Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

MEDICARE’S 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. 

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 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 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 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 HCFA’S 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 plan’s 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 Medicare’s 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-forservice 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 plan’s 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 plan’s structure for quality assurance, 

how the plan processes grievances and appeals, and the plan’s 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 agency’s 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 Medicare’s 

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 

President’s 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 protocol’s 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 

plan’s 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 

plan’s 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 plan’s sales practices and incentives. They 

reviewed in detail the plan’s oversight of its sales representatives, how the sales representatives 

were paid (e.g., percentage of compensation based on commission versus salary), the plan’s 

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 plan’s marketing practices and require it to take 

corrective action. 

a The 2 year interval between monitoring reviews provides only an intermittent 

snapshot of a plan’s 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. 

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 

l 
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. 

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 

0 
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. 

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 plan’s 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 plan’s 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 region’s 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 

0 
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: 

b Timeliness of plans’ reconsideration submissions. 

b Specific cases that have been pending longer than 60 days. 

b Specific issues involved (e.g., are they all emergency visits? Who makes the denial 

decision?). 

THE HCFAISMISSINGOPPORTUNITIESTOCAPTUREADDITIONALDATATHATCOULDASSIST 

THEAGENCYINMONITORINGPLANS'PERFORMANCE. 

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 plan’s 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 isn’t enough for HCFA to receive the data and come out every two years. They 

10 

0 
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. 

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 beneficiary’s 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 

0 
In this report we raise fundamental concerns with HCFA’S 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 agency’s 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-Ol96-00 19l), addresses this issue in detail; in that report we make recommendations regarding 

HCFA’S staffing and training needs. 

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. 

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 plan’s 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 

CAHPS,for 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 agency’s 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 COntinUe ClOSe examination of 

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, “Medicare’s 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: “Medicare’s 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 

Administration’s (HCFA’s) 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 

President’sHealth 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 

as“Medicare Compare” that will be available to beneficiaries, health insurance 

counselors,and the general public on HCFA’s 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. 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 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 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 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 eachyear’s 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 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+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 user’s 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. 

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 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 HCFA’s 

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, HCFA’s 

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 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 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-01B96 So00191) 

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 plan’s rapid 

disenrollment rate to focus the on-site review on the plan’s 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 HCFA’s 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. 

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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, Medicare’s 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. 

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