American College of Physicians: Internal Medicine — Doctors for Adults ®

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The next phase in Medicare+Choice: private fee for service

By William Hoffman

While Medicare+Choice has had a somewhat discouraging track record to date, that's not stopping new companies from exploring the managed care potential of Medicare. Sterling Life Insurance Co. won approval last May to launch Medicare+Choice's first private fee-for-service (PFFS) plan. Under the plan, Medicare beneficiaries can go to the hospital or physician of their choice. Doctors and hospitals that participate in the plan agree on fee-for-service reimbursements, and their pay will not be affected by utilization review.

Sterling officials say that the private fee-for-service plan will benefit participating physicians and hospitals in several ways. For one, the plan will help reduce paperwork because it will not use utilization review to affect reimbursements. In addition, providers are expected to benefit from the program's marketing and promotional efforts.

Like other Medicare+Choice providers, Sterling hopes to turn a profit by driving down costs. Sterling officials, however, say they plan to avoid the mistakes of other Medicare+Choice pioneers.

For example, Sterling will start in smaller cities and rural markets. While profits are lower in these markets than in big cities, Sterling officials say they chose these markets because they attract fewer competitors. Though profit margins are slimmer, the company hopes enrollees will reward its commitment with longer-term relationships.

It's too early to say whether Sterling will become a Medicare+Choice success story; the plan has been on the market less than six months. Sterling officials say that they are happy that for now, at least, they have the field to themselves. "We've always anticipated that when we are successful, other competitors will arrive," said Sterling chief medical officer Kristin Crosby, MD. "Right now, they're sitting back and waiting to see what happens."

William Hoffman is a freelance writer in Fairfax, Va.

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