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 is a component of Medicare, the federal entitlement program for adults age 65 and older and some individuals who are disabled or have end- stage renal disease (ESRD). 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. HMOs and other types of health care organizations contract with CMS to offer M+C health plans. 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 risk- contract 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 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, and provider participation requirements. Under BIPA, CMS must expedite review of HMO marketing materials that use agency- specified 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 2002 (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. Since BBA was enacted, CMS has issued Federal Register notices and other written instructions to inform HMOs about program changes. During 2001, CMS began releasing chapters of a new Medicare managed care manual intended to inform HMOs about program requirements. As of July 11, 2002, the agency had released 9 of a planned 20 chapters. No release dates have been announced for the remaining chapters. 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. 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 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. 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, 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 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. 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. 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. 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. 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.