OFFICE  OF INSPECTOR  GENERAL 
The  mission of the  Office of Inspector  General  (OIG),  as mandated  by Public  Law 95-452, as 
amended,  is to protect  the  integrity  of the  Department  of Health  and Human  Services (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  conducted  by three  OIG  operating  components:  the  Office of Audit  Services,  the 
Office of Investigations,  and the  Office of Evaluation  and Inspections.  The  OIG  also informs 
the  Secretary  of HHS  of program  and management  problems  and recommends  courses  to 
correct  them. 
OFFICE  OF AUDIT  SERVICES 
The  OIGS  Office of Audit  Services  (OAS)  provides  all auditing  services for HHS,  either  by 
conducting  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 
carrying 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 INVESTIGATIONS 
The  OIGS  Office of Investigations  (01)  conducts  criminal,  civil, and administrative 
investigations  of allegations  of wrongdoing  in HHS  programs  or to HHS  beneficiaries  and of 
unjust  enrichment  by providers.  The  investigative  efforts  of 01  lead to criminal  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 INSPECIIONS 
The  OIGS  Office of Evaluation  and Inspections  (OEI)  conducts  short-term  management  and

program  evaluations  (called  inspections)  that  focus on issues of concern  to the  Department,

the  Congress,  and the  public.  The  findings  and recommendations  contained  in these  inspection

reports  generate  rapid,  accurate,  and up-to-date  information  on the efficiency, vulnerability,

and effectiveness  of departmental  programs.

OEIS Atlanta  Regional  Office prepared  this report  under  the  direction  of Jesse  J. Flowers,

Regional  Inspector  General,  and Christopher  Koehler,  Deputy  Regional  Inspector  General.

Principal  OEI  staff included:

Atlanta  Refion  Headquarters

Betty  Apt,  Team Leader  Stuart  Wright, Program Specialist

James  Green,  Contractor  Brian  Ritchie,  Technical Suppoti

Peggy Daniel,  Program Analyst  Barbara  Tedesco,  Statistician

Jackie  Andrews,  I%ogramAnalyst

Joe  Townsel,  Program Analyst

Tammy Bonney,  Program Analyst

To obtain  a copy of this report,  call the  Atlanta  Regional  Office at (404) 331-5022.
 Department  of Health  and Human  Services 
OFFICE  OF 
INSPECTOR  GENERAL 
MEDICARE  BENEFICIARY  INTEREST  IN 
HMOS  EXECUTIVE  SUMMARY

PURPOSE 
To  determine  Medicare  beneficiary  awareness  of and  interest  in joining  health 
maintenance  organizations. 
BACKGROUND 
In all geographic  areas,  Medicare  beneficiaries  can  obtain  medical  care  through  a fee-
for-service  arrangement.  However,  in approximately  674 counties  in 41 States, 
beneficiaries  also have  an option  of obtaining  medical  care  through  managed  care 
health  plans.  As of April  1995, approximately  3.3 million  beneficiaries  participated  in 
the  managed  care  plans. 
In the  interest  of expanding  options  for care  for Medicare  beneficiaries,  the  Health 
Care  Financing  Administration  (HCFA)  asked  us to determine  beneficia~  interest  in 
using managed  care  systems. 
FINDINGS 
Beneficiarix  want nwre infozrnation about HMOS 
While  most  beneficiaries  said they had  heard  of HMOS, most  also said  they 
	
would  like more  information  about  Medicare-contracted  HMOS. 
Most  beneficiaries  said they  did not  know if they  lived in locations  where 
	
beneficiaries  could join  HMOS, 
HCFA  has a receptive population  for increasing use of HMOs 
Twenty-seven  percent  of the  beneficiaries  expressed  an interest  in joining  an 
	
HMO.  An additional  34 said they  did not  know if they would  be  interested  in 
joining. 
Thirty-nine  percent  of the  beneficiaries  were  not  interested  in joining  an HMO. 
	
The  main  reason  was because  they  could  not  select  their  own physicians.  Only 
a few beneficiaries  expressed  concern  about  quality  of care  in an HMO. 
RECOMMENDATION 
We  recommend  that  HCFA  continue  its efforts  to educate  Medicare  beneficiaries 
about  managed  care  options  and  HMOS.  HCFA  should  focus its educational  efforts  in 
areas  where  HMOS  are  available  that  beneficiaries  can join,  and  highlight  the 
characteristics  of Medicare  HMOS, including  the  benefits  offered  and  enrollment 
procedures. 
i  AGENCY  COMMENTS 
The  HCFA  Administrator  commented  on our  draft  report,  and  concurred  with  our 
recommendation.  He  reported  that  HCFA  has already  initiated  projects  designed  to 
help  educate  Medicare  beneficiaries  about  managed  care.  For  example,  HCFA  has 
updated  the  Medicare  and  Managed  Care  Plans  brochure.  This  publication  explains 
fee-for  se~ice  and  managed  care,  and  highlights  the  differences.  The  Administrator 
reported  that  HCFA  also has a research  project  with the  Research  Triangle  Institute 
to determine  the  kinds  of information  beneficiaries  want  about  health  care  options, 
including  managed  care. 
ii  TABLE  OF  CONTENTS

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

FINDINGS

Beneficiaries  Want  More  Information  About  HMOs  . . . . . . . . . . . . . . . . . . . .  4

 
HCFAHas  a Receptive  Population  for Increasing  UseofHMOs  . . . . . . . . . . .  5

 
RECOMMENDATION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

AGENCY  COMMENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

APPENDICES

Beneficiary  Responses  to1994  Survey  . . . . . . . . . . . . . . . . . . . . . . . . . . . ..A-l

HCFA  Comments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..B-1
 INTRODUCTION

PURPOSE 
To  determine  Medicare  beneficiary  awareness  of and  interest  in joining  health 
maintenance  organizations. 
BACKGROUND 
%  Medicare Rogram 
Medicare  is a Federal  health  insurance  program  for individuals  age  65 and  older  and 
for certain  categories  of disabled  people.  In  1994, Medicare  insured  about  36.7 
million  beneficiaries,  and  paid  benefits  totalling  $159 billion.l  The  Health  Care 
Financing  Administration  (HCFA)  within  the  Department  of Health  and  Human 
Services  has responsibility  for the  Medicare  program. 
In all geographic  areas,  Medicare  beneficiaries  can  obtain  medical  care  through  a fee-
for-service  arrangement.  However,  in approximately  674 counties  in 41 States, 
beneficiaries  also have  an option  of obtaining  medical  care  through  managed  care 
health  plans.  As of April  1995, approximately  3.3 million  beneficiaries  participated  in 
the  managed  care  plans.2 
In the  interest  of expanding  options  for care  for Medicare  beneficiaries,  HCFA  asked 
us to determine  beneficiary  interest  in using managed  care  systems. 
lko  Method  of Obtaining Medical  Care 
Fee-for-Service  - Beneficiaries  choose  their  own  physicians,  hospitals,  and  other 
medical  care  providers.  Providers  submit  claims  to  Medicare  for  services  to  Medicare 
beneficiaries.  For  physician  and  most  other  outpatient  services,  Medicare  pays  80 
percent  of the  amount  allowed  for  the  covered  services.  Beneficiaries  pay  the 
remaining  20 percent  of allowable  charges  plus  Medicare  premiums  and  deductibles 
for  inpatient  and  outpatient  care. 
Managed  Care  Health  Plans  - Beneficiaries  enroll  in Medicare-contracted  health 
organizations  which  manage  their  medical  care. 
The  most  common  type  of Medicare  managed  care  health  plans  is risk-contracted 
health  maintenance  organizations  (HMOS).  Each  HMO  has a defined  geographic 
lHealth  Care Financing Administration, United States Department of Health and Human Serviees, 
Data Compendium, March 1995. 
2Health Care Financing Administration, United States Department of Health and Human Services, 
Office of Managed Care monthly reports. 
1  area,  and  the  HMO  serves  beneficiaries  who live in that  area.  HMOS  are  responsible 
for providing  a full range  of Medicare  services,  and  may offer  other  benefits  not 
covered  by Medicare,  such as prescription  drugs. 
After  joining  an HMO,  a beneficiary  selects  a primary  care  physician  that  is affiliated 
with the  HMO.  All medical  care  is managed  by that  physician  or a case  manager. 
The  primary  care  physician  either  provides  needed  services  or refers  a beneficiary  to 
appropriate  specialists  or other  health  care  providers  associated  with  the  HMO. 
Beneficiaries  are  required  to obtain  all their  medical  care  through  providers  affiliated 
with the  HMO  they joined,  except  for emergency  and  urgently  needed  care  when  they 
are  out  of the  HMO  service  area. 
The  HMOS  agree  to provide  a beneficiarys  total  medical  care  for  a set  amount  paid 
monthly  by Medicare.  Beneficiaries  continue  to pay Medicare  premiums.  They  may 
also have  to pay the  managed  care  plan  a monthly  premium  and  a copayment  for 
services  received.  However,  they  do not  pay Medicare  deductibles  or 20 percent  of 
physician  and  outpatient  charges  that  are  required  under  the  fee-for-service  program. 
METHODS 
As part  of a broad  1994 survey to determine  beneficiary  satisfaction  with Medicare,3 
we asked  beneficiaries  about  their  awareness  of and  interest  in HMOS.  We  used 
questions  that  were  developed  by HCFA  staff. 
In July  1994, we mailed  a questionnaire  to  1279 randomly  selected  Medicare 
beneficiaries  for whom  Part  B claims  had  been  filed  in Calendar  Year  1993.  We 
excluded  beneficiaries  who were  already  enrolled  in an HMO  from  our  sample.  We 
used  standard  equations  for estimating  sample  size with a binary  response  variable. 
Based  on previous  experience  with similar  beneficiary  surveys, the  sample  size was 
calculated  to produce  an estimate  within  3.5 percent  of the  true  value  at the  95 
percent  confidence  level.  The  precision  of individual  findings  maybe  less than  that 
for the  overall  sample,  depending  on the  number  of beneficiaries  who responded  to 
specific  subgroups  of questions. 
Beneficiary  participation  in the  survey was voluntary.  A total  of 1002 beneficiaries 
returned  completed  questionnaires,  for a response  rate  of 78 percent.  Percentages  in 
the  report  are  based  on the  number  of beneficiaries  answering  each  question. 
Appendix  A shows beneficiary  responses. 
A  consideration  in surveys of this type  is that  the  results  may be biased  if non-
respondents  are  significantly  different  from  respondents.  To  determine  whether 
significant  differences  exist in this survey, we performed  various  analyses,  including  a 
30ffice of Inspector General, United States Department of Health and Human Services. Medicare 
Bene@ny  Satisfaction:  1994.  0EI-04-93-O0480,March 1995. 
2  comparison  of age  and  gender  for the  1002 respondents  and  the  277 non-respondents. 
The  analyses  revealed  no significant  difference,  which  suggests  that  our  survey results 
were  not  biased. 
----- ---- ---- ---- ----
We  conducted  this inspection  in accordance  with the  Quality  Standards  for  Inspections 
issued  by the  Presidents  Council  on Integrity  and  Efficiency. 
3
 FINDINGS

BENEFICIARIES  WANT  MORE  INFORMATION  ABOUT  HIVfos 
Sixty-four  percent  of 874 beneficiaries  who answered  our  question  said they would  like 
to learn  more  about  Medicare-contracted  HMOS. 
Twenty-six  percent  of the  beneficiaries  (244 of 935) said they  lived in a county  with 
HMOS that  contract  with Medicare,  and  10 percent  said they  did not  live in locations 
where  beneficiaries  could join  HMOS.  However,  64 percent  of 935 beneficiaries  who 
answered  our  question  did not  know if they  lived in locations  where  beneficiaries  could 
join  HMOS. 
Sixty-two percent  of 954 beneficiaries  who responded  to our  question  about  awareness 
said they  had  heard  of HMOS.  We  asked  the  244 beneficiaries  who  said they  lived in 
a location  with  an HMO  to tell us how they heard  about  the  HMO.  Sixty-nine  percent 
(168 of 244) of them  responded.  As Table  1 shows, most  of those  who  responded  to 
the  question  learned  about  HMOS through  advertisements. 
TABLE  1 
HOW  BENEFICIARIES  BECAME  AWARE  OF Hhfos 
Advertising  88  52 
(Television,  Newspaper,  Direct  Mail) 
Family  and  Friends  49  29 
Former  or Current  Employment  15  9 
Insurance  Companies  7  4  I 
Previous  Experience  in an HMO  5  3 
Other  10  6 
(Hospitals,  Senior  Citizens  Centers, 
and  General  Knowledge) 
*Some beneficiaries  mentioned  two ways of learning  about  HMOS. 
Therefore,  the  percentages  total  more  than  100%. 
4
 HCFA  HAS  A RECEPTIVE  POPULATION  FOR  INCREASING  USE  OF Hhfos 
Twenty-seven  percent  of the  912 beneficiaries  who  answered  our  question  expressed 
an interest  in joining  an HMO.  An additional  34 percent  said they  did not  know if 
they would  be  interested  in joining.  The  remaining  39 percent  said they would  not  be 
interested  in joining  an HMO. 
Of the  39 percent  who said they would  not be  interested  in joining  an HMO,  72 
percent  (256)  cited  one  or more  objections.  Table  2 shows that  most  of them  were 
concerned  about  their  inability  to select  their  doctors  if they joined  an HMO. 
Interestingly,  only  9 percent  of the  256  beneficiaries  expressed  concern  about  quality 
of care  in  an  HMO. 
TABLE  2

WHY  BENEFICIARIES  OBJECI  TO  JOINING  AN HMO

Inability  to Select  Physician(s)  I  101  39 
\ 
Desire  to KeeD Present  Phvsician  I  49  I  19 
Satisfied  with  Insurance  Coverage  I  39  I  15 
Perceived  Poor  Quality  of Care  I  24  I  9 
Lack  of Enough  Information  on HMOS  I  20  I  8 
I 
Difficulty  in Scheduling  Appointments  I  7  3 
Friends  and  Relatives  Poor  Experiences  \  7  I  3 
See  Different  Physicians  Each  Time  1311 
Other  18  7 
(Too  Old, Fear  of Losing  Medicare,  and 
Red  Tape) 
*Some beneficiaries  mentioned  two objections  to joining  HMOS.  Therefore, 
the  percentages  total  more  than  100%. 
A May  1995 study by the  Henry  J. Kaiser  Family  Foundation  also showed  that  concern 
about-inability  to-seiect  physici&s  was the  majo;  obstacle  to Medicare  beneficiaries 
joining  an HMO.  Kaisers  findings were  based  on  14 focus group  meetings  with 
Medicare  beneficiaries  in 8 locations  during  January  and  March  1995.  Kaiser  reported 
5
 that  beneficiaries  had  little  information  about  managed  care  when  they  lived in areas 
where  HMO  penetration  was low.  This Kaiser  report  also showed  that  concern  about 
quality  was an obstacle  to beneficiaries  joining  an HMO. 
6
 RECOMMENDATION

We recommend  that  HCFA  continue  its  efforts  to  educate  Medicare  beneficiaries 
about  managed  care  options  and HMOS.  HCFA  should 
focus  its educational  efforts  in areas  where  HMOS  are  available  that 
	
beneficiaries  can  jo@  and 
	 highlight  characteristics  of Medicare  HMOS,  including  the  benefits  offered  and 
enrollment  procedures. 
We  note  that  HCFAS  current  efforts  to  explore  managed  care  options  which  allows 
beneficiaries  more  flexibility  in selecting  physicians  of their  choice  is quite  consistent 
with  Medicare  beneficiary  responses  to  our  survey. 
7
 AGENCY  COMMENTS

The  HCFA  Administrator  commented  on our  draft  report,  and  concurred  with our 
recommendation.  He  reported  that  HCFA  has already  initiated  projects  designed  to 
help  educate  Medicare  beneficiaries  about  managed  care.  For  example,  HCFA  has 
updated  the  Medicare  and  Managed  Care  Plans  brochure.  This  publication  explains 
fee-for  service  and  managed  care,  and  highlights  the  differences.  The  Administrator 
reported  that  HCFA  also has a research  project  with the  Research  Triangle  Institute 
to determine  the  kinds  of information  beneficiaries  want  about  health  care  options, 
including  managed  care. 
Apendix  B shows the  full text  of comments  provided  by HCFA. 
8
 APPENDIX  A

RESPONSES  TO  1994SURVEY  OF BENEFICIARIES 
In some  cities, Medicare  beneficiaries  can get  their  health  care  through  managed  care 
systems called  Health  Maintenance  Organizations,  or HMOS.  Medicare  pays  an 
HMO  a specified  amount  every month,  and  beneficiaries  who  are  members  of the 
HMO  get  all of their  care  through  doctors,  hospitals,  and  other  medical  care  providers 
that  belong  to the  HMO.  Beneficiaries  who belong  to Medicare  HMOS  do not  have 
to pay the  Medicare  deductibles  or 20 percent  coinsurance,  but  may have  to pay a 
small  fee  for some  services. 
QUESTION  RESPONSES  PERCENTAGE 
1.  Before  today,  had  you ever  heard  of HMOS? 
Yes  596  62 
No  358  38 
Not  Answering:  48 
2.  a.  Are  there  HMOS  in your  city or town that  Medicare  beneficiaries  can join? 
Yes  244  26 
No  89  10 
Dont  Know  602  64 
Not  Answering:  67 
b.  If yes, how did you hear  about  those  HMOS?  (Open-ended  question) 
(N  =  168, Number  Answering  Question) 
HMO  Advertising  88  52 
Family  and  Friends  49  29 
Former  Employers  15  9 
Insurance  Company  7  4 
Previously  in HMO  5  3 
Other  10  6 
A -1
 QUESTION  RESPONSES  PERCENTAGE

3.  Would  you like to learn  more  about  Medicare  HMOS? 
Yes  555  64 
No  319  36 
Not  Answering:  128 
4.	 a.  If there  were  HMOS in your  city or town  that  Medicare  beneficiaries  could 
join,  would  you consider  joining? 
Yes  245  27 
No  358  39 
Dont  Know  309  34 
Not  Answering:  90 
b.  If no, what  would  be your  objections?  (Open-ended  auestion) 
(N  =  256, Number  Answering  question) 
Inability  to Select 
Physician  101  39 
Desire  to Keep  Present 
Physician  49  19 
Satisfied  with Present 
Insurance  39  15 
Perceived  Poor  Quality 
of Care  24  9 
Lack  of Information 
on HMOS  20  8 
Difficulty  in Getting 
Appointments  7 3 
Friends/Relatives  Poor 
Experiences  7  3 
See  Different  Physician 
Each  Visit  3  1 
Other  18  7 
A -2
 APPENDIX  B 
HCFA  COMMENTS 
B I 
 
  ._  ~,$  ,-W,.,  ~
,. $ Health  Care  Financing  Adm!nlstratior, 
---.  DEP.4RT.MENT  (3F HEALTH & HUMAN  SERVICES  -. 
:.
-,
f.++>v ,,a  TWhaes hAindgmto!nn,l straOta.rC  .  20201 
DATE  SW  5  E% 
(,/
,,~~11  , 
 
&J 
Bruce  C. Vladec, 
I?ROM 
Administrator  %- .  .. .- -...>-
%k(iicare  Beneficiq  Interest  in Health 
SIJBJECT	 Office of Inspector  General Dra?l Report: 
Maintenmce  Organizations  (HMOs), (OEI-04-93-00142) 
TO	 June Gibbs Brown 
Inspectcx  General 
We reviewed  the subject draft report which. discusses Medicare beneficiq  awareness  of and 
interest in joining EMOS.  We concur with the recommendation  that the Health  Care Finmcing 
.Admitistration  continue  its efforts to educate Medicare beneficiaries about managed  care options 
and HMOS.  Our detaiied  comments are attached. 
Thank you for the opportunity  to review and comment on this draft repofl. 
.Attachment 
m 
wG 
~ 
-
Dmm   
Dma   
Dm.mP 
MQazM = 
SENT -
DATE  -_
Health  Care Financing Administration (HCFAIComments on

Office of Inspector  General {OIG) Draft Report:

Medicare Beneficim  Interest  in Health Maintenance Organizations  (HMOs).

[OEI-Q4-93-00142]

OIG Recommendation

HCFA should continue its efforts to educate Medicare beneficiaries about managed care options  

-.- - Y&*-

and MOS.  HCFA should:   
0 fwus  its educational  efforts in areas where HMOS are available that beneficiaries 
can jo~  and 
o highlight characteristics  of Medicare HMOS, including the benefits offered and 
enrollment procedures. 
HCFA Re.monse

We concur and aiready have in place some projects which are consistent with the

recommendation.  First, HcFAs  Office of Research and Demonstrations  (ORD) currently  has a

research project with the Research  Trian@e Institute,  which is investigating the kinds of

information beneficiaries want about heakh insurance options, including managed care, and will

subsequently design some sample materials which would meet these needs.

In a second set of initiatives, ORD is designing and implementing two demonstration  projects  to

widen the managed care options available to Medicare beneficiaries.  To support one of these

demonstrations  (the Competitive  Bidding Demonstration),  ORD plans to award a contract  in

September  1995 to a marketing  firm.  In this project the contractor  will be designing a marketing,

education and irdlormation  strategy  to help Medicare  beneficku-ies understand  their insurance  .

options, including managed  care options, so they can make better choices.

HCFA intends to continue its commitment to disseminate clear and quality information on the

health care delivery system choices  available  to Medicare  beneficiaries.  We have updated  the

Medicare and Managed  Care Plans brochure,  emphasizing beneficruy choices.  It is designed to

higMght the dtierences  (e.g., benefits, choice of physician) between the managed care and fee-

for-service options.  ~  additio~  we have developed a videotape  on managed care and distributed

5,000 copies to a variety of groups such as the Information Counseling and Assistance program

counselors,  State agencies on aging, and HCFA regional offices.

Beneficiaries can call the Medicare Hotline and ask a representative  if there is an HMO in thek

service area.  This sexvice is mentioned in the Medicare Handbook under the Managed  Care

section.  In additio~  the social  Security Administration Teleservice Centers have been given the

listing of Medicare-contracted  HMOS.