a

GAO

United States General Accounting Office

Report to the Chairman, Subcommittee 

on Health, Committee on Ways and 

Means, House of Representatives

October 2002 MEDICARE+CHOICE

Selected Program 

Requirements and 

Other Entities’ 

Standards for HMOs

GAO-03-180

Page i GAO-03-180 M+C HMO Requirements

Contents

Letter 1

Results in Brief 4

Background 5

Selected M+C Requirements for HMOs 10

Selected FEHBP Requirements for HMOs 13

Selected NAIC, JCAHO, and NCQA Requirements for HMOs 15

Comments from CMS and the Other Entities 16

Appendixes

Appendix I: Benefit Package Proposals 18

Appendix II: Beneficiary Enrollment 28

Health Plan Enrollment Opportunities for M+C and FEHBP 

Beneficiaries 34

Appendix III: Marketing and Enrollee Communication Materials 37

Appendix IV: Quality Improvement 54

Appendix V: Comments from the Centers for Medicare & Medicaid 

Services 77

Tables Table 1: Selected Requirements for Benefit Package Proposals, 

M+C and FEHBP 20

Table 2: Selected Requirements for Beneficiary Enrollment in 

HMOs, M+C and FEHBP 29

Table 3: Opportunities for Medicare Beneficiaries to Enroll in an 

M+C Health Plan or Make Health Plan Changes Under 

M+C’s Lock-in Provision 35

Table 4: Opportunities for FEHBP Beneficiaries to Enroll in a 

Health Plan or Make Health Plan Changes 36

Table 5: Selected Requirements for Marketing and Enrollee 

Communication Materials, M+C, FEHBP, NAIC, JCAHO, 

and NCQA 39

Table 6: Selected Requirements for Quality Improvement for M+C, 

FEHBP, NAIC, JCAHO, and NCQA 57

Figures Figure 1: Timeline for Submission, Review, and Approval of HMOs’

Benefit Package Proposals for Benefit Year 2001 26

Figure 2: Timeline for Submission, Review, and Approval of HMOs’

Benefit Package Proposals for Benefit Years 2003 

Through 2005 27
Contents

Page ii GAO-03-180 M+C HMO Requirements

Abbreviations

AAAHC Accreditation Association for Ambulatory Health Care, Inc.

ACR adjusted community rate

ACRP adjusted community rate proposal

BBA Balanced Budget Act of 1997

BBRA Medicare, Medicaid, and SCHIP Balanced Budget Refinement 

Act of 1999

BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and

Protection Act of 2000

CAHPS Consumer Assessment of Health Plans

CHCD clinical health care disparities

CLAS culturally and linguistically appropriate services

CMS Centers for Medicare & Medicaid Services

EGHP employer group health plan

ESRD end-stage renal disease

FAR Federal Acquisition Regulation

FEHBP Federal Employees Health Benefits Program

FFS fee-for-service

HCFA Health Care Financing Administration

HEDIS Health Plan Employer Data and Information Set

HHS Department of Health and Human Services

HMO health maintenance organization

HOS Health Outcomes Survey

JCAHO Joint Commission on Accreditation of Healthcare Organizations

M+C Medicare+Choice

M+CQRO Medicare+Choice quality review organization

NAIC National Association of Insurance Commissioners

NCQA National Committee for Quality Assurance

OIG Office of Inspector General

OPM Office of Personnel Management

PBP plan benefit package

PFFS private fee-for-service

PPO preferred provider organization

QAPI quality assessment and performance improvement

QI quality improvement

QIO quality improvement organization

QISMC quality improvement system for managed care

SSSG similarly sized subscriber groups

VAIS value-added items and services
Page 1 GAO-03-180 M+C HMO Requirements

United States General Accounting Office

Washington, D.C. 20548

A

October 31, 2002 Letr

The Honorable Nancy L. Johnson

Chairman

Subcommittee on Health

Committee on Ways and Means

House of Representatives

Dear Madam Chairman:

Since the early 1980s, health maintenance organizations (HMO) have 

entered into risk-based contracts with Medicare and offered beneficiaries 

an alternative to the traditional fee-for-service (FFS) program.1

 By 1997, 

approximately 5.2 million Medicare beneficiaries (14 percent) were 

enrolled in an HMO.2

 Although Medicare HMOs were available in most 

urban areas, they were often unavailable in rural areas. The 

Medicare+Choice (M+C) program, established by the Balanced Budget Act 

of 19973

 (BBA), was designed to expand beneficiaries’ health plan choices 

by encouraging the wider availability of HMOs and permitting Medicare to 

contract with organizations offering other types of health plans, such as 

preferred provider organization (PPO) plans and private fee-for-service 

(PFFS) plans.

In practice, however, virtually all M+C health plans in 2002 are offered by 

HMOs and the number of health plan choices has decreased in each of the 

last 4 years.4

 From 1998 to 2002, the number of Medicare contracts with 

HMOs declined from about 340 to 147, and the percentage of beneficiaries 

with access to at least one HMO in the area where they lived declined from 

74 to 61 percent.5

 Enrollment in Medicare HMOs, which had reached 6.3 

1

Under a risk-based contract, an HMO receives from Medicare a fixed monthly amount per 

enrollee and is at financial risk for the cost of providing covered services. Some Medicare 

HMOs are paid under different financial arrangements.

2

Figures for HMOs throughout this report exclude organizations that receive payments 

based on their costs or operate under a Medicare demonstration program. 

3

Pub. L. No. 105-33, §4001, 111 Stat. 251, 275.

4

As of July 2002, approximately 23,000 beneficiaries were enrolled in two PFFS plans. 

Unlike HMOs, these plans do not restrict beneficiary choice of provider. 

5

Approximately 75 percent of beneficiaries have access to a Medicare HMO or PFFS plan in 

2002. 
Page 2 GAO-03-180 M+C HMO Requirements

million in 1999, had fallen to less than 5 million (12 percent of all Medicare 

beneficiaries) as of July 2002.

Representatives of the managed care industry have stated that declining 

HMO participation in Medicare is largely due to inadequate M+C payment 

rates and excessive administrative requirements. The Medicare, Medicaid, 

and SCHIP Balanced Budget Refinement Act of 19996

 (BBRA) and the 

Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act 

of 20007

 (BIPA) increased payment rates and made other changes to help 

address the industry’s concerns. But these legislative changes have not 

halted the decline in HMO participation.8

 To encourage health plans to 

participate in M+C, legislative proposals have been made to further 

increase M+C payment rates and streamline the program’s administrative 

requirements.

To assist in your consideration of potential M+C reforms, you asked us to 

summarize the program’s HMO requirements in four areas: (1) the annual 

benefit package proposals that HMOs submit, (2) the beneficiary 

enrollment process, (3) marketing materials and enrollee communications, 

and (4) quality improvement.9

 To provide benchmarks that could be used 

when examining M+C requirements, you asked us to summarize parallel 

requirements for HMOs that participate in the Federal Employees Health 

Benefits Program (FEHBP), another large purchaser of health care. You 

also asked us to describe the HMO requirements established by other 

entities in one or more of the four M+C areas we reviewed. In consultation 

with your office, we selected three entities that are not health care 

purchasers but that do set requirements for HMOs: the National 

Association of Insurance Commissioners (NAIC), the Joint Commission on 

Accreditation of Healthcare Organizations (JCAHO), and the National

6

Pub. L. No. 106-113, Appendix F, Title V, 113 Stat. 1501A-321, 1501A-378-394. 

7

Pub. L. No. 106-554, Appendix F, Title VI, 114 Stat. 2763A-463, 2763A-554-569.

8

U.S. General Accounting Office, Medicare+Choice: Recent Payment Increases Had Little 

Effect on Benefits or Plan Availability in 2001, GAO-02-202 (Washington, D.C.: Nov. 21, 

2001).

9

M+C requirements may be different for other types of M+C arrangements, such as PFFS or 

PPO plans. 
Page 3 GAO-03-180 M+C HMO Requirements

Committee for Quality Assurance (NCQA).10 NAIC, a nonprofit 

organization for state regulators, drafts and publishes model acts and 

regulations that set standards for insurers that any state may adopt in 

whole or in part.11 JCAHO and NCQA, both nongovernmental and 

nonprofit organizations, operate nationally recognized accreditation 

programs for HMOs.12 

To conduct our work, we summarized the applicable M+C requirements in 

federal statutes and regulations, M+C operational guidance to HMOs, and 

other materials prepared by the Centers for Medicare & Medicaid Services 

(CMS), the agency within the Department of Health and Human Services 

(HHS) that administers Medicare.13 We obtained additional information 

from CMS officials. We gathered and summarized FEHBP requirements in 

federal statutes and regulations and FEHBP operational guidance to HMOs, 

various NAIC model requirements, and relevant standards from the current 

JCAHO and NCQA accreditation manuals.14 We also interviewed officials 

from the Office of Personnel Management (OPM), the agency that 

administers FEHBP, and representatives of NAIC, JCAHO, and NCQA. 

Because M+C requirements are broadly similar to the requirements set by 

other entities, but may be different in specific details, we compiled our 

work into summary tables that provide information on the key details of 

each entity’s requirements (see appendixes I through IV). Our work was 

10The entities vary from one another in the term each one uses to refer to an HMO. For 

consistency, we use “HMO” throughout the report to mean an organization that generally 

requires its enrollees to receive care from a network of providers and is paid a fixed monthly 

amount per enrollee to provide all services. We use the term “health plan” to refer to a 

package of benefits an HMO offers in a specific geographic area. 

11In this report, the provisions in NAIC model acts and regulations are referred to as model 

requirements.

12Although their HMO standards are not discussed in this report, other organizations, such 

as the Accreditation Association for Ambulatory Health Care, Inc. (AAAHC) or 

URAC/American Accreditation HealthCare Commission, offer national accreditation 

programs for HMOs.

13CMS was previously named the Health Care Financing Administration (HCFA). We use the 

term HCFA to refer to the agency prior to its renaming as of July 1, 2001, and CMS for 

references to the agency after that date. 

14JCAHO’s standards for HMO accreditation are effective January 1, 2001, through 

December 31, 2002. NCQA’s standards for HMO accreditation are effective July 1, 2001, 

through June 30, 2003. 
Page 4 GAO-03-180 M+C HMO Requirements

performed from June 2001 through September 2002 in accordance with 

generally accepted government auditing standards.

Results in Brief M+C has HMO requirements pertaining to benefit package proposals, the 

beneficiary enrollment process, marketing and enrollee communication 

materials, and quality improvement, among other areas. An HMO must 

annually submit a benefit package proposal to CMS for each M+C health 

plan that the HMO intends to offer.15 In its proposal, the HMO must include 

its projected Medicare revenues, detailed cost estimates by service 

category, and other information to demonstrate compliance with M+C 

requirements, such as those that limit a health plan’s cost-sharing 

requirements for Medicare-covered services. M+C requirements for the 

beneficiary enrollment process specify the information that an HMO must 

include in its enrollment application and the checks that it must perform to 

ensure that beneficiaries who submit applications are eligible to enroll in 

the HMO’s health plan. M+C marketing requirements prohibit HMOs from 

using inaccurate or misleading language in advertisements or materials 

distributed to enrollees. To ensure that advertisements and enrollee 

materials comply with M+C requirements, HMOs must submit advance 

copies to CMS for review and approval. M+C requirements for quality 

improvement specify that HMOs must undertake multiyear projects 

intended to improve the quality of health care and must routinely gather 

and report performance data to CMS. 

FEHBP, another large purchaser of health care, has requirements for HMOs 

in all four areas we examined. For example, FEHBP requires HMOs to 

annually submit benefit package proposals to OPM for review. An HMO 

must include information to show that its proposed FEHBP premium is no 

higher than the premium it would charge to similarly sized commercial 

customers for the same package of benefits. FEHBP has relatively few 

requirements for HMOs regarding the beneficiary enrollment process 

because most of this function is performed by OPM or delegated to other 

federal agencies. FEHBP’s marketing requirements specify that HMOs 

must produce comprehensive annual benefit brochures and obtain OPM 

approval before distributing the brochures to potential enrollees. Finally, 

FEHBP has set certain quality standards and requires HMOs to submit 

performance data to OPM. 

15An HMO may offer multiple health plans to Medicare beneficiaries. For each health plan, 

the HMO must specify the benefits offered and the geographic area served. 
Page 5 GAO-03-180 M+C HMO Requirements

Although NAIC, JCAHO, and NCQA do not purchase health care, each has 

established HMO requirements in two of the four areas we reviewed: 1) 

marketing and enrollee communication materials and 2) quality 

improvement. All three entities require HMOs to produce complete 

information, although JCAHO’s standards do not apply to marketing 

materials given to prospective members. The three entities also require 

HMOs to design, implement, and evaluate quality improvement projects. 

NAIC’s model requirements pertain to all HMOs in states that set HMO 

licensing and operating standards based on NAIC’s recommendations. 

JCAHO’s and NCQA’s standards represent requirements that must be met 

by all HMOs that want to be accredited by JCAHO or NCQA. The 

requirements established by NAIC, JCAHO, and NCQA are not specifically 

focused on HMOs that serve Medicare beneficiaries.

In commenting on a draft of this report, CMS stated that it generally agreed 

with our observations. We also provided a draft of the report to OPM, 

NAIC, JCAHO, and NCQA and incorporated the technical comments we 

received from those organizations and from CMS as appropriate.

Background M+C and FEHBP both represent large health care purchasing programs 

that contract with HMOs and other types of health care organizations to 

provide services. NAIC, JCAHO, and NCQA are not purchasers of health 

care, but they play important roles in establishing certain HMO 

requirements. 

M+C M+C is a component of Medicare, the federal entitlement program for 

adults age 65 and older and some individuals who are disabled or have endstage renal disease (ESRD).16 Medicare beneficiaries can choose to receive 

covered services through the FFS program or through an M+C health plan 

if one is offered in the area where they live.17 HMOs and other types of

16Approximately 85 percent of Medicare’s 40 million beneficiaries are over age 65; the 

remaining 15 percent are under age 65 and disabled or have ESRD.

17In general, beneficiaries who have ESRD may not enroll in an M+C HMO. However, 

beneficiaries who develop ESRD while enrolled in an M+C HMO may continue their 

enrollment in that M+C HMO.
Page 6 GAO-03-180 M+C HMO Requirements

health care organizations contract with CMS to offer M+C health plans.18 

HMOs participating in M+C receive fixed monthly payments for enrolled 

beneficiaries, regardless of what their enrollees’ care actually costs, in 

return for providing all Medicare-covered benefits, except hospice care, 

and complying with all M+C requirements. CMS monitors each HMO and 

periodically conducts an on-site review to determine whether the HMO is 

complying with program requirements. The agency also requires HMOs to 

regularly submit certain information, such as enrollment and other data 

used to compute HMO payments.

In creating M+C, BBA included many requirements from the previous riskcontract program. For example, the M+C requirement that HMOs submit 

marketing and enrollee communications for agency approval was a 

requirement of the risk-contract program. BBA also included 

requirements that were modifications of previous ones and others that 

were new. For example, BBA included quality assurance requirements—

such as those pertaining to the collection, analysis, and reporting of health 

outcomes and member satisfaction—that were more comprehensive than 

previous requirements. BBA required that M+C payments to an HMO be 

adjusted to reflect the relative health status of that HMO’s enrollees 

beginning in 2000. The law directed the Secretary of HHS to require HMOs 

to submit data on their enrollees’ use of inpatient hospital services and data 

on other services as the Secretary deemed necessary. In addition to the 

inpatient hospital data requirement, the Secretary required HMOs, in 1998, 

to collect data on the use of physician and hospital outpatient services. 

BBA also limited, effective January 1, 2002, the number of opportunities 

beneficiaries had each year to enroll or change enrollment in a M+C health 

plan.

M+C’s requirements have continued to evolve since BBA, partly as a result 

of subsequent legislation. Some legislative changes addressed HMOs’

concerns about BBA’s initial implementation. For example, BBRA 

increased the amount of time that HMOs have each year to develop their 

benefit package proposals by moving the annual submission deadline from 

May 1 to July 1. To reduce the administrative burden on HMOs that are 

monitored by both a private accreditation organization and the agency, 

BBRA increased the number of topical areas where HMOs may fulfill M+C 

requirements by receiving accreditation from an organization that has 

18Some beneficiaries currently have access to HMOs reimbursed on a cost basis. This 

arrangement is not part of the M+C program and is scheduled to end after 2004.
Page 7 GAO-03-180 M+C HMO Requirements

standards, as well as a process for ensuring compliance with those 

standards, which are determined by CMS to meet or exceed M+C 

requirements. BBA allowed accreditation standards to be applied for 

quality assurance and confidentiality of records requirements. BBRA 

expanded this list to include antidiscrimination, access to services, 

advance directives,19 and provider participation requirements. Under BIPA, 

CMS must expedite review of HMO marketing materials that use agencyspecified language without modification. BIPA also required HMOs to 

expand their quality improvement activities to include a separate focus on 

racial and ethnic minorities. The Public Health Security and Bioterrorism 

Preparedness and Response Act of 200220 (Bioterrorism Act) made 

temporary modifications to M+C requirements. It enabled Medicare to 

reinstate, through 2004, beneficiaries’ opportunities to change enrollment 

into any M+C health plan accepting new enrollments or switch to the FFS 

program on a monthly basis. It also moved the annual submission deadline 

for HMOs’ benefit package proposals to the second Monday in September 

for benefit years 2003 through 2005.

CMS has also modified certain M+C requirements, in some instances to 

reduce the administrative burden on participating HMOs. In 2001, for 

example, the agency postponed the date by which HMOs would have to 

begin submitting data on beneficiaries’ use of physician and hospital 

outpatient services. In 2002, CMS gave HMOs more flexibility in 

advertising plan benefits not available in the FFS program. For example, 

HMOs were allowed to describe their health plans’ pharmacy discounts in 

the standard summary of benefits distributed to beneficiaries. CMS has 

also made changes to address shortcomings that agency staff or outside 

groups identified. The process for reviewing and approving HMOs’

marketing materials was revised, in part, to correct problems we identified 

in 1999.21

Since BBA was enacted, CMS has issued Federal Register notices and other 

written instructions to inform HMOs about program changes. During 2001, 

19An advance directive documents a beneficiary’s health care preferences and instructs 

providers if the beneficiary cannot otherwise communicate.

20Public Health Security and Bioterrorism Preparedness and Response Act of 2002 

(Bioterrorism Act), Pub. L. No. 107-188, §532, 116 Stat. 594, 696.

21U.S. General Accounting Office, Medicare+Choice: New Standards Could Improve 

Accuracy and Usefulness of Plan Literature, GAO/HEHS-99-92 (Washington, D.C.: Apr. 12, 

1999).
Page 8 GAO-03-180 M+C HMO Requirements

CMS began releasing chapters of a new Medicare managed care manual 

intended to inform HMOs about program requirements.22 As of July 11, 

2002, the agency had released 9 of a planned 20 chapters.23 No release 

dates have been announced for the remaining chapters. 

FEHBP FEHBP is the largest employer-sponsored group health insurance program 

in the United States. In 2002, FEHBP covers approximately 8.28 million 

individuals, consisting of 2.19 million federal employees, 1.86 million 

federal retirees, and 4.23 million dependents.24 Like most Medicare 

beneficiaries, FEHBP beneficiaries may select from among available health 

plans during an annual open enrollment period. OPM contracts with HMOs 

and other types of health care organizations to offer health plans to FEHBP 

beneficiaries. The number of HMOs participating in FEHBP has declined in 

recent years, from 476 HMOs in 1996 to about 200 HMOs in 2002. In 2002, 

about 2.42 million FEHBP beneficiaries (29 percent) are enrolled in HMOs. 

The remaining 5.86 million beneficiaries (71 percent) are enrolled in other 

types of health plans, such as PPOs. 

NAIC NAIC is a nonprofit association of the insurance regulators of the 50 states, 

the District of Columbia, and 4 United States territories. Its mission 

includes promoting consistent health insurance regulations.25 To help 

achieve this objective, NAIC prepares model requirements that any state 

may adopt, in whole or in part, to regulate HMOs operating in the state. 

NAIC’s model requirements are largely written in general terms to provide a 

framework that states can tailor to meet local needs. According to NAIC, 

22Completed chapters are available electronically through the CMS Web site. CMS intends to 

update released chapters quarterly. 

23The nine released chapters cover enrollment and disenrollment, marketing, quality 

assurance, risk-based payments, organization compliance with state law and preemption by 

federal law, contracts, effect of change in ownership or leasing of facilities during term of 

contract, cost-based payments, and procedures for handling contract disputes.

24OPM enrollment estimates as of July 11, 2002. 

25All HMOs, including those in M+C, must comply with requirements set by the states in 

which they operate. However, federal law specifically preempts state laws or standards 

pertaining to M+C in the areas of benefits (including cost sharing), inclusion and treatment 

of providers, coverage determinations (including grievances and appeals), and marketing 

materials and benefit summaries.
Page 9 GAO-03-180 M+C HMO Requirements

approximately 30 states have passed legislation based on the requirements 

in NAIC’s Model HMO Act, which provides a legal framework for the 

organization and functioning of HMOs and a regulatory framework for state 

oversight. 

JCAHO and NCQA JCAHO and NCQA provide accreditation programs for HMOs and other 

health care entities that contract with public and private employers to 

serve their employees and retirees, with state governments to serve 

Medicaid beneficiaries, or with the federal government to serve Medicare 

beneficiaries. JCAHO’s and NCQA’s accreditation standards focus on the 

HMO operations that affect the quality of care delivered and interactions 

with members, rather than on all the requirements that a purchaser would 

typically specify for an HMO, such as the benefits offered and the cost of 

providing those benefits. HMOs may seek accreditation from a nationally 

recognized organization, such as JCAHO or NCQA, to signal their 

commitment to quality and to help attract business. Some potential 

purchasers consider an HMO’s accreditation status when deciding whether 

to contract with the HMO.26 An HMO’s accreditation status may also be an 

important consideration for some potential enrollees. For that reason, OPM 

lists the accreditation status of participating HMOs in the annual guide 

made available to FEHBP beneficiaries. In addition, HMOs with M+C 

health plans that have received full accreditation from JCAHO or NCQA, 

and have been determined by one of those organizations to have met 

certain additional standards, are considered by CMS to have met the M+C 

quality requirements discussed in this report.27

26A February 2002 survey conducted by NCQA found that 153 Fortune 500 companies, 42 

percent of which are Fortune 100 companies, relied on NCQA accreditation when making 

their health plan purchasing decisions.

27HMOs may also satisfy M+C quality requirements by receiving full accreditation from 

AAAHC and meeting certain additional standards. The accreditation standards of AAAHC, 

JCAHO, and NCQA do not address every M+C quality requirement specified by CMS. These 

organizations agreed to implement and enforce standards specifically for M+C HMOs. For 

instance, as part of their M+C accreditation processes, AAAHC and JCAHO agreed to 

require M+C HMOs to evaluate annually the effectiveness of their quality assurance and 

performance improvement program strategies.
Page 10 GAO-03-180 M+C HMO Requirements

Selected M+C 

Requirements for 

HMOs

An HMO that contracts to serve Medicare beneficiaries must meet M+C 

program requirements specified by CMS regarding benefit package 

proposals, the beneficiary enrollment process, marketing and enrollee 

communications, and quality improvement. Requirements pertaining to 

benefit package proposals specify the information that HMOs must 

annually submit to CMS and set coverage parameters, such as limits on 

beneficiary cost sharing. Beneficiary enrollment process requirements 

establish how HMOs must collect and process applications, conduct 

beneficiary eligibility checks, transmit information to CMS, and reconcile 

data discrepancies. Communication requirements, which cover both 

general advertising and specific communications to enrollees, set 

standards for the information that HMOs distribute to beneficiaries and 

establish CMS’s review and approval process for these materials. 

Requirements for quality improvement specify that HMOs have the 

capacity to undertake projects designed to improve the quality of health 

care and annually measure their clinical and administrative performance 

and the satisfaction of current and former enrollees. 

Benefit Package Proposals For each M+C health plan that it intends to offer, an HMO must annually 

submit a benefit package proposal for CMS review and approval. BBRA 

specified that proposals are due at the beginning of July—6 months before 

the start of the benefit year. The Bioterrorism Act temporarily changes the 

benefit package proposal submission deadline to the second Monday in 

September for 2002 through 2004.28 The proposals, formally known as 

adjusted community rate proposals (ACRP), specify the health plan’s 

covered benefits, beneficiary cost sharing, and beneficiary premiums. An 

HMO must cover all services available in the FFS program except hospice. 

An HMO may also offer additional services, such as outpatient prescription 

drugs, and charge beneficiaries for these services. If Medicare’s payments 

to an HMO are expected to exceed its cost of providing Medicare-covered 

services plus the amount of profit or additional revenue that the HMO 

would normally earn on non-Medicare contracts, the HMO must use the 

additional money to cover additional items or services, reduce beneficiary 

cost sharing, or contribute to a benefit stabilization fund—an escrow-like 

account that can be drawn upon in future years to help maintain benefit

28Bioterrorism Act, §532(b), 116 Stat. 696.
Page 11 GAO-03-180 M+C HMO Requirements

levels—or a combination of these. The HMO’s benefit package proposal 

describes the extent to which these options will be used.29

CMS reviews HMOs’ benefit package proposals and approves them if they 

comply with M+C requirements. For example, an HMO may set beneficiary 

cost-sharing requirements on individual services that differ from those in 

the FFS program, but the sum of the actuarial value of its cost-sharing 

requirements—the total amount that the average beneficiary would be 

expected to pay in deductibles, coinsurance, and copayments—and the 

health plan premium may not exceed the actuarial value of cost sharing in 

the FFS program. The agency has generally approved the proposals before 

the start of Medicare’s annual enrollment period in November. BIPA 

requires the agency’s Chief Actuary to review all benefit package proposals 

submitted on or after May 1, 2001, to determine whether the data values 

and underlying assumptions in the proposals are reasonable. According to 

CMS officials, actuary reviews will begin with benefit package proposals 

submitted in 2002. BBA requires CMS each year to audit the benefit 

package proposals from at least one-third of the participating M+C HMOs.30 

CMS uses a risk-based approach to select some of the HMOs to audit, but 

the majority of audited HMOs are randomly selected.

Beneficiary Enrollment 

Process

HMOs are required to play a major role in the beneficiary enrollment 

process. A beneficiary who wants to enroll in a health plan submits an 

application to the HMO, which then must make a preliminary 

determination about whether the beneficiary lives in the geographic area 

served by the health plan and is otherwise eligible to enroll. The HMO then 

forwards the beneficiary’s information to CMS. After CMS confirms 

enrollment eligibility, the HMO must determine the date that coverage will 

begin and notify the beneficiary. Through December 31, 2004, beneficiaries 

are allowed to join or leave health plans each month. After that date, 

beneficiaries will have fewer opportunities each year to make health plan 

changes.

29GAO-02-202.

30For a review of the first year’s audits, see U.S. General Accounting Office, 

Medicare+Choice Audits: Lack of Audit Follow-up Limits Usefulness, GAO-02-33

(Washington, D.C.: Oct. 9, 2001).
Page 12 GAO-03-180 M+C HMO Requirements

Marketing and Enrollee 

Communication Materials

HMOs must provide accurate and complete information to prospective 

beneficiaries and current enrollees. CMS’s requirements cover the 

advertising and marketing materials that HMOs distribute to prospective 

beneficiaries and the communications between HMOs and their enrollees, 

such as explanations of benefits or coverage denials. For some materials, 

such as the summary document that each HMO must produce to describe 

its health plan’s benefits, CMS requires HMOs to use templates with 

standardized language and formats. Prior to distribution, HMOs must 

submit all of their marketing and most of their enrollee communication 

materials to CMS for review and approval. 

Quality Improvement HMOs must meet M+C requirements designed to improve the quality of 

care and services they deliver. Every year, an HMO must begin a multiyear 

quality improvement project that focuses on a topic specified by CMS (the 

national quality improvement project). For example, in 2002, CMS requires 

HMOs to participate in the national quality improvement project designed 

to improve breast cancer screening rates. An HMO must also demonstrate 

that its previous quality improvement projects have resulted in 

demonstrable performance improvements and sustain those improvements 

for at least 1 year.31 HMOs must participate in annual CMS-sponsored 

standardized satisfaction surveys of current enrollees and recent 

disenrollees and provide clinical and administrative data to CMS. 

Recently, CMS determined that AAAHC’s, JCAHO’s, and NCQA’s standards, 

and their processes for ensuring compliance with those standards, meet or 

exceed M+C requirements for quality improvement. As a result, an HMO 

that has received full accreditation from AAAHC, JCAHO, or NCQA may 

now choose to have the accreditation organization, instead of CMS, 

monitor its compliance with M+C quality improvement requirements. 

31Before 2002, an HMO also had to initiate a multiyear quality improvement project on a 

topic that the HMO selected. In 2002, CMS eliminated this requirement. An HMO must 

report on the improvements achieved from projects begun in 1999 and 2000, but does not 

have to maintain them. An HMO must report the topic and baseline data for the project it 

began in 2001, but does not have to maintain the project. 
Page 13 GAO-03-180 M+C HMO Requirements

Selected FEHBP 

Requirements for 

HMOs

FEHBP has requirements for HMOs in all four areas we examined: benefit 

package proposals, the beneficiary enrollment process, marketing 

materials and enrollee communications, and quality improvement. 

Although FEHBP and Medicare both function as purchasers and are 

broadly similar in terms of offering a choice of plans to beneficiaries, there 

are key differences in how the two programs operate, which may account 

for some of the variation in requirements. For example, market forces 

determine HMO payment rates in FEHBP. In contrast, a statutory formula 

specifies HMO payment rates in M+C.32 The difference in rate-setting 

methodologies affects the type of information that OPM and CMS require 

HMOs to include in their benefit package proposals. The programs also 

differ in size and beneficiary characteristics. FEHBP covers about one-fifth 

as many individuals as Medicare does. Moreover, FEHBP beneficiaries 

tend to be younger and to use fewer health care services than Medicare 

beneficiaries. 

Benefit Package Proposals HMOs that intend to participate in FEHBP must annually submit benefit 

package proposals to OPM for each health plan they offer. The proposals 

are due in May, at least 7 months before the start of the benefit year. In 

general, the FEHBP benefit package that an HMO offers in a geographic 

area provides the same coverage that the HMO offers to most enrollees in 

the same area. Each proposal includes the proposed health plan premium, 

which must be based on the lowest community-rated premium that the 

HMO charges to commercial customers for a similar number of covered 

lives.33 OPM actuaries evaluate an HMO’s supporting documentation for 

the proposed premium. The benefits to be covered by a health plan and its 

cost to the government and to enrollees may be affected by subsequent 

discussions between OPM and the HMO. For example, OPM may question 

specific cost estimates submitted by an HMO if they are much higher than 

other HMOs’ estimates. In such a situation, according to OPM, the agency 

will not agree to a rate unless these higher costs are adequately justified. 

Negotiations are generally concluded in August, at least 2 months before 

the start of FEHBP’s annual enrollment period in November. 

32BBA, §4001, 111 Stat. 299.

33Community-rated premiums reflect the average actual or anticipated cost of all enrollees 

in a specific geographic area.
Page 14 GAO-03-180 M+C HMO Requirements

FEHBP HMOs are subject to audits by OPM’s Office of Inspector General 

(OIG). If an HMO is found to have overcharged the government, the HMO 

must repay the amount of the overcharge plus interest. The OPM OIG has a 

goal of auditing every HMO at least once every 7 years. However, its audit 

strategy is risk based and concentrates resources on HMOs where 

problems are thought most likely to be found. 

Beneficiary Enrollment 

Process

While FEHBP has some enrollment process requirements for HMOs, they 

are limited because OPM and agencies that employ federal workers are 

responsible for most enrollment activities. FEHBP HMOs’ primary 

enrollment responsibility is to confirm that applicants live in, or in some 

cases work in, the geographic area served by their health plan. HMOs must 

also quarterly reconcile enrollments with agencies. Beneficiaries who are 

active workers enroll through the federal agencies that employ them, either 

in writing or through an automated telephone system or a dedicated Web 

site. The agencies determine eligibility and coverage start dates. Retirees 

enroll through an automated telephone system or a dedicated Web site. 

Agencies conduct tentative eligibility determinations for retirees that OPM 

then confirms. In general, FEHBP allows beneficiaries to switch health 

plans once a year, during the annual open season. 

Marketing and Enrollee 

Communication Materials

FEHBP requires HMOs to produce annual brochures in a standard format 

using standard language. The brochure must completely describe the 

covered benefits, limitations, and exclusions. According to OPM officials, 

the brochures represent a contractual document between HMOs and OPM. 

OPM must approve HMOs’ brochures before they can be distributed. 

HMOs must conform to OPM and NAIC guidelines in preparing materials 

that supplement the brochure and marketing materials, such as descriptive 

circulars and leaflets. According to OPM representatives, the agency 

focuses its review efforts on the annual brochures, but may selectively 

review other marketing materials distributed by HMOs. 

Quality Improvement HMOs must meet performance standards specified in their FEHBP 

contracts. These standards cover such areas as timeliness of telephone 

responses and wait times for appointments. FEHBP HMOs must annually 

conduct a standardized enrollee satisfaction survey and provide clinical 

and administrative performance data to OPM. FEHBP HMOs currently do 

not have to conduct quality improvement projects. However, in 2001, 
Page 15 GAO-03-180 M+C HMO Requirements

HMOs had to submit their business plans and timelines for attaining 

accreditation from an approved external accreditation organization; OPM 

currently recognizes JCAHO, NCQA, and URAC/American Accreditation 

HealthCare Commission. To achieve accreditation from such an 

organization, HMOs have to undertake quality improvement projects. 

Selected NAIC, 

JCAHO, and NCQA 

Requirements for 

HMOs

NAIC, JCAHO, and NCQA have established standards for HMOs in two of 

the areas we examined: 1) marketing and enrollee communication 

materials and 2) quality improvement. NAIC, JCAHO, and NCQA have not 

set standards for either benefit package proposals or beneficiary 

enrollment—two areas that health care purchasers must address. The 

three entities tend to establish standards that are less specific than parallel 

M+C requirements and that may be modified or interpreted to fit local 

circumstances. 

Marketing and Enrollee 

Communication Materials

NAIC’s model requirements for marketing materials specify that an HMO 

must produce advertising that is clear, complete, and does not mislead 

beneficiaries. HMOs may be required to annually certify that their 

marketing materials comply with a state’s insurance laws and regulations 

or to submit their marketing materials to a state insurance commissioner 

prior to distribution. NAIC’s model requirements for enrollee 

communications focus on HMO contract documents and specify that state 

insurance commissioners can require HMOs to file these documents for 

approval by the state prior to issuance. NAIC’s model requirements pertain 

to the general contents of contract documents, but not the use of 

standardized formats or language. 

JCAHO’s and NCQA’s accreditation standards require HMOs to provide 

complete information to their enrollees. NCQA’s accreditation standards 

also apply to marketing materials intended for prospective members. Both 

organizations have general content requirements and review marketing 

materials during their on-site accreditation visits. NCQA requires that 

HMOs have a systematic and ongoing process for assessing how clearly 

new enrollees understand HMO policies and procedures. 

Quality Improvement NAIC’s model requirements specify that HMOs must have a quality 

improvement program to improve care delivery and health outcomes and 

to collect and analyze information specific to their enrollees, such as 
Page 16 GAO-03-180 M+C HMO Requirements

satisfaction with the HMO. However, NAIC does not specify the types of 

quality improvement projects that HMOs must conduct or require the use 

of standardized satisfaction surveys or standardized performance 

measures. 

Both JCAHO’s and NCQA’s accreditation standards require HMOs to design 

and conduct quality improvement projects in clinical and administrative 

areas that achieve meaningful, sustainable performance improvements 

affecting a significant percentage of their enrollees. JCAHO and NCQA 

evaluate quality improvement project results during their accreditation site 

visits. Both organizations also require HMOs to measure enrollee 

satisfaction and submit administrative and clinical performance data.

Comments from CMS 

and the Other Entities

In written comments on a draft of this report, CMS stated that it generally 

agreed with our observations and that the tables contained in the 

appendixes effectively contrast M+C’s, FEHBP’s, and the other entities’

HMO requirements. (App. V contains the full text of CMS’s comments.) 

CMS suggested that an expanded analysis of the differences between M+C 

and FEHBP programs, and a more detailed discussion of M+C’s legislative 

history, could help readers understand why M+C’s HMO requirements may 

be more stringent. 

We recognize that there are fundamental differences between Medicare—a 

large public entitlement program—and FEHBP—an employer-sponsored 

health insurance program—and that an HMO requirement that is 

appropriate in one program may not be appropriate in the other. In this 

report, we provide background information on M+C, FEHBP, and the other 

entities to help provide context for their HMO requirements. We also 

understand that behind M+C’s current set of requirements lies a complex 

legislative history and a series of administrative decisions. The report 

highlights important Medicare HMO requirement changes introduced by 

BBA and subsequent actions taken by CMS and the Congress to improve 

M+C for beneficiaries and encourage participation by HMOs. However, the 

report’s focus is on the requirements that M+C HMOs face today. By 

displaying these requirements with the HMO requirements established by 

other entities, the summary tables may facilitate comparisons and inform 

discussions about particular M+C requirements and how they contribute to 

the program’s objectives.
Page 17 GAO-03-180 M+C HMO Requirements

We also provided a draft of the report to OPM, NAIC, JCAHO, and NCQA 

and incorporated the technical comments we received from those 

organizations and from CMS as appropriate.

As agreed with your office, unless you publicly announce the contents of 

this report earlier, we plan no further distribution of it until 30 days from 

the date of this report. We will then send copies of this report to the 

Administrator of CMS, the Director of OPM, NAIC, JCAHO, NCQA, and 

other interested parties. We will also make copies available to others upon 

request. In addition, the report will be available at no charge on the GAO 

Web site at http://www.gao.gov.

If you or your staff have questions about this report, please contact me at 

(202) 512-7119 or James Cosgrove at (202) 512-7029. Other contributors to 

this report include Jennifer Podulka, Lisa Rogers, and Yorick F. Uzes.

Sincerely yours,

Laura A. Dummit

Director, Health Care—Medicare Payment Issues
Page 18 GAO-03-180 M+C HMO Requirements

Appendix I

Benefit Package Proposals ApApenednxidexiIs

M+C and FEHBP have HMO requirements that pertain to benefit package 

proposals. Our summary of those requirements is organized as follows.

Determination of Costs, Benefits, and Government and Beneficiary 

Contributions 

• Purpose of benefit package proposals

• Determination of HMO costs or rates 

• Covered benefits

• Government contribution

• Beneficiary contribution

• Limits on premiums and required cost sharing

Submission, Review, and Approval of Benefit Package Proposals

• Call for proposals

• Number of proposals submitted 

• Contents of proposals

• Transmission of proposals 

• Proposal submission deadline

• Deadline for informing CMS/OPM that existing health plan will not 

renew

• Review process

• Schedule for approving proposals

• Reconciliation process

Benefit Package Proposal Audits 

• Entities that conduct audits
Appendix I

Benefit Package Proposals

Page 19 GAO-03-180 M+C HMO Requirements

• Selection criteria for audits and number of HMOs audited annually

• Information subject to audit

• Timing of audits

• Contents of audit reports

• Consequences of audit findings

Table 1 summarizes selected M+C and FEHBP requirements for HMOs’

benefit package proposals. Figure 1 depicts the 2001 benefit-year timeline 

for activities associated with the submission, review, and approval of 

HMOs’ benefit packages.34 The timing of these activities for M+C will be 

altered for benefit years 2003 through 2005. Figure 2 depicts the M+C and 

FEHBP timeline for benefit package proposal activities for those benefit 

years.

34For benefit year 2002, CMS allowed M+C HMOs to submit benefit package proposals as 

late as September 17, 2001, and extended the annual enrollment period through December 

31, 2001.
Appendix I

Benefit Package Proposals

Page 20 GAO-03-180 M+C HMO Requirements

Table 1: Selected Requirements for Benefit Package Proposals, M+C and FEHBP

Topic M+C requirements FEHBP requirements

Determination of costs, benefits, and government and beneficiary contribution

Purpose of benefit package 

proposals

HMO must submit, for CMS approval, benefit 

package proposals, called adjusted community rate 

proposals (ACRP), that are used to determine 

covered benefits and beneficiary premiums and cost 

sharing.

HMO must submit, for OPM approval, benefit 

package proposals that are used to determine 

covered benefits, the government contribution, and 

beneficiary premiums and cost sharing.

Determination of HMO costs 

or rates 

HMO must, for each health plan it intends to offer, 

estimate its per enrollee direct medical cost of 

providing Medicare-covered benefits. The HMO 

must also list the payments per enrollee it requires to 

cover administrative costs and provide other 

additional revenue, for such items as profits or 

contribution to reserve for nonprofit HMOs. (The 

profit included in the proposal must be comparable 

to the profits the HMO normally earns on other 

contracts.) The HMO must follow the same 

methodology to estimate its cost and revenue of 

providing benefits not covered by Medicare. The 

sum of all direct medical and administrative costs 

and additional revenue per enrollee, known as the 

adjusted community rate (ACR), must be based on 

the amount the HMO would charge a commercial or 

other customer to provide benefits, adjusted for 

differences in the utilization characteristics of the 

HMO’s expected Medicare enrollees.

HMO must, for each health plan it intends to offer, 

develop its FEHBP premium rates using the same 

methodology it uses for other purchasers. Each 

HMO must identify two purchasers in the FEHBP 

contract area with enrollments closest to the number 

of its FEHBP enrollees in that area. These 

purchasers are referred to as similarly sized 

subscriber groups (SSSG). The HMO must apply 

the same methodologies it used to calculate 

premium rates for its SSSGs and select the method 

that yields the lowest premium rate for FEHBP.

The premium rate may be adjusted to incorporate 

findings from rate reconciliation audits. 

Covered benefits HMO must provide all Medicare-covered benefits 

except hospice care. HMO may enhance 

Medicare’s benefit package by reducing beneficiary 

cost-sharing requirements or providing coverage for 

additional benefits, such as prescription drugs. If 

projected Medicare payments exceed the HMO’s 

ACR, the HMO must use the excess by enhancing 

benefits or contributing to a benefit stabilization fund 

that it can draw on in future years to help finance the 

cost of covered benefits, or a combination of these.

Beginning in 2003, HMO may pay all or part of a 

beneficiary’s Medicare part B premium.a

In general, an HMO’s FEHBP benefit package is 

expected to be based on the benefit package it 

provides to the most enrollees in the community. 

OPM may require HMOs to provide coverage for 

certain benefits, such as prescription drugs or child 

immunizations, or may establish coverage 

parameters, such as minimum copayments or parity 

for mental health benefits. OPM may restrict 

benefits, such as dental coverage, that might result 

in an HMO attracting a disproportionate number of 

healthy beneficiaries, a phenomenon known as 

favorable selection. 
Appendix I

Benefit Package Proposals

Page 21 GAO-03-180 M+C HMO Requirements

Government contribution CMS follows a formula specified in law to establish 

the government contribution to an M+C HMO in 

each geographic payment area (generally a 

county).b

M+C payment rates are adjusted, up or down, to 

better reflect the likely health care costs associated 

with certain beneficiary characteristics such as age, 

sex, Medicaid enrollment status, and prior 

hospitalizations for selected conditions. 

OPM follows a formula specified in law to establish 

the government premium contribution.c

 For each 

enrollee, the government pays the HMO the lesser 

of: 

1. 72 percent of the weighted average premium of 

all health plans offered to government 

employees (average premium weighted by the 

number of FEHBP enrollees in each health 

plan), or 

2. 75 percent of the health plan’s premium.

OPM does not adjust payments for the 

characteristics of individual enrollees.

Beneficiary contribution Beneficiary premium is established in conjunction 

with the health plan’s cost-sharing requirements. In 

general, beneficiaries are expected to pay, in 

premiums and cost sharing, the difference between 

the health plan’s ACR for its entire benefit package 

and the portion of Medicare’s payment used by the 

health plan for current benefits.d 

Beneficiary pays the difference between health 

plan’s premium and the government contribution per 

enrollee. Beneficiary must pay a minimum of 25 

percent of the health plan’s premium. In addition, 

beneficiary must pay any required cost sharing.

Limits on premiums and 

required cost sharing

No minimum premiums or required cost sharing. 

For Medicare-covered benefits as a whole, the 

expected premiums and cost sharing per beneficiary 

cannot exceed a nationally established amount 

representing the actuarial value of FFS’s deductibles 

and coinsurance. CMS may limit cost sharing for 

individual items and services if it determines that the 

health plan’s proposed cost sharing would, for 

example, discriminate or discourage enrollment of 

severely ill or chronically ill beneficiaries.

For benefits not covered by Medicare, the expected 

revenue per beneficiary cannot exceed the health 

plan’s ACR for the group of benefits. 

No maximum premiums or required cost sharing. 

OPM sets some minimum copayment amounts.

Submission, review, and approval of benefit package proposals

Call for proposals No later than March 1 of each year, which has been 

temporarily changed to no later than the second 

Monday in May in 2004 and 2005, CMS announces 

the M+C payment rates for each geographic 

payment area that will be in effect during the next 

calendar year.e

 (M+C benefit year coincides with the 

calendar year.) 

In March or early April, OPM sends out a “call letter”

asking HMOs to submit their benefit package 

proposals for the next benefit year. The call letter 

contains information on any program changes that 

could affect an HMO’s rates.

Number of proposals 

submitted 

CMS received about 650 ACRPs in 2001.f OPM received about 300 benefit package proposals 

in 2001. 

(Continued From Previous Page)

Topic M+C requirements FEHBP requirements
Appendix I

Benefit Package Proposals

Page 22 GAO-03-180 M+C HMO Requirements

Contents of proposals An HMO must submit an ACRP for each heath plan 

it intends to offer. The ACRP consists of two 

parts—(1) a set of six standardized spreadsheets 

that support the health plan’s ACR and (2) a 

standardized list, known as the plan benefit package 

(PBP), that details all the benefits the HMO will offer.

The six ACR spreadsheets ask for the following 

information.

• Summary projections of enrollment, Medicare’s 

average payment rate, and revenue collected from 

beneficiaries.

• Base-year actual costs and revenues. (HMO uses 

recent historical costs and revenues as a basis to 

project benefit-year costs and revenues. The base 

year is the period when historical costs and 

revenues are measured. Base-year costs are 

adjusted for expected trends and other factors to 

project benefit-year costs and revenues.)

• HMO financial information.

• Premiums and cost-sharing details for various 

categories of services.

• Expected variation in costs and revenues by health 

care service category.

• Calculation comparing the ACR to Medicare’s 

projected average payment rate.

An HMO must submit, for each health plan it intends 

to offer, information that describes how it developed 

rates for its SSSGs and shows that it used the same 

methodology to develop its FEHBP rates.

HMO submits OPM-required forms and supporting 

documentation for each of its health plans. OPM 

forms primarily consist of a series of questions. 

Many questions have multiple-choice answers; 

others ask for a narrative description of the HMO’s 

rate development methodology. The supporting 

documentation can be submitted in any form that is 

convenient for the HMO and supplies the necessary 

information. The number of forms and amount of 

documentation required vary according to whether 

the health plan serves more or less than 1,500 

FEHBP enrollees and whether total income from 

FEHBP is less than or more than $500,000.g

Transmission of proposals HMO submits ACRPs electronically and mails a 

paper copy of the ACR to CMS along with narrative 

descriptions that may contain additional 

explanations or cost justifications. 

HMO mails two paper copies of benefit package 

proposals or other required documentation to OPM. 

Proposal submission 

deadline

July 1 before the start of the benefit year. For benefit 

years 2003 through 2005 only, the deadline is the 

second Monday in September.h

May 31 before the start of the benefit year.

Deadline for informing 

CMS/OPM that existing 

health plan will not be 

renewed

July 1 before the start of the benefit year. For benefit 

years 2003 through 2005 only, the deadline is the 

second Monday in September.

May 31 before the start of the benefit year. If OPM 

does not receive a benefit package proposal for an 

existing health plan by that date, the agency regards 

the health plan as one that will not be renewed.

(Continued From Previous Page)

Topic M+C requirements FEHBP requirements
Appendix I

Benefit Package Proposals

Page 23 GAO-03-180 M+C HMO Requirements

Review process CMS electronically reviews each ACRP, primarily to 

check that all required fields are completed. CMS 

and CMS’s contractors conduct a desk review of the 

ACRP. The desk review includes verifying that any 

projected Medicare average payment rate in excess 

of the HMO’s ACR is used to offer additional 

benefits, to reduce premiums or cost sharing, or is 

placed in the stabilization fund; that benefits detailed 

in the PBP are included in the ACR; and that all 

values in the ACR appear reasonable and are 

supported by adequate documentation.

BIPA requires Medicare’s Chief Actuary to review all 

ACRs submitted on or after May 1, 2001, and 

determine the appropriateness of both the actuarial 

assumptions and the data used by HMOs.i

 CMS 

officials have stated that actuarial reviews will begin 

with ACRs submitted in 2002.

OPM uses a two-stage process to review HMOs’

benefit package proposals and begin negotiations. 

First, OPM’s Office of Insurance Programs reviews 

each proposed benefit package. OPM may 

negotiate to have the HMO alter its proposed benefit 

package. Second, OPM’s Office of the Actuary 

reviews the proposed premium rate and the data 

and methodology the HMO used to develop the rate. 

(These two stages do not necessarily occur in strict 

sequence and OPM may continue benefit 

negotiations while reviewing the HMO’s premium 

rates.) 

OPM’s Office of the Actuary focuses review efforts 

on benefit package proposals that cover more than 

1,500 FEHBP enrollees.

For benefit package proposals covering 1,500 or 

more FEHBP enrollees, OPM checks that the HMO 

used the same methodology for its SSSG as for 

FEHBP. About 160 benefit package proposals were 

subject to this detailed review in 2001.

For benefit package proposals covering fewer than 

1,500 FEHBP enrollees, OPM determines whether 

the proposed rates appear to be reasonable (for 

example, by comparing the rates with those 

submitted by similar HMOs).

Schedule for approving 

proposals

CMS generally completes its review of ACRPs and 

approves them before the start of Medicare’s annual 

enrollment period in November.j

OPM tries to finish all negotiations by mid-August—

approximately 10 weeks before the start of FEHBP’s 

open season that begins in November.

Reconciliation process No applicable requirements. In early March of the benefit year, each HMO must 

tell OPM what rate it actually negotiated with its 

SSSGs. (The HMO may have signed contracts with 

its SSSGs after submitting its FEHBP rate proposal.) 

If the lowest SSSG rate differs from the one listed in 

the HMO’s FEHBP rate proposal, OPM reconciles 

the difference and determines whether the HMO 

undercharged or overcharged FEHBP. The 

reconciliation process is also used to make 

adjustments for FEHB program changes announced 

after benefit package proposals were finalized and 

approved. An HMO cannot use the reconciliation 

process to update its estimates of beneficiary use of 

services.

OPM maintains a contingency reserve fund for 

HMOs, and may charge an HMO up to 3 percent of 

its health plan’s premium to establish and maintain 

the fund. 

(Continued From Previous Page)

Topic M+C requirements FEHBP requirements
Appendix I

Benefit Package Proposals

Page 24 GAO-03-180 M+C HMO Requirements

Funds are paid out of the health plan’s contingency 

reserve to: compensate a health plan if its rate at 

the time of reconciliation (late spring, early summer) 

is higher than that agreed to in rate negotiations; 

reduce the rate otherwise applicable for a year if the 

contingency reserve is projected to exceed the 

minimum balance; and reimburse the Federal 

Employees Health Benefits Fund for audit findings 

against a health plan.

Benefit package proposal audits

Entities that conduct audits For audits of benefit year 2000 ACRPs, CMS 

contracted with three private certified public 

accounting firms and HHS’s Office of Inspector 

General (OIG). For audits of benefit year 2001 

ACRPs, CMS contracted with only private firms. 

OPM OIG.

Information subject to audit BBA grants the Secretary of HHS the right to audit 

and inspect any books and records of the HMO that 

pertain to the ability of the organization to bear the 

risk of potential financial losses, or to services 

performed or determinations of amounts payable 

under the contract. 

Audits analyze each of the six ACR worksheets, but 

primarily focus on two aspects of the ACR–the 

actual costs incurred in the base year, and the 

methodology the HMO used to project benefit-year 

costs from base-year costs.

OPM OIG conducts two types of audits: rate 

reconciliation audits of benefit package proposals for 

the current benefit year, and historical audits that 

generally review benefit package proposals from 5 

previous benefit years.

Audits determine whether the HMO’s rate was 

developed according to the contract, the Federal 

Acquisition Regulation (FAR), which contains 

generic procurement rules contractors follow in 

doing business with the federal government, and the 

Federal Employees Health Benefits Acquisition 

Regulation, which tailors FAR to FEHBP. 

Selection criteria for audits 

and number of HMOs 

audited annually 

CMS is required to audit at least one-third of the 

participating HMOs annually.k

CMS selected every third HMO contract from those 

filing ACRPs for 2000. CMS then used a risk-based 

approach to eliminate or add HMO contracts based 

on the desk reviews and prior experience with 

particular HMO contracts.

CMS audited 80 of the 238 M+C contracts for the 

2000 benefit year. CMS’s goal is to audit all M+C 

contracts over a 3-year period.

The FEHB Act permits, but does not require, audits 

of HMOs. OPM OIG performs a risk analysis by 

assigning all of an HMO’s health plans a numerical 

value for criteria such as nature of previous findings, 

size of health plan, dollar volume, and time elapsed 

since last audit. Aggregate score for each HMO is 

computed, and HMOs with the highest risk scores 

are audited.

In 2001, OPM OIG performed 20 rate reconciliation 

audits and 23 historical audits of HMOs. OPM tries 

to audit each HMO at least once every 7 years.

Timing of audits Audits of ACRPs for benefit year 2000 were 

conducted from May through November 2000. 

(HMOs had originally submitted these ACRPs in July 

1999.)

Rate reconciliation audits of benefit package 

proposals are conducted from May through August 

of the benefit year covered by the proposal. 

Historical audits are conducted from August through 

May.

(Continued From Previous Page)

Topic M+C requirements FEHBP requirements
Appendix I

Benefit Package Proposals

Page 25 GAO-03-180 M+C HMO Requirements

a

Part A of Medicare provides coverage for inpatient hospital, skilled nursing facility, hospice, and 

certain home health care services, for which beneficiaries do not pay a premium. To receive coverage 

for physician and other services provided under part B of Medicare, beneficiaries must pay a monthly 

premium to Medicare. In general, a beneficiary enrolled in an M+C health plan must pay Medicare’s 

part B premium in addition to any premium charged by the health plan.

b

Balanced Budget Act of 1997 (BBA), Pub. L. No. 105-33, §4001, 111 Stat. 251, 299 (classified to 42 

U.S.C. 1395w-23).

c

5 U.S.C, §8906.

d

Under certain circumstances, an HMO may contribute a portion of its Medicare payment to a benefit 

stabilization fund to finance benefits in future years, or draw on its previous contributions to finance 

current benefits.

e

Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (Bioterrorism Act), 

Pub. L. No. 107-188, §532(d), 116 Stat. 594, 696.

f

This reflects the number of revised ACRPs filed following the enactment of BIPA, which required 

HMOs to submit revised ACRPs to cover the portion of the 2001 contract year—March through 

December—when BIPA specified increased payment rates would be in effect.

g

OPM measures enrollment for this purpose in terms of numbers of contracts between an FEHBP 

health plan and federal employees, retirees, or surviving dependents. Thus, the number of contracts is 

less than the number of covered lives, which includes covered spouses and dependent children.

h

Bioterrorism Act, §532(b), 116 Stat. 696.

i

Medicare, Medicaid, and SCHIP Benefit Improvement and Protection Act of 2000 (BIPA), Pub. L. No. 

106-554, Appendix, F, §622, 114 Stat. 2763A-463, 2763A-566.

j

The Bioterrorism Act temporarily changes the date of the annual enrollment period that occurs before 

the start of each benefit year (§532(c), 116 Stat. 696). BBA specified the month of November as the 

annual enrollment period (BBA, §4001, 111 Stat. 282). For benefit years 2003 through 2005, the 

Bioterrorism Act delays the start of the annual enrollment period to November 15 and extends its 

conclusion to December 31 during the years 2002 through 2004 (§532(c), 116 Stat. 696). For the 2003 

benefit year, CMS intends to complete its review of submitted ACRPs by November 1, 2002, 

approximately 2 weeks prior to the start of Medicare’s open enrollment period.

k

BBA, §4001, 111 Stat. 320. Audits were first conducted for benefit year 2000 ACRPs.

Source: GAO summary of information provided by CMS and OPM, including applicable federal 

statutes, operational guidance, and other agency materials pertaining to HMOs, and interviews with 

officials. 

Contents of audit reports CMS’s contract for benefit year 2000 required that 

the audit reports contain a discussion of each audit 

finding, a revised ACRP showing the estimated 

dollar effect of each audit finding, and a conclusion 

about the reasonableness of the audited ACRP. 

Audit reports contain a discussion of each audit 

finding and the dollar effect of each audit finding.

Consequences of audit 

findings

Depending on the audit findings accepted by CMS, 

an HMO could be subject to administrative 

sanctions, civil money penalties, and be required to 

return double the excess amount charged in 

violation. The excess amount charged is deducted 

from the penalty and returned to the Medicare 

enrollee(s) concerned. 

CMS has provided copies of the 2000 benefit-year 

audit reports to HMOs. The agency is considering 

the actions it will take to address the audit findings.

If OPM OIG determines that rates equivalent to the 

SSSGs’ rates were not applied to the FEHBP, it can 

return a finding of defective pricing. FEHBP is then 

entitled to a downward rate adjustment to 

compensate for any overcharges and interest on 

overcharges. 

(Continued From Previous Page)

Topic M+C requirements FEHBP requirements
Appendix I

Benefit Package Proposals

Page 26 GAO-03-180 M+C HMO Requirements

Figure 1: Timeline for Submission, Review, and Approval of HMOs’ Benefit Package Proposals for Benefit Year 2001

Source: GAO summary of information provided by CMS and OPM, including applicable federal 

statutes and regulations, operational guidance and other agency materials pertaining to HMOs, and 

interviews with officials.

FEHBP

M+C

February March April May June July August September October November December January

OPM issues

call letter for

next benefit

year

CMS announces

rates for next benefit year

Benefit package

proposals due

Benefit package

proposals due

CMS reviews

benefit package 

proposals

OPM approves 

benefit packages

Annual

enrollment 

period

Annual

enrollment 

period

Benefit year 

begins

Benefit year 

begins

OPM reviews

benefit package 

proposals and

negotiates with 

HMOs

CMS 

approves benefit 

packages

2000 2001
Appendix I

Benefit Package Proposals

Page 27 GAO-03-180 M+C HMO Requirements

Figure 2: Timeline for Submission, Review, and Approval of HMOs’ Benefit Package Proposals for Benefit Years 2003 Through 

2005

Note: For benefit years after 2005, schedule of M+C activities will revert to the schedule shown in 

fig. 1.

a

CMS announced payment rates for benefit year 2003 in March 2002. 

Source: GAO summary of information provided by CMS and OPM, including applicable federal 

statutes and regulations, operational guidance and other agency materials pertaining to HMOs, and 

interviews with officials.

FEHBP

M+C

February March April May June July August September October November December January

OPM issues

call letter for next

benefit year

CMS announces

rates for next benefit

yeara 

Benefit package

proposals due

Benefit package

proposals due

CMS reviews 

benefit package

proposals

OPM approves 

benefit packages

Annual

enrollment

period

Annual

enrollment

period

Benefit year 

begins

Benefit year 

begins

OPM reviews benefit

package proposals and

negotiates with HMOs

CMS approves 

benefit packages
Page 28 GAO-03-180 M+C HMO Requirements

Appendix II

Beneficiary Enrollment ApendxiI

M+C and FEHBP have HMO requirements that pertain to beneficiary 

enrollment. Our summary of those requirements is organized as follows.

Enrollment Process

• Enrollment application

• Eligibility determination

• Transmission of enrollment information to HMOs

• Reconciliation of data between HMO and administering agency

Timing of Enrollment Changes

• Opportunities to enroll or change enrollment

• Requirements for health plans to accept new enrollees

• Determination of effective coverage dates 

Enrollment and Disenrollment Forms and Notices

• Enrollment forms

• Notifications for other enrollment-related situations

• Forms and notifications for voluntary disenrollment

• Notifications for other disenrollment-related situations

Table 2 summarizes selected M+C and FEHBP requirements pertaining to 

beneficiary enrollment. Table 3 summarizes the annual opportunities for 

Medicare beneficiaries to enroll in an M+C health plan, change M+C health 

plans, or switch to FFS under M+C’s enrollment “lock-in” provision. This 

provision was in effect during the first half of 2002 and will be implemented 

again as of January 1, 2005. Until that date, Medicare beneficiaries may 

make enrollment changes every month. Table 4 summarizes the annual 

opportunities for FEHBP beneficiaries to make health plan enrollment 

changes. 
Appendix II

Beneficiary Enrollment

Page 29 GAO-03-180 M+C HMO Requirements

Table 2: Selected Requirements for Beneficiary Enrollment in HMOs, M+C and FEHBP

Topic M+C requirements FEHBP requirements

Enrollment process

Enrollment application Medicare beneficiaries apply in writing to HMO. 

HMO must accept mailed and faxed enrollment 

forms and those presented in person.

Employees: During open season, agencies may 

permit or require their employees to submit 

applications to OPM via an automated telephone 

system or Web site. Employees who do not use the 

automated systems apply in writing to their agency's 

human resources office.

Retirees: During open season, retirees may change 

enrollment via an automated telephone system or 

Web site provided by OPM. Outside of open season 

activities, retirees make enrollment changes by using 

a toll-free telephone number provided by OPM.

Eligibility determination HMO must verify completion of enrollment 

forms and perform initial checks to verify 

eligibility for M+C. Eligibility determination 

requires, but is not limited to, verification of 

enrollment in Medicare parts A and B and 

residence in the health plan's service area. 

HMO may access CMS data to verify 

enrollment in Medicare parts A and B.

HMO must electronically submit new 

enrollments to CMS monthly. CMS performs 

final eligibility checks. HMO can electronically 

review the results of CMS reports to confirm 

eligibility for new enrollees.a

HMO plays a limited role in the eligibility 

determination process. Agencies must determine 

eligibility for employees. For retirees, agencies must 

conduct initial determinations, then submit the 

results of those determinations to OPM for 

confirmation. HMO’s responsibility is to confirm that 

applicants are eligible for its particular health plan or 

health plans. For example, if an HMO offers a health 

plan only in a designated service area, it must 

confirm that applicants reside in that service area.

Transmission of enrollment 

information to HMOs

HMO receives enrollment forms directly from 

beneficiary.

Employees: Excluding open season activities, 

agencies send copies of the enrollment forms 

directly to HMO. The copies must be forwarded at 

least every week. Several agencies send changes 

indirectly through OPM's enrollment processing 

center in Macon, Georgia. During open season, 

OPM sends enrollments received electronically to 

HMO via its enrollment processing center. These 

transactions occur weekly. 

Retirees: HMO receives non-open season 

enrollment changes directly from OPM. During open 

season, enrollment changes are made via an 

automated telephone system or a Web site provided 

by OPM. OPM sends these changes to the HMO 

electronically through its enrollment processing 

center.
Appendix II

Beneficiary Enrollment

Page 30 GAO-03-180 M+C HMO Requirements

Reconciliation of 

data between HMO and 

administering agency

Enrollment data are electronically reconciled 

between HMO and CMS monthly. HMO can 

electronically view reports with results of CMS 

eligibility confirmation. 

Enrollment data are reconciled in writing between 

the HMO and agency personnel and payroll offices 

quarterly. 

Timing of enrollment changes

Opportunities to enroll or change 

enrollment

During the first 6 months of 2002, Medicare 

beneficiaries were subject to a lock-in provision 

that limited the number of opportunities they 

had each year to enroll or change enrollment in 

M+C health plans. HMOs were required to track 

a beneficiary’s enrollment changes to ensure 

compliance with those limits. On June 12, 

2002, the lock-in requirement was temporarily 

dropped until January 1, 2005. Through 

December 31, 2004, Medicare beneficiaries 

can enroll, on a monthly basis, into any M+C 

health plan accepting new enrollments or 

switch to the FFS program. (See table 3 for 

beneficiaries’ opportunities to make health plan 

changes under the lock-in provision.)

OPM requirements delineate specific opportunities 

to enroll or change enrollment in FEHBP health 

plans. FEHBP eligibles enroll in their first health plan 

and are then locked into that health plan until the 

annual open season, unless special circumstances 

arise. 

Employees and retirees enrolled in FEHBP generally 

may only change health plans during the annual 

open season.

FEHBP enrollees in certain circumstances have 

other opportunities to change enrollment. For 

example, they may change health plans if their 

employment status or family status changes. (See 

table 4 for specific FEHBP enrollment opportunities.)

Requirements for health plans to 

accept new enrollees

In general, unless an HMO’s health plan has 

reached its CMS-approved capacity limit, it 

must accept beneficiaries who apply. 

HMO may not screen beneficiaries prior to 

enrollment. HMO may not reject beneficiaries 

who have preexisting conditions, other than 

end-stage renal disease.

HMO must accept all eligible applicants.

HMO may not reject applications due to preexisting 

conditions. 

(Continued From Previous Page)

Topic M+C requirements FEHBP requirements
Appendix II

Beneficiary Enrollment

Page 31 GAO-03-180 M+C HMO Requirements

Determination of effective 

coverage dates

HMO must determine effective coverage dates 

based on the election period.

• Elections made during the 3 months prior to 

beneficiary’s entitlement to Medicare parts A 

and B are effective the first date of 

entitlement.

• Elections made during the annual election 

period are effective January 1. 

• At other times, the effective date is the first 

day of the month after HMO receives the 

complete enrollment form.

Agency personnel offices must determine effective 

coverage dates based on the election period. 

• Elections cannot be made prior to the first date of 

eligibility. Generally, elections made within the 60-

day window posteligibility are effective the first day 

of the first pay period after the agency personnel 

office receives the enrollment request and follows a 

period during which the enrollee was in pay status.

• Employees: Initial enrollments made during the 

annual open season are effective the first day of 

the first pay period that begins in the following year 

and that follows a pay period during any part of 

which the enrollee was in pay status. Changes in 

enrollments made during the annual open season 

are effective the first day of the first pay period that 

begins the following year.

• Retirees: Enrollments made during open season 

are effective January 1.

• Effective dates vary for employees and retirees 

enrolling during special circumstances, such as 

when a health plan terminates its participation in 

FEHBP.

(Continued From Previous Page)

Topic M+C requirements FEHBP requirements
Appendix II

Beneficiary Enrollment

Page 32 GAO-03-180 M+C HMO Requirements

Enrollment and disenrollment forms and notifications

Enrollment forms Beneficiaries must submit enrollment forms to 

HMO.

HMO is not required to use a standard 

enrollment form. CMS provides three model 

enrollment forms that HMO may choose to use:

• the individual enrollment form,

• the employer group health plan (EGHP) 

enrollment form, or

• the short enrollment form (for beneficiaries 

switching health plans within an HMO).

If HMO chooses to use its own enrollment form, 

the form must include data elements specified 

by CMS. CMS also requires that certain 

statements appear in the HMO enrollment form 

(to which the beneficiary need agree). For 

example, the enrollment form must state that 

the beneficiary understands that enrollment in 

more than one health plan with the same 

effective date will cancel all enrollments. 

CMS must review HMO enrollment forms prior 

to their use. If HMO uses model enrollment 

forms without modifications, CMS is required to 

review them within 10 days of submission. If 

HMO chooses to use its own enrollment forms, 

CMS is required to review them within 45 days 

of submission.

FEHBP employees submit enrollment forms to the 

agencies.

Employees: Employees must complete a standard 

form to enroll or change enrollment to another health 

plan. 

Retirees: Retirees must use an automated telephone 

system or Web site to change enrollment to another 

health plan.

HMO may not require completion of its own 

enrollment or application form. HMO’s electronic 

reproduction of enrollment form must contain the 

same data elements as the standard form.

No applicable requirements.

Notifications for other 

enrollment-related situations 

CMS requires HMO to provide notifications to 

applicants in certain situations. For example, 

HMO must send applicants a written notice 

confirming receipt of a complete enrollment 

form and a confirmation when CMS has made 

the final determination of eligibility. Model 

forms are available from CMS for these 

required communications. HMOs must also 

provide identification cards to enrollees.

OPM requires HMO to send identification cards to 

new enrollees.

(Continued From Previous Page)

Topic M+C requirements FEHBP requirements
Appendix II

Beneficiary Enrollment

Page 33 GAO-03-180 M+C HMO Requirements

a

We use the term “enrollee” to refer to a Medicare beneficiary who has already enrolled in an M+C 

health plan.

Source: GAO summary of information provided by CMS and OPM, including applicable federal 

statutes and regulations, operational guidance and other agency materials pertaining to HMOs, and 

interviews with officials.

Forms and notifications for 

voluntary disenrollment

M+C enrollees disenroll from health plans by 

changing to another health plan or by 

contacting the Social Security Administration, a 

Railroad Retirement Benefits office, CMS, or 

the HMO.

When CMS notifies HMO that a beneficiary has 

disenrolled from its health plan, HMO must 

send its former enrollee a notice confirming the 

disenrollment.

If HMO receives a verbal request from an 

enrollee, HMO must either ask for the request 

in writing or send the enrollee a disenrollment 

form and an accompanying letter. Once HMO 

receives either a written request or the 

completed disenrollment form, HMO must send 

a copy of the request and disenrollment letter to 

the former enrollee.

Model forms and letters are available from CMS 

for all these required communications.

FEHBP enrollees disenroll from health plans by 

either changing enrollment to another health plan or 

canceling enrollment in FEHBP. Employees disenroll 

with the standard form or electronically. Retirees 

disenroll through a toll-free telephone number or an 

automated system. 

Notifications for other 

disenrollment-related situations 

CMS also requires HMO to provide notification 

to enrollees in other disenrollment-related 

situations. For example, HMO must send 

written notification to the enrollee upon 

deciding to disenroll the enrollee due to failure 

to pay premiums. CMS provides a model letter 

for this purpose. HMO must also send an 

enrollee a written notice if it terminates or 

withdraws from the enrollee’s service area or 

continuation area–a CMS-approved area 

outside of the HMO’s service area where the 

HMO provides, or arranges to provide, services 

to existing enrollees–will no longer include the 

area where the enrollee lives. CMS does not 

provide a model notification for this purpose.

No applicable requirements.

(Continued From Previous Page)

Topic M+C requirements FEHBP requirements
Appendix II

Beneficiary Enrollment

Page 34 GAO-03-180 M+C HMO Requirements

Health Plan Enrollment 

Opportunities for M+C 

and FEHBP 

Beneficiaries 

Before 2002, a beneficiary in FFS or an M+C health plan could enroll, on a 

monthly basis, into any M+C health plan accepting new enrollments or 

switch from an M+C health plan to FFS. BBA included an enrollment lockin provision, effective January 1, 2002, that limited the number of 

opportunities, called election periods, for beneficiaries to make such 

changes (see table 3).35 Once a beneficiary used an election period to 

enroll in a health plan, he or she was locked into that health plan until 

eligible for another election period. All beneficiaries were eligible for at 

least two election periods per year—one during the annual election period 

in November and a second during the first 3 months of the benefit year (6 

months in 2002). However, the number of election periods each year was 

higher for beneficiaries with certain characteristics. For example, 

beneficiaries enrolled in a health plan on their 65th birthday had four 

election periods during their first 12 months in the program. 

Institutionalized beneficiaries could change health plans an unlimited 

number of times throughout the year.

On June 12, 2002, the Bioterrorism Act was signed into law. This act 

temporarily lifted the enrollment lock-in provision that had been 

implemented as of January 1, 2002; the lock-in provision is scheduled to be 

reinstated beginning January 1, 2005.36

Employees and retirees enrolled in FEHBP generally may change health 

plans one time each year, during the annual open enrollment period. 

However, FEHBP does permit changes at other times under certain 

circumstances, such as a change in family status (see table 4).

35BBA, Pub. L. No. 105-33, §4001, 111 Stat. 251, 281-283.

36Bioterrorism Act, Pub. L. No. 107-108, §532(a), 116 Stat. 594, 696.
Appendix II

Beneficiary Enrollment

Page 35 GAO-03-180 M+C HMO Requirements

Table 3: Opportunities for Medicare Beneficiaries to Enroll in an M+C Health Plan or 

Make Health Plan Changes Under M+C’s Lock-in Provision

a

However, in 2005 and beyond, the election period must not extend past December 31 of the same 

calendar year.

Source: GAO summary of information provided by CMS, including applicable federal statutes and 

regulations, operational guidance and other agency materials pertaining to HMOs, and interviews with 

officials.

Election period Length of election period

Are health plans 

required to be open to 

new enrollment?

First year of eligibility

Initial coverage election 3 months prior to eligibility for 

Medicare parts A and B

Yes, unless at capacity

Open enrollment for 

newly eligible 

individuals; one change 

is alloweda

6 months posteligibility in 2005

3 months posteligibility in 2006 and 

beyond

No

Annual election November Yes, unless at capacity

Open enrollment; one 

change is allowed

January-June in 2005

January-March in 2006 and beyond

No

Special opportunity for 

beneficiaries aged 65 to 

return to FFS

1 year following enrollment within 

Medicare's initial enrollment period at 

65th birthday

Not applicable

After first year of eligibility

Annual election November Yes, unless at capacity

Open enrollment; one 

change is allowed

January-June in 2005

January-March in 2006 and beyond

No

Election periods for special circumstances

Beneficiary moves out 

of health plan’s service 

area or continuation 

area

Includes the month prior to the move, 

the month of the move, and the month 

after the move 

Yes, unless at capacity

Beneficiary's health 

plan discontinues 

service

Varies depending on circumstance Yes, unless at capacity

Beneficiary is living in 

an institution

Year-round No

Beneficiary's health 

plan violates contract 

Varies depending on circumstance Yes, unless at capacity

Beneficiary enrolled in 

an EGHP

When an individual in the EGHP 

makes an election

Yes, unless at capacity

Exceptional conditions 

as determined by CMS

Specified by CMS Yes, unless at capacity
Appendix II

Beneficiary Enrollment

Page 36 GAO-03-180 M+C HMO Requirements

Table 4: Opportunities for FEHBP Beneficiaries to Enroll in a Health Plan or Make 

Health Plan Changes

a

Agencies may allow employees to make late elections if employees demonstrate they missed the 

original deadline due to causes beyond their control. Employees make a request to their agency, and if 

the request is granted, they have 60 additional days from the date the request was granted to make an 

election.

Source: GAO summary of information provided by OPM, including applicable federal statutes and 

regulations, operational guidance and other agency materials pertaining to HMOs, and interviews with 

officials.

Election period Length of election period

Are health plans 

required to be open to 

new enrollment?

First year of eligibility

Initial opportunity to 

enroll

Within 60 days after becoming 

eligible, generally after beginning 

federal employmenta

Yes

Annual open season Designated by OPM; the open 

season for 2002 was conducted 

November 12 to December 10, 2001

Yes

After first year of eligibility

Annual open season Designated by OPM; the open 

season for 2002 was conducted 

November 12 to December 10, 2001

Yes

Election periods for special circumstances

Beneficiary, or covered 

family member, in an 

HMO moves or 

becomes employed 

outside of the service 

area from which the 

HMO accepts 

enrollments 

Upon notifying the federal agency that 

hired the beneficiary of the move or 

change of place of employment

Yes

Beneficiary's health 

plan discontinues 

service

During annual open season, unless 

OPM designates a different period of 

time

Yes

Other, such as:

change in employment

change in family status 

Varies by circumstance Yes
Page 37 GAO-03-180 M+C HMO Requirements

Appendix III

Marketing and Enrollee Communication 

Materials ApendxiI

M+C, FEHBP, NAIC, NCQA, and JCAHO have HMO requirements that 

pertain to marketing and enrollee communication materials. Our summary 

of those requirements is organized as follows.

Types of Materials Subject to Standards

• Advertising and prospective member materials

• Materials that explain HMO operations

Approach Used to Ensure that Materials Conform to Standards

• Prior approval

• Postdistribution review

• Ongoing assessment of new members’ understanding of HMO 

operations

Standards for Documents and Information

• Preenrollment documents related to benefits and coverage

• Deadline for distributing preenrollment documents 

• Postenrollment documents related to benefits and coverage

• Deadline for distributing postenrollment documents 

• Standard language and formats

• Model language and formats

• Guidelines for preparing materials

• Language phrases

• Readability

• Producing materials in other languages and formats

• Telephone numbers
Appendix III

Marketing and Enrollee Communication 

Materials

Page 38 GAO-03-180 M+C HMO Requirements

• References to statistical studies

• References to competitors

• References to outpatient prescription drug benefit

Standards for Marketing Activities

• Promotional activities

• Prohibited activities

• Items not covered in contract

Review of Materials

• Reviewing officials

• Frequency of review

• Timing of review

• Time frames for standard review

• Time frames for expedited review

• Final verification of beneficiary notification materials

• Annual certification of compliance in preparing marketing materials

Table 5 summarizes selected M+C, FEHBP, NAIC, JCAHO, and NCQA 

requirements for marketing and enrollee communication materials.
Appendix III

Marketing and Enrollee Communication 

Materials

Page 39 GAO-03-180 M+C HMO Requirements
Appendix III

Marketing and Enrollee Communication 

Materials

Page 40 GAO-03-180 M+C HMO Requirements

Table 5: Selected Requirements for Marketing and Enrollee Communication Materials, M+C, FEHBP, NAIC, JCAHO, and NCQA

Topic M+C requirements FEHBP requirements

Types of materials subject to standards

Advertising and prospective member 

materials

Advertising and prospective member 

materials intended primarily to attract or 

appeal to eligible nonenrolled beneficiaries 

and to promote membership retention, such 

as the following:

• all advertisements (print, radio, television, 

Internet), Web site contents, outdoor 

advertising (billboards, signs attached to 

transportation vehicles);

• direct mail pieces;

• summary of benefits; and

• prepared sales talks or presentation flyers.

Advertising and prospective member 

materials intended to describe an HMO’s 

benefits, limitations, exclusions, and how to 

access care, such as the following:

• a standardized brochure produced by each 

HMO, the FEHBP brochure, that is a 

complete description of the HMO’s 

benefits, limitations, and exclusions; and 

• all other materials, considered 

supplemental to the FEHBP brochure, such 

as circulars and leaflets.

Materials that explain HMO operations Notification materials used to communicate 

with the enrollee about membership policies 

and procedures and coverage, such as the 

evidence of coverage, the member 

handbook, wallet card instructions, 

enrollment/disenrollment-related notices 

and forms, claims denial notices, provider 

termination notices, and provider directory.

Materials, such as the FEHBP brochure, 

provider directories, and forms for selecting 

a physician.

Approach used to ensure that materials conform to standards

Prior approval Required except for employer group health 

plan marketing materials. 

Required for HMO’s FEHBP brochure.

Postdistribution review Selective review, on a sample basis, 

occurring during monitoring compliance site 

visits, spot checks of media advertisements, 

or in response to complaints.

Selective review, on an ongoing basis, of all 

other materials that must comply with OPM 

and NAIC guidelines.

Ongoing assessment of new enrollees’

understanding of HMO operations

No applicable requirements. No applicable requirements.
Appendix III

Marketing and Enrollee Communication 

Materials

Page 41 GAO-03-180 M+C HMO Requirements

NAIC model requirements JCAHO accreditation standards NCQA accreditation standards

Advertising and prospective member 

materials intended to sell insurance policies, 

such as the following:

• printed and published material, audiovisual

material, direct mail, newspapers, 

magazines, radio and television scripts, 

Web sites and other Internet displays or 

electronic communications, billboards or 

similar displays;

• descriptive literature, such as circulars, 

leaflets, booklets, depictions, illustrations, 

and form letters;

• prepared sales talks or presentations; and

• materials included with a delivered policy, 

renewal, or reinstatement notices.

No applicable standards. Prospective member materials intended to 

describe an HMO’s benefits and 

procedures, such as the following:

• promotional brochures, summary of 

benefits, provider directories, scripts for 

verbal presentations, and media 

advertisements.

Materials, such as an evidence of coverage 

or contract, that explain the benefits to be 

provided. 

Written information, such as an overview of 

the HMO to orient enrollees; description of 

HMO and its services, components, clinical 

staff, and licensed independent 

practitioners; how to access HMO services; 

how to access emergency services; and 

description of the scope of benefits and the 

circumstances under which those benefits 

may be provided. 

Materials that describe benefits and HMO 

operations, such as the member handbook, 

identification card, benefit summaries, 

participating provider handbook, and 

member newsletter. 

Can be required. No applicable standards. No applicable standards.

Can be required. Required as part of on-site accreditation 

survey that takes place at least once every 3 

years.

Required as part of on-site accreditation 

survey that takes place at least once every 3 

years. Surveyors review, on-site, the 

materials actually in use. 

No applicable requirements. No applicable standards. HMO must have systematic and ongoing 

processes for assessing how clearly new 

enrollees understand HMO policies and 

procedures, and for preventing any 

identified misrepresentations made to new 

enrollees from occurring in the future.
Appendix III

Marketing and Enrollee Communication 

Materials

Page 42 GAO-03-180 M+C HMO Requirements

Standards for documents and information

Preenrollment documents related to benefits 

and coverage

Summary of benefits describes an HMO’s 

benefit package(s) and enrollee costs, 

compared to fee-for-service.

The FEHBP brochure is a complete 

description of the HMO’s statement of 

benefits, limitations, exclusions, and how to 

access care. 

Deadline for distributing preenrollment 

documents 

HMO had to begin marketing 2003 benefits 

as of September 9, 2002. Current enrollees 

must receive the annual notice of change, 

with the summary of benefits, by October 

30, 2002.

For 2003, HMO must send its FEHBP 

brochure to federal agencies for receipt no 

later than October 14, 2002, so it could be 

distributed to prospective members.

Postenrollment documents related to 

benefits and coverage

Provider directory and the evidence of 

coverage, which describes the rights and 

responsibilities of a Medicare beneficiary as 

an enrollee of a Medicare HMO.

Annual notice of change describes the 

specific changes in benefits, premiums, and 

HMO rules that will be in effect for the next 

contract year.

Provider directory and the FEHBP brochure, 

which is a complete statement of benefits, 

limitations, exclusions, and how to access 

care. It is part of OPM’s contractual 

arrangement with an HMO. 

The contents of the FEHBP brochure are 

similar to the combined contents of three 

M+C documents: the summary of benefits, 

evidence of coverage, and annual notice of 

change.

Deadline for distributing postenrollment 

documents 

For 2003, current enrollees must receive the 

evidence of coverage by March 1, 2003. 

Enrollees receive a provider directory at the 

time of enrollment and annually thereafter.

Each current enrollee must receive a FEHBP 

brochure and provider directory annually 

prior to start of the open season; for 2003 

the open season will start November 11, 

2002. HMO must state in the FEHBP 

brochure if its provider directory is available 

on its Web site.

Standard language and formats Required standard language and format for 

the summary of benefits, the notice of denial 

of medical coverage, and notice of denial of 

payment. Employer group health plans are 

exempted from using a standardized 

summary of benefits.

Required standard language and format for 

the FEHBP brochure. 

(Continued From Previous Page)

Topic M+C requirements FEHBP requirements
Appendix III

Marketing and Enrollee Communication 

Materials

Page 43 GAO-03-180 M+C HMO Requirements

No required documents but HMO’s 

advertising materials must include the type 

of policy offered.

HMO prohibited from expressing limitations, 

exceptions or reductions, or conditions of 

renewability in a way that obscures or 

minimizes them. HMO prohibited from using 

language that will cause fear or hope of 

financial gain.

No required documents. No required documents, but HMO’s 

marketing materials and presentations must 

include accurate descriptions of its covered 

benefits, practitioner and provider 

availability, pharmaceutical management 

procedures, and exceptions and limitations.

At least one marketing piece must describe 

the scope of utilization management 

activities. 

No applicable requirements. No applicable standards. No applicable standard, but surveyors 

review, on-site, the materials actually in use 

to inform prospective members about the 

HMO.

Provider directory and evidence of 

coverage, or individual contract, which must 

contain clear statements on various HMO 

activities and operations, including an 

explanation of the benefits to be provided 

under the contract and the circumstances 

under which those benefits may be 

provided.

List of participating licensed independent 

practitioners and their qualifications and list 

of clinical staff and their qualifications. 

Enrollees should also receive written 

information needed to access HMO services 

and emergency services, the scope of 

benefits and the circumstances under which 

those benefits may be provided, rights and 

responsibilities, and the HMO’s 

authorization and treatment processes.

Provider directory and instructions on how 

enrollees can request by telephone 

information on any provider professional 

qualifications not included in the directory, 

such as medical school attended and 

residency completed. Enrollees should also 

receive written information needed to 

understand benefit coverage and obtain 

care, and their rights and responsibilities. 

Each enrollee must receive an evidence of 

coverage upon enrollment.

HMO must make written copies of provider 

directories available to individuals upon 

enrollment, reenrollment, and at other times 

upon request.

HMO must inform enrollees in a “timely 

manner” (according to its own or industry 

standards, or state and federal guidelines, 

as applicable).

Each enrollee must receive written 

information on rights and responsibilities at 

enrollment, and when policy changes occur. 

Format and content of an advertisement 

should be sufficiently complete and clear to 

avoid deception or the capacity or tendency 

to mislead or deceive.

In advertisements, limitations, exceptions, or 

reductions in benefits must be clearly 

disclosed in close conjunction with the 

description of benefits or under appropriate 

and prominent captions.

No applicable standards. No applicable standards.

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Appendix III

Marketing and Enrollee Communication 

Materials

Page 44 GAO-03-180 M+C HMO Requirements

Model language and formats HMO can expedite the marketing review 

process by voluntarily using CMS’ model 

language and formats, without modification, 

as these CMS materials meet the marketing 

requirements. HMO is not required to use 

these models. Available models of forms 

developed by CMS for HMO use include:

• evidence of coverage,

• annual notice of change,

• enrollment notices,

• disenrollment notices, and

• enrollment form. 

No applicable requirements.

Guidelines for preparing materials

Language phrases HMO must adhere to guidelines regarding 

“must use,” “can use,” and “can’t use”

phrases.

HMO must include specific phrases in 

advertising and supplemental materials 

when presenting benefit or rate information 

outside the context of the FEHBP brochure, 

and follow guidelines on how the information 

is presented.

HMO must also follow NAIC guidelines.

Readability HMO must, but is not limited to, the 

following:

• use a minimum 12-point font, with Times 

New Roman as the standard for measuring 

font size;

• place footnotes consistently in same place; 

and

• in all nonnotice materials (e.g., television 

advertisements), make the footnote the 

same size as the message designed to 

capture the reader’s attention. 

HMO should use the OPM Plain Language 

Guide for guidance in style, usage, and 

format, such as using common words and 

limiting the use of acronyms. 

Producing materials in other languages 

and formats

HMO must make enrollee materials 

available in the primary language(s) of major 

population groups served (groups that 

constitute more than 10 percent of the 

population in a defined geographic area).

HMO must also make enrollee materials 

available, except provider directory, in large 

print and Braille formats or through recorded 

cassettes. 

HMO submits to CMS the non-English or 

Braille version, the English version, and a 

letter of attestation that all versions convey 

the same information. 

HMO, at OPM’s direction, must produce and 

distribute an audio cassette version of the 

approved FEHBP brochure language.

(Continued From Previous Page)

Topic M+C requirements FEHBP requirements
Appendix III

Marketing and Enrollee Communication 

Materials

Page 45 GAO-03-180 M+C HMO Requirements

No applicable requirements. No applicable standards. No applicable standards.

HMO prohibited from using certain phrases 

that could be misleading, deceptive, or 

unfair.

No applicable standards. No applicable standards.

HMO should, but is not limited to, the 

following:

• use a minimum 10-point font, one point 

leaded, except for specification pages, 

schedules, and tables;

• provide a table of contents or an index for 

policies that exceed 3,000 words or 3 

pages; and

• achieve a minimum required score on a 

Flesch or comparable reading ease test.

No applicable standards. No applicable standards.

State insurance commissioner can require 

HMO to certify that any non-English 

language policy or form is translated from an 

English language policy or form that meets 

readability standards. 

HMO, and its components and other clinical 

care sites, should demonstrate respect for 

its enrollees by communicating in a 

language understood by the enrollee (such 

as, verbal and written communications are 

conducted in the primary language and at 

the level of comprehension of the enrollee 

whenever possible, either directly or through 

translation) and addressing the needs of the 

hearing and speech impaired. 

HMO must operate a translation service 

within its member services telephone 

function based on data on the linguistic 

needs of its enrollees. 

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Marketing and Enrollee Communication 

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Page 46 GAO-03-180 M+C HMO Requirements

Telephone numbers HMO must provide contact information in 

the summary of benefits, such as the HMO 

phone number and TTY/TDD phone 

number.

HMO must list the hours of customer service 

each time a customer service phone 

number appears.

HMO must list TTY/TDD numbers and hours 

of operation, in the same font size and style, 

when appearing with the HMO phone 

number. The font size and style rule is 

required for all media with the exception of 

television advertisements. 

HMO must list its telephone number, 

address, fax number, and Web site address 

in the FEHBP brochure.

References to statistical studies HMO can reference the results of studies or 

statistical information about enrollee 

satisfaction and quality. However, HMO must 

specify at a minimum the data source, 

dates, sample size, and number of HMOs 

surveyed.

HMO must follow NAIC guidelines.

References to competitors HMO prohibited from using superlatives, 

such as highest or best, unless such 

superlatives can be substantiated by ratings. 

HMO also prohibited from making 

unsubstantiated comparisons with other 

HMOs and directing negative statements at 

other HMOs. 

HMO must agree not to use advertising that 

is misleading or deceptive or makes 

incomplete, inappropriate, or disparaging 

comparisons.

HMO prohibited from comparing benefits or 

operations to any other HMO or listing rates 

of other HMOs in its supplemental materials.

HMO must also follow NAIC guidelines.

References to outpatient prescription drug 

benefit

If applicable, HMO must provide in its 

evidence of coverage whether or not it uses 

drug formularies or preferred lists. If so, the 

evidence of coverage must clearly explain 

key elements of the drug formulary.

HMO’s preenrollment marketing materials 

must disclose whether a formulary or 

preferred list is used and that the formulary 

or list may change during the contract year, 

as well as provide a contact number that the 

prospective member can call for more 

information.

HMO’s FEHBP brochure must explain 

prescription drug coverage and, if applicable, 

key features of its drug formularies.

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Topic M+C requirements FEHBP requirements
Appendix III

Marketing and Enrollee Communication 

Materials

Page 47 GAO-03-180 M+C HMO Requirements

No applicable requirements. No applicable standards. No applicable standards.

HMO’s statistical information must reflect 

accurately all current and relevant facts. 

HMO must identify the source of any 

statistics. HMO prohibited from using 

irrelevant facts.

No applicable standards. No applicable standards.

HMO prohibited from using advertisements 

that directly or indirectly make unfair or 

incomplete comparisons of policies or 

benefits or make comparisons using 

noncomparable policies of other HMOs. 

HMO prohibited from disparaging 

competitors.

No applicable standards. No applicable standards.

HMO’s group or individual contracts or an 

evidence of coverage filed with the contract 

must contain a clear statement or 

description of formulary procedures for 

obtaining a listing of drugs on the formulary 

(if applicable).

No applicable standards. HMO must describe its pharmaceutical 

management processes. If coverage of 

pharmaceuticals is restricted, HMO must 

describe: 

• how to obtain a copy of the pharmaceutical 

management procedures or check on the 

coverage of a specific nonformulary 

pharmaceutical;

• extent to which access to specific 

pharmaceuticals is restricted; and

• how enrollee can receive coverage for a 

pharmaceutical not on the formulary.

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Marketing and Enrollee Communication 

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Page 48 GAO-03-180 M+C HMO Requirements

Standards for marketing activities

Promotional activities HMO must follow CMS guidelines for 

conducting promotional activities, including, 

but not limited to the following:

• allowing gifts to prospective members or 

enrollees with a nominal value of $15 or 

less based on retail purchase price;

• permitting HMO to conduct health fairs that 

must be primarily social events where 

sales presentations and acceptance of 

enrollment forms are prohibited (with the 

exception of employer group health fairs); 

and

• permitting providers to advise beneficiaries 

regarding enrollment, but not take 

enrollment applications in locations where 

direct medical care is provided.

HMO must follow NAIC guidelines.

Prohibited activities HMO prohibited from:

• giving cash or other monetary rebates as 

inducement for enrollment;

• conducting marketing activities that could 

mislead or confuse Medicare beneficiaries;

• engaging in any discriminatory marketing 

activities, such as recruiting upper-income 

Medicare beneficiaries and not low-income 

Medicare beneficiaries or soliciting doorto-door; and

• using a health plan name that suggests 

that a health plan is not available to all 

Medicare beneficiaries.

HMO must follow NAIC guidelines.

Items not covered in contract HMO can market items/services not covered 

in their M+C contracts, but with such 

restrictions as the following.

• HMO must describe as value-added items 

and services (VAIS), not as benefits.

• HMO must state that VAIS are not subject 

to the M+C appeals process. 

• HMO can also market multiple lines of 

business to Medicare beneficiaries, as 

long as it follows specific CMS guidelines, 

such as allowing current enrollees to 

decline receiving such communications.

HMO can market items and services not 

covered in their FEHBP contracts, but with 

such restrictions as the following.

• HMO’s non-FEHBP benefits must be health 

related.

• HMO must describe the non-FEHBP 

benefits in the FEHBP brochure, limited to 

one page.

• HMO must state that non-FEHBP benefits 

are not subject to FEHBP’s disputed claims 

process. 

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Topic M+C requirements FEHBP requirements
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Marketing and Enrollee Communication 

Materials

Page 49 GAO-03-180 M+C HMO Requirements

HMO may offer an initial premium that is 

lower than the full premium, but the lower 

initial premium may not be more prominently 

displayed in an advertisement than the full 

premium.

No applicable standards. No applicable standards.

HMO prohibited from:

• conducting marketing activities that involve 

knowingly making any misleading 

representation or incomplete or fraudulent 

comparisons of insurance policies or using 

high-pressure tactics;

• implying that a contract, unless it is fact, is 

an introductory, initial, or special offer; is 

limited to a certain number of people; or is 

available for a limited time;

• implying in any way that it is endorsed or 

affiliated with a municipal, state, or federal 

government entity; and

• giving through style, arrangement, and 

overall appearance, undue prominence to 

any portion of text, any endorsements, or 

riders. 

No applicable standards. No applicable standards.

No applicable requirements. HMO must inform enrollees about how to 

obtain health care services not covered in 

the HMO’s benefit package.

HMO must accurately describe to 

prospective members services not covered 

in the HMO’s benefit package.

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Appendix III

Marketing and Enrollee Communication 

Materials

Page 50 GAO-03-180 M+C HMO Requirements

Review of materials

Reviewing officials Generally, regional CMS staff responsible 

for HMOs in a geographic area.

HMO with a national presence can request a 

coordinated review of its materials, 

designating a lead regional office. 

Centrally located OPM contract specialists 

assigned to FEHBP HMOs.

Frequency of review HMO’s materials and enrollee 

communications reviewed on an on-going 

basis.

HMO’s FEHBP brochure annually reviewed 

by OPM; OPM selectively reviews all other 

materials on an on-going basis.

Timing of review Review occurs prior to use. CMS may also 

conduct review as part of a regularly 

scheduled monitoring site visit; during a spot 

check of marketing pieces used in the 

media; or in response to a complaint.

Review occurs prior to use of the FEHBP 

brochure. All other materials are reviewed on 

an as-needed basis, such as in response to 

enrollee and HMO complaints.

Time frames for standard review HMO must submit materials to CMS at least 

45 days prior to distribution for approval. If 

CMS has not disapproved the materials 

within the 45-day period, then the HMO’s 

materials are deemed approved. 

If CMS disapproves the material, another 

45-day cycle begins when the HMO 

resubmits the corrected material.

OPM annually reviews and approves an 

HMO’s FEHBP brochure. For 2003, the 

following schedule was in effect.

• On July 2, 2002, OPM released an 

electronic version of the standardized 

FEHBP brochure that HMOs could modify 

to reflect their benefits and operations. 

• By August 8, 2002, OPM contract 

specialists and the HMOs had finished 

negotiating benefit changes for 2003. OPM 

sent an electronic version of the agreed-to 

FEHBP brochure text back to the HMO to 

put into the standardized format.

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Topic M+C requirements FEHBP requirements
Appendix III

Marketing and Enrollee Communication 

Materials

Page 51 GAO-03-180 M+C HMO Requirements

Insurance commissioner. A team of JCAHO surveyors performs onsite review; JCAHO committee makes all 

final accreditation decisions.

A team of NCQA surveyors, including 

physician and administrative reviewers, 

performs on-site review; NCQA committee 

of external senior physicians makes all final 

accreditation decisions.

HMO’s advertising materials reviewed by 

insurance commissioner at regular and 

periodic intervals.

Frequency of review varies, depending on 

HMO’s accreditation status. An on-site 

JCAHO accreditation survey occurs at least 

once every 3 years.

Frequency of review varies, depending on 

HMO’s accreditation score. An on-site 

NCQA accreditation survey occurs at least 

once every 3 years. Surveyors review, onsite, the materials actually in use.

Review can occur prior to use, at the 

discretion of the insurance commissioner. 

Review occurs after the use of materials. 

(This is because materials are reviewed onsite during a survey.)

Review occurs after the use of materials. 

(This is because materials are reviewed onsite during a survey.)

Insurance commissioner can require filing of 

advertising pieces for review no fewer than 

30 days prior to use.

State can require one of two options prior 

approval or “file and use” for review of 

contract forms and evidence of coverage.

• Prior approval. HMO must file contract 

forms and evidence of coverage with the 

insurance commissioner at least 30 days 

prior to delivery or issuance, which can be 

extended for an additional 30 days during 

the initial 30-day review period. Contract 

forms and evidence of coverage deemed 

approved if no action taken. At any time, 

after 30 days notice and for cause shown, 

the insurance commissioner may withdraw 

approval of a form, effective at the end of 

the period. If insurance commissioner 

disapproves a form or withdraws approval 

of a form, HMO can request a hearing.

• File and use. HMO must file contract forms 

and evidence of coverage with the 

insurance commissioner at least 30 days 

prior to delivery or issuance. At any time, 

after its issuance and delivery and for 

cause shown, the insurance commissioner 

may disapprove the form; this disapproval 

becomes effective 30 days after HMO 

receives notice from the insurance 

commissioner. HMO can request hearing.

Review of materials given to enrollees 

occurs on-site during JCAHO’s accreditation 

survey of HMO that occurs at least once 

every 3 years.

Review of materials occurs on-site during 

NCQA’s accreditation survey of HMO that 

occurs at least once every 3 years.

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Marketing and Enrollee Communication 

Materials

Page 52 GAO-03-180 M+C HMO Requirements

a

For the 2002 and 2003 beneficiary education/open season campaigns, CMS has temporarily 

suspended final verification of beneficiary notification materials, including the summary of beneficiary 

notification materials, including the summary of benefits, the evidence of coverage, and all other 

materials prepared as part of HMO’s enrollment package(s).

Source: GAO summary of information provided by CMS and OPM, including applicable federal 

statutes and regulations, operational guidance and other agency materials pertaining to HMOs, and 

interviews with officials. GAO summary of information provided by NAIC, JCAHO, and NCQA, 

including NAIC model requirements for HMOs, standards from the current JCAHO and NCQA 

accreditation manuals for HMOs, and interviews with NAIC, JCAHO, and NCQA officials.

Time frames for expedited review CMS has 10 days to review any materials 

where an HMO follows CMS model 

language without modification.

No applicable requirements.

Final verification of beneficiary notification 

materials

HMO’s beneficiary notification materials are 

subject to a final verification review process, 

where CMS reviews the materials at the final 

proof stage (such as a camera-ready copy). 

The final verification review is conducted to 

confirm that the final proof version contains 

no changes from the initial text version that 

was approved by CMS.a

HMO’s first print run of its final FEHBP 

brochures is subject to verification of 

accuracy; OPM obtains 20 FEHBP 

brochures to review.

Annual certification of compliance in 

preparing marketing materials

No applicable requirements. No applicable requirements.

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Topic M+C requirements FEHBP requirements
Appendix III

Marketing and Enrollee Communication 

Materials

Page 53 GAO-03-180 M+C HMO Requirements

No applicable requirements. No applicable standards. No applicable standards.

No applicable requirements. No applicable standards. No applicable standards.

HMO can be required by insurance 

commissioner to file a certificate of 

compliance stating that advertising 

materials disseminated during the preceding 

year complied or were made to comply with 

the regulations or insurance laws of the 

state.

No applicable standards. No applicable standards.

NAIC model requirements JCAHO accreditation standards NCQA accreditation standards
Page 54 GAO-03-180 M+C HMO Requirements

Appendix IV

Quality Improvement ApendxiIV

M+C, FEHBP, NAIC, JCAHO, and NCQA have HMO requirements that 

pertain to quality improvement (QI). Our summary of those requirements 

is structured along the following dimensions.

Elements of a Quality Improvement Program

• Purpose

• Performance improvement projects

• Annual performance measurement

Administration of Quality Improvement Program

• Leadership involvement

• Organizational structure

• Program documentation

• Program description

• Meeting documentation

• Annual work plan

• Evaluation report

• Provider participation

• Enrollee participation

• Accreditation

Performance Improvement Projects

• Number of projects

• Choice of project topics

• Choice of quality measures
Appendix IV

Quality Improvement

Page 55 GAO-03-180 M+C HMO Requirements

• Required results

• Minimum performance levels and benchmarks

• Demonstrable performance improvement

• Sustained performance improvement

• Evaluation

• How HMO reports

• Who evaluates

• What is evaluated

• Potential actions based on evaluation

Annual Performance Measurement

• Clinical and administrative performance

• Who participates

• How data are externally validated

• Who pays for external validation

• When annual data are submitted

• Member satisfaction survey measures for current enrollees

• Who participates

• Who is sampled

• Who pays for survey administration

• Member satisfaction survey measures for disenrolled members

• Who participates
Appendix IV

Quality Improvement

Page 56 GAO-03-180 M+C HMO Requirements

• Who is sampled

• Who pays for survey administration

• Member health status survey measures

• Who participates

• Who is sampled

• Who pays for survey administration

Table 6 summarizes selected M+C, FEHBP, NAIC, JCAHO, and NCQA 

requirements for QI.
Appendix IV

Quality Improvement

Page 57 GAO-03-180 M+C HMO Requirements
Appendix IV

Quality Improvement

Page 58 GAO-03-180 M+C HMO Requirements

Table 6: Selected Requirements for Quality Improvement for M+C, FEHBP, NAIC, JCAHO, and NCQA

Topic M+C requirements FEHBP requirements

Elements of a quality improvement program

Purpose HMO must operate an ongoing quality 

assessment and performance improvement 

(QAPI) program that meets M+C requirements.a

 

HMO’s QAPI program must, for example, stress 

health outcomes; monitor and evaluate high 

volume and high risk services and care of acute 

and chronic conditions; evaluate the continuity 

and coordination of care provided to enrollees; 

measure enrollee satisfaction; use written 

protocols to review utilization; identify areas in 

which quality can be improved; take actions to 

improve quality; and assess the effectiveness of 

such actions through systematic follow-up.

HMO must operate an internal quality 

assurance program that meets FEHBP 

requirements. HMO’s internal quality assurance 

program must, for example, measure and collect 

data on the quality of health care services 

delivered to its enrollees; reduce medical errors; 

measure enrollee satisfaction; meet minimum 

contractual performance standards (such as 

timeliness of telephone responses and 

timeliness of appointments); and correct any 

identified deficiencies.

Performance improvement projects HMO must conduct QAPI projects as part of an 

overall QAPI program. HMO’s QAPI projects 

implement system interventions intended to 

improve performance in clinical and nonclinical 

areas. HMO must evaluate and validate the 

results of the interventions and determine the 

need for further action.

HMO, as part of its internal quality assurance 

program, must take into account the published 

results of its annual member satisfaction survey, 

as well as any other results as directed by OPM, 

in identifying areas for improvement.

Annual performance measurement HMO must annually collect and report data on 

performance measures specified by CMS, 

including measures pertaining to a national topic 

and the Health Plan Employer Data and 

Information Set (HEDIS).d

 HMO must also 

conduct standardized member satisfaction and 

member health status surveys.

HMO must annually collect and report data on 

performance measures specified by OPM, 

including a subset of HEDIS measures, and 

conduct a standardized member satisfaction 

survey.

Administration of quality improvement program

Leadership involvement HMO’s policy-making body, such as the 

governing board or a committee of senior 

executives, must be involved in the QAPI 

program. At a minimum, HMO’s policy-making 

body must approve the initial written QAPI 

program description, and any subsequent 

changes, and annual work plan; review the 

annual evaluation and take action on any 

resulting recommendations; and receive and 

review periodic reports on QAPI activities.

No applicable requirements.
Appendix IV

Quality Improvement

Page 59 GAO-03-180 M+C HMO Requirements

NAIC model requirements JCAHO accreditation standards NCQA accreditation standards

HMO must operate an organizational QI 

program for designing, measuring, 

assessing, and improving the processes and 

outcomes of health care delivered to its 

enrollees.

HMO must use a systematic performance 

improvement approach to improve enrollee 

health outcomes throughout the HMO by 

improving the performance of clinical, 

governance, and support processes.

HMO must operate a comprehensive QI 

program to improve the quality and safety 

of clinical care and the quality of service 

delivered to its enrollees.

HMO must conduct QI activities as part of an 

overall QI program.b HMO’s QI activities 

implement strategies intended to improve 

both care delivery and health outcomes. 

HMO must evaluate the results of its 

improvement strategies to determine the 

need for further action.

HMO must conduct performance 

improvement activities as part of an overall 

performance improvement approach.c

HMO’s performance improvement activities 

implement changes to the HMO’s clinical, 

governance, and support processes that 

improve health outcomes or reduce the risk 

of serious medical errors. HMO must 

evaluate results to determine the need for 

further action.

HMO must conduct QI projects as part of 

an overall QI program. HMO’s QI projects 

implement interventions to improve quality 

of care and service. HMO must evaluate 

and validate the results of its QI projects to 

determine the need for further action.

HMO must collect and analyze information 

specific to its enrollees, including 

documentation of enrollee satisfaction, as 

specified in its written description of annual 

activities.

HMO must collect data on an ongoing basis 

and display the analysis of data in monthly 

data points for 30 measures it selects to 

monitor. HMO must regularly, not necessarily 

annually, measure, assess, and use 

information about enrollee needs and 

satisfaction to improve member services; 

HMO must determine the frequency and 

detail of this data collection.

HMO must annually collect and report data 

on performance measures specified by 

NCQA, including a subset of HEDIS 

measures, and conduct a standardized 

member satisfaction survey.

HMO’s Chief Medical Officer or Clinical 

Director has primary responsibility for 

implementing the QI program, including 

approving and periodically reviewing a 

written program description and, at least 

semiannually, reviewing reports of QI 

activities undertaken.

HMO’s leaders must select and effectively 

use a performance improvement approach.

HMO’s QI program must be accountable to 

a governing body. At a minimum, the 

HMO’s governing body must review and 

approve the QI program description.
Appendix IV

Quality Improvement

Page 60 GAO-03-180 M+C HMO Requirements

Organizational structure A senior HMO official must administer the QAPI 

program. HMO must clearly identify individuals or 

organizational components responsible for each 

QAPI activity and the organizational structures in 

place to assure communication and 

coordination. HMO must hold administrative 

QAPI meetings at regularly scheduled intervals 

(as defined in its policies and procedures); 

meetings must be adequately attended.

No applicable requirements.

Program documentation

Program description

HMO must have a written QAPI program 

description that shows the role, structure, 

staffing, and function of each organizational 

component, and the interrelations among 

components for each aspect of the QAPI 

program.

No applicable requirements; however, HMO, as 

directed by OPM, must submit its progress in 

meeting specific OPM requirements, such as 

implementing a patient safety program.

Meeting documentation HMO must document that it appropriately follows 

up on issues raised in QAPI meetings.

No applicable requirements.

Annual work plan HMO must have a written annual QI work plan. No applicable requirements. 

Evaluation report HMO, at least annually, must formally evaluate 

the effectiveness of its QAPI program strategy. 

HMO must evaluate the timeliness of annual 

work plan activities, whether additional 

resources need to be committed, and potential 

recommendations for changes in program 

strategy or administration.

HMO must furnish to OPM semiannual quality 

assurance reports.

(Continued From Previous Page)

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Appendix IV

Quality Improvement

Page 61 GAO-03-180 M+C HMO Requirements

Chief Medical Officer or Clinical Director 

must administer HMO’s QI program. HMO 

may use a quality committee to perform its 

QI activities.

HMO’s leaders must set performance 

improvement program expectations, develop 

plans, and manage program implementation. 

HMO’s performance improvement activities 

must be collaborative and involve all 

appropriate HMO personnel, clinical staff, 

and licensed independent practitioners. 

A designated physician and a behavioral 

health practitioner must be substantially 

involved in the implementation of HMO’s QI 

program. HMO must have a QI committee 

to oversee, and be involved in, QI activities. 

Multiple parts of the HMO, including its 

leadership, participate in the QI program.

HMO must file with the insurance 

commissioner a written QI program 

description of the objectives, lines of 

authority and accountability, evaluation and 

data collection tools, performance 

improvement activities, and annual 

effectiveness review.

No applicable standards. HMO must have a written QI program 

description that specifies the structure and 

content of the QI program. The description 

must specifically address behavioral health 

care and activities to improve patient 

safety. It must also state the role and 

function of any QI committee.

No applicable requirements. No applicable standards. HMO’s QI committee must maintain 

contemporaneous minutes, dated and 

signed, that demonstrate meaningful 

review of, and advice for, QI activities and 

reporting.

HMO must have a written description of QI 

activities to be conducted, such as the 

diagnoses and treatments to be reviewed 

annually.

No applicable standards. HMO must have an annual QI work plan, or 

schedule of activities, that includes: 

objectives, scope, and planned projects for 

the year; planned monitoring of previously 

identified issues; and planned evaluation of 

the QI program.

HMO must conduct an annual evaluation of 

the effectiveness of its QI program.

No applicable standard for written evaluation 

report. HMO must systematically aggregate 

and analyze performance improvement data 

on an ongoing basis and compare its 

performance over time and with other 

sources of information. HMO must identify 

changes that will lead to improved 

performance and reduce the risk of serious 

medical errors.

HMO must conduct an annual evaluation of 

its QI program and have the evaluation 

report approved by the accountable person 

or the QI committee. The written evaluation 

report must describe the completed and 

ongoing QI projects for the year and 

include data trends. It must also include a 

critical assessment of potential barriers to 

achieving each QI program goal. HMO 

must use the evaluation to determine 

whether to restructure or change its QI 

program for the subsequent year. 

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Appendix IV

Quality Improvement

Page 62 GAO-03-180 M+C HMO Requirements

Provider participation HMO must ensure that affiliated or employed 

providers actively participate in the design and 

implementation of the QAPI program. HMO must 

ensure that a group of clinicians actively 

participate in key activities, including: selecting 

and prioritizing QAPI projects, developing 

measures, analyzing study results, identifying 

and proposing solutions to problems, and aiding 

in communication of QAPI activities and results 

to other providers.

No applicable requirements.

Enrollee participation HMO must establish a mechanism for obtaining 

enrollee input into the priorities for its QAPI 

program.

HMO must take into account the published 

results of its administered member satisfaction 

survey, as well as any other results as directed 

by OPM, in identifying areas for improvement as 

part of its internal quality assurance program.

Accreditation HMO can meet specific M+C requirements if it 

obtains accreditation from a private organization 

approved by CMS. As of June 15, 2002, CMS 

had approved three private accreditation 

organizations—AAAHC, JCAHO, and NCQA.

HMO with 500 or more FEHBP enrollees, in 

2002, must begin seeking accreditation from a 

nationally recognized, independent accrediting 

organization. OPM currently recognizes 

JCAHO, NCQA, or URAC/American 

Accreditation HealthCare Commission.

Performance improvement projects

Number of projects HMO must annually participate in a QAPI project 

chosen by CMS, referred to as the national QAPI 

project.e

Starting in 2004, an HMO can participate in a 

local QAPI project, such as one initiated by a 

private purchaser group, a quality improvement 

organization (QIO) (formerly known as a peer 

review organization), or a state Medicaid agency, 

in place of the national QAPI project.f

No applicable requirements.

Choice of project topics CMS selects the topic for the national QAPI 

project.g

An HMO’s local QAPI project must address one 

of nine focus areas defined by CMS for both 

mental and physical conditions.h

 Within a focus 

area, HMO must select local QAPI project topics 

that are relevant to the Medicare population.

No applicable requirements.

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Quality Improvement

Page 63 GAO-03-180 M+C HMO Requirements

HMO must ensure that participating 

providers have the opportunity to participate 

in developing, implementing, and evaluating 

the QI program. HMO must make available 

annually to providers findings from its QI 

program, including information about its 

progress in meeting internally established 

goals and, where available, externally 

established benchmarks.

HMO’s leaders must provide for, and 

encourage, licensed independent 

practitioners to participate in its performance 

improvement activities. HMO’s leaders and 

appropriate HMO personnel, clinical staff, 

and licensed independent practitioners work 

collaboratively on an HMO-wide basis to 

design and implement the HMO’s 

performance improvement approach. HMO 

must monitor the needs, expectations, and 

views of licensed independent practitioners 

regarding current performance and 

opportunities for improvement.

HMO must ensure that its practitioners can 

actively participate in the QI program. 

These practitioners help educate the 

HMO’s other practitioners and providers 

about the QI program, specific QI projects, 

and the results of these projects.

HMO must provide enrollees with the 

opportunity to comment on its QI program. 

HMO must make available annually to 

enrollees findings from its QI program, 

including information about meeting its 

internally established goals and, where 

available, externally established benchmarks.

HMO must continuously and systematically 

assess enrollee expectations of, and 

satisfaction with, care and services provided 

and use the information to improve services. 

HMO, consistent with its overall resources, 

must include enrollees in developing the 

services it offers.

HMO must obtain and act upon enrollee 

input for the QI program by conducting an 

annual member satisfaction survey.

State can consider accreditation by a 

recognized private accrediting organization 

as evidence of meeting some or all of its 

quality assessment and improvement 

requirements.

No applicable standards. No applicable standards.

No applicable requirements. JCAHO views performance improvement 

activities to be continuous and ongoing and 

does not specify the number of performance 

improvement activities to be conducted.

HMO must show meaningful improvement 

in at least four QI projects (two that 

address clinical quality of care and two that 

address service quality) to receive the 

highest accreditation score.

NAIC does not define explicit focus areas to 

be addressed. HMO, in selecting annual 

topics to review, must select practices and 

diagnoses that affect a substantial number of 

its enrollees.

JCAHO does not define explicit focus areas 

that must be addressed. HMO must collect 

data and monitor outcomes in clinical and 

nonclinical areas of care. HMO’s criteria for 

selecting a performance improvement 

activity must consider whether the activity 

would affect a large percentage of enrollees; 

has the potential to place enrollees at risk if 

not implemented appropriately; has been, or 

is likely, to be prone to problems; or has 

significant cost implications.

NCQA does not define explicit focus areas 

to be addressed. HMO must conduct 

clinical and service QI projects that are 

important and relevant to a significant 

portion or subset of its enrollees. HMO may 

consider clinical issues identified in audited 

HEDIS measures as relevant for potential 

clinical QI projects and service issues 

identified in member satisfaction survey 

ratings as relevant for potential service QI 

projects.i

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Choice of quality measures For national QAPI projects, HMO must use CMS 

specified quality measures.

For a local QAPI project, HMO must use one or 

more quality measures to track its performance 

and improvement over time. HMO’s quality 

measures must be objective, clearly and 

unambiguously defined, based on current 

clinical knowledge or health services research, 

and subject to objective measurement. HMO 

may adopt standard measures from outside 

sources or develop its own.

HMO’s local QAPI project must include some 

quality measures for which data are available 

that allow comparison of the HMO’s performance 

to similar organizations or to local, state, or 

national norms. 

No applicable requirements.

Required results

Minimum performance levels and 

benchmarks

HMO must achieve required minimum 

performance levels or meet required 

benchmarks established by CMS on the 

standardized quality measures used in national 

QAPI projects.j

HMO must compare its performance on the local 

QAPI project to prevailing standards in the 

community.

HMO must meet minimum contractual 

performance standards specified to ensure 

quality of service and responsiveness to 

enrollees.

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Quality Improvement

Page 65 GAO-03-180 M+C HMO Requirements

HMO must use a range of appropriate 

methods to analyze quality consistent with 

current medical research, knowledge, 

standards, and practice guidelines.

HMO must use performance improvement 

measures to determine if a process, 

component, or service is performing 

according to expectations and to monitor 

improvements in performance. HMO may 

use performance improvement measures it 

develops or adopts from external sources. 

HMO’s criteria for selecting a performance 

improvement measure must include such 

factors as: measure has documented 

numerator and denominator statements; 

measure has defined data elements; and 

measure can detect changes in performance 

over time.

HMO must use explicit, defined quality 

measures that allow it to measure its 

performance. HMO’s measures must be 

based on standards of care or practice that 

include objective clinical criteria that are 

based on authoritative sources, such as 

clinical literature.

HMO must establish its own performance 

expectations for the performance measures 

that it selects to monitor. HMO must 

compare QI program findings with its past 

performance, as appropriate, against 

internally established goals or, where 

available, externally established benchmarks.

HMO must establish its own performance 

expectations for the performance measures 

it monitors. HMO must compare its 

performance over time and with benchmarks 

from up-to-date external sources, such as 

recent scientific, clinical, and management 

literature; well-formulated practice guidelines 

or parameters; performance measures; and 

standards that are periodically reviewed and 

revised. HMO must use the comparisons to 

determine if its performance is unacceptable 

or excessively variable.

HMO must have an explicit, quantifiable 

performance goal (internally defined) or 

benchmark (externally defined) for each 

measure. HMO may use a benchmark from 

the industry best practice or the best 

performance within a corporate structure or 

a specific geographic area. Each goal and 

benchmark must be designated as a 

specific rate, such as the percentage of 

diabetic enrollees who received a retinal 

screening. HMO, as it refines its processes 

for delivering care and service, must move 

the performance goals and benchmarks 

toward optimal performance levels.

HMO’s actual results from required HEDIS 

clinical measures for Medicare enrollees, 

as well as the results of the standardized 

member satisfaction survey, are used in 

determining 27.5 percent of its 

accreditation score. HMO’s actual HEDIS 

results are compared to national and 

regional benchmarks and thresholds. 

HMO’s member satisfaction survey results 

are compared to national benchmarks and 

thresholds.

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Page 66 GAO-03-180 M+C HMO Requirements

Demonstrable performance 

improvement

An HMO’s QAPI projects must result in a 

demonstrable performance improvement, 

relative to preproject baseline measures. HMO 

must show that the improvement is meaningful to 

its Medicare enrollees and that the improvement 

can be reasonably attributed to the actions it has 

taken.

No applicable requirements.

Sustained performance 

improvement

Upon achieving demonstrable improvement, an 

HMO must sustain the performance 

improvement for at least 1 year.

No applicable requirements.

Evaluation

How HMO reports

HMO must submit a Project Completion Report, 

developed by CMS, to report at least one quality 

measure and performance improvement.k

In general, HMO must submit a CMS developed 

Project Completion Report 90 days after the 

QAPI project completion date.

No applicable requirements.

Who evaluates HMO’s QAPI projects must be reviewed by a 

CMS contractor, known as a Medicare+Choice 

Quality Review Organization (M+CQRO).l

Review occurs off-site.

No applicable requirements.

What is evaluated M+CQRO evaluates one quality measure for 

which an improvement has been achieved per 

QAPI project. M+CQRO scores each element of 

the HMO’s performance against established 

QAPI requirements. The overall score is a 

weighted average based on the significance 

placed on each particular QAPI element. 

No applicable requirements.

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Quality Improvement

Page 67 GAO-03-180 M+C HMO Requirements

No applicable requirements. HMO must define the desired improvements. 

HMO must identify the measures it will use to 

determine whether a change represents a 

performance improvement.

HMO must demonstrate that an 

improvement has occurred; is relevant to 

the HMO’s population; affects a significant 

portion of the HMO’s population or 

population at risk; is likely to result in a 

better health outcome for the HMO’s 

population; is attributable to the strength, 

duration, and quality of the HMO’s action(s) 

and not other confounding factors; and has 

an impact on high-volume, high-risk, or 

high-cost conditions or services. 

No applicable requirements. HMO must achieve and maintain its 

performance improvement. HMO must 

collect data for a period of time and 

frequency that permits it to ensure that 

improvement continues.

HMO must demonstrate meaningful 

improvement in 2 clinical QI projects and 2 

service QI projects (from up to 10 

submitted for evaluation). Each of the 

improvements must have occurred in the 3-

year period covered by an accreditation 

survey and have been subsequently 

sustained.

HMO must make available annually, to 

providers and enrollees, findings from its QI 

program, including information about its 

progress in meeting internal goals and 

external standards, as applicable.

JCAHO regards performance improvement 

activities as ongoing processes and 

therefore does not require a beginning and 

end date. JCAHO surveyors review 

performance improvement activities on site 

during an accreditation survey that occurs at 

least once every 3 years.

HMO can complete the Quality 

Improvement Activity form, developed by 

NCQA, to report each completed QI 

project; HMO must provide the data 

requested in NCQA’s form, even if it does 

not use NCQA’s form. HMO can submit 

one or more measures for each QI project. 

HMO must submit completed Quality 

Improvement Activity forms to NCQA as 

part its accreditation survey application.

HMO must certify to the insurance 

commissioner annually that its QI activities 

and QI materials given to providers and 

enrollees meet all applicable requirements.

HMO’s performance improvement activities 

must be reviewed by a team of JCAHO 

surveyors during an accreditation site visit 

that occurs at least once every 3 years. 

JCAHO committee makes all final 

accreditation decisions.

HMO’s QI projects must be reviewed by a 

team of NCQA surveyors, including 

physicians and administrative reviewers, 

during an accreditation site visit that occurs 

at least once every 3 years. NCQA 

committee of external senior physicians 

makes all final accreditation decisions.

No applicable requirements. HMO is scored on its performance against 

established JCAHO standards. JCAHO 

determines an HMO’s total score, based on 

each standard’s weight and predetermined 

formulas. 

NCQA requires that an HMO show 

meaningful improvement on one quality 

measure per QI project. NCQA scores the 

HMO’s performance against required 

elements. The overall scoring is a weighted 

average based on the significance placed 

on each particular element. HMO must 

meet all of NCQA’s criteria for meaningful 

improvement for 4 evaluated QI projects 

(2 clinical and 2 service) to attain the 

highest accreditation score.

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Page 68 GAO-03-180 M+C HMO Requirements

Potential actions based on 

evaluation

M+CQRO forwards to CMS a completed Project 

Review Report, developed by CMS, that includes 

the final score of the QAPI project and 

recommended corrective actions to address any 

identified deficiencies. CMS then gives final 

approval on any evaluation report. CMS then 

forwards the Project Review Report to the 

HMO—HMO does not communicate directly with 

the M+CQRO. CMS could terminate its M+C 

contract with an HMO if the HMO fails to 

implement an acceptable QAPI program. CMS 

may also specify special project topics and 

quality indicators if it determines that an HMO 

has not achieved sufficient diversity in its QAPI 

projects.m

OPM can hold up to 1 percent of premiums for 

not meeting contractual standards or can 

increase service charge (profit) based on 

meeting contractual standards, depending on 

how rates are set for the HMO.

Annual performance measurement

Clinical and administrative 

performance 

HMO, if it meets CMS’s participation criteria, 

must report to NCQA patient-level and summary 

information for Medicare HEDIS measures 

specified by CMS; for 2001, HMOs had to report 

23 Medicare HEDIS measures to CMS.o

 CMS 

receives the data from NCQA.

HMO must report a subset of HEDIS measures 

applicable to commercial enrollees. HMO must 

submit to NCQA summary and patient-level 

data of the HEDIS measures. OPM receives the 

data from NCQA.

Who participates HMO, if it had

• a Medicare contract as of January 1 of the 

HEDIS measurement year (the previous year) 

or earlier and

• enrollees as of January 1 of the measurement 

year or earlier and at least 1,000 enrollees as 

of July 1 of the measurement year.

HMO with 500 or more enrollees. Any HMO 

reporting HEDIS data to NCQA for non-OPM 

purposes may use that HEDIS data to satisfy 

OPM requirements—HMO does not have to 

report separately on FEHBP enrollees only.

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Quality Improvement

Page 69 GAO-03-180 M+C HMO Requirements

No applicable requirements.n JCAHO provides HMO with an accreditation 

decision in its Official Accreditation Decision 

Report. HMO may respond; if HMO 

responds it must do so within a designated 

time frame. HMO may appeal a JCAHO 

recommendation for accreditation denial, if 

done within JCAHO guidelines. If HMO is 

denied accreditation or receives provisional 

accreditation, it can follow JCAHO guidelines 

to have its case reviewed.

NCQA provides HMO with a preliminary 

Survey Report with findings and 

recommendations but no standard 

compliance designations. HMO may 

respond; if HMO responds it must do so 

within a designated time frame. An NCQA 

committee reviews all relevant 

documentation and issues compliance 

designations for each standard and makes 

an accreditation designation. NCQA 

forwards to HMO the final Survey Report. 

HMO may request that NCQA reconsider 

its findings from the on-site survey if done 

within NCQA guidelines. NCQA annually 

recalculates an HMO’s accreditation status 

based on its submitted HEDIS results.

No applicable requirements. JCAHO administers ORYX, a performance 

measurement initiative for HMOs with 

network accreditation. For 2001, HMO had to 

select and monitor 30 individual measures 

that best served its strategic management 

goals. HMO submits the measures to 

JCAHO with their accreditation survey 

application. Submission does not occur 

annually.

JCAHO’s next phase of the ORYX initiative 

for HMOs includes the identification of 

specific core performance measures, 

grouped into measurement sets.

HMO must annually report a subset of 

clinical HEDIS measures appropriate for 

the population it serves. HMO serving 

Medicare enrollees must have reported 

eight clinical HEDIS measures to NCQA for 

accreditation in 2001.

No applicable requirements. HMO. HMO with Medicare enrollees follows the 

same requirements as M+C. 

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Quality Improvement

Page 70 GAO-03-180 M+C HMO Requirements

How data are externally validated HMO must contract with an NCQA-certified 

HEDIS compliance audit organization and 

undergo a full HEDIS audit.p

 CMS releases 

summary HEDIS data in public use files.

HMO not required to have HEDIS 2001 data 

externally validated; OPM will not publicly 

publish data. OPM will require HEDIS 2002 data 

to be audited.

Who pays for external validation HMO. HMO. 

When annual data are submitted HMO must comply with NCQA HEDIS 

submission dates for Medicare enrollees and 

submit data at the end of June.

HMO must follow NCQA HEDIS submission 

dates for commercial enrollees and submit data 

in mid-June.

Satisfaction survey measures for 

current enrollees

HMO, if it meets CMS’s participation criteria, 

must participate in the Medicare Managed Care 

Consumer Assessment of Health Plans 

(CAHPS) survey.q

 CMS administers the 

Medicare Managed Care CAHPS survey each 

fall to a sample of HMO’s enrollees.

HMO must contract with an NCQA-certified 

vendor to field the CAHPS 2.0H adult 

commercial survey. HMO must submit memberlevel and summary-level data files to OPM by 

mid-June. Prior to OPM’s mid-June due date, 

HMO must submit member-level data files to 

NCQA for validation and calculation of 

summary-level results.

Who participates HMO that had a Medicare contract in place on or 

before July 1 of the previous year, including an 

HMO terminating as of the next contract year. 

HMO with at least 500 FEHBP enrollees as of 

March 31 of the previous year. 

Who is sampled CMS randomly surveys 600 of the HMO’s 

enrollees, not living in an institution, who have 

been enrolled continuously for at least 6 months, 

as of July 1 prior to the administration of the 

survey. If HMO has fewer than 600 eligible 

enrollees then CMS surveys all enrollees.

HMO must follow NCQA sampling protocols for 

commercial enrollees.

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No applicable requirements. JCAHO does not audit data submitted for 

ORYX measures.

HMO must contract with an NCQA-certified 

HEDIS compliance audit organization. All 

of the HEDIS measures that are scored as 

part of the accreditation process must be 

audited. NCQA publicly releases the 

benchmarks and thresholds used in 

scoring HEDIS and standardized member 

satisfaction survey results for HMOs with 

commercial, Medicaid, and Medicare 

enrollees. NCQA releases summary 

HEDIS results on its Web site for HMOs with 

Medicaid enrollees. NCQA also makes 

available for purchase a national database 

of HEDIS and standardized member 

satisfaction survey results.

No applicable requirements. No applicable standards. HMO or purchaser.

No applicable requirements. HMO must submit data on ORYX measures 

in conjunction with an on-site triennial 

accreditation survey. Submission does not 

occur annually.

HMO must comply with NCQA HEDIS 

submission dates for Medicare enrollees 

and submit data at the end of June. HMO 

with commercial or Medicaid enrollees 

must also follow NCQA HEDIS submission 

dates and submit data in mid-June. 

HMO must collect and analyze information 

specific to its enrollees, including 

documentation of enrollee satisfaction.

HMO must continuously and systematically 

measure enrollee expectations of and 

satisfaction with care and services provided. 

HMO must regularly measure, assess, and 

use information about enrollee needs and 

satisfaction to improve member services (not 

necessarily annually). HMO must determine 

the appropriate detail and frequency of data 

collection.

HMO with Medicare enrollees must 

participate in the Medicare Member 

CAHPS survey administered by CMS; 

results are from the previous fall.

HMO with commercial or Medicaid 

enrollees must contract with an NCQAcertified vendor to conduct the CAHPS 

2.0H adult survey and report the results of 

the entire survey to NCQA by mid-June. 

HMO with commercial or Medicaid 

enrollees must have membership files used 

to generate survey sample audited as part 

of the HEDIS compliance audit.

No applicable requirements. No applicable standards. HMO with Medicare enrollees has same 

requirements as M+C.

No applicable requirements. No applicable standards. HMO with Medicare enrollees has same 

requirements as M+C.

CAHPS 2.0H sample size for HMOs with 

adult, commercial enrollees is 1,500 and 

1,050 for adult Medicaid enrollees. These 

sample sizes are changing to 950 and 

1,275, respectively, for HEDIS 2002.

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Page 72 GAO-03-180 M+C HMO Requirements

Who pays for survey 

administration

CMS. HMO must pay for an NCQA-certified vendor to 

field the survey to its enrollees. In addition, 

HMO must pay a pro rata share of OPM’s 

vendor’s total cost of compiling, processing, and 

reporting CAHPS 2.0H survey data to OPM. 

Satisfaction survey measures for 

disenrollees

HMO, if it meets CMS’s participation criteria, 

must participate in the annual Medicare CAHPS 

Disenrollment-Assessment survey administered 

each fall and the quarterly Medicare CAHPS 

Disenrollment-Reasons survey, administered on 

an ongoing basis.r

No applicable requirements.

Who participates HMO must participate in the annual Medicare 

CAHPS Disenrollment-Assessment survey if it 

had a Medicare contract in place on or before 

July 1 of the previous year. HMO must 

participate in the quarterly Medicare CAHPS 

Disenrollment-Reasons survey if it had a 

Medicare contract in place on or before January 

1 of the previous year. Certain M+C plans, such 

as demonstrations, are excluded.

No applicable requirements.

Who is sampled CMS samples Medicare beneficiaries voluntarily 

leaving for both surveys.s

 For the CAHPS 

Disenrollment-Assessment survey, CMS surveys 

Medicare beneficiaries voluntarily leaving their 

HMO in May, June, or July and who were 

enrolled for at least 6 months prior to 

disenrolling. The sample size varies by HMO but 

is no higher than 600 and is proportionate to the 

HMO’s disenrollment rate. For the CAHPS 

Disenrollment-Reasons survey, CMS attempts to 

survey 388 enrollees for each HMO over the four 

calendar quarters. For this survey, CMS does not 

have a requirement for length of enrollment.

No applicable requirements.

Who pays for survey 

administration

CMS pays for both the quarterly and annual 

surveys.

No applicable requirements.

Health status survey measures HMO, if eligible, must participate in the Medicare 

Health Outcomes Survey (HOS).t

 HMO must 

contract with an NCQA-certified vendor to field 

the survey.

No applicable requirements.

Who participates HMO must participate if it had a Medicare 

contract in effect on or before January 1 of the 

measurement year.

No applicable requirements.

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Page 73 GAO-03-180 M+C HMO Requirements

No applicable requirements. No applicable standards. CMS pays for survey of an HMO’s 

Medicare enrollees. HMO must pay for an 

NCQA-certified vendor to field the survey 

to its commercial enrollees. Some states 

pay for survey of Medicaid enrollees, while 

others require the HMO to pay.

No applicable requirements. No applicable standards. No applicable standards.

No applicable requirements. No applicable standards. No applicable standards.

No applicable requirements. No applicable standards. No applicable standards.

No applicable requirements. No applicable standards. No applicable standards.

HMO must include health status measures in 

its QI activities related to evaluating courses 

of treatment and outcomes of health care.

HMO must collect data to monitor outcomes 

related to prevention, physiological function, 

functional status, and physical and 

psychological comfort of enrollees. HMO 

must determine the appropriate detail and 

frequency of data collection.

HMO with Medicare enrollees must 

participate in HOS.

No applicable requirements. No applicable standards. HMO with Medicare enrollees has same 

requirements as M+C.

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Appendix IV

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Page 74 GAO-03-180 M+C HMO Requirements

a

HMO must use CMS’s Quality Improvement System for Managed Care (QISMC) standards and 

guidelines to meet the requirements of Part 422, Subpart D, Quality Assurance, of Title 42 of the Code 

of Federal Regulations. Since January 1998, CMS has released three versions of QISMC, with the 

most current version issued as of July 26, 2000. OMB has approved the July 26, 2000, version of 

QISMC through July 31, 2002. CMS is in the process of incorporating the QISMC standards and 

guidelines into the chapters of the Medicare Managed Care Manual; once this is accomplished, 

QISMC as a stand-alone document will cease to exist for Medicare.

b

NAIC uses the phrase QI activities rather than QI projects.

c

JCAHO uses the phrase performance improvement activities rather than performance improvement 

projects.

d

HEDIS is a set of standardized performance measures sponsored by NCQA. Since 1992, NCQA has 

collaborated with managed care organizations, academic researchers, corporate purchasers, and 

consumer representatives to create HEDIS. HEDIS includes measures that address effectiveness of 

care, accessibility and availability of care, satisfaction with the experience of care received, cost of 

care, health plan stability, informed health care choices, use of services, and health plan descriptive 

information.

e

In 2002, CMS eliminated the requirement that an HMO annually initiate a multiyear QAPI project on a 

topic the HMO selected.

f

CMS contracts with QIOs, who are responsible for promoting effective, efficient, and economical 

delivery of quality health care services to Medicare beneficiaries.

g

National topics chosen by CMS include: diabetes (1999), community-acquired pneumonia (2000), 

congestive heart failure (2001), breast cancer screening (2002), clinical health care disparities (CHCD) 

or culturally and linguistically appropriate services (CLAS) (2003), and diabetes (2004). CMS originally 

informed HMOs that the 2002 national QAPI projects would be CHCD or CLAS, but postponed these 

projects until 2003 based on industry feedback. CMS has contracted for two CLAS projects to produce 

case studies that HMOs may replicate if they choose to do so.

h

CMS defines seven clinical focus areas, such as primary, secondary, or tertiary prevention of acute 

conditions, high-volume services, and high-risk services, and two nonclinical areas, such as 

availability, accessibility, and cultural competency of services.

Who is sampled Each spring, HMO must survey 1,000 randomly 

sampled Medicare enrollees who have been 

continuously enrolled for at least 6 months prior 

to the survey administration. HMO must also 

survey again the enrollees who were surveyed 2 

years earlier.

HOS results are submitted by the NCQAcertified vendors to NCQA, CMS’s contractor for 

administering HOS. CMS performs analysis and 

also provides reports back to the HMOs.

No applicable requirements.

Who pays for survey 

administration

HMO pays for the administration of the HOS 

survey.

No applicable requirements.

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Page 75 GAO-03-180 M+C HMO Requirements

i

NCQA also requires HMOs to adopt or establish quantitative measures to assess their performance 

and to identify and prioritize areas for improvement for three clinical areas, including at least one 

behavioral health measure. However, NCQA does not currently require an HMO to demonstrate a 

meaningful performance improvement for the behavioral health topic being measured.

j

CMS has not established or required minimum performance levels or benchmarks for standardized 

quality measures for any of the national QAPI projects. However, CMS is exempting HMOs that 

achieved a breast cancer screening rate of 80 percent or better using HEDIS 2001 or 2002 measure 

specifications from participating in the 2002 national QAPI project on breast cancer screening. Based 

on HEDIS 2001 Medicare results, CMS exempted 39 HMOs.

k

Beginning in January 2002, HMO can fill out and electronically submit its Project Completion Report 

through a Web-based CMS data system.

l

CMS regional offices evaluate the overall administration of an HMO’s QAPI program and health 

information systems, but not the QAPI projects.

mCMS has not required any HMO to conduct a CMS-directed special project.

n

NAIC stated that the insurance commissioner may be able to take action against an HMO not meeting 

applicable requirements under the general authority to regulate HMOs, although, in some states, the 

authority to regulate HMOs is done by another state agency or the insurance commissioner shares 

oversight with another state agency, usually the Department of Health.

o

CMS excludes two HEDIS measures—Practitioner Compensation and Arrangements with Public 

Health, Educational and Social Service Organizations. The Medicare Health Outcomes Survey is 

included as a HEDIS measure; we excluded the Medicare Health Outcomes Survey in reporting the 23 

Medicare HEDIS measures as the survey is discussed separately in this table.

p

NCQA defines two types of HEDIS compliance audits, partial or full. A partial audit occurs when the 

HMO, state regulator, or purchaser selects the HEDIS measures to be audited. A full audit occurs 

when a HEDIS auditor selects a core set of measures to review and extrapolates the core set findings 

to all measures reported by the HMO.

q

CAHPS is a standardized member satisfaction survey.

r

The CAHPS Disenrollment-Assessment survey collects information on Medicare beneficiaries’

experiences with their former HMO, and the CAHPS Disenrollment-Reasons survey collects 

information on Medicare beneficiaries’ motivations for changing coverage.

s

Medicare beneficiaries voluntarily disenrolling chose to leave their HMO for reasons other than death, 

termination of Medicare parts or part B, moving out of the service area, or HMO nonrenewals.

No applicable requirements. No applicable standards. HMO with Medicare enrollees has same 

requirements as M+C.

NCQA certifies survey vendors to 

administer HOS.

HOS data are provided to NCQA by each 

survey vendor.

No applicable requirements. No applicable standards. HMO with Medicare enrollees has same 

requirements as M+C.

NAIC model requirements JCAHO accreditation standards NCQA accreditation standards
Appendix IV

Quality Improvement

Page 76 GAO-03-180 M+C HMO Requirements

t

The Medicare HOS, part of the HEDIS measurement set, is a longitudinal survey that utilizes the 

HCFA Short Form-36 (SF-36), an instrument used to collect data on physical and mental functioning 

and other beneficiary characteristics.

Source: GAO summary of information provided by CMS and OPM, including applicable federal 

statutes and regulations, operational guidance and other agency materials pertaining to HMOs, and 

interviews with officials. GAO summary of information provided by NAIC, JCAHO, and NCQA, 

including NAIC model requirements for HMOs, standards from the current JCAHO and NCQA 

accreditation manuals for HMOs, and interviews with NAIC, JCAHO, and NCQA officials.
Page 77 GAO-03-180 M+C HMO Requirements

Appendix V

Comments from the Centers for Medicare & 

Medicaid Services ApendxiV

(290099)
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