Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

MEDICARE’S OVERSIGHT OF 

MANAGED CARE: 

IMPLICATIONS FOR REGIONAL STAFFING 

JUNE GIBBS BROWN 

Inspector General 

APRIL 1998 

OEI-01-96-00191 
OFFICE OF INSPECTOR GENERAL 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, is to 

protect the integrity of the Department of Health and Human Services programs as well as the 

health and welfare of beneficiaries served by them. This statutory mission is carried out through 

a nationwide program of audits, investigations, inspections, sanctions, and fraud alerts. The 

Inspector General informs the Secretary of program and management problems and recommends 

legislative, regulatory, and operational approaches to correct them. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) is one of several components of the Office of 

Inspector General. It conducts short-term management and program evaluations (called 

inspections) that focus on issues of concern to the Department, the Congress, and the public. The 

inspection reports provide findings and recommendations on the efficiency, vulnerability, and 

effectiveness of departmental programs. 

OEI’s Boston Regional Office prepared this report under the direction of Mark R. Yessian, Ph.D., 

Regional Inspector General. Principal OEI staff included: 

Re@on Headauarters 

Russell Hereford, Ph.D., Project Leader Stuart Wright, Program Specialist 

Nicola Pinson 

Kenneth Price 

To obtain copies of this report, please contact the Boston Regional Office at 617-565-1050 

or by Fax at 617-565-3751 

Reports are also available on the World Wide Web at our home page address: 

http://www.dhhs.gov/progorg/oei 
PURPOSE 

To assess how the Health Care Financing Administration’s regional offices are staffing to meet 

the challenges of monitoring the growing number of managed care plans that have Medicare 

Contracts. 

BACKGROUND 

The scope and speed of growth in Medicare managed care presents fundamental challenges to 

HCFA staff responsible for oversight of managed care plans. As of February, 1998,439 plans 

counted over 6 million beneficiaries as members, a 90 percent increase since December 1994. 

Ideally, managed care’s capitated payment leads to innovation in providing cost-effective, high 

quality health care. However, the economic incentives of operating within a fixed budget may 

encourage plans to limit access to needed care in the interest of increasing profits. This incentive 

means that HCFA has a particular responsibility to ensure that beneficiaries’ access to services is 

protected. The 10 HCFA regional offices carry out direct oversight of managed care plans. 

Regional staff confront a much broader set of responsibilities as they oversee managed care plans 

than they faced in the traditional Medicare fee-for-service program. For example, they may need 

to evaluate multiple aspects of plan operations such as the quality of services delivered, finances, 

marketing, and beneficiary access to services. 

Our review is based on data on staffing levels provided by HCFA regional offices and on 

interviews with those staff, as well as with representatives of managed care plans and beneficiary 

advocacy organizations. 

FINDINGS 

The HCFA regional offices have made a strong commitment to increase staffing for 

managed care oversight. 

In response to an increase from 244 to 336 Medicare managed care plans between 

December 1994 and December 1996, HCFA regional managed care staff doubled from 59 

to 120 people. 

The number of managed care staff grew in every region, with increases ranging from 3 to 

11 staff. 

However, the vast majority of the new staff lack experience with managed care. 

Only 3 of the 71 staff hired in the last 2 years have work experience in health 

i 
maintenance organizations. 

Sixty of these staff came from other components of HCFA, with experience primarily in 

the fee-for-service program. Although these staff are highly knowledgeable about 

Medicare, they do not have an extensive understanding of the managed care system. 

The newness of the staff to managed care indicates a need for training to carry out 

effective oversight. However, data provided by eight regional offices show that funds for 

training managed care staff decreased from an average of $784 per person in fiscal year 

1995 to $396 per person budgeted for fiscal year 1997. 

The managed care units in many regional offices lack staff with specialized backgrounds 

that could enhance oversight of managed care plans. 

Five of the 10 regional offices lack staff with clinical backgrounds. Of the 120 staff 

working in managed care, only 13 have clinical backgrounds. 

Five of the 10 regional offices lack staff with work experience in health maintenance 

organizations. Only seven of the 120 staff have such experience. 

Four of the 10 regional offices lack staff with data analysis skills. Only nine of the 120 

staff have training and experience with data analysis. 

RECOMMENDATIONS 

We recommend that HCFA develop, coordinate, and provide a comprehensive training 

program for regional office staff with responsibility for oversight of managed care plans. 

As HCFA increases staff in its managed care operations in the regional offices, we 

recommend that the agency seek out people with experience in managed care, data 

analysis, and clinical expertise. 

We recommend that HCFA develop a pilot program to provide opportunities for staff 

development and staff sharing with managed care plans and beneficiary advocacy groups. 

COMMENTSONTHEDRAFTREPORT 

The HCFA provided comments on the draft report. The agency concurred with our first two 

recommendations, and with the intent of our third recommendation. We are encouraged that the 

agency reports it is moving forward in these areas. We believe it is important that the agency 

address all aspects of our recommendations. These aspects include substantive training on 

managed care issues and methods to improve staffs ability to conduct the monitoring process 

effectively. Our recommendation also seeks to ensure that expertise in managed care, clinical, 

and data analysis reside in the front line regional offices, as well as in the HCFA central office. 

ii 
PAGE 

EXECUTIVE SUMMARY 

INTRODUCTION ............................................................ 1 

FINDINGS 

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

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

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

RECOMMENDATIONS ....................................................... 7 

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

APPENDICES 

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

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

PURPOSE 

To assess how the Health Care Financing Administration’s regional offices are staffing to meet 

the challenges of monitoring the growing number of managed care plans that have Medicare 

contracts. 

BACKGROUND 

Growth of Medicare Managed Care 

As of February 1, 1998, 6 million Medicare beneficiaries-- 14 percent of the total--were enrolled 

in 439 managed care plans that participate in Medicare, up from 3.1 million in 244 plans in 

December 1994. Medicare paid almost $26 Billion to managed care plans for fiscal year 1997, 

up from $19 Billion for all of fiscal year 1996. By all indications, this rate of growth will 

continue. Thirty one plans are seeking initial approval for Medicare contracts, and 29 plans are 

seeking to expand their service areas. 

Not only has the overall scope of Medicare managed care grown, but expansion has occurred in 

new areas of the country. For many years, the Western States were the bastion of managed care, 

both generally and within the Medicare program. Now all regions of the nation are seeing rapid 

growth in Medicare managed care. 

In addition, Medicare managed care plans increasingly are evolving from staff models to more 

loosely organized provider networks, such as independent practice associations (IPAS). Since 

December 1994, the number of IPA type plans grew by almost 90 percent from 133 to 251 plans 

in August 1997, and group model plans increased by 60 percent from 79 to 125. In contrast, staff 

model plans grew from 29 to 32. 

New Challenges for HCFA Staff 

Managed care plans provide health care services using a fundamentally different framework than 

the traditional fee-for-service program that HCFA operates. The fee-for-service program 

reimburses individual health care providers according to specific services provided to 

beneficiaries. Managed care plans, on the other hand, receive monthly capitated payments from 

HCFA with which they manage both the delivery and financing of health care services. 

Ideally, managed care’s capitated payment leads to innovation in providing cost-effective, high 

quality health care. However, the economic incentives of operating within a fixed budget may 

encourage plans to limit access to needed care in the interest of increasing profits. This incentive 

means that HCFA has a particular responsibility to ensure that beneficiaries’ access to services is 

protected. 

Regional staff confront a much broader set of responsibilities as they oversee managed care plans 

1 
than they had faced in the fee-for-service program. Staff may need to evaluate multiple aspects 

of plan operations such as the quality of services delivered, financial arrangements, marketing, 

and beneficiary access to services. They must have detailed understanding in the complexity of 

managed care in order for meaningful inquiry into plan operations. They should also be closely 

attuned to the relationships between doctors, hospitals, and plans in the local health care market. 

The HCFA ‘s Organization for Managed Care Oversight 

The 10 HCFA regional offices directly oversee the performance of managed care plans, with 

support from HCFA'S central office. Each regional office has substantial latitude with respect to 

how it organizes for managed care oversight and how it deploys staff. It is important to 

recognize that oversight of Medicare managed care plans is only one function that the regional 

offices perform. As demands on the managed care side grow, these offices must continue to 

carry out their other responsibilities. These other responsibilities include oversight of fiscal 

intermediaries and carriers, performing and overseeing survey and certification activities, 

working with States on Medicaid issues, and addressing beneficiary inquiries, among other 

duties. 

Effective July 1997, HCFA reorganized its internal structure. This may well affect how the 

managed care program is administered in the central office and, quite possibly, in the regions. 

Under the new organizational structure, many managed care functions are part of the new Center 

for Health Plans and Providers. 

METHODOLOGY 

We surveyed the 10 regional offices to obtain information on their staffing levels for oversight of 

managed care plans. 

In addition, we gathered extensive information from site visits to three HCFA regions: Region 6 

(Dallas), Region 9 (San Francisco), and Region 10 (Seattle). We also conducted structured 

telephone interviews with staff responsible for managed care oversight in the other seven HCFA 

regional offices. In addition, we interviewed staff in the HCFA Office of Managed Care in 

Baltimore. 

We gathered additional information on HCFA'S oversight of managed care through structured 

telephone interviews with representatives of beneficiary advocacy groups and managed care 

plans. In total, we interviewed individuals associated with 11 managed care plans and 13 

beneficiary advocacy organizations. 

We conducted our review in accordance with the Quality Standards for Inspections issued by the 

President’s Council on Integrity and Efficiency. 

2 
THEHCFAREGIONALOFFICESHAVEMADEASTRONGCOMMlTMENTTOINCREASESTAFFING 

FORMANAGEDCAREOVERSIGHT. 

0 In response to an increase from 244 to 336 Medicare managed care plans between 

December 1994 and December 1996, HCFA regional managed care staff doubled 

from 59 to 120 people. 

0 The number of managed care staff grew in every region, with increases ranging 

from 3 to 11 staff. 

0 Regional managed care officials anticipate modest increases (to 138 staff) through 

December 1997, even though 70 applications for new contracts are pending as of 

August 1997. 

Even though the agency faces current budget and resource constraints, the regional offices have 

increased staff responsible for managed care oversight. This demonstrates HCFA'S considerable 

commitment to meet the growing demands of managed care. 

Two ways to look at the impact of increasing the staff are the number of plans and the number of 

beneficiaries per staff member. The number of plans per staff member decreased from an 

average of 4.1 in December 1994 to 2.8 in December 1996. The number of plans per staff 

member ranges from 2.0 in one region to 3.6 in two regions. The average number of 

beneficiaries per staff member also decreased between December 1994 and December 1996 from 

5 1,320 to 40,067. We recognize that these measures do not fully capture the actual work 

involved for regional staff. Overall, however, the figures demonstrate an increase in the number 

of staff dedicated to individual plans and beneficiaries. 

An important implication of this growth is the number of new staff in each region. In 5 of the 10 

regions at least half the current staff are new to the managed care units since December 1994. 

Two extreme examples of the dramatic increase in staff are: In one region, staff increased from 1 

member in December 1994 to 9 members in December 1996. Another region grew from 4 staff 

members in December 1994 to 15 members in December 1996. 

Regional managed care teams reported they expect a total increase of 18 staff by December 1997. 

Projected increases range from 0 to 4 staff in each region. Although Medicare contracts with 

plans will continue to increase, data on projected staffing levels indicate that only limited growth 

will take place among regional staff. 

HOWEVER,THEVASTMAJORITYOFTHENEWSTAFFLACKEXPERIENCEWITHMANAGEDCARE. 

0 Only 3 of the 71 staff hired in the last 2 years have work experience in health 

maintenance organizations. 

3 
l 60 of these staff came from other components of HCFA, with experience primarily in 

the fee-for-service program. 

0 The newness of the staff to managed care indicates a need for training to carry out 

effective oversight. However, data provided by 8 regional offices show that funds 

for training managed care staff decreased from an average of $784 per person in 

fiscal year 1995 to $396 per person budgeted for fiscal year 1997. 

Managed care differs from the traditional fee-for-service program that HCFA operates. Oversight 

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

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

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

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

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

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

delivery in a managed care setting. 

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

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

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

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

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

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

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

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

beneficiaries. 

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

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

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

described training activities as, “it’s basically on the job training.” In perhaps an extreme case, 

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

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

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

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

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

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

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

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

stress on their workloads as well. 

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

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

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

4 
physicians, how to pull and target specific types of samples, and how to review records. Second, 

they outlined needs for detailed training on managed care itself, including education in areas such 

as contracts, delegation, the different forms that managed care can take, the incentives of the 

different systems, and important areas to look for when on-site. 

THEMANAGEDCAREUNITSINMANYREGIONALOFFICESLACKSTAFFWITHSPECIALIZED 

BACKGROUNDSTHATCOULDENHANCEOVERSIGHTOFMANAGEDCAREPLANS. 

0 Five of the 10 regional offices lack staff with clinical backgrounds. Of the 120 staff 

working in managed care, only 13 have clinical backgrounds. 

Many of the staff in the regions and plan representatives indicated the importance of clinical 

insight to understand the actual services delivered to beneficiaries. Current oversight activities 

focus largely on the review of plan processes (e.g., if the correct papers were signed, if forms 

were sent out on time). Yet, staff as well as plans repeatedly cited clinical knowledge as an 

important asset to evaluate quality aspects of managed care. In some regions, staff with clinical 

backgrounds add an important component of expertise to the managed care unit. Only a few 

regions viewed access to clinical expertise from outside entities when needed as adequate. 

Staff cited two primary areas where clinical expertise could contribute important information to 

evaluate plan activities. First, oversight of the medical services that plans deny to beneficiaries 

requires staff to review information that is based on clinical decisions. Current evaluation of 

service denials focuses on information such as whether the plans sent appeals language to 

beneficiaries on time. The review does not look at the appropriateness of denials, an aspect of 

oversight that many staff indicated would greatly contribute to their understanding of the services 

provided or denied to beneficiaries. 

Second, many staff indicated that clinical expertise would benefit the review of plan medical 

policies. The services that a plan delivers to beneficiaries depends entirely upon the plan’s 

medical policies. Because one of the incentives of managed care is to limit services, 

understanding plan medical policies provides fundamental information to evaluate the quality of 

services that they provide. However, regional staff reported that no one from HCFA reviews or 

approves plan medical policies. 

Several plans indicated that HCFA needs to move the focus in oversight measurements from 

procedural issues toward clinical outcome measurements. A representative of one plan stated, 

“They’re still looking at it like it’s fee-for-service: they look at claims, audit finances, and check 

to see that processes are followed.” However, managed care calls for closer attention to clinical 

concerns, especially since the same organization that HCFA pays is also in charge of the delivery 

of care. 

0 Five of the 10 regional offices lack staff with work experience in health maintenance 

organizations. Only 7 of the 120 total staff have such experience. 

Effective oversight of managed care plans requires staff with familiarity in the intricacies of the 

5 
managed care environment. One representative of an advocacy group summarized this 

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

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

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

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

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

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

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

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

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

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

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

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

care. 

Four of the 10 regional offices lack staff with data analysis skills. Only 9 of the 120 

total staff have training and experience with data analysis. 

Effective use of data is becoming increasingly imperative for HCFA to manage oversight of the 

growing numbers of plans with which the agency has contracts. Already, HCFA collects a 

substantial amount of information that could be used to keep track of plan activities. (Our 

companion report Medicare’s Oversight of Managed Care: Monitoring Plan Performance, OEI0 l-96-00 190, addresses the opportunities for HCFA to use data for oversight purposes.) The HCFA 

is also moving toward a data driven system with the introduction of both HEDIS 3.0 and CAHPS in 

1997. 

Based on interviews with regional staff, we identified four ways that data could be used to assess 

plan performance: 1) Monitoring internal trends in plan performance over time, 2) Assessing 

plan performance against regional norms, 3) Comparing plans with other plans in the local 

market, and 4) Comparing plans with national norms. 

Staff who are able to understand and use data play an increasingly critical role in regional offices 

to make effective use of the information that the agency collects. In one region, for example, all 

members of the staff are able to understand and analyze data; some members practice basic skills 

and others possess extensive expertise. 

Overall, regional staff told us that they recognized the potential uses of data for oversight 

purposes, yet they underlined the lack of current skills among staff in the office to make use of 

this data. One staff member summarized, “We have to stop and look at skill sets. We can’t just 

keep throwing bodies at the work load. We need to have a data person.” 

6 

0 
RECOMMENDATIONS 

The HCFA is now experiencing a major shift into managed care. Both the number of managed 

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

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

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

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

background within the agency. 

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

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

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

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

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

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

needs for overseeing managed care. 

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

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

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

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

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

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

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

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

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

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

THE HCFA SHOULD DEVELOP, COORDINATE, AND PROVIDE A COMPREHENSIVE TRAINING 

PROGRAM FOR REGIONAL OFFICE STAFF WITH RESPONSIBILITY FOR OVERSIGHT OF MANAGED 

CARE PLANS. 

We believe it is essential that HCFA make a substantial commitment in this area. Without such a 

commitment, we are seriously concerned that the agency’s oversight efforts could be seriously 

compromised. 

We believe that the HCFA central office should serve as the focal point for this effort, because of 

its national overview of the Medicare managed care program. This training program should be a 

broad-based effort that addresses multiple aspects of managed care delivery and financing. 

During our discussions with regional office staff, we heard of multiple topics that should form 

the basis for such training. These suggestions included comprehensive training on organization, 

financing and management of managed care plans; understanding utilization management 

protocols; interviewing techniques; sampling strategies; and methods of investigation. 

7 
This training program should involve faculty members external to the HCFA central office staff. 

Both the design and the conduct of the training program should draw on multiple sources of 

faculty, in particular: 

0 The HCFA regional office staff who have substantial experience in managed care 

oversight. Those staff who have been performing hands-on oversight and establishing 

innovative approaches to that task can bring real life experience to the unique issues and 

concerns that must be addressed in performing effective oversight of managed care plans. 

0 Representatives of the beneficiary advocacy community. Beneficiary advocacy groups 

bring concerns and viewpoints to Medicare managed care that will be found neither 

within the HCFA staff nor within the managed care plans. Advocates often are on the 

front lines in helping beneficiaries deal with the complexities of negotiating problems 

with managed care plans. As a result, they can provide HCFA with clear insights into 

understanding the managed care industry from beneficiaries’ points of view. 

0 Representatives of the managed care community. Staff of managed care plans may be in 

the best position to educate HCFA staff on the nuances of how managed care is organized 

and delivered. This source of expertise could provide a firm educational foundation for 

the HCFA staff. 

The HCFA can be flexible in how it establishes and conducts these educational sessions. We 

encourage the agency to examine alternate formats, including central site conferences, single or 

multi-regional training sessions, and video conference formats. 

As HCFA INCREASES STAFF IN ITS MANAGED CARE OPERATIONS IN THE REGIONAL OFFICES, WE 

RECOMMEND THAT THE AGENCY SEEK OUT PEOPLE WITH EXPERIENCE IN MANAGED CARE, 

DATA ANALYSIS, AND CLINICAL EXPERTISE. 

Having these types of skills available as a staff resource will provide important avenues of 

insight for HCFA as the agency carries out oversight of managed care plans. As we note above, 

we recognize the constraints of the Federal personnel system and the ongoing budget restrictions 

under which the agency operates. Nevertheless, we believe that effort is warranted to fill at least 

some open positions by attracting individuals with these skills as a way to complement the 

existing expertise of HCFA managed care staff. 

WE RECOMMEND THAT HCFA DEVELOP A PILOT PROGRAM TO PROVIDE OPPORTUNITIES FOR 

STAFF DEVELOPMENT AND STAFF SHARING WITH MANAGED CARE PLANS AND WITH 

BENEFICIARY ADVOCACY GROUPS. 

Hands-on experience with managed care plans can provide HCFA staff with important 

understanding of how this delivery system works. A number of the managed care plans that we 

interviewed indicated their willingness to participate in such an effort. From their point of view, 

a monitoring staff that is expert in managed care can be expected to provide efficient and 

meaningful oversight. We see no reason that this concept could not also be extended to 

8 
beneficiary advocacy groups. 

Our recommendation encourages HCFA to explore in detail some type of internship or staff 

exchange program with managed care plans or advocacy groups. We believe that the benefits of 

such an approach could be achieved by encouraging selected HCFA staff to work for a limited 

time--6 months, for example--with an advocacy group or managed care plan. Vice versa, staff 

from those organizations could also serve an internship at HCFA for some period of time. The 

outgrowth of such an effort would be to enhance the sharing of information among the different 

organizations and, from HCFA'S point of view could well lead to increased skills and knowledge 

in assessing managed care plans’ operations. 

We believe that any such pilot effort should contain an evaluation component. If the evaluation 

shows positive benefits from this program, we believe that HCFA would wish to expand it more 

broadly. 

9 
COMMENTS ON THE DRAFT REPORT 

We received comments on the draft report from the Health Care Financing Administration 

(HCFA). In this section, we summarize the major thrust of the agency’s comments regarding our 

recommendations, and we offer our response in italics. The HCFA'S complete comments appear 

in Appendix A. 

Comprehensive training 

The HCFA concurs with our recommendation. The agency reports that it established a training 

program in 1997 that addresses many areas of Medicare health plan operations. We are 

encouraged that the agency has movedforward with a training program. However, we believe 

this type of training should include subjects in addition to those that HCFA describes in its 

response. As we noted in the draft report, HCFA staff responsible for monitoring plans identified 

a number of additional topics that they view as important to effective oversight. These topics 

comprise two broad areas.. (1) substantive issues related to managed care, such as utilization 

management, organization, andfinancing of plans; and (2) methods to improve the monitoring 

review itself: such as interviewing techniques, sampling strategies, and methods of investigation. 

Staff expertise and experience 

The HCFA concurs with our recommendation. The agency reports that it is significantly 

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

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

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

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

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

changes arisingfiom HCF‘4 s recent reorganization, and we trust that these changes will be 

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

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

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

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

Pilot Program 

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

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

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

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

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

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

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

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

10 
APPENDIX A 

AGENCY COMMENTS ON THE DRAFT REPORT 

This appendix contains the complete set of comments from the Health Care Financing 

Administration on this report, as well as a companion report, “Medicare’s Oversight of Managed 

Care: Monitoring Plan Performance,” (OEI-0 l-96-001 90). 

A-l 
DEPARTMENT OF HEALTH %LHUMAN SERVICES liealth Care Financing Administration 

The Admmistrator 

Washington, D.C. 20201 

DATE: 

TO: JuneGibbsBrown 

InspectorGeneral 

FROM: Nancy-AnnMin DeParletJw0 Administrator 

SUBJECT: Office of InspectorGeneral(OIG) Draf3Reports:“Medicare’sOversightof 

ManagedCare-Monitoring PlanPerformance,(OEI-01-9640190)andImplicationsfor RegionalStaffing,(OEI-01-96-00 191)” 

Wereviewedthe above-referencedreportsthataddresstheHealthCareFinancing 

Administration’s(HCFA’s) oversightof managedcareplansandstaf5ngin theregional 

managedcareunits. ThereportsfoundthatalthoughHCFA hasmadea strong 

commitmento increasestafIingfor managedcareoversight,its oversightapproachis not 

structuredto keeppacewith the rapidly evolvingmanagedcaremarkeGandthemajority 

of regionaloffice (RO) staff doesnot havemanagedcare,dataanalysis,or clinical 

backgrounds. 

Ourapproachto improvemanagedcareoversightis aimedat full compliancewith the 

President’sHeaith Care Consumers ’ Bill of Rights. Particularlynoteworthyis our 

developmentof the HealthPlanMonitoring System(HPMS). This systemwill 

consolidatedataobtainedfrom monitoringreviewsincluding:quality of care;beneficiary 

satisfaction;enrollmentanddisemollment;appealsandgrievances;benefitsand 

premiums;andphysicianincentives,amongotherareas.Much of theinformation 

gatheredunderHPMSwill be includedin anelectronicconsumercomparisonchartknow 

as“MedicareCompare”thatwill be availableto beneficiaries,healthinsurance 

counselors,andthegeneralpublic on HCFA’s homepage. We believethat HPMS,along 

with otherinitiativesdescribedbelow,will improveour currenthealthplanmonitoring 

regimeandensure progresstowardfidl Bill of Rights compliance. 

A-2 
- - 

2 

HCFA concurswith the intent of all of the OIG recommendations. Our detailed 

commentsare as follows: 

,, 90) . GS 

HCFA should revise the processesthat it usesto monitor the performance of managed 

careplans. 

We concur with the intent of the recommendation. HCFA’s Region IX has paid specific 

attention to the delegation of managedcareresponsibilities that occurswhen contracting 

companiesallow provider networks to conduct utilization reviews, make coverage 

determinations, and operate other activities normally conductedby the health plan itself. 

This contractor activity has resulted in a monitoring processfor contracting companiesto 

usewith the provider networks. HCFA will evaluatethe effectivenessof the processto 

determine ifit will require a similar approachfor all contracting companieswho delegate 

activities. 

HCFA evaluateseachmerger and acquisition to ensurethat the new entity complies with 

requirementsfor eligibility, HCFA also identifies problemsthat will affect the operation 

of any contract folIowing the merger, and will delay its approval of any merger where it 

is clear that compliance with contracting requirementswi.lI be affected by a merger. 

Under all circumstances,the merged company is always required to meet requirements. 

Reviews occur on an ad hoc basis and HCFA seesno reasonto develop a standardreview 

processat this time. For example, HCFA is currently in the processof determining the 

effects of the merger between two of HCFA’s largestMedicare managedcare contractors: 

FHP, Inc. and Pacificare, who serveover 608,000 Medicare beneficiaries. An extensive 

site visit was conducted, and corrective actionswill be required where applicable. At the 

same.time,a large insurer purchasedthe assetsof a contracting health maintenance 

organization (HMO) with 8,000 Medicare membersto form a merged company with a 

Medicare line of business. In this case,HCFA reviewed the pro forma financial 

statementsalong with the plan for the organization of the mergedcompany. No further 

evaluation was necessaryin this case. 

Under the current process,HCFA reviewers use a review guide which stipulates all 

requirementsfor contracting health plans. Methods of evaluation contained in the guide 

dictate the methods that reviewers should useto review eachspecific requirement. In 

addition, standardoperating proceduresdefine the kinds of reviews that regional 

reviewers can use to conduct monitoring operations. Theseare full biennial reviews 

conductedevery 2 years, post contract site visits conductedwithin the first year of 

contract operations, and focused reviews conductedat any time to determine compliance 

A-3 
3 

with specific areasof operations. In addition, HCFA conductsformal investigations with 

contractedconsultantswhenever there is a need for intensive review of multiple areasdue 

to poor overall performance. 

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

items to the guide, aswell as evaluateadditional changesto the methods of evaluation. 

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

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

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

a direction for use of continuous quality improvement goalswith eachhealth plan on a 

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

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

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

basisso that health plans are required to improve over eachyear’s performance. This 

approachis similar to the approach used by commercial employer groups to contract only 

with health plans that are capable of meeting higher goals. 

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

way of monitoring plan performance on an ongoing basis. 

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

appealsand grievanceinformation are both meaningful to consumersand fair to plans. 

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

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

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

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

underway to capturebeneficiary disenrollment reasondatafrom the regions, the Social 

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

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

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

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

developmentand deployment of client/server applications to provide HCFA central and 

regional office staff with accessto information in the databasefor the purposeof plan and 

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

measuresfrom HEDIS, financial data, beneficiary appealsinformation, beneficiary 

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

A-4 
4 

membercost sharing data. Someof the information from the HPMS will also be included 

in a consumercomparisonchart which will be made available to the public through the 

Internet to allow beneficiaries to make informed choicesof plans. 

Regardingthe collection and consistent reporting of accurateappealsand grievance data, 

HCFA has securedthe servicesof an impartial, independentcontractor to reconsider 

denial determinations and to perform the necessaryfunctions associatedwith this activity. 

The contractor’s servicesinclude data reporting activities suchasthe onesrecommended 

by OIG. In addition, section 1852(c)(2)(C) of the BalancedBudget Act of 1997 (BBA) 

requires Medicare+Choice (M-K) plans to disclose the following dataupon requestby 

M+C eligible individual: (1) information on the number of grievances,determinations, 

and appeals,and (2) information on the disposition in the aggregate‘of such matters. By 

requiring plans to collect and disclose internal plan-level data,the BBA lays the 

groundwork for this form of data collection by HCFA. 

HCFA has devisedan electronic databasefor aggregatingand reporting information 

obtained from monitoring reviews. This databasecontains information on the number of 

monitoring reviews that are conducted, the frequency of the monitoring review, the 

timeliness of the report of review findings to the health plan aswell asthe individual 

findings. The databasecan provide reports on a national, regional, or statebasis so that 

the variations in performanceand the types of review findings can be reported. In 

addition, HCFA will learn the most common problems, aswell asprovide trend data on 

eachplan asreview fmdings are entered. 

At the current time, the Regional Office SystemsWorkgroup operatesas a user’s group 

that modifies and provides direct data support to its regional ofice monitoring reviewers. 

The group facilitates the use of all available data by sharingprogramming and software 

programsthat manipulate available data. The group meetsmonthly via conferencecalIs 

to addressnew ideas or questionsabout data or programming issuesfor all regions. 

Depending on their capabilities and needs,individual regions make use of the data reports 

that are developedby the Workgroup for monitoring the health plans in their region. 

On a much larger scale,HCFA is establishing the HPMS. This new systemwill 

consolidate data obtained from monitoring reviews, enrolhnent and disenrollment, 

reconsideration, HEDIS and CAHPS, as well as benefit and premium information. 

HCFA’s goal is to design a systemthat provides data that are available for monitoring 

health plan operations. HPMS will also provide reports that will be useful for trend 

analysis or health plan comparisons. HPMS will identify outliers, aswell as provide 

indicators for HCFA inquiries regarding plan performance. 

As noted in the report, not all regions are using the Beneficiary Inquiry Tracking System 

A-5 
5 

(BITS). HCFA believesthat it is necessaryto establish a single systemto track inquiries 

and complaints. Allowing each region to establishits own systemwill lead to confusion 

and a lack of comparability between regions. To this end, HCFA has designeda 

computer systemto receive, track, and report about beneficiary inquiries. As soon as 

programming is complete and the overall systemput in place, HCFA will use this system 

for tracking Medicare beneficiary inquiries. 

HEDIS and CAI-IPS datawiIl receive significant scrutiny under HPMS. Thesedata will 

not only becomepart of the data releaseto the public in the comparability chart, but will 

also becomea significant part of the monitoring processin terms of identifying outliers 

and also in terms of setting goals for continuous improvement in health plan performance. 

“ . . OIG x. ,, [OEI -01B96-00194 

HCFA should develop, coordinate, and provide a comprehensivetraining program for 

regional office staff with responsibility for oversight of managedcare plans. 

We concur. HCFA initiated a two-part training program in July 1997. First, HCFA 

implemented a basic training program which is aimed at new staff. This j-day program 

provides a description of basic regulatory requirements,aswell as the application and 

monitoring processand procedures. In addition, the program describesthe major 

componentsof review for any health plan for either the application or the monitoring 

reviews. The secondpart of the training program will include advancedtraining for 

personswho have completed the basic program. This specialty training will focus on 

elementsof review for five separatespecialty review areas. Theseare: legal, health 

servicesdelivery, quality assurance,fiscal soundnessand insolvency, and Medicare 

operations. 

HCFA also conducted regular training on new issuesduring 1997. In the past year, 

HCFA staff conductedtraining on point-of-service, visitor affiliate, and flexible benefit 

products, aswell as expedited appealsand the new marketing guidelines. This type of 

training has occurred not only in individual Picturetel sessionsbut also during HCFA’s 

annual regional office/central office HMO conference. Training for expedited appeals 

occurred at five different conferencesthroughout the nation to accommodateboth 

regional staff and industry personnel. 

As HCFA increasesstaff in its managedcare operations in the regional offices, we 

recommendthat the agencyseekout people with experiencein managedcare, data -

analysis, and clinical expertise. 

A-6 
6 

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

careactivities. Wheneverpossible, HCFA will identify staff with special analytical 

skills, aswell as clinical and managedcare experience. In central office, HCFA’s 

reorganization has brought a significant changein the amount of resourcesthat are 

currently addressingmanagedcare issues. Previously, the Office of Managed Care with 

its staff of approximately 150personsoperatedthe managedcareprogram. With the 

reorganization of HCFA, the number of personswith responsibility for managedcare 

issueshas significantly expanded. For example, data analysis activity hasbecomethe 

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

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

quality assuranceissuesto the Office for Clinical Standardsand Quality and the transfer 

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

bring together individuals with clinical skills for review of managedcarequality issues 

andwill bring increasedvisibility to issuespresentedto HCFA from advocacygroups 

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

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

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

refine their managedcare responsibilities, their counterpartsin the HCFA regional offices 

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

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

staff sharing with managedcare plans and with beneficiary advocacygroups. 

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

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

Plans Minority ManagementDevelopment Program. HCFA subsequentlyhired four of 

thesepersonsbecauseof their managedcare experience. HCFA makesuse of the 

Presidential ManagementIntern Program in order to place personsin training assignments 

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

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

managementtraining programs in managedcare companiesfor rotational assignments. 

HCFA will continue to seekopportunities for staff for thesetypes of rotational 

assignments. The broadening of managedcare responsibilities resulting from HCFA’s 

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

specific experiencesthat will complementtheir skills and knowledge. 

HCFA is committed to allowing the rotational assignmentsto occur wheneverpossible. 

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

A-7 
7 

currently contracting plans and on new applicantsthat is confidential in nature. If 

employeesof managedcare plans and advocacygroups worked in HCFA for several 

months,they might have inappropriate accessto this confidential information. If such a 

training/exchangeprogram were to be initiated, we would needto be sure that the 

confidential information is not accessibleto non-Federal employeeswho are working as 

HCFA staff. 

(OF.1-01 m 96 V~00191) 

At the top of page 6, the report statesthat the review protocol doesnot differentiate 

betweenplans paid on a risk basisversusthosepaid on a costbasis. This is mentioned 

againon page 14, in the Firstparagraphof the recommendation. Pleasenote that the BBA 

provides that: (1) no new cost contractscan be signed; and (2) current cost contracting 

managedcare plans can continue under the cost option only through 2002. 

At the bottom of page 6, the report statesthat HCFA staff useddata on a plan’s rapid 

disenrollment rate to focus the on-site review on the plan’s salespractices and incentives, 

which led to requirementsthat the plan take corrective action. On page 16, in the second 

recommendationon that page, the report statesthat OIG hasrecommendedin the past that 

HCFA use disenrolhnent rates to target HMO reviews. We note that, during deliberations 

on both the 1995 and the 1997 budget reconciliation bills (which included lengthier 

“lock-in” provisions), HCFA has stressed:(1) the value of monthly disenrolhnent asa 

meansfor identifying plans with high disenrollment rates; and (2) the use of high 

disenrollment rates as a trigger for more focusedplan review to identify problems causing 

beneficiaries to disenrolI at high rates. In spite of HCFA’s strong support for retaining 

monthly disenrollment, the BBA placesconstraintson beneficiary options to disenroll. 

Specifically, the current monthly disenrolhnent policy is retained through 200 1. 

However, beginning in 2002, beneficiaries will be locked-in for longer periods of time: 

6 months in 2002, and 9 months thereafter. After 2001, monthly disenrolhnent does 

remain an option for newly eligible beneficiaries during the first 12 months of enrolhnent 

in a plan. 

A-8 
APPENDIX B 

GROWTH IN MEDICARE MANAGED CARE 

December 31, 1996 

Beneficiaries 

Medicare Enrolled in Regional Managed 

Regional Office Contracts Managed Care Care Staff 

B-l 
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

December 31. 1995 

Boston 20 

New York 25 

Philadelphia 26 

Atlanta 33 

Chicago 45 

Dallas 22 

Kansas City 13 

Denver 17 

San Francisco 49 

Seattle 23 

TOTAL 273 

Beneficiaries 

Enrolled in Regional Managed 

Managed Care Care Staff 

134.085 1 

71,030 I 6.5 

122.650 1 3 

1.573.082 1 16 

271,291 7 

3.807,318 87.5 

December 31, 1994 

Beneficiaries 

Medicare Enrolled in Regional Managed 

Regional Office Contracts Managed Care Care Staff 

B-2