United States General Accounting Office

GAO Report to the Chairman, Subcommittee

on Health, Committee on Ways and

Means, House of Representatives

November 1995 MEDICARE

MANAGED CARE

Growing Enrollment

Adds Urgency to Fixing

HMO Payment

Problem

GAO/HEHS-96-21

GAO United States

General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

B-265995 

November 8, 1995

The Honorable William M. Thomas

Chairman

Subcommittee on Health

Committee on Ways and Means

House of Representatives

Dear Mr. Chairman:

Medicare has not yet harnessed the cost-saving potential of its managed

care option. In fact, Medicare has paid health maintenance organizations

(HMO) more for serving Medicare beneficiaries than it would have spent, on

average, had those same beneficiaries received care in the fee-for-service

sector.1

Proposals to reduce or even reverse these Medicare losses have been

discussed for roughly a decade. Lately, these proposals have received even

more interest because of recent deficit reduction proposals aimed at

slowing Medicare spending growth by moving more beneficiaries into

managed care.

As you requested, this report expands on our recent testimony before the

Committee on these issues.2

 Specifically, we discuss (1) current trends in

Medicare beneficiary enrollment in HMOs, (2) flaws in Medicare’s

rate-setting method preventing Medicare from realizing potential savings

from HMOs, (3) strategies to enable Medicare to realize HMO savings, and

(4) the Health Care Financing Administration’s (HCFA) efforts to test HMO

payment reforms.3 Our findings derive from examinations of Medicare

program data, reviews of the literature, interviews with industry experts,

discussions with HCFA officials, and our previous reports on this subject.

Our work was performed from April to September of 1995 in accordance

with generally accepted government auditing standards. A list of related

GAO products appears at the end of this report.

1

This overpayment applies to HMOs that participate in the risk contract program. Medicare pays risk

contract HMOs a fixed amount (a capitation payment) in exchange for providing a comprehensive set

of services to a beneficiary for a year. Most Medicare HMO enrollees belong to risk contract HMOs.

2

See Medicare Managed Care: Program Growth Highlights Need to Fix HMO Payment Problems

(GAO/HEHS-95-174, May 24, 1995) and Medicare: Opportunities Are Available to Apply Managed Care

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

3

References to Medicare managed care or Medicare HMOs in this report are directed only at the

participants of the Medicare risk contract program. Only under risk contracts does Medicare pay

HMOs a prospective capitated payment for each enrollee.

Page 1 GAO/HEHS-96-21 Medicare Managed Care
B-265995 

Results in Brief Recently, enrollment of Medicare beneficiaries in HMOs has grown rapidly,

concentrated in certain states and areas. Although to date Medicare HMOs

have enrolled less than one-tenth of beneficiaries nationwide, since 1994

enrollment growth has exceeded 20 percent annually. In 1994, double-digit

enrollment growth occurred in 15 states, but growth was virtually nil in the

remaining 35 states. This rapid growth in HMO enrollment highlights the

urgency of correcting Medicare’s excessive payment rates to

HMOs—particularly in some areas. Likewise, enrollment stagnation

elsewhere highlights the need to examine the causes of payment rate

disparities among states and counties.

As we have reported,4

 for 10 years, Medicare has used an HMO rate-setting

method with several flaws. Specifically, because HMO payment rates are

fixed—linked to the average cost of Medicare fee-for-service

care—Medicare cannot lower rates through competition among HMOs or

negotiate a share in any savings that HMOs achieve through greater

efficiency. Also, HMO payment rates are not adequately “risk adjusted” to

reflect cost differences deriving from beneficiaries health status. Although

HMO enrollees typically have been healthier (and therefore less costly to

care for) than average beneficiaries, Medicare has paid HMOs on the basis

of average costs. Consequently, Medicare has paid HMOs more than it

would have for the same patients’ care under fee for service. Finally, HMO

payment rates are based on county fee-for-service costs, which can vary

considerably because of utilization differences. As a result, Medicare’s low

rates deter HMO participation in some areas, while its high rates cause

overpayments in other areas. While overpayments can result in lower

premiums or expanded benefits to HMO enrollees, preventing

overpayments can potentially realize significant budget savings.

We have identified three promising strategies that Medicare with new

legislative authority could use concurrently, tailoring strategies to market

conditions prevailing in an area. First, in some areas, Medicare could set

HMO payment rates through competitive bidding among HMOs—as the

Arizona Medicaid program has done—or by negotiating with HMOs—as the

California Public Employees Retirement System (CalPERS) has done.

Second, HCFA, which oversees Medicare, could modify its HMO rate-setting

formula to include a health status risk adjuster. More accurate risk

adjustment can both increase savings from a formula-based rate-setting

methodology and strengthen a competitive bidding approach. Third, HCFA

could quickly reduce payments to HMOs by requiring larger discounts

4

Medicare: Changes to HMO Rate Setting Method Are Needed to Reduce Program Costs

(GAO/HEHS-94-119, Sept. 2, 1994).

Page 2 GAO/HEHS-96-21 Medicare Managed Care
B-265995 

(more than the statutory 5 percent) from HMOs in areas where market data

indicate that HMO payment rates are too high. This is a cruder way to adjust

rates to market conditions than competitive bidding is but is appropriate

where bidding is problematic or when immediate budget savings are

desired.

HCFA is planning demonstration projects using the first two

strategies—competitive bidding and improved risk adjustment—but

results of a full-scale evaluation of these projects are at least several years

away. In the interim, HCFA should act promptly to gather and use valuable

design and implementation information as it becomes available. HCFA’s

legislative authority to conduct these projects does not address managed

care options explicitly, however, which raises questions about HCFA’s

authority to mandate HMO participation in the projects. Unless HMO

participation is mandatory, HCFA may find it difficult to complete

meaningful demonstration projects involving managed care options. HCFA

may wish to seek from the Congress additional legislative authority. In the

near term, HCFA could also introduce a more accurate risk adjuster to stem

growing losses.

Background The Congress created the Medicare risk contract program in 1982 to

capitalize on the potential cost savings associated with HMOs. Under this

program, HMOs are paid a flat fee for each Medicare beneficiary enrolled.

The law sets HMO payments for comprehensive care at 95 percent of the

estimated average cost (to Medicare) of treating the patient in the

fee-for-service sector. HCFA calculates these payment rates using a

three-step process in which it determines the following:

• The base rate: HCFA calculates the projected Medicare expenses

nationwide for the average beneficiary in the next year.

• The adjusted average per capita cost (AAPCC): HCFA adjusts the base rate for

differences in medical costs among geographic areas, generally counties,

and multiplies the result by 0.95.

• The capitation rate after adjusting for health status risk: HCFA adjusts the

AAPCC for enrollees’ demographic characteristics—age, sex, Medicaid

eligibility, and residence in an institution such as a nursing home. This risk

adjustment attempts to prevent HMOs from benefiting from favorable

selection of health risks, which occurs when HMOs enroll beneficiaries who

are healthier—and therefore less costly to care for—than those in the

fee-for-service sector.

Page 3 GAO/HEHS-96-21 Medicare Managed Care
B-265995 

Although in existence for over a decade, the risk contract option remains a

relatively small part of the Medicare program. As of May 1995, about

7 percent of Medicare beneficiaries were enrolled in plans offered by the

164 HMOs participating in the program.

Beneficiary

Enrollment Growing

in Medicare’s Risk

Contract Program

Enrollment in the Medicare risk contract program may grow substantially

in the next few years. HCFA reports that three-fourths of all Medicare

beneficiaries now live in areas where they could enroll in a risk contract

HMO. Although beneficiary enrollment in these HMOs is relatively low, the

program has grown dramatically in recent years in both beneficiary

enrollment and HMO participation.

As of May 1995, about 2.6 million beneficiaries—about 7 percent of the

total Medicare population—were enrolled in the risk contract program.5

Figure 1 shows that the percentage of Medicare beneficiaries enrolled is

significantly higher than the national average in only a few states. HMO

enrollment is further concentrated in urban areas. The 5 metropolitan

statistical areas (MSA) with the largest risk contract enrollments accounted

for 34 percent of nationwide risk program enrollment in 1995, and the top

10 MSAs accounted for 51 percent of nationwide risk program enrollment.

Enrollment data for the top 100 MSAs appear in appendix II.

5

Another 2 percent of Medicare beneficiaries belong to HMOs that either have cost contracts or are

Health Care Prepayment Plans. These programs reimburse HMOs on a cost basis and lack the financial

incentives of risk contracts to reduce costs. Consequently, cost contract HMOs are not relevant to

proposals that would expand Medicare’s use of capitated health plans.

Page 4 GAO/HEHS-96-21 Medicare Managed Care
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Figure 1: Percent of Beneficiaries Enrolled in HMOs With Risk Contracts, by State, 1994

5 Percent or Less

6 to 19 Percent

20 Percent

Note: Data used to construct figure 1 appear in appendix I.

Source: HCFA Bureau of Data Management and Strategy. Enrollment information based on

computer runs using the Denominator File.

Although the HMO share nationwide is small, recent HMO enrollment of

Medicare beneficiaries has grown rapidly. From 1990 through 1992,

enrollment grew by about 13 percent annually but, during 1993 and 1994,

grew by an annual average of 23 percent.6

 Preliminary data for 1995

6

Based on HCFA data. Growth for 1993-1994 is defined as the percent change in enrollment from

January 1, 1993, through December 31, 1994.

Page 5 GAO/HEHS-96-21 Medicare Managed Care
B-265995 

suggest a growth rate approaching 30 percent. Similarly, the number of

risk contract HMOs, which declined substantially during the early years of

the program, has nearly doubled since 1991 from 83 to the current 164.

(See fig. 2.)

Figure 2: Number of Beneficiaries

Enrolled in HMOs With Risk Contracts,

1987-95

Millions

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

1987 1988 1989 1990 1991 1992 1993 1994 1995

Year

Source: HCFA Office of Managed Care.

In 1994, the HMO enrollment rate in California and 14 other states—whose

enrollees account for 55 percent of all Medicare

beneficiaries—experienced double-digit increases. (See fig. 3.) Enrollment

rates in other states showed no growth. For the most part, these states

have had extremely low HMO market penetration.

Page 6 GAO/HEHS-96-21 Medicare Managed Care
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Figure 3: Fifteen States Had Double-Digit Increases in Medicare HMO Enrollment Rates in 1994

Insignificant or No Growth in Enrollment Rate

Increase in Enrollment Rate of 10 Percent or More

Note: States that had 1 percent or fewer Medicare beneficiaries enrolled in risk contract HMOs

were classified as “insignificant or no growth” states. Hawaii, with a growth rate of 6 percent in

1994, was also classified in that group. Data used to construct figure 3 appear in appendix II.

Source: HCFA Bureau of Data Management and Strategy. Enrollment information based on

computer runs using the Denominator File.

HMO Rate-Setting

Methodology Thwarts

Medicare’s Efforts to

Realize Savings

Our work suggests that Medicare’s HMO rate-setting methodology does not

maximize the potential of managed care to yield cost savings and, in some

cases, can even discourage HMO participation in the program. By linking

HMO payments to Medicare costs in the fee-for-service sector, the current

methodology causes three problems. First, the rate-setting formula

Page 7 GAO/HEHS-96-21 Medicare Managed Care
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restricts potential savings and ignores the ability of competitive market

forces to help produce additional savings. Second, the lack of adequate

risk adjusters in the formula allows some HMOs to be overcompensated

given the health status of their enrollees. Third, the formula may

discourage plan participation by setting payments that are too low in some

areas and by causing rates to vary greatly both among geographic areas

and over time.

Formula Encourages

Competition Between

HMOs That Primarily

Benefits Enrollees

Under the present system, Medicare pays all HMOs in a county the same

capitation (base) rate.7

 With the payment rate fixed and independent of

both HMO costs and the competitiveness of the local managed care

environment, HMOs compete only for the enrollment of Medicare

beneficiaries. Efficient, low-cost HMOs may be able to offer more generous

benefit packages to enrollees and still prosper under the fixed capitation

rate. Because the payment rate is fixed, however, the government derives

little benefit from HMOs’ increased competition or increased efficiency.

Moreover, Medicare beneficiaries have only limited incentives to seek care

from low-cost health plans.

Medicare may be underestimating HMOs’ efficiency and requiring an HMO

discount from fee-for-service costs that is too modest. The HMO capitation

rate is set by statute at 95 percent of the AAPCC: in other words, 5 percent

below the estimated cost of serving beneficiaries in the fee-for-service

sector. HMOs that can attract Medicare enrollees and provide health care

for less than the capitation rate—for example, for 85 percent of

fee-for-service costs—keep the difference (within limits) between their

costs and the capitation payment.8

The recent surge in HMO participation indicates that many organizations

now view Medicare risk contracts as potentially lucrative. In addition, in

caring for Medicare beneficiaries, HMOs are estimated to achieve cost

savings in excess of 5 percent. Research suggests that HMO costs for caring

for their enrollees are at least 10 percent less than HCFA would have spent

7

All HMOs in a county are assigned the same base payment rate per enrollee, but actual Medicare

payment rates will equal the base rate adjusted up or down to account for each enrollee’s demographic

factors of age, sex, institutional status, and Medicaid status.

8

HMOs are permitted to earn profits up to the rate earned on their non-Medicare business—the

adjusted community rate (ACR). Profits earned in excess of the ACR must either be used to provide

beneficiaries with additional benefits or reduced copayments and deductibles or returned to the

federal government.

Page 8 GAO/HEHS-96-21 Medicare Managed Care
B-265995 

on fee-for-service care for them.9 Finally, some experience of

private-sector employers with HMOs suggests that the 5-percent discount

may be too low, especially in certain urban areas with mature managed

care markets. In those markets, even a larger discount (lower capitation

rate) might not significantly discourage HMOs’ participation in Medicare

risk contracts.10

Risk Adjustment

Methodology Inadequate to

Prevent Overcompensation

HCFA’s capitation payment to HMOs is currently risk adjusted for only four

demographic factors: beneficiary age, sex, Medicaid status, and

institutional status. These adjustments are designed to modify HMO

payments for expected variations in medical costs. For example, the

capitation payment is higher for older beneficiaries because they are

expected to require more medical care than younger beneficiaries. This

risk adjustment is inadequate, however, because it does not specifically

adjust for the health status of enrollees. By enrolling the healthier

individuals, HMOs deliver less health care but are compensated as if they

had enrolled a costlier clientele of both the healthier and the sicker

individuals.11

Our review of studies on risk selection shows that, because most HMOs

benefit from favorable selection (the healthier individuals typically enroll

in HMOs), Medicare has paid HMOs more than it would have paid for the

same patients’ care by fee-for-service providers.12,13 Estimates of the

excess payments range from almost 6 percent to 28 percent. However,

these estimates have been criticized as too high for various technical

reasons, such as the data analyzed (from 1991) no longer reflect current

9

Randall S. Brown and others, “Do Health Maintenance Organizations Work for Medicare?” Health

Care Financing Review, Vol. 15, No. 1 (1993), p. 14.

10However, a lower capitation rate could result in reduced additional benefits or higher premiums to be

paid by HMO enrollees and possibly discourage some Medicare beneficiaries from joining risk-based

HMOs.

11HCFA uses administrative means, such as prohibiting HMOs from refusing to enroll beneficiaries

with preexisting conditions and monitoring HMO marketing materials, to lessen the ability of HMOs to

purposely attract healthier than average beneficiaries.

12Medicare: Changes to HMO Rate Setting Method Are Needed to Reduce Program Costs, pp. 21-23.

13Favorable selection—combined with Medicare’s linkage of HMO rates to average Medicare costs in

the fee-for-service sector—can increase Medicare outlays in two related ways. First, because Medicare

HMO beneficiaries are healthier on average, their treatment costs the HMOs less, on average, than the

capitation rate Medicare pays HMOs—even after that base rate is risk adjusted by HCFA for

demographic factors. (In other words, Medicare pays more for HMO enrollees than if they had

remained in fee for service.) Second, favorable selection causes the average fee for service costs to

increase as healthier (than average) beneficiaries leave fee for service to join the HMOs. Because the

average fee for service costs are now higher, the HMO base payment rate increases.

Page 9 GAO/HEHS-96-21 Medicare Managed Care
B-265995 

conditions.14 Nonetheless, our review suggests that favorable selection

persists despite HMO enrollment expansion. HCFA officials agree that the

risk contract program displays favorable selection, though they believe

that excess payments are at the lower end of this range.

Formula Produces

Capitation Rates That Vary

Considerably Within

Market Areas

Capitation rates are set separately for each U.S. county and vary

considerably nationwide among regions and states, urban and rural

counties, and even neighboring counties. This variation may discourage

some HMOs from participating in risk contracts. For example, under the

present system, an HMO is paid 27 percent less for serving a beneficiary

living in Montgomery County, Maryland, than for serving an otherwise

identical beneficiary living in neighboring Prince George’s County,

Maryland—even if the two individuals are treated in the same facility by

the same doctor.15 The disparity of payment rates among counties leads

some HMOs to enroll beneficiaries from a limited portion of their service

area.

The formula’s link to local fee-for-service spending, which reflects local

variations both in the price and volume of medical services used by

Medicare beneficiaries, causes the disparity of the capitation rates among

areas. Much of the occurring variation may, however, be attributable to

underutilization of health care in some areas and overutilization in others

instead of differences in the cost of providing appropriate health care. If

fee-for-service beneficiaries use a large volume of services (either because

beneficiaries demand these services or because their doctors order

additional services), then HMO payment rates will be relatively high in that

county. In contrast, if Medicare fee-for-service beneficiaries use few

services—perhaps because of inadequate transportation or a lack of

providers in rural areas—then HMO payment rates will be relatively low. As

a result, rates in some areas are too low to induce HMO participation in the

risk contract program, while rates in other areas are too high for Medicare

to realize the potential cost savings generated by capitated payments.

14For example, Laurance Baker, Can Managed Care Control Health Care Costs: Evidence From the

Medicare Experience, The National Institute for Health Care Management (June 1995) suggests that

Medicare HMOs drive down Medicare costs in the fee-for-service sector, offsetting the effects of

favorable selection. Other research finds that the proportions of chronically ill individuals in HMOs

and in the fee-for-service sector are roughly comparable (see Group Health Association of American,

HMOs and Medicare: Myths and Realities (Washington, D.C.: 1995).

15Capitation payments are based upon beneficiary residence, not medical care delivery site.

Page 10 GAO/HEHS-96-21 Medicare Managed Care
B-265995 

Strategies Exist for

Medicare to Realize

Savings

Modifying the present payment system could help generate Medicare

savings. Our review of the private sector’s experience, reforms in other

public health care programs, and empirical research suggests that several

strategies hold promise. These strategies fall into three broad categories:

fostering price competition among HMOs, developing better risk adjusters,

and revising the AAPCC-based capitation rate.

In our view, HCFA could generate the most Medicare savings if it would

pursue strategies in all three categories concurrently. Trying to address all

obstacles in a uniform way in all regions of the country is likely to fail.

This is because the predominant challenges to saving costs in large cities

are not necessarily the same ones that exist in rural counties and because

the challenges vary from region to region even for otherwise similar

communities. Consequently, a variety of strategies is warranted; local

conditions would determine the particular strategies for any specific area.

The details of implementing any strategy are important. Changing

Medicare’s rates for paying HMOs could affect their decision to participate

in risk contracts and the benefits they provide. This, in turn, could affect

Medicare beneficiaries’ decisions to enroll in managed care plans and the

quality of care they receive in those plans. Thus, estimating the dollar

savings and determining the best method of implementing specific

strategies would be possible only after quickly conducting and evaluating

demonstrations.

Fostering Price

Competition Among HMOs

Requiring qualified HMOs to submit competitive bids could encourage price

competition that would enlist market forces to help contain Medicare

costs. The accepted bid would set the capitated rate at which HMOs would

provide comprehensive care to Medicare enrollees in an area. This

approach completely decouples capitation rates from average

fee-for-service spending. Under a competitive bidding system, HMOs would

have an incentive to submit bids that reflect their actual costs of providing

health care to Medicare enrollees. Low bidders would be rewarded with

risk contracts. High bidders could be excluded, included if they accepted

the winning bid amount, or included but subject to a financial penalty.

A competitive bidding strategy would be most effective in locations likely

to attract many bidders—typically urban areas with well-developed

managed care markets. Table 1 indicates that competitive bidding looks

promising in at least 17 urban areas (accounting for about 50 percent of all

risk contract beneficiaries) because each has 10 or more participating

Page 11 GAO/HEHS-96-21 Medicare Managed Care
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HMOs. Competitive bidding might not be viable, however, in at least 47

other urban areas (accounting for about 11 percent of enrollees) where

three or fewer HMOs participate in Medicare. Unless the competitive

bidding structure were to attract additional HMOs, many locations likely

would not be good candidates for determining HMO rates through

competitive bidding.16 Consequently, an alternative rate-setting

methodology would need to coexist with a competitive bidding approach.

Table 1: Distribution of HMO Risk

Contract Plans in Urban Areas

HMO risk contract plans

per urban area Number of urban areas

HMO risk contract

enrollment as percent of

total risk enrollment (Dec.

1994)

1 13 .8

2 22 3.3

3 12 5.7

4 9 4.5

5 11 12.1

6 4 2.7

7-9 9 17.5

10 and over 17 50.4

Total 97 97.0

Source: Our analysis of HCFA data. March 1995 data, adjusted to exclude plans with fewer than

100 enrollees, were used to determine the count of plans per area. Urban areas are MSAs.

Competitive bidding, rate negotiation, and beneficiary incentive

approaches have been used successfully in other public health insurance

programs. Arizona, for example, since 1982 has delivered health care to its

indigent population mostly through capitated managed care organizations

in which the capitation rates are set through a competitive bidding

process. A recent study concluded that, compared with traditional

Medicaid programs (predominately fee for service), Arizona achieved

significant cost savings and a lower rate of expenditure growth.17 CalPERS,

serving about 1 million members, also relies on price competition among

health plans and consumer incentives to control costs. Negotiating rates

with HMOs has helped CalPERS to reduce premiums in each of the past 3

16If competitive bidding results in reducing HMO payment rates from current levels, as is expected,

plans currently outside the risk contract program will be less likely to participate. Nonetheless, even

nonparticipating HMOs can help increase competitive pressures but only if other HMOs believe that

the nonparticipating ones might enter the bidding.

17Managed Medicaid Cost Savings: The Arizona Experience, Laguna Research Associates (San

Francisco: 1994).

Page 12 GAO/HEHS-96-21 Medicare Managed Care
B-265995 

years; reductions ranged from 0.4 percent in 1993-94 to 5.2 percent in

1995-96.18

Designing a good competitive bidding system requires attention to many

issues, such as whether beneficiaries in plans that lose the bidding must

shift to the winning plan. In addition, savings may not be realized

immediately because of high initial start-up costs—for example,

developing the bidding process and establishing the necessary

management information systems. Administrative expenses may be high

as well.

Arizona’s experience illustrates these points. Arizona spends on Medicaid

administration an amount equal to over 7 percent of its program’s acute

care medical costs. This is more than comparable states spend on

administering their traditional fee-for-service Medicaid programs. This

suggests that the effective use of managed care may require strong

administrative structures to adequately oversee and efficiently manage

program resources.19 Even so, Arizona’s experiment with competitive

bidding has succeeded in providing health care to beneficiaries while

saving the state money.

Other strategies besides competitive bidding could introduce market

forces. These include strategies to encourage Medicare enrollees to be

more price sensitive. Such strategies range from requiring newly eligible

Medicare beneficiaries who choose a fee-for-service plan to pay slightly

more than beneficiaries who choose a managed care plan to approaches

that would allow beneficiaries to “price shop” from a list of approved HMOs

and share a portion of any cost savings with the government. Because

these strategies are so far untried, the extent to which they would increase

beneficiaries’ price sensitivity and help control Medicare costs is

unknown. As with competitive bidding, a wide variety of approaches may

18Health Insurance: California Public Employees’ Alliance Has Reduced Recent Premium Growth

(GAO/HRD-94-40, Nov. 22, 1993) and Responsible Choices for Achieving Reform of the American

Health System, eds. Paul Ellwood and Alain Enthoven, Jackson Hole Group (Jackson Hole: 1995).

19Our work on the Medicare risk contract program emphasizes the importance of effective

mechanisms, whether administrative or market based, to ensure quality, resolve beneficiaries’

complaints, and deter and pursue fraud and abuse.

Page 13 GAO/HEHS-96-21 Medicare Managed Care
B-265995 

be used to implement these strategies. A fuller discussion of such

approaches, however, is beyond the scope of this report.20

Improving Risk Adjusters In earlier reports, we noted that researchers have proposed several

alternative risk adjustment methods to reduce HMOs’ incentives to enroll

only relatively healthy Medicare beneficiaries. Each of these alternative

methods attempts to measure the health status of enrollees more fully

than HCFA’s method and can be judged according to several generally

accepted operational criteria. For example, a good risk adjuster would be

inexpensive to administer, reduce favorable selection, create incentives

for HMOs to provide appropriate care, and not be subject to manipulation

by participating HMOs. No single risk adjuster is likely to exhibit all these

positive traits, however, because these criteria have trade-offs. For

example, a more complex risk adjuster may better succeed in reducing

favorable selection but may do so only at a high administrative cost.

Recently, we evaluated 10 possible risk adjusters.21 None emerged as the

definitive solution to the current method’s problem. However, 4 of the 10

adjusters we examined were potentially superior to the current method

and seemed to entail less administrative burden than the most

sophisticated risk adjusters. One of these adjusters—clinical

indicators—would adjust capitation rates for the presence or absence of a

particular chronic health condition (such as heart disease, stroke, or

cancer). Two other promising clinically based risk adjusters include

information not only on a beneficiary’s specific condition but also on its

severity.22 In the fourth approach, HMO capitation payments would be

linked to beneficiaries’ own views of their physical and emotional health.

Improving the AAPCC

Capitation Rate

With new legislative authority, HCFA could require steeper discounts from

HMOs than the present 5-percent discount off the estimated local

fee-for-service cost. Although this would lower payments to HMOs, it may

not necessarily have a large impact on their participation in Medicare risk

20For example, under several proposals, beneficiaries could be given a voucher that would allow them

to choose between traditional Medicare or among several qualified HMOs. HMOs would compete for

enrollees on both price and benefits offered (subject to a minimum benefits requirement).

Beneficiaries who choose a less expensive health plan would be allowed to keep a part of the

difference between the premium cost and voucher amount; the rest would return to the federal

Treasury. However, Medicare has tried neither vouchers nor other proposals with similar consumer

incentives.

21Medicare: Changes to HMO Rate Setting Method Are Needed to Reduce Program Costs.

22The two risk adjustment measures are Ambulatory Care Groups (ACG) and Diagnostic Cost Groups

(DCG).

Page 14 GAO/HEHS-96-21 Medicare Managed Care
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contracts. Previous research indicates that enrollment of healthier than

average beneficiaries, combined with an imperfect method of risk

adjustment, results in excessive payments to HMOs—even after factoring in

the 5-percent discount. Recent evidence suggests that HMOs find

participation in the risk contract program to be lucrative under current

payment rates. Specifically, the number of HMOs obtaining risk contracts

has increased from 109 to 164 in less than a year and a half, and the

percentage of risk contract HMOs charging Medicare beneficiaries a zero

premium has increased from 28 (23 plans) in 1993 to 49 (77 plans) in 1995.23

Thus, HMOs may continue to find Medicare risk contracts attractive—even

at a somewhat larger discount. However, if health plans react by offering

less generous benefit packages, fewer seniors may be attracted to HMOs,

and some current enrollees may disenroll.24

The method used for calculating the AAPCC could also be improved by

assigning a greater weight to the influence of local medical prices and a

lesser weight to the influence of local service utilization patterns in the

fee-for-service sector. Modifications could also be made so that the AAPCC

would reflect HMO market areas rather than artificial political boundaries.

For example, defining a single capitation rate for a metropolitan area

would eliminate the possibility that an HMO would receive more for serving

a senior in one county than it would for serving an otherwise identical

senior in an adjacent county. These changes would also tend to reduce the

volatility of the AAPCC over time and consequently increase HMO

participation in the risk contract program.25

HCFA Plans Tests of

HMO Payment

Reforms

HCFA is planning to conduct demonstration projects to examine several

proposals for modifying or replacing the current method of determining

payment rates to HMOs. Early results from some demonstrations could

emerge during fiscal year 1996, but we believe that a thorough assessment

of the demonstrations is, at best, several years away. The projects are at

various stages, from solicitation of proposals from private contractors to

23The weighted (by number of beneficiaries) average monthly premium charged to Medicare enrollees

by participating HMOs was about $26 in 1993 and fell 32 percent to about $18 by 1995. In 1993, nearly

726,000 beneficiaries paid no premium for HMO risk contract services; in 1995, more than 1.4 million

paid no premium. An HMO may lower the premium it charges to comply with statutory requirements

to return to Medicare or its Medicare enrollees any profits from its risk contract business that exceed

its profit rate on its non-Medicare enrollment. Compared to giving the excess profits to the U.S.

Treasury, reducing beneficiary premiums has obvious advantages for the HMO.

24We anticipate issuing a report in late 1995 that uses econometric methods to estimate the extent to

which HMO enrollment would drop if Medicare payment rates were reduced.

25Annual Report to Congress 1995, Physician Payment Review Commission (Washington, D.C.: 1995).

Page 15 GAO/HEHS-96-21 Medicare Managed Care
B-265995 

implementation of the demonstration. Table 2 summarizes information

about the demonstration projects.

Table 2: Ongoing and Planned HCFA

Demonstration Projects Under the Risk

Contract Program

Project Objective Status

Amend current prospective

risk adjustment methodology

by introducing outlier pools.

(This retrospective approach

entails giving HMOs

additional payments for very

high-cost beneficiaries or

“outliers.”)

Supplement current risk

adjustment of rates to

further reduce incentive of

plans to avoid high-cost

beneficiaries.

Demonstration about to

enter implementation phase.

Medicare Choices project

offers flexibility in contracting

requirements and payment

methods for health plans and

other organized delivery

systems seeking to

participate in the Medicare

program.

Test receptivity of

beneficiaries and evaluate

suitability for Medicare of

delivery system innovations

such as preferred provider

organizations, open-ended

HMOs, point-of-service

plans, integrated delivery

systems, and primary care

case management systems.

Pre-applications received

August 1995. Awards

should be made in early

1996.

Use competitive bidding to

set rates, combined with a

coordinated open enrollment

process. (Beneficiaries select

an HMO or fee-for-service

option during a single open

season, perhaps once a

year, rather than throughout

the year.)

Introduce competitive

market forces into HMO rate

setting and examine the

advantages of coordinating

the enrollment process.

Design work began in 1995.

Demonstration likely in 1996.

Research on the risk

adjustment potential of two

health status measures

(versions of ACGs and

DCGs).

Reduce potential for

favorable or adverse

selection of beneficiaries.

Demonstration anticipated

to begin in 1996.

While hopeful that these demonstrations will provide valuable information

on alterative payment approaches, HCFA officials believe that the design

and results for some projects could be improved if the legislative authority

to conduct demonstrations were expanded. HCFA’s legislative authority,

established in 1967 and modified in 1972, does not discuss Medicare

managed care options explicitly. This limits HCFA’s ability, for example, to

mandate that HMOs remaining in the Medicare program participate in a

demonstration.

Page 16 GAO/HEHS-96-21 Medicare Managed Care
B-265995 

In our view, these demonstration projects are steps in the right direction.

Nonetheless, in light of Medicare’s current losses due to the risk contract

program—estimated at between $0.8 billion and $4.0 billion per

year—HCFA might take other, more immediate steps to stem losses.26 For

example, the Congress could grant HCFA authority to increase the HMO

discount from its current 5 percent in certain areas. These might be areas

where Medicare HMO enrollment is growing rapidly or where most HMOs do

not currently charge beneficiaries a premium for expensive extra benefits.

Conclusions HMOs appear to provide care to Medicare beneficiaries at lower cost than

traditional fee-for-service care, but Medicare’s method of paying HMOs has

limited the program’s ability to save money for the federal budget and the

taxpayer. The potential savings from fixing Medicare’s payment method

have grown along with the number of Medicare HMO enrollees, which has

risen rapidly in certain urban areas.

To realize these savings requires redesigning Medicare’s HMO payment

method by correcting three flaws. First, the rigidity of the forumula-based

fixed payment rate does not allow Medicare to capitalize on the

competition among HMOs that, in the private market, leads to lower rates.

Second, rate adjustment for differences in beneficiaries’ health status are

so imprecise that Medicare overpays HMOs that enroll beneficiaries in good

health. Third, the method’s reliance on a county’s fee-for-service health

care costs to establish a payment rate produces rates that vary

considerably within market areas. The government does not benefit from

the low rates because they deter HMOs from enrolling Medicare

beneficiaries. Moreover, the government incurs excess costs because high

rates overcompensate HMOs that do participate.

With respect to pricing capitated health plans in Medicare, we believe that

one size does not fit all. Market conditions vary too much and in important

ways, even among metropolitan areas.

A sensible approach would be to pursue three promising strategies

concurrently—foster price competition among HMOs, improve risk

26These annualized estimates of the dollar value of excess payment were derived from (1) HCFA data

on costs of only the risk contract program for the first quarter of fiscal year 1995, and (2) the estimated

excess payments as a percent of current outlays presented in previous studies (which range from 5.7

to 28 percent). (See Medicare: Changes to HMO Rate Setting Method Are Needed to Reduce Program

Costs, pp. 21-23.) These estimates probably understate the amount of excess payments since

December 1994 because both HMO enrollment and HMO payment rates have increased since the end

of 1994.

Page 17 GAO/HEHS-96-21 Medicare Managed Care
B-265995 

adjusters’ accuracy, and allow for adjustments in the current formula to

reflect market competition and HMOs’ local health care costs.

Recently, HCFA initiated two steps to correct the current payment method.

First, it solicited proposals from private contractors to plan a

demonstration project on competitive bidding. Second, it began work on

two demonstration projects on improved risk adjustment—one soon to be

implemented, the other to begin in 1996.

These HCFA projects are steps in the right direction, but considerable time

will elapse before the results are fully evaluated. Consequently, HCFA needs

to complement longer term improvements with quick action to mitigate

Medicare losses as risk contract HMO enrollment grows. For example, HCFA

needs to implement a better risk adjuster quickly. HCFA can select from

four risk adjusters that we identified last year as showing promise in

accuracy and administrative feasibility. Furthermore, in implementing a

new risk adjuster, or testing any new rate-setting approach, HCFA could

adopt a strategy to reduce its response time to lessons learned from

project results. This would entail developing information on the design

and implementation of the new approach while testing is under way,

without waiting for comprehensive evaluation results.

Matters for

Consideration

In light of the increasingly urgent need to realize savings from the

Medicare HMO program and to develop viable new methods of paying HMOs,

Congress may wish to

• consider giving the Secretary of the Department of Health and Human

Services authority to selectively reduce Medicare HMO payment rates (the

AAPCC rate) in areas where market data indicate that the Medicare rates are

too high and

• expand HCFA’s authority to mandate HMO participation in demonstration

projects in order to conduct more meaningful studies of alternative

payment methods.

Agency Comments The Department of Health and Human Services reviewed a draft of this

report and provided written comments. All of the comments were of a

technical or clarification nature and have been addressed in the report

where appropriate.

Page 18 GAO/HEHS-96-21 Medicare Managed Care
B-265995 

Copies of this report are being sent to the Secretary of Health and Human

Services, the Administrator of HCFA, and other interested parties. We will

also make copies available to others upon request.

Please call me at (202) 512-7119 or Scott Smith, Assistant Director, at

(202) 512-5713 if you or your staff have any questions about this report.

Jonathan Ratner

Associate Director

Health Financing Issues

Page 19 GAO/HEHS-96-21 Medicare Managed Care
Contents

Letter 1

Appendix I 

Enrollment in

Medicare Risk

Contract HMOs by

State

22

Appendix II 

Enrollment in

Medicare Risk

Contract HMOs by

MSA (Top 100 MSAs

Ranked by Number of

Medicare Enrollees)

24

Related GAO Products 28

Tables Table 1: Distribution of HMO Risk Contract Plans in Urban Areas 12

Table 2: Ongoing and Planned HCFA Demonstration Projects

Under the Risk Contract Program

16

Figures Figure 1: Percent of Beneficiaries Enrolled in HMOs With Risk

Contracts, by State, 1994

5

Figure 2: Number of Beneficiaries Enrolled in HMOs With Risk

Contracts, 1987-95

6

Figure 3: Fifteen States Had Double-Digit Increases in Medicare

HMO Enrollment Rates in 1994

7

Page 20 GAO/HEHS-96-21 Medicare Managed Care
Contents

Abbreviations

AAPCC adjusted average per capita cost

ACG Ambulatory Care Group

ACR adjusted community rate

CalPERS California Public Employees’ Retirement System

DCG Diagnostic Cost Group

HCFA Health Care Financing Administration

HMO health maintenance organization

MSA medical savings account

MSA metropolitan statistical area

Page 21 GAO/HEHS-96-21 Medicare Managed Care
Appendix I 

Enrollment in Medicare Risk Contract

HMOs by State

State

Number of

beneficiaries

enrolled in a risk

HMO, December

1994

Rate of enrollment in

a risk HMO,

December 1994

Percent change in

rate of enrollment in

a risk HMO (Dec.

1993-Dec. 1994)

California 929,849 26.30 27.87

Florida 366,003 14.30 13.38

Arizona 151,162 26.00 15.50

New York 103,427 4.00 27.99

Oregon 93,248 20.40 10.32

Texas 82,103 4.10 51.13

Washington 80,669 12.10 14.21

Illinois 66,449 4.20 11.25

Minnesota 60,770 9.90 –1.68

Pennsylvania 55,455 2.70 77.13

Colorado 49,175 12.00 17.90

Massachusetts 42,019 4.60 31.26

Hawaii 40,886 28.20 6.03

Nevada 35,514 19.40 23.24

New Mexico 27,569 13.50 48.49

Ohio 19,790 1.20 12.72

Oklahoma 12,663 2.70 26.08

Missouri 11,606 1.40 4.27

Rhode Island 8,328 5.10 –16.37

Michigan 7,335 0.60 –0.03

New Jersey 6,785 0.60 224.84

Kansas 6,526 1.70 4.64

Indiana 3,568 0.40 8.65

Nebraska 2,980 1.20 –2.04

Kentucky 2,466 0.40 2.94

Louisiana 2,416 0.40 1,419.38

Virginia 1,938 0.20 215.17

Alabama 1,838 0.30 675.15

Maryland 1,592 0.30 61.59

Wisconsin 664 0.10 0.38

Connecticut 640 0.10 35.96

Georgia 618 0.10 –3.26

Iowa 546 0.10 8.61

North Carolina 471 0.00 13.21

South Carolina 412 0.10 21.70

(continued)

Page 22 GAO/HEHS-96-21 Medicare Managed Care
Appendix I 

Enrollment in Medicare Risk Contract

HMOs by State

State

Number of

beneficiaries

enrolled in a risk

HMO, December

1994

Rate of enrollment in

a risk HMO,

December 1994

Percent change in

rate of enrollment in

a risk HMO (Dec.

1993-Dec. 1994)

Utah 327 0.20 6.37

Tennessee 301 0.00 4.22

Arkansas 296 0.10 10.95

Idaho 258 0.20 4.18

New Hampshire 248 0.20 12.75

Montana 174 0.10 –5.44

District of Columbia 148 0.20 543.76

Maine 147 0.10 11.41

Delaware 137 0.10 166.54

Mississippi 113 0.00 –17.87

Wyoming 112 0.20 6.60

West Virginia 83 0.00 1.04

North Dakota 78 0.10 18.74

South Dakota 68 0.10 –6.82

Alaska 62 0.20 17.49

Vermont 62 0.10 8.09

U.S. total 2,280,403 6.3 22.8

Page 23 GAO/HEHS-96-21 Medicare Managed Care
Appendix II 

Enrollment in Medicare Risk Contract

HMOs by MSA (Top 100 MSAs Ranked by

Number of Medicare Enrollees)

MSA

Number of

beneficiaries

enrolled in a

risk HMO,

December 1994

Rate of

enrollment in a

risk HMO,

December 1994

Percent

change in rate

of enrollment

in a risk HMO

(Dec. 1993-

Dec. 1994)

Los Angeles-Long-Beach, Cal. 299,784 32.59 11.11

Riverside-San Bernardino, Cal. 154,510 47.50 8.54

San Diego, Cal. 125,901 41.50 12.04

Phoenix-Mesa, Ariz. 104,440 30.89 12.97

Orange County, Cal. 93,312 37.31 11.40

Fort Lauderdale, Fla. 85,216 33.86 8.05

Miami, Fla. 83,622 29.69 9.95

Portland-Vancouver, Ore.-Wash. 83,161 40.08 6.86

Tampa-St. Petersburg-Clearwater,

Fla. 68,221 15.10 12.57

Chicago, Ill. 66,105 7.17 11.18

Minneapolis-St. Paul, Minn.-Wis. 60,049 20.70 –2.30

New York-Newark, N.Y.-N.J.-Pa. 59,517 5.23 34.91

West Palm Beach-Boca Raton, Fla. 54,344 24.53 10.61

Seattle-Bellevue-Everett, Wash. 52,984 21.39 10.01

Philadelphia, Pa.-N.J. 49,986 6.86 69.48

San Francisco, Cal. 49,651 21.39 64.94

Denver, Colo. 43,647 23.40 32.69

Boston-Brockton-Nashua,

Mass.-N.H. 41,851 5.04 30.95

Tuscon, Ariz. 41,123 37.32 14.46

San Antonio, Tex. 37,672 22.75 17.30

Oakland, Cal. 37,523 14.79 219.94

Las Vegas, Nev.-Ariz. 35,622 24.13 21.89

Sacramento, Cal. 32,004 17.90 290.91

Daytona Beach, Fla. 31,018 29.89 6.16

Honolulu, Hawaii 29,096 27.42 3.98

Nassau-Suffolk, N.Y. 28,900 7.51 25.36

San Jose, Cal. 27,383 18.48 157.95

Orlando, Fla. 25,970 13.64 14.87

Houston, Tex. 25,312 8.80 210.96

Albuquerque, N.M. 24,950 31.82 39.43

Ventura, Cal. 23,906 32.63 20.03

Bakersfield, Cal. 20,690 30.77 19.90

Cleveland-Lorain-Elyria, Ohio 16,527 4.71 10.30

(continued)

Page 24 GAO/HEHS-96-21 Medicare Managed Care
Appendix II 

Enrollment in Medicare Risk Contract

HMOs by MSA (Top 100 MSAs Ranked by

Number of Medicare Enrollees)

MSA

Number of

beneficiaries

enrolled in a

risk HMO,

December 1994

Rate of

enrollment in a

risk HMO,

December 1994

Percent

change in rate

of enrollment

in a risk HMO

(Dec. 1993-

Dec. 1994)

Kansas City, Mo.-Kans. 13,759 6.54 1.74

Santa Barbara-Santa Maria-Lompo,

Cal. 13,083 26.03 48.42

Modesto, Cal. 11,354 23.18 575.25

Santa Rosa, Cal. 9,427 15.99 405.91

Jacksonville, Fla. 8,898 7.39 1,523.71

Providence-Warwick, R.I. 8,328 5.05 –16.45

Salem, Ore. 8,310 17.53 10.54

Rochester, N.Y. 8,134 5.27 6.83

Tulsa, Okla. 7,823 8.09 24.95

San Luis Obispo-Atascadero-Paso,

Cal. 7,816 22.26 420.68

Buffalo-Niagara Falls, N.Y. 6,020 2.96 12.81

Fresno, Cal. 5,935 6.08 696.43

Dallas, Tex. 5,756 2.20 42.84

Corpus Christi, Tex. 4,672 10.75 –9.91

Oklahoma City, Okla. 4,544 3.74 26.33

Vallejo-Fairfield-Napa, Cal. 4,080 7.69 899.13

Lansing-East Lansing, Mich. 3,623 7.65 –2.88

Tacoma, Wash. 3,582 4.95 12.11

Boulder-Longmont, Colo. 3,556 15.53 10.54

Fort Worth-Arlington, Tex. 3,421 2.38 37.26

Omaha, Nebr.-Ia. 3,229 4.05 –2.29

Olympia, Wash. 3,176 13.67 6.37

Chico-Paradise, Cal. 3,033 8.62 58.48

Detroit, Mich. 2,997 0.51 3.66

Eugene-Springfield, Ore. 2,682 6.00 392.17

Louisville, Ky.-Ind. 2,669 1.86 1.92

Austin-San Marcos, Tex. 2,517 3.06 127.07

Pittsburgh, Pa. 2,405 0.54 111.32

Scranton-Wilkes Barre-Hazleton, Pa. 2,302 1.74 5,637.94

Stockton-Lodi, Cal. 2,261 3.66 496.32

Indianapolis, Ind. 2,221 1.20 7.39

Medford-Ashland, Ore. 2,126 7.42 1,861.33

Wichita, Kans. 2,096 3.16 –11.12

Akron, Ohio 1,841 1.88 7.53

(continued)

Page 25 GAO/HEHS-96-21 Medicare Managed Care
Appendix II 

Enrollment in Medicare Risk Contract

HMOs by MSA (Top 100 MSAs Ranked by

Number of Medicare Enrollees)

MSA

Number of

beneficiaries

enrolled in a

risk HMO,

December 1994

Rate of

enrollment in a

risk HMO,

December 1994

Percent

change in rate

of enrollment

in a risk HMO

(Dec. 1993-

Dec. 1994)

St. Louis, Mo.-Ill. 1,831 0.50 56.05

Ocala, Fla. 1,652 2.89 707.63

Birmingham, Ala. 1,607 1.25 4,168.92

Bremerton, Wash. 1,599 6.88 11.10

New Orleans, La. 1,593 0.95 2,643.68

Santa Fe, N.M. 1,591 11.19 745.50

Yolo, Cal. 1,438 9.16 249.76

Norfolk-Virginia BeachNewport News, Va. 1,353 0.86 231.25

Gainesville, Fla. 1,221 5.39 592.90

Allentown-Bethlehem-Easton, Pa. 1,149 1.10 45.20

Santa Cruz-Watsonville, Cal. 1,095 3.93 948.90

Baltimore, Md. 1,076 0.34 28.71

Washington, D.C.,Md.,Va.,W.Va. 1,057 0.26 370.33

Bergen-Passaic, N.J. 1,015 0.51 161.03

Monmouth-Ocean, N.J. 1,008 0.54 80.84

Galveston-Texas City, Tex. 989 3.59 201.80

Spokane, Wash. 972 1.75 316.86

Sarasota-Bradenton, Fla. 958 0.63 230.39

Colorado Springs, Colo. 915 2.13 –60.03

Salinas, Cal. 717 1.84 619.39

Yuba City, Cal. 666 3.88 119.57

Baton Rouge, La. 619 1.07 5,394.31

Bellingham, Wash. 589 3.20 20.45

Toledo, Ohio 544 0.63 260.46

Newark, N.J. 527 0.20 142.64

Fort Pierce-Port St. Lucie, Fla. 492 0.75 6.95

Merced, Cal. 460 2.48 340.32

Atlantic City-Cape May, N.J. 432 0.76 408.50

Gary, Ind. 406 0.48 72.34

Middlesex-Somerset-Hunterdon,

N.J. 392 0.30 67.33

Trenton, N.J. 375 0.75 931.23

Cincinnati, Ohio-Ky.-Ind. 347 0.16 160.14

Lakeland-Winter Haven, Fla. 344 0.42 13.04

Top 100 MSAs 2,222,702 12.0 22.7

U.S. total 2,280,403 6.3 22.8

Page 26 GAO/HEHS-96-21 Medicare Managed Care
Appendix II 

Enrollment in Medicare Risk Contract

HMOs by MSA (Top 100 MSAs Ranked by

Number of Medicare Enrollees)

Page 27 GAO/HEHS-96-21 Medicare Managed Care
Related GAO Products

Medicare: Opportunities Are Available to Apply Managed Care Strategies

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

Health Care Reform: Considerations for Risk Adjustment Under

Community Rating (GAO/HEHS-94-173, Sept. 22, 1994).

Medicare: Changes to HMO Rate Setting Method Are Needed to Reduce

Program Costs (GAO/HEHS-94-119, Sept. 2, 1994).

Managed Health Care: Effect on Employers’ Costs Difficult to Measure

(GAO/HRD-94-3, Oct. 19, 1993).

Medicare: HCFA Needs to Take Stronger Actions Against HMOs Violating

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

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

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

Medicare: Increase in HMO Reimbursement Would Eliminate Potential

Savings (GAO/HRD-90-38, Nov. 1, 1989).

Medicare: Reasonableness of Health Maintenance Organization Payments

Not Assured (GAO/HRD-89-41, Mar. 7, 1989).

Medicare: Health Maintenance Organization Rate Setting Issues

(GAO/HRD-89-46, Jan. 31, 1989).

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: Uncertainties Surround Proposal to Expand Prepaid Health

Contracting (GAO/HRD-88-14, Nov. 2, 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).

(101360) Page 28 GAO/HEHS-96-21 Medicare Managed Care
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