Department  of Health  and Human  Services 
OFFICE  OF 
INSPECTOR  GENERAL 
MEDICARES  OVERSIGHT  OF 
MANAGED  CARE: 
IMPLICATIONS  FOR  REGIONAL  STAFFING 

JUNE  GIBBS BROWN 
Inspector  General 
APRIL  1998 
OEI-01-96-00191  OFFICE  OF  INSPECTOR  GENERAL 
The mission  of the Office  of Inspector  General (OIG),  as mandated by Public  Law  95-452,  is to 
protect the integrity  of the Department  of Health  and Human  Services programs  as well  as the 
health and welfare  of beneficiaries  served by them.  This statutory  mission  is carried out through 
a nationwide  program  of audits, investigations,  inspections,  sanctions, and fraud alerts.  The 
Inspector  General informs  the Secretary of program  and management problems  and recommends 
legislative,  regulatory,  and operational  approaches to correct them. 
Office  of Evaluation  and  Inspections 
The Office  of Evaluation  and Inspections  (OEI)  is one of several components  of the Office  of 
Inspector  General.  It conducts short-term  management  and program  evaluations  (called 
inspections)  that focus on issues of concern to the Department,  the Congress, and the public.  The 
inspection  reports provide  findings  and recommendations  on the efficiency,  vulnerability,  and 
effectiveness  of departmental  programs. 
OEIs Boston  Regional  Office  prepared this report under the direction  of Mark  R. Yessian, Ph.D., 
Regional  Inspector  General.  Principal  OEI staff included: 
Re@on  Headauarters 
Russell Hereford,  Ph.D., Project  Leader  Stuart Wright,  Program  Specialist 
Nicola  Pinson 
Kenneth  Price 
To obtain copies of this report, please contact the Boston Regional  Office  at 617-565-1050 
or by Fax at 617-565-3751 
Reports are also available on the World  Wide Web at our home page address: 
http://www.dhhs.gov/progorg/oei  PURPOSE 
To assess how the Health  Care Financing  Administrations  regional  offices  are staffing  to meet 
the challenges of monitoring  the growing  number  of managed care plans that have Medicare 
Contracts. 
BACKGROUND 
The scope and speed of growth  in Medicare  managed care presents fundamental  challenges  to 
HCFA staff responsible  for oversight  of managed care plans.  As of February,  1998,439  plans 
counted over 6 million  beneficiaries  as members, a 90 percent increase since December  1994. 
Ideally,  managed cares capitated payment  leads to innovation  in providing  cost-effective,  high 
quality  health care.  However,  the economic  incentives  of operating  within  a fixed budget may 
encourage plans to limit  access to needed care in the interest of increasing  profits.  This incentive 
means that HCFA has a particular  responsibility  to ensure that beneficiaries  access to services is 
protected.  The 10 HCFA regional  offices  carry out direct oversight  of managed care plans. 
Regional  staff confront  a much broader set of responsibilities  as they oversee managed care plans 
than they faced in the traditional  Medicare  fee-for-service  program.  For example, they may need 
to evaluate multiple  aspects of plan operations  such as the quality  of services delivered,  finances, 
marketing,  and beneficiary  access to services. 
Our review  is based on data on staffing  levels provided  by HCFA regional  offices  and on 
interviews  with  those staff, as well  as with  representatives  of managed care plans and beneficiary 
advocacy organizations. 
FINDINGS 
The  HCFA regional  offices have made a strong  commitment  to increase  staffing  for 
managed  care oversight. 
In response to an increase from 244 to 336 Medicare  managed care plans between 
December  1994 and December  1996, HCFA regional  managed care staff doubled  from  59 
to 120 people. 
The number of managed care staff grew  in every region,  with  increases ranging  from  3 to 
11 staff. 
However,  the vast majority  of the new  staff  lack  experience  with  managed  care. 
Only  3 of the 71 staff hired in the last 2 years have work  experience  in health 
i  maintenance  organizations. 
Sixty  of these staff came from  other components  of HCFA, with  experience  primarily  in 
the fee-for-service  program.  Although  these staff are highly  knowledgeable  about 
Medicare,  they do not have an extensive understanding  of the managed care system. 
The newness of the staff to managed care indicates  a need for training  to carry out 
effective  oversight.  However,  data provided  by eight regional  offices  show that funds for 
training  managed care staff decreased from  an average of $784 per person in fiscal year 
1995 to $396 per person budgeted  for fiscal year  1997. 
The  managed  care units  in many  regional  offices  lack  staff with  specialized  backgrounds 
that  could  enhance  oversight  of managed  care plans. 
Five of the 10 regional  offices  lack staff with  clinical  backgrounds.  Of the 120 staff 
working  in managed care, only  13 have clinical  backgrounds. 
Five of the 10 regional  offices  lack staff with  work  experience  in health maintenance 
organizations.  Only  seven of the 120 staff have such experience. 
Four of the 10 regional  offices  lack staff with  data analysis skills.  Only  nine of the 120 
staff have training  and experience  with  data analysis. 
RECOMMENDATIONS 
We recommend  that  HCFA develop,  coordinate,  and  provide  a comprehensive  training 
program  for  regional  office  staff with  responsibility  for  oversight  of managed  care plans. 
As HCFA increases  staff  in its managed  care operations  in the regional  offices,  we 
recommend  that  the agency  seek out  people  with  experience  in managed  care,  data 
analysis,  and clinical  expertise. 
We recommend  that  HCFA develop  a pilot  program  to provide  opportunities  for  staff 
development  and staff sharing  with  managed  care plans  and  beneficiary  advocacy  groups. 
COMMENTSONTHEDRAFTREPORT 
The HCFA provided  comments on the draft report.  The agency concurred  with  our first two 
recommendations,  and with  the intent  of our third  recommendation.  We are encouraged that the 
agency reports it is moving  forward  in these areas.  We believe it is important  that the agency 
address all aspects of our recommendations.  These aspects include  substantive training  on 
managed care issues and methods to improve  staffs  ability  to conduct the monitoring  process 
effectively.  Our recommendation  also seeks to ensure that expertise in managed care, clinical, 
and data analysis reside in the front  line regional  offices,  as well  as in the HCFA central office. 
ii  PAGE 

EXECUTIVE  SUMMARY 
INTRODUCTION  ............................................................  1 

FINDINGS 

l  Increasedstaffing  ..........................................................  3 

l  Few staff with  managed care background  .......................................  3 

Limited  clinical,  data, and managed care experience  ...............................  5 

l 
RECOMMENDATIONS  .......................................................  7 

COMMENTS  ON THE  DRAFT  REPORT  ........................................  10 

APPENDICES 

A: Agency  Comments  on the Draft  Report  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  A-l 

B: Growth  in Medicare  Managed  Care  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-l 
 INTRODUCTION 

PURPOSE 
To assess how the Health  Care Financing  Administrations  regional  offices  are staffing  to meet 
the challenges  of monitoring  the growing  number  of managed care plans that have Medicare 
contracts. 
BACKGROUND 
Growth  of Medicare  Managed  Care 
As of February  1, 1998, 6 million  Medicare  beneficiaries-- 14 percent of the total--were  enrolled 
in 439 managed care plans that participate  in Medicare,  up from  3.1 million  in 244 plans in 
December  1994.  Medicare  paid almost $26 Billion  to managed care plans for fiscal year 1997, 
up from $19 Billion  for all of fiscal year  1996.  By all indications,  this rate of growth  will 
continue.  Thirty  one plans are seeking initial  approval  for Medicare  contracts, and 29 plans are 
seeking to expand their service areas. 
Not only  has the overall  scope of Medicare  managed care grown,  but expansion has occurred  in 
new areas of the country.  For many years, the Western States were the bastion of managed care, 
both generally  and within  the Medicare  program.  Now  all regions  of the nation  are seeing rapid 
growth  in Medicare  managed care. 
In addition,  Medicare  managed care plans increasingly  are evolving  from  staff models to more 
loosely  organized  provider  networks,  such as independent  practice  associations  (IPAS).  Since 
December  1994, the number of IPA type plans grew by almost 90 percent from  133 to 251 plans 
in August  1997, and group model plans increased by 60 percent from  79 to 125.  In contrast,  staff 
model plans grew from 29 to 32. 
New  Challenges  for  HCFA  Staff 
Managed  care plans provide  health care services using a fundamentally  different  framework  than 
the traditional  fee-for-service  program  that HCFA operates.  The fee-for-service  program 
reimburses  individual  health care providers  according  to specific  services provided  to 
beneficiaries.  Managed  care plans, on the other hand, receive monthly  capitated payments  from 
HCFA with  which  they manage both the delivery  and financing  of health care services. 
Ideally,  managed cares capitated payment  leads to innovation  in providing  cost-effective,  high 
quality  health care.  However,  the economic  incentives  of operating  within  a fixed  budget may 
encourage plans to limit  access to needed care in the interest of increasing  profits.  This incentive 
means that HCFA has a particular  responsibility  to ensure that beneficiaries  access to services is 
protected. 
Regional  staff confront  a much broader  set of responsibilities  as they oversee managed care plans 
1  than they had faced in the fee-for-service  program.  Staff may need to evaluate multiple  aspects 
of plan operations  such as the quality  of services delivered,  financial  arrangements,  marketing, 
and beneficiary  access to services.  They must have detailed understanding  in the complexity  of 
managed care in order for meaningful  inquiry  into plan operations.  They should also be closely 
attuned to the relationships  between  doctors, hospitals,  and plans in the local health care market. 
The HCFA  s Organization  for  Managed  Care Oversight 
The 10 HCFA regional  offices  directly  oversee the performance  of managed care plans, with 
support from HCFA'S central office.  Each regional  office  has substantial  latitude  with  respect to 
how it organizes for managed care oversight  and how  it deploys  staff.  It is important  to 
recognize  that oversight  of Medicare  managed care plans is only  one function  that the regional 
offices perform.  As demands on the managed care side grow,  these offices  must continue  to 
carry out their other responsibilities.  These other responsibilities  include  oversight  of fiscal 
intermediaries  and carriers, performing  and overseeing  survey and certification  activities, 
working  with  States on Medicaid  issues, and addressing beneficiary  inquiries,  among other 
duties. 
Effective  July  1997, HCFA reorganized  its internal  structure.  This may well  affect how the 
managed care program  is administered  in the central office  and, quite possibly,  in the regions. 
Under the new organizational  structure,  many managed care functions  are part of the new Center 
for Health  Plans and Providers. 
METHODOLOGY 
We surveyed the 10 regional  offices  to obtain  information  on their  staffing  levels for oversight  of 
managed care plans. 
In addition,  we gathered extensive information  from  site visits to three HCFA regions:  Region  6 
(Dallas),  Region  9 (San Francisco),  and Region  10 (Seattle).  We also conducted  structured 
telephone  interviews  with  staff responsible  for managed care oversight  in the other seven HCFA 
regional  offices.  In addition,  we interviewed  staff in the HCFA Office  of Managed  Care in 
Baltimore. 
We gathered additional  information  on HCFA'S oversight  of managed care through  structured 
telephone  interviews  with  representatives  of beneficiary  advocacy groups and managed care 
plans.  In total, we interviewed  individuals  associated with  11 managed care plans and 13 
beneficiary  advocacy organizations. 
We conducted  our review  in accordance  with  the Quality  Standards for  Inspections  issued by the 
Presidents Council  on Integrity  and Efficiency. 
2 
 THEHCFAREGIONALOFFICESHAVEMADEASTRONGCOMMlTMENTTOINCREASESTAFFING 
FORMANAGEDCAREOVERSIGHT. 
0 	 In  response  to an increase  from  244 to 336 Medicare  managed  care plans  between 
December  1994 and December  1996, HCFA regional  managed  care staff  doubled 
from  59 to 120 people. 
0 	 The  number  of managed  care staff  grew  in every  region,  with  increases  ranging 
from  3 to 11 staff. 
0 	 Regional  managed  care officials  anticipate  modest  increases  (to  138 staff)  through 
December  1997, even though  70 applications  for  new  contracts  are pending  as of 
August  1997. 
Even though  the agency faces current budget and resource constraints,  the regional  offices  have 
increased staff responsible  for managed care oversight.  This demonstrates HCFA'S considerable 
commitment  to meet the growing  demands of managed care. 
Two  ways to look at the impact of increasing  the staff are the number  of plans and the number  of 
beneficiaries  per staff member.  The number of plans per staff member decreased from  an 
average of 4.1 in December  1994 to 2.8 in December  1996.  The number of plans per staff 
member ranges from 2.0 in one region to 3.6 in two  regions.  The average number  of 
beneficiaries  per staff member also decreased between  December  1994 and December  1996 from 
5 1,320 to 40,067.  We recognize that these measures do not fully  capture the actual work 
involved  for regional  staff.  Overall,  however,  the figures  demonstrate  an increase in the number 
of staff dedicated to individual  plans and beneficiaries. 
An important  implication  of this growth  is the number  of new staff in each region.  In 5 of the 10 
regions at least half the current staff are new to the managed care units since December  1994. 
Two  extreme examples of the dramatic  increase in staff are:  In one region,  staff increased from  1 
member in December  1994 to 9 members in December  1996.  Another  region  grew from  4 staff 
members in December  1994 to 15 members in December  1996. 
Regional  managed care teams reported they expect a total  increase of 18 staff by December  1997. 
Projected  increases range from 0 to 4 staff in each region.  Although  Medicare  contracts  with 
plans will  continue  to increase, data on projected  staffing  levels indicate  that only  limited  growth 
will  take place among regional  staff. 
HOWEVER,THEVASTMAJORITYOFTHENEWSTAFFLACKEXPERIENCEWITHMANAGEDCARE. 
0 	 Only  3 of the 71 staff hired  in the last 2 years  have work  experience  in health 
maintenance  organizations. 
3 
 l 	 60 of these staff  came from  other  components  of HCFA, with  experience  primarily  in 
the fee-for-service  program. 
0 	 The  newness  of the staff  to managed  care indicates  a need for  training  to carry  out 
effective  oversight.  However,  data  provided  by 8 regional  offices  show  that  funds 
for  training  managed  care staff  decreased  from  an average  of $784 per  person  in 
fiscal  year  1995 to $396 per  person  budgeted  for  fiscal  year  1997. 
Managed  care differs  from the traditional  fee-for-service  program  that HCFA operates.  Oversight 

of managed care plans requires staff who  are familiar  with  the incentives  of managed care, the 

characteristics  of the local health care market, and the different  forms that managed care can take 

(e.g., delegated services, changes in provider  networks).  Staff should have skills  to evaluate 

multiple  aspects of plan operations  such as the quality  of services delivered,  financing, 

marketing,  and beneficiary  access to services.  Staff may also have to exercise some degree of 

independent judgement  where HCFA regulations  and policy  have not yet caught up with  service 

delivery  in a managed care setting. 

Most  of the staff joining  regional  managed care offices  have come from  a fee-for-service 

background  elsewhere in HCFA.  This is a natural pool of talent that the agency draws on to 

monitor  the increasing  number of plans that serve Medicare  beneficiaries.  We are concerned, 

however,  that staff who  may have been involved  with  one aspect of fee-for-service  operations 

within  HCFA--for example, dealing  with  a fiscal intermediary  around payment  issues, or 

responding  to beneficiary  inquiries--confront  a much broader set of responsibilities  as they 

oversee managed care plans.  Staff told us that detailed  information  on managed care issues and 

specific  oversight  skills  would  better enable them to ensure that quality  services are delivered  to 

beneficiaries. 

Staff repeatedly  underlined  their need for training  around oversight  activities.  Yet, current 

oversight  training  for regional  staff is minimal.  New  staff indicated  that they, as one staff 

member stated, hit the ground running  without  any formal  training.  Another  staff member 

described training  activities  as, its basically  on the job  training.  In perhaps an extreme case, 

one staff member told us she was hired in November  as a plan manager with  no prior  experience 

with  managed care and no training  on specific  skills  needed for oversight;  she was then the 

primary  person in charge of particular  plans and conducted  her first  site visit by January. 

Regional  staff cited a lack of training  as a major  constraint  in their ability  to monitor.  Even 

though  the total number of staff has increased, staff members described the strain on the regions 

of so many new and inexperienced  staff.  One implication  is that the newer  staff have to learn 

how to perform  their oversight  responsibilities.  Equally  important,  the more experienced  staff 

must often train the new staff while  carrying  out their own oversight  responsibilities,  placing 

stress on their workloads  as well. 

Staff identified  two major  areas where training  did not adequately  prepare them.  First, they 

emphasized weaknesses in training  around specific  skills  involved  in conducting  oversight. 

These skills  include  such exercises as how to interview  managed care staff, how  to interview 

4 
 physicians,  how to pull  and target specific types of samples, and how to review  records.  Second, 
they outlined  needs for detailed  training  on managed care itself,  including  education  in areas such 
as contracts, delegation,  the different  forms that managed care can take, the incentives  of the 
different  systems, and important  areas to look for when on-site. 
THEMANAGEDCAREUNITSINMANYREGIONALOFFICESLACKSTAFFWITHSPECIALIZED 
BACKGROUNDSTHATCOULDENHANCEOVERSIGHTOFMANAGEDCAREPLANS. 
0 	 Five of the  10 regional  offices  lack  staff with  clinical  backgrounds.  Of the 120 staff 
working  in managed  care, only  13 have clinical  backgrounds. 
Many  of the staff in the regions  and plan representatives  indicated  the importance  of clinical 
insight to understand  the actual services delivered  to beneficiaries.  Current  oversight  activities 
focus largely  on the review  of plan processes (e.g., if the correct papers were signed, if forms 
were sent out on time).  Yet, staff as well  as plans repeatedly  cited clinical  knowledge  as an 
important  asset to evaluate quality  aspects of managed care.  In some regions,  staff with  clinical 
backgrounds  add an important  component  of expertise to the managed care unit.  Only  a few 
regions viewed  access to clinical  expertise from outside entities  when needed as adequate. 
Staff cited two primary  areas where clinical  expertise could  contribute  important  information  to 
evaluate plan activities.  First, oversight  of the medical  services that plans deny to beneficiaries 
requires staff to review  information  that is based on clinical  decisions.  Current  evaluation  of 
service denials focuses on information  such as whether  the plans sent appeals language to 
beneficiaries  on time.  The review  does not look  at the appropriateness  of denials, an aspect of 
oversight  that many staff indicated  would  greatly  contribute  to their understanding  of the services 
provided  or denied to beneficiaries. 
Second, many staff indicated  that clinical  expertise would  benefit  the review  of plan medical 
policies.  The services that a plan delivers to beneficiaries  depends entirely  upon the plans 
medical  policies.  Because one of the incentives  of managed care is to limit  services, 
understanding  plan medical  policies  provides  fundamental  information  to evaluate the quality  of 
services that they provide.  However,  regional  staff reported  that no one from HCFA reviews  or 
approves plan medical  policies. 
Several plans indicated  that HCFA needs to move the focus in oversight  measurements from 
procedural  issues toward  clinical  outcome measurements.  A representative  of one plan stated, 
Theyre  still  looking  at it like  its fee-for-service:  they look  at claims,  audit finances, and check 
to see that processes are followed.  However,  managed care calls for closer attention  to clinical 
concerns, especially  since the same organization  that HCFA pays is also in charge of the delivery 
of care. 
0 	 Five of the  10 regional  offices lack  staff with  work  experience  in health  maintenance 
organizations.  Only  7 of the 120 total  staff  have such experience. 
Effective  oversight  of managed care plans requires staff with  familiarity  in the intricacies  of the 
5 
 managed care environment.  One representative  of an advocacy group  summarized  this 

knowledge  base as understanding  what to look  for, how to identify  problems,  where the pressure 

points are, what the problems  are likely  to be, and how to deal with  those problems. 

The HCFA staff, plan representatives,  and members of the advocacy community  recognized 

substantial  variation  in regional  experience  with  managed care plans.  Advocacy  group members 

told us that more mature regions are doing  a good job  of oversight  because of their  familiarity 

with  the managed care system.  However,  they questioned  the extent of managed care knowledge 

in the other regional  offices.  In the regions  where managed care has emerged at a rapid rate since 

1994, staff are largely  new to the managed care field.  They confront  substantial  challenges in 

both the complexity  of the system, and the size of their workload. 

Both managed care and regional  officials  informed  us that regional  staff with  knowledge  in 

managed care would  provide  for more effective  and meaningful  oversight  of plan operations.  In 

this regard, several plans raised frustrations  over the limited  HCFA staff experience  in managed 

care. 

0  Four  of the  10 regional  offices  lack  staff with  data  analysis  skills.  Only  9 of the 120 
total  staff  have training  and  experience  with  data  analysis. 
Effective  use of data is becoming  increasingly  imperative  for HCFA to manage oversight  of the 
growing  numbers of plans with  which  the agency has contracts.  Already,  HCFA collects  a 
substantial amount of information  that could  be used to keep track of plan activities.  (Our 
companion  report Medicares  Oversight  of Managed  Care:  Monitoring  Plan Performance,  OEI-
0 l-96-00  190, addresses the opportunities  for HCFA to use data for oversight  purposes.)  The HCFA 
is also moving  toward  a data driven  system with  the introduction  of both HEDIS 3.0 and CAHPS in 
1997. 
Based on interviews  with  regional  staff, we identified  four ways that data could  be used to assess 
plan performance:  1) Monitoring  internal  trends in plan performance  over time, 2) Assessing 
plan performance  against regional  norms, 3) Comparing  plans with  other plans in the local 
market, and 4) Comparing  plans with  national  norms. 
Staff who are able to understand  and use data play an increasingly  critical  role in regional  offices 
to make effective  use of the information  that the agency collects.  In one region,  for example, all 
members of the staff are able to understand  and analyze data; some members practice  basic skills 
and others possess extensive expertise. 
Overall,  regional  staff told us that they recognized  the potential  uses of data for oversight 
purposes, yet they underlined  the lack of current  skills  among staff in the office  to make use of 
this data.  One staff member summarized,  We have to stop and look at skill  sets.  We cant just 
keep throwing  bodies at the work  load.  We need to have a data person. 
6 
 RECOMMENDATIONS 
The HCFA is now experiencing  a major  shift into managed care.  Both the number of managed 

care plans and the number  of beneficiaries  covered by these plans are expanding  rapidly. 

Historically,  however,  HCFA has been an agency oriented  toward  fee-for-service  claims 

processing.  Our review  shows that nearly  all of the staff who  currently  have responsibility  for 

oversight  of managed care plans within  the HCFA regional  offices  come from that fee-for-service 

background  within  the agency. 

We recognize  that multiple  constraints  confront  the agency as it works  to address this paradigm 

shift:  Restrictions  of the Federal personnel  system, hiring  freezes, and ongoing  budget 

restrictions  limit  the agencys flexibility  in this regard.  Nevertheless,  the agency must address the 

implications  that the changing  health care marketplace  has on the type of staff needed to provide 

oversight.  The recent reorganization  of HCFA recognizes  this changing  world  and is one effort to 

address it.  We believe that the reorganization  provides  opportunity  also to address the staffing 

needs for overseeing managed care. 

We also recognize that the Balanced  Budget  Act  of 1997 (P.L. 105-32) poses a number  of 

challenges for the agency in general, and staff involved  with  managed care in particular.  The 

demands of the new Medicare+Choice  program  make it of pressing importance  that the agency 

have staff with  the skills  needed to implement,  track, and evaluate this important  new initiative. 

We focus our recommendations  to urge HCFA to increase and improve  the knowledge  and skill 

levels of its staff around the intricacies  of managed care issues.  We believe that it is important  to 

enhance the ability  of these staff to conduct  effective  oversight  of managed care plans.  In areas 

of the country  where the managed care market is mature and staff have experience in these 

issues, the need may be somewhat  less critical.  Indeed, we urge HCFA to draw on the expertise of 

staff from these regions as the agency develops its work  in this area. 

THE HCFA SHOULD DEVELOP, COORDINATE, AND PROVIDE A COMPREHENSIVE TRAINING 
PROGRAM FOR REGIONAL OFFICE STAFF WITH RESPONSIBILITY FOR OVERSIGHT OF MANAGED 
CARE PLANS. 
We believe it is essential that HCFA make a substantial  commitment  in this area.  Without  such a 
commitment,  we are seriously  concerned  that the agencys oversight  efforts could be seriously 
compromised. 
We believe that the HCFA central office  should serve as the focal point  for this effort,  because of 
its national  overview  of the Medicare  managed care program.  This training  program  should be a 
broad-based effort  that addresses multiple  aspects of managed care delivery  and financing. 
During  our discussions with  regional  office  staff, we heard of multiple  topics that should form 
the basis for such training.  These suggestions  included  comprehensive  training  on organization, 
financing  and management of managed care plans; understanding  utilization  management 
protocols;  interviewing  techniques;  sampling  strategies; and methods of investigation. 
7 
 This training  program  should involve  faculty  members external to the HCFA central office  staff. 
Both the design and the conduct  of the training  program  should draw on multiple  sources of 
faculty,  in particular: 
0 	 The HCFA regional  office  staff who have substantial  experience  in managed care 
oversight.  Those staff who have been performing  hands-on oversight  and  establishing 
innovative  approaches to that task can bring  real life experience to the unique  issues and 
concerns that must be addressed in performing  effective  oversight  of managed care plans. 
0 	 Representatives  of the beneficiary  advocacy  community.  Beneficiary  advocacy  groups 
bring  concerns and viewpoints  to Medicare  managed care that will  be found  neither 
within  the HCFA staff nor within  the managed care plans.  Advocates  often are on the 
front  lines in helping  beneficiaries  deal with  the complexities  of negotiating  problems 
with  managed care plans.  As a result, they can provide  HCFA with  clear insights  into 
understanding  the managed care industry  from  beneficiaries  points  of view. 
0 	 Representatives  of the managed care community.  Staff of managed care plans may be in 
the best position  to educate HCFA staff on the nuances of how managed care is organized 
and delivered.  This source of expertise could provide  a firm  educational  foundation  for 
the HCFA staff. 
The HCFA can be flexible  in how  it establishes and conducts these educational  sessions.  We 
encourage the agency to examine alternate formats,  including  central site conferences,  single or 
multi-regional  training  sessions, and video conference  formats. 
As HCFA INCREASES STAFF IN ITS MANAGED CARE OPERATIONS IN THE REGIONAL OFFICES, WE 
RECOMMEND THAT THE AGENCY SEEK OUT PEOPLE WITH EXPERIENCE IN MANAGED CARE, 
DATA ANALYSIS, AND CLINICAL  EXPERTISE. 
Having  these types of skills available  as a staff resource will  provide  important  avenues of 
insight  for HCFA as the agency carries out oversight  of managed care plans.  As we note above, 
we recognize  the constraints  of the Federal personnel  system and the ongoing  budget restrictions 
under which  the agency operates.  Nevertheless,  we believe that effort  is warranted  to fill  at least 
some open positions  by attracting  individuals  with  these skills  as a way to complement  the 
existing  expertise of HCFA managed care staff. 
WE RECOMMEND THAT HCFA DEVELOP A PILOT PROGRAM TO PROVIDE OPPORTUNITIES FOR 
STAFF DEVELOPMENT AND STAFF SHARING WITH MANAGED CARE PLANS AND WITH 
BENEFICIARY ADVOCACY GROUPS. 
Hands-on  experience  with  managed care plans can provide  HCFA staff with  important 
understanding  of how this delivery  system works.  A number  of the managed care plans that we 
interviewed  indicated  their willingness  to participate  in such an effort.  From their point  of view, 
a monitoring  staff that is expert in managed care can be expected to provide  efficient  and 
meaningful  oversight.  We see no reason that this concept could not also be extended to 
8  beneficiary  advocacy groups. 
Our recommendation  encourages HCFA to explore  in detail  some type of internship  or staff 
exchange program  with  managed care plans or advocacy groups.  We believe that the benefits of 
such an approach could be achieved by encouraging  selected HCFA staff to work  for a limited 
time--6  months, for example--with  an advocacy  group or managed care plan.  Vice  versa, staff 
from those organizations  could also serve an internship  at HCFA for some period  of time.  The 
outgrowth  of such an effort  would  be to enhance the sharing of information  among the different 
organizations  and, from HCFA'S point  of view  could well  lead to increased skills  and knowledge 
in assessing managed care plans operations. 
We believe that any such pilot  effort  should contain  an evaluation  component.  If the evaluation 
shows positive  benefits from this program,  we believe that HCFA would  wish  to expand it more 
broadly. 
9 
 COMMENTS  ON  THE  DRAFT  REPORT 
We received comments  on the draft report from the Health  Care Financing  Administration 
(HCFA).  In this section, we summarize  the major thrust of the agencys  comments regarding  our 
recommendations,  and we offer our response in italics.  The HCFA'S  complete comments  appear 
in Appendix  A. 
Comprehensive  training 
The HCFA concurs with  our recommendation.  The agency reports that it established a training 
program  in 1997 that addresses many areas of Medicare  health plan operations.  We are 
encouraged  that the agency has movedforward  with  a training  program.  However,  we believe 
this type of training  should  include  subjects in addition  to those that HCFA describes in its 
response.  As we noted in the draft  report,  HCFA staff responsible for  monitoring  plans  identified 
a number of additional  topics that they view as  important  to effective oversight.  These topics 
comprise two broad  areas.. (1) substantive  issues related  to managed care, such as utilization 
management, organization,  andfinancing  of plans;  and (2) methods to improve the monitoring 
review itself: such as interviewing  techniques,  sampling  strategies,  and methods of investigation. 
Staff  expertise  and  experience 
The HCFA concurs with  our recommendation.  The agency reports that it is significantly 

expanding  the central office  capacity  to address managed care issues.  The agency also indicates 

that it will  attempt to seek out staff in the regional  offices  with  clinical  and managed care 

experiences as transitions  take place there.  We are encouraged  that the HCFA central  office is 

enhancing  its capacity  around  data analysis  in the managed care field.  We view data analysis  as 

an essential element of effective overnight.  We recognize  that there are many organizational 

changes arisingfiom  HCF4 s recent reorganization,  and we trust that these changes will  be 

bene$cial for  the managed care programs  that the agency oversees. 

Our recommendation  focused  on the need to enhance analytical,  clinical,  and managed care 

capacity  at the regional  of$ce level.  As the changes in staffingfilterfrom  central  to regional 

operations,  we urge the agency to ensure that the commensurate  skills and expertise reside there. 

Pilot  Program 

The HCFA concurs with  the intent of this recommendation.  The agency cites its implementation 

of some staff rotation  and internship  experiences.  The HCFA also cites difficulties  the agency 

might  encounter in carrying  out this recommendation,  such as concerns about confidentiality  of 

information  from health plans.  We are encouraged  that the agency is taking steps to establish 

staff development and staff sharing programs  with  managed  care plans.  Our recommendation 

calls for  a pilot  program  to assess the feasibility  of these stafJing innovations,  and we call for  an 

evaluation  component  to that program.  Certainly,  the evaluation  should  address the extent to 

which  the concerns that HCF.~ describes in its comments are serious  obstacles to implementation. 

10 
 APPENDIX  A 
AGENCY  COMMENTS  ON  THE  DRAFT  REPORT 
This appendix  contains the complete  set of comments  from the Health  Care Financing 
Administration  on this report, as well  as a companion  report, Medicares  Oversight  of Managed 
Care: Monitoring  Plan Performance,  (OEI-0 l-96-001  90). 
A-l  DEPARTMENT  OF HEALTH  %LHUMAN  SERVICES  liealth  Care Financing  Administration 
The Admmistrator 
Washington,  D.C.  20201 
DATE: 
TO: 	 JuneGibbsBrown 
InspectorGeneral 
FROM: 	 Nancy-AnnMin DeParle
tJw0
Administrator 
SUBJECT: 	 Office of InspectorGeneral(OIG) Draf3Reports:MedicaresOversightof 
ManagedCare-Monitoring PlanPerformance(,OEI-01-9640190)and-
Implicationsfor RegionalStaffing,(OEI-01-96-00 191) 
Wereviewedthe above-referencerdeportsthataddresstheHealthCareFinancing 
Administrations(HCFAs) oversightof managedcareplansandstaf5ngin theregional 
managedcareunits. ThereportsfoundthatalthoughHCFA hasmadea strong 
commitmentto increasestafIingfor managedcareoversight,its oversightapproachis not 
structuredto keeppacewith the rapidly evolvingmanagedcaremarkeGandthemajority 
of regionaloffice (RO) staff doesnot havemanagedcare,dataanalysis,or clinical 
backgrounds. 
Ourapproachto improvemanagedcareoversightis aimedat full compliancewith the 
PresidentsHeaith  Care Consumers  Bill  of Rights.  Particularlynoteworthyis our 
developmenotf the HealthPlanMonitoring System(HPMS). This systemwill 
consolidatedataobtainedfrom monitoringreviewsincluding:quality of care;beneficiary 
satisfaction;enrollmentanddisemollment;appealsandgrievancesb;enefitsand 
premiums;andphysicianincentives,amongotherareas.Much of theinformation 
gatheredunderHPMSwill be includedin anelectronicconsumercomparisonchart
know 
asMedicareComparethatwill be availableto beneficiariesh,ealthinsurance 
counselorsa,ndthegeneralpublic on HCFAs homepage. We believethat HPMS,along 
with otherinitiativesdescribedbelow,will improveour currenthealthplanmonitoring 
regimeandensure progresstowardfidl  Bill  of Rights compliance. 
A-2 
 2 
HCFA concurswith the intent of all of the OIG recommendations. Our detailed 
commentsare as follows: 
,, 
90) 
.
GS 
HCFA should revise the processesthat it usesto monitor the performance of managed 
careplans. 
We concur with the intent of the recommendation. HCFAs Region IX has paid specific 
attention to the delegation of managedcareresponsibilities that occurswhen contracting 
companiesallow provider networks to conduct utilization reviews, make coverage 
determinations, and operate other activities normally conductedby the health plan itself. 
This contractor activity has resulted in a monitoring processfor contracting companiesto 
usewith the provider networks.  HCFA will  evaluatethe effectivenessof the processto 
determine ifit  will  require a similar approachfor all contracting companieswho delegate 
activities. 
HCFA evaluateseachmerger and acquisition to ensurethat the new entity complies with 
requirementsfor eligibility,  HCFA also identifies problemsthat will  affect the operation 
of any contract folIowing  the merger, and will  delay its approval of any merger where it 
is clear that compliance with contracting requirementswi.lI be affected by a merger. 
Under all circumstances,the merged company is always required to meet requirements. 
Reviews occur on an ad hoc basis and HCFA seesno reasonto develop a standardreview 
processat this time.  For example, HCFA is currently in the processof determining the 
effects of the merger between two of HCFAs largestMedicare managedcare contractors: 
FHP, Inc. and Pacificare, who serveover 608,000 Medicare beneficiaries. An extensive 
site visit was conducted, and corrective actionswill  be required where applicable. At the 
same.time,a large insurer purchasedthe assetsof a contracting health maintenance 
organization (HMO) with 8,000 Medicare membersto form a merged company with a 
Medicare line of business. In this case,HCFA reviewed the pro forma financial 
statementsalong with the plan for the organization of the mergedcompany. No further 
evaluation was necessaryin this case. 
Under the current process,HCFA reviewers use a review guide which stipulates all 
requirementsfor contracting health plans. Methods of evaluation contained in the guide 
dictate the methods that reviewers should useto review eachspecific requirement. In 
addition, standardoperating proceduresdefine the kinds of reviews that regional 
reviewers can use to conduct monitoring operations. Theseare full biennial reviews 
conductedevery 2 years, post contract site visits conductedwithin the first year of  - - 
contract operations, and focused reviews conductedat any time to determine compliance 
A-3  3 
with specific areasof operations. In addition, HCFA conductsformal investigations with 
contractedconsultantswhenever there is a need for intensive review of multiple areasdue 
to poor overall performance. 
HCFA, however, is revising the current monitoring process. First, HCFA will  add new 
items  to the guide, aswell as evaluateadditional changesto the methods of evaluation. 
Changesto the methodsof evaluation will  considerthe types of review activities that are 
required for different types of managedcare organizations. Second,HCFA will  devise 
better methodsfor targeting performance issueswithin health plans. Third, HCFA will  set 
a direction for use of continuous quality improvement goalswith eachhealth plan on a 
periodic basis. HCFA has obtained the servicesof a consultantwho will  provide 
recommendationson the overall directions of the monitoring program. The new approach 
will  consider the use of performance data to establishgoals for health plans on an annual 
basisso that health plans are required to improve over eachyears performance. This 
approachis similar to the approach used by commercial employer groups to contract only 
with health plans that are capable of meeting higher goals. 
HCFA should take better advantageof data that are currently available to the agencyas a 
way of monitoring plan performance on an ongoing basis. 
We concur and are taking stepsto ensurethat the data collection processand reporting of 
appealsand grievanceinformation are both meaningful to consumersand fair to plans. 
HCFA has already received data from Health Plan Employer Data and Information Set 
(HEDIS) 3.0 and is beginning to analyze them. HCFA is initiating activities to analyze 
plan-submitted disenrolhnent rate data. In addition to the ConsumerAssessmentof 
Health Plan Survey (CAHPS) mentioned in the Executive Summary, other activities are 
underway to capturebeneficiary disenrollment reasondatafrom the regions, the Social 
Security Administration, and plans. HCFA is also working to further define the type of 
datawe will  need to collect to gain additional information about plan performance. 
HCFA is in the processof planning the developmentof a Health Plan Monitoring System 
(HPMS).  This project will  consist of the establishmentof a databaseand the 
developmentand deployment of client/server applications to provide HCFA central and 
regional office staff with accessto information in the databasefor the purposeof plan and 
program oversight. The HPMS will  provide HCFA with accessto quality of care 
measuresfrom HEDIS, financial data, beneficiary appealsinformation, beneficiary 
satisfaction data from CAHPS, physician incentive data, and benefits/premium and 
A-4 
 4 
membercost sharing data. Someof the information from the HPMS will  also be included 
in a consumercomparisonchart which will  be made available to the public through the 
Internet to allow beneficiaries to make informed choicesof plans. 
Regardingthe collection and consistent reporting of accurateappealsand grievance data, 
HCFA has securedthe servicesof an impartial, independentcontractor to reconsider 
denial determinations and to perform the necessaryfunctions associatedwith this activity. 
The contractors servicesinclude data reporting activities suchasthe onesrecommended 
by OIG.  In addition, section 1852(c)(2)(C) of the BalancedBudget Act of 1997 (BBA) 
requires Medicare+Choice (M-K)  plans to disclose the following  dataupon requestby 
M+C eligible individual: (1) information on the number of grievances,determinations, 
and appeals,and (2) information on the disposition in the aggregateof such matters. By 
requiring plans to collect and disclose internal plan-level data,the BBA lays the 
groundwork for this form of data collection by HCFA. 
HCFA has devisedan electronic databasefor aggregatingand reporting information 
obtained from monitoring reviews. This databasecontains information on the number of 
monitoring reviews that are conducted, the frequency of the monitoring review, the 
timeliness of the report of review findings to the health plan  aswell asthe individual 
findings.  The databasecan provide reports on a national, regional, or statebasis so that 
the variations in performanceand the types of review findings can be reported. In 
addition, HCFA will  learn the most common problems, aswell asprovide trend data on 
eachplan asreview fmdings are entered. 
At the current time, the Regional Office SystemsWorkgroup operatesas a users group 
that modifies and provides direct data support to its regional ofice  monitoring reviewers. 
The group facilitates the use of all available data by sharingprogramming and software 
programsthat manipulate available data. The group meetsmonthly via conferencecalIs 
to addressnew ideas or questionsabout data or programming issuesfor all regions. 
Depending on their capabilities and needs,individual regions make use of the data reports 
that are developedby the Workgroup for monitoring the health plans in their region. 
On a much larger scale,HCFA is establishing the HPMS. This new systemwill 
consolidate data obtained from monitoring reviews, enrolhnent and disenrollment, 
reconsideration, HEDIS and CAHPS, as well as benefit and premium information. 
HCFAs goal is to design a systemthat provides data that are available for monitoring 
health plan operations. HPMS will  also provide reports that will  be useful for trend 
analysis or health plan comparisons. HPMS will  identify outliers, aswell as provide 
indicators for HCFA inquiries regarding plan performance. 
As noted in the report, not all regions are using the Beneficiary Inquiry Tracking System 
A-5  5 
(BITS).  HCFA believesthat it is necessaryto establish a single systemto track inquiries 
and complaints. Allowing  each region to establishits own systemwill  lead to confusion 
and a lack of comparability between regions. To this end, HCFA has designeda 
computer systemto receive, track, and report about beneficiary inquiries.  As soon as 
programming is complete and the overall systemput in place, HCFA will  use this system 
for tracking Medicare beneficiary inquiries. 
HEDIS and CAI-IPS datawiIl  receive significant scrutiny under HPMS.  Thesedata will 
not only becomepart of the data releaseto the public in the comparability chart, but will 
also becomea significant part of the monitoring processin terms of identifying  outliers 
and also in terms of setting goals for continuous improvement in health plan performance. 
  .  . ,, 
- B -
OIG x.  [OEI 01 96 00194 
HCFA should develop, coordinate, and provide a comprehensivetraining program for 
regional office staff with responsibility for oversight of managedcare plans. 
We concur. HCFA initiated a two-part training program in July 1997. First, HCFA 
implemented a basic training program which is aimed at new staff.  This j-day  program 
provides a description of basic regulatory requirements,aswell as the application and 
monitoring processand procedures. In addition, the program describesthe major 
componentsof review for any health plan for either the application or the monitoring 
reviews. The secondpart of the training program will  include advancedtraining for 
personswho have completed the basic program. This specialty training will  focus on 
elementsof review for five separatespecialty review areas. Theseare: legal, health 
servicesdelivery, quality assurance,fiscal soundnessand insolvency, and Medicare 
operations. 
HCFA also conducted regular training on new issuesduring 1997. In the past year, 
HCFA staff conductedtraining on point-of-service, visitor affiliate, and flexible benefit 
products, aswell as expedited appealsand the new marketing guidelines. This type of 
training has occurred not only in individual Picturetel sessionsbut also during HCFAs 
annual regional office/central office HMO conference. Training for expedited appeals 
occurred at five different conferencesthroughout the nation to accommodateboth 
regional staff and industry personnel. 
As HCFA increasesstaff in its managedcare operations in the regional offices, we 
recommendthat the agencyseekout people with experiencein managedcare, data  -
analysis, and clinical expertise. 
A-6  6 
We concur. HCFA has transitioned a number of staff in the regional offices to managed 
careactivities.  Wheneverpossible, HCFA will  identify  staff with special analytical 
skills, aswell as clinical and managedcare experience. In central office, HCFAs 
reorganization has brought a significant changein the amount of resourcesthat are 
currently addressingmanagedcare issues. Previously, the Office of Managed Care with 
its staff of approximately 150personsoperatedthe managedcareprogram. With the 
reorganization of HCFA, the number of personswith responsibility for managedcare 
issueshas significantly expanded. For example, data analysis activity hasbecomethe 
major focus of one division.  Previously, HCPA had no organized componentresponsible 
for ongoing analysis of managedcare data. Two other changesinclude the transfer of 
quality assuranceissuesto the Office for Clinical Standardsand Quality and the transfer 
of beneficiary issuesto the Center for Beneficiary Services. The latter two changeswill 
bring together individuals with clinical skills for review of managedcarequality issues 
andwill  bring increasedvisibility  to issuespresentedto HCFA from advocacygroups 
who will  communicate and coordinate their activities with the Center for Beneficiary 
Services. The two changeswill  begin to more readily identify and define quality issues 
and beneficiary issuesfor review during the monitoring process. As the components 
refine their managedcare responsibilities, their counterpartsin the HCFA regional offices 
will  conduct their operational responsibilities with the health plans in their regions. 
HCFA should develop a pilot program to provide opportunities for staff developmentand 
staff sharing with managedcare plans and with beneficiary advocacygroups. 
We concur with the intent of the recommendation. For example,HCFA provided 
rotational positions for 4 weeks to six personsfrom the American Association of Health 
Plans  Minority  ManagementDevelopment Program. HCFA subsequentlyhired four of 
thesepersonsbecauseof their managedcare experience. HCFA makesuse of the 
Presidential ManagementIntern Program in order to place personsin training assignments 
in the managedcare industry.  The interns are employed in both the central office, aswell 
asthe regional offices.  In addition, HCFA hasplaced other personsin HCFA 
managementtraining programs in managedcare companiesfor rotational assignments. 
HCFA will  continue to seekopportunities for staff for thesetypes of rotational 
assignments. The broadening of managedcare responsibilities resulting from HCFAs 
reorganization will  allow HCFA staff to identify training opportunities that will  provide 
specific experiencesthat will  complementtheir skills and knowledge. 
HCFA is committed to allowing the rotational assignmentsto occur wheneverpossible. 
However, our concern with the recommendationis that HCPA has information on 
A-7  7 
currently contracting plans and on new applicantsthat is confidential in nature. If 
employeesof managedcare plans and advocacygroups worked in HCFA for several 
months,they might have inappropriate accessto this confidential information.  If such a 
training/exchangeprogram were to be initiated, we would needto be sure that the 
confidential information is not accessibleto non-Federal employeeswho are working as 
HCFA staff. 
(OF.1-01m 9 6V 0~0191) 
At the top of page 6, the report statesthat the review protocol doesnot differentiate 
betweenplans paid on a risk basisversusthosepaid on a costbasis. This is mentioned 
againon page 14, in the Firstparagraphof the recommendation. Pleasenote that the BBA 
provides that: (1) no new cost contractscan be signed; and (2) current cost contracting 
managedcare plans can continue under the cost option only through 2002. 
At the bottom of page 6, the report statesthat HCFA staff useddata on a plans rapid 
disenrollment rate to focus the on-site review on the plans salespractices and incentives, 
which led to requirementsthat the plan take corrective action. On page 16, in the second 
recommendationon that page, the report statesthat OIG hasrecommendedin the past that 
HCFA use disenrolhnent rates to target HMO reviews. We note that, during deliberations 
on both the 1995 and the 1997 budget reconciliation bills (which included lengthier 
lock-in  provisions), HCFA has stressed:(1) the value of monthly disenrolhnent asa 
meansfor identifying plans with high disenrollment rates; and (2) the use of high 
disenrollment rates as a trigger for more focusedplan review to identify problems causing 
beneficiaries to disenrolI at high rates. In spite of HCFAs strong support for retaining 
monthly disenrollment, the BBA placesconstraintson beneficiary options to disenroll. 
Specifically, the current monthly disenrolhnent policy is retained through 200 1. 
However, beginning in 2002, beneficiaries will  be locked-in for longer periods of time: 
6 months in 2002, and 9 months thereafter. After 2001, monthly disenrolhnent does 
remain an option for newly eligible beneficiaries during the first 12 months of enrolhnent 
in a plan. 
A-8 
 APPENDIX  B 
GROWTH  IN  MEDICARE  MANAGED  CARE 
December 31, 1996 
Beneficiaries 
Medicare  Enrolled  in  Regional Managed 
Regional Office  Contracts  Managed Care  Care Staff 
B-l  December 31. 1995 
Beneficiaries 
Enrolled  in  Regional Managed 
Managed Care  Care Staff 
1  Boston  20  134.085  1 
2  New  York  25 
3  Philadelphia  26 
4  Atlanta  33 
5  Chicago  45 
6  Dallas  22 
7  Kansas City  13  71,030  I  6.5 
8  Denver  17  122.650  1  3 
9  San Francisco  49  1.573.082  1  16 
10  Seattle  23  271,291  7 
TOTAL  273  3.807,318  87.5 
December 31, 1994 
Beneficiaries 
Medicare  Enrolled  in  Regional Managed 
Regional Office  Contracts  Managed Care  Care Staff 
B-2