Protecting payment levels under Medicare risk-based contracting

More than 3.4 million Medicare beneficiaries are enrolled in risk-based HMOs, and the enrollment rate is expected to double in the next five to seven years. In addition, the Balanced Budget Act of 1997 has directed HCFA to contract with other plans, including PPOs, provider service organizations, and traditional insurance companies. HCFA's payment determinations, therefore, will have an increasing impact on HMOs and other insurers in the future. The Medicare Act requires that HCFA's payment to a plan under a risk-based contract reflect the adjusted average per capita cost of the services typically furnished to Medicare patients in the geographic area. HCFA, however, sometimes errs in calculating this payment, resulting in underpayment to HMOs. In many instances, the errors occur because HCFA calculates payments by using a Medicare enrollee's Social Security mailing address rather than the geographic area serviced by the HMO. To avoid underpayment, risk-based HMOs should monitor Medicare payments for HCFA and challenge payment rates they feel are inadequate.