Sebelius Threatens Plans With Termination

HealthPlanMarkets medicare alert

Technorati Tags: ,,

HHS Secretary Kathleen Sebelius and CMS officials threatened to kill Medicare Advantage plans that don’t cut bids. In a private phone call over the weekend from Sebelius to AHIP, and in a Sept. 14 showdown between the CMS chief actuary and contractors, the Administration stated bluntly that contractors must either grant deeper reductions in their bids as part of the 2011 contract negotiations or they would be terminated.

They were given 48 hours to make new bids.

Top actuaries told HPM that the only way most plans can reduce bids is by accepting losses or zero profits, or raising premiums if CMS thinks benefits are too skimpy but higher premiums are okay. But neither CMS nor the Secretary gave any specifics, just that the bids looked way too high and had to be cut more.

Contractors were shocked by the request and are considering legal action. AHIP is preparing a response. The timing of the demand is most suspect. Rates are already certified per the new statute, and HHS has had months to give guidance on bids. But HHS was embarrassed by a false and distorted Wall Street Journal study last week saying the industry is raising rates significantly.

Also, last week GAO sent a letter to House GOP ranking members saying HHS exaggerated public statements about MA plans. The Office of the Actuary is cited as a source.

Attendees at the CMS meeting told HPM that the CMS actuaries were asked specifically how they would like contractors to reduce bids, since bids had been certified by actuaries and lower bids could drive some contractors into insolvency under state law. The answer: we don’t care as long as the bids are lower.

Language in the PPAC Act does give HHS power to deny bids for the first time in history. It was a compromise, originally part of a competitive bidding section in the Senate bill that was approved by the House as a substitute. The competitive bidding part was dropped — but the power to deny was kept.


(a) IN GENERAL.—Section 1854(a)(5) of the Social Security Act

(42 U.S.C. 1395w–24(a)(5)) is amended by adding at the end the

following new subparagraph:


‘‘(i) IN GENERAL.—Nothing in this section shall be

construed as requiring the Secretary to accept any

or every bid submitted by an MA organization under

this subsection.



IN BENEFITS.—The Secretary may deny a bid submitted

by an MA organization for an MA plan if it proposes

significant increases in cost sharing or decreases in

benefits offered under the plan.’’.

(b) APPLICATION UNDER PART D.—Section 1860D–11(d) of such

Act (42 U.S.C. 1395w–111(d)) is amended by adding at the end

the following new paragraph:

‘‘(3) REJECTION OF BIDS.—Paragraph (5)(C) of section

1854(a) shall apply with respect to bids submitted by a PDP

sponsor under subsection (b) in the same manner as such

paragraph applies to bids submitted by an MA organization

under such section 1854(a).’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to bids submitted for contract years beginning on or

after January 1, 2011.