Medicare, the U.S. health-insurance program for those age 65 and older, reaches a milestone this year. Medicare turns 50 years old, and cumulative differences in funding to Puerto Rico and the U.S. mainland are taking their toll on the island’s healthcare industry, which could suffer a potentially fatal economic blow if further cuts to Medicare Advantage (MA) mandated by the Patient Protection & Affordable Care Act of 2010 (ACA or Obamacare) are implemented next year, industry executives told CARIBBEAN BUSINESS.

Within the next two months, the Centers for Medicare & Medicaid Services (CMS) will decide whether to implement an 11% cut, amounting to $1.1 billion, to annual MA funding for Puerto Rico in 2016, in addition to other cuts mandated by ACA. To date, Medicare Advantage accounts for nearly half—$5 billion— of total healthcare funding to the island.

Nearly $10 billion in cuts and taxes are scheduled for Puerto Rico through 2019, when Congress will decide to either eliminate or extend Obamacare.

Further cuts will cripple Puerto Rico’s healthcare industry—one of the few economic sectors that has helped the island bridge the economic storm of nearly a decade of protracted recession—which directly employs about 80,000 people and annually contributes more than $11.6 billion to Puerto Rico’s economy, according to industry statistics.

«No matter what sector of the healthcare system you come from, you should be concerned about MA [in Puerto Rico] because it will affect you,» said Roberto Pando, senior vice president of strategy for Medical Card System Inc. (MCS), a local insurance company.

MCS is among the insurance companies, doctors, hospitals, pharmacies and government officials that make up the Puerto Rico Medicare Coalition for Fairness, which since 2012 has been calling on federal CMS to eliminate discriminatory disparities in federal funding to the island. While Puerto Rico receives far fewer Medicare benefits than states, local residents pay equally into Social Security and Medicare as their counterparts in the mainland U.S.

During the Puerto Rico Chamber of Commerce’s annual Health & Insurance Conference held March 5, CARIBBEAN BUSINESS discussed this state of affairs with local industry executives and high-ranking CMS officials, all of whom said they are well aware of the growing disparities and the need to change this discriminatory situation with Medicare and its roster of supplementary plans. (See sidebar on page 15.)

Among those is Medicare Advantage, a federal health-insurance program of managed healthcare that serves as a substitute for «Original Medicare» Parts A and B benefits. The program was founded in 1997 to provide expanded services to holders of Medicare Parts A and B.

Today, MA has more than 550,000 beneficiaries and accounts for $5 billion of Puerto Rico’s healthcare funding resources every year. The program has a 75% penetration rate on the island versus 29.2% in the mainland U.S.

This is the case because people here use MA—which entered the island in 2001 and had rates similar to the states—to cover longstanding disparities in Medicare funding to the island’s poor and elderly people. These disparities trace back to 1965 when Medicare rates were originally calculated incorrectly because of the lack of proper data, which prevented CMS officials from arriving at a true cost for fees for services. This miscalculation made Puerto Rico an extreme case of disparities in payments throughout the U.S., industry executives said.

Medicare pays $419 in monthly fees for services per member in Puerto Rico, or 42% less than the average $725 a month in the mainland U.S.

Medicaid, the healthcare program for low-income individuals and families, pays $155 monthly per member here, or nearly 71% less than the average $531 stateside. Medicaid’s annual payments to Puerto Rico are also capped at $300 million, the coalition reported.

Double whammy in MA cuts

The problem is that since the island’s Medicare rates are so far below those of the U.S. mainland, Puerto Rico is being disproportionately affected by ACA-mandated cuts to MA in an effort to crack down on program fat and abuse. If the cuts are implemented as planned, Puerto Rico will continue to suffer from a double, downward blow in MA reductions since the cuts are based on a percentage of Medicare rates, which are disproportionately skewed downward in Puerto Rico.

«In terms of Medicare and Medicaid, think of Puerto Rico as a skinny malnourished kid who has a lot of potential, while Medicare and Medicaid in the States could be an obese person who could do with losing some fat,» Pando said.

Today, Puerto Rico receives $520 monthly per MA beneficiary, which is 27% lower than the least-funded state, Hawaii($714), and 32% lower than the average MA rate stateside ($766), the coalition reported.

ACA mandates MA rates be reduced to 115% of the base Medicare rate by 2019.

Before the cuts, MA rates for Puerto Rico stood at $608 monthly per member in 2011. ACA-mandated cuts to date have reduced this by nearly 15%.

If planned cuts go into effect, MA rates will go down to $462 monthly per member in 2016 and continue to drop to $390 monthly per member in 2019, according to data provided by insurance company MMM.

This translates into a nearly 36% reduction, which far outpaces the largest cuts stateside, a reduction of 10% for Hawaii, according to the coalition.

The cuts are especially onerous if taken in light of the fact that per capita healthcare spending in Puerto Rico—$3,200—is about one-third of that stateside—$9,000.

«If we don’t fix this, MA providers will simply stop existing, and if we stop existing, the health system will collapse for everyone,» said Nilda González, deputy vice president of STAR classification operations for MMM Healthcare & PMC Medicare Choice.

This would be the case because MA accounts for practically half of total annual healthcare revenue in Puerto Rico.

«If the MA system collapses, half of these people won’t be able to pay for Medicare, so they will end up going into the government’s public health-insurance plan, which would then collapse and break down the island’s whole healthcare system,» said Jim O’Drobinak, CEO of MCS. He was referring to the 250,00 beneficiaries without Medicare Platino, the dual-eligible program for MA and Medicaid.

«We want to save our healthcare system from becoming another major crisis for our island and another major crisis for the U.S.,» he said.

If coverage for Medicare Platino goes, this would cost the commonwealth an added $500 million a year, said Ricardo Rivera Cardona, executive director of the Health Insurance Services Administration. ASES, as the agency is known by its Spanish acronym, heads the Government Health Plan (GHP), which provides health insurance to 1.7 million medically indigent people in Puerto Rico. This includes 300,000 elderly, poor people who are Medicare Platino beneficiaries.

«It is very important to maintain the health of MA because that also refl ects on the health of Medicaid in Puerto Rico,» Rivera said.

Every $1 decrease in MA rates translates into another $3 million in services the commonwealth must pay for, he added.

Nearly $10 billion in cuts & taxes

The funding cuts began in 2012, and thus far amount to a nearly $3 billion reduction in annual federal funding for healthcare in Puerto Rico versus this year. In 2016, an additional $1.1 billion cut is planned—something many think will cripple the island’s healthcare system—and these cuts will total a whopping $7.7 billion by 2019.

Besides this, Puerto Rico is set to lose an additional $1.9 billion in federal healthcare funding under the Health Insurers Tax (HIT) ($1.225 billion) and Medicare sequestration, or government spending-reduction program, ($675 million).

The HIT is designed to fund health-insurance exchanges and low-income subsidies (LIS) for medicine under Medicaid, neither of which Puerto Rico has.

«The funding and funding cuts are totally inappropriate and discriminatory, as people in Puerto Rico pay an equal amount of Social Security as everyone else,» said Puerto Rico Insurance Commissioner Ángela Weyne, who is strongly lobbying to have the HIT eliminated. This year, the tax amounts to $188 million. «It makes no sense for us to pay this tax as we don’t have a health exchange and don’t qualify for about $250 million a year under LIS,» she noted.

Sequestration involves a series of spending cuts required by the U.S. Budget Control Act of 2011, which are aimed at reducing the U.S. deficit. The required cuts would decrease federal spending by $1.2 trillion (a trillion is a thousand billion) from fiscal year 2013 to fiscal year 2021. The required reductions include a 2% cut in Medicare provider payments, which amount to nearly $11.1 billion. The Congressional Budget Office estimates the Medicare budgetary reductions will total $123 billion from 2013 to 2021, the Medicare Newsgroup reported.

«If all planned cuts go into effect, Puerto Rico will go bankrupt. We want you to know that we are clear supporters of Puerto Rico on the CMS level,» said Michael Meléndez, associate regional administrator of CMS’ division of Medicaid & Children’s Health Operations.

ACA’s aim wasn’t to unduly penalize Puerto Rico—which has been the case as MA cuts to Puerto Rico are the largest in the U.S., even though Puerto Rico receives the lowest MA rates per member per month—but rather push insurers and healthcare providers toward preventive, patient-centered care to make people healthy versus cashing in on people’s chronic and terminal illnesses. Since the cuts are based on Medicare rates, in which Puerto Rico is an extreme case of funding disparities, the island is being unfairly affected by these reductions.

But with the highest MA market penetration in the U.S., Puerto Rico is already well on its way to moving away from a fee-for-service system to an integrated healthcare system, which is the core business of MA plans, said Madeline Hernández Urquiza, president of Triple-S Advantage, another insurance company.

«Puerto Rico has already improved quality at a faster pace than stateside. If we don’t get all the funding, there isn’t much more that we can do,» Hernández said.

ACA cuts to MA, coupled with the requirement that 85% of all premiums are spent on healthcare, are overburdening Puerto Rico’s already strained healthcare system, the coalition said.

«Not changing this will create a huge impact on our society,» said Elliot Pacheco, president of Puerto Rico’s Community Pharmacies Association. This group represents 750 local community pharmacies that employ 9,000 people islandwide.

«We need a permanent solution, not just continue putting on patches,» added O’Drobinak of MCS.

Moves to make MA funding more equitable are: include Puerto Rico MA beneficiaries in low-income subsidies; raise MA minimum funding to 85% of the least-funded state; eliminate historic discounts to Medicare Part A fees; adjust MA benchmarks accordingly and simultaneously; and expand eligibility for MA beneficiaries who are considered medically indigent to 138% of the federal poverty level.

An immoral situation

Financial problems in the commonwealth’s GHP and healthcare industry could easily be solved if Puerto Rico received parity in just Medicaid funding alone, which would raise Medicaid payments to more than $3.5 billion a year from the current $1.3 billion, said Resident Commissioner Pedro Pierluisi and Rivera of ASES.

«I am not prone to hyperbole, but this inequality is completely immoral and forces too many senior citizens on the island to choose between paying for their medicine or purchasing other basic necessities,» Pierluisi said.

Rivera added: «If they remove the cap on Medicaid, and we are treated as any other jurisdiction, we calculated that we would have an annual surplus of something like $215 million.»

At its current rate of spending, the GHP is set to run out of the $6.4 billion block grant in Medicaid funding through 2019 in the summer of 2018, at which time the commonwealth would have to come up with $500 million to $600 million to bridge the gap.

While Medicaid and Children’s Health Insurance Program funding has increased under ACA—from about $400 million a year before the law to $1.3 billion this year— Puerto Rico is nowhere close to receiving fair, state-like treatment, Pierluisi said.

«Contrary to the U.S. mainland, in Puerto Rico there is a limit to Medicaid funding. In 2009, Puerto Rico was subjected to a limit of $300 million a year. To put this in context: Oklahoma, which has almost the same population as Puerto Rico’s 3.5 million residents but is much wealthier, receives $3.5 billion from the federal government in Medicaid funding each year,» the resident commissioner said. «In addition to such a severe cap, before 2010 it was established by law that the Federal Medical Assistance Percentages [FMAP], or the rates used to determine matching funds allocated annually to certain medical and social service programs, would be 50%, or the same rate applied to the richest states. If the FMAP were calculated the same as in the States, the rate for Puerto Rico would exceed 80%,» he added.

Before ACA was enacted, the rate of matching funds that applied to the island was less than 20%. Besides matching funds for Medicaid, the FMAP also determines matching funds for the State Children’s Insurance Program, Temporary Assistance for Needy Families, as well as Child Support Enforcement collections and Child Care & Development Fund.

To receive Medicare Advantage, a person has to be enrolled in Parts A and B of Medicare. However, Puerto Rico is the only U.S. jurisdiction— state or territory—where people aren’t automatically registered into Part B, but rather have seven months after turning 65 years old to request and fill out the paperwork to enter Part B.

Today, Puerto Rico is treated equally in only one Medicare program, namely federal grants to implement the Medicaid Management Information System, said CMS’ Meléndez.

Signs of the times

Like a boat taking on water, there are certain cracks that are starting to appear in Puerto Rico’s healthcare system that indicate healthcare funding is not only unequal to that of the U.S. mainland, but also insufficient to maintain a healthy system.

Only half of the island’s MA plans reported a profit in 2014, and if things continue as they are, by 2016 private insurers won’t be able to serve as subcontractors to the 300,000 Medicare Platino members under the commonwealth’s Government Health Plan, said both Richard Shinto, CEO of MMM Healthcare, and MCS’ O’Drobinak.

«At this point, with the amount of revenue cuts, companies would consider leaving Puerto Rico,» Shinto said.

To date, the profit margins for MA plans are less than 1% and companies have suffered reductions in their risk capital, other industry executives said.

If private plans refuse to serve Medicare Platino beneficiaries, people would have to rely on the commonwealth’s already financially beleaguered public health plan, which would make this program that now pays $165 per member per month, the predominant economic driver of healthcare delivery in Puerto Rico. At this point, the island would have to either increase co-pays or limit medical services given to the medically indigent, most of whom are women, children and the elderly.

Other cracks in the ailing health system include the continuing exodus of doctors to the U.S. mainland in search of higher salaries. Statistics indicate that more than 300 doctors leave Puerto Rico each year, in addition to the 60% of local medical graduates who opt to look for work outside of Puerto Rico as well.

This dearth of doctors means that patients often have to wait months for an appointment for specialized procedures. The scarcity has reached such a point that some surgeons will charge a hospital $300 extra to operate on a patient at that facility, industry sources said.

Recently graduated doctors stand to earn a paltry $21,000 a year in Puerto Rico versus $100,000 a year stateside, according to data provided during the Puerto Rico Chamber of Commerce’s annual Health & Insurance Conference in March.

In addition, many general doctors serving the GHP receive only $4 per patient visit because there has been no premium in the plan’s monthly payments per member, according to Itza D. Chevres, a general practitioner and CEO of Policlínica La Familia. The clinic is an independent practitioners association (IPA) that was recently fused into IPA 356 Grupo de Medicina Familiar de Corozal Inc. About 85% of people who use this IPA are GHP beneficiaries.

Physicians struggle with system

On March 3, the Puerto Rico Medical Association sued Insurance Commissioner Weyne, calling for her to eliminate rules preventing doctors from collective bargaining.

While Weyne declined to comment, Víctor Ramos, president of the trade group, said: «Doctors have gotten tired of abusive treatment. The rates sent by one of the insurers under the GHP included 50% reductions in payments for sonograms and X-rays, as well as a 25% reduction for MRIs and CT Scans. The reductions for what insurers are paying for procedures vary from 18% to 62% less.

«With these reductions, they expect doctors to subsidize the government’s GHP, accepting to charge less for procedures than what they cost. It’s not only about rates for procedures, but also doctors have to negotiate coverage rates for patient treatments, which increasingly require more and more preauthorization,» Ramos added.

On March 11, the P.R. Society of Podiatrists denounced MMM for requiring difficult preauthorizations— which can take up to two weeks to obtain—for podiatrists to cut nails, remove corns and ingrown toe nails, clean ulcers and abscesses, as well as other procedures for diabetic patients, something that could lead these patients to have a greater number of amputations.

«It is a known fact that one of the causes of amputations in diabetic patients is that a relative or friend tries to cut their nails at home, without a podiatrist’s evaluation,» said Cher Ramos, president of the P.R. Society of Podiatrists. «This practice by MMM/PMC goes against the company’s policy of sending diabetic patients to podiatrists to get preventive treatment to prevent complications that lead to amputations.»

Likewise, many hospitals, especially those that aren’t part of a group, are failing to keep up financially, and Puerto Rico’s hospital sector is ripe for consolidation. Especially vulnerable are hospitals that aren’t part of a group, other industry executives said.

«Right now, most hospitals are failing to collect 6% of outstanding debts [with patients and insurers], and insurers are questioning about 20% of the billings hospitals submit,» said veteran hospital administrator Alfredo Volckers.

To make ends meet in an increasingly ever-austere environment, insurers, hospitals and even the commonwealth have become experts in passing the buck when it comes to paying for healthcare.

The GHP and many commercial plans are already limiting the types of medication they will cover, by requiring patients to pay for medicines outside those covered, which may include one medication per treatment category. By eliminating exceptions, the GHP saved $51 million last year in pharmacy costs that totaled $450 million.

Both MA plans and commercial plans are also limiting services they will cover during hospital stays, with some eliminating coverage for such things as X-rays.

«The players in the industry are already rationing goods and services,» said one industry consultant.

Rationing comes in the form of less coverage for medicines, increasing co-pays to see doctors, increasing member premiums and reducing provider compensation. This, in turn, will result in fewer providers in networks and fewer options when it comes to health plans.

«Puerto Rico’s health system is going down. It’s going to happen, and it’s going to happen maybe this year,» said José Joaquín Vargas-De León, president of Puerto Rico’s Independent Practice Association said. 

CMS looking for answers

Top officials from the federal Centers for Medicare & Medicaid Services (CMS) said they are more than willing to solve the great disparities in federal healthcare funding for Puerto Rico, adding they are well aware that time is of the essence to keep the island’s healthcare system up and running.

This awareness is due in part to the lobbying efforts by the Puerto Rico Medicare Coalition for Fairness— a group comprising members of local insurance companies, hospitals and pharmacies, as well as doctors and government officials—which has been meeting with CMS and President Barack Obama’s White House Task Force since 2012 to discuss the situation. This year, the coalition spearheaded a letter-writing campaign in which more than 18,000 Puerto Rico residents wrote CMS calling for increases to the island’s Medicare and Medicaid funding.

Gov. Alejandro García Padilla, Resident Commissioner Pedro Pierluisi and Puerto Rico Federal Affairs Administrator Juan Eugenio Hernández Mayoral have been actively lobbying in Washington, D.C., to eliminate these inequities, as have Health Insurance Administration Executive Director Ricardo Rivera and Insurance Commissioner Ángela Weyne.

The lack of reliable data on the true cost of healthcare is at the heart of great disparity in Medicare payments in Puerto Rico versus those on the U.S. mainland, said James T. Kerr, administrator of the consortium for health plans operations for CMS.

«I want to take a different approach and have everyone agree— using CMS data—that [these disparities are] indisputable. Once the disparities have been shown, using data that we have, then I can tell policymakers to solve the matter in whatever way they deem best. What I can’t do is show up with a set solution and demand CMS policymakers to implement it,» he said.

Attempts to get Congress to make changes—such as including Puerto Rico in low-income subsidies that would provide $250 million a year—would take too long and may not be achievable in Congress, but other options exist on the administrative side.

Jim O’Drobinak, CEO of Medical Card System Inc. (MCS) and president of the Medicaid & Medicare Advantage Products Association of Puerto Rico (MMAPA), a trade group of local Medicare Advantage (MA) providers, said that would be wonderful because MMAPA and the coalition’s discussions of disparity are all based on CMS data.

MA is a federal health-insurance program of managed healthcare that serves as a substitute for «Original Medicare» Parts A and B benefits. The program was founded in 1997 to provide expanded services to holders of Medicare Parts A and B.

Michael Meléndez, associate regional administrator of the division of Medicaid & Children’s Health Operations at CMS, is also onboard to stop longstanding discrimination against Puerto Rico when it comes to federal healthcare funding.

«If all planned cuts go into effect, Puerto Rico will go bankrupt. We want you to know that we are clear supporters of Puerto Rico on the CMS level,» Meléndez said. «The situation of disparity gets worse and worse the more you look at it. It’s clearly discriminatory to the people of Puerto Rico, who are U.S. citizens and pay equally as stateside U.S. citizens into the system.»

The fact Puerto Rico is the leading U.S. jurisdiction in terms of MA market penetration—75% of those eligible here have MA versus 29.2% in the mainland U.S.—is the island’s best calling card when it comes to resolving these imbalances, said Reginald G. Slaten, associate regional administrator of Medicare Health Plans Operations at CMS.

«We need to remember Puerto Rico has the highest penetration by far of any place in the nation at 75% and we need to move this market forward,» Slaten told local healthcare industry executives who attended the Puerto Rico Chamber of Commerce’s annual Health & Insurance Conference in early March.

Last week, the U.S. House approved the Medicare Access & CHIP Reauthorization Act of 2015 and sent the legislation to the Senate.

If passed, the bill would increase Medicare payments to local doctors by 3%, instead of a 21% cut; provide a two-year extension to the Children’s Health Insurance Program (CHIP) that locally pays $150 million a year and was set to end in September; and authorize new funding for the Community Health Center program, Pierluisi said.

Community ‘330’ health centers set the example

Health Resources & Services Administration (HRSA) funded community health centers are leading the way for patient-centered services that get more bang for each dollar of federal healthcare funding, both in Puerto Rico and the mainland U.S.

As such, the Patient Protection & Affordable Care Act of 2010 (ACA or Obamacare) is providing $11 billion for the operation, expansion and construction of health centers throughout the U.S. and its territories. This includes expanding community health centers’ preventive and primary-care services, including oral health, behavioral health and pharmacy services at existing health centers.

Today, one out of 15 people living in the U.S. relies on a HRSA-funded community clinic for primary care, this federal agency reported. The U.S. House recently passed proposed legislation that would increase community health centers’ bi-annual operational budget to $7.2 billion for 2016 and 2017.

For only $60 million a year, Puerto Rico’s 67 community clinics— also known as 330 centers— employed 2,554 people and served 338,844 patients. Of these, 68.9% were beneficiaries of the commonwealth’s Government Health Plan, 13.5% were uninsured, 9% had commercial health plans and 8.6% were Medicare beneficiaries, the Puerto Rico Primary Healthcare Association reported.

The island’s community health centers are also leading the way in the adoption and meaningful use of electronic health records (35% of all centers), as well as using the patient-centered medical home (PCMH) concept (75% of all centers are certified as PCMHs).

Health centers continue to improve patient outcomes, despite serving a population that is often sicker and more at risk than seen nationally:

• The percentage of low-birth-weight babies in Puerto Rico, at 7.5%, continues to be lower than national estimates of nearly 8%;
• 69% of health center patients demonstrated control of diabetes with hemoglobin A1C level less than or equal to 9;
• 64% of hypertensive health center patients have their blood pressure under control.

Since ACA’s passage, health centers increased by 5 million the total number of patients served on an annual basis to 24 million in 2014, compared with 19.5 million in 2010. During this time, health centers have also added more than 43,000 new full-time positions, increasing total employment from 113,000 to 156,000 people, the HRSA reported.