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Cheryl Clark, for HealthLeaders Media

The federal government is wasting more than $3.2 billion a year because it is paying twice to provide the same care for veterans, once through capitated rates to Medicare Advantage plans, and again to finance the VA healthcare system, which actually provides the care.

That’s according to a report in the Journal of the American Medical Association, which found that the Veterans Healthcare System spent $13 billion—from 1.3 billion in 2004 to $3.2 billion in 2009—providing care for 1.25 million “dual-eligible” vets covered by Medicare Advantage plans.

“The Medicare Advantage plan is being paid to provide comprehensive care, but they provided no care (or only partial care), and still are able to pocket the difference,” says Kenneth Kizer, MD, one of the study’s authors and the former Under Secretary for Health in the U.S. Department of Veterans Affairs between 1994 and 1999.

Because of their military service, the system allows veterans to choose between receiving care through a Medicare Advantage Plan or through the VA. “They may live far away from the VA, in rural areas, or the VA may have a waiting list for elective surgical procedures,” Kizer says. “And since they do have choices, they can utilize what works best for them.”

 

But half of these veterans are getting significant portions of their care from the federally funded Veterans Affairs healthcare system rather than through their Medicare Advantage network. And 10% go to the VA for all their care.

But Medicare pays Medicare Advantage health plan network collects a monthly amount for each enrollee, regardless of whether the Advantage plan absorbed any costs.

Kizer, now director of the Institute for Population Health Improvement at UC Davis Health System, says that the way the system is set up, “undermines the concept of being at risk,” which the Medicare Advantage plans are supposed to assume in exchange for the monthly capitated payment for each enrollee.

“Another interesting wrinkle is that the majority of these plans are for-profit—nine out of 10—so they’re basically getting a federal subsidy to provide care for veterans who are getting the care at the VA, and some might argue that gives them (the Medicare Advantage plans) an advantage in the marketplace.”

Kizer adds that because an increasing number of veteran Medicare beneficiaries are choosing Medicare Advantage plans, the amount of healthcare spending absorbed by the VA for their care is at least $4 billion in the current year, and growing annually.

The study, by lead author Amal Trivedi, MD, of Brown University and others, recommends that policymakers attempt payment system change to rectify the double payment for these dually-enrolled veterans.

First, the VA could receive authorization to collect reimbursements from the Medicare Advantage plans for covered services, just as the VA collects payment from private health insurers for non-Medicare patients.

That practice is now prohibited by the Social Security Act, but that law was passed before managed care plans were brought into the Medicare program in 1982, Kizer says.

Second, officials at the Centers for Medicare & Medicaid Services might reduce payments to Medicare Advantage health plans whose veteran enrollees received most or all of their care at the VA.

“For example, we found that 10% of dual enrollees exclusively received care in the VA and that approximately half of outpatient encounters for the dually enrolled population took place in the VA. Medicare might reconsider the current practice of fully funding managed care plans on behalf of beneficiaries who primarily receive care in the VA,” the JAMA report says.

Kizer says that during his years heading the VA, he and others tried to change the system to allow the VA to recoup some costs of actually providing the care when other providers and health plans were collecting the payment. It never went through, he says, in part because back then the amounts were only about $200 million a year. 

Kizer emphasizes that the veteran has earned the right to use either the VA system or the Medicare Advantage system, “and it would be wrong to penalize them or in any way hurt them. But that doesn’t mean the government shouldn’t find a way to reduce payments so they’re not wasting so much money.”

 

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