of new models of care would have difficulty fitting into these criteria. For example, neither patient education to promote self-management nor interdisciplinary team meetings to discuss patients’ health status fit easily into a statutorily established benefit category (Berenson and Horvath, 2003). Furthermore, many geriatric care models require the services of care managers, typically nurses or social workers, but these workers often do not qualify for Medicare reimbursement. Statutory changes will be needed to make it possible to pay for these services.

Medicare Advantage

Nineteen percent of Medicare beneficiaries are enrolled in Medicare Advantage (MA), Medicare’s managed care program. MA’s capitated payment system puts health plans at financial risk, which gives them an incentive to identify high-risk enrollees and assist them in averting medical complications and also to promote continued good health among older beneficiaries who are not chronically ill. The goal of this approach is to encourage health plans to promote appropriate, cost-effective care across settings (Berenson and Horvath, 2003).

Capitated payments allow for greater innovation in care delivery and can promote the adoption of new models of care. For example, Kaiser Permanente’s Medicare HMO has been able to hire greater numbers of geriatricians and increase payments for their services. In addition, MA plans offer benefits beyond those that are available in the traditional FFS system, including preventive dental services. Care coordination, which is generally not available to beneficiaries under FFS, is routinely offered by MA plans and is administratively easier to perform under capitation because of the plans’ provider networks. Plans are required to use any cost savings they realize to provide benefits beyond those required by the Medicare program.

Studies indicate that older adults who choose to enroll in MA are generally healthier and have lower medical costs than FFS beneficiaries, and at least one study suggests that the incentive for MA plans to maintain this member composition may persist despite the implementation of risk adjustment (MedPAC, 2007a). CMS began phasing in risk-adjustment payments in 2004, and by 2007 payments were based entirely on risk-adjusted rates (Berenson and Horvath, 2003). At the same time, CMS also included a hold-harmless adjustment so that plan payments would not decline due to risk adjustment. In fact, payments to MA plans are about 12 percent higher than the average FFS costs in the same area (Kaiser Family Foundation, 2007). That difference is expected to decrease as the hold-harmless adjustment is phased out through 2011 (MedPAC, 2007b).

Although capitation appears to be a reasonable means to incorporate cost-effective new models of care into practice, this promise has not



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