To Reach Profitability, M+C Plans Must Streamline Business, Marketing
Reprinted from the February 5, 2001 issue of News and Strategies for MANAGED MEDICARE & MEDICAID, the industry's leading source of news from HCFA and the 50 states and strategies from the leading HMOs participating in Medicare and Medicaid. For more information on, News and Strategies for MANAGED MEDICARE & MEDICAID
Medicare+Choice plans will survive if they cobble together a solution with these three components: streamline their administration and marketing operations, provide benefits that better reflect the income they receive, and lobby for higher reimbursement from the federal government. One and two are the easy part, one expert admits. But without all three, more plans will be forced to withdraw from money-losing markets.
Henry R. Loubet, senior vice president at HealthCentral and former health plan CEO, notes that, for one thing, the M+C situation may not be as dire as some naysayers say it is. He comments, "Some of the statistics in 2000 were more favorable than they'd been in preceding years." But in the long term, he adds, "a combination of factors will lead to the long-term success of the program."
One factor, he says, is "increased revenues from the federal government. The 2% increases that have been the predominant revenue change when inflation has been higher than that leads to a lot of difficulty unless other adjustments are made in terms of meeting financial goals and objectives."
Examine Your Products Against Your PMPM Fee
Of course, Loubet's no fool when it comes to federal largesse for the M+C program. "There doesn't seem to be a great deal of hope that there's going to be an increase in revenues," he acknowledges. "It's going to take the other factors to be successful on the plan side." The increases he's seen "are not all that great," so he's "not all that optimistic on the revenue side." But he notes that the new president and many leaders on the Hill are "supporters of HMOs." So, he says, "the combination of the two might, in 2003, have a positive impact in terms of revenues."
In the meantime, he advises M+C plans to take matters into their own corporate hands. One action he highly recommends is to "look internally in terms of administrative expenses - such as sales and marketing budgets - to try to cut fat as much as you can to become more efficient and effective."
And, he says, plans should take a hard look at what they offer for the PMPM fee they receive.
"On the benefit side, there's been pretty much of a race to gain more and more market share," he points out. "That's not wholly different than on the commercial side, where plans are increasing benefits - whether for prescription drugs, dental, vision or durable medical equipment - to get new members, while reducing co-pays for hospital stays and outpatient care. This year for the first time plans were a lot more cognizant of that and many have made benefit changes in 2001 to deal with some of the financial realities of the revenue reductions by the federal government."
Sometimes, he adds, those benefit changes go all the way to withdrawing from unprofitable markets. And that, he says, is often a good thing. "Although it's harmful to a lot of seniors, the plans' decisions to terminate agreements in counties where they are not profitable enables them to be much more effective in counties they can serve more effectively. All of the major players have made those kinds of changes."
Carrying out that threat is getting easier, he points out. "Health plans have had some practice at making not necessarily popular decisions, whether right, wrong or indifferent. To their credit, they've taken a stand to say, 'We're willing to provide care, but we're not willing to do this unless you're going to fund us at levels we can live with.'"
At the same time it's becoming easier, it's also becoming less common to do this. "Plans have pulled out of a lot of the unsuccessful markets already," he notes. "You won't see those dramatic changes taking place in the near future."
Indeed, he has this advice for plans mulling a market departure so they can concentrate on markets where they would be more profitable: "If a plan can put together a program that takes into consideration the three success factors - and it has the critical fourth factor, which is good financial and business relations with providers, pharmacies and other ancillary providers - in most cases, capitation has worked better than fee-for-service, so I'd advise folks to stay in. But if the factors recognize that revenues are only going to increase so much and provider relations are negative or unimportant, I'd advise getting out."
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