April 03,2003

Baucus Examines Healthcare Options for Medicare

Senate Finance Committee Hearing Looks at Private Competition in Health Care


(WASHINGTON, D.C.) To continue his efforts to move Medicare reform and prescriptiondrug coverage forward in Congress, Senator Max Baucus today joined Chairman CharlesGrassley in holding a hearing examining the competitive bidding structures currently used bylarge purchasers of health care.

“Today’s hearing is especially important because the Medicare reform proposal thePresident has released is based on the use of competing preferred provider organizations (PPOs)to deliver health care services” Baucus said. “Before we consider moving seniors into privateplans, we must have solid proof that private plan competition will keep costs down. From whatI’ve seen so far, there’s no solid proof tha t privatization is any more cost effective than thecurrent traditional fee-for-service program.”

During the hearing Baucus emphad his concerns that the private PPO model, similarto what the Administration has proposed, could actually increase Medicare costs.

“My sense is that with higher administrative costs, profits, and risk load, combined withan inability to contract with preferred providers in remote areas, PPOs would actually be moreexpensive than traditional fee- for-service Medicare,” Baucus said at today’s hearing. “And as Iunderstand it, Congressional Budget Office (CBO) happens to agree with this assessment. Theyalso believe that getting regional PPOs to participate in Medicare will be very costly. At anyrate, they certainly won’t improve Medicare solvency.”

Previously, Baucus has outlined his goals for Medicare reform, which include:

·  Enact a prescription drug benefit that provides the same voluntary benefit for allMedicare beneficiaries.

·  Strengthen and improve the traditional fee-for-service program by building in strongerincentives to coordinate chronic care to reward providers that deliver high-quality care.

·  Streamline Medicare administration policies to provide both seniors and providers withbetter service. This would mirror bipartisan legislation Baucus pushed last year inCongress to improve Medicare’s customer relations with health care providers.

·  Ensure the long-term solvency of Medicare.

--- Statement follows ---

Statement of Senator Max Baucus
Hearing on Competitive Purchasing of Health Care
April 3, 2003

Thank you, Mr. Chairman. I appreciate the opportunity to explore the issue ofpurchasing health care services in a competitive environment.

This is a “big- think” kind of hearing. We have the opportunity to consider what sort ofcompetitive bidding structures large purchasers of health care currently use. And this isimportant, because the President has recently put forth a Medicare reform proposal – or at leastthe outline of a plan – that emphas choice and competition among private health plans.We aren’t here to pick at the administration’s proposal. Rather, we’re here to think abouthow a competitive model might – or might not – work for Medicare.

As I see it, there are many lessons here – both for the current Medicare+Choice programas well as for traditional fee- for-service Medicare.

In particular, some of the questions I hope our witnesses will help answer include:

• Is it necessary to have losers in a bidding process, like the TRICARE system? Or iscompetition possible when essentially all bidders are accepted, like the FEHB program.

• How can quality be incorporated in a competitive purchasing system, as GM has done?

• What are the challenges of bringing in PPOs to serve ALL parts of the country?

• Is a PPO model any less expensive or more efficient in a rural area than traditionalMedicare?

My sense is that with higher administrative costs, profits, and risk load, combined with aninability to contract with preferred providers in remote areas, PPOs would actually be moreexpensive than traditional fee- for-service Medicare. And as I understand it, CBO happens toagree with this assessment. They also believe that getting regional PPOs to participate inMedicare will be very costly. At any rate, they certainly won’t improve Medicare solvency.Which leads me to my last questions.

• Are these competitive systems truly transferrable to Medicare?

• And, perhaps more importantly, are there lessons from these systems that we can apply totraditional Medicare – not just to private plans?

It’s important to keep in mind that almost 90 percent of seniors are enrolled in traditionalMedicare, and I don’t see that ratio changing any time soon.

Montana doesn’t have any coordinated care plans. We have a private fee- for-service planin Medicare, but only 146 enrollees have signed up. And that is not an exaggeration.

As we try to make improvements to the system – modernizations, reforms, or whateveryou want to call these changes – we must think carefully about whether a competitive modeltruly can flourish in all areas of the country.