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Seeking equality

Puerto Rico continues its epic battle to obtain equal Medicare and Medicaid treatment for 600,000 local beneficiaries


April 28, 2005
Copyright © 2005 CARIBBEAN BUSINESS. All Rights Reserved.

Breaking down barriers

Puerto Rico needs effective strategies to obtain equality in Medicare and Medicaid

Puerto Rico spends $1 billion a year on Medicaid recipients, but receives only $219 million from Congress. Puerto Rico hospitals only get 75% reimbursement on Medicare services while hospitals in the States get 100%. The examples of inequality go on and on.

One of the greatest myths surrounding the issue, and an excuse that has been used over and over again to deny equal treatment to Puerto Rico, is that locals don’t pay federal taxes. Wrong.

In 2002, an estimated 1.16 million Puerto Rico residents worked in employment covered under the Social Security program. They had $19.27 billion in Social Security taxable earnings. Employees, employers, and the self-employed paid a total of $2.39 billion in Social Security taxes, according to the Social Security Administration (SSA).

Also, in 2002, an estimated 1.2 million residents worked in employment covered under the Medicare program. They had $21.25 billion in Medicare taxable earnings. According to SSA, employees, employers, and the self-employed paid a total of $616 million in Medicare taxes. There are 600,000 Medicare and Medicaid beneficiaries in Puerto Rico.

The only difference is most Puerto Ricans don’t pay federal income tax, although those employed with the federal government do. So, federal income tax aside, locals pay the same as stateside residents, who receive greater benefits.

Medicare is a federally funded and administered program that provides health insurance for older U.S. mainland residents and those who are disabled. Individuals contribute to Medicare during their working years just as they do to Social Security.

Since Medicare is a federal health insurance program, eligibility guidelines and services are much the same all over the country, except for the territories. Medicare doesn’t cover all healthcare services, nor does it pay the entire cost of the services that it does cover.

Medicaid, on the other hand, is financed and run jointly by the federal and state governments. The program provides healthcare for individuals of all ages who have no other means to pay for it. States set the eligibility guidelines and benefits, which can vary greatly from state to state.

However, eligibility is usually based on low-income status and medical necessity. Benefits frequently include health screenings and services for children, hospital services, care in a nursing home or hospice, and some prescription drugs.

Shattering myths

Paycheck after paycheck, hard working Puerto Ricans see a chunk of their salaries directly pass to the hands of Social Security and Medicare. So, why are locals getting only a fraction of what they are paying for? Some victories have been achieved in the name of equality, but more needs to be done and in a more efficient way.

History has shown the local government that spending millions of dollars on big-time lobbyists who know very little of Puerto Rico is not going to bring results.

The best way to shatter myths and barriers and get the U.S. Congress to treat Puerto Rico fairly when it comes to Medicare and Medicaid is to learn everything we can on the subject and form coalitions with groups that can lend a helping–and knowledgeable–hand, according to former HCFA (now the Centers for Medicare and Medicaid Services, CMS) Acting Administrator Bill Toby and Enrique Baquero, local regent for the American College of Healthcare Executives (ACHE) and president of Cyber Tech.

The first barrier to equality is locals’ own lack of knowledge on the potential benefits. "It has always baffled me as to why the Puerto Rico healthcare industry had little or no understanding of the potential $197 billion Medicaid program to infuse billions of new dollars into the Commonwealth economy… I am talking about $800 million as a start," Toby explained.

"If this were fully understood, I venture to say the health industry and its allies would have built a coalition with the government 36 years ago and would have taken planes en masse to Washington, D.C., to change the law," Toby emphasized. Coalition is a key word for Baquero. "We need a coalition of organizations. The local Hospital Association should team up with the Pharmaceutical Industry Association and health insurance companies dealing with federal programs, for instance," he recommended.

"We should also stay close to the American Hospital Association, we need to put pressure on it to get our message across. Remember that we are all fighting for the same piece of the pie," Baquero added. He also suggested working closely with the National Puerto Rico Coalition, the Puerto Rico Federal Affairs Administration (PRFAA), and with the resident commissioner.

"The victory on the Medicare Preferred Provider Organization (PPO) / Prescription Drug Plan (PDP) issue is a model that must be sustained," Toby suggested. "I saw for the first time in 35 years the Puerto Rico Hospital Association, ACHE, the College of Physicians & Surgeons, Triple-S, Cosvi, the PRFAA, the governor’s office, and the legislative division working together to defeat a Department of Health & Human Services (HHS) policy."

"I know only five people in the States who truly understand the differences and complexities [of Medicare and Medicaid] in breadth and depth and not one of the five lives in Washington, D.C.," Toby revealed, adding that four live in New York and one in Maryland.

This goes to show, Toby said, that the myth of "relying on high-prized Washington, D.C., lawyers and lobbyists, most of whom have an inadequate understanding of Puerto Rico and how Medicare and Medicaid programs operate under congressional restrictions" isn’t going to work.

"I know of an ongoing lawsuit facing the Commonwealth that is being lost in the courts due to a lack of expert knowledge on how Puerto Rico’s Medicaid program operates," Toby warned, insisting that competent locals must be part of these processes.

"Hire local lawyers and health professionals with strong ties to Washington and the New York (Region II) Regional Office of CMS," Toby recommended. He also suggested locals learn how Congress works, learn about the committees with jurisdiction over Puerto Rico, and prepare papers on the island’s history, culture, language, health system, government structure, and core values to provide to members of Congress.

Moreover, Toby emphasized that CMS can help the industry change legislation. "Congress doesn’t change laws affecting states or territories without seeking CMS commentary and impact statements," Toby revealed.

Still, the outlook for getting legislation passed in Congress this year looks tough, according to stateside sources. With a weak economy and an ongoing war in Iraq, Puerto Rico, unfortunately, may not be on everyone’s mind. Still, said Baquero, this is a perfect chance to establish strategies and create coalitions.

What is being done now?

The new representatives Puerto Rico has in Washington, D.C., are looking for innovative strategies to obtain fair terms in Medicare and Medicaid. Representing the island are Resident Commissioner Luis Fortuño and Eduardo Bhatia, director of the PRFAA.

Fortuño told CARIBBEAN BUSINESS he is currently in touch with HHS and with the Ways & Means Committee in Congress to seek ways to achieve equality.

The resident commissioner has already met with Sen. Rick Santorum (R-PA) to submit a bill called the "Puerto Rico Medicare Reimbursement Equity Act of 2005," which aims to increase Medicare reimbursements to 100%. Santorum has been an avid advocate for equal treatment for Puerto Rico when it comes to Medicare reimbursements.

Bhatia said the bill is "a step in the right direction. Gov. Acevedo Vilá and I will support it 100%."

Fortuño has also met with HHS Secretary Mike Leavitt. They discussed the problems local hospitals face because of a deficit in Medicare reimbursements. Fortuño particularly stressed that the additional funds would help alleviate nurse shortages in hospitals by increasing their salaries and giving them more incentives.

Bhatia told CARIBBEAN BUSINESS he is currently embarking on three main strategies. First, his office is gathering data that will prove there are discrepancies between how much Puerto Rico hospitals spend and how much they get back in federal funds.

Secondly, Bhatia explained his office is partnering with pharmaceutical companies, stateside hospitals, and physician associations that have clout in Congress.

He also said his office is working closely with key staffers of such congressional heavyweights as Sen. Santorum to keep Puerto Rico’s needs "on the radar."

A history of inequality

A: Medicare

"On Oct. 1, 1986, Medicare changed the way in which it paid Puerto Rican hospitals, going from a reimbursement system to a prospective payment system (PPS) that is based on a set fee per type of diagnostic (known as DRG or Diagnostic Related Groups)," wrote Alfredo Volckers, executive vice president of Pavía Health in a letter to CARIBBEAN BUSINESS.

"In this payment system, Medicare pays each hospital based on the final diagnosis of each admitted patient," Volckers continued. "For example, if a patient is admitted to a hospital and the final diagnosis is a heart attack, a specific fee is assigned to that diagnosis according to a formula established by Medicare."

The good news is that in terms of Medicare, Puerto Rico has achieved some victories. "In 1987, Congress decided to reimburse Puerto Rico hospitals only 25% of the national computation formula of the PPS base rate," said Toby.

"In 1997, under the Balanced Budget Act, the computation formula was increased to 50%," Toby said. Then, in December 2003, following an uphill battle in Congress, the Medicare Prescription Drug Bill gave the island’s hospitals 75% of the PPS computation formula. According to CMS estimates, this increase translates into $50 million to $75 million more for Puerto Rico hospitals over a 10-year period. Still, the battle for 100% reimbursement continues.

"At the moment, the formula for Puerto Rico is based on 25% of average local hospital costs and 75% on average costs in stateside hospitals. Meanwhile, stateside hospitals are reimbursed 100% of the average costs of all continental hospitals," Volckers explained.

"For instance, let us say open heart surgery costs an average of $9,000 in Puerto Rico and $20,000 in Miami. The cost of supplies, equipment, and materials are the same in both places. In Puerto Rico, there are times when these are more expensive than stateside because local hospitals must pay shipping expenses and excise taxes," Volckers said.

Fortuño agreed, adding, "We seek to obtain 100% reimbursement based on national average costs. This would reflect local hospitals’ real costs."

If Puerto Rico were reimbursed 100%, it could receive an additional $100 million, which, according to Volckers, could be used to help hospitals obtain state-of-the-art equipment and improve hospital facilities.

B: Medicaid

"The gap between Commonwealth expenditures on Medicaid recipients and federal reimbursement is exceedingly high," Toby said. "The [local] government spends over $1 billion and receives only $219 million. If it were treated like a state, the Commonwealth would receive $800 million more for the same services," he added.

Fortuño said, "If Puerto Rico were treated like a state, we would obtain more than $1.2 billion." Puerto Rico is treated like a state in terms of applying federal standards, but differently when it comes to financing.

This is why Bhatia is making Medicaid his office’s "first, second, and third priority." He told CARIBBEAN BUSINESS, "Stateside, the average Medicaid payment per patient, per month is $268. Meanwhile, in Puerto Rico, Medicaid’s payment per patient per month is less than $20."

Toby explained that, as enacted in 1965, Title XIX of the Social Security Act didn’t establish a ceiling on the federal government matching funds for Puerto Rico. Federal matching was open-ended, just like stateside, and the island’s Medical Assistance percentage was 55%, similar to states with higher per capita rates.

Then, in 1967, Congress limited federal Medicaid payments to a $20 million ceiling and reduced the match to 50% from 55%. To counteract the financial strain this decrease in funds created, Congress determined that by law Medicaid recipients were restricted to use only facilities operated by the Health Department.

Although the match has remained at 50% since then, the actual matching percentages have declined, and Toby pointed out they are now as low as 17% or 18% locally. At the same time, the match for South Carolina is 69.81%, Louisiana’s is 71.28%, Alabama’s is 70.60%, and New Mexico’s is 74.56%. He said, considering 60% of the local population lives below federal poverty levels, the matching funds for Puerto Rico should be raised to 80%.

"Poor states like Alabama, for example, get reimbursed about 80% of the money they spend on Medicaid beneficiaries, while reimbursements for rich states are around 50%," Bhatia explained. Still, he added that even though Puerto Rico’s per capita income is lower than that of the poorest states, it only gets between 15% and 20% reimbursement, similar to what Toby had calculated.

"The outlook is hopeful in Washington for the governor’s effort to change the Medicaid law relative to lifting the cap," Toby told CARIBBEAN BUSINESS, adding, "A couple of years ago, in the Fiscal Stimulus Bill, Puerto Rico received a 5.9% increase in the cap. This was a huge victory, but the [local] media didn’t pay attention to its significance."

Despite that achievement, Fortuño isn’t as positive as Toby. "We will work very hard toward getting over $1.2 billion in funds in Medicare, however, we must keep our goals realistic. It isn’t going to be easy to obtain such an increment in funds when there is such a large federal deficit." The Congressional Budget Office forecasts that the U.S.’ 2005 on-budget deficit will rise to $569 billion.

Dish local hospitals fair DSH payments!

The local health industry and government must also battle to make the island’s hospitals eligible for disproportionate share hospital payments (DSH). This requires making local low-income beneficiaries eligible for Supplemental Security Income (SSI). If a hospital’s low-income patients are not SSI-eligible, then the hospital can’t receive DSH payments.

Volckers said when it comes to SSI and DSH, even other U.S. territories are treated better than Puerto Rico. "Do you know that the people of the Mariana Islands qualify for SSI and we don’t?" he asked. "We are definitely treated like second and even third-class citizens when it comes to health."

The resident commissioner has discussed with HHS Secretary Leavitt the possibility of amending the law so Puerto Rican hospitals taking in a large amount of low-income patients (about 40% of all local hospitals) may qualify for DSH payments.

Medicare pays hospitals DSH payments to cover treatment given to low-income patients eligible for Medicaid. These DSH payments are based on each hospital’s SSI-eligible patients. However, since Puerto Rico is not eligible for SSI, its DSH payments are only a very small fraction of what they would be if people in Puerto Rico were eligible for SSI.

Currently, Puerto Rico hospitals do receive DSH payments, but they are based on the number of patients whose main residence is in the U.S., thus making them eligible for SSI payments. According to estimates, local hospitals could obtain anywhere from $100 million to $400 million per year if they were included in the provision.

The big problem, Volckers said, is Puerto Rico has been left out. Therefore, about 30 hospitals belonging to the PRHA have filed lawsuits against CMS. In the meantime, the organization is also redoubling its efforts in Congress to amend the law and make Puerto Rico eligible for SSI payments.

Medicare Advantage plans sweep the island

Medicare Advantage is the new program that replaces Medicare Plus Choice. Besides adding some benefits the traditional Medicare program didn’t offer, it leaves the management of benefits to private health insurance companies.

Medicare Advantage is available to beneficiaries who have Medicare Part A and Part B coverage. Medicare Part B costs beneficiaries $78.20 a month, the same as in the States. Sources at the Centers for Medicare and Medicaid Services (CMS) indicated that to be eligible for Advantage, beneficiaries that don’t have Part B coverage must enroll in it first and incur the monthly payment.

In Puerto Rico, many insurers have embarked upon the Advantage trail. Triple-S, for instance, set up its Optimo plan for this purpose. The company’s Vice President for Medicare Optimo Mayra Plumey told CARIBBEAN BUSINESS Optimo covers additional benefits such as dental health, hearing aids, and eyeglasses. "Our dental benefit pays dentists directly for preventive services," Plumey explained.

"Beneficiaries needing hearing aids obtain a reimbursement of up to $250 every two years," Plumey added. This means, for example, that if beneficiaries spend only $100 on a hearing aid, their reimbursement will be $100; but if they spend $300 on a hearing aid, they will only get $250 back. It works similarly with coverage for eyeglasses, which is up to $100 every two years.

Plumey said the benefit of transferring to Medicare Advantage from the traditional program is–in the Optimo version of Advantage–"beneficiaries don’t have to pay the annual deductibles for hospitalization, x-rays, or laboratory services. They only pay a deductible between $5 and $10 for visiting their physician or $25 for visiting an emergency room." They also pay a monthly premium of $10.

Classicare, the Advantage program Medical Card System (MCS) has set up, doesn’t charge beneficiaries a deductible for visiting their doctor’s office, according to MCS President Carlos Muñoz.

Other companies that have set up Advantage programs in Puerto Rico are MMM Healthcare, Preferred Medicare Choice, and Humana. MMM was the local pioneer in Advantage. The company was established in 2001 to offer Medicare Plus Choice coverage. Its Advantage program is the fastest-growing.

By comparison, in traditional Medicare (Part A hospital deductible), Plumey said beneficiaries have an annual deductible of $912. This means Medicare only pays expenses after the beneficiary has accumulated $912 in out-of-pocket medical expenses.

The $912 deductible per year is too high for Puerto Rico, says Bill Toby, former acting administrator of the Healthcare Financing Administration (HCFA), now known as CMS. "[It] is clearly not in keeping with the economic realities of Puerto Rico. In Puerto Rico, the one-day average–not including the larger and more complex hospitals–is less than $600," Toby said in a recent healthcare symposium, adding that the deductible approaches nearly two days of hospitalization.

Medicare Advantage Drug Plans

Triple-S offers Optimo Plus to cover prescription drugs before Medicare Advantage Drug Plans (MADP) come into effect in January. For $70 a month, Plumey explained, beneficiaries have access to bioequivalent drugs, and there isn’t a cap on the amount they can spend. If they go for brand-name drugs, there is a cap of $500 per year, she said. The beneficiary must cover expenses beyond $500.

MCS has Classicare Premium, which costs the Advantage beneficiary $65 a month, according to Muñoz.

Pavía Health Executive Vice President Alfredo Volckers warned that placing administrative responsibilities in the hands of health insurance companies may backfire. "These companies receive payment from Medicare and then pay hospitals according to a set per-patient, per-day rate. The problem is these companies want to pay local hospitals a rate that is not the same as in the States, even though Medicare pays them the same here as they do companies stateside," he said.

Prescription-drug plans for traditional Medicare

Those who select to remain under traditional Medicare will have another prescription drug benefit. A minimum of two commercial health plans will be selected to offer a prescription drug plan (PDP) for beneficiaries who decide to keep traditional Medicare coverage. The selection is expected to take place before the end of the year.

According to sources, there are about five insurance companies that have formed in the hopes of being selected as a PDP manager. In addition, well-known health insurance companies such as Triple-S and MCS are also in the game.

"[The PDP] coverage starts with a $250 deductible, and there is a 25% co-pay for the beneficiary up to $2,250 in drug costs. There is a premium of $37 a month that they would have to pay for this benefit. Then, the beneficiary pays 100% of drug costs between $2,251 and $5,100. If drug costs surpass $5,100, Medicare will pay 95% and the beneficiary only 5%," James Kerr, CMS director for Region II, explained.

Kerr also explained CMS is on an awareness campaign to get the word out on the new drug benefits. "This is the first phase," said Kerr. "The second phase–to start in July, or so–is what we call the decision-making phase. We want to give all 600,000 beneficiaries [in Puerto Rico] enough information to make a decision as to whether or not they want to sign up for the program. Visiting doctors’ offices and other areas where beneficiaries gather will be part of the strategy to get the word out.

"May 15, 2006, is the deadline for eligible beneficiaries to sign up," said Kerr. "Those who do so by the deadline will pay the $37 a month premium. If they wait until after the deadline, the premium goes up," he added, saying this is exactly the way it will work in the States.

Kerr revealed the program also offers employer subsidies. "If an employer offers a prescription benefit plan to company retirees that is as good as, or better, than the Medicare benefit, Medicare will subsidize up to about $661 [before taxes] per retired employee per year for keeping the company-sponsored drug plan in place," he explained, highlighting the subsidy will be adjusted for inflation.

Regarding the financing of the PDP, Kerr pointed out that the U.S. territories as a whole will receive a block grant of about $28 million, of which Puerto Rico will get about 98%.

"That is for the last three quarters of 2006. That money is for about 225,000 dual-eligible [for Medicare and Medicaid] beneficiaries in the program. The remainder will buy into the program," Kerr indicated, adding that by fiscal 2007, funds will increase to more than $37 million. In the States, there isn’t a block grant as in the U.S. territories. Stateside, the federal government covers the premiums, according to Kerr. Toby believes the block grant is "only a fraction of what is truly needed to finance premiums."

"Once again the feds have discriminated against Commonwealth residents by giving them a Medicare drug benefit and then saying ‘pay for it yourself’," Toby added, explaining that the funds given to Puerto Rico under the block grant must be matched.

Prescription-drug plan costs swell

The Congressional Budget Office (CBO) said early last month that the Medicare prescription-drug benefit will cost $849 billion over the 10-year period ending in 2015, up $54 billion from the agency’s January projection. Analysts attributed the net spending increase to a higher estimated cost of basic benefits and a change in the cost of low-income subsidies under the original bill.

In February, CMS officials said the drug benefit would cost more than $720 billion in the first 10 years, with expenses reaching $100 billion annually by 2015. During negotiations over the proposed Medicare legislation, the Bush administration’s costs estimates were initially projected at about $400 billion during a 10-year period.

Shortly after Bush signed the measure into law in December 2003, the administration projected the cost would reach $534 billion. According to a Kaiser Daily Health Policy Report, Bush administration officials have said that new and previous estimates aren’t comparable because the older projections covered the period of 2004 to 2013, while the newer estimate covers the period between 2006–when the new prescription drug benefit takes effect–and 2015.

"The U.S. government needs to finally figure out if the latest estimates are correct, and if they are, it must either increase the plan’s premium or find a way to control the costs of prescription drugs," said Muñoz.

This Caribbean Business article appears courtesy of Casiano Communications.
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