_ 
r
Depatiment  of Health  and  Human  Services  1 
OFFICE  OF 
INSPECTOR  GENERAL
A  REVIEW  OF  HMO  QUALl~ 
ASSURANCE  STANDARDS  REQUIRED  BY 
MEDICAID  AGENCIES 
WTWBER  1992  OEI-05-g2-()()110 
[  OFFICE  OF  INSPE~OR  GENERAL 
The mission of the Office of Inspector  General  (OIG), as mandated by Public Law  95452  as 
amended, is to protect  the integrity of the Department  of Health  and Human SeMces (HHS) 
programs as well as the health  and welfare of beneficiaries served by those programs.  This 
statutory mission is carried out through a nationwide network of audits, investigations, and 
inspections amducted  by three  OIG operating component  the Office of Audit Stxvices, the 
Otice  of Investigations, and the Office of Evaluation and Inspections.  The OIG also informs 
the secretaxy of HHS of program and management problems and recommends courses to 
correct them. 
OFFICE  OF  AUDIT  SERVICES 
The OIGS Office of Audit SeMces  (OAS) provides all auditing seMces  for HHS, either  by 
cxmducting audits with its own audit resources or by overseeing audit work done by others. 
Audits examine the performance  of HHS programs and/or its grantees  and contractors  in 
-g  out their respective  responsibilities and are.intended  to provide independent 
assessments of HHS programs and operations  in order to reduce waste, abuse, and 
mismanagement and to promote  economy and efficiency throughout  the Department. 
. 
OFFICE  OF  INVESTIGA~ONS 
The 01(3s Office of Investigations (01) c6nducts crimina~ civil, and administrative 
investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries  and of 
unjust enrichment  by provide=  The investigative efforts of 01 lead to criminai convictions, 
administrative sanctions, or civil money penalties.  The 01 also oversees State Medicaid fraud 
control units which investigate and prosecute  fraud and patient  abuse in the Medicaid program. 
OFFICE  OF  EVALUATION  AND  INSPECTIONS 
TheOIGS Office of Evaluation  and Inspections (OEI) conducts short-term  management  and 
program evaluations  (called inspections) that focus on issues of concern  to the Departmen~ 
the Congress, and the public.  The iindings and recommendations  contained  in these inspection 
reports generate  rapi~  accurate,  and up-to-date  information on the efficiency, vulnerability, 
and effectiveness of departmental  programs.  This report was prepared  in the Chicago 
Regional Office under  the direction  of WWlam C. Mora~  Regional Inspector  General  and 
Natalie Coe~  Deputy  Regional  Inspector  General.  Project staf& 
REGION  HEADQIMKIERS 
John hL Traqk  (Project  Leader)  Vlcki A  Greene 
Suzanne G. Johnson  (Lead Analyst) 
Jean Dufresne 
Thomas F. Komaniecki 
To obtain a copy of this report,  call the Chicago Regional Office at (312) 3S3-4124.  Depa~ment  of Health  and  Human  Services 
OFFICE  OF 
INSPECTOR  GENERAL 
. 
A  REVIEW  OF  HMO  QUALl~ 
ASSUWNCE  STANDARDS  REQUIRED  BY 
MEDICAID  AGENCIES

SEPTEMBER  1992  OEI-05-g2WlI0  EXECUTIVE  SUMMARY

PURPOSE 
To  describe  health  maintenance  organization  (HMO)  quality  assurance  (QA) 
standards  and  the  methods  used  by State  Medicaid  agencies  to  monitor  compliance 
with  them. 
--
.. 
BACKGRQ~-
.-
w	 The  Federal  Government  has  encouraged  the  use  of managed  care  or coordinated 
Ca;e systems,  such  as HMOS,  by Medicaid  agencies  to curb  rising  expenditures  in 
these  programs.  Managed  care  systems  reduce  health  care  expenditures  through  a 
combination  of preventative  health  care  measures  and  by monitoring,  and  to some 
extent  controlling,  the  medical  utilization  of both  provider  and  patient.  As of June  30, 
1991, approximately  5 percent  of Medicaid  recipients  were  enrolled  in HMOS. 
The  extent  to which  an  HMO  can  control  utilization  and  costs,  may  mean  the 
difference  between  its financial  success  or failure.  Consequently,  the  incentives  for 
these  providers  to  limit  semices  makes  QA an  essential  component  of managed  care 
programs.  Realizing  this,  Medicaid  agencies  mandate  their  contracting  HMOS  to 
perform  certain  QA  functions  to ensure  that  Medicaid  recipients  receive  appropriate 
and  good  quality  care. 
In Fiscal  Year  (FY)  1992, Medicaid  programs  will spend  an  estimated  $127  billion  for 
medical  care.  Almost  $72.5 billion  of this amount  will come  from  Federal  matching 
funds.  The  Federal  share  for  FY  1993 is projected  to be  $84.5  billion,  a  16.5 percent 
increase  over  FY  1992 outlays. 
METHODOLOGY 
We  intemiewed  Medicaid  officials  in 24 States  and  the  District  of Columbia 
concerning  the  QA  functions  their  contracting  HMOS  are  required  to perform. 
Information  and  documentation  was obtained  on  how  Medicaid  agencies  verify  HMO 
compliance  with  their  QA  standards.  Additional  corroborating  evidence  on  Medicaid 
agency  compliance  procedures  was obtained  from  structured  intemiews  yith  28 
HMos. 
FINDINGS 
Medicaid  agencies  use  stnctur~  process  and  outcome  QA  standards  to mordtor 
contractor  HMOS. 
i  . 
All Media-d  agencies  use  some  form  of 
StrUChld  standards. 
Structural  standards  offer  an 
 
assessment  of the  nature  of an  HMOs 
  health  care  resources.  These 

.~a~t.. m=th ,   2.5.:.  resources  include  the  facili~,  staff  and 
Pmgratlis 
the  ruies  of procedure. 
A&!cwcioa&. * 
2s  . 
Wntteii::gil?tai :.,,...q.  +.;..  Mdidd  agencies  have  Cam-ed over  fee-for..  -
,,....,. 
setiee  process  standards  to  their  HMO  program.
,.,.....,,..,  .  ..  .. 
~P~~o~c,E &:;  . .   : ;  :::: .~ 
  ,    Credentialing,  utilization  review, 
.;. .  c..i....i...i..d.., ej!iaiiii~   i: z~.: ~~ medical  record  review  and  other 
process  standards  that  parallel 
It..i..i,, ii. didPatieic.:.  .  *6 
*Da~  Medicaid  fee-for-service  experience 
.. .  , 
; 
have  been  readily  accepted  by
 util&ti.RkW.~ [~  13 
Medicaid  agencies  as good  managed 
care  QA  standards. 
.:,~w.ng  ~~mn  ,  ~ 
Medicaid  agencies  rely on  complaint  standards 
QuaI@ Prbblcnf 
more  than  patient  satisfaction  sumeys  and  health 
TCiUiiititms/:  .,.J  , 
outcome  reviews  to  ensure  quality. 
.:  ..& 
CliiiilP&uia   
::GdidciitiCi: 
Outcome  standards  provide 
 
Ptiin    .: :  3 
information  on  how patients  fared 
IWtagcment  ;, . 
while  enrolled  in the  HMO.  Health 
I 
:Omm  .: .  outcome  standards  monitor  HMO 
srANDArUm  ,:  medical  services  over  an  extended 
,Z::  period  of time  to  ensure  that  they 
CbmpWin&At&  ~~~   
:PITnxd**  .:   ,  meet  accepted  community  standards 
of medical  practice. 
Pati4&&itiaCaction  8. 
~,:  ~~ 
Sumeys  of patient  satisfaction  with 
Hdtii  Outmm.  ;.6 
Monit&jng,~t@  ~,  HMO  operating  procedures, 
complaints  and  grievances  provide 
,. 
information  on  recipient  experiences 
Fd~tix.@mtu  th~ ~[an~~	
in accessing  and  using  HMO  semices 
and  on  the  soundness  of HMO 
operations  and  procedures. 
AG13NX  COIvMmm 
The  Health  Care  Financirw  Administration  (HCFA)  and  the  Assistant  Secretarv  for 
Planning  and  Evaluation  (~PE)  commented  on our  draft  report.  The  HCFA  felt 
that  the  draft  report  promoted  the  use  of outcome  QA  standards  over  structural  and 
ii  process  standards  and  that  a balance  of QA  standards  was  more  desirable.  They  also 
felt  that  the  draft  report  might  leave  some  readers  with  the  impression  ...that 
enrollment  in an  HMO  carries  significant  risk of inappropriate  care. 
In our  response  to  HCF&  we agree  with  I-ICFA that  a blend  of QA  standards  is 
desirable.  The  scope  of this  inspection  did not  analyze  differences  in quality  of care 
which  might  exist  between  HMO  and  fee-for-service  providers.  Consequently,  this 
issue  was  not  addressed  in this  report. 
Changes  to the  report  have  been  made  to address  comments  we  received  from  HCFA 
and  ASPE.  The  complete  text  of their  comments,  and  our  response,  can  be  found  in 
Appendix  C. 
. 
.... .  . 
... 
111
 TABLE  OF  CONTENTS

PAGE 
SUMMARY  . . . . . . . . . . . . . . . . . . . . . . . . . . .
 . . . . . . . . . . . . . . - i 
INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 . . . . . . . . . . . . . . .  1 
FINDINGS  . . . . . . . . . ..=  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  5 
.  Three  types  ofQA  standards  areused  by Medicaid  agencies
 to

monitor  HMOs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 . . . . . . . . . . . . . . .  5

Structural  standards  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 . . . . . . . . . . . . . . .  6

Process  standards  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 . . . . . . . . . ...8

(lutco  mestandard  s. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

APPENDICES 
f%  Characteristics  ofHMOrespondents  . . . . . . . . . . . . . . . . . . . . . . . . . ..A-l 
B:	 A State  by State  comparison  of QA  standards

for  Medicaid  HMOs  .. . . . . . . . . ... . . 
. . . . . . . . . . . . . . . . . . .-,,..  .0 B-1

c  Agency  comments  and  OIG  l%spmrse  . . . . . . . . . . . . . . . . . . ..O  . . . . .  c-1

D  Endnotes  . . . . . . . . . . . . . . .,. .,_... . . . . . . ..... ... . . . . . . . . . . . . . . . . D-1
 INTRODUCTION

PURPOSE 
To  describe  health  maintenance  organ&ition  (HMO)  quaIity  assurance  (QA) 
standards  and  the  methods  used  by State  Medicaid  agencies  to  monitor  compliance 
wth them. 
  * 
BACKGROUND  ~ 
. 
Title  XIX  of the  Social  Security  Act,  commonly  referred  to as the  Medicaid  program, 
provides  Federal  matching  funds  to States*  for  medical  care.  In Fiscal  Year  (FY) 
1992  approximately  29 million  Medicaid  recipients  will be  eligible  for  medical  care. 
State  expenditures  for  medical  care  are  matched  by the  Federal  Government  on  the 
basis  of a formula  that  measures  relative  per  capita  income  in each  State.  Matching 
rates  for  FY  1992 are  projected  to range  from  50 to 79.99 percent  for  medical 
assistance  payments,  and  from  50 to  100 percent  for administrative  costs.  In FY  1992 
Medicaid  programs  will spend  an estimated  $127 billion  for  medical  care.  Almost 
$72.5 billion  of this  amount  will come  from  Federal  matching  funds.  The  Federal 
share  for  FY  1993 is projected  to be  $84.5 billion,  an  increase  of  16.5 percent  over  FY 
1992.1 
The  Federal  Government  has  encouraged  tie  use  of managed  care  or  coordinated 
care  systems  by Medicaid  programs  to curb  rising  expenditures  in State  health 
programs.  Managed  care  reduces  health  care  expenditures  through  a combination  of 
preventative  health  care  measures  and by monitoring,  and  to some  extent  controlling, 
the  medical  utilization  of both  provider  a.mllpatient.  In FY  1991, Medicaid  agencies 
paid  managed  care  entities  nearly  $2 bdllam dollars  for health  care  services. 
A number  of different  managed  care  systems  exist.  This  report  focuses  on  HMOS.  As 
of June  30,  1991, approximately  5 percent  of Medicaid  recipients  are  enrolled  in 
HMOS.  Under  the  Presidents  Plan  for Comprehensive  Health  Care  Reform,  which 
encourages  the  use  of managed  care,  the  number  of Medicaid  recipients  enrolled  in 
HMOS  and  other  managed  care  systems  is expected  to increase, 
Twenty-five  States  contract  with  HMOS  to serve  their  Medicaid  recipients.  Health 
maintenance  organizations  provide  services  to diverse  Medicaid  populations;  however, 
the  vast  majority  of Medicaid  HMOS  provide  mecikai  semices  to families  with 
dependent  children  (AFDC).  Some  HMOS  also  smwe aged,  blind  and  disabled 
Supplemental  Security  Income  recipients  and  othez  medically  needy  Medicaid 
populations.2 
* Throughout  this report,  any reference  10 States includes the District of Columbia. 
1
 The  127 W-OS  providing  medical  care  to Medicaid  recipients  fall  into  4 primary 
model  types:3 
(1)	 Staff, where  health  care  semices  are  delivered  through  a group  practice 
[employees  of the  HMO]  established  by the  HMO; 
(2)	 Group,  where  the  HMO  contracts  with  a group  practice  to  provide  health  care 
services; 
(3)	 Network,  where  the  HMO  both  provides  for, and  contracts  with  two  or  more 
group  practices  or  physicians  to provide,  health  care  sewices;  and, 
(4)	 lh&i&al  Practice Association  (IPA),  where  the  HMO  contracts  with  physicians 
in individual  practice  to provide  health  care  semices. 
The  extent  to which  an  HMO  can  control  costs  related  to health  care,  may  mean  the 
difference  between  its financial  success  or failure.  Most  Medicaid  agencies  contract 
with  HMOS  on  a capitated  or at risk basis.  If the  cost  of providing  medical  setices 
to members  exceeds  the  capitated  or f~ed  amount  the  HMO  is paid,  then  the  HMO 
risks losing  money.  The  incentives  for  these  HMOS  and  the  providers  within  their 
network  to  limit  services  makes  QA  an essential  component  of managed  care 
programs. 
Simply  defined,  QA  is an  ongoing  process  for evaluating  and  improving  the  medical 
and  other  health  related  sexvices.  It is a rapidly  evolving  and  complex  area; 
consequently,  Standards  to  measure  effectively  the  impact  of care  on  [patient] 
outcome  or  to  evaluate  the  quality  of managed  care  itself  are  not  well developed...  .4 
Even  in the  fee-for-service  arena,  which  has been  around  far  more  than  20 years,  not 
much  is known  about  the  efficacy  of QA  In both  fee-for=service  and  HMO 
environments,  Medicaid  and  other  agemcies have  developed  QA  programs  to  ensure 
that  patients  receive  appropriate  and  gaod  quality  care.. 
2
 METHODOLOGY 
This  study  is limited  to  HMOS.  It describes  QA  measures  used  by State  Medicaid 
agencies  to monitor  HMOS.  Medicaid  fee-for-service  and  other  medical  payment 
options,  such  as prepaid  health  plans,  were  not  reviewed.  This  study  focuses  on  State 
Medicaid  agency  QA  requirements  and  monitoriimg  Health  maintenance  organizations 
are  subject  to  reviews  by other  governmental  and  private  agencies.  They  also  conduct 
their  own  internal  QA  assessments.  This  inspecti.cm did  not  describe  HMO  internal 
QA standards  or  QA  standards  imposed  on HMOS by -other  governmental  or  private 
agencies.  ---
We  conducted  structured  interviews  with all 25 Medicaid  agencies  that  contract  with 
HMOS  to provide  medical  care.  The  remaining  Medicaid  agencies  did  not  contract 
with  HMOS,  at  the  time  of our  inspectio~  and  were  not  contacted. 
The  25 Medicaid  agencies  contacted  for this inspection  were  located  in the  following 
States:  California,  Colorado,  District  of COhmnhia, Florida,  Hawaii,  Illinois,  Indiana, 
Iowa,  Maryland,  MassachusetW  Michigan,  M.imwmta,  Missouri,  New  Hampshire,  New 
Jersey,  New  York,  North  Carolina,  Ohio,  Oregon,,  Pennsylvania,  Rhode  Island, 
Tennessee,  Utah,  Washington  and  Wisconsin. 
Visits were  made  to  16 States,  the  r-.ning  9;were  contacted  by telephone. 
Geographic  location,  HMO  characteristimy  I@40  population  and  other  factors  were 
used  to select  the  16 States  for ansite  visits,  Once  a State  had  been  selected,  the 
HMOS  with  Medicaid  contracts  we~e contacted  and  asked  to participate  in this  study. 
In some  States,  the  Medicaid  agency  had  a singie  contracting  HMO;  in others, 
multiple  HMOS  held  contracts  to provide  services  to: Medicaid  recipients.  In States 
with  multiple  HMO  contracts,  we tried  to sekxt  HNNls  with  different  characteristics. 
The  HMOS  participating  in this. stmiy were  not  selected,  at. random;  participation  was 
entirely  voluntary.  The  HMOS  selected  and. their  charactertitics  can  be  found  in  -
Appendix  A. 
Using  a structured  intemiew  guide,  we discussed~ (2A. with  28 of the  127 HMOS  sewing 
Medicaid  recipients.  These  discussions, often  included{ the  Chief  Executive  Officer  of 
the  HMO,  the  medical  director,  marketing  representative  and  QA  coordinator. 
We  compiled  our  list of QA  standards  frorm three  somces 
  The  National  Committee  for Quality  Assurance%  (QA standards  dated  June  27, 
1991. 
.	 The  National  Association  of HMO  Regulators  (NAHMOR)/National 
Association  of Insurance  Commissioners  @&C)  Recommended  Operational 
Requirements  for  HMO  QA  Programs,  adopted  by the  NAIC/NAHMOR  Joint 
Task  Force  in December  1988. 
3
 . 
.	 The  HCFA  Office  of Prepaid  Health  Cares  QA  standards  for  HMOS  and 
Competitive  Medical  Plans  contracting  with  the  Medicare  program  dated 
November  1989. 
We  identified  13 standards  that  encompassed  all of the  standards  endorsed  bythese 
entities.  Our  list was  not  all inclusive.  The  detail  of the  standards  put  forth  by these 
entities  is extensive,  and  we did  not  attempt  to address  all of the  nuances  in this 
inspection. 
Medicaid  agencies  were  asked  to identify,  from  our  list of QA  standards,  th=standards 
contracting  HMOS  were  required  to have  in place.  They  were  also  asked  how they 
verified  HMO  compliance  with  required  standards. 
The  HMOS  were  asked  to identify  which of our  QA  standards  they  had  in place.  They 
were  also  asked  to  identify  which  QA  standards  were  required  as part  of their  contract 
with  the  State  Medicaid  agency.  Like  Medicaid  agency  respondents,  HMO 
respondents  were  asked  how  the  agency  verified  compliance.  Intetiew  responses 
were  compared.  Discrepancies  in responses  were  resolved  by reviewing  documents 
and/or  recontacting  respondents. 
The  final  step  in our  analysis  was to classify each  of our  QA  standards  as either 
structural,  process  or  outcome.  An argument  can  be  made  for  classifying  a standard  in 
more  than  one  categoqq  we classified  them  into  a single  category  using  the  following 
criteria: 
Standards  that  provided  an assessment  of HMO  facilities,  staff,  resources  and 
	
rules  of procedure  were  classified  as structural  standards.s 
Standards  that  provided  data  and  information  on  adherence  to  HMO  internal 
 
policies,  resource  consurnptionI  and  choice  of therapies  at  a freed  point  in time 
were  classified  as process  standards-a 
Standards  that  provided  Medicaid.  tigenciix  wfh information  on the  net  results 
	
of HMO  policies,  practices,  procedures  and  quality  assurance  measures  were 
classified  as outcome  standards.7 
Our  review  was  conducted  in accordance  wiib  the  Ihreti  Standmis  for  Inspections 
issued  by the  Presidents  Council  on Integrity  and  Efficiency. 
4
 FINDINGS  

MEDICAID  AGENCIES  USE  STRU~  PROCESS  AND  OUTCOME  QA 
STANDARDS  TO  MONITOR  CO~CrOR  HMOS. 
Health  maintenance  organizations  enter  into 
Table I :  contracts  with Medicaid  agencies  to provide 
health  care  and  related  semces  to Medicaid 
.slRuctu&u  &?&  recipients.  One  function  of the  Medicaid  agency 
ymlm%ms  AGEN@23  .  is to  ensure  that  their  recipients  receive  good 
.  quality  care  in these  HMOS.  To  accomplish  this 
:.P@cnt Education  z- goal,  Medicaid  agencies  have  adopted  a number 
.,%ogmm  -
of QA  standards.  (See  Appendix  B for HMO 
:44c8xsstocat-e*  2s:  QA  standards  required  by each  State.) 
:&fi**a;QApba 
23 
r  Quality  assurance  standards  are  interactive  and 
.,  .,.:.., ~~~, ::  :/  could  fall into  more  than  one  of three  categories.
%W3?&  ::   : 
:;.~~~:.:,  , : :::.  ,,.  ;.,  For  example,  a requirement  to  credential 
:c%&&ikltig    21  physicians  could  be  considered  a structural 
standard,  while  one  addressing  how  to credential 
~dtiduaP~a tient  16 
physicians  could  be  a process  standard.  In this 
&ue  Di@,. 
report,  we have  divided  QA  standards  into  three 
,:
~~iilii~ion,  Rciiew  13 
categories:  structural,  process  and  outcome. 
:I&&al  R&orCi  .12 
.Revicw  : 
Struchlral standards  provide  an  assessment  of the 
~:&tig  ~w,ti 
7  nature  of an  HMOs  health  care  resources;  its 
(juatity  Pmbicm 
facility,  staff  and  the  rules  of procedure.8
Tbrtttinatiomv 
~ tiial  Practice  ..  ~. 
Bocess  standards  assess  the  intermediate  products 
.Gtielines, 
of care  such  as utilization  rate,  choice  of 
: ,i&iciata    3 
therapies  and  adherence  to,  and  effectiveness  of, 
Mmagctttent: 
I  procedures.g  Process  standards  provide  data  and 
om&  information  on adherence  to  HMO  internal 
~m_  ;  . 
policies  and  procedures.  They  provide  data  for 
comparing  resource  consumption  by the  HMOs 
mtupIailitk&+&  :  25 
; ~~&.!*,,.:  ,,,  ;  ;  affiliated  physicians  and  hospitals. 
Patieti*&uiotp   ;.  & 
Sitivqa   :.: ?!?  .  Process  medical  record  reviews  also  provide
,. 
information  about  the  quality  and  appropriateness 
Health Outck  6 
hfonkming and  of medical  care  given  to a patient  at a specific 
E%duation  point  in time.  These  narrowly  focused  medical 
record  rewews may fail to detect  underutilization 
 FcderaJ law mandates [his standard 
of HMO  services  or  the  benefits  of HMO 
preventative  health  care  and  patient 
counseling.10 
5
 Outcome  standards  focus  on  the  net  results  of HMO  care  over  an  extended  period  of 
time.  They  also  focus  on  the  health  of the  HMO  itself.  Sumeys  of patient  satisfaction 
with  HMO  operating  procedures,  complaints  and  grievances  and  longitudinal 
assessments  of medical  care,  all  provide  information  on  how  patients  fared  when 
enrolled  in HMOS.  Outcome  standards  assess  the  clinical  and  nonclinical  components 
of HMO  care  which  directly  impact  on patients. 
Outcome  standards  must  always  be balanced  with  measures  of structure  and  process 
to ensure  high  quality  medical  care.  Structural  and  process  standards  are  widely  used 
by HMOS,  regardless  of government  mandates,  because  they  are  inherent  in HMO 
philosophy  and  good  business  practices.ll  1213  . 
ALL  MEDICAID  AGENCIES  USE  SOME  FORM  OF  STRUCXUIWL 
STANDARDS. 
Structural  standards  (see  Table  1) offer  an  assessment  of the  nature  of an HMOs 
health  care  resources.  These  resources  include  the  facility,  staff  and  the  rules  of 
procedure.  14 Some  QA  proponents  feel  structural  standards  ... are  appropriate 
objects  of scrutiny  only to  the  extent  that  they  are  demonstrably  related  to valued 
outcomes.ls  For  example,  evaluating  prenatal  care  patient  education  programs  to 
determine  their  impact  on  low birth  weights  is appropriate  because  it measures  the 
effect  or  outcome  of the  education  program.  Simply  reviewing  educational  materials 
on  prenatal  care  without  evaluating  the  effect  on the  patient  does  not  assess  if the 
program  is effective  and  does not  provide  any infofiation  that  might  be  used  to 
improve  the  program. 
b  AU Medicaid  HMOS are rixpiied  to develop  a wnttenQA plan. 
A QA  plan  serves  as a blueprint  for  an HMOs  entire  QA  activities.  It is a descriptive 
outline  of an  HMOs  QA  objectives.  Implementation,  monitoring  and  evaluation  of 
the  plan  is designed  to identify  deficiencies  in HMO  operations  and  quality  of care, 
and  promote  corrective  action  and  irnprmwxnents.ls 
Twenty-three  Medicaid  agencies  require  their  HMC% to develop  a written  QA  plan. 
Two  Medicaid  agencies  do  not  specifically  stipulate  this standard  in their  HMO 
contracts,  believing  it to be  unnecessary  as armther  governmental  body  requires  it.  In 
one  State,  it is the  State  Department  of Public  Health.  In the  other,  the  contracting 
HMO  meets  Federal  standards. 
Many  Medicaid  agencies  do  not  use the  QA  plans. devel~ped  by HMOS  as a guide  to 
evaluate  the  HMOs  total  QA  program.  Most  (1?  of 257 Medicaid  agencies  review  the 
written  QA  plans  of their  HMO  contractors  during  the  contracting  process.  The 
agency  Medical  Director  or  an  RN  reads  the  plan  to de~ermine  if QA  standards  are 
described,  and  if appropriate  processes  are  in place  to implement  these  standards.  Of 
the  17 Medicaid  agencies  that  review  the  HMO  QA  plan,  at  least  half  do  not  keep  the 
6 
  plan  on  file.  Some  Medicaid  agencies,  whiIe requiring  the  QA  plan  to be  on  file, do 
not  review  it. 
In five States,  another  agency  or  organization  in addition  to,  or  in place  of, the 
Medicaid  agency  reviews  the  HMOs  QA  plan.  For  example,  the  Department  of 
Public  Health,  a Peer  Review  Organization  (PRO)  or State  Department  of Insurance 
review  the  plan.  Coordination  among  these  agencies  varies.  Several  HMOS 
complained  that  the  involvement  of multiple  oversight  agencies  results  in duplicate 
efforts. 
Nineteen  Medicaid  agencies  require  their  HMO  contractors  to have  an  active  QA 
committee  to implement  and  oversee  the  performance  of the  QA  functions  outlined  in 
the  HMOs  QA  plan.  All of these  Medicaid  agencies  review  minutes  from  the  HMOs 
QA amnittee  meetings  to verify  the  committees  activities.  Three  Medicaid  agencies 
have  employees  attend  and  participate  in HMO  QA  meetings. 
b	 ALl Me&aid  agencier are active& kvolved  xk HMO patient  education  program 
some  wofig  ckbse~ with their Hh40s  to develop  educational  materiidr  on pati2nt 
benefits, righ~ and rapmsibilities. 
Patient  education  programs  disseminate  &formation  on  patient  rights  and 
responsibilities,  benefits,  charges,  access  to care  and  scheduling  of services.  This 
information  is conveyed  to  Medicaid  recipients  primarily  through  HMO  marketing 
materials. 
Federal  law (42 CFR  Section  434.36)  requires  Medicaid  contracting  HMOS  to 
...assure  the  agency  that  marketing  plans,  procedures,  and  materials  are  accurate,  and 
do  not  mislead,  confuse,  or defraud  either  recipients  or  the  agency.  States  have 
responsibility  for  monitoring  adherence  to these  standards.  Some  States  have 
developed  additional  standards  applicable  to marketing  materials.  All of the  Medicaid 
agencies  we interviewed  were  activdy  involved  in reviewing  their  HMOS  marketing 
materials. 
Some  Medicaid  agencies  work  closely with their  HMOS  to  develop  patient  education 
materials.  Other  agencies  simply  advise  HMOS abont  the  content  of their  patient 
education  materials.  Almost  all Medicaid  agencies  review  all  marketing  or  handbook 
material  the  HMO  supplies  to  Medicaid  recipients.  Some  Medicaid  agencies  formally 
authorize  the  release  of educational  materials  and  any changes  to  the  materials  to 
further  ensure  the  correctness  of information  HMOs  disseminate.  Those  Medicaid 
agencies  that  are  not  involved  in patient  education  rely on another  State  agency  to 
review  and  approve  educational  materials. 
7
 All  HMOS are reqz&d  to pmti  accers to care and Medicaid  agencies use a 
D	
variety of rnet/zod3 to verijjy adherence to policy. 
Federal  and  State  laws require  all HMOS providing  emergency  medical  services  to 
ensure  recipient  access  to care  at all times.17  All but  1 of the  25 Medicaid  agencies 
require  HMOS  to  ensure  recipient  access  to health  care  services.  The  Medicaid 
ageney  that  does  not  require  this standard,  does  not  do  so because  it is already 
required  by Federal  law governing  HMOS. 
Some  Medicaid  agencies  use  a variety  of one  or more  approaches  to verify 
compliance.  More  than  half  (14)  of the  Medicaid  agencies  monitor  grievances  and 
complaints  on  access.  Eight  agencies  review  HMO  internal  procedures  and  guidelines 
regarding  access.  Eleven  take  a more  aggressive  approach  and  use  medical  chart 
reviews  or random  calls  to  HMO  clinics, physicians  and  answering  services  to ensure 
adherence  to  HMO  policy  on  access  to care.  One  agency  spot  checks  notices  posted 
in clinks  on  how  to obtain  after-hour  services.  Two  review  after-hour  and 
transportation  logs.  Another  uses  recipient  sumeys.  Four  Medicaid  agencies  maintain 
a 24-hour  toll  free  hotline  for  Medicaid  HMO  recipients,  should  they  experience 
difficulty  obtaining  sefices. 
MEDICAID  AGENCIES  HAVE  CARRIED  OVER  FEE-FOR-SERVICE  PROCESS 
STANDARDS  TO  THEIR  HMO  PROGRAM. 
process  standards  assess  the  intermediate  products  of care  such  as  utilization  rate, 
choice  of therapies  and  effectiveness  of procedures.  18 This  category  of standards  is 
widely  used  by HMOS  to:  (1) minimize  exposure  from  unqualified  individuals, 
(2) monitor  resource  consumption,  (3) assess. adherence  to  HMO  accepted  standards 
of practice,  and  (4)  manage  their  care  netwarik  and  provider  behavior. 
Process  standards  (see  Table  1) are  ustmlljt ernbrarmd  by HMOS  regardless  of 
Medicaid  agency  mandates  because  they  are  perceitied  to be good  business  practices. 
They  are  perceived  to be  good  tools  for ovemming  day  to day  business  operations. 
Most  process  standards  find  their  roots  in. the  fee-fbr-service  system.  Credentialing, 
patient  care  data,  utilization  and  medical  record  reviews  have  been  the  cornerstone  for 
assessing  QA  in fee-for-semice  for decades- Medicaid  ageney  familiarity  with  these 
processes  made  them  prime  candidates  for acceptance  into  most  Medicaid  agencies 
managed  care  QA  programs.  Less familiar  standards>  such  as clinical  practice 
guidelines  and  the  management  of physician  conduct  are  somewhat  unique  to 
managed  care  and  have  not  been  as easily assimilated  in Medicaid  QA  programs. 
Process  standards  are  necessary  to  HMO  QA  as they  minimize  risk,  provide 
indications  of potential  problems  and  enable  corrective  action.  However,  QA 
standards  addressing  credentials,  data,  practice  guidelines  and  physician  management 
do  not,  in themselves,  measure  the  quality  of care  a patient  received.  Medical  record 
8  reviews  do  provide  an  indication  of the  qurdity of care  provided  on  a given  day or  over 
a short  period  of time  but  are  limited  in their  ability  to  provide  sufficient  information 
on which  to judge  HMO  practices. 
b	 Tknty-one  Medicaid  agencies reqti  H..OS  to credentia~  most  HIWOSmeet  or 
exceed  mandated  requirements. 
Credential  verification  is one  method  used  to  minimize  the  risk  of inadequate  or 
harmful  care  to  Medicaid  patients  from  incompetent  providers.  This  process  often 
involves  the  Medicaid  agency  and  other  myriad  cxganizations,  accrediting  bodies  and 
providers, 
Most  (21)  Medicaid  agencies  require  their  HIkf@s to veri~  that  the  physicians  and 
other  health  care  professionals  they  empkay me  qualified  and  properly  credentialed. 
Four  Medicaid  agencies  rely on another  State  entity  to verify  credentials  and  do  not 
require  their  HMOS  to independently  credemiail  their  providers.  In two cases,  the 
HMO  is only required-to  veri$  that  physicians  in their  network  hold  a current,  valid 
license  to practice  medicine. 
We  found  that  23 of 28 HMOS  had  credential  verification  processes  in place  that  met 
or exceeded  Medicaid  agency  mandate%.  Physician  credentialing  is a good  business 
practice.  Court  decisions  have  held  HMOS. responsible  for  the  actions  of their 
contracted  physicians. 19 In addition  to offering  a measure  of liability  protection, 
physician  credentialing  allows  HMOs  to select  physicians  whose  practice  style  reflects 
the  HMOs  philosophy  and  objectives.. 
Independent  confirmation  of HNK3 credkmtialing  results  by Medicaid  agencies  is 
practically  nonexistent.  Four  agenaes  conduct  random  samples  of  HMO  physician 
files to assess  HMO  adherence  to cred-emtialing guidelines.  Most  Medicaid  agency 
credential  verification  consists  of a checik on  the  licensure  or Medicaid  participating 
status  of providers.  Six agencies  review  cmderrtkdirug  methodology  but  do  not  verifj 
whether  the  HMO  adheres  to its guideti~.. 
As in other  areas,  Medicaid  agencies  oftem do not  vemifyor enforce  credential 
verification.  Some  Medicaid  respondents,  knew  or  assumed  that  another  State  entity 
verified  the  credentials  of HMO  physicians,.  However,  some  of these  respondents 
were  unsure  exactly  which  State  entity  might  actually  perform  this  function,  or what 
the  other  State  entitys  credential  verificatim  process  encompassed. 
w	 Pat&m/ care data  received /iom  HM%9sofkrn &es  not meet  Medicaid  agenq 
expectations. 
Patient  care  data  is statistical  information  collected  by HMOS  from  patients  medical 
records,  contract  providers  and  patient  surveys.  It enables  HMOS  to assess  patient  use 
of medical  services,  patient  satisfaction  and  the  nature  of semces  provided  by the 
HMOs  affiliated  physicians  and  hospitals~ 
9  Patient  care  data  isoften  used  during  utilization  review  to eliminate  unnecessa~  care 
and  services;  thereby,  controlling  costs and  improving  quality.21  Utilization  review 
programs  employed  by HMOS  include:  (1) pre-authorization  of specialty  services; 
(2)  mandatory  second  opinion;  (3) concurrent  review  of all hospital  admissions  and 
discharge  planning  (4)  high  cost  case  managemen~  (5)  pre-negotiated  specialty, 
referral  contracts;  and,  (6) education  of members  and  providers  on  utilization  of 
services.= 
Patient  care  data  collected  by HMOS is customized  to  fit individual  HMO  needs. 
While  the  content  of the  information  HMOS collect  is similar,  each  HMO  establishes 
their  own criteria  for  data  collection.  Some  HMOS collect  detailed  claims  information 
similar  to  that  collected  under  the  fee-for-service  system;  others  collect  aggregate  data 
horn  their  contracted  hospitals,  physicians,  laboratories,  pharmacies  and  other 
suppliers  and  have  little  or no patient  specific  data.  The  data  collected  by HMOS  is 
usually  dictated  by their  largest  subscriber  since  most  HMOS  are  unable  to comply 
with  all their  subscribers  data  requests.= 
Sixteen  of 25 Medicaid  agencies  require  HMOS  to collect  individual  patient  care  data 
and  13 require  HMOS  to conduct  internal  utilization  review.  Medicaid  agencies  that 
require  HMOS  to  provide  individual  patient  care  data  often  find  that  the  information 
does  not  meet  their  expectations.  For  example,  some  agencies  expect  data  from 
I-IMOS to mirror  their  fee-for-service  claims  data,  this may  not  be  feasible  given  the 
variety  of HMO  business  arrangermmk  Medicaid  agencies  willing  to work  with  HMO 
data  have  better  compliance.  A similar  problem  appears  to  exist  in the  area  of HMO 
utilization  review.  Medicaid  agencies  that  attempt  to impose  fee-for-sexvice  utilization 
rew-ew methodologies  are  less successful  in obtaining  useful  HMO  data  than  those  who 
adopt  HMO  methodologies. 
Most  Medicaid  agencies  are  not  familiar  with the  kinds  of data  HMOS  collect.  Until 
recently,  data  collection  among  HMOS  has primarily  focused  on  inpatient  hospital 
services.  Sexvice  specific  encounter  data. is not  commorm in capitated  managed  care 
systems  that  have  no  need  to maintain  detailed  claims. information.24  On  the  other 
hand,  HMOS  that  reimburse  their  contract  physicians  orria fee-for-service  basis  can 
reasonably  be  expected  to coIlect  much  more  detailed  patient  care  information. 
All  Medicaid  agenciizrconduct epimdk  mediiwl reunrd reviews; 12 aLro require 
b	
contacting  HMOS to conduct  thek own intemrdmrzdiizzl record reviews. 
Medical  records  are  considered  to be  the  best-source  of information  on  the  technical 
aspects  of care .=  Medical  record  reviews  have  traditionally  been  Medicaids  primary 
source  of information  for  QA.26  Medical  record  reviews  and  the  methodologies  used 
to conduct  them  are  steeped  in the  history  of the  feeAcw-service  system.  Traditional 
medical  record  reviews  examine  the  type and  quality  of care  a patient  received  on  a 
particular  day.  They  are  episodic  rather  than  longitudinal  in scope,  consisting  of a 
review  of a single  health  care  event.  In the  HMO  environment  focusing  on  the 
appropriateness  and  quality  of care  surrounding  a single  health  care  event  may  fail to 
10
 detect  underutilization  of services  or recognize  the  benefits  of HMO  preventative 
health  care  and  patient  counseling.27 
Federal  law requires  Medicaid  agencies  to conduct  an  independent,  external  review  of 
the  quality  of sem-ices furnished  by HMO  contractors.  This  law requires  that  States 
use  a PRO  or  a private  accreditation  body  to perform  the  review.x  All of the 
Medicaid  agencies  we  interviewed  are  in compliance  with  this  statutory  requirement 
and  contract  with  either  PROS  or  private  accreditation  bodies  to  examine  HMO 
medical  r~ords  to assess  the  quality  of medical  care. 
.. 
---- Medical  record  reviews  may  occur  quarterly,  hi-annually,  or  annually.  Reviews  maybe 
traditional  medical  record  examinations  of the  care  provided  surrounding  a particular 
medical  episode  or  target  specific  Medicaid  semices  such  as immunizations  or groups 
of recipients  such  as pregnant  women.  If the  Medicaid  population  in an  HMO  is very 
small,  all Medicaid  recipient  medical  records  may  be  reviewed.  More  often,  the 
number  of recipients  enrolled  in an  HMO  limits  the  number  of reviews  to 2 to  10 
percent  of the  HMOs  Medicaid  population. 
Some  Medicaid  agencies,  in addition  to the  independent,  external  review  required  by 
Federal  law, performed  their  own  medical  record  reviews  to assess  the  quality  of 
contracting  HMO  services.  Twelve  also  require  their  HMO  contractors  to conduct 
their  own  independent,  internal  medical  record  reviews  and  to report  their  findings  to 
the  Medicaid  agency. 
Even  when  no  requirement  exists  for HMOS  to conduct  their  own  internal  medical 
record  reviews,  HMO  respondents  indicated  that  they  do so because  these  reviews  are 
a good  business  practice.  They  help  the  HMO  detect  unbundling  of services,  upcoding 
of services  and  rovide  information  on the  use  of services  by HMO  fee-for-service 
r 
subcontractors.z  Medical  record  reviews  cart also  lead  to  the  early  detection  of 
aberrant  physician  practice  patterns. 
Seven  of the  12 Medicaid  agencies  rely cm medical  record  reviews  to verify  HMO 
compliance,  but  only  one  audits  a sample  of the  medical  records  actually  reviewed  by 
the  HMO  to veri~  its findings.  Three  agencies  review  HMO  reports  to assess  the 
nature,  completeness  and  accuracy  of HMO  rrredicai  reviews.  Two  do  not  veri~  HMO 
compliance  with  this  QA  requirement. 
Health  maintenance  organizations  are  subject  to  numerous  medical  record  reviews  by 
multiple  State  and  Federal  agencies,  independent  accrediting  organizations  and 
contract  subscribers.  Duplicative,  uncoordinated  reviews  often  result  in conflicting 
findings.  One  HMO  received  an  exemplary  rating  on its medical  records  from  one 
governmental  body  while  another  found  the same  records  wanting. 
11
 w	 Few  (6) Medicaidagentia  require use of chkicai practice  gukielines  establishing 
standardr  of care. 
In managed  care  systems  clinical  practice  guidelines  can  play  a vital  role  in ensuring

good  quality  medical  care.  Practice  guidelines  are  thought  to  promote  the  use  of best

practices  in medical  care.  They  provide... greater  consistency  of care...[and  reduced]

risk of harm  [to  the  patient]  resulting  from  omission.3

The  involvement  of para-professionals,  financial  incentives  and -other  f&ctors unique  to

managed  care  provide  the  foundation  for advocating-the  development  and  use  of

clinical  practice  guidelines  by HMOS.  Clinical  practice  guidelines  are  usually

developed  for  high  risk  conditions  such  as chronic  heart  disease,  substance  abuse,

C-sections  and  hypertension.  =  .

Most  (19 out  of 25)  Medicaid  agencies  do  not  require  HMOS  to  develop  or  use

clinical  practice  guidelines.  The  six Medicaid  agencies  that  require  their  HMOS  to

develop  and  use  clinical  practice  guidelines  vary  considerably  in their  approach.  In

two cases  the  Medicaid  agency,  HMO  administrative  staff  and  HMO  providers  have

worked  together  to  establish  practice  guidelines.  One  Medicaid  agency  has  developed

their  own guidelines  for  specific  encounters.  This  agency  requires  all of their

contracting  HMOS  to  use  these  guidelines  in addition  to  any  HMO  developed

guidelines.  The  three  remaining  agencies  review  proposed  guidelines  to  ensure  they

meet  community  standards  of care  but  are  not  involved  in the  actual  development  of

guidelines.

Despite  lack  of a Medicaid  agency  mandate,  more  than  70 percent  of HMOS  we

reviewed  have  developed  one  or more  practice  guidelines.  Within  HMOS,  consensus

grOUpSof physicians  develop  agreed-upon  standards  of practice,  which  are  then  used

to evaluate  their  peers  and  identify  potential  quality  of care  deficiencies.

Medicaid  agencies  that  mandate  clinical  practice  guidelines  verify  provider  adherence

to guidelines  during  the  medical  record  review  process.

b  O@  three Mkdicaid  agencies reqtie  HMOS to manage physician  behavio~ 
Physicians  are  the  pivotal  decisionmakers  in HMOS. 31 Their  practice  patterns  can 
make  the  difference  between  an  HMOs  financial  success  or  failure. 32 Because 
physicians  play  such  a critical  role,  HMOS  provide  financial  and  other  incentives  to 
manage  their  behavior.33 
The  HMOS  manage  physician  behavior  by:  (1) selecting  physicians  whose  practice 
style  reflects  the  HMOs  philosophy  and  objectives,  (2)  providing  physician  education 
and  feedback  on  practice  patterns  in comparison  with  other  HMO  physicians,  and 
(3)  offering  financial  incentives  directly  impacted  by the  physicians  practice 
pattems.~  In a  1988 survey  of its membership,  Group  Health  Association  of 
America  (GHAA)  reported  that  ...73 percent  of all HMOS  have  cavitation  arrangements  with  physicians,  and  nearly  40 percent  withhold  a proportion  of the 
physicians  fees  or  cavitation,  putting  them  at  financial  risk for  poor  financial  or 
utilization  performance  of the  HM0.35 
Health  maintenance  organizations  use data  collected  by their  systems  to  identi~ 
physicians  whose  practice  patterns  differ  from  their  peers.  This  data,  coupled  wth 
information  derived  from  medical  record  reviews,  is used  to educate  physicians  who  do 
not  provide  services  within  expected  practice  parameters.  Depending  on  the  nature  of 
the  @dings,  the  HMO  may  decide  to:  (1) educate  the  physician  on  the  HMOs  policy 
and  standards  of practice,  (2) provide  remedial  training  to  improve  the  physicians 
technical  skills, (3)  discipline  the  physician,  or  (4)  terminate  the  physicians  contract. 
Of the  25 Medicaid  agencies  that  con~ract  with  HMOS,  only  3 have  QA  standards   
which  directly  address  physician  man~gement.  Medicaid  agencies  are  not  involved  in 
physician  management  because  they believe  it is inherent  in the  HMO  philosophy  and 
a good  HMO  business  practice. 
Seven  agencies  require  HMOS  to report  to them,  or other  appropriate  authorities, 
serious  quality  problems  resulting  in a physicians  suspension  or  termination.  And  four 
agencies  require  HMOS  to identify  providers  no  longer  affiliated  with  the  HMO,  but 
do  not  require  the  HMO  to p~ovide  a reason  for  the  providers  termination. 
MEDICAID  AGENCIES  RELY  ON  COMPLAINT  STANDARDS  MORE  THAN 
PATIENT  SATISFACITON  SURVEYS  AND  HEALTH  OUTCOME  REVIEWS  TO 
ENSURE  QUALITY. 
Outcome  standards  (see  Table  1) provide  infm-mation  on  how patients  fared  while 
enrolled  in the  HMO.  They  assess  not  mdy the  end  products  of medical  care  such  as 
patient  health  status  but  also  the  soundness  of HMO  operations  and  procedures. 
Sumeys  of patient  satisfaction  with HMO  operating  procedures,  complaints  and 
grievances  provide  information  on recipient  experience  in accessing  and  using  HMO 
services.  Health  outcome  medical  reviews* examine  the  entire  spectrum  of medical 
care  an  HMO  has  provided  to a recipient.  These  outcome  medical  reviews  differ 
from  episodic  medical  record  reviews  because  they  take  into  consideration  all of the 
medical  care,  preventative  measures  and  education  a recipient  received  from  the 
HMO. 
   Thesum healotthucorrtaiswi&~  used by ~  a~ci~  ~  d~ private  seclor.  The precise  meaning  of health 
ouscome  diflm  &pending  on what pmabct  or use the entity has in mind  in k  ~  the tarn  health  outcome  reviews  meatu  a 
longiadnai  am=mnat  of W  medical  record(s)  of an HMO  patient  to detcrmirte  whe~a  due care was aereked  in providing  medieal 
tics  Were services  under  use~  were preventative  measures  iakq  were the preventative  ond medico[  interventions  oppropnate and 
within  Occqtted  co rnmtutity  standards  of care?  As used  in this rcpoq  our de/initiatz  of heahh  outcome  ret,iews  is not re!a[ed to the 
devehpmeru  of clinica[  information  daia  bases dun rank pos~-vcatmetu  health  suww  provide  treannem options or other  applications 
13  +	 Alduxzgh  HMOS are requiked to rerolve ptient  complains  and grkvances,  most 
Medicaid  agenckr  rely on HMO reportr to verifi compliance. 
All 25 Medicaid  agencies  require  their  HMOS  to have  a process  for  resolving  patient 
complaints  and  grievances.  Federal  law requires  an  internal  grievance  procedure 
which:  (a)  Is approved  in writing  by the  [Medicaid]  agency;  (b)  Provides  for  prompt 
resolution;  and  (c)  Assures  the  participation  of individuals  with  authority  to require 
corrective  action.% 
T@al  reliance  on  HMOS  to handle  the  complaints  and  grievances  may  leave  the 
Medicaid  agency  vulnerable  and  put  recipients  at  risk.  In the  HMO  environment, 
complaints  and  grievances  about  the  HMO  can  originate  from  many  sources. 
Physicians  and  other  HMO  subcontractors,  patients  and  others  may  complain  about 
HMO  practices  and  procedures.  Complaints  may provide  early  warning  about  the 
financial  practices  and  stability  of an  HMO.  Complaints  may  reveal  problems  with 
access  to setices  and  patterns  indicative  of poor  care. 
Fourteen  Medicaid  agencies  reduce  the  risk associated  with  HMOS  assessing  their  own 
performance  by performing  periodic  reviews  of HMO  complaint  files.  Some  Medicaid 
agencies  sample  complaint  files, while  others  review  all files  to  ensure  recipient 
complaints  have  been  properiy  addressed.  Reviews  are  conducted  onsite,  or  through 
information  provided  by the  HMO. 
Five  Medicaid  agencies  operate  their  own complaint  and  grievance  units.  These 
agencies  believe  that  their  direct  involvement  in the  resolution  of recipient  complaints 
provides  them  with  greater  insight  of their  HMOS QA. 
b	 Eight Medicaid  agenaer require HMOS to conduct patient  satisfaction  surveys. 
Seven conduct  thek  own WUVeySb  asws,  fii[~  recipient satisfaction 
Medicaid  agencies  use  surveys  to assess  recipient  satisfaction  with  HMO  services. 
Twenty-six  of the  28 HMOS  we interviewed  conduct  satisl%ction  sumeys  regardless  of 
agency  mandate.  The  surveys  are  intended  to proviik  information  about  problems 
patients  encounter  in scheduling  and  securing  medical  services.  Surveys  are  also  used 
to elicit  patient  perceptions  of facilities,  providers  and  care. 
Eight  of 25 Medicaid  agencies  require  their  HMOS+m: conduct  patient  satisfaction 
surveys.  These  surveys  are  conducted  by mail;. telepfmne  or  in person.  Some  of these 
agencies  are  actively  involved  with  their  HMOS  in: th~ design  and  conduct  of 
satisfaction  surveys.  Others  leave  survey desigrr and  collection  methods  to the 
discretion  of the  HMO.  As with complaints  and. grievances,  allowing  HMOS  to assess 
their  own  patient  satisfaction  may leave  the  Medicaid! agency  vulnerable,  unless  the 
agency  is integrally  involved  in all phases of the  survey.  Sampling  methodologies 
leading  to an  underrepresentation  of Medicaid  recipients  and  HMO  self-reporting 
could  bias  reporting. 
14
 Seven  Medicaid  agencies  conduct  their  ownsuweys.  They  believe  they  are  gettinga 
clearer  picture  of what  is occurring  in the  Medicaid  population,  because  they  are 
obtaining  information  firsthand  from  the  recipient.  They  believe  this  to be  particularly 
true  where  Medicaid  recipients  represent  a small  percentage  of HMO  enrollment. 
These  agencies-believe  their  involvement  in satisfaction  surveys  enables  them  to take 
an  active  role  in corrective  actions. 
Medicaid  agencier and HMOS find  the term heal[h outcomes  ambi~ous, 
b	
sometimes  interpreting it to mean  Uh&ah-Onreview or me~icai  record review. 
Health  outcome  rgonitoring  and  evaluation  is a new  and  evolving,  complex  QA 
process  which  focuses  on  the  net  results  of care.  As used  in this  report,  health 
outcome  monitoring  and  evaluation  involves  a longitudinal  review  of an  HMO 
patients  medical  record  to determine  if the  care  that  recipient  received  met 
community  standards. 
Because  they  examine  all of the  medical  care  a recipient  received  while  enrolled  in an 
HMO,  health  outcome  reviews  take  more  time  and  resources  than  do  medical  record 
reviews.  Medical  record  reviews  are  usually  episodic  - they  examine  the  application  of 
medical  knowledge  and  treatment  surrounding  a specific  medical  episode.  Health 
outcome  reviews  look  at  the  care  provided  prior  to, during  and  after  a specific  health 
care  event.  Consequently,  fewer  health  outcome  medical  reviews  can  be conducted 
annually. 
Proponents  think  that  health  outcome  reviews  are  more  likely to  detect  the  benefits  of 
preventative  health  maintenance  and  patient  counseling,  underutilization  of semices 
and  poor  quality  of care  in HMOS  than  would  episodic  medical  record  reviews.37 
The  folIowing  example  illustrates  how health  outcome  medical  record  reviews  differ 
from  episodic  medical  reviews.  An  episodic  medical  review  may  determine  that  a 
child was  seen  and  properly  treated  for  measles.  It may not  determine  if the  child  was 
ever  immunized  for  measles.  Health  outcome  medical  record  reviews  would  not  only 
determine  that  the  child  was properly  treated  for  measles  but  also  whether  the  HMO 
had  vaccinated  the  child  to  prevent  measles. 
Medicaid  agency  and  HMO  respondents  found  the  term  health  outcome  review 
ambiguous,  sometimes  interpreting  it to mean  utilization  review  or  episodic  medical 
record  reviews.  Based  on  their  own  interpretation  of the  term,  6 of the  25 Medicaid 
agencies  indicated  that  they  required  their  I-fMOs to monitor  and  evaluate  the  health 
outcomes  of their  Medicaid  patients.  Medicaid  agencies  verify  compliance  by 
reviewing  medical  records  or patient  care  data. 
One  agency  respondent  doubted  that  any Medicaid  agency  or  HMO  was conducting 
health  outcome  reviews  involving  the  examination  of the  care  a recipient  received 
from  an  HMO  over  an  extended  period  of time.  The  term  health  outcome  review  was 
mentioned  frequently  in HMO  QA  literature  and  proposed  QA  standards.  Despite 
15
 what  appears  to be  widespread  use of the  term,  considerable  differences  apparently 
exist  in defining  what  constitutes  a health  outcome  review. 
-.   
AGENCY  COMMENTS 
We  wish to  thank  both  the  Health  Care  Financing  Administration  (HCFA)  and  the

Assistant  Secretary  for  Planning  and  Evaluation  (ASPE)  for  commenting  on  the  draft

report.

The  HCFA  felt  that  the  draft  report  promoted  the  use  of outcome  QA  standatds  over

structural  and  process  standards  and  that  a balance  of QA  standards  was  more

desirable.  They  also  felt  that  the  draft  report  might  leave  some  readers  with  the

impression  ...that  enrollment  in an  HMO  carries  significant  risk  of inappropriate

care.

In our  response  to HCF~  we a~ree  with  HCFA  that  a blend  of QA  standards  is

desirable.  -The  scope  of this  ins~ection  did  not  analyze  differences  in quality  of care

which  might  exist  between  HMO  and  fee-for-semice  providers.  Consequently,  this

issue  was  not  addressed  in this  report.

Changes  to  the  report  have  been  made  to address  comments  we  received  from  HCFA

and  ASPE.  The  complete  text  of their  comments,  and  our  response,  can  be  found  in

Appendix  C.

16
 - 
CHARACTERISTICS  OF  HMO  RESPONDENTS 
A -1  niT- TERMS  USED  IN  APPENDIX  A	
Federally  Qualified:  An HMO isfederally qualified (FQ) if it meets certain health	
service requirements  {described in Sec. 1301(b) of the Public	
Health Service Act, 42 U.S.C.9300e(6)  }and certain	
organizational and operational  requirements  {described in Sec.	
1301(c)of the Public Health Service Act, 42 U.S.C.S XIOe(c)}.	
State  Qualified:
 Medicaid contracting HMOSthat are not federally qualified must	
be State qualified (SQ).  They must meet  the HMO	
requirements outlined &  the State  Plan (Section  1902of the	
Social Security Act); unless an exemption has been approved  by	
HCFA  under  waiver.	
1115/Nl  Waiver:  Under  Section  1115, HMOS operate  as managed  care	
demonstration  programs  with  the option  of having  any section  of	
the  Social Security  Act waived.  An  1115/M  waiver  provides  for	
mandatory  enrollment  of Medicaid  recipients  in the  HMO.	
1915(b)/M  Waiver:  A  1915(b)/M  waiver provides  for mandatory  enrollment  of	
Medicaid  recipients  in an HMO  or PHP  or,  in the  case of a 
Health  Insuring  Organization,  a choice  of primary  care 
physiciarm 
1915(b)/MA  Waiver:  1915(b)/MA  waiwer provides  for mandatory  alternative 
enrollment.  It is used  in situations  where  the  Medicaid  recipient 
is required  to participate  under  a States  primary  care  case 
management  (PCCh4)  program  but  is allowed  to join  a Medicaid 
contracting  HiMOJor PHP  as an alternative. 
75/25  Waive~
 Section 190~m)@(A](ii)  of the  Social  Security  Act  requires	
that  HMO  enrollment  composition  be no more  than  75 percent	
Medicare  ancVorM!!dkaid  eiigible  enrollees.  An  HMO  may	
obtain a waiver ta this.requirement  to increase the percentage of	
its Medicare  ancl/or Medicaidi emollees.	
Staff  Model:
 Health  care sewices  are delivered  through  a group  practice	
[employees  of the  HMO]  established  by the  HMO.	
Group  Model:
 The  HMO  contracts  with a gro.u~ practice  to provide  health  care	
setices.	
Network  Model:
 The  HMO  both  provides  terr,a,nd contracts  with  two or more	
group  practices  or physicians  tu provide,  health  care  services.	
IPA  Model:
 The  HMO  contracts  with physicians  in individual  practice  to	
provide  health  care services.	
A -3  APPENDIX  B 
STATE  BY  STATE  COmmlSON  OF  QA  ST~@S 
FOR  MEDIC~  Hh40s 
B- I 
  A  STATE  BY  STATE  COMPARISON  OF  QA  STANDARDS  FOR  MEDICAID  WOS	
-
STATE  CA  co  DC FL  IL  IN MA  MD M[ MN MO NC NH  NJ  WA  WI 
........-............ 
HMO	
STANDARDS	
Grimanee  x  x  x  x  x  x x  x x x x x x
 x  x x

Proeedurea   
Palienl  Eduealion  x  x  x  x  x  x x  x x x x x x
 x  x x

Pro2rams 
Access 10Care   x  x  x  x  x  x x  x x x x x x
 x  x x

Written  QA Plan  x  x  x  x  x  x x x  x x x
 x  x x

FCredent ialing  x  x  x  x  x  x x x x x  x
 x  x x

Individual Pa(ient  x  x  x  x x  x x x
 x  x x

Care Da[a 
Utilization  x  x  x  x. x x  x
 x x

Review 
Medical Reeord  x  x	 x x  x
 x

Review	 -	
.

Palienl  Surveys  x
 x x  ~ x
 x

Reporting  I  x  x  x x

Physician Quality  I 
Problem 
Terminations 
Clinical Praclim  x  x x

I 
Guidelines 
Health Outcnme  x  x

Monitoring  & 
Evaluation 
I 
Physician  x

Managemen[ 
 Federal  law mandaks  this standard.	 APPENDIX  C 
AGENCY  COMMENTS 
c-1 
  ./-%
Health  Cam 
. 40  DEPARTMENT  OF HEALTH  & HUMAN SERvICm 
:   Financing Administration
:
*  	
>

%%  JN29KW 
Memorandum 
~,  G 
Oate	
williarnToby, Jr.  e	
From  Acting  Administrator	
OIG  Draft  Report:  Quality  Assurance  in Medicaid  HM@	
Subjact 
OEI-05-92-00110	
Inspector General	
To 
~ce  of the Secretary    	
We have reviewed the subject draft report whichexamines the Quality Assurance	
(QA) standardsus
 ed by Medicaid agencies to mhimize  the risk of inappropriate 
medical care in Heaith  Maintenance OrganizationS(HMOS).  The Presidents PkuI 
for Comprehensive  Health Care Reform encourages the use of HMOSas part of 
coordinated  care initiativeLL 
OIG intewiewed 25 Medicaid agencies that contract with HM@  and conducted	
onsite  interviews  at  the  HMOS  in  16 of these  2S States.  OIG  identified  13 basic  QA	
assessment  standards  that  encompassed  aimost  d  of the various standards  employed	
at the sampied HM&  OIG noted that all Medicaid agenaes rquire use of 4 or	
more of the basic 13 standar@ and ail were fduncito employ some form of structural	
standards.  structural standards as deti  in thja report provide an assessment of	
the nature of an HMOs health care resourceK its fixility, staff and the rules of	
procedure.	
In some q  Medicaid agencies were fbund tohave continued to apply fee-for
sewice process standards in their QA review @Hhf@  thOU@ such StaIltidS  IIMy 
not have been appropriate  yardsticks f= measmbg  quality in coordinated care	
settin~  These agencies were also found to*  more on complaints than patient	
satisfaction sumeys or health outcome ~  to ensure quality.  To some exten~ this	
practie  occurnd  because both Medicaid agencks and HMOSfound the texmhealth	
outcomes ambiguous. ofte~ the detemti  of patient outcome was	
accomplished ~ie~  through  &if-assessment by the I%IOS. 
Although this report is descriptive in natur~ d  CO- no directrecommendations	
for the Health  Care Fiicing  Adminismtio~  we arcprovidinggeneraland  technical	
comments.  Th~  comments  address  both  the  COrjtcnt and  format  of this  study.	
c-2  Page  2- Inspector  General	
QA  is a complex  area  that  is rapidly  evoking=  We  were  impressed  by the  energ  and	
commitment  obvious  in this  particular  QA  iswest@tiorL  We  appreciate  the  difficulty	
of the  task  undertaken  by OIG  staff  in this  evahmtio~  and  thank  you  for  the	
opportunity  to  review  and  comment  on  this  draft  report  Please  advise  us whether	
you  agree  with  our  comments  on  the  report  at your  earliest  ccmvenience.	
Attachment	
c-3  Comments  of the  HeaIth  Care  Fiianeirm  Administration (FKFA)	
on OIG Draft Reoorc  QualitvASSWUXC	
in Medicaid HMO&oEr-05-n-oollo	
General  Comments/Observations	
Title  and FurDose. The title of this repo~  QualityAssurance (QA)  in Medicaid 
HM@  implies that the report willaddress howQA is conducted by Heaith 
Maintenance  Organizations (HMOS)contracting with Medicaid.  Instea@ its subject 
matter  is iimited to a descriptive summary of how State agencies monitor  HMO 
compliance with certain State and federaily prescribed QA staQdarc&as well as a 
discussion of the nature of these standards.  OIG should consider retitling the report and 
clar&ing its statement of purpose in order to help the audience better  understand the 
materisd presentecL 
Evaluative Methodolog&  The evaluative fkameworkused to analyze and compare	
Medicaid QA standards is a structur~ ~  and outcome typdogy, which is difHcukto	
followin the body of the rcpo~  For examplq on page 5, it is said that:	
StructuA  and process standards do not tell us whether or not a patient was	
satisfied with the servi~  and may not detect under-utilization of setices  or	
the benefits of preventive health care and patient counseling.	
Yet a chart on the same page defies  process standards to inciud=  utilization rmhew,	
individual patient care dam clinicalpractice guidc~  and  management  It	
physician 
seems that utilization review, individual@CSMcam da~  and clinical practice guidelines	
woujd ail be expected to address unti~n  k some fo~  particularitywhen	
considering individual patients with poor ~  outcmn~  There arc no definitions of	
the items on this chart  that  resoive the _  contradiction	
might 
we  strongly recommend  the evaluation contaiu an initial presentation  of this complex 
framework  and  thereafter,  cotie  hseif  to  the  ~  it establishes therein.  To 
development of this tiewo~  OIG maywant to refer to: %fcdicare: A 
assistwith 
Strategy for Quality &wrance  (Institute of ~  NationalAcademy of Science&	
February  1990),  for  a presentation  of the  use  of otdcusnG  suucture  and  process	
measures.  This  report  was commissioned  by _  and  is one  of  the  principal  sources	
of guidance for  the  Medicaid  Managed  Care  QA  program	
m.  Though the report  contains no recommendmkms for HCF~  it does present 
several signifmantfindings.  We believe theevaluativmeethodologyhassignificant 
blitatio~  and therefore,  we are  concerned  M  ~  ~tations  res~ted  in some 
hSNC 
inaccuracies in the findings presented  Also, many of the findingsare in need of 
amompaqing  explanation  to provide a proper  context for a more generai  audience. 
c-4  Page 2	
Technical  Comments	
~.  There should be a &scus@nnof the strengths and limitations of the 
evacuation design of this study, particularly since the scope of the ewduat.ionexciuded 
both QA activities conducted by independent quality revieworganizations under contract 
to State Medicaid agenci~  and internal QA activitiesperformed by HMOS. OIG also 
needs to explain how the sampled Medicaid agencies and HMOSwere chosem 
Outcome  Standards:  II&  report  repeatedly  promotes  the use of outcome-based  QA	
standards  in HMOS.  However, this use of outcomes raises several issues:	
%	 .	
	 This report  hequentiy  associates  outcome  measures wthpatient  satistictiom 
However, the inability of patients to judge the quality of medical care they receive 
is broadly acknowledged as a qu m tesmW  obstacle in the analysis of the health	
care marketplace.  If outcome and patient satisfaction are to be tied together, this	
obstacie shouid be dixussed  in the context of this report.	
	 In medicine, outcome analysiscommmdyrefers to the use of clinical information 
data  bases that rank post-treatmentheakh statusto select the most potentially 
successful treatment options *  _  This scienceis more or less in its 
infancy  such data  bases do not now exist to an extent that they can be employed 
in routine medical practice.  The foumdhg of the Agency for HeaJth Care Poiicy 
and Research  in 1989was spurred by remgnition of the need to promote the 
development  of such outcome-based research.  The suggestion that this type of 
decisionrnaking be used in co~  IdMOsseems premature. 
	 This repro  also suggests that Medicaid  managed care is defkient  in its use of 
outcome standards,  However, the N&ional Academy of sciences recent treatise 
on QA notes: 
This emphasis on outcomes&a critbil ~  Et@l not however, be	
easy to put into actio~  and it simuld.mzverbe seen as fully	
displacing process-of-care asewmem  . . ....Numerous aspects of	
outcome measurement  shcnddbe undemtzmdbefdre being	
considered appropriate  for a quality asmmnce
Pm	
Several  disadvantages  are  associated  with  owtcome  measurement	
The focus on aggregate  data rather  thamindividual or case-by-case	
analysis limits its usefulness in changing-b  practice behavior for the	
individual practitioner.  Review is bydefE&kMhistorid,  that &	
after care has been de[ivcre~  instant  intmvemion  in serious	
situations, where immediate action is jus- to prevent a potentially	
bad outcome is not possible.  The lack of demonstrated relationships	
c-5  Page 3	
between  outcome  and process of care for many aspects of the	
management of patients isa ~or  barrier to reliance on	
outcome measurement  for QA program.	
In sho~  outcome  standards  must always be balanced with measures  of structure  and	
process  to  ensure  high  qu@ity  in medical  care..	
Managed Care Entities. The first paragraph on page two is confusing It contains .. .  -	
references  to Preferred  Provider Organizations (PPOS),indemnity coverage, premi~	
and out-of-pocket CQSAthough none of these items are in use in tiw Mediqaid program.	
On the n~~e,  the report continues bysay@  the remaining Medicaid agencies use	
fee-for-sewice providers to sewe Medicaid recipients or contract with other  managed	
care pl~  such as PPOS. &a@  at this tirrw no Medicaid agencies contract with PPOS.	
OIG should also amend this report  to reflect that CMP stands for Competitive Medical	
Plan.  Finally, OIG should consider ~g  QA in managed  care  settings  other  than 
HMOs  in a future investigation. 
HMOS. Four categories of HMOSare defined in the tit  two pages of this repoti: st@	
group, newor~  and Individual Practice Association (IPA). These categories have	
questionable rekvance  since they are private-sector classificationsnot used by the	
Medicaid prow	
Page seven contains the misleading statement tha~ Federaf and State laws require 
HMOSto submit marketing pla~  proced~  and other materials to  the  Medicaid 
agency for approvaL  HMOSare not required  to submit such information for approval 
prior to their use. Federal lawd- however, prescri%ecertain standards appkable  to	
HMO marketing materia&  and States have responsibility for monitoring adherence  to	
these standards. Additionally, some States have inde@tdent  standards applicable to	
marketing  materials.	
The fourth paragraph  of page nine states that: recent court decisions hold HMOS	
financiallyresponsible for the actions of their contracted  physicians, There  are several	
different  lawsuits on HMO  liability, each on a Merent  subjcq  and each  in a different	
stage of Iitigatiom  Therefore,  we suggest this statement be modified to reflect these	
differences  and  account for the possibility of appeals  to these  decisions.	
The fifth paragraph  on page  12outlines the actions HMOSmay take to manage	
physician behavior~ Action (3) is: disciplinethe physiciam We recommend  this phrase	
be replaced with language that sounds kss  punitive or is more explanatory.	
The report  generally  fads to make a distinction between federally qualified HMOS(as	
stipulated by Rtie 13of the Public Health Service Act) and otier  HMOS subject to State	
and other  standards.  HMOS have different  QA requirements depending on their	
qualification.	
C-6	 Page  4	
OIG  should aiso note that many HMOScontracting with States are not at full risk since	
various risk-sharing arrangements arc often in place. kse  HMOSmay not be in the	
situation implied in the report  in which the ability difference	
to contd  costs isthe 
bemeen success and tiure  for an HMO, and in ~  is iikeiyto introduce negative	
incentives affecting the deliveryof care to patients.	
Medicaid HMO QA  All States must contract for independent quality reviews. These	
reviews provide important information to States that lead to various actions in HMO	
monitoring.  This report makes several claimsthat States pass on QA respcmdilities  to	
HMOSand that this delegation is problematic,  The assumption that this arrangement is	
problematic  is not supported  if these independent reviews6nd either  the absence  of	
problems or specific problems sin- in both these ~  States have obtained the	
information needed for corrective actions  OIG should consider including information	
from States on this process in this report.	
OIG shouid aiso acknowledge that QA m the Medicaid HMO program  has several	
components:	
  HMOSare required to conduct interred QA programs; 
	 State Medicaid agencies monitor, either directlyor through a contractor,  HMO 
compliance with certain State and Federal@prescriid  QA standarti, 
	 States must utilize an independent  contractor to review the quality of care 
provided by each HMO on an armwaibask  and 
	 Hh4~  that contract with the Me&aid  program or that are Federally quaiified are 
also subject to review by Federal program. 
This evaluation focuses only on the second&*  components.	
Oualitv of Medical Care.  The purpose of this repum isstated ax	
To descrii  the QA standards used by Medicaid agencies to mhimize  the risk of	
inappropriate  medical care in HMOS	
Both this wording and the number of times the purpose of the repmt is repeated  may 
=use the uninfo~d  reader to ass~e  that e~~en$  in ~ HMO ties  sign&ant 
risk of inappropriate care, despite the fact that no res~  exists to support this 
conclusion (reference:  1990Department of HeaI& a@ HumaxISemce.sReport to 
Congress: Incentive Arrangements Offered @ He~th Mtite~W  Organizations and 
Competitive Medical Plans to Physicians).  -	
c-7  Page 5	
b  effectof such I,i.ddnogf
 concep~  without supper@  documematio~  could have a	
negative effect on public confidence in HMOS. Therefor~we retxxnmend  the original	
statement  of purpose  and aiIsucceeding statcmemtsbe amended to read	
 
To ciescrii  the QA standards used byM&&id agencies for Medicaid contracting	
HMos.	
The statement is also rqade: Patient &e  data received fkomHMOS often does not meet	
Medicaid agency expectation  Use of the term expectations does  not make  clear what	
. 
objective data standards  OIG means to cite.  Medicaidagencies base their evaluations of	
HMOSon objective criterh	
Page 11 of the report  says that practice guidelinesaim to establish minimum standards of	
care.  Practice guidelines are not minimumstandan@ but often are thought to promote	
use of best practices in medical care.	
C-8	 OIG RESPONSE  TO  HCFA  COMMENTS	
The  HCFA  felt  that  our  draft  report  promoted  the  use  of outcome  based  QA	
standards  over  structural  and  process  standards  -and-that  a balance  of QA  standards	
was  more  desirable.  They  also  felt  that  the  draft  report  might  leave  some  readers  w	
the  incorrect  impression  that  obtaining  medical  care  from  an  HMO  has greater  risk	
inappropriate  care.  In addition  to these  comments,  the  HCFA  suggested  that	
technical  changes  be  made  to the  report  which  they  felt  would  help  the  reader  to	
better  understand  the  Medicaid  HMO  environment  and  the  methodology  we  used  fo	
our  study.  .	
With  regard  to HCFAS  comments  concerning:	
Title.  Puruose.  Evaluation  Methodology  and  Quality  of Care:  The  report  has	
been  retitled  and  the  purpose  statement  clarified.  Additional  information  on  how w	
classified  a particular  QA  standard  as structural,  process  or  outcome  and  on  how	
Medicaid  agencies  and  HMOS  were  chosen  has  been  added  to  the  report.	
The  scope  of this inspection  did not  analyze  differences  in quality  of care  which  migh 
exist  between  HMO  and  fee-for-setice  providers.  Consequently,  this  issue  was not 
addressed  in this report. 
Outcome  Standards:  We  agree  with HCFA  that  outcome  standards  must	
always  be  balanced  with  measures  of structure  and  ~rocess  to ensure  high aualitv	
. 
u, 
medical  care  in Medicaid  contracting  lM40s.  We  also  agree  that  the  science  if	
health  outcome  analysis is ...more or less in its infancy... , We have clarified  our	
definition  of health  outcome  reviews  to distinguish  the  health  outcome  medical  record	
review  QA  standard  from  other  health  outcome  initiatives  that  would  use ... clinical	
information  data  bases  that  rank  post-treatment  health  status  to  select  the  most	
successful  treatment  options  for patients.!	
We believe  that  our  clarification  of heakh  outcome  medical  record  reviews  addresses	
HCFAS  concern  that  such  reviews  would  displace  process-of-care  assessments.  As	
defined,  health  outcome  medical  record. reviews  siirmld: enliumce  process-of-care	
assessments  since  they  would  take  into  consideration  all care  provided  by the  HMO,	
including  preventative  care  and  patient  education  and, counseling.	
We  further  agree  that  most  patients  are  unable: tojydge  the  technical  components  of	
their  medical  care  (i.e.,  the  practice  of medicine:).  l%awever, recipients  should  not  be	
discouraged  from  reporting  what  they  believe  to  be  inappropriate  or  poor  medical	
care.  In assessing  the  quality  of HMO  selvicesY they  cam provide  information  about	
HMO  facilities  and  practices  and  problems  they  enmnmtmeci  in accessing  HMO	
semces.	
Managed  Care  Entities  and  Medicaid  QA:  The  HCFA  felt  that  our  discussion	
of the  various  financial  arrangements  HMOS  engage  in was  unnecessary  in a report  o	
c-9  Medicaid  HMOs.  We  included  this  information  inthebackground  section  of  our	
report  to  demonstrate  the  complex  nature  of  the  HMO  marketplace.  The  business	
arrangements,  sources  of  income  and  methods  used  for  ensuring  compliance  have  a	
direct  impact  on  any  QA  efforts  and  should  not  be  overlooked  when  developing  a QA	
program.	
c-10
 h-mm.  D.C.m 
APR231SQ

TO:
 Richard  P.  Kusserow	
InspecSor General

FROM:	 Assistant Secretary  for 
Planning  and  Evaluation 
SUEJECT:
 OIG  Draft  Report:  Quality  AssWanC@  m  Nedlcaid 
Hr40s ,   OEI-05-92-OOZIO 
Thank you	 for providing me with an  opportunity to review yaur

draft report on qualitj  ass~nce  (QAj  in  Medicaid HMOS. The

need for information in this area is great and growing,

especially with the emphasis on Medicaid coordinated care 
articulated in the President~s health care reform plan.  ~ 
I would like  to  offer  four  comments  on  the  draft  report:	
First, the methodology  section  should  indicate on  what  ba8is  the 
OIG  chose  the  28 HMOS it contacted for this review.  What factors 
(e.g., size, duration of contract)  were  considued  in selecting

them?  What  percentage of the states Medicaid HMO enrollment do

these HZ40saccount for?  Also, given the impo~nco  of Arizona in

the Nedicaid  HMOrealm,  the  reasons  for  its  omission  from  this 
review  are of interest and should be outlined. 
Second, the report should discuss what  federal  legislation  and 
regulations do and do not require concerning QA in Medicaid El!OS, 
both as genmal  back~ound  and  to  put  the  f~dings  of  you  review 
in  context.  To  a  greater  extent  than  the  report now suggests, 
federal requirements help te explain HMOs and Medicaid agencies 
current  QA practices.  For  example,  the  report implies that 
Medicaid agencies have clectad to cam  over  fee-for-smite 
( FFS) process standards to their HMO programs (pages ii and 8)  . 
In  fact,  ragulat10n8  at  42  CFR 434.34  ~  that  XedLcaid 
contracts with HMOS provide  fur  a  internal  QA  system  that is 
consistent with the utilization ccmtrol  requirement for all	
Medicaid  services,  i.e.  ,  for  PFS Medicaid.

Third, recognizing that your  review  is  intended  to be simply 
descriptive of QA in Medicaid MMQSV mmmtheless,  comparison to OX

standards and practices in FFS M~ica~a  may be instructive in	
places,  for  example,  in  the  dlscussia  @  clinical  guidelines.

HlfOShave an uphill  batt~a  to  wage  pa~:~,y  hcawe,  despite  a  laclc	
of  evidence that it produces higher  quality  and better outcomesl 
traditional  FFS  is  w~cialy  consl~er~  ths  standard of care.  The 
absence from yaur  report  of impertant.md  relevant considerations 
(e.g.  ,  what happens in FFS, what happens b private industry, the 
state of the afi in QA) makes  it diffi~~t  and problematic to 
assess the findings.  Additional  contextual  information would 
make the report  more  useful  and  valuable. 
C-II	 Page 2 - Richard P.  Kusserow	
.	
Finally, you may wish to reflect in you  report the Medicaid

quality assurance reform proposal includ~  in the FY 1993 budget

and legislativ~pa&age  and/or  the  QA initiative  now  in

development in the Medicaid Bureau.

If you have any questions, 
please call Elise Smith at 245-1870.

 
. 
Martin

C-12
 . 
OIG RESPONSE  TO ASPE COMMENTS	
The  ASPE  suggested  that  additional  information  be  provided  in the  background  and	
methodology  sections  of the  report.  They  also  feh  that  information  about  QA  in fee	
for-sexvice  and  the  private  sector  would  provide  contextual  information  making  the	
report  more  useful.	
In response  to  ASPES comments  concerning:	
Methodology  :  We  have  revised  the  methodology  section  of our  report  to	
address  bqth  ASPES and  HCFAS  request  for greater  detail  concerning  our  Medicaid	
agency  and  HMO  sample  selections:	
Scope  of studv:  This  study  was limited  to QA  standards  required  by Medicaid	
agencies.  Information  about  QA  standards  in fee-for-sewice  or  the  private  sector  was	
not  within  the  scope  of our  study.  Arizona  was not  included  in our  study  because  it	
contracts  with  prepaid  health  plans  to provide  services  to  Medicaid  recipients  and  thus	
did not  meet  our  criteria  for  inclusion  in this study.	
Additional  Studies:  The  ASPE  would  have  liked  our  report  to  provide  more	
information  about  QA  standards  required  by federal  legislation.  They  would  also  have	
liked  a comparison  of HMO  QA  standards  with  fee-for-service  QA  standards  and  the	
QA  standards  of the  private  sector.  Unfortunately,  all of these  issues  were  beyond  the	
scope  of this study,  but  would  be worthwhile  endeavors  for  future  study.	
AS ASPE points out, HCFA is currently drafting its own QA program standards  for	
managed  care  organizations  as part  of the  Quality  Assurance  Reform  Initiative  For	
Medicaid  Managed  Care.	
. 
C-13
 APPENDIX  D 
ENDNOTES 
D-]  1.
 U. S. Department of Health and Human SeMces,  Tlte Fiscal Year 1992Budget, and The	
Fscal  Year  1993Budget.	
2.  Medicaid Coordinated  Care Enrollment Report, Summary Statistics, DHHS/HCFNM edicaid	
Bureau, June 30, 1991.	
3*  Beyersdorf, Cassidy,  Raichel,  and Schindler,  HMOs and  Preferred  Provider  Products:  Two	
Strategic  Alternatives  for Affordable  Health  Care;  Business  Development  Institute,  1983, p 15.	
4.  Riley, Trish, Coburn, Andrew  F.K,i
lbreth,  Elizabeth  H., Medicaid  Managed  Care:  The  State  	
of the  Art,  A Guide  of States,  National  AeademV For State  Health  Policv,  September  19W, pp	
109-110.	
5.  BerwiclG Donald  M., and  Knapp,  Marian  Gi[bert,  Theory  and  Practice  for Measuring  Health	
Care  Quality,  Health  Care  Financing  Review, Annual  Supplement  1987, pp 49-55.	
6.	 Bexwick, Donald  M., and  Knapp,  Marian  Gilbert,  Theoty  and  Practice  for Measuring  Health	
Care  Quality,  Health  Care  Financine  Review  Annual  Supplement  1987, pp 49-55.	
7.  Siu, Albert  L., McGlynn,  Elizabeth  A., Morgenstern,  Hal, and  Brook,  Robert  H,, A Fair 
Approach  to Comparing  Quality  of Care,  Health  Affairs,  Spring  1991, pp 62-75. 
8.  Benvick, Donald M.,and Knapp, Marian Gilbert, Theoryand Practice for Measuring  Health	
Care  Quality,  Health  Care  Financing  Review, Annual  Supplement  1987, pp 49-55.	
9.	 Benvick, Donald M., and Knapp, Marian~ilbert, ~eoty  and Practicefor Measuring  Health	
Care  Quality,  Health  Care  Financitw  Review, Annual  Supplement  1987, pp 49-55.	
10.	 Siu, Albert  L., McGlynn,  Elizabeth  A., Morgensterrt,  Hal, and  Brook,  Robert  H., A Fair	
Approach  to Comparing  Quality  of Carq  Health  Affairs,  Spring  1991, pp 62-75.	
11.
 Schneikart,  Madeline,  Credentia}ing  in Managed  Care:  The  New Frontier,  JQA,  July/August	
1990, p 7.	
12.	 Potter, John W.,UnderstandingUti!izankimData  atwt DetectingProviderGaming,ToRicsin	
Health  Care  Financing,  Spring  1990, pp 28-35.	
13.	 Porter,  Michelle  J., et. al., The Interstudy  Competitive Edge,  Biannual  Report  of The	
ManagedHealth Carelndustry,mlmerstu@,191.,.Vial..},No.1,p39.	
14.	 Betwic~  Donald  M., and  Knapp,  Marian  GilberrVThem-yand  Practice  for  Measuring  Health	
Care  Quality;  Health  Care  Financing  Review, Annual  Supplement  1987, pp 49-55.	
15.	 Berwick,  Donald  M., and  Knapp,  Marian  Gilbert,,  Ti%coryand  Practice  for Measuring  Health	
Care  Quality;  Health  Care  Financing  Review, Pmnud  Supplement  1987, pp 49-55.	
16.	 NCQA  Standards  for Accreditation,  June  24, 1991 and  HCFA  QA  definition  for CLL%	
176PRE.K  dated  October  4, 1991.	
D-2	 17.
 42 CFR  434.30  (a).	
18.
 Berwick,  Donald  M., and  Knapp,  Marian  Gilbert,  Theory  and  Practice  for  Measuring  Health	
Care  Quality,  Health  Care  Financine  Review,  Annual  Supplement  1987, pp 49-55.	
19.
 Schneikart,  Madeline,  Credentiaiing  in Managed  Care:  The  New Frontier,  DA  July/August	
1990, p 7.	
20.
 Siu, Albert  L., McGlynn,  Elizabeth  A., Morgenstern,  Hal,  Brook,  Robert  H., A Fair  Approach	
to Comparing  Quality  of Care, Health  Affairs,  Spring  1991, p 68.	
21.
 Hey,  Elizabeth  W., Insurer-Sponsored  Managed  Health  Care:  1990, Health  Insurance	
+%sociation  of America,  September  1991.	
22.
 Freund,  Evan  and  McCoy,  Catherine  A., Successful  Utilization  Review  Requires  a Physician	
Component,  Contract  Healthcare,  July  1988, p 29, and  Hey,  Elizabeth  W., Insurer-Sponsored	
Managed  Health  Care:  1990, Health  [nsurance  Association  of America,  September  1991, p 10.	
23.
 Medicaid  Managed  Care:  The  State  of the Art,  A  Guide  for States,  National  Academv  for	
State  Health  Polim  September  1990, pp 93-96.	
24.
 A Survey  of State  Medicaid  and  Insurance  Officials  on  HCFAS  Medicaid  Managed  Care  Draft	
Operations  Report;  A Report  to the  National  Governors  Association,  National  Academv  for	
State  Health  Policy,  June  24, 1991, p 3.	
25.
 Siu, Albert  L,  McGlynn,  Elizabeth  A., Morgenstern,  Hal, and  Brook,  Robert  H., A Fair	
Approach  to Comparing  Quality  of Care, Health  Affairs,  Spring  1991, pp 62-75.	
26.
 Bexwick, Donald,  M., Knapp,  Marian  Gilbert,  Theory  and  Practice  for Measuring  Health  Care	
Quality:  Health  Care  Financine  Review,  Annual  SupplemenL  1987, pp 49-55.	
27.
 Siu, Albert  L,  McGlynn,  Elizabeth  A., Morgenstern,  Hal,  and  Brook,  Robert  H., A Fair	
Approach  to Comparing  Quality  of Care,  Health  Affairs,  Spring  1991, pp 62-75.	
28.
 Social Security Act, Section 1902(a)(30)(C).	
29.
 Potter, John W., Understanding Utili~tion  Data and Detecting Provider Gaming,Topics in	
Health Care Financing, Spring 1990,Vol. 16,No. 3, pp 28-35.	
30.
 Rosen,  Richard  &  The Place of Health  Care  Standards  in Quality  Assurance;  HMO  Practice, 
vol.  3,No.5,Pfl173-177. 
31.
 Langwell,  Kathtyn,  Structure  and  Performance  of Health  Maintenance  Organizations:  A	
Review,  Health  Care  Financing  Review,  Fall  1990, Vol.  12. No.  1, pp 71-79.	
32.

Langwell,  Kathryn,  Structure  and  Performance  of Health  Maintenance  Organizations:  A	
Review,  Health  Care  Financirw  Review,  Fall  1990, Vol.  12, No.  1, pp 71-79.	
33.

Morrison,  Luft,  Health  Maintenance  Organization  Environments  in the  1980s and  Beyond,	
Health  Care  Financing  Review,  Fall  1990, Vol.  12, No.  1, p 86.	
D-3
 34.	
Langwell, Kathryn,  Structure  and  Performance  of Health  Maintenance  Organizations:  A	
Review,  Health  Care  Financing  Review,  Fall  1990, Vol.  12, No.  1, pp 71-79.	
35.
 Langwell,  Kathryn,  Structure  and  Performance  of Health  Maintenance  Organizations:  A	
Review,Health  Care Financing  Review, Fall 1990, Vol. 12, No. 1, pp 71-79.	
36.  42CFRPart 434.32,October 1,1984.	
37.
 Siu,AlbertL.,McGlynn,ElizabethA., Morgenstern, Hal, and Brook, Robert H., A Fair	
Approach  to Comparing  Quality  of Care, Health  Affairs,  Spring  1991, pp 62-75.	
D-4