Department  of Health  and Human  Services 
OFFICE  OF 
INSPECTOR  GENERAL 
MEDICARES  OVERSIGHT  OF 

MANAGED  CARE: 

MONITORING  PLAN  PERFORMANCE 
JUNl3 GIBBS BROWN 
Inspector  General 
APRIL  1998 
OEI-01-96-00190  OFFICE  OF  INSPECTOR  GENERAL 
The mission  of the Office  of Inspector  General (OIG),  as mandated by Public  Law  95-452,  is to 
protect the integrity  of the Department  of Health  and Human  Services programs  as well  as the 
health and welfare  of beneficiaries  served by them.  This statutory  mission  is carried out through 
a nationwide  program  of audits, investigations,  inspections,  sanctions, and fraud alerts.  The 
Inspector  General informs  the Secretary of program  and management  problems  and recommends 
legislative,  regulatory,  and operational  approaches to correct them. 
Office  of Evaluation  and  Inspections 
The Office  of Evaluation  and Inspections  (OEI)  is one of several components  of the Office  of 
Inspector  General.  It conducts short-term  management and program  evaluations  (called 
inspections)  that focus on issues of concern to the Department,  the Congress, and the public.  The 
inspection  reports provide  findings  and recommendations  on the efficiency,  vulnerability,  and 
effectiveness of departmental  programs. 
OEIs Boston  Regional  Office  prepared this report under the direction  of Mark  R. Yessian, Ph.D., 
Regional  Inspector  General.  Principal  OEI staff included: 
Region  Headauarters 
Russell Hereford,  Ph.D., Project  Leader  Stuart Wright,  Program  Specialist 
Nicola  Pinson 
Kenneth  Price 
To obtain copies of this report, please contact the Boston Regional  Office  at 6 17-565-1050 
or by Fax at 617-565-3751 
Reports are also available on the World  Wide Web at our home page address: 
http://www.dhhs.gov/progorg/oei  EXECUTIVE  SUMMARY 
PURPOSE 
To assess how the Health  Care Financing  Administration  is responding  to the need for effective 
oversight  of the growing  number  of managed care plans that have Medicare  contracts. 
BACKGROUND 
The scope and speed of growth  in Medicare  managed care places stress on traditional  tools for 
oversight.  As of February,  1998,439  plans counted over 6 million  beneficiaries  as members, a 
90 percent increase since December  1994. 
Ideally,  managed cares capitated  payment leads to innovation  in providing  cost-effective,  high 
quality  health care.  However,  the economic  incentives  of operating  within  a fixed budget may 
encourage plans to limit  access to needed care in the interest of increasing  profits.  This incentive 
means that the Health  Care Financing  Administration  (HCFA)  has a particular  responsibility  to 
ensure that beneficiaries  access to services is protected.  The 10 HCFA regional  offices  carry out 
direct oversight  of managed care plans with  a site visit conducted  every 2 years. 
The HCFA has begun three important  initiatives  that may yield  information  useful to oversight  of 
managed care plans: (1) requiring  plans to report on measures from the Health  Plan Employer 
Data and Information  Set (HEDIS);  (2) preparing  a national,  independently  administered, 
beneficiary  satisfaction  survey, the Consumer  Assessment of Health  Plans Study (CAHPS);  and 
(3) opening  discussions  with  national  accrediting  organizations  to assess to what extent HCFA'S 
and these groups standards overlap,  and whether  collaboration  in oversight  would  be productive 
and appropriate  for Medicare. 
Our review  utilizes  data from  site visits to three HCFA regions:  interviews  with  HCFA staff 
responsible  for oversight  of managed care plans in the other seven regions,  and representatives  of 
managed care plans and beneficiary  advocacy organizations.  We also reviewed  and analyzed 
HCFA documents,  reports, data and the monitoring  guide used to assess managed care plans 
performance. 
FINDINGS 
The HCFAS primary  oversight  approach--a  site visit  that  relies  on a rigid  monitoring 
protocol--has  fundamental  limitations  as a way  of overseeing  managed  care plans 
performance. 
The monitoring  review  is not structured to keep pace with  the rapidly  evolving  managed 
care market.  It does not address delegation  of administrative  and clinical  functions,  or 
mergers between health plans.  The review  protocol  has limited  flexibility  to focus the monitoring  visit. 
The 2 year interval  between monitoring  reviews  provides  only  an intermittent  snapshot of 
a plans operations. 
Overall,  HCFA is not taking  widespread  advantage  of available  data  that  could  be used for 
ongoing,  systematic  oversight  of plans. 
The HCFA is making  only  limited  use of the information  it gathers in these reviews  for 
national  program  management.  The agency does not aggregate the results of the reviews 
to continuously  monitor  plan performance,  national  trends, or variations  among regions. 
Many  regional  offices do not routinely  track beneficiary  inquiries  and complaints  as a 
means to identify  problematic  situations  in managed care plans. 
The HCFA does not routinely  analyze its own data, such as disenrollment  rates or number 
of appeals, to identify  trends that raise questions about plan performance. 
The  HCFA is missing  opportunities  to capture  additional  data  that  could  assist the agency  in 
monitoring  plans  performance. 
The HCFA is not requiring  plans to submit basic operational  data, such as grievance and 
appeals data, that could be used to assessthe delivery  of services to Medicare 
beneficiaries. 
The HCFA does not have a formal  system in place for receiving  input about managed care 
concerns from the beneficiary  advocacy community.  The HCFA provides  funding  for 
Insurance  Counseling  and Assistance programs,  but does not require these organizations 
to report routinely  on managed care issues. 
RECOMMENDATIONS 
We recommend  that  HCFA revise the processes that  it uses to monitor  the performance  of 
managed  care plans. 
The HCFA'S oversight  processes should pay greater attention  to capturing  information  that 
reflects plans performance  in the constantly  evolving  managed care market. 
The HCFA'S oversight  processes should provide  greater flexibility  to target reviews  on the 
specific  characteristics  of individual  plans. 
We recommend  that  HCFA take  better  advantage  of data  that  are currently  available  to the 
agency  as a way  of monitoring  plan  performance  on an ongoing  basis.  Toward  that  end, 
we believe  that  the agency  should: 
ii  - immediately  establish and implement  a centralized  information  system that aggregates 
the results of plan monitoring  reports in electronic  format. 
- immediately  establish and use a system to track beneficiary  inquiries  and complaints 
that the agency receives regarding  managed care. 
- provide  monthly  reports to regional  offices  on enrollment,  disenrollment,  and rapid 
disenrollment. 
- require that the Insurance Counseling  and Assistance  programs report routinely  to 
central office  and to regional  offices on managed care issues. 
- take full  advantage of new data that it is collecting,  such as the HEDIS measures and 
consumer surveys, for oversight  purposes. 
- require health plans to routinely  submit data on appeals and grievances. 
COMMENTS  ON THE  DRAFT  REPORT 
The Health Care Financing  Administration  provided  comments  on the draft report.  We provide 
our response to these comments  in italics. 
The agency concurs with  the intent of our recommendation  to revise its monitoring  processes. 
The HCFA indicates a number of actions that it is taking  to address the issues that we raise: 
- a regional  initiative  to pay specific  attention  to ways that managed care organizations 
delegate such functions  as utilization  review  and medical  coverage determinations  to their 
contracted  provider  networks. 
- actions to evaluate health plan mergers and acquisitions, 
- revisions  in current  monitoring  process in order to establish better methods for targeting 
plan performance  issues. 
We believe that these actions  are a positive  step forward.  We will  continue  to work  with  HCFA to 
monitor  implementation,  progress,  and results. 
The HCFA concurs with  our second recommendation  to make better use of available  data.  The 
agency cites a number of activities  in this regard. These developments are encouraging;  however, 
we also wish to reiterate  some concerns we have: 
- a Health  Plan Monitoring  System for aggregating  and reporting  information  from 
monitoring  reviews.  We encourage  HCFA to use these data for  ongoing  analysis  ofplan 
performance,  not just for  scheduling  reviews. 
. .. 
111  - Medicare  Compare,  a health plan comparison  chart on HCFA'S  home page.  As yet, 
Medicare  Compare  is limited  to a comparison  of plan  coverage,  benefits, andpremiums. 
It does not include  data on performance  or quality.  We also urge HCFA to be more 
proactive  and include  information  on appeals and grievances  in Medicare  Compare. 
- a new system to track beneficiary  inquiries  and complaints.  In our draft  report,  we had 
recommended  that the agency establish and use regional  systems to perform  this task. 
Because, as the agency notes, a single system should  increase data comparability  among 
the regions,  we have revised our recommendation  to reflect  that approach. 
We also added explanatory  text in response to technical  comments that the agency provided. 
iv  PAGE 

EXECUTIVE  SUMMARY 

INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..l 

FINDINGS 

l  Limitations  in the monitoring  review  ...........................................  5 

0 Available  data not being used for oversight  ......................................  7 

0 Additional  data not being collected  ...........................................  10 

RECOMMENDATIONS  ......................................................  12 

COMMENTS  ON THE  DRAFT  REPORT  ........................................  16 

APPENDICES 

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

B:Endnotes  ..............................................................  ..B- I 
 PURPOSE 
To assesshow the Health  Care Financing  Administration  is responding  to the need for effective 
oversight  of the growing  number of managed care plans with  Medicare  contracts. 
BACKGROUND 
Growth  of Medicare  Managed  Care 
As of February  1, 1998,6  million  Medicare  beneficiaries-- 14 percent of the total--were  enrolled 
in 439 managed care plans that participate  in Medicare,  up from 3.1 million  in 244 plans in 
December  1994.  Medicare  paid almost $26 Billion  to managed care plans for fiscal year 1997, 
up from $19 Billion  for all of fiscal year 1996.  By all indications,  this rate of growth  will 
continue.  Thirty  one plans are seeking initial  approval  for Medicare  contracts, and 29 plans are 
seeking to expand their service areas. 
Not  only has the overall  scope of Medicare  managed care grown,  but expansion  has occurred  in 
new areas of the country.  For many years, the Western States were the bastion of managed care, 
both generally  and within  the Medicare  program.  Now  all regions of the nation  are experiencing 
rapid growth  in Medicare  managed care plans. 
In addition,  Medicare  managed care plans increasingly  are evolving  from staff models to more 
loosely  organized  provider  networks,  such as independent  practice associations (IPAS).  Since 
December  1994, the number of [PAS type plans grew by 70 percent from  133 to 228 plans in 
August  1997, and group model plans increased by 40 percent from 79 to 111.  In contrast,  staff 
model plans grew from 29 to 3 1 plans. 
New  Challenges  to HCFA Oversight 
The scope and speed of these changes place stress on HCFA'S traditional  tools for performing 
oversight.  The sheer increase in the number  and complexity  of plans will  continue  to put even 
more pressure on staff and budget resources.  Staff will  need to acquire skills  and knowledge  that 
enable them to assess new types of health care delivery  systems with  different  economic 
incentives.  They will  need to remain closely  attuned to local health care markets. 
In Medicares  traditional  fee-for-service  program,  health care providers  deliver  services and 
receive reimbursement  for each specific  service.  Managed  care introduces  a fundamental  shift 
from the fee-for-service  program  in which  delivery  and finance are separate activities.  Managed 
care plans receive monthly  capitated payments with  which  they manage both delivery  and 
financing  of services. 
Medicare  supports two primary  types of managed care plans, defined by the method  under which 
1  the plans are paid.  Riskplans  are paid a monthly  per capita premium  set at 95 percent of the 
projected  average expenses for fee-for-service  beneficiaries  in a given county.  Risk plans 
assume full  financial  risk for all care provided  to Medicare  beneficiaries.  As of August  1997, 88 
percent of Medicare  beneficiaries  in managed care were in risk plans.  These plans made up 292 
of the 398 managed care plans participating  in Medicare.  Costplans  are paid a pre-determined 
monthly  amount per beneficiary  based on a total estimated budget.  Adjustments  to that payment 
are made at the end of the year for any variations  from the budget.  Beneficiaries  in cost plans 
may also obtain  Medicare-covered  services outside the plan without  limitation.* 
Ideally,  capitation  leads to innovation  in providing  cost-effective,  high quality  health care. 
However,  the economic  incentives  of operating  within  a fixed budget may encourage plans to 
limit  access to needed care in the interest of increasing  profits.  This economic  incentive  to limit 
care means that HCFA has a particular  responsibility  to beneficiaries  to ensure that their ability  to 
access services is protected  in the managed care environment.  Yet compared with  the fee-for-
service sector, the agency receives only  limited  data from managed care plans.  As a 
consequence, HCFA may have difficulty  in assessing the extent to which  plans limit  access to and 
utilization  of services.  For example, HCFA receives beneficiary-level  encounter  and utilization 
data and profiles  of individual  provider  practices under the fee-for-service  system; these data are 
not made available  to HCFA in the managed care system. 
THE HCFA s Current  Approach  to Monitoring  Managed  Care 
The HCFA is responsible  for ensuring quality  of and access to care provided  to Medicare 
beneficiaries  and for safeguarding  the program  from fraud and abuse.  Within  6 to 9 months  after 
HCFA awards a contract  to a health plan, staff from the HCFA regional  offices  conduct  an initial 
site visit to assessthe plans progress.  Subsequent on-site reviews  are performed  every 2 years, 
unless some type of serious problem  is identified  or suspected in the interim. 
The staff use a standard contractor  performance  monitoring  protocol  that addresses Federal 
statutory  and regulatory  requirements  in 15 areas.  The areas examined include  how  well  the plan 
processes beneficiary  enrollments  and disenrollments,  the plans structure for quality  assurance, 
how the plan processes grievances and appeals, and the plans marketing  practices.  If HCFA 
determines that a health plan is out of compliance  with  requirements  in any area, the plan must 
develop a corrective  action plan (CAP),  which  the regional  office  must approve.  The CAP 
describes actions the plan will  take to come into compliance  with  Federal standards. 
THE HCFA Reorganization 
Until  recently,  HCFA'S Office  of Managed  Care (OMC)  had central responsibility  for guidance  of 
the agencys managed care program.  The 10 HCFA regional  offices  carry out direct oversight  of 
managed care plans, with  support from the central office.  (Our companion  report Medicares 
Oversight  of Managed  Care:  Implications  for  Regional  Staf$ng,  OEI-0 l-96-00  19 1, addresses 
how HCFA'S regional  offices are staffing  for oversight  as the number of plans grows.) 
Effective  July  1997, HCFA reorganized  its internal  structure.  Under the new organizational 
2 
 structure,  managed care functions  are part of the new Center for Health  Plans and Providers. 
This reorganization  may well  affect how the managed care program  is administered  in the central 
office  and in the regions. 
Recent HCFA Initiatives 
The HCFA has recently  undertaken  three important  initiatives  that, in the long run, may provide 
information  useful to oversight  of managed care plans. 
0 	 HEDIS  Effective  January  1, 1997, HCFA requires health plans to report on performance 
measures from the Health  Plan Employer  Data and Information  Set (HEDIS)  relevant to 
the managed care population.  These measures include  a functional  status assessment for 
seniors, intended to provide  longitudinal  data on plan-specific  outcome measures.  The 
HCFA intends to use these measures to help beneficiaries  choose among health plans, 
identify  quality  improvement  opportunities,  and identify  areas that warrant  further  review 
and scrutiny. 
0 	 CAHPS  Effective  January  1. 1997, HCFA requires health plans to participate  in a 
national,  independently  administered,  Medicare  beneficiary  satisfaction  survey, the 
Consumer  Assessment of Health  Plans Study (CAHPS).  The HCFA plans to publish  results 
of this survey to help beneficiaries  select among health plans. 
0 	 Enhanced  Review  The HCFA has initiated  discussions  with  three national  organizations 
that accredit health plans--the  Joint Commission  on Accreditation  of Health  Care 
Organizations  (JCAHO),  the National  Committee  on Quality  Assurance  (NCQA),  and the 
Utilization  Review  Accreditation  Commission  (URAC).  The goal of this effort  is to assess 
whether,  to what extent, and in what areas HCFA'S standards overlap  with  these groups 
standards, and to determine  whether  collaboration  in oversight  practices would  be 
productive  and appropriate  for Medicare. 
METHODOLOGY 
We utilized  four sources of data in this inspection. 
First, we gathered extensive information  from site visits to three HCFA regions:  Region  6 
(Dallas),  Region  9 (San Francisco),  and Region  10 (Seattle).  During  these visits we conducted 
structured  interviews  with  staff in the regional  offices,  and with  representatives  of beneficiary 
advocacy organizations,  managed care plans, and State governments.  Our visits included  a 
review  of internal  HCFA documents  and reports from these regions. 
Second, we conducted  structured  telephone interviews  with  staff responsible  for managed care 
oversight  in the other seven HCFA regional  offices.  We also interviewed  staff from the HCFA 
Office  of Managed  Care in Baltimore. 
Third,  we gathered additional  information  on the managed care oversight  process through 
3 
 structured telephone  interviews  with  representatives of beneficiary  advocacy groups and 
managed care plans.  In total, we interviewed  individuals  associated with  11 managed care plans 
and 13 beneficiary  advocacy  organizations. 
Fourth, we reviewed  and analyzed  HCFA documents, reports,  and data, as well  as the contractor 
monitoring  guide that the agency uses to assessthe performance  of Medicare  managed care 
plans. 
We conducted  our review  in accordance with  the Quality  Standards for  Inspections  issued by the 
Presidents Council  on Integrity  and Efficiency. 
4 
 THE  HCFA'SPRIMARYOVERSIGHTAPPROACH--ASITEVISITTHATRELIESONARIGID 
MONITORINGPROTOCoL--HASFUNDAMENTALLIMITATIONSASAWAYOFOVERSEEING 
MANAGED CAREPLANS'PERFORIMANCE. 
a 	 The  monitoring  review  is not structured  to keep pace with  the rapidly  evolving 
managed  care market. 
The rapidly  changing  managed care environment  is placing  stress on the traditional  monitoring 
approach.  The monitoring  review  addresses issues pertinent  to these changes only  in marginal 
ways, an omission  that staff we interviewed  saw as a serious shortcoming.  One staff member 
who has been working  in this area for several years summarized  this concern when he told us, 
The industry  is developing  faster than we can keep up. 
Two  significant  types of changes are occurring  in the managed care market that make addressing 
these issues critical.  First, the increase in network  model  delivery  systems is often accompanied 
by a delegation  to medical  groups of administrative  functions,  as well  as delivery  of health 
services.  Delegated  functions  may include  quality  assurance, utilization  review,  and claims 
review  and payment.  The monitoring  review  does not address the nature or implications  of these 
arrangements,  such as the adequacy of training  for contracted  medical  groups, how contracts  are 
priced,  what the contracts cover, or how the plan pays claims.  For example, staff in the regions 
identified  a need to review  cases from delegated providers  during  their review,  or to evaluate 
how delegated quality  assurance standards are enforced  by the plan.  In theory,  the plan itself is 
accountable  for all functions,  whether  delegated or carried  out by the plan itself.  The protocol, 
however,  does not lend itself to this type of a review. 
A second managed care trend is the spate of mergers and affiliations.  The implications  for 
HCFA'S oversight  are unclear, but the agency has little  input  into decisions  about mergers.  The 
issues that these mergers raise are important.  One staff member  summarized  the difficulties  in 
dealing  with  a pending  merger as follows:  We are dealing  with  two  separate organizations,  with 
three risk contracts, that are now trying  to merge.  There are corrective  action plans in place for 
each of the plans, each CAP in different  areas. Their  goal is to be a regional  delivery  system--but 
how  should our office  address this merger and the problems  in each plan?  Which  entity  do we 
examine for claims processing,  which  one for appeals.3 How  do we have one plan with  existing 
problems  take over management for the others? 
0  The  review  protocol  has limited  flexibility  to focus the monitoring  visit. 
The on-site review  relies on a broad brush, one-size-fits-all  protocol  that is the same for all 
managed care plans.  The protocol  does not differentiate  between  staff model, network  model,  or 
group model plans.  In fact, regional  staff told us that the protocol  is based on the staff model 
HMO,  even though that model comprises fewer than 10 percent of managed care plans with 
Medicare  contracts.  The review  does not differentiate  between plans paid on a risk basis versus 
those paid on a cost basis, despite fundamental  differences  in the financial  incentives  of the two 
5  payment mechanisms.  In addition,  the review  is the same for small plans as for large plans, and 
the same for plans that have been operating  for many years as for new plans. 
HCFA regional  staff consistently  told us that the protocols  breadth makes it difficult  to complete 
the review  during  the time allotted  for visits to plans.  Case reviews,  examination  of documents, 
and interviews  with  staff and practitioners  consume the full  three-to-four  days that they spend on 
site.  It is apparent that the staff often must make decisions  about prioritizing  what aspects of a 
plans operation  they examine.  Our concern is that these decisions may be made without  a great 
deal of explicit  guidance.  Regions report that they use the protocol  as a framework  for further 
inquiry  into specific  areas.  Staff in several regions told us that they look at available  data about a 
plans operations  prior  to a site visit.  However,  the information  available varies across regions 
and across plans; it often is not maintained  in a systematic  format that allows  for meaningful 
analysis and identification  of problem  areas. 
During  our field  work,  we identified  three primary  concerns about focusing  reviews  more 
narrowly.  First, because there are no ongoing  performance  indicators,  staff expressed some 
discomfort  about a more targeted review.  These staff raised concerns that less comprehensive 
reviews  might  miss problems  in plan performance.  They cautioned  that analyzing  additional 
data, such as results from NCQA certification  reviews  or plan internal  management reports, would 
be needed to identify  areas of potential  concern to focus on while  on site. 
Second, site visits to plans comprise  a major use of regional  office  resources.  Extending  the visit 
or conducting  additional  visits is unappealing  from  a budgetary  point  of view.  Conversely,  more 
targeted visits could allay this concern. by making  more effective  use of the time actually  spent 
on site. 
Third,  the growth  in Medicare  managed care plans has arrived only recently  in many HCFA 
regions.  However,  many of the staff involved  in monitoring  managed care plans are new to this 
field.  Learning  how to identify  and focus on specific  problems  may require a knowledge  base 
and comfort  level that will  come only  with  time, training,  and experience. 
Staff in one region  provided  us with  an example of how they use data to target their review, 
which  is illustrative  of the role that this information  can play.  In an ongoing  review  of member 
disenrollment  data, they found one plan with  a very high rapid disenrollment  rate.  This finding 
led the office  to focus an on-site review  on the plans sales practices and incentives.  They 
reviewed  in detail the plans oversight  of its sales representatives,  how the sales representatives 
were paid (e.g., percentage of compensation  based on commission  versus salary), the plans 
records on number of disenrollees  by sales representative,  and information  from personnel  files, 
such as progressive  disciplinary  actions for sales representatives.  As a result of this review,  the 
staff was able to uncover problems  with  the plans marketing  practices and require  it to take 
corrective  action. 
a 	 The 2 year  interval  between  monitoring  reviews  provides  only  an intermittent 
snapshot  of a plans  operations. 
6 
 Staff in HCFA regional  offices and representatives of managed care plans agreed that an on-site 
presence is a critical  element of effective  monitoring.  From our discussions with  HCFA and plan 
officials,  we identified  three key1reasons for conducting  site visits.  First, the visits require  direct 
examination  of beneficiary  case records, plan documents,  and files.  Second, the visits provide  an 
opportunity  for face-to-face  interaction  with  plan staff and practitioners,  including  a formal 
opportunity  for HCFA staff to respond to questions and concerns that the plan may have.  Third, 
staff told us that site visits provide  an important  sentinel effect on plans, reaffirming  the 
importance  of complying  with  Medicare  regulations. 
We identified  three limitations  with  the 2 year interval  between  visits.  First, as part of their 
review,  HCFA staff examine a sample of beneficiary  cases to assess how well  the plan complies 
with  Medicare  requirements  such as notifying  beneficiaries  of appeal rights,  and how  quickly  and 
accurately  the plan enrolls  and disenrolls  members.  The review,  however,  selects cases only 
from the most recent 6 months.  The case review  misses the first  18 months of activity  following 
the previous  visit.  Second, Medicare  renews its contracts with  plans annually,  meaning that at 
least one renewal  will  have taken place without  an in-depth  review  of plan operations.J  Third, 
the plan itself may have changed significantly  since the renewal.  For example, we examined 
enrollment  data for  127 plans operating  in December  1994 and December  1996.  We found  an 
overall growth  in these plans of 73 percent in that 2 year period.  Among  92 plans with  at least 
1,000 members in December  1994, two plans had 1O-fold increases in their membership  over that 
period, and 37 plans at least doubled  their enrollment. 
To be sure, HCFA regional  office  staff do have ongoing  contact with  the plans between the 
biennial  site visits.  This contact includes  interacting  with  plans to answer beneficiary  inquiries 
and reviewing  plan marketing  and sales materials.  As a result, staff have a sense and a general 
subjective  impression  about plan operations.  However,  the biennial  site visit remains the only 
formal mechanism  through  which  HCFA assessesplan compliance  with  Medicare  requirements. 
OVERALL,  HCFA  IS NOT TAKING  WIDESPREAD  ADVANTAGE  OF AVAILABLE  DATA  THAT  COULD 
BE USED FOR ONGOING,  SYSTEMATIC  OVERSIGHT  OF PLANS. 
l  The  HCFA  is making  only  limited  use of the information  it gathers  in the on-site 
reviews  for  national  program  management. 
Following  each review,  regional  office  staff prepare a report that describes their findings  and 
specifies areas in which  the plan did not meet Medicare  requirements.  The regional  office  sends 
this report to the plan and to the HCFA central office. 
Staff from both regional  and central offices told us that these reports are filed  away after only 
limited  review  of the contents.  The agency does not aggregate the results of the reviews  in a way 
that could provide  benchmarks  on individual  plan performance,  national  trends, or variation 
among regions. 
Only four regional  offices  were able to provide  us with  aggregate information  on reviews 
conducted  in 1995 and 1996.  We reviewed  these data, based on 76 monitoring  visits to managed 
7 
 care plans, to provide  examples of how HCFA could use data from these reviews to identify  issues 

that warrant  further  investigation. 

First, the information  can inform  HCFA nationally  about areas in which  plans need to improve 

their understanding  of Medicare  requirements.  The HCFA can then use this information  to 

identify  specific  substantive  Medicare  requirements  that plans fail to meet consistently.  The 

agency could then develop a technical  assistance effort  to bring  plans into compliance.  For 

example, we found that between 60 and 84 percent of the plans in each of the four regions did 

not meet Medicare  requirements  for processing beneficiary  appeals, considered  one of the key 

consumer beneficiary  protection  mechanisms in the program.  The failure  of so many plans to 

comply  with  these provisions  strongly  suggests that HCFA needs to address appeals processing  in 

a conscientious  manner to ensure that plans are complying  with  these requirements. 

Second, information  from these reviews can help the agency assess how  well  its protocol  is 

working,  and where  improvements  might  be made.  For example,  we found that only  8 percent or 

fewer of plans did not meet Medicare  standards for utilization  management.  Examining  these 

data nationally  could  lead HCFA to question (a) whether  the protocol  element does not adequately 

address utilization  management;  (b) whether regional  office  staff do not know  how to probe into 

issues concerning  utilization  management; or (c) whether  it is even necessary to review 

utilization  management  on a routine  basis, because virtually  all plans meet the requirement. 

Third,  nationally  aggregated data would  help HCFA identify  regional  variation  among its own 

offices, as a way of identifying  regions in which  technical  assistance is warranted.  We found 

substantial  variation  among the four regions.  For example,  one regional  office  found no plans 

out of compliance  with  grievance processes; another office  found  53 percent of plans out of 

compliance.  Although  one explanation  could be regional  variation  in the actual performance  of 

plans, there is also the very real possibility  that the knowledge  and skill  levels of the different 

regional  office  staff vary substantially  in their ability  to identify  this deficiency. 

0  Many  regional  offices do not routinely  track  beneficiary  inquiries  and complaints  as 
a means to identify  problematic  situations  in managed  care plans. 
Responding  to beneficiary  inquiries  about managed care comprises  a major activity  of regional 
office  staff.  These inquiries  include  general questions about managed care and how it relates to 
fee-for-service  Medicare,  as well  as specific complaints  about the services provided  or denied by 
a particular  plan, and confusion  with  plan policies,  provider  networks,  service areas, and other 
nuances of managed care. 
Staff in one region  summarized  the significance  of this interaction  when they told us, The most 
important  piece of monitoring  is the beneficiary  calling  us.  The volume  of inquiries  is quite 
large.  Staff in one region  told us that they spend between  30 and 50 percent of their time on 
inquiries.  In another region,  staff estimated an average workload  of more than 100 inquiries  each 
week, and a third  region  told us that they received over 2,200  inquiries  in 1996.  Some regional 
managed care offices  maintain  a full-time  staff unit dedicated  to beneficiary  case work. 
8 
 The HCFA developed the Beneficiary  Inquiry  Tracking  System (BITS)  some years ago, yet only 
four regions are using it.  Despite the value and number  of beneficiary  inquiries,  many regional 
offices do not track this information  according  to specific  issues raised or particular  plans cited. 
Regional  offices primary  complaint  about BITS is the cumbersome  nature of the system.  The 
BITS does not interact with  other HCFA systems and, as a result, is very slow and time consuming. 
One staff member (whose office  had abandoned BITS)  estimates that it takes 2 to 5 minutes 
simply  to access the system and enter a complaint. 
Our concern is that the other six regions lack an alternative  method to systematically  keep track 
of and trend the types of inquiries  that they receive according  issue and plan.  Tracking 
beneficiary  concerns in a systematic and ongoing  way could  inform  HCFA about managed care 
plans policies,  programs,  or other issues that the agency may need to address.  Plan-specific 
information  could  inform  the staff about particular  concerns in a plan that the monitoring  process 
should address. 
The staff from one regional  office  that uses BITS provided  examples of its usefulness.  They cited 
a comparison  of two plans, each with  approximately  the same numbers of beneficiary  inquiries, 
even though  one plan was three times the size of the other.  In other words,  the rate of inquiries 
was three times as great in the smaller plan, leading  the staff to keep a closer watch  on that plan. 
0  The  HCFA does not  routinely  analyze  its own  data,  such as disenrollment  rates  or 
number  of appeals  to identify  trends  that  raise questions  about  plan  performance. 
Data collected  by HCFA on enrollment,  disenrollment,  and appeals are not in themselves 
sufficient  to make determinations  about a particular  plans performance.  These data can, 
however,  serve as part of an early warning  system, and provide  information  which  the regional 
staff can use to raise questions about and probe deeper into a plans performance.  For example, 
we previously  found that disenrollment  rates, adjusted for annualization  of new HMOS and 
administrative  disenrollments,  can provide  an early alert of problems  among Medicare  risk 
HMOS.~  Rapid disenrollment  patterns may be an even more striking  indicator  of dissatisfaction, 
i.e., those beneficiaries  who disenroll  early in their membership  in a plan. 
We identified  three primary  constraints  on making  effective  use of these data for monitoring 
purposes:  First, it is up to the regions to analyze and use these data.  We found that a number  of 
the regional  offices  lack the capacity to carry out these functions.  Even where the regions  are 
comfortable  with  analyzing  data, we found different  definitions,  particularly  in the area of rapid 
disenrollment  across the regions.  In one region,  the denominator  was the entire membership 
population  of the HMO;  in other regions the denominator  was only those who had enrolled  in the 
previous  3 months.  Using the former  definition,  one is given the impression  of a much lower 
rapid disenrollment  rate than the latter definition  provides. 
Second, regional  staff raised concerns about the incompatibility  of the HCFA mainframe  computer 
systems and regional  offices personal computers  and windows-based  applications.  This problem 
is evident in the regions reluctance to use the BITS system.  It also affects how regions  access and 
use data from other HCFA data systems, such as the Managed  Care Option  Information  (MCCOY) 
9 
 System, without  reentering  the data themselves, or without  having direct access to these data.  To 
be sure, the Medicare  Transaction  System holds promise  for improving  this situation,  but its 
deployment  is far off and yet to be tested. 
Third,  the staff raised concerns about the adequacy of data the regional  offices receive from the 
Center for Health  Dispute  Resolution  (CHDR),  HCFA'S contractor  that makes final  determinations 
on appeals.  These staff reported that they receive detailed  information  only  on those appeals 
decisions that are decided in favor of the beneficiaries.  They also receive aggregate data on rates 
of appeals and rates of appeals ruled  in favor of the beneficiary.  Staff told us that they would 
find additional  data useful for oversight  purposes.  These data could include: 
Timeliness  of plans reconsideration  submissions. 
b 
b  Specific  cases that have been pending  longer than 60 days. 
Specific  issues involved  (e.g., are they all emergency  visits?  Who makes the denial 
b 	
decision?). 
THE HCFAISMISSINGOPPORTUNITIESTOCAPTUREADDITIONALDATATHATCOULDASSIST 
THEAGENCYINMONITORINGPLANS'PERFORMANCE. 
0  The  HCFA is not  requiring  plans  to submit  basic operational  data,  such as grievance 
and  appeals  data,  that  could  be used to assess the delivery  of services to Medicare 
beneficiaries. 
Regional  office  staff with  whom  we spoke expressed frustration  at not having more data 
available  from managed care plans on a routine  basis.  If a plans operation  deteriorates  after a 
review  is completed,  there is no guarantee the regional  office  will  become aware of it before the 
next review.  The HCFA has begun to require  submission  of HEDIS and CAHPS data, beginning  in 
1997, and the agency plans to publish  summaries of this information  as a way of helping 
beneficiaries  choose among health plans.  When these data become available,  HCFA staff could 
use them for ongoing  oversight  of plan operations. 
Determining  whether  or not to require  additional  data from plans, and what elements to include, 
would  be up to HCFA nationally.  In at least one region,  the office  is working  with  plans to submit 
quarterly  data in an electronic  format.  However,  staff elsewhere told us that requests for 
operational  data from plans would  need to be made an explicit  condition  of their contract  with 
Medicare  in order to avoid resistance by plans. 
Managed  care plans maintain  sophisticated  management  systems to track information  on a wide 
range of indicators,  including  beneficiary  complaints,  claims data, information  on the provider 
network,  and utilization  data that could  be useful to HCFA for oversight  purposes.  Staff from 
plans told us that they view  contact with  HCFA around these types of data as a chance to learn and 
correct problems  as they occur rather than after months  of mistakes.  As staff at one health care 
plan told us, It isnt enough for HCFA to receive the data and come out every two  years.  They 
10 
 need to give us continuous  feedback as a way of improving  our practices. 
Staff in the regional  offices told us that the following  types of data would  be useful in their 
ongoing  oversight  of plan activities: 
b 	 Denials  of payment and service:  Number  of initial  denials, number appealed, 
number resolved internally,  timeliness  for resolution,  issues involved  in cases. 
b  Grievances:  Number  of grievances, timeliness  of resolution,  issues involved. 
b 	 Changes in provider  networks:  Monthly  updates of physicians,  hospitals,  medical 
groups and other providers  who have joined  or left the network. 
b  Contract  data:  Number  of contracted  providers,  types of arrangements. 
b 	 Internal  customer service data:  Number  of inquiries,  telephone  response rates and 
times, issues raised. 
b  Provider  claims processing:  Timeliness,  denial  rates. 
0  The  HCFA does not have a formal  system in place  for  receiving  input  about  managed 
care concerns  from  the beneficiary  advocacy  community. 
The HCFA funds beneficiary  outreach services through  grants to Insurance  Counseling  and 
Assistance (ICA)  programs.  The ICAS report to HCFA twice  per year with  a broad overview  of 
their activities  and use of HCFA funds.  However,  these groups do not report  in a formal  routine 
way to the regional  offices on beneficiary  concerns related to managed care or the performance  of 
specific managed care plans. 
The ICAS work  directly  with  individual  beneficiaries  to resolve problems  that they encounter  in 
obtaining  Medicare  services.  Staff of the ICA programs  with  whom  we met reported that they are 
receiving  greater numbers of beneficiary  concerns around managed care.  One group estimated 
that 40 to 50 percent of their work  involved  managed care.  The ICAS work  to resolve beneficiary 
problems by working  on a case-by-case basis with  health care providers. 
The ICAS typically  are part of a State Office  on Aging  or State Insurance  Department.  Regional 
offices work  with  the ICAS in two primary  ways.  First, an ICA may contact staff in the regional 
office to help resolve a beneficiarys  specific case or problem  with  a managed care plan. 
Sometimes the regional  staff may intervene with  a plan as part of this resolution. 
Second, regional  office  care staff reported that they try to speak at ICA meetings to discuss 
Medicare  managed care and to address concerns that may have been raised.  One important 
component  of this outreach is to ensure that beneficiaries  and the ICA volunteers  and staff are 
aware of beneficiaries  rights under managed care. 
11 
 In this report we raise fundamental  concerns with  HCFAS primary  approach to oversight  of 
Medicare  managed care plans.  That approach revolves around one formal  site visit conducted 
every two years.  We raise concerns about the efficiency  and adequacy of this approach as a way 
of monitoring  plan performance  in a rapidly  changing  environment.  Medicare  contracts with  an 
expanding  number of plans, beneficiaries  continue  to enroll  at a rapid rate, and the managed care 
markets and the structure  of plans themselves are constantly  evolving.  Yet, the current  approach 
has no formal  mechanisms  to keep up with  plan activities  between reviews,  nor is it sufficiently 
flexible  to respond to the changes in the market place or even to the characteristics  of specific 
plans and the differences  among them. 
We recognize  that HCFA is taking  a number of steps that could  enhance oversight  of managed 
care plans.  For example, the implementation  of the HEDIS measures, the new consumer 
assessment of health plans, and the agencys work  with  national  accrediting  bodies provide  major 
opportunities  to improve  oversight  of managed care plans.  At the same time, however,  we 
conclude that more must be done to afford  sufficient  protections  to Medicare  beneficiaries. 
Our recommendations  focus on two broad themes.  One set of recommendations  urges the 
agency to revise the approach that it currently  uses to monitor  the performance  of managed care 
plans, to make that approach more flexible  and responsive to the current reality  of the managed 
care market place.  The second set urges HCFA to make better use of data as a key element for 
ongoing  contact and oversight  of plan activities.  We believe such an approach is essential if the 
agency is to keep abreast of managed care plans performance.  The demands and challenges  of 
the new Medicare+Choice  program  make steps such as these even more critical. 
We also emphasize that oversight  of managed care plans requires  staff with  the appropriate 
training  and analytical  skills.  Our companion  report, Implications  for  Regional  Staffing  (OEI-Ol-
96-00 19l),  addresses this issue in detail;  in that report we make recommendations  regarding 
HCFAS staffing  and training  needs. 
WE  RECOMMEND  THAT  HCFA  REVISE  THE  PROCESSES THAT  IT USES TO MONITOR  THE 
PERFORMANCE  OF MANAGED  CARE  PLANS. 
The HCFAs oversight  processes should  pay greater  attention  to capturing  information  that 
reflects plans performance  in the constantly  evolving  managed  care market. 
Many  managed care plans rely on widespread  network  models to deliver  services.  In network 
models, the actual delivery  of services, decisions  regarding  coverage, and utilization  management 
may be contracted  out to providers  at some distance from the managed care plan that bears 
overall responsibility  for providing  care to beneficiaries.  Yet current monitoring  of managed 
care plans rarely  includes  review  of these widespread  entities.  We believe that it would  be 
prudent  for the agency to include  a more in-depth  examination  of delegated contractors  as a 
formal part of the review  process.  One option  might  be to include  a review  of records from  and 
12  interviews  with  a representative  sample of delegated providers  in network  model plans. 
The increasing  numbers and scope of mergers and affiliations  taking  place among managed care 
plans presents a second challenge  for HCFA'S oversight  processes.  We believe that the agency 
needs to pay attention  to where responsibilities  lie when plans merge.  For example, HCFA may 
need to assess how problems  found  in one plan are being corrected when that plan has merged 
with  another company.  One option  is instituting  some type of formal  review  of Medicare 
operations  in the new entity  at an appropriate  point  following  the merger, say 3 or 6 months.  In 
addition,  we encourage the agency to be sure that sufficient  attention  is paid to the implications 
of mergers and affiliations  prior  to their actually  taking  place. 
We also are concerned about oversight  of new types of organizations  providing  managed care 
services.  For example, the recently  enacted Balanced  Budget Act of I997  authorizes  the 
participation  of provider  sponsored organizations  (PSOS) in the Medicare  program.*  The PSOS 
may be subject to little  State regulation  or certification,  so monitoring  these new entities  will 
pose fresh challenges to the agency.  We believe that HCFA needs to pay close attention  to these 
and other new arrangements to ensure that they meet requirements  for participation  in Medicare. 
The HCFA s oversight processes should  provide  greater flexibility  to target  reviews on the 
specific  characteristics  of individual  plans. 
We believe that HCFA  should consider  how its oversight  function  can be enhanced by designing 
a protocol  and approach that take into account key differences  among plans.  For example, risk 
plans have a quite different  financial  arrangement  than cost plans, with  the potential  for adverse 
economic  incentives  based on their payment mechanism;  yet the monitoring  protocol  does not 
differentiate  between these types of plans.  As we note above, IPAS may bear further  inquiry  into 
the specific  implications  of their organizational  arrangements than do group or staff model  plans. 
We also believe that flexibility  may be warranted  as a way to assessthe progress being made by 
managed care plans with  new contracts.  For example, current processes call for the agency to 
conduct  a monitoring  visit 6 to 9 months after awarding  a contract,  to ensure that the new plan 
understands and is meeting Medicare  requirements.  Following  that initial  visit, HCFA staff do not 
conduct  a second monitoring  review  for another two years.  Yet, in many cases plans may not 
have a large enrollment  in the first few months;  it may well  be appropriate  to conduct  a follow  up 
visit at the point  at which  a plan reaches a certain critical  mass, for example,  1,000 or 5,000 
members. 
WE RECOMMEND THAT HCFA TAKE BETTER ADVANTAGE OF DATA THAT ARE CURRENTLY 
AVAILABLE  TO THE AGENCY AS A WAY OF MONITORING  PLAN PERFORMANCE ON AN ONGOING 
BASIS. 
In examining  data, we suggest four basic types of analyses that HCFA staff could undertake  as a 
way of informing  the agency for oversight  purposes: 
b  Internal  trends in plan performance  over time.  This would  let HCFA identify  changes 
13 
 within  a plan that may indicate  concerns that HCFA should help the plan address. 
k 	 Plan performance  compared with  regional  norms.  This comparison  will  let HCFA 
determine  how plans compare with  other plans in the region  for which  it has oversight 
responsibility. 
b 	 Performance  of plans compared with  other plans in the local market area.  This provides  a 
more refined  comparison,  taking  analysis to the local market area. 
b 	 Performance  of plans compared with  national  norms.  While there may be explainable 
local differences,  HCFA also needs to assess the plans within  national  norms and 
expectations. 
The HCFA should  immediately  establish  and implement  a centralized  information  system that 
aggregates  the results  of plan  monitoring  reports  in electronic  format. 
Although  the monitoring  protocol  has its limitations,  in the short run it remains the primary  tool 
through  which  HCFA assessesthe performance  of managed care plans.  Consequently,  we believe 
it essential that HCFA have aggregate data on these reports to provide  national  accountability  for 
the program.  In an era of ready access to electronic  formatting,  there simply  is no reason that the 
information  from these reviews  should not be made immediately  accessible to beneficiaries  and 
the public,  to members of Congress, and to agency managers. 
We envision  a system similar  to the On-Line  Survey Certification  and Reporting  System (OSCAR) 
that yields  information  on surveys for hospitals,  nursing  homes, and other institutional  providers. 
We believe that the simplest way to implement  such a system would  be for regional  staff to enter 
the results of their reviews  into a system immediately  upon completion  of their monitoring  visit. 
We see four important  advantages for such a system.  First, it will  enable HCFA to readily  monitor 
each plans performance.  Second. it will  enable HCFA to identify  overall  areas of concern in 
managed care plans operations.  This information  can help the agency identify  broad problems 
that need to be addressed nationally.  Third,  it will  inform  the agency about regional  variations  in 
performance  among health plans and among regional  offices.  Fourth,  this information  will 
provide  an important  starting point  for assessing the protocol  instrument  itself. 
The HCFA should  immediately  establish  and use a system  to track  beneficiary  inquiries  and 
complaints  that the agency receives regarding  managed  care. 
Several regions already track these data . We believe that it is a key source of information  that 
regional  staff should use routinely  to identify  specific  plans or issues that merit  closer 
examination.  The system needs to be plan specific  and issue specific.  We believe that it should 
be maintained  in electronic  format  so that current  issues and trends may be examined,  both 
locally  and nationally.  The system should include  fields  for general inquiries  about managed 
care, as well  as specific  concerns and problems  regarding  particular  plans.  The HCFA established 
the Beneficiary  Inquiry  Tracking  System (BITS)  with  this as one goal.  But that system is slow 
14 
 and cumbersome.  We believe that HCFA needs to use a tracking  system that is manageable and 
easy for regional  staff to use.  Our  goal is to have in place a system to track and analyze this 
important  source of data. 
The HCFA should  provide  monthly  reports  to regional  offices  on enrollment,  disenrollment, 
and rapid  disenrollmen  t. 
In 1995, we recommended  that HCFA track disenrollment  rates over time to detect potential 
problems  among HMOS and that the agency use adjusted disenrollment  rates to target reviews  of 
HMOS.~  We continue  to believe that this is an important  aspect of plan operations  that HCFA 
regional  offices  should monitor  routinely.  Many  regions are already tracking  these data on their 
own, but we found,  among other problems,  that there is no standard definition  of what  constitutes 
rapid disenrollment.  It would  be more efficient  and accurate for HCFA centrally  to provide  these 
data to the regions  in a format that permits the regional  offices to analyze them over time. 
The HCFA should  require  that information,  counseling,  and assistance programs  report 
routinely  to central  office  and to regional  offices  on managed  care issues. 
The HCFA provides  financial  support  for information,  counseling,  and assistance programs.  We 
believe that they are an important  resource that the agency could tap for additional  information 
about plan performance.  The HCFA could provide  a reporting  format  for these grantees on 
managed care, which  should be plan specific and issue area specific. 
The HCFA should  take full  advantage  of new data that  it is collecting,  such as HEDIS and 
CAHPSf,or  oversight  purposes. 
The HCFA is now  collecting  beneficiary-level  data through  HEDIS and CAHPS.  The agency plans 
to make plan-specific  data from these surveys available  to the public  as a way to help 
beneficiaries  choose among health plans.  These data also can be used as part of a data-driven 
monitoring  system to identify  concerns about plan performance. 
The HCFA should  require  health  plans  to routinely  submit  data on appeals and grievances. 
In 1996, we recommended  that HCFA require managed care plans to report data on appeal and 
grievance cases, including  the number of cases; the number resolved internally  and externally, 
and their outcome;  issues involved  in cases; and time needed to resolve cases.  We believe that 
these recommendations  are still  appropriate. 
15 
 We received  comments  on the draft report from the Health  Care Financing  Administration 
(HCFA).  In this section, we address issues that the agency raises in those comments.  Below  we 
summarize the major thrust of the agencys  comments  regarding  our recommendations,  and we 
offer our response in italics.  We present the full  text of  HCFA'S  comments in Appendix  A. 
Oversight  of plans  in the constantly  evolving  managed  care market. 
The HCFA concurs with  the intent of our recommendation. 
The agency indicates that its Region  IX  office  (San Francisco)  is paying  specific attention  to 
ways that managed care organizations  delegate responsibilities  to provider  networks  with  which 
they contract.  Delegated  activities  include  utilization  review,  medical  coverage determinations, 
and other activities  normally  operated by a plan itself.  This regional  office  has developed  a 
process that managed care plans can use to oversee delegated activities.  The HCFA notes that it 
will  evaluate the effectiveness of this process.  we urge  HCFA to  examination  of 
COntinUe  ClOSe 
delegated arrangements.  We believe that all regional  offices need to pay close attention  to such 
arrangements.  Should  the special monitoring  effort  underway  in Region Hprove  effective, the 
agency may wish to incorporate  this approach  into its national  monitoring  protocols. 
The HCFA notes that it evaluates mergers and acquisitions  of health plans to assess compliance  of 
new entities with  Medicare  requirements.  The agency sees no reason for a standard review  of 
these transactions  at this time.  We are pleased that HCFA is reviewing  mergers and acquisitions 
prior  to giving  its approval.  We continue  to believe that the agency should review Medicare 
operations  of these newly formed  entities shortly  after  the merger  has taken place,  rather  than 
waiting for  the full  two-year  cycle between scheduled  monitoring  visits. 
The HCFA reports that it is revising  its current monitoring  processes.  The objective  is to establish 
better methods for targeting  performance  issues within  plans and for establishing  quality 
improvement  goals.  We believe that these revisions  are a positive  step forward.  We note that 
the agency is now circulating  a draft  of a revised monitoring  guide.  This draft  includes, for 
example, new language  addressing  review  of delegated  activities,  such as those described  above. 
We also encourage  use ofperformance  data to establish  improvement  goals.  We will  continue  to 
work  with  HCFA to assess implementation,  progress,  and results. 
Making  better  utilization  of available  data 
The HCFA concurs with  our recommendation. 
The HCFA cites its development  of a Health  Plan Monitoring  System (HPMS).  The agency notes 
that much of the information  gathered under the HPMS  will  be included  in an electronic 
comparison  chart on HCFA'S  home page.  The development  of the HPMS is a positive  step, and we 
urge the agency to move forward  as rapidly  as possible  with  implementing  this management 
16 
 information  system.  We must note, however,  that the Medicare  Compare  electronic  data base is 
limited  to a description  and comparison  of plan  coverage, benefits, and premiums.  Although  an 
improvement  over previously  available  information,  Medicare  Compare  does not yet include  any 
plan performance  data, nor results from  the monitoring  review.  We recognize  that the Medicare 
Compare  data base is in the early stages, Version  1. But more can be done to include  quality 
andperformance  indicators  in that data base. 
The HCFA notes that the Balanced  Budget  Act requires managed care plans to disclose grievance 
and appeal information  when requested by beneficiaries.  We urge the agency to be even more 
proactive  and include  this information  in the Medicare  Compare system.  Because managed care 
plans  are required  to make this information  available  to individual  benejiciaries,  HCFA could 
also coordinate  the release of this information  through  its public  data base. 
The agency reports that it has developed  an electronic  database for aggregating  and reporting 
information  from monitoring  reviews.  We are pleased  that HCFA has developed such a data 
base.  We believe that it is an essential tool for  conducting  effective oversight  of managed care 
plans.  As described  by the agency, such a system can serve two functions:  One function  is to 
ensure appropriate  scheduling  around  the review process.  Certainly  this is an important  task in 
managing  the workload  associated  with  monitoring  plan performance.  The second-and  in our 
view more critical-purpose  of such a system is to assess and analyze the ongoing performance 
ofplans.  We urge HCFA to ensure that this latter  goal  of analysis receive attention  that is 
commensurate  with,  tfnot  greater,  than the scheduling  uses. 
The HCFA reports that it has developed  a new system to track beneficiary  inquiries  and 
complaints.  In our draft  report,  we had recommended  that the agency establish  and use regional 
systems to perform  this task.  Because, as the agency notes, a single system should  decrease 
conjusion  and lack of comparability  among the regions,  we are revising  our recommendation  to 
rejlect  that approach.  So long as the new tracking  system is easy to usefor  the regional  staff--if 
it avoids the cumbersomeness qf the old Benejiciary  Inquiry  and Tracking  System (BITS),  it will 
go a long way towards providing  a national  capacity  and data base. 
We also are encouraged  that HCF.-Iwill  be taking  advantage  of the HEDIS and CAHPSdata as part 
of its monitoring  system.  These data will  be sure to shed important  light  on plan performance. 
Technical  comments 
The HCFA  provides two technical  comments.  One comment relates to our concern about the 
monitoring  approach not accounting  for differences  between risk and cost-based plans.  The 
agency points  out that the Balanced  Budget  Act of 1997 prohibits  new cost contracts  and requires 
that existing  cost plans may be paid on that basis only  through  2002.  The second technical 
comment  discusses the requirements  of the Balanced  Budget  Act that phases out the opportunity 
for beneficiaries  to disenroll  from plans on a monthly  basis, substituting  instead a longer  lock in 
period.  We reference these points  in notes accompanying  the appropriate  text. Yet we also 
believe that until  these changes have been actually  implemented,  both issues we iden@  are 
concerns  to which  the agency shouldpay  some attention. 
17 
 AGENCY  COMMENTS  ON THE  DRAFT  REPORT 
This appendix  contains the complete  set of comments  from the Health Care Financing 
Administration  on this report, as well  as a companion  report,  Medicares  Oversight  of Managed 
Care: Implications  for Regional  Staffing,  (OEI-0 l-96-00  19 1). 
A-l  DEPARTMENT  OF HEALTH  &  HUMAN  SERVICES  tiealth  Care Financing  Administration 
The Administrator 
Washington,  D.C.  20201 
DATE: 
TO: 	 June Gibbs Brown 
Inspector General 
FROM: 	 Nancy4nn  Min DeParle 
WI0
Administrator 
SUBJECT: 	 Office of Inspector General (OIG) Draft Reports: Medicares Oversight of 
Managed Care-Monitoring  Plan Performance,(OEI-Ol-96-00190) and -
Implications for Regional Staf&g,  (OEI-Ol-9640191) 
We reviewed the above-referencedreportsthat addressthe Health Care Financing 
Administrations (HCFAs)  oversight of managedcare plans and staffing in the regional 
managedcare units.  The reports found that although HCFA has madea strong 
commitment to increasestaf5ng for managedcare oversight, its oversight approach is not 
structuredto keep pace with the rapidly evolving managedcare market and the majority 
of regional office (RO) staff doesnot have managedcare, data analysis, or clinical 
backgrounds. 
Our approach to improve managedcare oversight is aimed at full  compliance with the 
PresidentsHealth  Cure Consumers  Bill  of Rights.  Particularly noteworthy is our 
development of the Health Plan Monitoring System(HPMS).  This systemwill 
consolidate data obtained from monitoring reviews including: quality of care; beneficiary 
satisfaction; enrollment and disenrollment; appealsand grievances;benefits and 
premiums; and physician incentives, amongother areas. Much of the information 
gatheredunder HPMS will  be included in an electronic consumercomparison chart know 
asMedicare Compare that will  be available to beneficiaries, health insurance 
counselors,and the general public on HCFAs home page. We believe that HPMS, along 
with other initiatives describedbelow, will  improve our current health plan monitoring 
regime and ensureprogresstoward full  Bill  of Rights compliance. 
A-2 
 2 
HCFA concurswith the intent of all of the OIG recommendations. Our detailed 
commentsare as follows: 
HCFA should revise the processesthat it usesto monitor the performanceof managed 
careplans. 
We concur with the intent of the recommendation. HCFAs Region IX has paid specific 
attention to the delegation of managedcareresponsibilities that occurswhen contracting 
companiesallow provider networks to conduct utilization reviews, make coverage 
determinations, and operateother activities normally conductedby the health plan itself. 
This contractor activity hasresulted in a monitoring processfor contracting companiesto 
usewith the provider networks.  HCFA will  evaluatethe effectivenessof the processto 
determine if it will  require a similar approachfor all contracting companieswho delegate 
activities. 
HCFA evaluateseachmerger and acquisition to ensurethat the new entity complies with 
requirementsfor eligibility.  HCFA also identifies problemsthat will  affect the operation 
of any contract following  the merger, and will  delay its approval of any merger where it 
is clear that compliance with contracting requirementswill  be affected by a merger. 
Under all circumstances,the merged company is always required to meet requirements. 
Reviews occur on an ad hoc basis and HCFA seesno reasonto develop a standardreview 
processat this time.  For example, HCFA is currently in the processof determining the 
effects of the merger betweentwo of HCFAs largestMedicare managedcare contractors: 
FHP, Inc. and Pacificare, who serveover 608,000 Medicare beneficiaries. An extensive 
site visit was conducted, and corrective actionswill  be required where applicable. At the 
same.time,a large insurer purchasedthe assetsof a contracting health maintenance 
organization (HMO) with 8,000 Medicare membersto form a mergedcompany with a 
Medicare line of business. In this case,HCFA reviewed the pro forma financial 
statementsalong with the plan for the organization of the mergedcompany. No further 
evaluation was necessaryin this case. 
Under the current process,HCFA reviewers use a review guide which stipulates all 
requirementsfor contracting health plans. Methods of evaluation contained in the guide 
dictate the methods that reviewers should useto review eachspecific requirement. In 
addition, standard operating proceduresdefine the kinds of reviews that regional 
reviewers can use to conduct monitoring operations. Theseare full biennial reviews 
conductedevery 2 years, post contract site visits conductedwithin the first year of  - - 
contract operations, and focused reviews conductedat any time to determine compliance 
A-3  3 
with specific areasof operations. In addition, HCFA conductsformal investigations with 

contractedconsultantswhenever there is a needfor intensive review of multiple areasdue 

to poor overall performance. 

HCFA, however, is revising the current monitoring process. First, HCFA will  add new 

items to the guide, aswell as evaluateadditional changesto the methodsof evaluation. 

Changesto the methodsof evaluation will  considerthe types of review activities that are 

required for different types of managedcare organizations. Second,HCFA will  devise 

better methodsfor targeting performance issueswithin health plans. Third, HCFA will  set 

a direction for use of continuous quality improvementgoalswith eachhealth plan on a 

periodic basis. HCFA has obtained the servicesof a consultantwho wiIl provide 

recommendationson the overall directions of the monitoring program. The new approach 

will  consider the use of performance data to establishgoalsfor health plans on an annual 

basisso that health plans are required to improve over eachyears performance. This 

approachis similar to the approachused by commercial employer groupsto contract only 

with health plans that are capable of meeting higher goals. 

OIG Recommendation 

HCFA should take better advantageof data that are currently available to the agency as a 

way of monitoring plan performance on an ongoing basis. 

We concur and are taking stepsto ensurethat the data collection processand reporting of 

appealsand grievanceinformation are both meaningful to consumersand fair to plans. 

HCFA has already received data from Health Plan Employer Data and Information Set 

(HEDIS) 3.0 and is beginning to analyze them. HCFA is initiating activities to analyze 

plan-submitted disenrolhnent rate data. In addition to the ConsumerAssessmentof 

Health Plan Survey (CAHPS) mentioned in the Executive Summary,other activities are 

underway to capturebeneficiary disenrollment reasondatafrom the regions, the Social 

Security Administration, and plans. HCFA is alsoworking to further define the type of 

datawe will  needto collect to gain additional information about plan performance. 

HCFA is in the processof planning the developmentof a Health Plan Monitoring System 

(HPMS).  This project will  consist of the establishmentof a databaseand the 

developmentand deployment of client/server applicationsto provide HCFA central and 

regional office staff with accessto information in the databasefor the purpose of plan and 

program oversight. The HPMS will  provide HCFA with accessto quality of care 

measuresfrom HEDIS, financial data.,beneficiary appealsinformation, beneficiary 

satisfaction data from CAHPS, physician incentive data, and benefits/premium and 

A-4 
 4 
membercost sharing data. Someof the information from the HPMS will  also be included 
in a consumercomparison chart which will  be made available to the public through the 
Internet to ahow beneficiaries to make informed choicesof plans. 
Regardingthe collection and consistentreporting of accurateappealsand grievancedata, 
HCFA has securedthe servicesof an impartial, independentcontractor to reconsider 
denial determinations and to perform the necessaryfunctions associatedwith this activity. 
The contractors servicesinclude data reporting activities suchasthe onesrecommended 
by OIG.  In addition, section 1852(c)(2)(C) of the BalancedBudget Act of 1997 (BBA) 
requires Medicare+Choice (M+C) plans to disclosethe following  data upon requestby 
M+C eligible individual: (1) information on the number of grievances,determinations, 
and appeals,and (2) information on the disposition in the aggregatebf such matters. By 
requiring plans to collect and disclose internal plan-level data,the BBA lays the 
groundwork for this form of data collection by HCFA. 
HCFA has devised an electronic databasefor aggregatingand reporting information 
obtained from monitoring reviews. This databasecontains information on the number of 
monitoring reviews that are conducted, the frequency of the monitoring review, the 
timeliness of the report of review fmdings to the health plan, aswell asthe individual 
findings.  The databasecan provide reports on a national, regional, or statebasis so that 
the variations in performanceand the types of review findings can be reported. In 
addition, HCFA will  learn the most common problems, aswell asprovide trend data on 
eachplan asreview findings are entered. 
At the current time, the Regional Office SystemsWorkgroup operatesas a users group 
that modifies and provides direct data support to its regional office monitoring reviewers. 
The group facilitates the useof all available data by sharing programming and software 
programsthat manipulate available data. The group meetsmonthly via conferencecalls 
to addressnew ideas or questionsabout data or programming issuesfor all regions. 
Depending on their capabilities and needs,individual regions make use of the datareports 
that are developedby the Workgroupfor monitoring the health plans in their region. 
On a much larger scale,HCFA is establishing the HPMS.  This new systemwill 
consolidate data obtained from monitoring reviews, emolhnent and disenrollment, 
reconsideration, lEDIS  and CAHPS, aswell asbenefit and premium information. 
HCFAs goal is to design a systemthat provides data that are available for monitoring 
health plan operations. HPMS will  also provide reports that will  be useful for trend 
analysis or health plan comparisons. HPMS will  identify outhers, aswell as provide 
indicators for HCFA inquiries regarding plan performance. 
As noted in the report, not all regions are using the Beneficiary Inquiry Tracking System 
A-5  5 
(BITS).  HCFA believes that it is necessaryto establish a single systemto track inquiries 
and complaints. Allowing  eachregion to establishits own systemwill  lead to confusion 
and a lack of comparability betweenregions. To this end, HCFA has designeda 
computer systemto receive, track, and report about beneficiary inquiries.  As soon as 
programming is complete and the overall systemput in place, HCFA will  usethis system 
for tracking Medicare beneficiary inquiries. 
HEDIS and CAHPS data will  receive significant scrutiny under HPMS.  Thesedata will 
not only becomepart of the data releaseto the public in the comparability chart, but will 
also become a significant part of the monitoring processin terms of identifying outliers 
and also in terms of setting goals for continuous improvementin health plan performance. 
OIG R;.    .  . 9,(OEI s01 -96 -0019l) 
HCFA should develop, coordinate, and provide a comprehensivetraining program for 
regional office staff with responsibility for oversight of managedcare plans. 
We concur.  HCFA initiated a two-part training program in July 1997. First, HCFA 
implemented a basic training program which is aimed at new staff.  This 5-day program 
provides a description of basic regulatory requirements,aswell as the application and 
monitoring processand procedures. In addition, the program describesthe major 
componentsof review for any health plan for either the application or the monitoring 
reviews. The secondpart of the training program will  include advancedtraining for 
personswho have completed the basic program. This specialty training will  focus on 
elementsof review for five separatespecialty review areas. Theseare: legal, health 
servicesdelivery, quality assurance,fiscal soundnessand insolvency, and Medicare 
operations. 
HCFA also conducted regular training on new issuesduring 1997. In the pastyear, 
HCFA staff conducted training on point-of-service, visitor affiliate, and flexible benefit 
products, aswell as expedited appealsand the new marketing guidelines. This type of 
training has occurred not only in individual Picturetel sessionsbut also during HCFAs 
annual regional office/central office HMO conference. Training for expeditedappeals 
occurred at five different conferencesthroughout the nation to accommodateboth 
regional staff and industry personnel. 
As HCFA increasesstaff in its managedcare operations in the regional offices, we 
recommendthat the agency seekout people with experiencein managedcare, data  -
analysis, and clinical expertise. 
A-6  6 

HCFANzqumsz

We concur. HCFA has transitioned a number of staff in the regional offices to managed 

careactivities.  Whenever possible, HCFA will  identify staff with special analytical 

skills, aswell as clinical and managedcare experience. In central office, HCFAs 

reorganization has brought a significant changein the amount of resourcesthat are 

currently addressingmanagedcare issues. Previously, the Office of ManagedCarewith 

its staff of approximately 150 personsoperatedthe managedcareprogram. With the 

reorganization of HCFA, the number of personswith responsibility for managedcare 

issueshas significantly  expanded. For example, data analysis activity hasbecomethe 

major focus of one division.  Previously, HCPA had no organized componentresponsible 

for ongoing analysis of managedcare data. Two other changesinclude the transfer of 

quality assuranceissuesto the Office for Clinical Standardsand Quality and the transfer 

of beneficiary issuesto the Center for Beneficiary Services. The latter two changeswill 

bring together individuals with clinical skills for review of managedcare quality issues 

and will  bring increasedvisibility  to issuespresentedto HCFA corn advocacygroups 

who will  communicate and coordinate their activities with the Center for Beneficiary 

Services. The two changeswill  begin to more readily identify and define quality issues 

and beneficiary issuesfor review during the monitoring process. As the components 

refine their managedcare responsibilities, their counterpartsin the HCFA regional offices 

will  conduct their operational responsibilities with the health plans in their regions. 

HCFA should develop a pilot program to provide opportunities for staff developmentand 

staff sharing with managedcare plans and with beneficiary advocacygroups. 

We concur with the intent of the recommendation. For example,HCFA provided 

rotational positions for 4 weeks to six personsfrom the American Association of Health 

PlansMinority  Management DevelopmentProgram. HCFA subsequentlyhired four of 

thesepersonsbecauseof their managedcare experience. HCFA makesuse of the 

Presidential Management Intern Programin order to place personsin training assignments 

in the managedcare industry.  The interns are employed in both the central office, aswell 

asthe regional offices.  In addition, HCFA hasplaced other personsin HCFA 

managementtraining programs in managedcarecompaniesfor rotational assignments. 

HCFA will  continue to seekopportunities for staff for thesetypes of rotational 

assignments. The broadening of managedcareresponsibilities resulting from HCFAs 

reorganization will  allow HCFA staff to identify training opportunities that will  provide 

specific experiencesthat will  complementtheir skills and knowledge. 

HCFA is committed to allowing the rotational assignmentsto occur wheneverpossible. 

However, our concern with the recommendationis that HCPA has information on 

A-7  7 
currently contracting plans and on new applicants that is confidential in nature. If 
employeesof managedcare plans and advocacygroupsworked in HCFA for several 
months,they might have inappropriate accessto this confidential information.  If such a 
training/exchangeprogram were to be initiated, we would needto be surethat the 
confidential information is not accessibleto non-Federalemployeeswho are working as 
HCFA staff. 
(OFT-01B96S 0o0191) 
At the top of page 6, the report statesthat the review protocoi doesnot differentiate 
betweenplans paid on a risk basisversusthose paid on a cost basis. This is mentioned 
againon page 14, in the first paragraphof the recommendation. Pleasenote that the BBA 
provides that: (1) no new cost contractscan be signed; and (2) current cost contracting 
managedcareplans can continue under the cost option only through 2002. 
At the bottom of page 6, the report statesthat HCFA staff useddata on a plans rapid 
disenrollment rate to focus the on-site review on the plans salespractices and incentives, 
which led to requirements that the plan take corrective action. On page 16, in the second 
recommendationon that page, the report statesthat OIG hasrecommendedin the past that 
HCFA use disenrollment rates to target HMO reviews. We note that, during deliberations 
on both the 1995 and the 1997 budget reconciliation bills (which included lengthier 
lock-in  provisions), HCFA has stressed:(1) the value of monthly disenrolhnent as a 
meansfor identifying plans with high disenrollment rates; and (2) the use of high 
disenrolhnent rates as a trigger for more focused plan review to identify problems causing 
beneficiaries to disenroll at high rates. In spite of HCFAs strong support for retaining 
monthly disenrollment, the BBA placesconstraintson beneficiary options to d&enroll. 
Specifically, the current monthly disenrolhnent policy is retained through 200 I. 
However, beginning in 2002, beneficiaries will  be locked-in for longer periods of time: 
6 months in 2002, and 9 months thereafter. After 2001, monthly disenrolhnent does 
remain an option for newly eligible beneficiaries during the first 12 months of enrollment 
in a plan. 
A-8 
 ENDNOTES 
1.  Health  Care Financing  Administration,  Medicare  Managed  Care Contract  Report, 
December  1994 and August  1997.  The data shown cover only  risk plans, cost plans, and 
health care prepayment  plans.  Beneficiaries  also may enroll  in demonstration  projects,  such 
as the Social Health  Maintenance  Organization. 
2. 	 An additional  form of managed care, Health  Care Prepayment  Plans (HCPPs)  are paid in a 
similar  manner as cost plans but do not cover the Medicare  Part A services. 
3.  Under  the terms of the Balanced Budget  Act of 1997, cost-based plans are being phased 
out.  No new cost contracts may be signed, and current cost contracting  plans can continue 
under the cost option  only until  2002. 
4. 	 For some years, senior HCFA officials  have considered  moving  to a more frequent  review. 
The agency, however,  has not implemented  this change.  See, for example, HCFA 
Administrator  Bruce C. Vladeck,  Testimony  before the Special Committee  on Aging,  U.S. 
Senate, August  3, 1995. 
5.  The HCFA issued new regulations  on appeals processing  on April  30, which  means plans 
likely  will  encounter  even more difficulty  with  appeals processing  as these changes are 
implemented. 
6.  Department  of Health  and Human  Services, Office  of Inspector  General, Medicare  Risk 
HMO  Performance  Indicators,  OEI-06-91-00734,  October  1995.  It is important  to note, that 
under the Balanced  Budget  Act of 1997, the current disenrollment  policy  is retained through 
2001.  Beginning  in 2002 beneficiaries  will  be locked-in  for longer  periods of time:  6 months 
in 2002, and 9 months thereafter.  New  enrollees will  be able to use monthly  disenrollment 
during  the first  12 months of their enrollment  in a plan. 
7.  Our companion  report, Medicares  Oversight  of Managed  Care:  Implications  for 
Regional  Staffing,  OEI-0 l-96-00  191, addresses this issue in more detail. 
8. Social Security  Act  6 1855 (d). 
9.  Department  of Health  and Human  Services, Office  of Inspector  General, Medicare  Risk 
HMO  Performance  Indicators,  OEI-06-9  l-00734,  October  1995. 
10.  Department  of Health and Human  Services, Office  of Inspector  General, Medicare  HMO 
Appeal  and Grievance  Processes:  Overview  OEI-07-94-00280,  October  1995. 
B-l