The Wall Street Journal (2/24, Fuhrmans) reports that the Centers for Medicare and Medicaid (CMS) announced Friday that "it planned to raise reimbursements for private Medicare in 2010 by much less than expected." The CMS "proposed payment increases for so-called Medicare Advantage plans of just 0.5 percent next year compared with the roughly four percent increase that the private plans have seen in recent years." As a result, "shares of insurers with a big Medicare business went into a tailspin Monday on fears the preliminary payment increases would stall what has been a critical source of profit growth for the industry." The preliminary rates were expected to be set "later this year in Congress, and many investors and companies were caught off guard."
A "final version" of the payment-rate increase is "not being unveiled until April 6 after public comment has been received," according to a separate article in the Wall Street Journal (2/24, Dorman). Humana Inc. stated that "certain assumptions behind the preliminary rates are 'unusual and inconsistent with decades of experience and with past CMS practice.'" The insurer said it "is 'closely analyzing' all aspects of the" payment rates, including "the estimated 1.1 percent drop in costs per enrollee." CMS noted, however, that the decrease "is predicated upon Congress and the Obama Administration allowing a 20 percent drop in Medicare reimbursements to take effect next year."
Under the proposed rates, analysts are predicting that "Medicare Advantage plans will need to cut benefits to maintain their profit margins," the AP (2/24) notes. Similarly, Humana claimed that "the preliminary 2010 payment rates may have 'a significant adverse impact' on Medicare Advantage premiums and benefits." The rates also include "a 20 percent Medicare reimbursement cut for doctors," which some analysts speculated "likely will be softened, but not before Medicare Advantage rates are set, potentially leaving insurers stuck with the difference."
"UnitedHealth Group Inc., Humana Inc. and Coventry Health Care Inc. each tumbled more than 11 percent in New York trading" following the government's announcement, Bloomberg News (2/24, Randall) adds. Some analysts are now advising investors to "buy shares of Aetna Inc. and Cigna Corp., 'who among the commercial providers maintain the lowest level of Medicare Advantage exposure.'" CQ (2/24) and Modern Healthcare (2/24, Vesely) also cover the story.
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