On Jan. 1, Medicare rolled out a new program designed to help seniors pay for prescription drugs. The rules for the new program are complex. While all businesses may not be directly faced with navigating the complexities of Part D, certain legal issues will have an impact on everyone, specifically physicians groups.
“The implementation of Part D is complicated, whether one is advising a physicians group regarding the effect of Part D on its contracting, or simply attempting to advise one’s friends and relatives regarding the choice of an appropriate Part D plan,” says Jonathan Gluck, a health care specialist and partner in Alschuler Grossman Stein & Kahan’s Business Litigation Department.
Smart Business spoke with Gluck about the evolution of Medicare Part D and the legal issues that have arisen since its implementation.
What led to the enactment of Medicare Part D?
The Medicare program, which was signed into law in 1965, was originally designed to cover institutional (hospitalization) and professional medical services for seniors, which are known as Parts A and B respectively. Later, the government decided to allow private health plans to offer Medicare plans (Part C). They may now offer Medicare benefits that include medical savings accounts, managed care plans and private fee-for-service plans. While traditionally some of the private plans offered prescription drug coverage, it was not universal. This led to the creation of Medicare Part D as part of the 2003 Medicare Modernization Act. Part D, for the first time, provides prescription drug coverage for seniors.
What are some of the issues that have arisen during the implementation of Medicare Part D?
The most crucial issue is simply the logistical nightmare of having more than 40 million Medicare members understand and sign up for a plan that offers them the benefits they need.
This problem is exacerbated by the fact that the government expected seniors to do most of their research regarding available plans over the Internet, and many seniors are not computer literate. The number of seniors who did not sign up for a plan is still the subject of debate, and no one now knows, or will know for a while, how many seniors signed up for plans that do not provide them the benefits they need.
In addition, the implementation of Part D has changed the method by which the government calculates its payments to the private health plans, which has an impact on how the health plans in turn pay their capitated physicians groups.
How has Part D affected physicians groups?
Many physicians groups contract with health plans to provide all required care for a plans’ members for a set dollar figure every month. This is known as ‘capitation.’ In many of these agreements, the physicians groups agree to accept as payment a percentage of the premium dollars paid by the government for each member.
Prior to the implementation of Part D, it was simply a matter of calculating the percentage from the total amount paid by the government. Because of the way that the government now calculates the dollars paid to the health plan, however, many health plans are attempting to force their capitated physicians groups to accept their percentage from a smaller portion of the total amount paid by the government. This results in less real dollars for the physicians, even though the health plans will actually receive more total dollars because of Part D.
What is the possible impact of less dollars making their way to physicians groups?
Many physicians groups likely do not realize how these changes will affect their bottom line — and may not until the end of the year when they will suddenly find themselves running a deficit and losing money. For anyone who remembers the failures of physicians groups such as MedPartners and KPC Medical Management, and the resulting upheaval and displacement they caused, this should be a cause for concern.
Are there any other legal issues that have arisen?
Many drug companies previously provided some of the more expensive prescription drugs at very lost cost to low-income seniors. Part D, however, has anti-kickback rules which prohibit a drug company from providing a financial incentive to induce someone to use their drugs. Because of this, drug companies claim they can no longer provide drug subsidies without violating the law. This will result in numerous seniors no longer being able to afford some of the more expensive drugs.
While the government is attempting to resolve this issue with the drug companies, so far there has been no resolution.
JONATHAN GLUCK is a partner in Alschuler Grossman Stein & Kahan’s Business Litigation Department specializing in health care law. Reach him at (310) 255-9150 or [email protected].