⁱ^{r e}^x^pe^rieⁿ^c^e^s^w^{ith MA}^plaⁿ^{s, a}ⁿ^{d t}^h^e^HOS
^m^e^a^s^ure^s^c^e^r^t^a^{in pa}^tie^nt-re^porte^d^he^a^{lth o}^u^tc^om^e^s^{. For m}^o^re^inf^o^rm^a^{tion o}ⁿ^t^h^e^ty^pe^{s of}^qua^lity^m^e^a^s^ure^s^c^o^lle^c^t^e^d^by
^MA^he^a^{lth pla}ⁿ^s^,^s^e^e^the^C^M^S^M^e^dic^a^r^e^Ma^na^g^e^{d C}^a^r^e^Ma^nua^{l C}^h^a^p^te^r⁵^a^t^ht^tp:/^/w^w^w^.cm^s^.hhs^.g^ov^/Ma^nua^ls^/
^D^o^wⁿ^loa^d^s^/^m^c^86c^05.p^d^f^.

While PFFS plans must submit bids detailing the estimated costs of providing Medicare-covered
benefits to enrollees, and describe the applicable premiums, coinsurances, copayments, and ¹⁵
benefits, CMS does not have the authority to review these bids. A PFFS plan must demonstrate
that the actuarial value of any deductibles, copayments, or coinsurances for Medicare-covered
benefits does not exceed the actuarial value of cost-sharing under traditional Medicare. A PFFS
plan is subject to the same requirements as other MA plans to provide additional benefits to
enrollees if their bid for providing required parts A and B benefits is lower than the benchmark
amount determined by CMS. However, unlike other MA plans, the Secretary does not review, ¹⁶
approve, or disapprove the PFFS plan’s basic or supplemental premiums. Thus PFFS plans
could charge their enrollees any premium they choose. The limiting factor, in this case, would be
that as the premium increases, enrollees may not see the plan as a good value and would not join
a PFFS plan with a premium that seemed too high relative to the benefits.
While MA participating organizations that offer local HMOs and regional PPOs must offer at
least one plan in an area with qualified part D prescription drug coverage, PFFS plans are not
subject to this requirement. According to CMS, approximately 60% of PFFS enrollees are in a ¹⁷
plan that includes part D coverage. If a Medicare beneficiary enrolls in a PFFS plan that does
not provide drug coverage, he or she may enroll in any available stand-alone Prescription Drug
Plan (PDP). However, enrollees in other types of MA plans who want part D prescription drug
coverage must choose a Medicare Advantage Prescription Drug (MA-PD) plan, which is an MA
plan that provides all Medicare required parts A, B, and D benefits. If a Medicare beneficiary
enrolls in a local HMO or regional PPO that does not offer drug coverage, he or she does not have
the option to enroll in a stand-alone PDP plan.
Under the Medicare statutes, providers participating in PFFS plans may bill enrollees up to 15%
above the fee schedule the plan uses, subject to the terms and conditions of a particular plan. This
is in addition to any cost sharing established by the plan and applies to all types of Medicare
providers. PFFS plans are obligated to inform beneficiaries of these balance billing amounts.
Additionally, hospitals are required to provide PFFS enrollees advance notice of any balance

¹⁵^Begiⁿⁿⁱⁿ^gⁱⁿ²⁰⁰⁶^,^p^a^ymen^t^s^t^o^l^o^cal^M^A^h^eal^t^h^p^l^aⁿ^{s are d}^e^t^e^rmⁱⁿ^ed^b^y^co^m^p^ariⁿ^{g a p}^l^an^{’s b}ⁱ^d^t^o^{a st}^at^u^t^o^rⁱ^l^y
^d^e^t^e^rmⁱⁿ^ed^b^eⁿ^c^h^m^ark^f^o^{r each}^l^o^cal^servi^{ce are}^a^.^B^y^t^h^{e f}ⁱ^rst^M^onda^y^{in J}^une^,^each^l^o^cal^p^l^aⁿ^m^u^st^su^b^mⁱ^t^t^o^t^h^e
^Se^c^r^e^t^a^r^y^aⁿ^a^g^g^r^eg^a^t^e^m^onthly^{bid a}^m^{ount f}^o^r^each^M^A^p^l^anⁱ^tⁱⁿ^t^eⁿ^d^s^t^o^o^f^f^e^{r i}ⁿ^t^h^{e up}^co^mⁱⁿ^g^y^e^a^r^.^P^l^an^{s t}^h^at^bⁱ^d
^b^e^l^o^w^t^h^{e b}^eⁿ^c^h^m^{ark f}^o^{r t}^h^ei^{r l}^o^c^a^l^servi^{ce ar}^ea,^recei^{ve a p}^a^ymen^t^eq^u^a^l^t^o^t^h^ei^{r b}ⁱ^d^am^ount^pl^us⁷⁵^%^of^the
^dif^f^e^r^eⁿ^c^e^be^tw^e^eⁿ^the^be^nc^hm^a^r^k^a^{nd the}ⁱ^r^bi^{d a}^m^{ount. T}^h^is^r^e^ba^te^m^u^s^t^be^r^e^turⁿ^e^d^t^o^t^h^e^eⁿ^r^o^lle^e^{in t}^h^e^f^o^r^m^o^f
^s^upple^m^eⁿ^ta^{l be}^ne^f^its^{, r}^e^duc^e^d^c^o^s^t^s^h^a^r^ing^,^or^r^e^duc^e^d^pr^e^m^ium^s^.
¹⁶^A^ba^sⁱ^c^pr^em^ium^is^the^am^{ount a}^plaⁿ^c^h^a^r^g^e^s^f^o^r^c^o^v^e^r^a^g^e^o^f^r^e^quir^e^{d Me}^dic^a^r^e^be^ne^f^its^{, w}^h^eⁿ^its^{bid a}^m^ount^to
^pr^ov^ide^t^hos^e^s^e^r^v^ic^e^s^is^hig^h^e^r^th^aⁿ^the^be^nc^hm^a^r^k^am^{ount pa}^id^by^C^M^{S. A}^s^u^p^p^le^m^e^nta^l^pr^e^m^iu^mⁱ^s^the^a^m^{ount a}
^plaⁿ^c^h^a^r^g^e^s^f^o^r^c^o^v^e^r^a^ge^of^opti^ona^{l s}^u^pp^le^m^e^nta^l^be^ne^f^its^tha^t^a^r^e^{not c}^o^v^e^r^e^{d by}^Me^dic^a^r^e^a^{nd n}^o^t^r^e^quir^e^{d u}^nde^r
^the^bi^{d a}ⁿ^{d be}^nc^hm^a^r^k^pr^oc^e^s^s^.
¹⁷^A^s^r^e^por^te^{d by}^A^b^b^y^B^l^oc^k^,^Dⁱ^r^e^c^t^or^{, C}^e^nte^r^s^f^o^r^Me^dic^a^r^e^aⁿ^{d M}^e^dic^aⁱ^{d Se}^r^v^ic^e^s⁽^C^MS)ⁱⁿ^T^e^s^tⁱ^m^ony^be^f^o^r^e^T^h^e
^H^ous^e^C^o^m^m^itte^e^{on W}^a^y^s^a^{nd Me}^aⁿ^s^,^Su^bc^om^m^itte^e^{on H}^e^a^lth^on^Ma^y^{22, 20}⁰⁷^{, o}ⁿ^Me^dic^a^r^e^A^d^v^a^nta^g^e^P^r^iv^a^t^e
^Fe^e^-^For^-^S^e^r^vⁱ^c^e^P^l^aⁿ^s^.^h^ttp:/^/w^ay^s^a^ndm^e^aⁿ^s^.^hous^e^.^g^o^v^/^m^e^dia^/^pdf^/110^/^b^loc^k^%^20te^s^tim^ony^.pdf^.

billing charges when these amounts may be substantial. In traditional Medicare, participating
physicians are not allowed to balance bill beneficiaries.

Payments to PFFS plans are typically higher than payments to other MA plans. According to the
Medicare Payment Advisory Commission, payments to PFFS plans in 2006 averaged 119% of
expected FFS expenditures. Payments to all MA plans averaged 112% of expected FFS spending. ¹⁸
Payments to MA HMOs averaged 110% of expected FFS expenditures. One of the reasons for
this differential is that PFFS plans have chosen to operate in areas with historically higher ¹⁹
Medicare payments. These areas are often referred to as floor counties. Payments in floor
counties, which are mainly rural and sparsely populated areas, are among the highest in the
country. Local HMOs have typically chosen not to offer managed care plans in these areas
because the costs of forming provider networks can be significant. Because PFFS plans are
exempt from network requirements and they face little competition from other plan types, they
have been able to offer and maintain coverage in these areas. As of July 2006, approximately 87% ²⁰
of PFFS plan enrollees resided in floor counties.
Unlike local HMOs and regional PPOs, PFFS plans are not required to establish networks of
providers to serve beneficiaries. This gives PFFS plans an advantage, particularly in rural areas,
where forming networks is difficult because of the limited number of providers and small ²¹
population of Medicare beneficiaries. This exception also makes PFFS plans attractive to
beneficiaries because an enrollee can visit any provider willing to accept the plan’s terms of
payment and conditions. However, the lack of a written agreement between the plan and provider

¹⁸^Rep^o^r^t^t^o^t^h^{e Con}^g^ress:^P^r^o^m^o^tⁱⁿ^{g G}^r^eat^{er E}^f^fⁱ^ci^en^c^yⁱⁿ^M^e^dⁱ^care.^M^e^dⁱ^care^P^a^ymen^t^A^d^vi^so^r^y^C^o^mmⁱ^ssi^oⁿ
⁽^M^ED^P^A^C⁾^{. C}^h^a^p^te^r^3—^U^pda^te^{on t}^h^e^Me^dⁱ^c^a^r^e^A^dva^nta^g^e^P^r^og^r^a^m^a^{nd I}^m^plem^eⁿ^ting^P^a^s^t^R^e^c^o^m^m^e^nda^tions^{. J}^une
²⁰⁰^7.
¹⁹^Coⁿ^g^{ress creat}^ed^f^l^o^o^r^p^a^ym^en^t^rat^e^s^wⁱ^t^h^t^h^{e BBA}^t^o^h^e^l^p^redu^ce^geo^g^rap^hⁱ^{c vari}^atⁱ^oⁿⁱⁿ^p^a^ym^en^t^rat^e^{s acro}^{ss t}^h^e
^c^ountry^a^{nd a}^ttra^c^t^pr^iv^a^t^e^plaⁿ^s^t^o^a^r^e^a^s^w^{ith his}^t^oric^a^lly^low^{FFS c}^o^s^t^s^,^pre^d^om^inaⁿ^tly^rura^{l a}^r^e^a^s^.^B^y^e^s^ta^blis^hing
^mⁱⁿⁱ^m^u^m^am^ounts^tha^t^c^oul^d^be^pa^{id t}^o^a^p^l^aⁿ^{, t}^h^e^B^B^A^r^a^is^e^d^pa^y^m^eⁿ^{t r}^a^te^s^{in c}^e^r^ta^{in a}^r^e^a^s^{, s}^o^m^e^tim^es^by^a^s^m^u^c^h
^a^s^100%^.^Furt^he^{r le}^gⁱ^s^l^a^{tion e}^s^ta^b^lis^he^{d m}^u^ltiple^f^l^o^o^{r ra}^te^s^ba^s^e^{d o}ⁿ^p^o^p^u^la^tio^{n a}ⁿ^{d l}^o^c^a^tio^{n, w}^h^ic^h^ra^is^e^d^pa^y^m^eⁿ^t
^r^a^te^s^{in r}^u^r^a^{l a}^r^e^a^s^a^s^w^e^{ll a}^s^sm^a^l^{l ur}^ba^{n m}^a^r^k^e^t^s^.^A^lthoug^{h pla}ⁿ^s^a^r^e^{no l}^ong^e^r^paⁱ^d^t^h^e^s^e^f^l^oor^pa^y^m^eⁿ^ts^{, c}^o^uⁿ^tie^s
^w^hos^e^c^u^rre^{nt MA}^pa^y^m^eⁿ^{t ra}^te^s^a^r^e^ba^s^e^{d on y}^e^a^r^l^y^inc^r^e^a^s^es^{to t}^h^e^orig^ina^l^f^l^o^o^{r a}^m^ounts^,^a^r^e^s^till^re^f^e^rr^e^d^{to a}^s
^f^l^oor^c^o^uⁿ^tie^s^.
²⁰^A^s^re^porte^{d by}^Ma^rk^Mille^{r, Ex}^e^c^u^tiv^e^Dire^c^t^{or, Me}^dic^a^r^e^P^a^y^m^eⁿ^{t A}^d^vⁱ^sory^Co^m^m^{ission in te}^sti^m^on^y^be^f^o^re^the
^H^ous^e^C^o^m^m^itte^e^{on W}^a^y^s^a^{nd Me}^aⁿ^s^,^Su^bc^om^m^itte^e^{on H}^e^a^lth^on^Ma^y^{22, 20}⁰⁷^oⁿ^MA^P^F^F^S^pl^aⁿ^s
^http:^//w^ay^sa^ndm^ea^ns^.hous^e^.^g^o^v^/^m^e^dia^/^pdf^/11⁰^/^b^loc^k^%^20te^s^tim^ony^.pdf^.
²¹^{In its J}^une²⁰^{01 re}^port^title^d^“^M^e^d^ic^a^r^e^{in Rura}^l^Am^e^r^ic^a^,^”^MEDPA^C^doc^um^eⁿ^{ts a}^num^be^{r of}^obsta^c^l^e^s^{to f}^o^rm^ing
ⁿ^e^t^w^o^r^{ks i}ⁿ^ru^ral^areas.^Wⁱ^t^h^f^e^{wer p}^r^o^vⁱ^d^{ers i}ⁿ^ru^ral^areas^{, he}^a^lth^plaⁿ^s^ha^v^e^le^s^s^le^v^e^r^a^ge^{to ne}^g^o^ti^a^t^e^dis^c^oun^te^d
^pr^ic^e^s^{in e}^x^c^h^aⁿ^g^e^f^o^r^de^liv^e^r^ing^a^la^r^g^e^num^be^r^of^pa^tie^nts^{to t}^h^e^pr^ov^ide^r^—^t^he^pr^im^a^r^y^{tool he}^a^l^t^h^plaⁿ^s^ha^v^e^to
^p^e^rsu^a^d^e^p^r^o^v^id^{ers to}^accep^{t lo}^w^e^{r rates. A}^d^d^itioⁿ^a^l^l^y^,^h^ealth^p^l^an^s^p^r^ef^{er to}^en^ro^{ll a}^hⁱ^g^h^v^o^l^u^m^e^o^f^b^eⁿ^e^fⁱ^ciaries
^b^ecau^{se i}^t^en^ab^l^e^{s t}^h^em^t^o^sp^read^t^h^ei^{r co}^st^{s and}^pro^t^ect^t^h^em^sel^v^es^f^r^o^m^ri^sk.^Fⁱⁿ^a^l^l^y^,^h^eal^t^h^p^l^an^s^mu^st^m^eet^cert^aⁱⁿ
^s^t^a^t^e^a^{nd f}^e^de^r^a^{l r}^e^g^u^la^tor^y^r^e^quir^e^m^e^nts^w^h^eⁿ^f^o^r^m^ing^pr^ov^ide^r^ne^tw^or^k^s^{, s}^u^c^h^a^s^dis^t^aⁿ^c^e^a^{nd t}ⁱ^m^e^line^s^s^s^t^a^nda^r^d^s^,
^w^h^ic^{h pose}^sigⁿ^if^ic^aⁿ^{t c}^h^a^lle^ng^e^s^to^he^a^lth^plaⁿ^s^ope^ra^tingⁱⁿ^ru^ra^l^a^r^e^a^s^.

means that providers are not required to treat the enrollee. Recent anecdotal evidence suggests
that this may be posing access barriers for beneficiaries in certain areas as providers are unwilling ²²
to accept the PFFS plans’ terms of payment.
PFFS plans are not required to establish networks through contracts with providers and typically
pay providers the same rate they would receive from traditional Medicare. However, if the PFFS
plan establishes an adequate network with a particular type of provider, the PFFS plan must pay
all providers of that type the same amount (even those who do not have a contract), which may be
less than or greater than traditional Medicare amounts. The only exception would be for providers
who did not know that the patient was enrolled in a PFFS plan, such as an emergency room
physician treating a patient who could not communicate; those providers receive the Medicare
rate.
PFFS plans offer beneficiaries, particularly those residing in areas with few Medicare private
plans, the choice to opt out of traditional fee-for-service Medicare. In certain parts of the country,
PFFS plans may be the only managed care option available to beneficiaries. Therefore, some of
the recent growth in PFFS enrollment could be attributed to the extra value they may offer to
beneficiaries who for the first time have the option to enroll in a private plan. Additionally, many
MA plans offer extra benefits above and beyond what is offered in traditional Medicare or
reduced cost sharing, making these plans attractive alternatives to fee-for-service. According to
the CMS, in 2007, PFFS plan enrollees are receiving an average of $756 per year in additional
benefits above what is being offered in traditional Medicare, compared with an average of $1,032 ²³
per year in additional benefits for all MA plans.
The rapid increase in the number of PFFS plans available to beneficiaries, particularly in rural
areas, may have contributed to a surge in marketing and sales of these plans across the country,
thereby contributing to rising enrollment in these plans. The Tax Relief and Health Care Act of
2006 (P.L. 109-432) added a provision for 2007 and 2008 granting beneficiaries currently
enrolled in traditional Medicare the option to enroll in a PFFS plan or non-drug MA plan anytime
during the year. Because local HMO and regional MA plans are statutorily required to offer a
least one prescription drug plan in their service area (PFFS plans are exempt from this
requirement), this may have provided PFFS plans with an incentive to market to beneficiaries all ²⁴
year round. This provision has since been repealed as of July 31, 2007.
Additionally, some growth in PFFS may be due to questionable marketing practices. In response
to marketing concerns, CMS announced in June that seven health insurance plans offering PFFS

²²^T^h^e^H^ous^e^C^o^m^m^itte^e^{on W}^a^y^s^a^{nd Me}^aⁿ^s^,^Su^bc^om^m^itte^e^{on H}^e^a^{lth he}^l^d^a^he^a^r^ing^on^Ma^y^{22, 2}⁰⁰⁷^on^Pr^iv^a^t^e
^F^ee-f^o^r-S^ervi^c^e^P^l^an^sⁱⁿ^M^e^dⁱ^{care A}^d^v^aⁿ^t^age.^S^{ee t}^e^stⁱ^m^oⁿⁱ^{es f}^r^o^m^t^h^{e Cal}ⁱ^f^o^rⁿⁱ^{a Heal}^t^h^A^d^vo^cat^e^s^,^t^h^{e Am}^eri^can
^Medⁱ^{cal A}^sso^ciatioⁿ^,^an^d^th^{e Hen}^r^y^{J. Kais}^{er Fa}^mⁱ^l^y^F^o^uⁿ^d^a^tioⁿ^f^o^{r rep}^o^r^{ts related}^to^{access to}^p^r^o^vⁱ^d^{ers in}^PFFS
^plaⁿ^s^.^http^://w^ay^s^a^nd^m^e^aⁿ^s^.^hous^e^.^g^o^v^/^he^a^r^ing^s^.a^s^p^?^f^or^m^m^ode⁼^d^e^t^a^il&^he^a^r^ing⁼^561.
²³^Ibid^.
²⁴^P^.^L^.¹¹^0-⁴⁸^{, s}ⁱ^gⁿ^e^d^oⁿ^J^u^ly^{18, 2}⁰⁰⁷^.

options have agreed to voluntarily suspend marketing of their plans until the plans meet criteria ²⁵
specified by CMS. In August, CMS lifted the suspension for three of the seven plans.

A PFFS plan pays medical providers on a fee-for-service basis (i.e., separate payment for each
service provided). PFFS plans pay providers either a negotiated amount established in a contract
between the plan and provider or the equivalent of the current Medicare allowable charge.
Because PFFS plans pay providers on a fee-for-service basis, the providers face no incentives to
limit services to enrollees. In contrast, providers contracting with a local HMO or regional PPO
plan can be placed at financial risk for providing all covered services for a capitated amount.
Under capitation, providers receive one monthly payment for every enrollee, despite an enrollee’s
actual service use. These plans may offer bonuses or withhold certain payments in an attempt to
promote efficient use of services.
Providers have more flexibility under a PFFS plan than a coordinated care plan because they do
not sign contracts requiring them to provide services to a select group of enrollees. Providers can
choose to accept PFFS patients, on an enrollee-by-enrollee basis, and even on a service-by-²⁶
service basis.
PFFS plans operate under a different set of rules and requirements than other MA plans, which
could be unfamiliar and confusing to providers. When an enrollee visits a provider, it is up to the
provider to educate himself/herself on the plan’s terms and conditions of payment, which in some
cases may be different than those under traditional Medicare. This must be done prior to treating
the patient. Once services have been provided, the physician is required to comply with the plan’s
terms and conditions as a “deemed contracting” provider. These terms and conditions may
include different balance billing or cost sharing requirements than traditional Medicare and
different administrative or documentation requirements. In the months to come, these
disadvantages may emerge, disappear, or become less problematic as the operations and structure
of these plans become more understood.
PFFS plans have advantages for beneficiaries over traditional fee-for-service Medicare and other
private plans. Beneficiaries enrolled in a PFFS plan may choose any lawfully authorized provider

²⁵^T^h^e^m^a^r^k^e^ting^of^P^F^FS^plaⁿ^s^is^dis^c^us^s^e^{d in}^m^o^r^e^de^ta^{il in}^the^“^C^urre^{nt Issue}^s^”^se^c^tion^of^{this re}^p^o^r^t.
²⁶^In^trad^itioⁿ^a^{l f}^ee-^f^o^r-servⁱ^{ce M}^e^dⁱ^{care, “n}^oⁿ^-p^articip^atiⁿ^g^”^p^r^o^vⁱ^d^{ers also}^h^a^v^e^th^{is o}^p^ti^oⁿ^;^th^ey^m^a^y^ag^re^{e to}^accep^t
^assi^gn^m^eⁿ^t^f^o^{r p}^a^ym^en^t^f^o^{r so}^m^e^servi^c^e^s^an^d^no^t^accep^t^assi^gn^m^eⁿ^t^f^o^{r o}^t^h^e^{r servi}^{ces p}^r^o^vⁱ^d^ed^t^o^t^h^at^sam^e
^b^eⁿ^e^fⁱ^ciar^y^.^Ho^w^e^v^e^{r, p}^h^y^sician^s^w^h^o^d^oⁿ^o^t^accep^{t assig}ⁿ^men^t^can^b^a^lan^{ce b}^{ill t}^h^eir^p^a^tien^t^{s u}^p^t^o^115%^of^Me^dic^a^r^e
^rat^e^,^b^u^t^{are p}^aⁱ^d^{a l}^o^w^e^{r rat}^e^b^y^t^h^{e M}^e^dⁱ^{care p}^r^o^g^ra^m^t^h^an^ph^y^sⁱ^cⁱ^aⁿ^s^w^h^o^accep^t^assi^gn^m^eⁿ^t^.

who accepts the plan’s terms and conditions of participation. Provider choice is very important to ²⁷
some beneficiaries and may be a benefit over local HMOs and regional PPOs that require
enrollees to receive services from network providers. To demonstrate that providers are willing to
serve PFFS plan enrollees, as required by statute, the plans pay providers an amount that is not
less than what they would receive under traditional Medicare or an amount negotiated in a
contract between the plan and provider. If the disadvantages to providers of serving PFFS plan
enrollees, as discussed above, do not deter providers from participating, then the monetary
compensation and flexibility of participation, both comparable to traditional Medicare, suggest
that PFFS plan enrollees would have a choice of providers comparable to their choice under
traditional Medicare.
Enrollees in PFFS may receive greater benefits than individuals in traditional fee-for-service
Medicare, such as a “catastrophic cap” on out-of-pocket spending, emergency care overseas, and
lower cost-sharing for at least some services. Depending on an individual’s needs and
preferences, a particular set of benefits included in a PFFS plan may be more attractive than
traditional fee-for-service. Also, enrollees in PFFS plans do not have to receive prior
authorization from a primary care physician to see a specialist. For some beneficiaries, having
this freedom to choose is attractive.
PFFS plans also have disadvantages over other MA options and traditional fee-for-service
Medicare. From an enrollee’s perspective, if providers choose not to serve PFFS enrollees, then
their choice of providers is limited, much as it would be limited by network membership under a
coordinated care plan, or by providers choosing not to serve Medicare beneficiaries. PFFS
providers can choose to participate on a service-by-service basis. This means that enrollees are
not guaranteed that a provider who saw them previously for a particular service will agree to see
them for the same service in the future. The onus is on the enrollee to determine which providers
are willing to serve them. With local HMOs and Regional PPOs, providers are required to
participate for the duration of their contract with the plan, guaranteeing access to the same
providers at least for the duration of the provider’s contract with the plan.
Enrollees in coordinated care plans can check to see whether a provider is in the plan’s network
before seeking services. Enrollees in PFFS may find themselves in a situation where a provider
may decline to provide services, even if they previously served another plan enrollee or that
enrollee.

²⁷^For^t^y^-^nine^pe^r^c^eⁿ^t^of^be^ne^fⁱ^cⁱ^a^r^ie^s^s^a^{id tha}^t^“^c^h^oⁱ^c^e^of^pe^r^s^ona^l^d^o^c^t^or^”^w^ould^be^“^e^x^tr^em^e^l^yⁱ^m^por^ta^nt”^if^c^hoosⁱⁿ^g
^{a h}^eal^t^h^pl^an^t^o^d^a^y^.^M^e^dic^a^r^e^Be^ne^fic^iarⁱ^e^s^a^{nd H}^e^a^lth^Plaⁿ^C^hoi^c^e^{, Ma}^the^m^a^tica^P^o^lic^y^R^e^se^a^r^c^h^{, J}^a^nua^r^y^2001.^T^h^e
^Ma^the^m^a^tica^Polic^y^R^e^se^a^r^c^h^r^e^por^{t is}^ba^s^e^{d o}ⁿ^a^na^ti^ona^{l s}^u^r^v^ey^of^6,62^{0 Me}^dic^a^r^e^be^ne^fⁱ^cⁱ^a^r^ie^s^c^o^nduc^te^{d in}^the
^s^p^rⁱ^ng^of²⁰⁰⁰^.

Enrollment in Medicare Advantage PFFS plans is still relatively low—approximately 18% of all
MA beneficiaries and only 3% of the total Medicare population. Because payments to PFFS plans
are higher than payments to other MA plans, increases in enrollment could raise Medicare costs
over the next 5 to 10 years. A recent CBO analysis showed that if Medicare were to reduce
payments to PFFS plans to 100% of local FFS costs, Medicare would save $54B between 2009 ²⁸
and 2012 and as much as $149B between 2009 and 2017. On the other hand, reducing payments
would likely have an impact on the availability of these plans to serve beneficiaries. Since PFFS
plans serve some beneficiaries who do not have access to alternative private plan options,
reductions in payment could result in certain PFFS plans leaving the MA program. As a result,
some Medicare beneficiaries could loose access to any MA plan. According to CMS, in some
states, such as Alaska, Utah, Maine, Idaho, and New Hampshire, PPFS plans are the only MA ²⁹
option in some, if not all counties.
One of the reasons Congress established PFFS plans in the BBA was to provide Medicare
beneficiaries with the option to enroll in a health insurance plan that would not restrict or limit
choice of providers. Specifically, the law states that PFFS enrollees can see any Medicare-eligible
provider that is willing to treat the enrollee and accept the plan’s payment terms and conditions.
However, providers are not required to accept PFFS beneficiaries. Recent press reports and
advocates report that at least in some areas beneficiaries are having trouble finding a provider
who is willing to accept the plan’s payment terms and conditions and provide care to the ³⁰
enrollee. Some of the reasons cited for providers unwillingness to participate in these plans are
confusion surrounding payment rates, receiving lower payment rates than traditional Medicare,
having difficulty accessing plans terms and conditions, and other administrative hassles related to ³¹
reimbursement. Although PFFS plans have been around for a decade, enrollment was low
enough that most providers were not exposed to these products. With enrollment on the rise,
providers are just now becoming familiar with the rules governing these plans.

²⁸^T^h^{e Ho}^u^s^{e Co}^mmⁱ^t^t^{ee o}ⁿ^t^h^{e B}^u^d^g^et^h^e^l^d^a^h^eariⁿ^{g on}^Jun^e²⁸^,²⁰⁰⁷^t^o^exa^mⁱⁿ^{e t}^h^{e M}^e^dⁱ^{care A}^d^v^aⁿ^t^{age P}^r^o^g^ram
^a^{nd t}^h^e^Fe^de^r^a^{l B}^u^dg^e^t^{. T}^h^is^e^x^c^e^r^{pt w}^a^s^ta^ke^{n f}^r^o^m^the^te^s^tim^on^y^of^P^e^te^r^O^r^s^z^a^g^f^r^o^m^the^C^ong^r^e^s^sⁱ^ona^{l B}^u^dg^e^t
^O^f^fⁱ^ce^{. http:}^//b^udg^e^t^.h^ous^e^.^g^o^v^/^O^r^s^z^a^g^%^20T^e^s^ti^m^oⁿ^y^.pdf^.
²⁹^A^s^r^e^por^te^{d by}^A^b^b^y^B^l^oc^k^,^Dⁱ^r^e^c^t^or^{, C}^e^nte^r^s^f^o^r^Me^dic^a^r^e^aⁿ^{d M}^e^dic^aⁱ^{d Se}^r^v^ic^e^s⁽^C^MS)ⁱⁿ^te^s^tim^ony^be^f^o^r^e^T^h^e
^H^ous^e^C^o^m^m^itte^e^{on W}^a^y^s^a^{nd Me}^aⁿ^s^,^Su^bc^om^m^itte^e^{on H}^e^a^lth^on^Ma^y^{22, 20}⁰⁷^oⁿ^Me^dⁱ^c^a^r^e^A^d^v^a^nta^g^e^P^r^iv^a^t^e
^Fe^e^-^For^-^S^e^r^vⁱ^c^e^P^l^aⁿ^s^.^h^ttp:/^/w^ay^s^a^ndm^e^aⁿ^s^.^hous^e^.^g^o^v^/^m^e^dia^/^pdf^/110^/^b^loc^k^%^20te^s^tim^ony^.pdf^.
³⁰^T^h^e^H^ous^e^C^o^m^m^itte^e^{on W}^a^y^s^a^{nd Me}^aⁿ^s^,^Su^bc^om^m^itte^e^{on H}^e^a^{lth he}^l^d^a^he^a^r^ing^on^Ma^y^{22, 2}⁰⁰⁷^on^Pr^iv^a^t^e
^F^ee-f^o^r-S^ervi^c^e^P^l^an^sⁱⁿ^M^e^dⁱ^{care A}^d^v^aⁿ^t^age.^S^{ee t}^e^stⁱ^m^oⁿⁱ^{es f}^r^o^m^t^h^{e Cal}ⁱ^f^o^rⁿⁱ^{a Heal}^t^h^A^d^vo^cat^e^s^,^t^h^{e Am}^eri^can
^Medⁱ^{cal A}^sso^ciatioⁿ^,^an^d^th^{e Hen}^r^y^{J. Kais}^{er Fa}^mⁱ^l^y^F^o^uⁿ^d^a^tioⁿ^f^o^{r rep}^o^r^{ts related}^to^{access to}^p^r^o^vⁱ^d^{ers in}^PFFS
^plaⁿ^s^.^http^://w^ay^s^a^nd^m^e^aⁿ^s^.^hous^e^.^g^o^v^/^he^a^r^ing^s^.a^s^p^?^f^or^m^m^ode⁼^d^e^t^a^il&^he^a^r^ing⁼^561.^Ex^a^m^ple^s^o^f^pre^s^s^re^ports^inc^l^ude
^“^P^o^litic^{s &}^Ec^o^nom^ic^{s: Me}^dic^a^r^e^’^{s G}^r^o^w^ing^P^a^ins;^A^lte^rna^tiv^e^P^l^aⁿ^{’s Sa}^le^{s T}^a^c^tic^{s, Subsidie}^{s Dra}^w^Ire^,”^by^Ja^ne
^Zhaⁿ^g^,^W^a^{ll Stre}^e^t^J^our^na^l,^Ma^y^{8, 2}⁰⁰⁷^{; “}^Uⁿⁱ^v^e^rs^a^l^{In L}ⁱ^m^{bo O}^v^e^r^PFFS^Plaⁿ^,”^by^C^a^{rol G}^e^ntr^y^,^T^a^m^p^a^T^r^ibune^,
^A^p^r^{il 29,}²⁰⁰⁷^{; a}ⁿ^{d “}^Aⁿ^y^Mem^b^er^s^?^”^b^y^H^a^r^r^y^W^e^s^s^e^l^{, O}^r^la^ndo^Se^ntine^l^,^Ma^r^c^h^15,²⁰⁰⁷^.
³¹^T^h^e^H^ous^e^C^o^m^m^itte^e^{on W}^a^y^s^a^{nd Me}^aⁿ^s^,^Su^bc^om^m^itte^e^{on H}^e^a^{lth he}^l^d^a^he^a^r^ing^on^Ma^y^{22, 2}⁰⁰⁷^on^Pr^iv^a^t^e
^F^ee-f^o^r-S^ervi^c^e^P^l^an^sⁱⁿ^M^e^dⁱ^{care A}^d^v^aⁿ^t^age.^S^{ee st}^at^e^m^en^t^o^f^t^h^{e Ameri}^can^M^e^dⁱ^cal^A^sso^ci^atⁱ^oⁿ^.
^http:^//w^ay^sa^ndm^ea^ns^.hous^e^.^g^o^v^/^he^a^r^ing^s^.a^s^p^?f^or^m^m^ode^=v^iew^&^id=⁶²⁰^9.

The benefit structure and cost sharing features of some PFFS plans and the proportion of
enrollees subject to those features are shown in Table 2. Many PFFS enrollees are enrolled in
plans that have benefit structures or cost sharing that appear more generous than traditional
Medicare. For example, 60% of PFFS enrollees are enrolled in a plan with a catastrophic cap on
out-of-pocket spending that is between $1,001 and $5,000, whereas traditional Medicare does not
have a catastrophic cap. In another example, 68% of PFFS enrollees are enrolled in a plan that
covers a 90-day hospital stay for $1,000 or less out-of-pocket. This is considerably less than the
$8,432 out-of-pocket cost for a 90-day hospital stay under traditional Medicare. However, PFFS
plans are not always more generous than traditional Medicare. Statutorily, the actuarial value of
cost sharing for Medicare benefits in MA plans cannot exceed the actuarial value of cost sharing
in traditional Medicare. Cost sharing for some services in PFFS plans may be higher than the
amounts in traditional Medicare or lower than the amounts in traditional Medicare depending on
the service and plan. While HMOs may also have different cost sharing than traditional Medicare,
more individuals are familiar with HMOs than with PFFS plans. PFFS plans may be more
confusing because beneficiaries expect them to be more similar to traditional Medicare. For
example, unlike traditional Medicare, some plans charge an additional co-payment if the
beneficiary fails to inform the plan of a scheduled hospital admission. For another example, under
some plans, a beneficiary could pay $2,000 more for a hospital admission than they would have
paid under traditional Medicare, depending on the length of the admission. Such unexpected
variations in cost sharing can be confusing and surprising to beneficiaries. Furthermore, these
differences make it unclear whether or not participating in PFFS plans actually save beneficiaries
money. It is likely that for some enrollees, total costs would be lower than those they would have
incurred had they been participating in traditional Medicare. However, for others, costs may be
higher.
Additionally, Medicare statutes allow providers participating in PFFS plans, including hospitals,
to balance bill enrollees up to 15% above the reimbursement rate set by the plan, subject to the
plan’s terms and conditions. This is in addition to the plan’s co-payments and coinsurance
amounts. Despite having the option, PFFS plans do not currently allow physicians to balance bill
beneficiaries. In traditional Medicare, most physicians agree not to balance bill.
Table 2. Percentage of Private Fee-for-Service Enrollees with Specified Benefit
Structure/Cost Sharing, 2007
^{Percentage of}
^{Benefit S}^{tructure/Cost Shari}^ng^{PFFS Enrollees}
^{Catastrophic cap}^betwee^{n $}^1,00^{1 and $}^5,00⁰^60%
^$1,00^{0 or less for}^{a 9}^{0-day hospi}^{tal stay}^68%
^{No premium}^{beyond t}^{he Part B}^premium^75%
^{Unlimited coverage for inpatient}^{hospital days}^77%
^{No prior hospitalization require}^{ment be}^{fore a skilled nursing}^{facility admission.}^83%
^{Primary care}^{physician co}^paymen^{t of $2}^{0 or less}^85%
^{Prostate and cervical cance}^{r scr}^e^{ening with}^{no co-insuranc}^e^88%
^Source:^{As re}^{ported by}^Ab^{by Block, Director, Center for Benefic}^{iary Choices in Testimony before}^{The House}
^{Committee on Ways and Mea}^ns,^{Subcommittee on Health}^{on May}^{22, 2}⁰⁰^7.

Questionable marketing conduct on the part of PFFS plans has raised concerns among policy
makers. Advocates and state health commissioners report receiving complaints related to
allegedly deceptive and aggressive sales practices by PFFS plans that have resulted in
beneficiaries either being unintentionally enrolled in a PFFS plan or enrolling in a PFFS plan ³²
without fully understanding the plan’s coverage policies. Between December 2006 and April

2007, CMS reported received approximately 2,700 complaints related to Medicare Advantage ³³

plan marketing.
On June 15, CMS announced that in response to marketing concerns, seven health insurance ³⁴
plans offering PFFS options agreed to voluntarily suspend their marketing of these plans. These ³⁵
seven plans represent 90% of PFFS enrollment. Before they can resume marketing to
beneficiaries, plans must demonstrate their compliance with a series of provisions. CMS has since
lifted the suspension for three of these plans allowing them to resume their marketing practices to
beneficiaries. Among these provisions are applying CMS-developed disclaimer language on all
enrollment and marketing materials, requiring that all sales agents pass a written test to
demonstrate product knowledge, conducting verification calls to beneficiaries to ensure they
understand the plan and implementing a provider outreach and education program to ensure that
providers have reasonable access to the plan’s terms and conditions. Violations of these
provisions can result in sanctions such as enrollment suspensions and civil monetary penalties.
Although state health insurance departments may receive complaints from beneficiaries related to
marketing misconduct, CMS maintains sole authority for sanctioning and disciplining plans.
By forming networks of providers, local HMOs and Regional PPOs may be better able to manage
the utilization and delivery of care furnished by their providers. Plans do this by developing care
coordination, disease management, preventive care, and other quality-related programs. Without
networks and contracts, PFFS plans have less control over the numbers and types of services
provided by their providers, as well as the quality of those services. The same holds for traditional
Medicare, which also pays providers on a fee-for-service basis and does not form provider
networks. Furthermore, PFFS plans are exempt from having to establish and monitor a quality
improvement program, which provides for the collection and ongoing analysis of quality

³²^A^d^vo^cat^{es an}^d^st^at^{e i}ⁿ^su^ran^{ce commi}^ssi^oⁿ^e^{rs rep}^o^r^t^recei^viⁿ^g^t^h^e^f^o^l^l^o^wⁱⁿ^g^t^y^p^e^{s o}^f^co^m^p^l^aⁱⁿ^t^s^f^r^o^m^b^eⁿ^e^fⁱ^ci^ari^e^s
^eⁿ^r^o^lle^dⁱⁿ^PFF^{S pla}ⁿ^s^:^beⁱⁿ^g^tol^d^the^y^c^aⁿ^s^e^e^aⁿ^y^Me^dic^a^r^e^pr^ov^ide^r^w^ithout^e^x^plaⁱⁿⁱ^ng^tha^t^t^h^e^pr^ov^ide^r^m^u^s^t^accep^t
^the^plaⁿ^’^s^te^r^m^s^a^{nd c}^ondi^tio^ns^f^o^r^pa^y^m^eⁿ^{t; be}^ing^eⁿ^r^o^lle^d^{in a}^plaⁿ^w^ithou^{t the}ⁱ^r^k^now^le^dg^e⁽ⁱ^.e^{., f}^a^ls^if^yⁱ^ng
^si^gn^at^u^r^{es o}ⁿ^a^p^p^lⁱ^catⁱ^oⁿ^s^o^r^t^e^l^lⁱⁿ^g^b^eⁿ^e^fⁱ^ci^ari^e^{s t}^h^e^y^{are si}^gnⁱⁿ^{g an}^at^t^eⁿ^d^aⁿ^{ce sh}^eet^o^r^ot^h^e^{r f}^o^rm^w^h^en^t^h^ey^were
^act^u^a^l^l^y^si^gnⁱⁿ^{g an}^en^rol^l^m^en^t^ap^p^lⁱ^catⁱ^oⁿ⁾^;^recei^viⁿ^g^d^o^o^r-t^o^-^d^o^o^r^so^lⁱ^cⁱ^t^a^tⁱ^oⁿ^s^f^r^o^m^p^l^an^agen^t^s^d^e^spⁱ^t^e^b^eⁱⁿ^g
^p^r^ohⁱ^bⁱ^t^e^d^un^d^e^{r C}^M^S^m^a^rketⁱⁿ^g^guⁱ^d^elⁱⁿ^es;^and^b^eⁱⁿ^{g t}^o^l^d^t^h^at^t^h^ey^m^u^st^ch^an^{ge t}^h^ei^{r p}^o^lⁱ^c^y^b^ecau^s^eⁱ^t^’^{s req}^uⁱ^{red b}^y
^Me^dic^a^r^e^.^Se^e^w^r^itte^{n te}^stim^onie^s^f^r^o^m^the^House^Com^m^itt^e^e^{on Ene}^r^gy^a^{nd Com}^m^e^r^c^e^He^a^r^ing^on^P^r^e^d^a^t^ory^Sa^le^s
^P^r^a^c^tic^e^sⁱⁿ^Me^dic^a^r^e^A^d^v^a^nta^g^e^{on J}^une^26,²⁰⁰⁷^{. h}^ttp:^//e^ne^r^g^y^c^om^m^e^r^c^e^.^hous^e^.^g^o^v^/^cm^te^_^m^tgs^/¹¹^0-^oi-
^hr^g^.⁰⁶²⁶^07.^Me^dic^a^r^e^A^dv^aⁿ^ta^ge^.shtm^l^.
³³^CMS^P^r^e^s^s^Re^le^a^s^e^.^“^P^la^{n S}^u^s^p^e^nd^PFFS^Ma^rk^e^ting^;^P^l^aⁿ^s^a^d^o^p^t^s^t^ric^t^g^u^ide^line^sⁱⁿ^re^s^p^ons^e^t^o^de^c^e^p^tiv^e^m^a^rke^ting
^pra^c^tic^e^s^.”^J^une¹⁵^{, 2}⁰⁰⁷^.
³⁴^T^h^{e seven}^co^m^p^anⁱ^e^{s i}ⁿ^cl^u^d^e^dⁱⁿ^t^h^{e vo}^l^uⁿ^t^ary^su^sp^en^si^oⁿ^are:^Uni^t^e^d^Heal^t^h^care,^Hu^m^aⁿ^a^,^W^e^l^l^car^e,^Unⁱ^v^ersal
^A^m^e^r^ic^aⁿ^Fina^nc^ia^{l C}^o^r^por^a^tⁱ^on,^C^o^v^e^ntr^y^{, Ste}^r^ling^,^a^{nd B}^l^ue^C^r^os^s^B^l^ue^Sh^ie^ld^of^T^e^nne^s^s^e^e^.^Iⁿ^A^u^g^u^s^t^{, C}^M^S
^a^nno^unc^e^d^tha^t^C^o^v^e^ntr^y^{, U}ⁿ^iv^e^r^s^a^{l A}^m^e^r^ic^aⁿ^Fina^nc^ia^{l C}^o^r^por^a^tⁱ^{on, a}^{nd W}^e^llC^a^r^e^ha^v^e^be^eⁿ^f^oun^{d to}^be^c^o^m^p^lia^nt
^w^{ith CMS m}^a^rke^ting^g^u^ide^line^s^a^{nd a}^r^e^a^llow^e^{d to}^re^sum^e^a^d^v^e^rtis^ing^pra^c^tic^e^s^.
³⁵^Se^e^{CMS w}^e^bsite^a^t^htt^p^://w^ww^.^c^m^s^.hhs.g^ov^/P^re^sc^rip^tio^nDrug^C^o^v^C^ontra^/^D^ow^nloa^ds/Ca^llL^e^tte^r.pdf^.

measures related to health outcomes. Although the evidence that managed care plans produce
better health outcomes or deliver more cost-effective care is mixed, without consistent quality
reporting across all types of health plans, discerning whether higher payments to PFFS plans
result in improved quality will be difficult to assess.

Significant growth in enrollment in PFFS plans raises concerns among policy makers because
payments to PFFS plans are higher than payments to other MA plans and costs in the traditional
Medicare program. With enrollment in these plans projected to double over the next 10 years,
payments to these plans will increase Medicare spending. Furthermore, differences between PFFS
plans and other MA plans have important implications for beneficiaries, the impact of which are
not yet fully understood. In the coming months, policy makers will want to assess whether the
intended benefits associated with participation in these plans outweigh their added costs.

^{Local HMO}^{Regional PPO}^PFFS
^{An MA eligible individual may onl}^{y enroll in an MA}^plan^{The general r}^{ules for}^beneficiary^{residency ap}^ply,^{Generally the}^be^{neficiary residen}^{cy rules a}^{pply. While}
^{that serve}^{s the g}^{eographic a}^{rea in which}^{the individual}^{without the e}^{xceptions t}^{hat may}^{be offered to}^{there is no s}^{pecific language}^{for P}^{FFS plans, nothing}
^{resides, with two exceptions (1)}^{a plan may allow an}^{beneficiaries en}^{rolled in MA local}^plans.^{precludes a local PFFS plan from}^{offering the}^same
^{individual to remain in a local pla}^{n, even if}^{he or s}^{he no}^Curre^{ntly there}^are²⁶^{regions. The term “}^{MA region”}^{exceptions available to local plans.}
^{longer resides in the s}^{ervice area,}^{so long as the plan}^{refers to a}^{region within the}⁵⁰^{States and the}^District^{The service area}^req^uireme^{nts ar}^{e generally the sa}^{me as}
^{provides reasonable acc}^{ess withi}^{n that geogra}^{phic ar}^ea^{of Columbia as established by}^the^{Secretary. The}^{those for local HMOs.}

ⁱ^{ki/CRS-RL34151}^{to the full range}^{of basic}^benefits,^{with reasona}^{ble cost}^{Secretary may}^{periodically revie}^{w & revise s}^uch^regions
^g/w^{sharing; and (}^{2) a local MA organization that eliminates a}^payment^{area w}^{hich was}^previou^{sly within its service}^{if the Secretary}^determines^suc^h^{revision to be}
^s^.or^{area, may choose to offer e}^{nrollees in all or part of th}^e^approp^{riate. There shall be}^{no fe}^{wer tha}^{n 1}⁰^regions,
^le^ak^{affected area co}^{ntinued e}^{nrollment in the}^{plan, u}^nder^{and no more t}^han⁵⁰^{regions. The regions shall}
^{certain conditions.}^{maximize the availability of MA regional plans to all MA}^{eligible ind}^{ividuals without regard to health statu}^s,
^://wiki^{Local HMOs may dete}^{rmine t}^{heir own service a}^rea,^{especially those residing in ru}^{ral areas. Before}
^h^ttp^{consisting of counties or e}^quivale^{nt areas. Nothi}^ng^{establishing MA}^{regions, the Secr}^{etary shall conduct a}
^preve^{nts a local plan from}^being^{offered in more t}^han^{market su}^{rvey a}^{nd analysis, inclu}^{ding an examination of}
^{one MA area.}^curre^{nt ins}^uran^{ce market}^{s, to determine how t}^he
^{regions should be e}^{stablished. N}^{othing preve}^{nts a}ⁿ^MA
^{regional plan from bei}^{ng offered i}ⁿ^{more tha}^{n one}^MA
^{region (including all regions).}

^{Local HMO}^{Regional PPO}^{Private FF}^S
^{The Secretary m}^ust^{provide for a}^{ctivities to disseminate}^{In addition to required informati}^{on for local plans,}^{In addition to required informati}^{on for local plans,}
^{information to curre}^{nt a}^{nd prosp}^{ective Medicare}^{information for regional PPOs m}^{ust also include a}^{information for PFFS plans must}^{also include differences}
^{beneficiaries about}^MA^{plans, including, but}^{not limited}^{description of the catast}^{rophic c}^{overage and the}^single^{in cost sharing, p}^{remiums, a}^{nd ba}^{lance billing under t}^he
^{to benefits, cost sha}^{ring, service}^{area, access, out-of-area}^{deductible for the}^plan.^{PFFS plan compared to other}^{MA plans.}
^{coverage, emergenc}^{y coverage, a}^{nd su}^pplemental
^benefits.
^{Local HMO}^{Regional PPO}^{Private FF}^S
^Each^{MA plan}^must^{provide all items and ser}^{vices (other}^{Regional PPO plans must p}^{rovide the same}^basic^{The same ba}^{sic req}^{uired be}^nefits^{apply for PFFS plans as}
ⁱ^{ki/CRS-RL34151}^than^{hospice) for re}^quired^bene^{fits under}^{Part A and B}^required^bene^{fits as local HMOs}^{with the addition of (1)}^{for local HMOs exce}^{pt for allowances for}^balanced
^g/w^{to individuals entitled t}^o^{Part A and enrolled in Part B,}^{a single deductible for Part A and}^{Part B services, which}^{billing, as discussed below.}

^s^.or^{with cost sharing}^{for those s}^ervic^{es as re}^{quired u}^nder^{may be a}^{pplied differentially for in-network a}^{nd out-of-}
^le^ak^{Part A and B, or an act}^{uarially equivalent level of cost}^sharing.^{network services}^{and may}^{be wai}^{ved for prev}^{entive or}^{other items or ser}^{vices, and (2) a}^{catastrophic limit on}
^://wiki^{For any services}^fur^{nished t}^hroug^{h non-cont}^ract^{out-of-pocket expe}^{nditures for}ⁱⁿ^{-network be}^nefits^{covered under}^{original Medicare, and a catastrop}^{hic limit}
^h^ttp^{providers, a plan satisfies b}^enefit^requirem^ents^by^{on out-of-pocket exp}^enses^{for all bene}^{fits covered}
^{providing payment}^{so that t}^{he s}^u^m^{of the}^paymen^t^{under t}^{he original Medicare p}^rogram.
^{amount (including cost s}^{haring) is}^{equal to at least the}
^{total that would otherwise be au}^{thorized under Part A}
^{and B (including any}^balance^billin^{g permitted u}^{nder s}^uch
^parts).

^{Local HMO}^{Regional PPO}^{Private FF}^S
^{The amount of}^{cost sharing}^per^{MA enrollee for}^Simi^{lar to local plans, except in d}^{etermining the}^actua^rial^{Generally contra}^{ct p}^{roviders may bill enrollees in PFFS}
^{covered services ca}^{n be}^{no more}^{than t}^{he act}^{uarial value}^{equivalent level of cost sha}^{ring re}^quireme^{nts t}^{he plan}^{plans u}^p^{to 1}^{5% a}^{bove the}^{fee sc}^{hedule the}^plan^{uses. In}
^{of the deductible, coinsura}^{nce, an}^{d copayment}^under^{will a}^{lso take into account those}^{services fu}^rnish^{ed in}^{contrast to traditional Medicare, this exte}^{nds to all}
^{traditional Medicare. A physician or other entity (other}^{network with re}^spect^{to the a}^ppl^{ication of the}^{categories of providers, including hospitals. PFFS plans}
^{than a}^{provider of services) t}^hat^{does not have a}^{catastrophic limit.}^{must p}^{rovide enrollees with a clear statement}^{of the}
^{contract esta}^{blishing payme}^{nt am}^{ounts for se}^rvices^{amount of th}^{e be}^{neficiary’s liabilit}^{y, including any balan}^ce
^fur^{nished to an}^{MA en}^{rollee shall}^{accept as}^payme^{nt in}^{billing amounts. Simil}^{arly, hospital}^{s must}^{provide advance}
^{full for covered services t}^{he amo}^{unts t}^{hat t}^{he p}^hysician^{notice before re}^{ceipt of inpatie}^nt^{services and c}^ertain
^{or other entity could collect if th}^{e individual were not so}^{other services, for w}^{hich t}^{he am}^{ount of balanc}^{e billing}
^{enrolled, including any permitted}^{balance billing.}^{could be su}^{bstantial. Under traditional Medicare, only}
^{non-participating}^{physicians a}^{re al}^{lowed to balance bill.}
^{Local HMO}^{Regional PPO}^{Private FF}^S
ⁱ^{ki/CRS-RL34151}
^g/w^{Subject to the Secreta}^{ry’s ap}^prov^{al, MA organizations}^{may provide enrollees with s}^u^p^{plemental health}^bene^fits^{Same as for local HMOs.}^{The statute s}^{pecifies that}^{PFFS plans are}^{not pre}^vented^{from offering s}^u^p^{plemental be}^nefi^{ts including payme}^nt
^s^.or^{not covered u}^{nder the}^{original Medicare program. The}^{for some or all of the allowed bal}^{ance billing amounts}
^le^ak^{Secretary ap}^{proves s}^u^c^h^be^nefits^{unless t}^{he Secretar}^y^{and coverage of additional benefits that t}^{he plan}^finds
^{determines that}^the^bene^{fits wou}^{ld substantially}^{medically necessary.}

^://wiki^{discourage enrollment in th}^{e plan}^.
^h^ttp^Suppleme^{ntal bene}^{fits can eith}^er^{be paid by}^the^{plan with}
^any^{average per capita monthly savi}^ngs^{resulting f}^{rom the}
^{bid process (ex}^{plained in detail below),}^{or suppleme}^ntal
^{benefits ca}ⁿ^{be paid by}^the^bene^{ficiary throug}^{h increa}^sed
^{plan pr}^{emiums. Any}^su^ppleme^{ntal bene}^{fits that a}ⁿ
^{enrollee is required to acce}^{pt or}^{pay for are}^called
^{mandatory supplemental benefits}^{. In contrast,}^o^ptional
^{supplemental benefits}^{, are s}^u^p^plem^{ental bene}^{fits that a}^re
^purc^{hased at t}^{he discretion of th}^{e enrollee and must}^be
^{offered to all beneficiaries enrolled in the plan.}
^{In addition to extra be}^{nefits s}^uch^{as vision or dental}
^{care, sup}^{plemental b}^{enefits ma}^{y include reductions i}ⁿ
^{deductibles, coinsurance a}^{nd co-payment}^{s below the}
^{actuarial value for items a}^{nd servi}^{ces provided, on}
^{average, to individuals in orig}^{inal Medicare.}

^{Local HMO}^{Regional PPO}^{Private FF}^S
^{The MA organization may select}^{providers from w}^hom^{Regional PPO plans are req}^uired^{to foll}^{ow the same}^{PFFS organizat}^{ions must demonst}^{rate that a}^suf^ficient
^{benefits a}^{re p}^{rovided as long as five conditions apply (1)}^{access to services a}^{nd network}^r^equireme^{nts as local}^num^{ber a}^{nd range}^{of providers a}^{re willing to provide}
^{benefits a}^{re available and accessib}^{le with reasonable}^{HMOs, ex}^{cept t}^{hat MA}^{regional plans, upo}^{n CMS p}^re-^{services u}^{nder t}^{he terms}^{and con}^{ditions of the plan.}
^prompt^{ness a}^{nd in a ma}^nner^that^assures^{continuity in}^{approval, can}^{use met}^{hods other}^{than w}^ritten^{Organizations meet the}^{se re}^quir^ements^{by: (1)}
^{the p}^{rovision of benefits; (2) med}^{ically necessary care is}^agreements^{to establish that}^acce^{ss req}^uirement^{s are}^{establishing paym}^ent^{rates for co}^{vered items and}
^{available 24 hou}^{rs a day a}^{nd 7 da}^{ys a week; (3) out-of-}^met.^{services that a}^{re not less t}^han^th^{e payme}^{nt p}^rovided
^{network services}^{are covered if a}⁾^{the services w}^ere^not^{under t}^{raditional Medicare for Part A or B services, or}
^emergency^services^but^{were me}^{dically necessary and}^{(2) the plan}^has^{signed contracts}^{or agreements}^{with a}
^{immediately required and it was}^{not reasonable}^under^sufficient^num^{ber or}^{range of}^pro^{viders in a category or}
^{the circu}^mstance^{s to obtain the}^m^{from a network}^{service that ag}^{ree to the}^{plan’s fe}^{e schedule.}
^{provider, (b) the ser}^{vice was re}ⁿ^{al dialys}^{is while a}
^{beneficiary is tra}^{veling outside th}^{e service area, or (c)}
^{the service is maint}^enan^{ce care}^{or post sta}^bilizati^on
^{care; (4) the orga}^{nization provides access to ap}^prop^riate
^{providers; and (5) eme}^rgency^ser^{vices are p}^rovided
^{without regard to p}^{rior authorization or the providers}
ⁱ^{ki/CRS-RL34151}^{contractual relationship wit}^{h the}^{organization.}
^g/w^{To accomplish these acces}^{s re}^qui^{rements, Medicare}
^s^.or^{regulations include a re}^quireme^nt^{that coordinated care}
^le^ak^{plans maintain a}^{nd monitor a net}^{work of app}^ropriate
^{providers that is s}^u^p^{ported by}^w^{ritten agreeme}^{nts a}^{nd is}
^://wiki^{sufficient to p}^{rovide adequate acc}^{ess to covered services}
^h^ttp^{to meet the}^{needs of the}^{plan e}ⁿ^rollees.
^{Local HMO}^{Regional PPO}^{Private FF}^S
^{Each orga}^{nization must hav}^{e an o}^{ngoing quality}^Simi^{lar to local HMOs, each regional plan must}^{have a}ⁿ^{PFFS organizat}^{ions are not re}^quir^{ed to have a q}^uality
^improvement^{program. It m}^ust^p^{rovide for the}^{ongoing quality improvement}^pro^{gram. However, the}^{improvement program.}

^collecti^{on, analysis, and reporting of data that pe}^rmits^{Secretary determine}^{s for t}^{he Reg}^{ional PPOs the}
^{the meas}^ureme^{nt of h}^{ealth outco}^{mes and other}^indices^requirem^ents^{for collection, anal}^{ysis and reporting}^of
^{of quality. As part of t}^{his progra}^{m, each MA orga}^nization^{data. Data col}^{lection for the prog}^{ram is limited to in-}
^{is required to ha}^{ve a c}^{hronic car}^{e improvement}^{network services.}
^{program designed to monitor an}^{d identify enrollees with}
^{severe c}^{hronic conditions.}

^{Local HMO}^{Regional PPO}^{Private FF}^S
^{In gen}^{eral, beginning in}^year²⁰⁰⁶^{, payments to local MA}^{The process}^{for determining}^pay^{ments to regional plans}^{Same as local HMOs.}
^{health plans}^{for Part A a}^{nd B ser}^{vices are determined}^by^{is the same as local plans. Howev}^{er the}^bids,
^{comparing a}^{plan’s bid to a statut}^{orily determined}^benc^{hmarks, re}^{bates a}^{nd p}^remiu^{ms are calculated}
^benc^{hmark. Plans}^{bidding below the be}^nch^{mark r}^eceive^{differently for regional plans}^thaⁿ^{for local plans}
^{a rebate a}^{nd plans}^{bidding above}^{the be}^nch^{mark may}^{(description follows)}^.
^{charge a}^premiu^{m. Before calculating the mont}^hly
^payment^{to a plan, the}^pre^mium^{and the r}^{ebate, both}^the
^{bid and ben}^chma^{rk mu}^{st be}^{adjusted for several factors.}
^{Payments are}^the^{n calculated by}^{comparing th}^{e adjusted}
^{bids to adjusted benc}^{hmarks. Det}^{ailed descriptions of}
^{the bids, ben}^chma^{rks, rebate}^{s, pr}^{emiums, and}
^{adjustments follow.}
ⁱ^{ki/CRS-RL34151}
^g/w
^s^.or
^le^ak^{Local HMO}^{Regional PPO}^{Private FF}^S
^://wiki^{By the first}^{Monday in J}^{une, eac}^h^{local MA health plan}^{must s}^{ubmit to the}^{Secretary a}ⁿ^{aggregate monthly}^bid^{Same as local HMOs, exce}^{pt calc}^{ulated on a regional}^basis.^{The Secretary does}^{not have t}^he^{authority to review and}^{negotiate the bid amou}^{nts for PF}^{FS plans.}

^h^ttp^{amount (which}^{includes se}^parate^{bids for req}^uired
^{services, any offe}^{red su}^ppleme^nta^{l benefits, and an}^y
^{offered drug}^bene^{fits) for each}^M^A^{plan it intends to}
^{offer in the}^u^{pcoming calendar ye}^ar.
^{The bid is based on t}^{he average}^r^evenue^req^uireme^{nts in}
^{the pay}^{ment a}^{rea for a}ⁿ^en^{rollee with a national average}
^{risk profile. The Secretary}^{has th}^{e authority to evaluate}
^{and negotiate the}^{plan’s bid amou}^{nts and its}^proposed
^{benefit packages.}

^{Local HMO}^{Regional PPO}^{Private FF}^S
^{The ben}^chma^{rk amou}^{nt is a cou}ⁿ^{ty-specific per}^capita^{The regional benc}^hmark^{s are a}ⁿⁿ^{ounced at th}^{e same}^{Same as local HMO.}
^payment^{rate. In}^{most years, t}^he^benc^{hmark a}^mount^for^{time as the local benc}^hmarks,^{however, they a}^re
^{each local service area will be bas}^{ed on the minimu}^m^{calculated differently tha}^{n the loc}^{al bench}^{marks. Unlike}
^perce^{ntage increa}^{se rate (t}^{he gre}^{ater of 1}^02%^{of the}^per^{the be}^nch^{mark for local plans, th}^{e regional benc}^hmark
^{capita payme}^{nt rate}^{for the}^pre^ce^{ding year, or the}^per^{depends, in pa}^{rt, on plans}^{bids. The regional be}^nchma^rk
^{capita payme}^{nt rate}^{for the}^pre^ce^{ding year increased}^by^{is the sum}^{of two compone}^{nts (1}^{) a statutorily}
^{the national pe}^{r capita MA}^growt^{h pe}^rcentage).^{determined increase, and (}^{2) a w}^{eighted average of plan}
^{In a “re}^{basing” yea}^{r, the}^benc^hma^{rk amount}^{for a local}^bids.
^{service area is th}^{e greater}^{of the}^{minimum pe}^rcentage^{The regional statutory com}^ponen^{t is the weighted}
^{increase rate, or}¹⁰^{0% of t}^{he pe}^r^{capita FFS amount for}^{average of all the statutorily dete}^{rmined local payment}
^{that area. Beginning in}²⁰⁰⁴^{and a}^t^{a minimum eve}^ry^{rates in the}^{region. The weight fo}^{r the stat}^utory
^{third year, CMS is req}^{uired to re}^{base FFS payme}^{nt rates.}^{component is}^{based on t}^{he pe}^rce^{ntage of eligible}
^{Rebasing means}^{CMS u}^{pdates th}^e^{FFS rates to reflect}^{beneficiaries in t}^{he area, as op}^{posed to enrollees. The}
^{more recent}^count^{y growth t}^ren^{ds. CMS rebased the}^{plan-bid component}^{is the weight}^{ed average of all the}
^{FFS rates in 20}^{07 a}^{nd will not be}^{rebasing t}^{he rates}ⁱⁿ^{MA regional bids su}^{bmitted in a r}^{egion. This weight is}
ⁱ^{ki/CRS-RL34151}²⁰⁰^{8, so the}^ben^chma^{rk amou}^nt^{will be based on the}^{minimum pe}^rcentage^increase^rat^{e in 20}^08.^{based on p}^{rojected enrollment b}^y^plan.
^g/w^{By incorporating the}^plan^{bid into the calculation of the}
^s^.or^{The Secretary is r}^e^q^{uired to ann}^{ounce t}^{he be}^nch^mark^benc^{hmark, th}^{e pay}^{ment amo}^unt^{to any one}^{plan that}
^le^ak^{amounts as w}^{ell as the factors t}^h^{at will be used to adjust}^{participates in a}^{region will depend on the bids}
^{these amou}^nts^{by the}^{first Mo}^{nday in April.}^{submitted b}^y^other^{plans in t}^{he r}^{egion. This introduces a}
^://wiki^{new typ}^{e of competition, not pre}^{viously used in}^{determining Medicare}^payme^nts.
^h^ttp
^{Local HMO}^{Regional PPO}^{Private FF}^S
^{The law req}^{uires that t}^{he Secreta}^{ry make a}^num^{ber of}^{Same as local HMO, but calc}^{ulated on a regional basis.}^{Same as local HMOs.}

^{adjustments to the}^monthly^{bids and ben}^chma^rk
^{amounts for local MA}^{health plan}^{s. These include, but}
^{are not limited to, the foll}^owing:
^•^{adjustment for demogra}^{phics a}^{nd health stat}^{us (i.e.}
^{risk adjustment—w}^{hich increa}^ses^payme^{nts to}
^{plans for “sicker”}^{enrollees and r}^{educes pay}^ment
^{for “healthier” e}^nrollees);
^•^{adjustments to p}^hase-out^budget^{neutrality as}
^{applied to risk adjustment, by t}^h^e^{end of 2}⁰¹⁰

^{Local HMO}^{Regional PPO}^{Private FF}^S
^{(budget ne}^{utrality was u}^{sed to ke}^{ep pay}^ments^from
^{being redu}^{ced or increased overa}^{ll, when they wer}^e
^{risk adjusted— - this adjustment}^{would all}^ow
^payment^{s to be}^{reduced if, overall, MA plans}
^{enrolled a “healthier than}^averag^{e” group of}
^{beneficiaries relative to traditional Medicare);}
^•^{adjustments for diffe}^rences^{in co}^{ding between}^MA
^{plans and FFS, effective in}²⁰^{08 t}^hrough²⁰¹⁰^(to
^{adjust the risk score}^{s for differe}ⁿ^{ces betwee}^{n MA}
^{coding patterns t}^{hat differ}^{from p}^{atterns in FFS);}
^•^{and adjustments}^{for variations within local payment}
^areas.
^{Local HMO}^{Regional PPO}^{Private FF}^S
ⁱ^{ki/CRS-RL34151}
^g/w^{A state can}^req^{uest t}^{hat the}^Secr^{etary make a}^{Does not apply to regional PPOs.}^{Same as local HMOs.}

^s^.or^{geographic adjustme}^{nt to payme}^{nts to local MA plans in}^{a state. The state ca}^{n re}^quest^tha^{t the e}^{ntire state}^be
^le^ak^{considered a single payme}^{nt area,}^{that eac}^h
^://wiki^{metropolitan statistical area (MSA) within a state be}^{considered separate}^payme^{nt are}^{as, or that certain}^non-
^h^ttp^{contiguous coun}^{ties be con}^solida^{ted into a single}
^payment^{area. (No state is paid on this}^basis.)

^{Local HMO}^{Regional PPO}^{Private FF}^S
^{Not Applicable}^{For 200}^{6 a}^{nd 20}^07,^{Medicare will}^share^{risk with MA}^{Not Applicable}
^{regional plans if plan costs}^{fall above or below a}
^{statutorily specified risk corridor. A plan’s allowable}
^{costs are meas}^{ured against a ta}^rg^{et amount. If allowable}
^{costs are over}¹⁰^3%^but^{no great}^{er tha}^{n 1}⁰⁸^%^{of a}
^{specified target amou}^{nt, the}^plan^{receives an additional}
^payment^eq^{ual to 50%}^{of the diffe}^rence^betwee^{n the}
^{allowable costs and 103%}^{of the t}^{arget amount. For}
^{costs above 1}⁰⁸^%^{of the ta}^{rget a}^{mount, the Secr}^etary
^will^{increase the}^payme^nt^{by th}^e^{sum of 2.}^{5% of t}^he
^{target and 8}^{0% of t}^{he differe}^nce^{between allowable}
^{costs and 1}^08%^{of the ta}^{rget. Conversely, if a regional}
^{plan’s allowable costs are less tha}^{n 9}^7%^{but g}^{reater t}^han
^{or equal to 9}^{2% of t}^{he target a}^m^{ount, the Secreta}^{ry will}
^{reduce t}^{he pay}^ments^by⁵⁰^{% of t}^{he differen}^{ce bet}^ween
^{97% of}^{the ta}^{rget amou}^{nt and allowable costs. If}
ⁱ^{ki/CRS-RL34151}^{allowable costs are less than}^92%^{of the target a}^mount
^g/w^{for the}^{plan and yea}^{r, the Secreta}^{ry will reduce the}
^s^.or^{monthly paym}^ent^{by t}^{he su}^{m of 2}^{.5% of the ta}^rget
^le^ak^{amount and}⁸⁰^{% of the}^differen^c^e^betwee^{n 9}^{2% of t}^he^{target amount}^{and s}^{uch allowable costs.}
^://wiki
^h^ttp
^{Local HMO}^{Regional PPO}^{Private FF}^S
^{Not Applicable}^{The Secretary m}^{ust es}^{tablish a M}^A^{Regional Plan}^{Not Applicable}

^Stabilizat^{ion Fund to provide incentives for plan}^ent^{ry in}
^{each region a}^{nd plan r}^{etention in}^{certain MA}^regions
^{with below average MA}^pe^netrati^{on. Funding will be}
^$1.6^billi^{on in 20}^{12 a}^{nd $}^1.79^{billion in 20}^{13. Additional}
^{funds a}^{re to be available in a}ⁿ^am^{ount eq}^{ual to 12.5}^{% of}
^{average per capita monthly savings}^{from regional plans.}

^{Local HMO}^{Regional PPO}^{Private FF}^S
^{Not Applicable}^{There is $2}^{5 million available beginning in 2}⁰⁰⁶^{Not Applicable}
^{(increased each y}^{ear) for additional payments to}^e^ssential
^{hospitals in regional areas demon}^{strating they}^have^high
^{costs, among other re}^quireme^nts^.
^{Local HMO}^{Regional PPO}^{Private FF}^S
^{The MA mont}^{hly be}^{neficiary p}^r^e^{mium depends}^{on how}^{Same as local HMO, except}^ap^{plied on a regional basis.}^{The Secretary does}^{not have t}^he^{authority to review and}
^{much t}^he^{MA health}^plan^{bids. If}^{the u}^{nadjusted MA}^plan^{negotiate the p}^{remium amou}^nts^f^{or PFFS plans.}

^{bid is at or below the u}^nadjusted^{MA be}^nchma^rk
ⁱ^{ki/CRS-RL34151}^{amount for its local area, the am}^{ount of the}^be^neficiary
^g/w^{premium is e}^{qual to zero. For plans bidding above t}^he
^s^.or^benc^{hmark, th}^{e MA mo}^{nthly b}^eⁿ^{eficiary premium}^is
^le^ak^{equal to the diffe}^rence^betwee^{n t}^{he health}^plan’s^{unadjusted bid amou}^{nt and t}^he^u^{nadjusted be}^nchma^rk
^://wiki^{for that area.}
^h^ttp

^{Local HMO}^{Regional PPO}^{Private FF}^S
^{When a}ⁿ^MA^{plan bids}^{below its benc}^{hmark a}^mount,^{Same as local HMO, except}^ap^{plied on a regional basis.}^{Same as local HMO, but ma}^{y also use t}^{he re}^{bate to}
^{the MA}^{plan is re}^{quired to ret}^urⁿ^75%^{of the}^adjusted^{reduce a}^{ny balanc}^{e billing amoun}^ts.
^{average per capita savings}^{to the e}^{nrollee as a rebate. The}
^{adjusted average per capita monthly savings}^{is the amou}^nt
^{(if any) by w}^{hich t}^{he risk adjusted}^benc^hmark^exceeds
^{the risk adjusted bid. The risk adjusted be}^nch^{mark a}^nd
^{risk adjusted bids reflect the}^aver^{age of the risk}
^{adjustment factors}^{for en}^{rollees i}ⁿ^{that a}^{rea for}^MA
^{local plans.}
^{The rebate}^must^be^retur^{ned to t}^{he en}^{rollee through}
^{reduced Part B or D p}^{remiums, r}^{educed cost shari}^{ng, or}
^sup^{plemental be}^{nefits. The re}^{maining 2}^{5% of t}^he^adjusted
^{average per capita savings}^{is kept}^{by the}^federal
^government.
ⁱ^{ki/CRS-RL34151}
^g/w
^s^.or
^le^ak
^://wiki^{Local HMO}^{Regional PPO}^{Private FF}^S
^h^ttp
^{Each orga}^{nization must be}^{organized and licenced under}^{If the orga}^{nization meets the org}^{anizing and licensing}^{Same as for local HMO.}

^{state law as a risk-bearing}^entity^{eligible to}^{offer health}^requirem^{ents in}^{one state withi}ⁿ^{the region and}^{has filed}
^insuran^{ce or h}^{ealth be}^{nefits cove}^{rage in each}^{state in}^{the nec}^{essary a}^{pplication to meet}^{the re}^quireme^{nts in}
^{which it offers a}^plan.^{the remaining}^{states in t}^{he region}^{, the Secretary ma}^y
^{wave the orga}^{nizing and licensing req}^uirement^{for a}
^{period of time determined by t}^h^e^Secretary.

^{Local HMO}^{Regional PPO}^{Private FF}^S
^{At least one plan offe}^{red by a}ⁿ^M^A^{organization in an}^Simi^{lar to local plans, but applies}^{on a regional basis.}^{PFFS plans are not re}^{quired to of}^{fer q}^ualified
^{area is req}^{uired to be a}ⁿ^Medicar^{e Advantage-}^prescri^{ption drug}^{benefits. If}^{a be}^{neficiary en}^{rolls in a}
^{Prescription Drug (}^{MA-PD) plan, one that offe}^rs^{PFFS plan that doesn’t provide pr}^{escription drug}
^{qualified Part D prescri}^{ption drug}^{coverage. Therefore, if}^{coverage, he/she}^{can e}^{nroll in a stand-alone PDP in}
^{only one organization offers an}^M^A^{plan in a}ⁿ^{area a}^{nd it}^additi^{on to the PFFS plan. However, if a PFFS plan does}
^{offers only one}^{plan, that}^{plan would have to be a}ⁿ^MA-^{offer drug}^{coverage, the}^{plan is n}^{ot subject to the}^same
^{PD and the be}^{neficiary would hav}^{e to enroll in Part D in}^{rules that a}^{pply to othe}^{r MA-PD}^{plans. These e}^xcluded
^{order to enroll in an MA}^{plan. In}^{this situation, a}^{rules include p}^{roviding negotiated drug prices}^to
^{beneficiary w}^{ho did not want to}^{enroll in Part D would}^{enrollees, requiring}^pharma^{cists t}^o^{disclose to patients}
^{have to receive}^{Medicare service}^{s throug}^{h traditional}^{the availability of generic drugs, or offer dr}^{ug utilization}
^{FFS Medicare.}^{and medication therapy}^manage^m^{ent p}^{rograms to}
^{If an}^{MA organization offers mor}^{e than o}^{ne plan i}ⁿ^an^{enrollees, among others.}
ⁱ^{ki/CRS-RL34151}^{area, only one is req}^{uired to pro}^{vide Part D prescription}
^g/w^{drug coverage. Eac}^{h organization}^{in an area is s}^{ubject to}
^s^.or^{this standard, so that eve}^{n if t}^her^{e are multiple plan}^{s in}^{an area, each}^{organization must o}^{ffer at least one}^plan
^le^ak^{that includes}^presc^{ription drug c}^overage.
^://wiki
^h^ttp
^{Local HMO}^{Regional PPO}^{Private FF}^S
^{MA organizations offering p}^rescri^{ption drug coverage}^{Same as local plans.}^{Same as local plans, if PFFS plan i}^{ncludes q}^{ualified drugs.}

^{receive a direct su}^{bsidy for eac}^h^{enrollee in an MA-PD}
^{plan eq}^{ual to the}^{plan’s adjusted s}^{tandardized bid}
^{amount for its}^presc^{ription drug}^{benefit (red}^{uced by t}^he
^{base be}^{neficiary Part D}^premiu^{m). The plan also receives}
^{the reins}^ura^{nce pa}^yment^amount^{of 80%}^{of the}^{costs for}
^{drugs ex}^{ceeding the a}ⁿⁿ^{ual out-of-pocket thre}^{shold for}
^{an en}^{rollee ($3,850 in}²⁰⁰^{7). Finally, MA-PD plans}
^{receive reimb}^urseme^{nt for}^premi^{um and cost-s}^haring
^{reduction for th}^{eir q}^{ualifying low}^{-income enrollees.}

^{Local HMO}^{Regional PPO}^{Private FF}^S
^{Beneficiaries who enroll in an}^M^A^{plan offering}^{Part D,}^{Same as local plans.}^{Same as local plans, if PFFS plan i}^{ncludes q}^{ualified drugs.}
^{must pa}^{y the}^{plan t}^{he sta}^{ndard Part D premiu}^m.
^{However, MA-PD plans offeri}^ng^{a rebate, may}^{use all or}
^{part of t}^{hat re}^{bate as a c}^{redit toward the MA}^monthly
^prescri^ption^{drug beneficiary pre}^mium.
^{Local HMO}^{Regional PPO}^{Private FF}^S
^{In gen}^{eral, MA-PD rules are similar to rules for}^MA^{Same as local plans.}^{Individuals enrolled in a PFFS plan that does not p}^rovide
^{enrollment, dis-enrollment, termi}^{nation and cha}^{nge of}^{qualified prescription dr}^{ug covera}^{ge may en}^{roll in}
^{enrollment. Individuals who enroll in local MA plans,}^{Medicare Prescription Dr}^{ug Plan}^{(PDP) for their Part D}
^{must re}^{ceive their Part D}^presc^{ription drug}^benefits^benefits.
^through^an^{MA-PD plan (i.e., a Medicare Advantage plan}
ⁱ^{ki/CRS-RL34151}^{that provides q}^{ualified Medicare prescri}^{ption drug}
^g/w^{coverage). If an individual enrolls in an MA}^{plan t}^hat^{does not offer a q}^{ualified prescri}^{ption drug}^program,
^s^.or^{they may}^{not en}^{roll in a Medicare Prescription Drug}
^le^ak^{Plan (PDP) for their Part D benef}^its.
^://wiki

^h^ttp

^P^a^u^l^{ette C. Mo}^r^g^an ^Holl^y^Stoc^k^d^ale
^Aⁿ^a^l^ystⁱⁿ^H^e^a^l^t^h^Ca^r^e^Fi^na^ncⁱ^ng^Aⁿ^a^l^ystⁱⁿ^H^e^a^l^t^h^Ca^r^e^Fi^na^ncⁱ^ng
^pcm^o^r^g^an@^c^rs^.l^oc.g^o^v^{, 7-}⁷³¹⁷^h^s^t^o^c^k^dal^e^@^c^rs^.l^oc.g^o^v^{, 7-}⁹⁵⁵³
^Hⁱ^nd^a^C^h^aⁱ^ki^nd
^Specialis^{t i}ⁿ^Healt^h^C^a^{re Fi}ⁿ^aⁿ^c^ing
^h^c^h^aⁱ^kⁱⁿ^d@^cr^s^.^l^o^c.g^o^v^,^7-⁷⁵⁶⁹