Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
Lessons Learned from Medicaids Use of 
External Quality Review Organizations 
JUNE GIBBS BROWN 
Inspector General 
SEPTEMBER 1998 
OEI-01-98-00210  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. 
OEI's Boston regional office prepared this report under the direction of Mark R. Yessian, Ph.D., 
Regional Inspector General.  Principal OEI staff included: 
REGION  HEADQUARTERS 
Lynne Hostetter, Program Analyst  Wynethea Walker, Program Specialist 
To obtain copies of this report, please call the Boston Regional Office at (617) 565-1050. 
Reports are also available on the World Wide Web at our home page address: 
http://www.dhhs.gov/progorg/oei  E X E C U T I V E  S U M M A R Y

PURPOSE 
To identify lessons State Medicaid agencies have learned in using external quality review 
organizations to assist with their oversight of managed care plans. 
BACKGROUND 
The Balanced Budget Act of 1997 increases States authority to establish Medicaid managed care 
programs without obtaining Federal approval.  In exchange for this flexibility, the Act requires 
that the State Medicaid agencies contract with a qualified outside entity to conduct an annual 
review of managed care plans.  The Act refers to these outside entities as External Quality Review 
Organizations (EQROs) and provides enhanced funding for this activity. 
In response to the requirements of the Balanced Budget Act, HCFA is working with its own 
contractors to define the types of external organizations qualified as EQROs and to determine, by 
January 1, 1999, the functions these organizations will carry out.  Previously, each Medicaid 
agency could define the scope of the external review.  An agency received enhanced Federal 
funding only if it used a Peer Review Organization (PRO) as the EQRO.  This inquiry is intended 
to provide HCFA lessons learned by Medicaid agencies through their experiences with EQROs 
and offer guidance to HCFA as it defines the EQRO mandate. 
We focused on 7 State Medicaid agencies: Arizona, California, Massachusetts, Minnesota, 
Missouri, Ohio, and Washington.  These States have considerable experience in managed care or 
in working with EQROs.  We relied on 3 primary sources of data for this inspection: EQRO 
contracts from our sample agencies, EQRO reports from those agencies, and interviews with 
Medicaid officials at those agencies. 
FINDINGS 
EQRO Functions 
The State Medicaid agencies in our sample charged the EQRO with one or more of the following 
7 activities: focused studies, encounter data validation, Health Plan Employer Data and 
Information Set (HEDIS) validation, individual case review, technical assistance, evaluation of 
health plans internal quality of care studies, and administration of satisfaction surveys. 
Focused studies are the predominant EQRO function; yet Medicaid officials are increasingly 
aware of their limited value. 
All 7 of our sample Medicaid agencies contract with EQROs to carry out focused studies and 
spend far more to support this function than any of the other EQRO functions.  Focused studies 
rely on review of medical records to capture specific types of services delivered to a group of 
people, such as immunizations given to children.  On average, the agencies in our sample spent 
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iii  nearly 80 percent of their EQRO budgets on focused studies.  Yet Medicaid officials express 
concern about their limited perspective.  At best, focused studies capture a slice of care delivered 
to one or two subpopulations. 
The sample agencies are beginning to shift attention from focused studies to other functions. 
Medicaid agencies are testing ways to broaden their quality oversight to complement the 
narrowness of a focused study.  The agencies are pursuing innovative strategies in quality 
oversight that are probing the limits of what traditional EQRO contractors can do.  For example, 
in the last several years, Medicaid agencies have been turning to encounter data, health plan 
process reviews, and enrollee feedback, through surveys and focus groups, to obtain different 
perspectives on quality. 
Types of Contractors 
The sample agencies depend on the PROs to conduct focused studies.  However, they express 
reservations about the PROs expertise for other EQRO functions. 
For years the PROs have been working on behalf of the Medicare Program to improve medical 
practice by looking at medical records, identifying baselines, designing interventions and re-
measuring.  Much of this expertise is useful in conducting focused studies.  However, some 
Medicaid officials expressed reservations about the PROs expertise in performing non-traditional 
activities such as processing and verifying encounter claims, or conducting consumer interviews 
or focus groups. 
The sample agencies have found that different types of contractors can contribute to external 
quality oversight. 
We found that over the last 2 years, all of the Medicaid agencies in our sample have hired one or 
more external contractors to perform quality oversight activities.  These contractors range from 
universities and consulting groups that perform social science research and data analysis to 
marketing firms that specialize in consumer surveys and focus groups.  Although the agencies 
received no enhanced Federal matching funds for this activity, each believed it was worth the 
expense to hire a contractor with specialized experience. 
Medicaid Agency Management of EQRO Contracts 
The sample agencies have found that an effective relationship with an EQRO calls for a 
partnership. 
Quality oversight work, if it is to be effective, calls for the Medicaid agency to have an on-going, 
continuous relationship with the EQRO through each stage of the review process.  To do so, 
officials agree, the agency must work in partnership with the EQRO through each stage of the 
project. 
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iv  States have learned that having their own staff expertise in quality oversight techniques and 
experience with managed care is vital to effective contractor management. 
To work effectively with contractors in overseeing the quality of managed care, State Medicaid 
agencies must have a core of their own staff with knowledge bases and skills tailored to managed 
care environments rather than to the fee-for-service environments to which State Medicaid staff 
have been accustomed.  Medicaid agencies also must have staff who are well-versed in the latest 
quality oversight and measurement techniques to work in partnership with external contractors. 
CONCLUSION 
In this review, we have not conducted our own independent evaluation of the contributions made 
either by an official EQRO contractor or by other parties that a State Medicaid agency has 
contracted with to help it review the quality of care provided by managed care organizations. 
Thus, we cannot offer firm conclusions about which functions or types of organizations HCFA 
should qualify for the enhanced Federal reimbursement. 
However, we can make 2 observations, stemming from our review of Medicaid agency documents 
and interviews with Medicaid officials, that may be helpful to HCFA in defining the EQRO 
requirement. 
Medicaid Agencies Find Value in Using a Variety of Quality Oversight Functions.  The 
experienced Medicaid agencies that were part of our review have come to approach quality 
oversight as a patchwork of complementary strategies including focused studies of medical care, 
consumer surveys or interviews, and data analysis. 
Medicaid Agencies Prefer Using Different Types of Contractors.  These agencies have come 
to see value in engaging the services of a variety of contractors with a variety of skill sets, 
including, but not limited to, the Medicare Peer Review Organizations. 
We also wish to add a note of caution to HCFA concerning the possibility that the enhanced 
Federal funding for EQROs may create an unintended incentive to overuse external contractors at 
the expense of developing and maintaining necessary internal expertise.  State Medicaid officials 
have told us that effective quality oversight requires staff that are skilled in a variety of quality 
oversight techniques and who also possess a sophisticated knowledge of the changing health care 
marketplace.  These staff must work in partnership with contractors to guide and direct activities 
according to Medicaid agency priorities.  The HCFA must walk a fine line between fostering more 
comprehensive quality oversight and holding Medicaid agency officials accountable for the quality 
of their Medicaid programs. 
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v  T A B L E  O F  C O N T E N T S

PAGE 
EXECUTIVE SUMMARY 
INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

FINDINGS 
! Functions EQROs Perform for Medicaid Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

! Contractors Medicaid Agencies Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

! Management of External Contractors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

APPENDICES 
A: Endnotes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
 I N T R O D U C T I O N

PURPOSE 
To identify lessons State Medicaid agencies have learned in using external quality review 
organizations to assist with their oversight of managed care plans. 
BACKGROUND 
Balanced Budget Act Changes 
The Balanced Budget Act of 1997 (BBA) grants States increased authority to establish Medicaid 
managed care programs without waivers of Federal law.  In exchange for this flexibility, the Act 
requires that the States contract with an outside entity to conduct an annual review of managed 
care plans.  The Act refers to these outside entities as External Quality Review Organizations 
(EQROs). 
To facilitate effective implementation of this new EQRO requirement, the BBA calls for HCFA to 
take two important steps.  One is to define the types of external organizations that would be 
regarded as qualified as EQROs.  The other is to determine, by January 1, 1999, the functions 
these organizations would be allowed to carry out.  At present, HCFA is working with its own 
contractors to develop guidance for the States in both these areas. 
As an indication of the significance it attaches to this external review, the BBA authorizes 
enhanced Federal funding at a 75 percent matching rate for any qualified EQRO.  Previously, a 
Medicaid agency itself could define the scope of the review and could receive enhanced Federal 
funding only if the State chose a PRO as the EQRO.1  However, the BBA changed this by 
authorizing enhanced funding for any qualified entity. 
Our inquiry is intended to help HCFA provide this guidance.  It emerges from discussions with 
HCFA officials who indicated that it would be helpful to review the lessons that State Medicaid 
agencies have learned from their experiences in using EQROs and, more generally, in using 
contractors to help provide quality oversight of managed care plans. 
The Challenge of Quality Oversight 
As the emphasis on managed care has increased, State Medicaid agencies have been searching for 
effective means of providing quality oversight.  In this quest, they have found few guideposts 
beyond HCFAs Qaulity Assurance Reform Initiative (QARI) and no formulas to follow.2  In fact, 
in a rapidly changing environment, some of these agencies are themselves among the most 
experienced purchasers and overseers of managed care. 
The Medicaid agencies find a wide array of quality review functions they can rely upon, each with 
its own strengths and weaknesses.  These include focused clinical studies, collection and analysis 
of encounter data, collection and dissemination of standardized performance data, individual case 
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2  reviews, announced or unannounced surveys of health plans, surveys of beneficiaries and/or 
providers, analysis of complaints, appeals, or disenrollment trends and use of ombudsmen. 
Some of these functions can be performed by the Medicaid agency itself; some in partnership with 
other State agencies, such as public health agencies; and some under contract with outside 
parties--either the official EQRO, which would allow for the 75 percent Federal match, or another 
external party, which would be reimbursable at the regular Federal matching rate under the 
Medicaid program.  The EQRO contract that is the focus of this report is one of the vehicles that 
States can use in their mix of quality oversight efforts.  The key challenge is to determine how 
best to use it, to what extent, and how. 
METHODOLOGY 
We focused on 7 States for this inspection: Arizona, California, Massachusetts, Minnesota, 
Missouri, Ohio, and Washington.  We chose these States because they are among the States 
having considerable experience in managed care or in working with EQROs. 
The predominant focus of our inquiry is on the quality oversight activities performed by review 
organizations that have been funded at the enhanced 75 percent Federal matching rate. 
Throughout the report, we refer to them as the EQROs.  We refer to other entities that State 
Medicaid agencies contract with to help with their quality oversight more generically as 
contractors or other external review organizations. 
We relied on 3 primary sources of data in this inspection.  First, we reviewed EQRO contracts 
from each of our seven sample Medicaid agencies.  The contracts specify the tasks that the 
EQROs are to perform and the deliverables, such as reports, conferences, or medical record 
reviews.  Second, we examined EQRO reports and data from each Medicaid agency in our 
sample.  Third, we conducted structured interviews with Medicaid agency officials in each sample 
State.  We asked these officials to elaborate on the functions of the Medicaid contractor; the 
contract language, timeframes, and deliverables; and their experiences managing and working with 
contractors. 
We conducted our review in accordance with the Quality Standards for Inspections issued by the 
Presidents Council on Integrity and Efficiency. 
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3  F I N D I N G S

EQRO Functions 
The State Agencies in our sample contracted for seven EQRO functions. 
The State Medicaid agencies in our sample charged the EQRO contractor with one or more of the 
following 7 activities: focused studies, encounter data validation, Health Plan Employer Data and 
Information Set (HEDIS) validation, individual case review, technical assistance, evaluation of 
health plans internal quality of care studies, and administration of satisfaction surveys. 
Table 1 
EQRO Functions Performed in 7 Sample States 
EQRO FUNCTION  DESCRIPTION 
Focused Studies  Design and conduct a clinical quality of care study or medical audit. Among 
study topics included in the sample States are the following: 
#  childhood immunization rates, 
#  pediatric preventive care, 
#  prenatal care, 
#  EPSDT/well-child visits, 
#  childhood asthma, 
#  access to care, 
#  care for disabled populations, 
#  diabetes care, and 
#  HIV management. 
In some cases the contractor is responsible for follow-up work with health plans to 
help design and assess program improvements. 
Encounter Data  Review of medical records to verify a sample of the encounter data the Medicaid 
Validation Through Chart  agency receives from health plans. This includes a review of definitions, coding, 
Review  and reporting specifications to ensure health plans are counting the same services 
in the same way. 
Health Plan Employer  Review of medical records to verify a sample of the HEDIS data that the agency 
Data and Information Set  receives from health plans. This includes a review of definitions, coding, and 
(HEDIS) Validation  reporting specifications to ensure health plans are counting the same services in 
the same way. 
Individual Case Review  Clinical review of an individual case to determine appropriateness of prior 
medical treatment or future course of treatment. Done at the request of the 
Medicaid agency for unusual, complex, or controversial cases. 
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4  Technical Assistance to  Involves a range of activities such as clinical case review, review of inpatient 
Managed Care Plans or  stays, utilization reviews, consultation on internal clinical studies the health plan 
the Medicaid Agency  conducts, advice on follow-up actions in response to findings of a focused study, 
or organization of a quality conference for health plans. 
Evaluation of Health  Assess the appropriateness of the health plans staff, resources, and quality 
Plans Internal Quality of  measurement tools and techniques. Also assess the reliability of the data the 
Care Studies  studies produce, whether the findings are appropriately interpreted, and the 
effectiveness of the resulting corrective action. 
Consumer Satisfaction  Print and mail the survey to consumers and follow-up with a reminder phone call 
Surveys  to late responders. Compile results into a database and present to the Medicaid 
agency. 
Focused studies are the predominant EQRO function; yet Medicaid officials are increasingly 
aware of their limited value. 
All 7 of our sample Medicaid agencies contract with EQROs to carry out focused studies of one 
kind or another and spend far more to support this function than any of the other EQRO 
functions.  On average, the agencies in our sample spent nearly 80 percent of their EQRO budgets 
on focused studies.  For two agencies, it is the only function they are contracting with the EQRO 
to perform.  For a third agency, it is one of only two functions that the EQRO is responsible for 
carrying out.  No other EQRO function stands out as commonly used by the agencies in our 
sample. 
We found 3 major reasons why Medicaid agencies tend to use the EQRO to conduct focused 
studies.  First, a focused study is a contained and manageable project with findings that can easily 
be turned into improvement projects.  Second, HCFA includes focused studies as a key 
component of the Quality Assurance Reform Initiative, and it requires all Medicaid agencies with 
Section 1115 waivers to conduct focused studies as a condition of the waiver.  Finally, focused 
studies usually require a  medical record review performed by nurses or other clinical staff, just 
the sort of work Peer Review Organizations (PROs) traditionally have done.  All of our sample 
Medicaid agencies contract with a PRO as the EQRO. 
However, Medicaid officials are increasingly aware of the limited value of focused studies. 
Focused studies fail to offer a broad assessment of the care delivered to all those enrolled in the 
States Medicaid program.  At best they capture a slice of care delivered to one or two 
subpopulations.  Even if a Medicaid agency designed the perfect system to capture prenatal care 
visits or child immunizations, this is only a tiny fraction of care provided to the Medicaid 
population.  Attempts to broaden focused studies or make them more probing will almost 
certainly raise the cost significantly. 
The sample agencies are beginning to shift attention from focused studies to other functions. 
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5  Medicaid agencies are testing ways to broaden their quality oversight to complement the 
narrowness of a focused study.  Three of the seven Medicaid agencies in our sample are using the 
EQRO to validate encounter data and another is using the EQRO to validate HEDIS data. 
Another official spoke about adding HEDIS data validation and satisfaction surveys to the EQRO 
contract next year.  Yet another recently added administration of the Consumer Assessment of 
Health Plans Study (CAHPS) to its list of EQRO functions.3  The kinds of quality studies 
Medicaid agencies undertake are constantly evolving.  As one official put it, EQRO is no longer 
just a nurse reviewer doing chart reviews.  As Medicaid agencies innovate, they are probing the 
limits of what traditional EQRO contractors can do. 
Types of Contractors 
The sample agencies depend on the PROs to conduct focused studies.  However, they express 
reservations about the PROs expertise for other EQRO functions. 
For years the PROs have been working on behalf of the Medicare Program to improve medical 
practice by looking at medical records, identifying baselines, designing interventions and re-
measuring.  Much of this expertise is useful in conducting focused studies.  Indeed, 5 of the 7 
agency officials said they were very satisfied with the PRO; three had the same PRO contractor 
for 5 years or more.  However, these same Medicaid officials expressed reservations about the 
PROs expertise in performing other activities such as processing and verifying encounter claims, 
or conducting interviews or focus groups. 
In the past, PROs, working under EQRO contracts with Medicaid agencies, have sometimes 
subcontracted such functions out to others.  To claim enhanced funding, a Medicaid agency had 
to contract with other entities using a PRO as the primary contractor.  While subcontracting is a 
way to draw in needed expertise, the situation can easily get out of hand for the Medicaid agency 
if there are subcontractors to manage.  One State Medicaid official described an instance in which 
a subcontractor performed poorly at the crucial task of compiling consumer survey results.  The 
State agency was too far removed to oversee the work and influence its quality.  The Medicaid 
official would have preferred contracting directly with an organization that had experience 
conducting consumer surveys.  This year, the PRO will compile the survey results, despite its lack 
of expertise in the area. 
The sample agencies have found that many different types of contractors can contribute to 
external quality oversight. 
We found that over the last 2 years, all 7 Medicaid agencies in our sample hired another 
contractor to perform quality oversight activities.  They contracted with six different types of 
contractors besides the PRO: organizations with health services research experience, universities, 
consulting groups, claims or data groups, medical review organizations, and marketing or survey 
firms.  In addition four of our seven sample Medicaid agencies have arrangements with other 
State agencies, such as the Departments of Health, Mental Health, or Data and Audit to oversee 
Medicaid program quality.  None of the Medicaid agencies receive enhanced funding for these 
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6  activities, yet they are all important pieces of the agencys quality oversight. 
The activities range from administering consumer surveys to conducting specialized focus groups, 
validating claims data to monitoring drug utilization, and from monitoring length of stay in mental 
health facilities to conducting preadmission screening for hospitalizations.  Although the agencies 
received no enhanced Federal matching funds for these activities, each believed it was worth the 
expense to hire a contractor with specialized experience. 
Administering surveys and validating claims or encounter data were by far the most common 
functions that our Medicaid agencies used other contractors to perform.  Six of the 7 Medicaid 
agencies in our sample conduct consumer satisfaction surveys and none uses the PRO.  Two have 
subcontracts through the PRO, three have separate contracts, and one does the survey in-house. 
In addition, 5 of the Medicaid agencies validate encounter data using an external contract or State 
agency staff; only 2 use the PRO. 
Some Medicaid agencies are using the other contractors to perform unusual or specialized 
functions.  For example, one Medicaid agency hired a survey research firm, at the regular Federal 
funding rate, to conduct focus group interviews with recipients.  The firm specialized in unusual 
projects, and had a staff of foreign language moderators and special equipment to conduct 
telephone focus groups in rural areas.  Two other agencies hired contractors at the regular 
Medicaid funding rate to collect, process or validate encounter data.  Another Medicaid agency is 
using an external contractor to develop ambulatory patient groupings that work for both 
reimbursement and quality oversight.  This complex project requires developing a new method of 
documenting and coding visits using claims data.  This same agency has another contractor that is 
conducting analysis on drug utilization to develop a quality oversight approach to manage the 
pharmacy benefit. 
Medicaid Agency Management of EQRO Contracts 
The sample agencies have found that an effective relationship with an EQRO calls for a 
partnership. 
Quality oversight work, if it is to be effective, calls for the Medicaid agency to have an on-going, 
continuous relationship with the EQRO through each stage of the review process.  Our sample 
agencies agree that the Medicaid agency must be a part of the inception, design and follow-
through of the project.  It must be ready to work with a contractor to make changes.  The 
Medicaid agency and contractor need to develop enough rapport that they can effectively discuss, 
and as necessary modify, the agencys intent in light of operational realities.  One Medicaid official 
gave us an example of adapting to sudden change.  The Medicaid agency planned to enroll 
disabled recipients into managed care plans, but at the last minute the State legislature reversed 
course.  The agency had already signed a contract with the EQRO to study the effects of the new 
managed care expansion.  The two rewrote the scope of work together to reflect the changed 
circumstances. 
Quality oversight is a long-term undertaking.  One State official noted, it is best to leave an 
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7  EQRO in place for a few years to get over the learning curve and really reap the benefit of the 
review.  It is difficult for a new contractor to pick up in the middle of an improvement plan if it 
did not perform the original work.  Quality oversight techniques are constantly evolving.  The 
agency and contractor need to become comfortable enough with one another that each can learn 
from the others innovations, while maintaining an appropriate and balanced working relationship. 
The sample agencies have learned that having their own staff expertise in quality oversight 
techniques and experience with managed care is vital to effective contractor management. 
Medicaid agencies need people with expertise, such as applied research, design, and database 
management skills, in addition to a solid grasp of managed care and the health care market.  Most 
State Medicaid programs have been shifting their enrollees from traditional fee-for-service health 
care to managed care arrangements.4  This rapid and fundamental change has forced Medicaid 
agencies to retool themselves, much like private corporations do when entering new markets or 
introducing new product lines.  As we note in a previous report, Medicaid agencies face many 
organizational challenges in becoming prudent purchasers of high quality, managed care.5 
Medicaid agency staff must be able to interact with the EQRO contractor as peers working 
toward a common goal of reviewing and improving the Medicaid program.  Agency officials tell 
us they are constantly communicating with the contractor to specify what the review should 
cover, give feedback on the details of the review methodology, understand and approve the 
analysis techniques, and keep abreast of findings.  Medicaid officials find that if they fail to ask the 
contractor probing questions, or to determine how best to follow-up on what the contractor has 
found, their effectiveness as partners is compromised. 
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8  C O N C L U S I O N

As we noted at the beginning of this report, HCFA must define the types of external organizations 
qualified as EQROs and determine, by January 1, 1999, the functions these organizations will 
carry out.  In this review, we have not conducted our own independent evaluation of the 
contributions made either by an official EQRO contractor or by other parties that a State 
Medicaid agency has contracted with to help it review the quality of care provided by managed 
care organizations.  Thus, we cannot offer firm conclusions about which functions or types of 
organizations HCFA should qualify for the enhanced Federal reimbursement. 
However, we can make 2 observations, stemming from our review of Medicaid agency documents 
and interviews with Medicaid officials, that may be helpful to HCFA in defining the EQRO 
requirement. 
Medicaid Agencies Find Value in Using a Variety of Quality Oversight Functions.  The 
experienced Medicaid agencies that were part of our review have come to approach quality 
oversight as a patchwork of complementary strategies including focused studies of medical care, 
consumer surveys or interviews, and data analysis. 
Medicaid Agencies Prefer Using Different Types of Contractors.  These agencies have come 
to see value in engaging the services of a variety of contractors with a variety of skill sets, 
including, but not limited to, the Medicare Peer Review Organizations. 
We also wish to add a note of caution to HCFA concerning the possibility that the enhanced 
Federal funding for EQROs may create an unintended incentive to overuse external contractors at 
the expense of developing and maintaining necessary internal expertise.  State Medicaid officials 
have told us that effective quality oversight requires staff that are skilled in a variety of quality 
oversight techniques and who also possess a sophisticated knowledge of the changing health care 
marketplace.  These staff must work in partnership with contractors to guide and direct activities 
according to Medicaid agency priorities.  The HCFA must walk a fine line between fostering more 
comprehensive quality oversight and holding Medicaid agency officials accountable for the quality 
of their Medicaid programs. 
9
 A P P E N D I X  A

1. Prior to the BBA, a Medicaid agency had to select an EQRO that was either a PRO or a PRO-
like entity, to qualify for enhanced Federal funding.  HCFA determined whether an entity was 
PRO-like on a case-by-case basis and at the request of a Medicaid agency. 
2. HCFA introduced the Quality Assurance Reform Initiative (QARI) in 1993 to guide State 
Medicaid agencies as they developed methods and standards for monitoring the quality of care 
provided to Medicaid managed care enrollees.  QARI provides a general approach for Medicaid 
agencies to follow, but does not offer specific tools or methodologies for agencies to use.  The 
HCFA is currently revising the QARI standards. 
3. The Consumer Assessment of Health Plans Study (CAHPS) is a standardized managed care 
enrollee satisfaction survey. 
4. The HCFA web page (www.hcfa.gov/medicaid) shows national Medicaid managed care 
enrollment climbing from 9.53% in 1991 to 47.82% in 1997. 
5. Department of Health and Human Services, Office of Inspector General, Retooling State 
Medicaid Agencies for Managed Care, OEI-01-95-00260, August 1997, addresses this issue in 
more detail. 
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A - 1