United States General Accounting Office

GAO Report to the Special Committee on

Aging, U.S. Senate

August 1995 MEDICARE

Increased HMO

Oversight Could

Improve Quality and

Access to Care

GAO/HEHS-95-155

GAO United States

General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

B-259299 

August 3, 1995

The Honorable David H. Pryor

Ranking Minority Member

The Honorable William S. Cohen

Chairman

Special Committee on Aging

United States Senate

The Congress is considering ways to attract Medicare beneficiaries to

health maintenance organizations (HMO) and other forms of managed care

in hopes of containing cost growth while preserving or improving quality

and access to care. HMOs are currently the only widely available form of

managed care in Medicare, and about 7 percent of beneficiaries have

joined prepaid, “risk contract” HMOs.1

 In contrast, HMOs enroll 25 percent of

the employed population. Recent growth of HMO enrollment in both

Medicare and employed populations has been rapid. The number of

Medicare HMO risk contracts increased 70 percent, to 154, in the 2 years

preceding January 1995.

HMOs offer the potential to coordinate all the services needed to treat a

patient while controlling for overuse of costly services. The incentive for

HMOs to control utilization comes from the payment method in which HMOs

are paid a fixed amount per beneficiary for providing health care services.

HMOs bear the financial risk for ensuring that their costs do not exceed

their fixed payments.

This report responds to your request that we review federal oversight of

HMOs that enroll Medicare beneficiaries. Specifically, this letter responds

to your interest in (1) the Health Care Financing Administration’s (HCFA)

monitoring of HMOs’ compliance with federal quality assurance standards,

(2) HCFA’s enforcement actions against HMOs that do not meet federal

standards, (3) the effectiveness of the process available to beneficiaries to

appeal an HMO’s decision to deny care, and (4) approaches the private

sector is taking to assure HMO beneficiaries of quality care. HCFA is

delegated this oversight responsibility by the Secretary of Health and

Human Services.

1

Our use of the term “Medicare HMOs” in this report includes both HMOs and Competitive Medical

Plans holding Medicare risk contracts for prepaid care. Competitive Medical Plans are subject to

regulatory requirements similar to those for HMOs, but they have more flexibility in how they set

premiums and services for commercial members.

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B-259299 

To do our work, we reviewed federal HMO oversight standards, practices,

and compliance issues with HCFA officials at headquarters and three

regional offices. We also reviewed three enforcement cases that were in

process as of June 1994. In addition, we met with representatives of the

National Committee for Quality Assurance; the Group Health Association

of America; and the consumer advocacy group, Center for Health Care

Rights. (See app. II for details on our scope and methodology.)

Results in Brief Although HCFA has instituted several promising improvements, its process

for monitoring and enforcing Medicare HMO performance standards

continues to suffer from three significant limitations:

• Quality assurance reviews are not comprehensive. Even HMOs with many

serious documented quality problems were not found to be out of

compliance with requirements by HCFA’s routine monitoring. HCFA routinely

only reviews the HMO’s description of its quality assurance processes—it

does not check to see whether HMOs implement these processes

effectively. HCFA also does not adequately assess the financial risk

arrangements that HMOs have with providers, although these arrangements

can create incentives to underserve beneficiaries.

• Enforcement actions are weak. When HCFA has documented problems in

HMOs that have been slow to correct deficiencies, it has been reluctant to

use sanctions and other enforcement tools at its disposal. Under HCFA’s

enforcement approach, serious improprieties by a few Medicare

HMOs—subjecting beneficiaries to abusive sales practices, unduly delaying

their appeals, or exhibiting patterns of poor quality care—have taken years

to resolve.

• Appeal process is slow. Beneficiaries who appeal HMO denials often wait 6

months or more for resolution. The consequences for beneficiaries can be

prolonged uncertainty, high out-of-pocket costs, and having to disenroll

from an HMO to obtain services.

Increasingly, sponsors of employee health plans are requiring that HMOs

undergo accreditation reviews to obtain contracts with their plans.

Moreover, the leading HMO accreditation agency publicizes results of its

reviews. Some large employers also require information about the care

provided to gauge an HMO’s overall performance when making contract

decisions. HCFA’s current regulatory approach to ensuring good HMO

performance lags behind these latest private sector practices.

Page 2 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
B-259299 

Background HMOs are expected to provide all covered services to members in return for

fixed premiums. HMOs may have their own staff of physicians and other

providers to deliver care, or they may contract with individual providers or

medical groups to deliver services. From the Medicare beneficiaries’

perspective, HMOs may offer a more comprehensive package of services

than fee-for-service Medicare and at a lower cost than beneficiaries might

incur if they purchased such coverage through supplementary insurance.

HMOs were designed to offer preventive health services inexpensively and

to constrain the provision of expensive services, primarily through the use

of a reimbursement method known as capitation. Under capitation,

Medicare pays HMOs a fixed amount per month for each beneficiary. This

method typically places HMOs at risk for health costs, thereby giving them a

financial incentive to control the use of services, emphasize preventative

care, and avoid unnecessary care. Some HMOs, in turn, transfer a portion of

their financial risk to care providers, such as physicians or physician

groups.

Federal Government Sets

Initial Standards for HMO

Industry

To encourage commercial and Medicare use of HMOs, in the early 1970s,

the Congress authorized federal standards and oversight to ensure

reasonable care and service.2

 For example, initial legislation authorizing a

Medicare HMO program required quality of care standards at least equal to

those prevailing in the HMO’s service area. In addition, HMOs had to have

sufficient operating experience and enrollment to permit evaluation of

their capacity to provide appropriate care, and to sustain financial losses if

the Medicare payment did not cover costs.

Federal standards were strengthened as the government gained

experience with HMOs. Currently, performance standards for HMOs serving

Medicare beneficiaries are designed to safeguard beneficiary interests by

ensuring the following:

• Plans have adequate finances and management. HMOs must meet financial

solvency requirements, have minimum enrollments necessary to assume

the financial risks, and provide adequate administration and management.

• Plans manage quality, utilization, and access to medical care. Plans must

operate internal quality assurance systems to detect and correct patterns

of underservice and poor quality care, provide reasonable access to

2

Title 18 of the Social Security Act and title 13 of the Public Health Service Act impose requirements

HMOs must meet in order to enter into contracts with Medicare and provide services to beneficiaries.

Page 3 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
B-259299 

specialists and services, and not transfer excessive financial risk to

providers.

• Plans treat enrollees fairly. HMOs must use fair marketing practices that do

not mislead or confuse enrollees, must provide necessary and covered

services, and must follow equitable grievance and appeal procedures.

Before an HMO may participate in Medicare, HCFA conducts a review to

determine if the HMO meets federal requirements. During this

“certification” review, HCFA looks at several indicators of the HMO’s ability

to provide services to Medicare beneficiaries. These indicators include

documentation of financial condition, marketing projections,

qualifications of management staff, and management information systems.

After awarding a Medicare contract to an HMO, HCFA monitors its

performance for continued compliance with federal requirements. HCFA

also contracts with peer review organizations (PRO)—independent,

state-based organizations that use local doctors and nurses—to assess

quality of care provided to beneficiaries.

HCFA has a variety of tools available to enforce compliance with standards.

These include authority to sanction an HMO by terminating or not renewing

its contract, stopping enrollment, or imposing monetary penalties.

Additionally, HCFA has numerous administrative means to encourage

compliance, such as withholding an HMO’s request for expanding service

areas.

Private Sector Building on

Federal Standards

HMO care has become widespread in the private sector. In seeking ways to

ensure quality and value in HMO care, large employers and the HMO industry

are demanding HMO accountability beyond existing federal protections.

Some large employers, for example, are requiring that HMOs undergo

quality accreditation reviews conducted by the National Committee for

Quality Assurance (NCQA). NCQA is a private agency that works with large

employers to set and enforce HMO quality standards. Its standards focus

primarily on quality assurance in HMOs’ management of medical

operations, and its review and enforcement methods differ from HCFA’s. In

addition, a group of large employers and HMOs are working with NCQA to

develop standard performance measures for HMOs that would enable

employers and consumers to compare HMOs and make informed choices.

Page 4 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
B-259299 

Difficulties in Federal

Oversight Illustrated

by Florida Case Study

Recent enforcement cases show that HCFA processes remain slow at

addressing problems in HMOs that do not readily comply with federal

standards. PRO sampling of care in Florida during 1991 raised concerns

with the quality of care at one HMO. The HMO questioned these findings,

leading to a special PRO review and to the events discussed below.

In 1992 and 1993 the PRO found serious quality problems in most of the risk

contract HMOs in the Florida Medicare market, which has about 17 percent

of all Medicare HMO enrollees. PRO review of hospitalized patients at one

HMO, for example, raised serious issues about quality in 25 percent of the

109 cases sampled. After reviewing PRO findings, an internal HCFA task

force suggested special investigations of quality assurance and utilization

management practices at all Florida Medicare risk HMOs. PRO sampling of

care in Florida Medicare HMOs, for example, found patterns of quality

problems, including incorrect diagnoses, inappropriate assessment of test

results, inappropriate treatment plans, underutilization, access concerns,

delays in treatment, and treatment that was not competent or timely.

Specific cases included the following:

• Delay in treatment. A beneficiary suffered recurrent urinary tract

infections, tested positive for protein and blood in the urine, and had test

results that suggested the presence of prostate cancer. Several months

passed before the HMO referred him to a urologist and before the urologist

performed further tests. The patient ended up in a hospital emergency

room, and was treated for undiagnosed bladder cancer that had perforated

the large intestine.

• Treatment not competent or timely. A beneficiary was treated with a

blood-thinning drug that requires careful monitoring to avoid excessive

bleeding. As a result of inadequate monitoring, the patient was admitted to

a hospital with internal bleeding, which was found to be due to an excess

of the blood-thinning drug.

• Denial of access. In a 24-hour period, a beneficiary with signs and

symptoms of both pneumonia and a heart attack twice sought and was

denied admission to a hospital. The HMO primary care physician concurred

with both denials of admission. After the second attempt, the patient died

on the way to his primary care physician.

HCFA’s oversight of one of the Florida risk HMOs illustrates the pattern that

has emerged between HCFA and HMOs that do not take prompt actions to

correct performance problems. This HMO won a HCFA demonstration

Page 5 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
B-259299 

contract in 1982.3 After a series of financial problems and other

compliance violations, the HMO was declared insolvent in 1987, and

another HMO acquired its assets.

The new HMO operates in four Florida markets under a single contract with

HCFA. The HCFA enforcement activity documented in the following

paragraphs relates to the South Florida market, but enrollment and

payment statistics in table 1 relate to all four markets. HCFA data systems

track the HMO’s contract as though it were a single-market HMO—the

normal contracting arrangement for Medicare.

Since 1987, HCFA repeatedly found that the HMO’s South Florida operations

did not meet federal standards for quality assurance. During this period,

HCFA undertook special studies and received PRO reports that indicated

continuing problems with quality of care. Nevertheless, it allowed the HMO

to continue enrolling beneficiaries and operating as freely as a fully

compliant HMO, until HCFA’s 1994 investigation of quality assurance

practices led to voluntary enrollment restrictions at selected medical

centers. From 1988 to 1994, the HMO maintained and increased its revenues

from Medicare by enrolling over 336,500 beneficiaries to replace the over

269,000 who disenrolled. The HMO had Medicare revenues in 1994 that

exceeded $1 billion and constituted 72 percent of its total revenues.

HCFA recently determined that the South Florida HMO has been responsive

to its 1994 findings and in January 1995 approved the HMO’s corrective

action plan. HCFA has since visited the HMO’s offices and declared the HMO

in compliance with requirements, effective July 5, 1995. (Table 1 presents

the history of HCFA’s oversight and enforcement related to the HMO’s quality

assurance practices, including PRO reviews of quality of care.)

3

In 1982 and 1983, HCFA awarded contracts under its demonstration authority to 26 organizations to

develop Medicare HMOs. Such demonstration projects became operational in 21 cities across the

country.

Page 6 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
B-259299 

Table 1: An Example of an Ineffective Compliance Effort

Time

frame Activity

New

enrollment

in year

Disenrollment

in year

Medicare

payments

(millions)

1987

May

June

HCFA notifies Florida-based HMO of intent to terminate contract because of

quality assurance deficiency.

Inspector General asks PRO to review the HMO’s care.

PRO finds the HMO’s care below professional standards.

State declares the HMO insolvent, and another HMO buys its assets.

PRO to review quality assurance (QA).

1988

June HCFA finds that the new HMO generally met QA requirements, while PRO

decides more intense review is needed.

39,194 28,151 $398.9

1989

Apr. HCFA finds HMO’s QA and utilization management (UM) deficient—lacks

systematic data. Corrective action plan (CAP) required.

43,616 28,292 503.8

1990

Nov. HCFA finds HMO’s QA and UM deficient, requires CAP.

68,744 31,055 609.8

1991

Aug.

Oct.

PRO concern with quality warrants intensified review.

HCFA certifies that QA, UM requirements met, but requests intensified

reporting.

54,033 32,862 780.4

1992

Jan. HCFA announces special PRO review to verify HMO’s QA improvements

since earlier findings.

43,535 38,180 884.4

1993

Jan.

Feb.

June

PRO study shows quality problems in 27 of 109 hospitalization cases and in

22 of 30 complaints.

HCFA elects to study PRO data further.

PRO data show quality problems at most Florida Medicare HMOs.

Routine HCFA visit to the HMO finds no QA problems.

41,405 40,086 1,005.6

1994

Jan.

June

Sept.

PRO reports HMO has not taken corrective actions on PRO quality problems

raised since 1992.

NCQA denies the HMO’s South Florida market accreditation.

HCFA announces investigation of the HMO’s South Florida operations and

plans investigations of other Florida HMOs.

HCFA finds HMO’s QA and UM deficient. HMO has modifications in process.

46,029 37,602 1,062.5

(continued)

Page 7 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
B-259299 

Time

frame Activity

New

enrollment

in year

Disenrollment

in year

Medicare

payments

(millions)

1995

Jan.

May

July

HCFA accepts HMO’s CAP addressing QA and UM weaknesses noted in

9/94 investigation. PRO reports HMO’s 1994 incidence of confirmed quality

problems is lower than average for Florida Medicare HMOs.

HCFA conducts follow-up visit to review HMO’s progress in implementing

CAP.

HCFA finds HMO in compliance with federal requirements on the basis of

evidence of corrections from January and May 1995 site visits.

Source: HCFA.

Slow enforcement by HCFA was not unique to quality problems, or to the

Florida market. Two other enforcement cases we reviewed to test HCFA’s

processes were in California and Illinois and included

• marketing abuses, including high-pressure, illegal practices resulting in

high levels of complaints and disenrollments from misinformed

beneficiaries (see p. 12);

• nonpayment or slow payment of claims for beneficiaries’ out-of-plan

services, which can result in out-of-pocket expenses or bill collection

actions against the beneficiaries; and

• not following prescribed appeal processes, resulting in some Medicare

beneficiaries not receiving the services they are entitled to under the HMOs’

Medicare contracts (see p. 13).

Limited Oversight of

Medicare HMO

Quality Assurance

HCFA’s monitoring and certification process has not been adequate to

ensure that Medicare HMOs comply with standards for ensuring quality

care. This has been confirmed by HCFA, PRO, and NCQA findings showing a

mismatch between what HMOs are supposed to do and what they actually

do to manage and ensure quality of care. NCQA recently found many HMOs

out of compliance with its standards.4

 Of the 15 Florida Medicare plans

NCQA had reviewed as of December 1994, only 1 received full accreditation,

8 received less than full accreditation, and 6 were denied accreditation.

4

Of plans reviewed nationally, 33 percent of HMOs requesting NCQA review received full accreditation,

53 percent received less than full accreditation, and about 13 percent were denied accreditation. These

figures include a portion of Medicare HMOs. By the end of 1995, NCQA will have reviewed 80 Medicare

HMOs accounting for two-thirds of Medicare HMO enrollment.

Page 8 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
B-259299 

HCFA efforts to ensure that Medicare beneficiaries receive quality care from

HMOs continues to be inadequate for three reasons. Specifically, HCFA

• conducts limited quality assurance reviews,

• does not routinely collect utilization data that could most directly indicate

potential quality problems, and

• does not assess HMO risk-sharing arrangements with providers that can

trigger quality problems.

Limited Quality Assurance

Reviews

HCFA’s routine compliance monitoring reviews do not go far enough to

verify that HMOs monitor and control quality of care as federal standards

require. The reviews check only that an HMO has procedures and staff

capable of quality assurance and utilization management—they do not

check for effective operation of these processes. While HCFA has PROs

under contract to review the medical care provided to HMO enrollees, HCFA

does not link its contract compliance monitoring with PROs’ monitoring,

nor does it draw on PRO staff expertise that could help verify whether

HMOs’ quality assurance programs actually work. This explains why PROs

were able to identify patterns of quality of care problems—as they did in

1988, 1991, and 1993 at the South Florida HMO—at the same time HCFA

contract monitors cited no problems with the HMO’s compliance with

quality standards.

HCFA’s routine review and certification of an HMO’s quality assurance

program is completed without the participation of trained clinical staff and

without systematic consideration of PRO findings. A routine HCFA review

visit at an HMO generally involves about three people, without specialized

clinical or quality assurance training, who spend a week or less focused

largely on Medicare requirements for administration, management, and

beneficiary services rather than on medical quality assurance. About a

third of staff time is typically spent on quality-related matters. Monitoring

officials of HCFA headquarters and in regions expressed the need for added

trained staff to properly assess HMOs’ quality assurance systems.

In contrast with HCFA’s approach, NCQA reviews last about a week, but

focus primarily on quality assurance. The NCQA review team typically

consists of three people, including two physicians and another clinician or

administrator experienced in HMO operations. In addition to reviewing an

HMO’s quality assurance program design, NCQA reviewers also test it by

reviewing records and interviewing providers, to assess whether the

system is functioning as designed.

Page 9 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
B-259299 

Since 1994, HCFA has been studying ways to improve both quality standards

for HMOs and its methods for reviewing quality assurance. Through these

efforts, HCFA is seeking to improve its current HMO certification process

and to assess ways to coordinate with other organizations that oversee

HMOs. Three other internal HCFA studies of its quality assurance

certification practices were done over the past 2 years.

Little Information on

HMOs’ Services Currently

Available to Enrollees

Another factor limiting the effectiveness of HCFA’s monitoring of quality of

care in HMOs has been the lack of data on beneficiaries’ utilization of

services. In the fee-for-service sector, claims data are available and can be

used to detect potential overutilization of services. No comparable data

exist in the Medicare HMO program to detect potential underutilization. As

a result, even such basic information as hospitalization rates; the use of

home health care; or the number of people receiving preventive services,

such as mammograms, is unknown.

Federal standards require that HMOs have information systems to report

utilization data and management systems to monitor utilization of services.

Yet HMOs often lack these data, and HCFA has not required that such data be

standardized or that the data be submitted to HCFA and to the PROs. HCFA

has broad legal authority to require that HMOs regularly report a wide

variety of statistical information to the federal government. This includes

specific authority to require data on patterns of utilization of medical

services in HMOs, and the availability and acceptability of those services.

In contrast with HCFA, the private sector has, over the past few years,

moved to develop information and data standards that could enable

purchasers and consumers to compare different HMOs. To enable such

assessment of health plans’ cost effectiveness and performance, a group of

large employers and HMOs working with NCQA are developing the Health

Plan Employer Data and Information Set (HEDIS). These data constitute a

set of performance measures to evaluate plans’ quality of care, access to

care, member satisfaction, utilization of services, and financial stability.

Some employers already require their plans to submit HEDIS-based

information.

HCFA has now picked up on the private sector’s approach and has begun

developing HEDIS-type HMO performance measures geared to services

provided to elderly Medicare beneficiaries. A test of an initial set of

measures covers the preventive services of flu immunization and

Page 10 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
B-259299 

mammography screening and will document the care of beneficiaries with

diabetes. HCFA recently began testing the measures in 5 states and 23 HMOs.

Little Attention Paid to

Risk-Sharing Arrangements

HCFA’s HMO quality assurance monitoring processes also do not adequately

address risk-sharing arrangements between HMOs and their providers. The

agency does not routinely assess whether HMO risk-sharing arrangements

create a significant incentive to underserve, although the Congress gave

the Department of Health and Human Services (HHS) authority, beginning

April 1, 1991, to limit arrangements that it found provided excessive

incentive to underserve. As of April 1995, HHS was still developing

regulations and had not developed methods for gauging how much risk an

HMO can legitimately pass to providers, or requirements that providers

must meet to accept such risk.

One HMO that a PRO identified as having an unusually high number of

quality of care problems has been a concern to HCFA reviewers for several

years because of its financial risk arrangements with providers. Under its

risk-sharing arrangement, the HMO takes about 23 percent of its capitated

payment for ambulatory services to administer the program and uses the

remaining 77 percent to make capitated payments to providers. Over the

years, several providers have lost money on care they provided to the

HMO’s patients.

These providers—often individual physicians or small physician

groups—are financially responsible to provide the HMO’s enrollees all of

their needed ambulatory services. Under such arrangements, every time a

patient uses a primary care physician or specialist, or obtains diagnostic

tests, the money comes out of the capitated payments the HMO makes to

the provider responsible for delivering and managing the care. This could

give providers financial incentives to withhold services, particularly if they

are losing money on the HMO’s patients.

HCFA Reluctant to

Fully Utilize

Enforcement

Authority

In 1988 and again in 1991 we reported that HCFA was not using its

enforcement authority effectively to obtain corrective action from those

HMOs that were slow in correcting problems.5 As highlighted earlier, the

cases we reviewed for this report illustrate this problem.

5

Medicare: Experience Shows Ways to Improve Oversight of Health Maintenance Organizations

(GAO/HRD-88-73, Aug. 17, 1988) and Medicare: HCFA Needs to Take Stronger Actions Against HMOs

Violating Federal Standards (GAO/HRD-92-11, Nov. 12, 1991).

Page 11 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
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The Congress granted HCFA authority to impose sanctions or monetary

penalties on HMOs that fail to meet federal standards. HCFA’s sanction

authorities include stopping enrollment, stopping payment for new

Medicare enrollees, imposing monetary penalties, and revoking Medicare

contracts. HCFA can impose these sanctions or penalties for such actions as

abusive marketing or underserving beneficiaries. Although the Congress

first gave HCFA sanction authority in 1986, it was not until 1994 that HCFA

issued regulations implementing this authority.

Pursuing sanctions against noncompliant HMOs can be an administratively

cumbersome and staff-intensive process, according to HCFA officials. HCFA’s

enforcement approach is to seek to document the causes of an HMO’s

problems and to attempt to get the HMO to correct problems, without

resorting to sanctions.

Under this approach, after HCFA staff show that an HMO is not meeting

federal standards, the HMO then has an opportunity to address deficiencies

by developing a corrective action plan. If the HMO does not implement the

corrective action or the action is inadequate, then HCFA staff investigate the

HMO’s operations to further document the problems. An investigation could

result in HCFA finding noncompliance and requesting a new corrective

action plan. The process can then repeat itself.

The outcome of this approach is that an HMO, without sanction, can take

years before correcting identified deficiencies. We question whether this

serves the best interests of Medicare or HMO beneficiaries. Two cases

illustrate this:

• An Illinois HMO enrolled 29,600 people during a period of marketing

abuses. In 1991, while the HMO was under investigation nationally for

Medicare HMO marketing abuses, it purchased an Illinois HMO with a

Medicare contract. By early 1992, HCFA noted that one-third of new

enrollees in the plan disenrolled within 3 months. Moreover, HCFA began

receiving beneficiary complaints about salespersons’ misrepresentations

and high-pressure tactics. HCFA’s March 1994 review of the HMO’s marketing

cited numerous instances of deceptive and high-pressure sales tactics,

including misrepresentation. HCFA also found instances of prohibited

payments or gifts to induce people to enroll. In April 1994, the HMO

submitted a corrective action plan addressing its marketing tactics and

supervision of commissioned sales agents. In August 1994, HCFA and the

HMO agreed on milestones for lowering the HMO’s disenrollment rates. HCFA

Page 12 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
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is monitoring the HMO’s progress toward lowering its disenrollment and

complaint rates. (See table I.1.)

• A California HMO tripled Medicare membership during a period when

provider claims were not promptly paid and beneficiaries did not receive

their appeal rights. HCFA’s 1992 monitoring report noted the HMO’s late

payment of claims from providers and failure to process beneficiary

appeals in a timely manner. The HMO submitted a corrective action plan to

HCFA and for the next 2 years reported progress in achieving compliance.

In 1994, however, HCFA found that the problems persisted. HCFA concluded

that the HMO lacked sufficient staff and systems to organize, plan, control,

and evaluate the administrative and management aspects of its Medicare

operations. For example, HCFA found that the HMO failed to pay in a timely

manner over 64 percent of the claims in a sample HCFA reviewed. In over

62 percent of a sample of appeals cases, HCFA found that the HMO failed to

forward beneficiaries’ appeals to HCFA within the specified 60 days. HCFA’s

February 1995 visit found that the HMO had made substantial

improvements in processing claims and appeals, although problems

remained. HCFA found additional unrelated problems as well. The HMO

submitted a corrective action plan—its third in 3 years—in April 1995. In

May 1995, HCFA approved most of the elements in the plan. The HMO

submitted a revised corrective action plan addressing the remaining

elements in June 1995. (See table I.2.)

HCFA does not routinely release the results of its monitoring visits, or the

comparative performance indicators it collects, to the public.

Consequently, when an HMO violates federal standards, Medicare

beneficiaries could remain unaware of problems that could influence their

decision to join or remain enrolled in that HMO. HCFA’s reluctance to

disclose HMO-specific information it develops can work to the benefit of

poor-performing HMOs, to the detriment of beneficiaries who make

less-informed selections, and to the detriment of HMOs that comply with

standards.

Appeal Process Is

Slow and Places

Beneficiaries at

Financial Risk

Although intended to be a beneficiary protection against potential

underservice by HMOs, the appeal process is too slow to effectively resolve

disputes over services that beneficiaries believe are urgently needed.

Moreover, some HMOs have extended the process even more by not

processing beneficiaries’ appeals within the prescribed time frames. This

results in some beneficiaries returning to fee-for-service Medicare to

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obtain the services they believe they need, while others remain in HMOs but

incur substantial out-of-pocket expenses with little certainty of repayment.6

Under Medicare regulations, beneficiaries in HMOs may appeal denials of

service or the HMO’s refusal to pay for services obtained from out-of-plan

providers.7

 The appeal process requires first that the HMO deny the service

and second that the beneficiary ask for a reconsideration of the denial. If

the reconsideration decision is not fully favorable to the beneficiary, the

HMO is required to send the denial, along with medical information

concerning the disputed services, to a HCFA contractor that adjudicates

such denials. Since 1989, HCFA has performed its appeal reconsideration

function through a contractor—the Network Design Group (NDG) of

Pittsford, New York. NDG hires physicians, nurses, and other clinical staff

to evaluate beneficiaries’ medical need for contested services and make

reconsideration decisions.

Under current HCFA standards, the process allows up to 6 months from the

initial determination before an HMO must forward an appeal to HCFA, as

shown in figure 1. Some HMOs take longer than HCFA standards,

contributing to further delays. For instance, although HCFA allows HMOs a

maximum of 60 days to reconsider a beneficiary’s appeal, HCFA has found

that several HMOs in California and Florida inappropriately retained

beneficiary appeals between 130 and 200 days, on the average, before

forwarding them to HCFA’s adjudication contractor.

6

A HCFA-sponsored study reviewed a sample of beneficiary appeals for 1991 and found that 42 percent

of the beneficiaries disenrolled from their HMOs within 2 years following the disputed services, of

which 63 percent disenrolled within 90 days after their cases were decided by HCFA.

7

Out-of-plan services must be covered by an HMO if the service is an emergency or the enrollee is out

of the HMO’s operations area and urgently needs the service.

Page 14 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
B-259299 

Figure 1: Medicare Appeal Process

60 Days

60 Days

60 Days

or

or

or

or

or

or

1. Initial determination: HMO

disallows a claim or denies a

service, advises beneficiary in

writing.

Beneficiary accepts initial

determination.

Stop

HMO reconsiders, reverses initial

determination.

Stop

HCFA reviews case, reverses

HMO decision, decides in favor

of beneficiary, notifies HMO and

beneficiary.

Stop

Beneficiary accepts HCFA

decision upholding initial

determination.

Stop

Beneficiary and HMO accept

ruling (whether to reverse or

uphold).

Stop

Beneficiary and HMO accept

ruling (whether to reverse or

uphold).

Stop

2. Beneficiary rejects initial

determination, files written request

for reconsideration to HMO.

3. HMO reconsiders, upholds initial

determination, forwards case to

HCFA for review.

4. HCFA reviews case, upholds HMO's

initial determination, notifies

beneficiary and HMO (if amount

disputed is $100 or more, HCFA

notifies beneficiary in writing of right

to hearing).

5. Beneficiary rejects decision and

requests in writing hearing with SSA

Administrative Law Judge.

6. SSA Administrative Law Judge hears

case and makes ruling.

7. Beneficiary or HMO rejects ruling,

requests review by SSA Appeals

Council.

8. SSA Appeals Council hears case

and rules.

9. Beneficiary or HMO rejects ruling of

SSA Appeals Council, initiates civil

action in U. S. District Court

(only if claim is for $1,000 or more).

10. U.S. District Court hears case and

rules.

30 Days

60 Days

60 Days

120 Days

180 Days

210 Days

270 Days

Cumulative

Time

Maximum

Allowed Time

Page 15 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
B-259299 

Beneficiaries appealing their HMOs’ coverage denial for nursing home care,

home health care, or urgently needed care may find the process does not

work quickly enough. In addition to the time it takes for an appeal to reach

HCFA, most cases that reach HCFA for reconsideration have taken longer to

resolve than the target of 30 days that HCFA and its contractor strive for. In

1993, 38 percent of appeals to HCFA were straightforward enough for HCFA’s

contractor to decide within 30 days. About 45 percent required about 3-1/2

months. More complex cases, where medical information was missing or

where Medicare coverage rules were unclear, took over 6 months.

Three examples illustrate how the process works for Medicare

beneficiaries:

• A newly enrolled beneficiary requested physical therapy from an HMO

physician to alleviate back pain. The beneficiary had suffered for years

from severe back problems, which had been controlled by physical

therapy. Although the HMO physician prescribed 17 sessions of physical

therapy, the plan covered only one session. The beneficiary unsuccessfully

appealed to the HMO and HCFA. More than a year after her therapy services

were denied, the beneficiary was still waiting for a decision from an

Administrative Law Judge.

• A beneficiary finding himself unable to walk or urinate was admitted to a

hospital not affiliated with his HMO. He was discharged 2 weeks later only

to be readmitted the next day after falling at home. The HMO denied the

hospital’s claim for $23,600 in services because it did not consider the

need for care an emergency. The hospital billed the beneficiary. HCFA’s

reconsideration contractor concluded that the hospital services were

needed to prevent renal failure, infection, and other complications. HCFA’s

contractor found the HMO liable for the cost of the hospital services—over

7 months after the HMO’s initial denial.

• Following surgery for lung cancer, a beneficiary repeatedly complained of

pain and tenderness in the chest. X rays done shortly after surgery

indicated possible remaining cancer, but no follow-up was done. After 14

months of continued complaints of pain, externally visible swelling led to

new tests and the diagnosis that cancer had spread to the chest wall. An

HMO oncologist explained that the only treatment available through the

HMO had a modest success rate, and expressed willingness to refer the

patient to a non-HMO center offering another treatment with a reported

high success rate. The HMO denied the beneficiary’s request. The

beneficiary requested the services two more times. Although the HMO

denied the services three times, it did not inform the beneficiary of his

right to appeal. The HMO forwarded the case to HCFA for reconsideration

Page 16 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
B-259299 

after the third denial. At this point, the beneficiary learned from HCFA’s

contractor of the ongoing appeal and his right for reconsideration. HCFA’s

contractor upheld the HMO denial because of the experimental nature of

the requested treatment and because the HMO offered a treatment

considered appropriate. The beneficiary paid for $13,000 in services he

obtained from the non-HMO center prior to deciding to return to

fee-for-service, where Medicare covered the treatment for some

beneficiaries.

Medicare HMO beneficiaries who pay for services they believe are needed

may be liable for those costs. In 1994, HCFA decided over 3,100 appeals, 80

percent of which were denied claims for reimbursement of services

obtained from providers not affiliated with the HMO. The average claim was

about $4,300, totaling over $15 million in disputed claims. HCFA’s

reconsideration contractor upheld HMO denials in 64 percent of the

appeals, leaving beneficiaries liable for over $11 million in claims.

HCFA is aware of the potential for improving the appeal process and has

taken some steps toward this end. In November 1994, HCFA clarified its

rules, allowing a beneficiary to appeal without a written denial notice from

the plan. This could remove a significant barrier that beneficiaries in some

HMOs faced in initiating appeals.

HCFA also issued a rule in November 1994 extending to beneficiaries in

HMOs the right to obtain expedited PRO review of HMO decisions to

discharge them from a hospital. Since 1986, fee-for-service Medicare

beneficiaries have been able to request such a PRO review of a hospital’s

discharge order when they believe they should remain hospitalized.

HCFA operations officials also recognize the potential for further

improvements. They have proposed an expedited review process for

decisions on care perceived as urgently needed. They also propose to look

at ways to better educate beneficiaries on their appeal rights and the

appeal process.

Private Sector

Developments in

HMO Quality

Oversight

Some large employers, acting as the sponsor of their employees in

selecting health care plans, have begun to use accreditation and

performance data in checking HMOs’ value, and in deciding whether to

accept an HMO into their health plans. Nearly half the HMOs in the country

will have undergone NCQA review by the end of 1995. NCQA accreditation

focuses primarily on standards related to quality assurance and use of

Page 17 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
B-259299 

services—the areas in which federal certification reviews are relatively

weak. The HEDIS performance measurement set is expected to take the

place of the varying data requests employers already make to evaluate

plans’ quality of care, access to care, member satisfaction, utilization of

services, and financial stability.

The private sector also disseminates quality-related information to

purchasers and users. NCQA publicizes its accreditation decisions, which

allows employers and employees to consider accreditation status in their

HMO decisions. The effect is that HMOs that do not obtain accreditation can

lose business. For example, a consortium of employers has elected to

exclude a Florida HMO from new business with their employer-sponsored

health plans because of the HMO’s failure to obtain accreditation.

HCFA is the sponsor for Medicare beneficiaries in the selection and

oversight of Medicare contract HMOs, much like employers are for their

employees’ health plans. HCFA, however, does not routinely provide

beneficiaries the results of its monitoring reviews or other

performance-related information such as HMO disenrollment rates or

beneficiary complaints. HCFA does routinely collect and analyze data on

Medicare HMOs’ enrollment and disenrollment rates, appeals, beneficiary

complaints, financial condition, availability and access to services, and

marketing strategies.

Other Ongoing

Improvements in

HCFA’s Medicare

HMO Contract

Oversight

HCFA has made ongoing improvements that enhance its ability to monitor

HMOs and enforce federal standards. These improvements in HMO contract

oversight are in addition to those already mentioned. For example, HCFA

has progressively improved its collection and summarization of

comparative performance indicators on individual HMOs and makes these

available to contract monitoring staff. This can aid HCFA in detecting

problems in some cases. The indicators include enrollment and

disenrollment statistics, including rapid or early disenrollments, and rates

of beneficiaries’ appeals of denied care. In addition, three HCFA regional

offices, accounting for about three-fourths of Medicare HMO enrollments,

have implemented an automated tracking system for complaints.

Beginning in 1994, HCFA has more aggressively used its regulatory authority

under title 13 of the Public Health Service Act to get at root causes of HMO

quality assurance problems. HCFA officials explained that they use the

results to work cooperatively with plans’ top management to correct

weaknesses. Four investigations have been conducted since July 1994 on

Page 18 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
B-259299 

HMOs with apparent quality assurance problems, and a fifth was recently

started. The first three of these investigations were done at Florida HMOs

and resulted in findings of noncompliance with federal standards. The

experience of designing and conducting these investigations provides an

excellent basis for HCFA to design routine monitoring reviews that test

HMOs’ internal quality assurance. However, the experience gained from

these investigations shows that increased staffing with better training or

qualifications may be necessary for HCFA’s routine monitoring.

HCFA also announced that it plans to begin site visits to HMOs annually,

beginning in fiscal 1996. Annual reviews may benefit where HCFA needs

follow-up verification that HMOs have corrected deficiencies. They also

may permit HCFA to focus in any one year on a particular aspect of HMO

operations, potentially increasing effectiveness.

Conclusions HCFA recognizes that it needs to be more active as a sponsor for

beneficiaries enrolling in Medicare HMOs. This entails selecting qualified

HMOs to participate in the program, protecting beneficiaries’ interests after

they join an HMO, and informing beneficiaries of HMO performance.

Although HCFA, to its credit, has taken a number of positive actions, it has

not

• adequately developed and staffed routine monitoring of HMOs’ quality

assurance and other key operations to protect beneficiaries’ interests;

• taken actions to obtain prompt compliance with existing quality-of-care or

other beneficiary protection standards from those HMOs that are slow to

correct problems; or

• given Medicare beneficiaries available information that could help them

decide to enroll or to remain enrolled in an HMO.

Moreover, HCFA has not issued regulations, originally called for in 1986

legislation, defining acceptable levels of financial risk an HMO can transfer

to subcontracted providers.

Private sector progress, weighed against continued shortcomings in HCFA’s

current compliance approach, suggests that HCFA needs to overhaul its

compliance approach to be more consumer-oriented. This would include

forbidding noncompliant HMOs from continuing to enroll beneficiaries, and

publishing available data that beneficiaries can use to gauge HMOs’ relative

performances. In addition, HCFA could strengthen its quality assurance

review efforts and streamline its beneficiary appeal process. We have

Page 19 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
B-259299 

recommended a variety of similar changes over the past decade and have

observed some improvements in monitoring. But HCFA has remained

reluctant to take strong enforcement actions and continues to rely on

reviews of HMOs’ quality assurance practices that do not verify their

effectiveness.

Recommendations to

the Secretary of

Health and Human

Services

We recommend that the Secretary of HHS direct the HCFA Administrator to

develop a new, more consumer-oriented strategy for administering the

Medicare HMO program. This should include directing that HCFA

• routinely publish (1) comparative data it collects on HMOs such as

complaint rates, disenrollment rates, and rates and outcomes of appeals,

and (2) the results of its investigations or any findings of noncompliance

by HMOs;

• verify the effective operation of all HMOs’ quality assurance and utilization

management practices, by applying sufficient trained staff during routine

monitoring, and integrating PRO findings into HCFA’s compliance monitoring

reviews; and

• explore further options to streamline the appeal process.

Agency Comments The Department of Health and Human Services disagreed with many of the

report’s findings, emphasizing that the report discusses monitoring and

enforcement problems that occurred years ago and largely ignores

substantial changes made in the last 2 years. HHS agreed, however, that

there is room for improvement in the appeal process and in providing

information to consumers. The full text of HHS’ comments appears in

appendix III.

With regard to HHS’ concerns about our use of old information, the three

enforcement cases presented in this report were as timely a test of HCFA

processes as we could select at the time of our review. They were the only

cases identified by HCFA as either under investigation or having the

potential for legal action when we began our fieldwork in June 1994. In

addition, the South Florida quality assurance monitoring case was the first

HMO to undergo HCFA’s enhanced investigation effort to get at root causes

of problems.

HHS was also concerned that we did not examine important initiatives HCFA

has recently undertaken to improve its HMO quality assurance monitoring.

On the basis of additional information provided by HHS, we revised the

Page 20 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
B-259299 

report to recognize those initiatives that were relevant to the issues we

addressed. Although we agree that HCFA’s recent efforts have improved its

monitoring capability, they do not change our conclusion that HCFA’s

routine monitoring of HMOs’ quality assurance practices does not go far

enough to verify compliance with federal requirements. This is primarily

an issue of applying sufficient and appropriately trained staff to the task,

something recognized by HCFA’s own internal studies and endorsed by HCFA

operations staff we met with. Other issues that affect the quality of this

monitoring—including the clarity and currency of regulations and

standards—are the subject of ongoing HCFA studies.

HHS also disagreed with our position “that the number of times HCFA levies

monetary penalties against HMOs is a measure of the intensity of . . . [the

agency’s] . . . oversight efforts.” While we agree with HHS that monetary

penalties can “simply become a cost of doing business for HMOs,” our point

is that more aggressive enforcement can be more effective in bringing

about HMO compliance. Our emphasis was on limiting HMOs’ enrollment of

new members as a penalty until the HMOs can clearly demonstrate that they

have identified and corrected the root causes of problems. Our report also

highlights another method of enforcing HMO compliance, which focuses on

providing comparative HMO performance information to Medicare

beneficiaries, who make marketplace decisions in selecting particular

HMOs.

HHS noted that we should have more comprehensively compared HCFA and

NCQA quality assurance standards. This was not done for two reasons. The

difference between NCQA and HCFA reviews that we judged most relevant

was that NCQA reviews apply sufficient numbers of trained staff to provide

some verification that HMOs have effective quality assurance and utilization

management operations, while HCFA’s routine reviews do not. The

requirement for effective quality assurance and utilization management is

common to both organizations’ standards. Also, HCFA had a contract in

process to compare its standards and review process with NCQA’s and with

several others.

In the final analysis, our report emphasizes that HCFA is the primary

sponsor of Medicare beneficiaries’ interests when they enroll in HMOs. As

such, HCFA has a responsibility to be proactive in its role, by collecting and

publishing data to consumers in the marketplace, and by acting quickly

and firmly to protect beneficiary interests when it has indications of poor

care or abusive practices.

Page 21 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
B-259299 

As arranged with your offices, unless you announce its contents earlier,

we plan no further distribution of this report until 30 days after the date of

this letter. At that time, we will send copies to the Secretary of Health and

Human Services. We will also make copies available to others upon

request.

If you or your staffs have any questions about this work, please call me on

(202) 512-7123. Major contributors to this report are listed in appendix IV.

Sincerely yours,

Sarah F. Jaggar

Director, Health Financing

 and Public Health Issues

Page 22 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
Page 23 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
Contents

Letter 1

Appendix I 

Chronology of Events

in Two Recent

Enforcement Cases

26

Appendix II 

Scope and

Methodology

29

Appendix III 

Comments From the

Department of Health

and Human Services

30

Appendix IV 

Major Contributors to

This Report

34

Related GAO Products 36

Tables Table 1: An Example of an Ineffective Compliance Effort 7

Table I.1: An Illinois HMO Marketing Case History 26

Table I.2: A California HMO Case History—Claims, Appeals, and

Enrollment Processing

27

Figure Figure 1: Medicare Appeal Process 15

Page 24 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
Contents

Abbreviations

CAP corrective action plan

HCFA Health Care Financing Administration

HEDIS Health Plan Employer Data and Information Set

HHS Department of Health and Human Services

HMO health maintenance organization

NCQA National Committee for Quality Assurance

NDG Network Design Group

PRO peer review organization

QA quality assurance

SSA Social Security Administration

UM utilization management

Page 25 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
Appendix I 

Chronology of Events in Two Recent

Enforcement Cases

Table I.1: An Illinois HMO Marketing Case History

Time frame Activity

New

enrollment

in year

1990

Jan. HCFA reviews plan that the HMO proposes to purchase.

Based on troubles in Florida and Texas, HCFA starts investigation of marketing in all the HMO’s

markets. Investigation continues through 1992.

1991

Feb.

Mar.

HCFA notes that the HMO plans to raise marketing budget from $2.4 million to $6.4 million in fiscal

1991.

The HMO completes purchase of Chicago HMO.

1,525

1992

Mar.

Dec.

HCFA requests that HMO investigate high rate of early disenrollments and complaints about

marketing. HMO agrees that data indicate problem.

HCFA and HMO debate disenrollment data.

7,584

1993

Feb.

June

Sept.

Dec.

Routine HCFA site visit.

HCFA site visit report notes marketing area “met,” but disenrollments continue to be twice the national

average. HCFA to continue to monitor.

HCFA asks HMO to investigate complaints about high-pressure and illegal marketing practices.

HCFA meets with HMO to “encourage” it on sales agent turnover, early disenrollment. HMO questions

the accuracy of HCFA’s disenrollment data.

8,123

1994

Jan.

Mar.

Aug.

Nov.

HCFA decides to review HMO’s marketing operations.

HCFA conducts marketing review, then issues formal notice of investigation asking what the HMO will

do to correct apparent violations of Medicare law. HCFA also threatens notice in Federal Register and

suspension of enrollment.

HCFA acknowledges HMO’s corrective action plan and timetable to reduce early disenrollments.

HMO reports progress in reducing rate of early disenrollment.

12,360

1995

Apr. Target date for closing title 13 investigation.

3,802

Source: HCFA.

Page 26 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
Appendix I 

Chronology of Events in Two Recent

Enforcement Cases

Table I.2: A California HMO Case History—Claims, Appeals, and Enrollment Processing

Time frame Activity

New

enrollment

in year

1990

Aug. The HMO enters a Medicare risk contract as a competitive medical plan.

66

1991

Feb. HMO obtains its first service area expansion.

5,215

1992

Apr.

July

Aug.

Sept.

HCFA conducts its first monitoring visit and finds that HMO lacks systems to ensure timely payment of

claims and notification of denials.

HCFA approves a new service area expansion that was pending at the time of first monitoring visit.

HCFA report of first visit informs HMO that HCFA will withhold approval of any expansions until

acceptable corrective action is implemented.

HMO submits a corrective action plan (CAP).

HCFA finds HMO’s CAP insufficient to improve claims processing. HCFA meets with the HMO to

discuss revisions to CAP.

6,244

1993

Jan.

Feb.

Mar.

HMO submits an entirely new CAP addressing claims processing deficiencies.

HMO is granted third service area expansion.

HCFA approves HMO’s CAP.

10,009

1992-1994

HMO sends HCFA three progress reports indicating its medical groups are in compliance or near

compliance with federal claims processing requirements.

(continued)

Page 27 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
Appendix I 

Chronology of Events in Two Recent

Enforcement Cases

Time frame Activity

New

enrollment

in year

1994

Mar.

Apr.

May

June

July

Aug.

Nov.

Dec.

HCFA’s routine monitoring visit finds that claims processing problems persist; HMO does not provide

beneficiaries notice of denials and does not notify beneficiaries of reconsideration decisions within the

allowed 60 days.

HCFA monitoring report stops further service area expansion until HMO can demonstrate that its

operations are in compliance with Medicare standards.

HCFA sends HMO a letter of concern because several of the problems addressed in the 1992

monitoring report and corresponding CAP persisted.

HMO submits a CAP in response to the 1994 monitoring report.

HCFA approves 8 of 19 elements of HMO’s CAP.

HMO submits a significantly revised CAP to HCFA.

HCFA approves the 11 remaining elements of HMO’s CAP.

HCFA review of inquiries and complaints received from HMO’s members indicates problems in

enrollment and disenrollment. HCFA asks HMO to investigate.

HCFA evaluates HMO’s response. Because of problems in the HMO’s operations, HCFA warns HMO it

will evaluate the necessity of terminating Medicare contract.

13,503

1995

Jan.

Feb.

Mar.

Apr.

May

June

HCFA meets with HMO’s Chief Executive Officer over concerns raised by the influx of member-specific

problems received by HCFA.

HCFA conducts a follow-up visit.

HCFA reports substantial improvements in HMO’s processing of claims and appeals, but finds

significant problems in HMO’s handling of enrollments and disenrollments.

HCFA returns HMO’s application for a fourth service area expansion, until HMO can demonstrate

compliance with enrollment/disenrollment requirements. 

HMO submits a third CAP.

HCFA approves 10 of the 14 elements in HMO’s CAP.

HMO submits a new CAP on the rejected elements.

3,550

Source: HCFA.

Page 28 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
Appendix II 

Scope and Methodology

We reviewed HCFA’s current HMO monitoring and enforcement practices

and discussed them with managers and staff at HCFA’s Office of Managed

Care, Health Standards and Quality Bureau, Region IX—San Francisco,

Region IV—Atlanta, and Region V—Chicago. In addition, we interviewed

the PROs for California and Florida to obtain their views about the

Medicare HMO oversight process. We accompanied HCFA on an investigation

of quality assurance practices at a Florida-based HMO with a Medicare

contract. In addition, we selected ongoing enforcement cases to verify the

effectiveness of HCFA’s oversight practices. We contacted officials from the

HMOs cited as examples in this report.

We reviewed the statutory and regulatory requirements for the appeal

process and discussed them with HCFA staff at the Office of Managed Care.

We also interviewed a representative of Network Design Group, HCFA’s

contractor for processing appeals. In addition, we obtained and analyzed

data on the timeliness, types, and outcomes of beneficiary appeals to HCFA.

We also discussed with HCFA officials proposals for improving the appeal

process.

We discussed federal, state, and private review, licensing, and

accreditation practices with officials from Florida’s Agency for Health

Care Administration, the National Committee for Quality Assurance, the

Group Health Association of America, and the Los Angeles-based

consumer advocacy group, Center for Health Care Rights. We also

discussed beneficiaries’ rights to appeal denials of care with this group.

Page 29 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
Appendix III 

Comments From the Department of Health

and Human Services

Page 30 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
Appendix III 

Comments From the Department of Health

and Human Services

Page 31 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
Appendix III 

Comments From the Department of Health

and Human Services

Page 32 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
Appendix III 

Comments From the Department of Health

and Human Services

Page 33 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
Appendix IV 

Major Contributors to This Report

Edwin P. Stropko, Assistant Director, (202) 512-7108

Charles A. Walter, Evaluator-in-Charge, (202) 512-4337

Lourdes R. Cho, Senior Evaluator

Peter E. Schmidt, Advisor

Sandra K. Isaacson, Advisor

Page 34 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
Appendix IV 

Major Contributors to This Report

Page 35 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
Related GAO Products

Medicare: Opportunities Are Available to Apply Managed Care Strategies

(GAO/HEHS-T-95-81, Feb. 10, 1995).

Health Care: Employers Urge Hospitals to Battle Costs Using Performance

Data Systems (GAO/HEHS-95-1, Oct. 3, 1994).

Health Care Reform: “Report Cards” Are Useful But Significant Issues

Need to Be Addressed (GAO/HEHS-94-219, Sept. 29, 1994).

Medicare: HCFA Needs to Take Stronger Actions Against HMOs Violating

Federal Standards (GAO/HRD-92-11, Nov. 12, 1991).

Health Care: Actions to Terminate Problem Hospitals From Medicare Are

Inadequate (GAO/HRD-91-54, Sept. 5, 1991).

Medicare: PRO Review Does Not Assure Quality of Care Provided by Risk

HMOs (GAO/HRD-91-48, Mar. 13, 1991).

Medicare: Physician Incentive Payments by Prepaid Health Plans Could

Lower Quality of Care (GAO/HRD-89-29, Dec. 12, 1988).

Medicare: Experience Shows Ways to Improve Oversight of Health

Maintenance Organizations (GAO/HRD-88-73, Aug. 17, 1988).

Medicare and Medicaid: Stronger Enforcement of Nursing Home

Requirements Needed (GAO/HRD-87-113, July 22, 1987).

Medicare: Issues Raised by Florida Health Maintenance Organization

Demonstrations (GAO/HRD-86-97, July 16, 1986).

Problems in Administering Medicare’s Health Maintenance Organization

Demonstration Projects in Florida (GAO/HRD-85-48, Mar. 8, 1985).

(101315) Page 36 GAO/HEHS-95-155 Federal Oversight of Medicare HMOs
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