[Federal Register Volume 59, Number 9 (Thursday, January 13, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-851]


[[Page Unknown]]

[Federal Register: January 13, 1994]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
[ORD-066-N]

 

Health Care Financing Research and Demonstration Cooperative 
Agreements and Grants for Fiscal Years 1994 Through 1996

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Notice.

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SUMMARY: This notice announces the availability of HCFA funding under 
cooperative agreements and grants for projects that will focus on major 
issues in the reform, financing, and delivery of health care. The 
notice contains information about the subject areas for cooperative 
agreements and grants that will be given priority, project 
requirements, application procedures, and other relevant 
considerations.

DATES: Cooperative agreement and grant applications for priority areas, 
as described in sections I. and II. of this notice, must be submitted 
by March 24, 1994, February 7, 1995, or February 6, 1996, in order to 
be considered under the annual funding cycle. For an explanation of 
timely submission, see section VIII. of this notice.

ADDRESSES: Standard application forms and related instructions may be 
requested by telephone, by calling (410) 966-6120, or may be requested 
in writing from and must be formally submitted to:
    Ms. JuDee Caquelin, Grants Officer, Health Care Financing 
Administration, Office of Budget and Administration, Office of 
Acquisitions and Grants, Room 389 East High Rise, 6325 Security 
Boulevard, Baltimore, Maryland 21207-5187.
    Ms. Caquelin is also available at (410) 966-5157 to answer 
questions and to provide guidance regarding completion of the 
application forms.

FOR FURTHER INFORMATION CONTACT: Carl Hackerman, (410) 966-6644, Health 
Care Financing Administration, Office of Research and Demonstrations, 
Office of Operations Support, Division of Program Support, 2-C-9 Oak 
Meadows Building, 6325 Security Boulevard, Baltimore, Maryland 21207-
5187.

SUPPLEMENTARY INFORMATION:

I. HCFA's Research and Demonstration Projects Awarded as 
Cooperative Agreements and Grants

A. Goals

    Our research and demonstration program conducts studies whose goals 
are to assess the current health care delivery/financing sector and to 
develop innovative ways to improve the quality and cost-effectiveness 
of health care programs. We support the conduct of extramural research 
and demonstration projects principally through two award mechanisms: 
procurements (contracts) and assistance awards (cooperative agreements 
and grants). This announcement concerns projects that will be awarded 
as cooperative agreements and grants. (Announcements of planned 
procurement awards are made through notices published in the ``Commerce 
Business Daily.'') The principal purpose of our cooperative agreements 
and grants program is to stimulate, support, and assist, through an 
active health services research and demonstration program, the 
resolution of major health care organizational and financing issues. We 
hope to advance knowledge in issues of health care financing and 
delivery and to develop ways of applying that knowledge. We believe 
this assistance will serve a long term and vital purpose--to increase 
the efficiency and effectiveness of the entire health care sector by 
improving the ways in which health care is financed and delivered.
    Direct payments for health care services constitute one of the 
largest single segments of Federal and State budgets. In addition, 
employee health benefits paid by businesses add significantly to the 
cost of United States (U.S.) goods and services. Access to and quality 
of care and cost-effectiveness of current delivery systems and 
potential new financing mechanisms continue to be areas of significant 
research interest as we continually reassess current methods of payment 
for health care programs and look for innovative methods for paying for 
health care services in the future. The public interest in research in 
these areas is particularly great at this time as the Nation considers 
approaches to restructuring the health care sector and controlling 
expenditures for health care. Many of the research topics described in 
this solicitation reflect overarching issues that must be considered as 
part of health care reform.
    These and other research interests described here are intended to 
provide information on controlling health care costs and restructuring 
current systems that will be useful to a broad audience, including 
State governments, private insurers, and self-insured businesses, as 
well as the Federal government.
    This notice describes the application procedures, general policy 
considerations, criteria to be used in reviewing applications, and 
selection criteria for our cooperative agreements and grants. Our 
current research and demonstration interest is for applications that 
address the following areas:
     Health care systems reform and financing.
     Managed care systems.
     Provider payment.
     Access and quality of care.
     Service delivery systems.
     Subacute and long-term care.

B. Funds for Cooperative Agreements and Grants

    A review of the requirements for existing priorities, our FY 1994 
budget, and expected FY 1995 and FY 1996 budgets indicate that 
approximately up to $2 million to $4 million per year may be available 
to the Office of Research and Demonstrations (ORD), HCFA, to fund new 
cooperative agreements and grants for research and demonstration 
projects.

C. Eligibility Requirements

    Applications for cooperative agreements and grants may be submitted 
by private or public nonprofit agencies or organizations, including 
State agencies that administer the Medicaid program. Private for-profit 
organizations may apply for cooperative agreements and grants 
(discretionary funds) under sections 1110(a)(1), 1875(a) and 1881(f) of 
the Social Security Act; section 402(a)(1) of Public Law 90-248, as 
amended; section 222(a) of Public Law 92-603, as amended; and section 
9335 of Public Law 99-509.

D. Number and Size of Projects

    Most awards range from $100,000 to $350,000 per year for 1 to 3 
years. We also may award some projects for larger amounts. The number 
of cooperative agreements and grants depends on: the availability of 
funds; needs of projects that are continuing from prior years; priority 
interest areas established by us; and the technical quality of 
applications.

E. Additional Information

    Information on our authority for making these awards, applicable 
regulations, and the duration of funding is contained in section IV of 
this notice. Application procedures are detailed in section V of this 
notice.

II. Priority Areas

A. Health Care Systems Reform and Financing

    The U.S. spends more per capita on health care than any nation in 
the world, yet many Americans have no reliable way to finance their 
access to our health care system. Growth in U.S. health care costs for 
several decades has been more than 4 percent faster than general 
inflation, and it now consumes more than one-eighth of our entire gross 
domestic product (GDP). If current trends continue, total health 
spending will reach or exceed 26 percent of our GDP by the year 2030. 
Medicare spending increased by nearly 300 percent in the past decade. 
Medicaid spending has increased by nearly 600 percent since 1980. U.S. 
businesses are spending more on health care premiums than they earn in 
after-tax profits.
    There are some major distortions in the U.S. market for health 
insurance that yield inefficiencies: (a) Fragmentation of the 
marketplace, (b) the nature of consumer demand, including tax subsidies 
that lower consumer sensitivity to costs, (c) limited consumer 
information, which can lead consumers to mistake higher prices or more 
intensive service delivery for better care or superior outcomes, and 
(d) opportunities for favorable risk selection that give inefficient 
health care plans unfair cost advantages. Also, the substantial 
consumer and provider uncertainties about the effectiveness of a broad 
range of diagnostic and therapeutic procedures and technologies, plus 
the limited emphasis on disease prevention, contribute to 
overutilization and occurrences of preventable illness.
    Critics suggest that the U.S. health care system is too complex and 
often lacking in accountability for the billions of dollars it 
consumes. Others would point to the excellence of what the U.S. health 
care system produces. While some aspects of the U.S. health care system 
are envied by most of the world, the sector appears rife with 
contradictory incentives for providers, patients, and payers. There is 
wide concern about the administrative costs of insurers and providers 
and that buyers are too weak to exercise market power. Experience 
rating practices, coupled with such underwriting devices as exclusions 
for pre-existing conditions and the requirements of various individual 
States for mandatory coverage of certain kinds of limited license 
providers or specified services, work synergistically to raise premiums 
beyond many persons' ability to pay and the ability of many small 
businesses to offer health insurance to employees.
    We are interested in supporting research to address three general 
areas: (a) Extending access to needed services to all segments of our 
population, (b) controlling the growth in health care costs, and (c) 
improving the quality of health care services and products. These three 
subjects have become almost universally recognized as key areas by 
those who are committed to reforming our health care system. Therefore, 
we wish to sponsor research concerning major U.S. health care sector 
reform issues and also aspects of reforming health care financing 
incentives.
    The types of issues in this category that we believe need study are 
grouped into two general areas: health care systems reform issues, and 
health care financing issues.
1. Systems Reform Issues
    From these studies we hope to obtain useful guidance about how much 
restructuring of the current U.S. health care sector is necessary as 
well as feasible to implement and sustain.
     Managed competition. We are interested in research into 
the following topics to support the managed competition portion of 
health care reform:

--Risk adjusters. Under many health reform proposals, premiums to 
health plans would be adjusted to reflect enrollees' health risks. This 
would lessen incentives to select (and retain) only healthy enrollees. 
Plans that cover a sicker than average population would receive a 
transfer of funds from plans with a healthier than average population. 
Implementation of the system would require the development of health 
risk adjusters. Other issues need to be addressed, such as whether 
geographic variations in prices and utilization within State and sub-
State areas should be recognized in the payment system.

    The Administration's health reform proposal recognizes the need for 
risk adjusters and the reality that, in the short term, some reliance 
will need to be placed on retrospective approaches while work proceeds 
on prospective approaches. In the short term, risk adjustment may use 
reinsurance (based on costs or on fixed payments for high cost 
conditions and treatments), demographics, and survey data for risk 
adjustment/pooling. In the medium term, prospective systems relying on 
diagnostic, health status, and other information should be tested and 
implemented.
    Health risk adjusters need to be designed, for both Medicare and 
non-Medicare populations including children, to predict expected health 
care costs based on the health status of the individuals to be covered 
by the system. Research projects could include work on a number of 
possible methodologies: Ambulatory care groups (ACGs); diagnostic cost 
groups (DCGs); payment amounts for capitated systems; ACG and DCG 
hybrid adjusters; and other risk adjusters based on more detailed 
clinical data, demographic data, administrative data, or survey data.
    The Administration's proposal recognizes that special approaches, 
perhaps relying heavily on retrospective adjustments, need to be 
developed for mental illness. We are interested in private sector 
efforts in managed care for mental illness and how they may aid in the 
development of payment methods and risk adjustments for and in the 
management of mental health services in health reform. The 
Administration proposal recognizes that States may need to provide 
incentives for health plans to enroll and serve disadvantaged groups. 
We are interested in ways to modify the payment/risk adjustment 
methodology to provide financial incentives to ensure enrollment and 
access, and in ways to measure any extra costs associated with ensuring 
adequate care.
    We are also interested in the development of databases and systems 
necessary to support health risk adjuster methodologies and in risk 
adjustment mechanisms currently used in the private sector. We are 
interested in research on the sensitivity of risk adjusters to 
``gaming,'' on simulations of the effect of risk adjusters on premiums, 
and on ways to manage and monitor the system. We are interested in 
further research on other pooling mechanisms such as re-insurance and 
outlier payments for costly cases or diseases.
    We are interested in shared risk arrangements between a payer and a 
plan or a plan and a provider.
    While we are interested in both long- and short-term research, 
because of the importance of risk adjusters for managed competition 
approaches, projects of practical value that can be completed in a 
short time are a very high priority.

--Administrative costs. We are interested in funding projects that 
investigate possible changes in administrative costs associated with 
the provision of health care under reform and explore how 
administrative functions and costs might vary under health alliances of 
different sizes and with different characteristics. In particular, we 
are interested in projects that look at administrative functions and 
costs associated with health alliances (or other mechanisms that pool 
the purchasing of health insurance), and with the provision of large 
group health insurance coverage in the place of small and individual 
policies. We are interested in projects that consider changes in the 
administrative costs of insurance, of providers (for example, managed 
care arrangements, physician offices, and hospitals), and in States' 
administrative costs associated with their responsibilities under 
health reform.
--Consumer behavior. We are interested in funding projects that examine 
consumer behavior in choosing health insurance coverage. Particularly, 
we are interested in studies that estimate the potential for consumer 
shifts to lower cost plans provided by the health alliance under 
reform, and the size of potential savings that could be expected as a 
result of these shifts. A related area of interest is research that 
examines consumer choice when confronted with a variety of health 
coverage options (for example, traditional fee-for-service, health 
maintenance organization (HMO), and other managed care arrangements).

     Consumer and beneficiary information. Very little is 
known, from the viewpoint of either the beneficiary or the health care 
provider, concerning how consumers make decisions affecting their 
health care. Under the current system of health insurance, consumers 
(including Medicare beneficiaries and Medicaid recipients) often have 
little information on benefit plans, coverage restrictions, and cost-
sharing, as well as the quality and/or efficiency of health insurance 
options. Improved information resources would enable purchasers to 
choose among health plans based on their relative value and quality and 
support the objectives of health care reform. Ultimately, improved 
information for consumers could give providers greater incentives to 
control costs while improving quality of services.
    Information gaps are most prominent in the following areas: (1) 
Consumer knowledge of benefit plans, coverage, cost-sharing, and 
utilization controls, (2) effects of consumer knowledge on the 
selection of health plans, including the interaction of health status 
and expected level of use on choice; (3) the types of information most 
helpful in assisting consumers in selecting efficient providers, such 
as information about the costs and quality of services, and (4) the 
types of information that can be developed to help consumers to become 
knowledgeable about outcomes and costs of alternative treatments. We 
are interested in projects in all of the above areas, including 
projects that improve the information that Medicare beneficiaries and 
Medicaid recipients and other health care consumers receive (for 
example, assessing various ways of providing information to consumers) 
and evaluate the impact of improved information on consumer 
satisfaction, access to health care, quality of care, and the cost of 
health care services. These might include analyses of current HMO/CMP 
marketing practices that emphasize the ``quality'' features of their 
plan versus those of others.
     International perspectives. We are interested in detailed 
studies that analyze specific health care policies of other developed 
nations. Studies should examine specific features of other countries' 
health financing and delivery systems, with special emphasis placed on: 
health care cost containment; health care market characteristics, 
including the extent of managed care development; payment mechanisms, 
including negotiation-based approaches; modalities for delivering 
primary care; health care quality measures; health outcomes measures; 
health planning; and policies fostering lower infant mortality. Studies 
should evaluate system features or initiatives at a micro-level rather 
than use general aggregate information, and should include detailed 
analyses of relevant data. We would like to support studies of the 
reimbursement and payment systems used in other developed countries 
that evaluate the pertinence of these systems in the context of the 
U.S. health care system. Similarly, we would consider projects offering 
comparisons and evaluations of cost containment mechanisms used or 
proposed for other countries that might be considered for use in the 
U.S.
     Analyzing global payment strategies. We are interested in 
initiating both research and pilot efforts to develop global payment 
strategies. The effort would encompass approaches for developing 
budgets at national, State, sub-State, and community (including the 
rural community) levels. As currently envisioned, these projects would 
develop processes involving major sectors of the health care provider, 
practitioner, and supplier industries, with health alliances and other 
major purchasers of health care and public representatives, in the 
development of a global payment target for what health care spending 
should be in a near term.
    We are also interested in other formula-based approaches or 
institutional mechanisms for establishing targets. We believe this will 
require more research into current health expenditure patterns, which 
examines their stability, and trends for population groups in 
geographic areas. Our interest also extends to studies of mechanisms 
for implementing or enforcing targets through such methods as third-
party utilization review and controls on premiums. We want to know more 
about administrative features including data needs and reports, the 
monitoring for looming problems, the roles of voluntary mechanisms, and 
the options for mitigating financial gains or losses. We are also 
interested in studies of current methods of third-party utilization 
review and premium controls, and how these might be linked with 
performance-based quality measurements.
     Assessing advantages and disadvantages of all-payer 
systems. Issues of cost-shifting by providers and among payers have 
been discussed and analyzed for at least 50 years. Today, there appears 
to be a common understanding that only a small percentage of patients 
actually pay the full submitted charges from hospitals and physicians 
for the care they receive. By and large, publicly financed and operated 
programs pay at lower levels than do most private health insurance 
systems. Within the private health sector, larger insurers and 
employers are often able to achieve acceptance of lower payments than 
those that smaller firms or plans can obtain. A wide variety of 
hospital and/or physician networks have developed, based in large part 
on the willingness of the providers to accept discounts from regularly 
billed charges and fees. In order to be able to determine whether 
uniform or ``all-payer'' systems for health care are desirable and 
feasible, we believe that more study of uniform payment system 
approaches that would be compatible with managed competition 
initiatives is warranted. We are particularly interested in systems 
that would encompass many kinds of health care providers, 
practitioners, suppliers, and their services including ``mixed'' models 
covering both managed care plans and traditional health insurance. We 
believe that initial steps will involve the careful design of systems 
that would take the following into consideration:

--The data needs for the construction and implementation of such a 
system and their sources, strengths, and limitations.
--Means for involving hospitals, physicians, and suppliers.
--Ways of involving all payers, both public and private.
--Administrative approaches.
--Consumer and community involvement.
--Transitional considerations.
--Resource requirements for development and operation of the system.
--Potential legal impediments (national, State, and/or local).
--Capabilities of States to develop effective systems.
--Likely impacts of such systems on health services costs, access, and 
quality.
--Consideration of the possible special circumstances of, and factors 
related to, rural communities that might necessitate different all-
payer approaches.

     Medicare Current Beneficiary Survey data and other new 
data bases. In 1991, we launched the first round of a Medicare Current 
Beneficiary Survey (MCBS), a longitudinal panel survey that collects 
information on about 13,000 aged and disabled Medicare beneficiaries. 
Persons aged 85 and over and persons entitled to Medicare due to 
disability were oversampled to increase the sample size of these 
vulnerable subgroups. The MCBS collects a variety of information 
relating to the use of covered and noncovered services, including 
costs, insurance coverage, out-of-pocket expenditures, health status, 
income, assets, and living arrangements. Three interviews are conducted 
annually for persons living in the community and for the 
institutionalized.
    Medicare administrative claims data, which contain detailed 
information on the use and cost of Medicare-covered services, are being 
linked with data collected from the MCBS. At this point, it is 
anticipated that a survey panel will run for about 3 years, although 
Medicare administrative data could be appended for many years 
thereafter. This data set will make possible studies of, for example, 
supplemental insurance coverage held by Medicare beneficiaries or out-
of-pocket payments for health care services; consumer cost and consumer 
choice issues; for example, choice/satisfaction of Medicare 
beneficiaries enrolling in HMOs versus fee-for-service plans; Medigap 
employer coverage; and managed care information.
    At this time, researchers have planned a series of analyses using 
the MCBS to examine whether or not the introduction of the Medicare 
physician fee schedule had an impact on access. Also, the MCBS is 
useful for the development of the adjusted average per capita cost, 
which is, in turn, useful for refining risk adjustments. We are 
interested in studies that seek to refine risk adjustment methodologies 
using the MCBS. In general, we are interested in encouraging 
proficiency in and use of this valuable database among additional 
researchers, particularly to address research issues and topics 
identified in this solicitation. In addition, in 1991, we established a 
National Claims History File (NCHF) system that facilitates access to 
Medicare claims data. The NCHF also is a rich source of data for 
analyses of health care services and financing issues. We encourage 
researchers to consider ways to use these data sets, when appropriate, 
in developing research projects.
2. Financing Issues.
    The aim of these studies is to find better ways for individuals, 
households, businesses, insurers, health care providers and 
institutions, communities, and governments to provide and arrange 
payment for needed health care services through improvements in the 
health care system and its financing mechanisms, including the 
following alternatives:
     General financing approaches. We continue to be interested 
in research on the design and impact of proposals for reducing tax 
burden on low-income taxpayers; income-related financing of premiums 
and/or copayments; changing the distribution of financing between 
taxpayers and beneficiaries; and examination of approaches such as 
medical savings accounts that encourage private savings for health care 
expenses.
     Alternatives for Medicaid financing. Medicaid covers an 
extensive variety of health care services, both acute and long-term 
care, and stresses benefits for eligible children and pregnant women. 
There are Federal minimum standards mandating particular services and 
populations to be covered, and a State can extend these minimums in a 
variety of ways. Federal payments are made to a State for a percentage 
of the benefit payments under its State Plan for Medical Assistance, 
and for a percentage of its costs in administering the plan.

--We are interested in ways to improve the Federal financing of, and 
arrangements with, State low-income health care programs. One area of 
interest involves the basic approach for determining the Federal 
assistance payments to States. Under present law, the Federal medical 
assistance percentage (FMAP) determines a percentage rate of Federal 
participation that is based on State per capita income levels. In 1991, 
these FMAPs ranged from 50 percent (the statutory minimum) to nearly 80 
percent. We are interested in the assessment of alternative methods for 
computing the FMAP. Models might consider the potential impact (State-
by-State) of (a) calculating the basic Federal matching rate based on 
State fiscal capacity or number of persons requiring health care 
subsidies instead of per capital income, with and without ceilings and/
or floors; (b) modifying the FMAP to consider a State's actual Medicaid 
expenditures relative to its fiscal capacity; (c) paying for basic 
services to specific enrollee groups at a higher rate than other 
services or groups and/or limiting expenditures for nonbasic services 
(for example, personal care aides) to a percentage of that for basic 
services (for example, preventive care); (d) reducing the FMAP when 
expenditures exceed a specified threshold; (e) projects to examine 
linkages between Medicaid and workplace health insurance; and (f) 
projects that study alternative approaches to monitoring family income. 
We are highly interested in careful studies of competing ideas for 
improving the efficiency, effectiveness, and fairness of funding of 
health care for the poor and the uninsurable. These approaches might 
consider changes proposed in Federal funding and budgetary constraints 
imposed under health care reform. For example, approaches could 
include: Methods for determining the level and composition of State 
funding of health care costs and determining the maintenance of that 
effort; equity across States in health care expenditures; the extent to 
which disproportionate share payments, as well as provider taxes and 
donations, are included in or excluded from the base used in 
calculating Federal payments; and the extent to which a State must 
provide residual Medicaid services to low-income persons or provides 
other health care services not included in the standard benefit package 
and the costs of that care. Another analysis might consider designing 
matching incentives according to the extent States use managed care 
arrangements. Considerations should also be given to approaches based 
on Federal global capitation payments to States; Federal or State or 
joint arrangements with private health insurers to provide health care 
coverage for low-income persons; and to approaches that rely upon those 
low-income individuals who receive health care subsidies to select an 
approach that they believe is suitable for themselves.
--We are also interested in projects or simulations uncoupling Medicaid 
acute care services from Medicaid long-term care to examine alternative 
Federal/State financing arrangements for each type of care. We are also 
interested in designs of approaches under which the Federal Government 
would capitate States for all or part of their Medical Assistance Plan 
in place of FMAP for those parts, in exchange for greater flexibility 
for States.

     Private insurance financing. Under current tax policy, the 
unemployed and many individuals in low-paying jobs do not benefit from 
the tax provisions associated with employer-paid health insurance. 
These tax incentives benefit higher-income employed persons who, in 
order to protect their incomes and assets, presumably would want to 
purchase insurance even in the absence of tax incentives. We are 
interested in analyses of these equity issues. Projects might examine a 
refundable tax credit that could replace the current tax exclusion. By 
using tax credits, rather than exclusions, the link between a 
taxpayer's marginal tax rate and the amount of the tax subsidy is 
eliminated. Such tax credits could also extend more of the tax subsidy 
to the unemployed, the working poor, and the self-employed. Other 
modifications of the tax code that might be examined include increasing 
deductions for self-paid premiums and/or setting caps on the amount of 
exclusion of employer's premium payments. But, these would appear to 
also result in larger subsidies to higher-income persons than to those 
with lower incomes.
    Various models such as health insurance networks and health 
alliances have been identified as methods for extending the negotiating 
and purchasing power of large employers to groups of small employers. 
Models such as multiple employer trusts, multiple employer welfare 
arrangements, employer coalitions, and other approaches already exist 
that have allowed small employers to band together to purchase 
insurance that they could not have afforded alone. However, these 
arrangements have not been without problems and a number of these 
groups have become insolvent. We are interested in analyses of the 
strengths and weaknesses of these approaches. This interest also 
includes analyses of how such models would operate in rural and small 
metropolitan areas and whether modifications to the basic models, or 
alternative approaches, should be considered for these areas.
     Supplemental insurance. We are interested in studies of 
the demand for and use of insurance policies that supplement Medicare 
and other health insurance (including Medicare Select) and their effect 
on utilization of services and patient outcomes. Individuals and 
families might use supplemental policies to fill gaps in coverage and/
or to cover deductibles and coinsurance, either of which might affect 
utilization. We would like to know what types of co-payment are used 
and what their relationships are to risk selection.
     Alternative approaches to prepayment for health care 
expenses. We are interested in projects that examine further incentives 
for individuals, businesses, and governments to improve risk-sharing 
approaches. We are interested in approaches that might undertake the 
sharing by the Federal Government of financing risks with States, 
communities, or private entities. For instance, for the Medicare 
program, we would be interested in the design of approaches involving 
public or private sponsors. These might be either a private entity such 
as a health insurer or a labor/management welfare fund or a State or 
local government agency that would assume the responsibility and risk 
for paying Medicare benefits for entitled residents of a defined area. 
If this were a public institution, its own program benefits would 
presumably be administered in the same manner (perhaps consolidating 
the Medicare and Medicaid benefits for the residents of a State). If 
this were a private entity, it would likewise coordinate administration 
of its private benefits with Medicare's benefits. Issues to be 
considered include rate-setting, performance monitoring, and 
distribution of gains or losses.

B. Managed Care Systems

    Managed care refers to a diverse, and still evolving, set of 
alternative delivery models introduced over the past two decades. 
Managed care plans offer the opportunity for more cost-efficient use of 
health resources, expanded choices of health service delivery systems 
for consumers, and better health outcomes through effective care 
management.
    Our interest in managed care encompasses a wide range of 
alternative service delivery, case management, payment and data systems 
that encourage or facilitate a cost-effective continuum of care, or 
that otherwise foster efficiency in health service delivery through 
management of the volume, intensity, and appropriateness of care.
    In an effort to better understand and increase enrollment in HMOs, 
preferred provider organizations (PPOs), and other managed care plans, 
we are interested in a variety of research in two general areas:
1. Understanding Current Managed Care Techniques and Service Delivery 
Models
     Identifying efficient and effective practices. In order to 
expand our understanding of how managed care systems might best be 
structured to provide cost-effective, quality care, we need to 
understand the techniques and methods used by current managed care 
models, particularly those that may be determinants of successful risk 
contractors. We believe emphasis needs to be placed on studies that 
determine which features contribute most to the efficiency and 
effectiveness of specific managed care models, including the impact of 
these approaches on utilization, costs of care, and health outcomes. 
These studies should provide information to help identify those 
features that have potential for general application. The types of 
``best practices'' in which we are interested include approaches for 
marketing programs to beneficiaries and other enrollee groups, enrollee 
education strategies, incentives to physicians, and the use of new 
technology by HMOs.
    We are very interested in studies of how managed care programs deal 
with the challenges involved in enrolling disabled and special needs 
populations. For example, studies could examine the experience of State 
managed care programs and identify best practices and lessons learned.
     New models. We are interested in studies and evaluation of 
new managed care models. We are particularly interested in the recent 
experience of new and evolving models such as primary care case 
management approaches, the use of primary care case management by 
private insurance and public programs, and its applicability to health 
care reform and/or existing programs such as Medicare and Medicaid.
     Data and managed care. We are interested in evaluation of 
prototype data systems and managed care. This is a critical area for 
managed competition and health care reform. We are interested in 
studies and development of claims data systems that capture needed 
information across alternative delivery systems and that serve 
complimentary objectives to fee-for-service data systems.
     Barriers to entry. We are interested in studies that 
provide an improved understanding of the factors that may present 
barriers to entry or expansion of existing managed care programs, 
including (1) physician attitudes toward HMO contracting, (2) the 
impact of the new resource-based fee schedule for physicians on their 
decisions to participate in HMOs, (3) factors that influence a Medicare 
HMO's decision not to participate in risk contracting, (4) barriers 
affecting enrollment of Medicare or Medicaid recipients in managed care 
systems, (5) State legislative and regulatory barriers, and (6) public 
attitude toward managed care plans.
     Comparisons of managed and fee-for-service care. We would 
like to support studies that examine the relative effectiveness of 
managed capitated systems compared to traditional delivery systems. We 
are interested in comparisons in terms of cost, quality of care, and, 
particularly, health outcomes. Although some prior research has been 
done on this issue, payment reforms and changes in delivery models and 
benefit packages have occurred in the interim that may have changed the 
relative cost-effectiveness of the systems and the impact of the 
systems on health outcomes. The following are examples of questions 
that appear to require answers:

--How satisfied are HMO/CMP enrollees versus fee-for-service enrollees?
--What are the short- and long-term effects of HMOs offering 
supplemental benefits (for example, coverage of prescription drugs)? Do 
these benefits tend to increase adverse selection into plans? Does an 
HMO's decision to provide non-Medicare-covered services in some cases 
result in better care? Are these benefits cost-effective in the long 
term by delaying or preventing more expensive illness and medical care?
--How do HMOs make use of new technology relative to the fee-for-
service sector? HMOs provide a unique setting for analyzing the use of 
new technology, since HMOs do not have the incentives inherent in fee-
for-service practice to use new technologies as services that can 
increase revenue. We are interested in studies that provide information 
about the extent to which new technologies are accepted and used in 
HMOs versus the fee-for-service sector in terms of the types of 
technology utilized, the extent of this utilization, and the effects of 
utilization on health outcomes. We are interested in knowing whether 
the use of new technologies more closely resembles fee-for-service 
patterns in certain types of managed care plans--for example, 
individual practice association models versus staff model plans; or 
hospital-controlled plans versus physician-controlled plans. Studies in 
this area could examine use of information technology as well as 
medical technology.
--What are the impacts of recent fee-for-service payment reforms (for 
example, prospective payment systems and physician payment reforms) on 
managed care plans? Have these changes in payment methods altered the 
ability of managed care plans to attract providers into risk-sharing 
arrangements or to contract with providers on a discounted fee-for-
service basis? Has risk-sharing between HMOs and physicians been 
reduced? Have physician payment reforms made primary care physicians 
less likely to contract with HMOs and specialists more likely to do so? 
What are the effects of these reforms on the ability of managed care 
plans to reduce utilization below fee-for-service levels?
--What is the relative cost-effectiveness of various managed care 
models? How do HMOs, PPOs, Federally Qualified Health Centers (FQHCs), 
and other organizational models compare with each other and with fee-
for-service in terms of cost-effectiveness and outcomes of care?
--We are also interested in studies that examine the quality of care 
among managed care systems and whether there are differences between 
the quality of care provided under such systems and under traditional 
fee-for-service systems, with emphasis on health outcomes, particularly 
outcomes over an extended period (for example, 6 months to 1 year after 
an event). Similarly, we are interested in studies that examine whether 
there are differences in access to, and utilization of, certain types 
of services in managed care systems versus traditional delivery 
systems. For example, what type and levels of preventive services are 
provided in HMOs or in FQHCs? Are there differences in rates of 
expensive procedures (for example, hip replacement and coronary artery 
bypass graft)? We would like to be able to identify and evaluate tools 
to assess the effectiveness of quality assurance systems and the 
quality of medical care being provided to enrollees in both managed 
care and fee-for-service systems. The studies might also provide 
suggestions on effective measurements including both process of care 
and alternate outcome measures (for example, readmissions and 
complications) and suggest how they might be incorporated into 
monitoring programs.

     Quality of care. We are interested in studies that provide 
improved information to measure the quality of care provided in managed 
care systems, including measurement of health outcomes, development of 
performance standards for managed care providers, and assessments of 
different quality review systems used by HMOs. Our interest includes 
projects that develop improved tools for assessing the quality and 
effectiveness of care in HMOs. Also, we are interested in cost-benefit 
studies that examine trade-offs between investment in administrative 
systems (for example, computer-based data systems) and other case 
management efforts (for example, utilization reviews).
     Targeting approaches. We would like to support additional 
work to develop: (1) Techniques to better target managed care 
interventions and/or to be able to establish risk-sensitive payments to 
managed care plans and providers (for example, through the analysis of 
provider and/or beneficiary claims history data); and (2) methodologies 
to assess the cost-effectiveness and relative value of alternative 
utilization management interventions, such as provider education 
efforts, provider incentives to reduce utilization, more intensive 
prior or concurrent review applied to selected providers, specialties, 
or services, and beneficiary-oriented utilization management 
interventions. These approaches may include case management or 
``gatekeeper'' systems to minimize the risks of excessive or 
inappropriate service use, interventions targeted toward ``high-cost'' 
patients, and consumer information and counseling programs (for 
example, management of exceptionally high-cost medical cases).
     Private sector activities. We are interested in studies 
that examine the experiences of private sector managed care activities 
and retiree programs and identify lessons for managed care programs 
serving Medicare beneficiaries and Medicaid recipients.
2. Developing Alternative Managed Care Service Delivery Models and 
Payment Systems
    We are interested in improving current health care delivery and 
payment systems through the development and testing of alternative 
models, including the following areas:
     We would like to support projects that assist potential 
enrollees in choosing, accessing, and effectively using managed care 
services. We are particularly interested in developing and testing 
approaches to promote informed choice, to reduce burden, and to 
minimize biased selection in consumer access to managed care systems, 
such as coordinated open enrollment or enrollment through independent 
entities capable of facilitating unbiased access to managed care 
systems.
     Our interest in development of improved risk adjusters, 
identified previously in the section on Health Systems Reform and 
Financing, includes an interest in studies that develop improved risk 
adjusters for the adjusted average per capita cost payment system for 
Medicare HMOs.
     We are interested in studies that examine the use of 
competitive bidding approaches to establish payment levels for HMOs, 
for example, studies to synthesize existing information and research, 
and studies that analyze data to estimate the payments and effects of 
these types of approaches.
     Recognizing that managed care models also involve 
providers paid on a fee-for-service basis (such as PPO networks and 
various utilization and/or case management systems), we are interested 
in studies and demonstrations that develop and/or test cost-effective 
payment methods for these fee-for-service-based managed care models. 
Examples of such projects include (a) methodologies to establish and 
ensure cost-effective payments for the administrative costs of the 
PPOs, case management, or other organizations administering these 
managed care systems, including incentive payment arrangements based on 
measures of program benefit savings (or losses) achieved by such 
entities; (b) approaches to establishing cost-effective fee-for-service 
payments to affected providers, or otherwise controlling their costs 
(for example, through negotiated discounts, bundled payments, incentive 
arrangements with participating providers, resource-based relative 
value units, or flexible allocation of coverage and payment allowances 
within pre-established limits); and (c) studies that examine the 
applicability of such mechanisms in the Medicare and/or Medicaid 
programs, including the use of independent entities such as PPOs or 
``brokers'' to establish alternative payment arrangements within fee-
for-service-based managed care models and point-of-service PPOs that 
incorporate negotiated rates with providers and strong incentives for 
beneficiaries.
3. State Level Managed Care Program
    With increased emphasis on managed care, the program parameters 
that administrators use to monitor program and recipient performance 
are, increasingly, program data. In the past, this was the claim form 
itself. In many capitated systems under managed care, claims are 
nonexistent. Instead, practitioners are paid on a salaried basis and 
work in terms of patient encounters. Key questions that need to be 
addressed follow:
     We wish to develop, demonstrate, and evaluate data systems 
that capture needed information across alternate delivery systems, not 
just for fee-for-service systems. We would like to know what data 
elements are critical for administrators to track in a managed care 
setting? How can these be related to the fee-for-service environment? 
What portions of current automated data systems are appropriate for 
capturing information on managed care?
     From what lessons learned in the private insurance sector 
may regulators benefit? Which States are doing a ``better'' job of 
handling this fluid data environment? Why? What lessons can be learned 
from these States that would be useful to other States?

C. Provider Payment

    In FY 1991, Medicare payments amounted to $114 billion and are 
expected to exceed $160 billion by FY 1994. By far the greatest part of 
this amount is for payments to hospitals for inpatient and outpatient 
services (64 percent), followed by payments for physician and supplier 
services (30 percent). The latest data show that hospital costs have 
increased by a rate of 9 percent during FY 1990. Simultaneously, 
between FY 1980 and FY 1990, Medicare spending for physician services 
per beneficiary tripled, increasing at an annual rate of over 12 
percent. Even with physician payment reform, total Medicare 
expenditures are expected to increase at an annual rate of 12 percent 
from 1991 to 1996. In FY 1994, Medicare expenditures for physician and 
supplier services are expected to be $44.3 billion.
    The rise in payments for hospital outpatient services is no less 
dramatic. In recent years, Medicare benefit payments for outpatient 
hospital services have increased more than twice as fast as payments 
for inpatient services. Between 1986 and 1991, inpatient hospital 
payments increased from $46.4 billion to $63.2 billion, an increase of 
35 percent with an annual rate of change of 6.2 percent. For outpatient 
hospital services, payments rose from $5.1 billion to $9.8 billion, an 
increase of 90 percent with an annual rate of change of 13.7 percent.
    While the data described here relate to a large public program, 
similar increases can be found in the private sector. Given the recent 
attention to the rate of increase in national health expenditures, we 
have supported, and will continue to support, research that explores 
promising approaches to reform the way in which services are purchased 
from providers. In particular, we are interested in studies and 
demonstrations in the following areas:
     Characteristics of efficient providers and methods for 
determining efficiency and effectiveness. Classical economic theory 
makes a series of assumptions about the characteristics of a perfectly 
competitive market and the behavior of consumers and providers. If 
these assumptions are met and the firm behaves rationally, the theory 
states that the firm will minimize production costs thereby achieving 
economic efficiency, and the firm will set its level of output so that 
the marginal cost of producing an additional unit is equal to the 
price.
    A perfectly competitive market is often not the case, however, 
especially in the health care sector, where many of the conditions that 
will, in theory, lead to economic efficiency are lacking. Most 
providers are nonprofit; patients are not fully informed about their 
diagnosis, alternative treatment modes, quality of different providers 
and prices charged by different providers; many consumers have 
extensive insurance coverage, which reduces their price sensitivity; 
and there are significant legal and regulatory barriers to entry into 
the market in the form of licensing for professionals and certificate 
of need requirements for hospitals. As a result, there is less reason 
to believe that health care providers and provider managers are 
striving for maximum economic efficiency. For example, under the 
economic theory of cost minimization, hospitals should purchase 
technology only if it will result in decreased costs or higher quality. 
However, unlike industries where capital investments are typically made 
to reduce total costs, in the hospital industry, capital costs 
typically lead to increases in operating costs as well. There is a 
concern that the availability of technology will create a demand to use 
the service and thereby increase the intensity of services provided. 
The expensive technology adds significantly to the hospital's cost, and 
it is frequently underutilized. In addition to increasing the level of 
expenditures, if an adequate level of proficiency in a new technology 
cannot be obtained through a sufficient volume, there can be a higher 
than necessary rate of complications and deaths, as is seen in the 
example of open heart surgery. While the introduction of the 
prospective payment system (PPS) for hospitals and physician payment 
reform are changing the environment somewhat, health care providers do 
have multiple objectives and therefore do not operate to provide their 
services at the lowest cost.

    Accordingly:

--We are interested in studies that investigate the characteristics of 
hospitals that are efficient in the sense of providing patients an 
adequate level of care in the least costly manner. In defining hospital 
efficiency, it is critical that account be taken of the impact of 
technological change on the services provided by hospitals. Differences 
in services (or ``outputs'') must be controlled for and judgments must 
be made about appropriate levels and/or mixes of services. Hospital 
efficiency may need to be evaluated in the context of risk-adjusted 
population-based utilization measures that reflect systemwide 
utilization.
--We would also support studies that develop criteria for identifying 
efficient medical practices, and methods for examining their practice 
costs.
--We are interested in studies that provide improved understanding of 
the determinants of hospital costs, their differences across hospitals, 
and the growth in volume and intensity of services in hospitals; the 
implications of growing resource intensity of inpatient care and 
decline of inpatient volume for hospitals, patients, and health care 
expenditures; and effects of changes in the marketplace on patient 
care, hospital market structure, and hospitals' financial relationships 
with other providers such as home health agencies, skilled nursing 
facilities, and ambulatory surgical centers.
--We are interested in analyses that would examine cost data for 
outpatient departments and/or ambulatory surgical centers to 
distinguish between efficient and inefficient providers and to identify 
determinants of efficient performance for high quality care. These 
studies might examine characteristics of efficient hospitals, 
particularly within a major category of hospitals (for example, size, 
urban/rural, teaching/nonteaching) in providing outpatient care. 
Traditionally, we have used the following approach to establish prices 
for inpatient and outpatient hospital services and physician and 
supplier services. Under the direction of legislation, historic data 
have been used to establish a fee-for-service payment amount for 
physician and supplier services that is then trended forward with 
adjustments for increased productivity and inflation. Increasingly, we 
have had difficulty accurately reflecting productivity gains and the 
true cost of new technology in our fee schedules. We are interested in 
studies that develop new methodologies for these purposes.

     Payment systems that promote efficiency. We are interested 
in testing payment systems that promote provider efficiency while 
maintaining an adequate level of care.
    The private sector has used the market to establish prices for 
provider services through the use of a variety of models. HMOs, 
employer groups, and insurance companies all use a variety of selective 
contracting arrangements that use competitive pricing. These approaches 
have the advantage of forcing the provider to reveal prices for which 
they can provide the services after factoring in such variables as 
increased productivity, new technology, and the use of alternative 
services. We are interested in research examining, analyzing, and 
comparing the mechanisms these approaches use to establish prices for 
health care services. While the private sector uses the market to 
establish prices, it recognizes that ensuring quality of care is an 
equally important aspect of the selection process. Accordingly, great 
attention to quality of care is included in the payment system. We are 
interested in further testing of administrative mechanisms (such as PPO 
arrangements) that use market forces to establish prices in large 
geographic areas.
     Bundling provider payments. We continue to be interested 
in testing a bundled payment option for all services routinely 
furnished within an episode of care. By combining the payment for 
physician and facility services into one price, this approach enables 
health care providers to allocate medical resources based upon their 
own discretion while coordinating the delivery of medical services and 
often divergent incentives to maximize efficiency and quality. We are 
currently testing payment models of this type for coronary artery 
bypass grafts and cataract surgery. We are interested in supporting the 
development and testing of similar approaches for other types of 
medical and surgical procedures and/or other types of patients or 
development of classification systems and weights for combined systems.
     Refinements to the hospital PPS. The evolution and 
extension of PPS for hospital services creates an ongoing need for 
research to develop and evaluate refinements to existing payment 
methods. We are interested in studies of refinements to the present 
PPS, including the following:

--Improved geographic adjusters, including alternative methods of 
constructing the hospital wage index and defining labor market areas, 
and use of alternative sources of data.
--Studies that examine sources of case mix intensity changes, and 
methods of classifying patients by resource use.
--Studies related to the possible effects of the new capital payment 
regulation.
--Studies that develop methods to evaluate new technologies and that 
examine the influence of new technologies and procedures and how they 
should affect payments (for example, effects on diagnosis-related group 
(DRG) weights, studies of the cost and necessity for computerized axial 
tomography, and magnetic resonance imaging).
--Development of prospective payment systems for types of hospitals now 
excluded from PPS.

     Payment for physician services. We are particularly 
interested in projects that develop, refine, and/or test alternative 
payment systems for physician services that include incentives to 
control the growth in expenditures for physician services, particularly 
approaches that involve coordinating or bundling payments for physician 
services and for related health care services. The current fee-for-
service system for billing and paying physician services under Medicare 
generates about one-half billion billed services each year, and this 
number has been growing rapidly. This rapid growth has been accompanied 
by growth and expansions in the numbers of nonphysician services paid 
by Medicare and continues to complicate the Medicare payment system. In 
the early 1980s, the Congress directed us to examine whether the DRG 
system used for inpatient hospital prospective payment might be used to 
also pay physician services (section 603(a)(2)(B) of Pub. L. 98-21). As 
explained earlier under the discussion of hospital payment issues, we 
are interested in research to determine whether there are more feasible 
methods for coordinating or bundling payments for physician and related 
health care services provided to a patient. These might range from 
approaches that merely bundle payment for fairly standard tests with 
visit payments, to systems that examine services of all physicians and 
others who provide care to the same patient. Such systems could include 
hospital medical staff models, models based on physician groups, or 
methods that profile the amounts and kinds of care provided to 
patients. We are interested in research to identify opportunities to 
increase the efficiency of the Medicare fee schedule payment system for 
various types of physician specialties or services, and in studies that 
provide a better understanding of physician practice costs and whether/
how these costs are changing over time, for example, studies that 
examine resource-based practice expense allocations and risk-based 
malpractice allocations or a service- or category-specific risk-based 
approach to allocate malpractice expenses. We also seek alternative 
approaches for valuing payments for nonphysician services. We are 
interested in projects for options that might be used to encourage more 
primary care.
     Outpatient services. We are placing a high priority on the 
issue of payment for outpatient services because of the rapid growth of 
expenditures in this area and the potential to significantly benefit 
from reform. Unlike inpatient services, which are primarily paid for on 
a prospective basis, most hospital outpatient services are paid for 
based entirely or partially on costs. As a result, there are only 
limited incentives toward efficiency. Thus, we would like to complete 
our work on the development and evaluation of prospective payment for 
outpatients as we move toward implementation and to sponsor additional 
research on several related issues.
    Over the past several years, we have sponsored several research 
projects relating to payment for outpatient services and the 
development of possible models for a prospective payment system for 
outpatient services. This research has covered several topics, 
including the development of Ambulatory Patient Groups (APGs), a 
typology of outpatient services that can be used for a PPS for 
outpatients; research into the resource costs of delivering outpatient 
services in a variety of settings, including outpatient departments, 
ambulatory surgery centers, and physician offices; and a series of 
analyses of the outpatient setting and the potential effects of 
implementing an outpatient PPS. In addition, we have sponsored the 
development and implementation of a PPS for use in a State Medicaid 
Program and have sponsored the evaluation of this system.
    As we move toward the possible implementation of a PPS for 
outpatient services in the Medicare program, we are interested in 
supporting and stimulating additional efforts in this area, for 
example, research related to the following:

--Additional research into the resource costs of providing ambulatory 
care in a variety of settings, including research into the effects of 
volume of services on fixed costs and research into the effects of 
administrative costs on per service costs of care.
--Additional refinement of APGs, especially in areas such as mental 
health treatment where existing International Classification of 
Diseases, 9th revision (ICD-9) codes may prove an inadequate basis for 
estimating resource consumption on the basis of diagnosis.
--Continuing research into the impacts of various payment approaches on 
various types of providers.
--The impact of new technologies and program changes related to 
outpatient care.
--Bundling of outpatient services: The extent to which services such as 
diagnostic services (for example, laboratory tests, radiology, and 
other tests), physician professional services, and/or other services 
are bundled into the payment for the outpatient visit is an important 
issue. Bundling gives providers incentives to use the packaged services 
more efficiently. We encourage additional research on alternative 
methods and approaches (for example, separate payment for bundled 
physician and hospital services, and payment for bundled services 
combined with the facility payment) to bundle outpatient diagnostic, 
physician professional, and/or other services, as well as examinations 
of potential provider responses to bundling various types of services.
--Alternative sites of care: There has been proliferation of types and 
numbers of outpatient sites of care in recent years, with a large 
growth in ambulatory surgical centers, freestanding radiology centers, 
and other sites that compete with hospital outpatient departments. We 
are interested in studies that examine the determinants of growth of 
alternative providers of hospital outpatient services and also studies 
that analyze resource costs and outcomes at hospital outpatient 
departments and at alternate sites of ambulatory care.
--We are interested in studying and testing alternative payment 
arrangements for rural hospitals and allied providers that promote both 
access to care and economic efficiency.
--We are interested in projects that demonstrate and evaluate the 
effectiveness of rural telemedicine systems and in projects to develop, 
pilot test, and evaluate payment methodology for telemedicine 
consultations.

     Controlling volume and intensity growth. We are interested 
in studies of approaches for controlling unwarranted growth in the 
volume and intensity of all kinds of personal health care services. 
These might also examine the impact of Medicare's current volume 
performance standards for physicians and alternative formulations of 
these standards.

D. Access and Quality of Care

    We wish to support projects that develop knowledge that can be used 
in assessing and improving access and quality of care, especially for 
underserved populations. During the more than a quarter of a century of 
operation of the Medicare and Medicaid programs, access and quality of 
care have been public policy issues, and they will continue to be so. 
We believe emphasis is indicated in the following areas:
     Studies relating to basic access issues, for example, 
system capacity. Projects that examine the basic capacity of the health 
care system, including primary care, specialty care, and inpatient 
services, are of interest to us. Studies that treat these issues in the 
light of health care reform are of highest interest.
     Studies relating to the maternal and child health 
populations. Projects that develop methods for assessing access and 
quality of care for these populations are of highest interest. Examples 
of possible studies would be the application of quality of care 
measures to (a) the study of Medicaid capitated, Medicaid noncapitated, 
and capitated non-Medicaid maternal and child groups within a State; 
and (b) emergency room use by Medicaid recipients, the privately 
insured, and the uninsured for selected clinical conditions.
    Poverty is associated with higher mortality and morbidity rates 
starting at the youngest end of the age spectrum. This is reflected in 
the higher incidence of poor pregnancy outcomes, including low birth 
weight, birth defects, and infant death. Increasing numbers of poor 
children, lacking adequate health care, suffer from preventable 
conditions such as iron deficiency anemias and high lead blood levels, 
thus impairing mental and physical development. Additionally, because 
of marked declines in immunization rates among poor children, they have 
a higher incidence of infectious diseases. This is the population that 
the Early Periodic Screening, Diagnosis, and Treatment (EPSDT) Program 
is focused on.
    There is a need to develop more appropriate health services for 
vulnerable populations groups, such as pregnant women and children. 
Prenatal care is the first step in the obstetric chain that includes 
labor and delivery, birth outcomes, and infant health. Prior studies 
suggest that adequate prenatal care is cost-effective and generally 
correlated with birth outcomes such as infant mortality, birth weight, 
and prematurity, thereby reducing costs for subsequent health care. 
Yet, between 1980 and 1989 the proportion of mothers receiving late or 
no prenatal care increased for each age group except mothers over the 
age of 35. At the same time, there was a 50 percent rise in the 
proportion of mothers in their twenties receiving late or no prenatal 
care. Neonatal and postneonatal death rates for nonwhites are more than 
double those of whites. Factors that are positively and negatively 
associated with an individual's receipt of early and adequate prenatal 
care need to be studied.
    Black and low-income children receive the least amount of health 
services, especially for those conditions that call for early 
intervention and more intensive treatment and follow-up. Utilization of 
preventive care services for children and the adequacy of outreach 
programs need further investigation.
    Approaches to extend health care to these populations, such as 
Medicaid eligibility expansions or the EPSDT populations, do not ensure 
adequate access to care. Issues related to the availability of health 
providers and appropriate utilization of services have led many States 
to encourage managed care systems. The extent to which managed care 
improves the quality and availability of care for the poor, especially 
women, infants, and children, needs to be studied further. In addition, 
studies are needed to assess what protective mechanisms are in place to 
safeguard against adverse outcomes for these vulnerable population 
groups.
    We also would be interested in comparative studies of delivery 
systems in other countries for maternal and child health and for 
prenatal care and their possible effects on maternal and child health 
outcomes.
     Women's health issues.
    Recently, in response to public policy concerns that women had not 
been included in many of the biomedical studies sponsored by the 
Federal Government, a number of studies and clinical trials have been 
designed to focus on women's health issues. While health services 
research studies of the Medicare and Medicaid populations have often 
examined issues relating to women's health--such as insurance coverage 
of pregnant women and children, the use of cardiac procedures in 
hospitalized patients, and the characteristics of elderly women living 
alone--there are many other areas of inquiry relating to access, 
quality of care, and effectiveness that could provide new knowledge for 
the development of health policy. For example, health services research 
studies of Medicaid and other low income groups that examine access to 
family planning and the prevention, treatment, and screening for 
sexually-transmitted diseases and acquired immune deficiency syndrome 
(AIDS) and human immunodeficiency virus-related conditions would be 
desirable. Also, studies relating to risk factors, prevention, and 
effectiveness of different treatments for heart disease, cancer, 
osteoporosis, depression, substance abuse, and alcoholism in women are 
of interest. In addition, we are interested in health services research 
studies that shed light on the potential effects on women of various 
health care reform options, especially those relating to the financing 
and delivery of health care services.
     Studies relating to prevention and special services. There 
is a growing consensus that prevention of illness is fundamental to 
improving health status as well as an important factor in curtailing 
the escalation of health care spending. Preventive services are 
important for the Medicaid population; several preventive services, 
including the Maternal and Child Health populations, are now included 
under Medicare. Studies that focus on access to these services are of 
interest to us.
     Studies relating to early retirees. We are interested in 
examining the incentives related to health care coverage and benefits 
and out-of-pocket costs in the context of early retirement. What are 
the factors affecting early retirement? What are the utilization 
patterns of early retirees?
     Maintaining Medicare eligibles within mainstream Health 
Alliance structures. When early retirees age sufficiently to become 
eligible for Medicare benefits, they must decide to stay in their 
Health Alliance or enroll in Medicare. This could involve a change in 
providers, caregivers, and coverage limits, as well as the change of 
insurer. What are the strategies for maintaining continuity of care and 
coverage for care when an early retiree becomes eligible for Medicare?
     Research and demonstration projects that develop methods 
and applications for applying knowledge about quality and 
appropriateness of care. Projects that develop the components and 
methodology for quality reporting systems for accountable health plans, 
including appropriate controls for illness severity or projects in 
which the results of research about quality of care are used or adapted 
locally by public and private organizations responsible for ensuring 
utilization and appropriateness of care, are of special interest to us.
     Over- and under-utilization of health care. Both over-and 
under-utilization of health care are problems that can lead to 
unnecessary expenditures, and we believe this misutilization is at 
least partially related to access to care. We would like to support 
studies in this area. Comparative assessments of utilization and 
expenditures by the privately insured, Medicare, Medicaid, and the 
uninsured populations are important parts of such studies. We encourage 
studies to develop criteria for judging over- and under-utilization 
from claims data or in managed care settings.
    We are also interested in supporting projects that implement 
counseling programs for patients and providers to improve their 
understanding of the patient's right to decline medical treatment and/
or to formulate advance directives.
     Education and feedback. There are indications that 
education and feedback are important components in maximizing the 
dissemination of knowledge that can improve quality of care. We are 
interested in supporting projects that test methods of providing 
information to, and educating, practitioners and reviewers of medical 
care in a way that achieves appropriate changes in physician and 
provider behavior.
     Prescription drug payment and related studies. Recent or 
proposed changes in Federal drug payment and other policies have 
affected the marketplace for prescription drugs. For example, the 
Omnibus Budget Reconciliation Act (OBRA) of 1990 imposed limits on 
price increases of Medicaid drugs and mandated rebates, drug 
utilization review, and patient counseling. The Veterans Health Care 
Act of 1992 mandated a minimum discount of 24 percent for all Federal 
drug purchases. And, the Administration's Health Security Act proposes 
to mandate a basic rebate of 17 percent for a Medicare drug benefit 
program. In addition to the greater role played by the Government as 
purchaser of pharmaceuticals, a number of other changes have affected 
the market: the growing importance of price conscious managed care, 
rapidly emerging biotechnology, recent changes in the tax law (that is, 
OBRA 1993), and increasing generic competition. We are interested in 
supporting both empirical and theoretical research to examine the 
effects of payment and other broad policies (for example, formularies, 
prior authorization, drug utilization review) on the use of drugs, 
expenditures for drugs, and the development of new products.

--Academic Detailing. Drug utilization review programs may detect 
aberrant patterns in a physician's prescribing behavior. Different 
means of contacting physicians have been used, including letters, 
telephone calls and visits (known as academic detailing) to the 
physician by a trained physician or pharmacist. We are interested in 
studies and demonstrations of the effects of the use of person-to-
person interventions to influence physician prescribing practices in 
both public and private insurance programs and other settings. Three 
important areas are: The relative costs of academic detailing compared 
to existing program interventions that influence physician prescribing; 
who, how, and what drugs or diseases to target; and the development of 
cost-effective approaches for such programs.
--Prior Approval. Medicaid programs and private insurers have 
instituted prior approval programs to control the use and cost of 
prescription drugs. A prior approval list contains medications 
requiring authorization for use prior to reimbursement by insurers. We 
are interested in studies relating to the effects of such programs on 
access to prescription drugs and their impact on use, outcomes, and 
costs of services. We are also interested in studies that examine the 
decision making process of placing drugs on a prior approval list and 
the consistency across prior approval programs.

E. Service Delivery Systems

    Providing affordable health care to all Americans while containing 
health care spending growth and maintaining the excellence of health 
care services requires not only the comprehensive assessment of how 
health services are and should be financed, but also the assessment of 
how health services are and should be delivered. Policy makers have 
assumed that higher payments for health services will ensure access to 
services and increase the supply of providers--institutional or 
professional, where the services are needed. This, however, is not 
necessarily the case. Health delivery systems are affected by specific 
delivery characteristics as well as the medical care provider payment 
system. System characteristics are important irrespective of the 
financing mechanism for payment of services. We are interested in 
comprehensive and balanced studies of what features of health care 
delivery systems are effective in ensuring that services are available 
in geographic areas that may be currently underserved (for example, 
urban inner city and rural or frontier areas); and what methods may be 
effective in restraining growth of the health infrastructure in areas 
that are, by many measures, oversupplied or overutilized. We seek more 
than an enumeration of the current situation; rather, we seek to 
understand what should be undertaken in preparing for the future. We 
desire a comprehensive review of the U.S. health service delivery 
sector that examines demographic, behavioral, and economic factors that 
influence the U.S. health delivery sector and an examination of new 
provider delivery settings. Toward this goal, we are interested in 
examining: (a) How markets arrange for and allocate health resources, 
the supply of health organizations or institutions or professionals, 
and the geographic distributions of resources within the health 
delivery system, especially rural/inner city issues; (b) personnel and 
medical professional manpower issues; and (c) the study of new provider 
settings and service delivery approaches.
     Allocation of health resources. We would like to sponsor 
examinations of how markets arrange for and allocate health resources, 
the supply of health organizations, institutions, or professionals, and 
the geographic distribution of resources within the health delivery 
system; and studies of alternative delivery systems and financing 
models to address the many problems faced by the health care system. We 
are interested in studies that do the following:

--Develop resource distribution planning models. Mechanisms to better 
distribute health care resources to meet underserved rural community 
and inner city needs are of interest to us. These may include the 
creation of networks of health care providers that ensure access for 
rural and inner city residents to an organized system of providers that 
covers the entire continuum of care.
--Develop additional alternatives to those rural hospitals that are no 
longer viable in their communities. These alternatives may include both 
inpatient and outpatient models with both physician and nonphysician 
providers.
--Investigate what health planning models and assumptions are useful 
and have been successful. Although in the late 1980s some mandatory 
planning models were considered by some to be ineffective in reducing 
capital expansion and health spending, are there successful health 
system resource and services planning models that should be reexamined? 
Additionally, we know very little about effectiveness of the voluntary 
business and health provider coalitions that have emerged. Some States 
consider health planning extremely useful and have continued 
certificate of need programs. We are interested in studies of what 
constitutes a successful planning program.
--Develop measures of capacity. We need to critically reanalyze 
commonly accepted measures of health system capacity to determine if 
measures such as beds per capita, full time employees, hospital 
admissions, average length of stay, bed occupancy, and other 
institutional measures of utilization are appropriate (adequate) 
measures of the supply and stock of services that should be provided.

     Health and medical professional manpower issues. In order 
to more fully understand the relationship between health financing 
models and the supply of health resources, we are interested in 
exploring the factors that influence the supply of health 
professionals, specialty training, and geographic dispersion. An 
example of the types of questions of concern here would be: Can the 
elements of the educational process and the ``service'' aspects of 
medical interns' and residents' training be disentangled? If they can, 
what would be a minimum medical school curriculum for safe practice, 
given some educators belief that much of an intern's and resident's 
time is spent in service tasks, not educational efforts. Examples in 
this area include:

--Medical education financing effects on practice choices. We are 
interested in projects that consider how Medicare funds currently paid 
to hospitals in the form of direct medical education payments or 
indirect medical education adjustments to prospective payments for 
inpatient hospital care can affect the specialty and type-of-practice 
choices of physicians.
--Incentives for nonhospital ambulatory training sites. Such studies 
could focus on developing model approaches to encourage more 
noninpatient training sites and facilitate the training of more primary 
care and minority physicians in settings such as HMOs, group practices, 
ambulatory care settings, and nursing homes. This should lead to a 
model that could increase nonhospital based ambulatory training for all 
physicians, but especially those training to be primary care 
practitioners. It would also be desirable that the model encourage 
physicians to practice in underserved areas (urban and rural).
--Manpower issues. We are interested in the development of financial 
mechanisms to provide incentives for more physicians to practice in 
rural areas (especially obstetricians and primary care physicians such 
as family practitioners, internists, and pediatricians). We also are 
interested in studying the availability and effective use of pediatric 
and family nurse practitioner services under State Medicaid programs.
--Measures of underutilization. Given the mobility of the U.S. 
population, we need to reevaluate the relevancy of common measures of 
underservice, such as communities without a practicing physician. This 
reevaluation could examine such issues as the minimum population size 
needed to support a primary care practice, a general surgical practice, 
and very specialized practices. Examination of population density 
should address such issues as whether there are populations so sparse 
that no permanent medical professional can be supported. Definitions of 
fundamental primary health care needs may play a part in such studies. 
The work should define basic assumptions used to derive appropriate 
minimum/maximum physician rates per population.

     Studies of new provider settings and delivery approaches. 
We would like to conduct studies and demonstrations largely designed to 
increase the use of primary and preventive health services and thereby 
reduce the incidence of more serious conditions as well as long-term 
costs. Our interest includes settings and approaches that improve 
health delivery for specified populations such as the homeless, migrant 
workers, maternal and child health, adolescent males, and the disabled. 
Examples of these initiatives include:

--More convenient service locations, such as (a) school-based and 
school-related health clinics, (b) health care in public housing, and 
(c) mobile health units.
--Service integration initiatives designed to remove institutional 
barriers to the receipt of health care and to provide access to the 
full range of available services in order to maximize the benefit of 
these public programs, for example, (a) ``one-stop shopping'' 
initiatives that would provide a variety of support services at one 
location to increase the utilization of services by populations such as 
high-risk pregnant women, (b) outstationed Medicaid eligibility workers 
in Federally qualified health centers, homeless shelters, and schools, 
(c) new provider settings for EPSDT services, and (d) innovative 
settings for the delivery of family planning and prenatal care services 
for adolescents.
--Other populations. We are interested in studies that provide 
information about changes in the patient populations and service 
patterns of special populations, for example, patients with human 
immunodeficiency virus, auto-immune deficiency syndrome, and end-stage 
renal disease. We also are interested in studies and demonstrations 
that examine cost-effective alternative service modalities targeted 
toward specific populations.
--Alternative service delivery models. We are interested in 
demonstrations of alternative service delivery models that would 
promote more cost-effective and high-quality health care, for example:

    +Geriatric care models that more effectively integrate and 
coordinate prevention, primary care, and chronic care for the elderly, 
including hospital-based geriatric care models.
    +Alternative settings for transitional care that would reduce 
health care expenditures through earlier discharges from hospitals.

F. Subacute and Long-Term Care

    Demographic and practice pattern changes continue to increase 
demands on subacute and long-term care delivery and financing 
mechanisms. Medicaid is the principal source of funding for long-term 
care in the United States. In FY 1994, Federal expenditures for long-
term care under the Medicaid program are expected to exceed $30 
billion, 34 percent of all Medicaid vendor payments. Medicare policy 
changes, in response to industry and congressional pressures, have led 
to rapidly rising payments for subacute care by skilled nursing 
facilities and home health agencies, and, as the elderly population 
continues to grow, further program benefit expansions may be approved 
by the Congress. Several major policy committees (for example, the 
President's Task Force on National Health Care Reform) have targeted 
long-term care as one component of the health services delivery sector 
requiring attention and potentially major reform in the next few years.
    We wish to support this process through studies designed to better 
understand the trends and factors affecting the cost, accessibility, 
and quality of subacute and long-term care services under Medicare and 
Medicaid and to explore cost-effective delivery and financing 
mechanisms.
     Innovative approaches to the delivery of long-term care. 
We are interested in sponsoring research and demonstration efforts on 
innovative approaches to the cost-effective delivery of long-term care 
services. Such studies will examine methods of targeting services to 
special populations in greatest need of services, as well as exploring 
whether new types of services or provider organizations should be 
developed to supplement those now covered under Medicare and Medicaid 
for these populations. We are also interested in innovative managed 
care models in both institutional and noninstitutional settings.
    We are particularly interested in research and demonstration 
efforts that focus on the development of geriatric care models that 
more effectively integrate and coordinate prevention, primary care, and 
chronic care of the elderly. Special emphasis should be given to models 
that can be implemented in managed-care settings, such as HMOs 
contracting on a risk basis under the rules of section 1876 of the 
Social Security Act.
    The relationship between long-term care services (including 
personal care and assistive devices) and housing is becoming 
increasingly important. For example, in caring for the frail elderly in 
noninstitutional settings, supported housing brings participants with 
needs for custodial care physically closer. Such a setting allows the 
frail elderly to preserve some independence in their living 
environment, while it facilitates economies of scale in providing for 
their care. Use of congregate care can be seen in the increasing number 
of alternative housing settings for the elderly, such as adult foster 
homes and assisted living facilities. Continuing care retirement 
communities likewise combine housing and long-term care services. 
Supported housing is also a key component in providing treatment and 
related services to individuals with chronic mental illness. We are 
interested in research and demonstration efforts that more fully 
explore this relationship. For example, how might the acute and chronic 
care benefit package of an integrated service delivery and financing 
model be delivered in the context of an assisted living facility?
     Payment and benefit initiatives. We are interested in 
sponsoring research and demonstration efforts that explore innovative 
approaches to integrate acute and post-acute care benefits so as to 
improve coordination of care. Such initiatives may take a general 
approach (for example, across DRGs) or may be limited to selected 
conditions.
    We are also interested in payment alternatives to current cost-
based payment for home health agency and rehabilitation facility 
services, including studies of the feasibility of case-mix systems for 
these settings.
    We continue to be interested in studies that examine financial 
incentives for cost-effective, quality care in nursing homes, such as 
capitation for long-term care services.
     Eligibility initiatives. Studies are of interest that 
examine the feasibility and effect of using various disability criteria 
(for example, limitations in function, ability to perform work or other 
major activities, or the availability of family or other informal care) 
as the basis for eligibility determinations for long-term care benefits 
for both elderly and nonelderly populations.
    The growth in Medicaid estate planning has highlighted Medicaid 
financial eligibility criteria as they relate to transfer of assets for 
purposes of becoming Medicaid eligible. We are interested in studies 
that examine the relationship between these transfers and overall 
increases in long-term care expenditures. We are also interested in 
studies of innovative State programs that address this issue, including 
studies of estate recovery programs.
     Financing initiatives. We are interested in studying 
developments in the private and public sectors that affect the 
provision and financing of long-term care services, such as further 
development of the private long-term care insurance market.
    There have been discussions of financing approaches for long-term 
care such as universal long-term care insurance for all employed 
persons. For example, one approach might couple State-administered 
universal coverage for episodes of care, lasting 30 or more days, at a 
recognized long-term care facility with a State trust fund dedicated to 
long-term care financing and supported by employer/active employee 
premium payments. The coverage would extend to workers, retirees, 
spouses, and dependents. States would determine premium requirements, 
the employer/employee premium sharing parameters, the provider payment 
rates, and the arrangements for disbursing benefits. The trust fund 
might be managed by the State or by an insurance company or investment 
firm under State regulation.
    Currently, funding of long-term care for both the elderly and 
nonelderly disabled is primarily through Medicaid, although private 
insurance, individual resources, and State and local dollars are also 
sources, depending on the target group. Long-term care financing for 
individuals with disabilities can be described as financing across age 
and disability groups, financed through these sources, rather than 
different financing mechanisms for different disability groups. 
However, some recent proposals have suggested that alternative 
financing strategies should be considered for different disability 
groups. For example, a study completed by HHS recommended that funding 
for individuals with mental retardation and related conditions be taken 
out of the Medicaid program and a new Federal program be created to 
fund a range of services for these individuals. These financing 
proposals are based on a recognition that different disability groups 
require different types of health and social support services, have 
developed distinct service systems, etc. We are interested in research 
that explores the strengths and weaknesses of the current system of 
long-term care financing, relative to financing systems developed for 
different disability groups.
     Use of long-term care by nonelderly populations. We wish 
to expand our research and demonstration agenda to focus on the service 
delivery and financing issues related to providing long-term care 
services to individuals with mental retardation, chronic mental 
illness, and other nonelderly disabled populations. In contrast to the 
considerable support for research and demonstration projects involving 
long-term care for the functionally disabled elderly, we have sponsored 
few projects to examine the role of the Medicare program or the use of 
flexibilities under Medicaid optional services and waivers to meet the 
rapidly changing environment of long-term care for the non-aged 
disabled. The following are examples of the types of issues that are of 
interest to us:

--Children with disabilities. We are interested in studies that examine 
the effect of the recent Zebley decision on disability determinations 
for children, and subsequent changes in eligibility for and use of 
long-term care services.
    Also, research on the extent to which children with disabilities 
have public or private health insurance coverage, and the impact of 
such coverage on Medicaid program expenditures and on access to care, 
is of interest.
--Mental retardation and related conditions. We are interested in 
answers to the following questions:

    (a) What is the impact of standards for licensing service providers 
and surveying quality of community-based services on the quality of 
care delivered?
    (b) What factors influence the costs of intermediate care 
facilities for the mentally retarded?
    (c) What is the relationship between cost and effectiveness?
    (d) What assessments can be done of the cost-effectiveness and 
quality of community-based care for individuals with mental retardation 
under Medicaid, including the Medicaid 2176 waiver program, the 
Community Supported Living Arrangements program, and other State 
optional services?
--Chronically mentally ill. We would like information on the 
characteristics of long-term care service use among State Medicaid 
programs and the changing patterns of use over time.
--Working-age disabled. We would like to know: (a) What is the impact 
of current public and private insurance limitations in meeting the 
acute rehabilitative and long-term needs of this population, and (b) to 
what extent do various subpopulations of the non-aged disabled (for 
example, working-age adults and individuals with selected types of 
disabilities) have public or private health insurance coverage, and 
what is the impact of this coverage on Medicare and Medicaid program 
expenditures and access to care? We are interested in studies that 
focus on the new specialized health service delivery programs and 
innovative payment approaches designed to meet the rapidly growing 
demand for specialized services, such as rehabilitation services, 
maintenance services, assistive technology, durable medical equipment, 
social assistance services, and environmental modifications.
    Studies of work transitions for this population continue to be of 
interest to us. Included are assessments of Medicaid's impact in 
facilitating section 1619 transitional work-programs for supplemental 
security income adult disabled persons and assessments of an extended 
period of Medicare coverage for social security disability insurance 
beneficiaries who return to work.

    We are particularly interested in studies that include research 
emphasizing secondary analyses that document the implications of 
demographic trends on the financing, delivery, and quality of long-term 
care services for these groups. We are also interested in studies that 
examine and attempt to account for wide variation among States in the 
use of institutional, relative to community-based, services.
     Dynamics of disability and service use. We would like to 
initiate studies to understand the dynamics of chronic physical and 
cognitive disability and acute, subacute, and long-term care service 
use and the implications for future demand for long-term care under 
Medicare and Medicaid. Studies are of interest that link and analyze 
data from multiple data bases such as the Medicare Current Beneficiary 
Survey, National Long-term Care Survey, the Survey of Income and 
Program Participation, the National Medical Expenditure Survey, and the 
National Health Interview Survey with our administrative data to 
examine, using both cross-sectional and longitudinal analyses, 
characteristics of the disabled and long-term care service.
     Access issues. We are interested in studies assessing 
problems of access to long-term care for certain subpopulations of the 
disabled, such as beneficiaries in inner city areas or rural areas.
     Effects of program changes. We would like to study the 
effects of major program changes on the cost, accessibility, and 
quality of subacute and long-term care services under Medicare and 
Medicaid. Examples of possible new studies in this area are those that 
examine the following:

--Patient-level cost, utilization, transitions, substitution, and 
outcomes of Medicare-supported rehabilitation hospital units, skilled 
nursing facility, and home health services.
--The cost-effectiveness of services experiencing rapid expansion, such 
as Medicare and Medicaid financed home care and case management 
services.
--Service utilization and expenditures of Medicare program and policy 
changes related to home health and nursing facility coverage.

III. Purpose and Content of Cooperative Agreements and Grants

A. General Considerations

    The cooperative agreements and grants we award are intended to 
assist in the resolution of major health financing issues or in 
developing new methods for administration of our programs. Our 
cooperative agreement and grant program focuses primarily on analyses, 
experiments, pilot projects, and demonstrations that provide 
information useful for the Medicare and Medicaid programs. Applications 
that fit one of the priority areas will be considered to have been 
solicited.

B. Cooperative Agreements and Grants

    All cooperative agreements will include an explicit statement of 
the nature, character, and intent of anticipated Federal programmatic 
involvement to ensure that the responsibilities of both parties are 
understood. Each cooperative agreement will incorporate the 
requirements of 45 CFR part 74 or part 92 or both, as applicable, among 
its terms and conditions. Cooperative agreements will not be awarded to 
a State Medicaid agency for section 1115 (of the Social Security Act 
(the Act)) projects in which only waivers of Federal Medicaid State 
plan requirements under section 1902 of the Act or costs not otherwise 
matchable under section 1903 of the Act are approved to carry out a 
demonstration. The instrument to be used for this type of award may be 
a grant (without discretionary funds) of waivers under section 
1115(a)(1) and costs authorized under section 1115(a)(2) of the Act. 
Cooperative agreements may be awarded for section 1115 projects with 
discretionary funds, even if waivers under section 1115(a)(1) and costs 
under section 1115(a)(2) also are involved. In these cases, the 
cooperative agreement conditions will apply to the entire operation and 
management of the project. Cooperative agreements may be used for 
projects awarded under all other authorities listed in section IV.A. 
(Authorities) of this notice.
    We may suspend or terminate any cooperative agreement or grant, in 
whole or in part, at any time before the date of expiration, whenever 
we determine that the awardee has materially failed to comply with the 
terms of the cooperative agreement or grant. We will promptly notify 
the awardee in writing of the determination and the reasons for, and 
the effective date of, the suspension or termination. In addition, we 
reserve the right to withdraw waivers at any time if we determine that 
continuing the waivers would no longer be in the public interest. If a 
waiver is withdrawn, we will be liable only for normal closeout costs.

C. Waivers

1. Demonstrations Requiring Waiver of Medicaid Rules
    Researchers who wish to conduct demonstrations that would require 
that Medicaid rules be waived must contact the appropriate State 
Medicaid agency. Demonstration proposals involving the Medicaid program 
must be submitted by the single State agency responsible for 
administration of the Medicaid program in that State. Organizations 
that wish to ask for Medicaid waivers are strongly encouraged to 
coordinate with researchers or research firms in order to ensure that 
the experimental design and evaluation protocol are of the highest 
quality.
2. Section 1115(a) Projects
    Under section 1115(a)(1) of the Act, compliance with statutory 
Medicaid State plan requirements (section 1902 of the Act) may be 
waived in order to enable a State Medicaid agency to carry out a 
demonstration project that will further the general objectives of the 
Medicaid program. Under section 1115(a)(2) of the Act, costs of a 
section 1115(a) project that otherwise would not properly be included 
as expenditures under the State plan may be regarded as expenditures 
and thus be subject to Federal financial participation (FFP). Unless 
they are specifically waived, all requirements of the Act, the Code of 
Federal Regulations, and other issuances that pertain to the title XIX 
program apply to a project approved under section 1115(a). If a State 
Medicaid agency applies for a section 1115(a) project, it should give 
special attention to the preparation of the budget. The agency must 
provide estimates of the costs or savings attributable to the 
demonstration project contrasted with the normal Federal program costs. 
That is, the agency must furnish the estimated yearly costs, before 
waivers and after waivers, for both service costs and administrative 
costs. These budgets are substantially more extensive than the budget 
for other applications.
3. Other Waivers
    Waivers of the requirements of title XVIII of the Act and of 
corresponding HCFA regulations may be requested for projects conducted 
under section 222(a) of the Social Security Amendments of 1972 (Pub. L. 
92-603), as amended, and section 402 of the Social Security Amendments 
of 1967 (Pub. L. 90-248), as amended. (See 42 U.S.C. 1395b-1.) The 
waivers requested must relate to an experimental or demonstration 
project that involves changes in the benefit package or method of 
payment. In applying for these waivers or changes in payment or Federal 
financial participation, the applicant must provide sufficient 
budgeting information to permit estimates of the likely costs or 
savings of the project compared to the normal Federal program costs. 
That is, the application must furnish the estimated yearly costs, 
before waivers and after waivers, for both program and administrative 
costs.
4. Methodology for Estimated Gross Costs of Projects Involving Waivers
    We have a methodology to be used in estimating gross and net waiver 
costs. A description of this methodology may be obtained by contacting 
Carl Hackerman at the address given at the beginning of this notice.
    This methodology is subject to change, and applicants are therefore 
instructed to ensure they are using the current methodology.

IV. Cooperative Agreements and Grants--General Information

A. Authorities

    Our authority for making these awards is based on the following:
    1. The Social Security Act, section 1110, 42 U.S.C. 1310, 
concerning Medicaid cooperative research or demonstration projects, and 
section 1115(a), 42 U.S.C. 1315(a), concerning Medicaid demonstration 
projects.
    2. The Social Security Act, section 1875, 42 U.S.C. 1395ll, 
concerning Medicare studies and recommendations for cooperative 
agreements only, and section 1881(f), 42 U.S.C. 1395rr(f), concerning 
end-stage renal disease experiments and pilot projects.
    3. Section 402 of the Social Security Amendments of 1967 (Public 
Law 90-248), as amended, 42 U.S.C. 1395b-1, concerning Medicare and 
Medicaid experiments and demonstration projects.
    4. Section 222(a) of the Social Security Amendments of 1972 (Public 
Law 92-603), as amended, 42 U.S.C. 1395b-1 (note), concerning 
experiments and demonstration projects pertaining to prospectively-
based payment systems.
    5. The Social Security Act, section 1881(c)(7), 42 U.S.C. 
1395rr(c)(7), concerning the national end-stage renal disease registry.

B. Regulations

    General policies and procedures that govern the administration of 
all HHS cooperative agreements and grants are located in title 45 of 
the CFR, parts 74 and 92. Applicants are urged to review the 
requirements contained in those regulations.

C. Duration of Funding

    We fund projects for a period of 1 year at a time and may continue 
funding on a noncompetitive basis, generally for up to 3 years, if we 
made the original award as a multiple year project. Continuation 
funding is contingent on the availability of future year funds, the 
applicant's ability to meet prior year project objectives, and whether 
continued funding is in the best interest of the Government. We treat 
applicants that seek to continue a project for a longer period of time 
than that stated in the original awards as applicants for new projects. 
Thus, they must compete for available funds, and we will review these 
applications competitively along with all other new applications. Under 
this announcement, we do not intend to award grants or cooperative 
agreements with performance periods longer than 3 years.
    Applications received for projects of more than 3 years duration 
will be considered, but they will be carefully analyzed to determine if 
the period of performance can be shortened by curtailing some of the 
activities. Under rare circumstances, and if the Government determines 
that the time period cannot be reduced, awards of more than 3 years 
duration are possible.

V. Application Procedures

A. Priority Area Designation

    Each application should be limited to one of the priority areas 
described earlier. The application must include in the project title 
block the priority area title to which the applicant is responding. If 
we determine a different priority area is a more appropriate area for 
consideration of a proposal, we reserve the right to change priority 
area designation without notifying the applicant. (An application being 
submitted for an unsolicited area should identify the program area from 
among those listed earlier into which the application most clearly 
fits.)

B. Criteria for Screening and Reviewing Applications

1. Screening Requirements
    In order for an application to be in conformance, it must meet all 
of the requirements listed below. Applications that do not meet these 
screening requirements will not be considered for funding/approval by 
the review panels.
    a. Length. The applicant should provide a brief (1 or 2 paragraph) 
abstract summarizing the objectives of the proposal. A summary, not to 
exceed 5 pages, of the proposed project must be included. This summary 
should discuss the project objectives, hypotheses to be examined, data 
to be used and their source(s), model type(s) and structure(s) to be 
used in analyses, resources available to conduct the project, and 
amount and duration of support requested. The narrative portion of the 
application should be typewritten, single-sided, and should not exceed 
50 (for a research proposal) or 80 (for a demonstration proposal) 
double-spaced pages, exclusive of resumes, forms, and so forth. 
Applications should be neither unduly elaborative nor contain 
voluminous or unnecessary documentation.
    b. Number of copies. An original signed application and 14 copies 
must be submitted. Medicaid State agencies are required to submit an 
original signed application and two copies. Additional copies--up to a 
maximum of 10--would assist in the processing of the application.
    c. HCFA priorities. Those projects that specifically address a 
priority area/topic stated in this announcement generally will receive 
preference. Applications determined by HCFA or the review panel to be 
unrelated to our announced priorities will not generally be considered 
for funding.
2. Evaluation Criteria
    Applications that meet the screening criteria will be reviewed by a 
technical review panel composed of at least three individuals. 
Reviewers will score the applications basing their scoring decisions 
and approval recommendations on the following criteria. (Relative 
weights are shown in parentheses.)
    a. Project methodology/design. (40 points) The application 
describes specific plans for conducting the project in terms of the 
tasks to be performed. It includes relevant information about: 
Hypotheses to be tested (if applicable); concise and clear statement of 
goals and measurable/achievable objectives; what the project will do 
and how it relates to similar work done in the area; how the project 
will be conducted; data to be collected (including specification of 
data sources); plan for data analysis; and milestones/phases in the 
progress of the project.
    Specifically, the proposal should contain the following:
    (i) A clear, quantifiable statement of the project goals and 
objectives.
    (ii) An explicit description of the research design, including the 
questions to be addressed and the methods and data to be used. The 
methodology must be well defined and scientifically valid.
    (iii) If the project is a demonstration proposal, the applicant 
should include separate sections on both the research design and the 
evaluation design. The research design section should include a 
detailed description of the payment methodology and other programmatic 
changes. The evaluation section should provide an indication of the 
applicant's understanding of the evaluation issues and the various 
approaches to them. Should an award be made, the applicant may be 
required to collect data in a standardized manner to facilitate 
evaluation efforts. We will have the option of determining whether the 
applicant or HCFA will be responsible for the evaluation.
    (iv) Demonstrations must contain a phase-down/phase-out plan that:
    (A) Ensures that Medicare and Medicaid beneficiaries, as well as 
any other project participants, are phased out of any special programs 
that were initiated and exist as payable or covered health services 
only under the auspices of the project, or ensures that plans are in 
effect to provide other care for the project participants by the date 
the project is scheduled to end; and
    (B) Ensures that any new payment methods initiated by the project 
will cease to apply at the end of the project (that is, the project in 
and of itself cannot commit the Medicare or Medicaid programs to an 
indefinite use of the payment methodology beyond the end of the 
project).
    (v) The tasks and milestones must be clearly described and must 
include a schedule of reports to be submitted to HCFA (Progress and 
Financial Reports as required by 45 CFR parts 74 and 92).
    (vi) The application must contain information specifying the 
availability of the data to be used, if data are to be collected. The 
discussion must describe the nature of the data sought, the sample 
design and size controls, comparisons of any data, and the problems 
that might be encountered in collection. Data that are collected under 
a HCFA cooperative agreement or grant must be available to HCFA or its 
agents. The applicant, however, must ensure the confidentiality of any 
personally identifiable information collected under the auspices of any 
HCFA cooperative agreement or grant. The application must contain 
detailed plans to protect the confidentiality of all information that 
identifies individuals under the project. The plan must specify that 
this information is confidential, that it may not be disclosed directly 
or indirectly except for purposes directly connected with the conduct 
of the project, and that in all cases where disclosure takes place for 
any purpose not directly connected with the conduct of the project, the 
informed written consent of the individual must be obtained.
    (vii) Projects that require waivers (for example those under 
section 1115(a) of the Act, section 222(a) of Public Law 92-603, as 
amended, and section 402(b) of Public Law 90-248, as amended) must 
define the services, list the waivers, discuss the implications if 
these waivers are granted, and state the effect on Federal, State, and 
local laws as well as the effect (beneficial or adverse) on individuals 
enrolled in the project. If the project involves both Medicare and 
Medicaid waivers, a request for Medicaid waivers from the State agency 
administering the Medicaid program must be included with the 
application. Applicants should contact HCFA for further information if 
questions arise in these cases.
    b. Knowledge/experience/capability in area. (20 points) The 
application describes the applicant's prior experience in the area or 
in related areas. The principal investigator and other key staff are 
qualified and possess the experience in this or related areas and the 
variety of skills required to produce final results that are readily 
comprehensible and usable. The application should provide evidence of 
understanding and knowledge of prior and ongoing work in the area. 
Specific information also must be provided concerning how the personnel 
are to be organized in the project, to whom they will report, and how 
they will be used to accomplish specific objectives or portions of the 
project.
    c. Level of effort. (20 points) The resources that will be needed 
to conduct the project are specified, including personnel, time, 
budget, and facilities. The staffing pattern clearly links 
responsibilities/levels of efforts to project tasks. The project's 
costs are reasonable in view of the anticipated results. Any 
collaborative effort (including subcontracts) with other organizations 
is clearly identified and written assurances included. A description by 
category (personnel, travel, consultants, and so forth) of the total of 
the Federal funds required is included. Funds are specified for each 
budget period. Specifically, the application should contain the 
following:
    (i) Information specifying the availability of adequate facilities 
and equipment for the project or clearly state how these are to be 
obtained.
    (ii) The budget must be developed in detail with justifications and 
explanations for the amount requested. The estimated costs must be 
reasonable considering the anticipated results.
    (iii) Applicants are expected to contribute towards the project 
costs. Generally 5 percent of the total costs is considered acceptable. 
No demonstration project will be awarded that covers 100 percent of the 
project's costs. The budget may not include costs for construction or 
remodeling or for project activities that take place before the 
applicant has received official notification of our approval of the 
project.
    (iv) For demonstration projects involving waivers, budget estimates 
for administrative and service costs must be prepared in accordance 
with the prescribed methodology. Such applications also must contain 
estimates, prepared in accordance with the prescribed methodology in 
this announcement, of the amount of program and administrative 
expenditures that will occur under the waivers and a comparison of 
these expenditures to those that are projected to occur in the program 
in the absence of the waivers.
    (v) Each application must include a statement that, if the project 
is awarded, the awardee will furnish quarterly reports of expenditures 
for administrative and program costs (and, for demonstration projects 
involving waivers, for service costs) for the project within the 
approved budget in the format to be specified under special terms and 
conditions in the cooperative agreement or grant.
    d. Project objectives and expected outcomes. (20 points) How 
closely do the project objectives fit those of the solicitation? What 
is the intrinsic merit of the research/study? The need for the project 
is discussed in terms of the importance of the issues to be addressed 
and the particular project proposed, as well as how the proposed 
project builds on and expands previous work in the area. The 
application should discuss plans for utilization of the project's 
results, for the potential usefulness of the anticipated results, and 
expected benefits to HCFA and other target groups.

VI. Other Considerations

A. Selection Criteria for Funding New Projects

    Although the recommendations of the technical review panels are a 
major factor in making the decision about an application, scores and 
recommendations are not the only factors. The compatibility of 
applications to our priorities as judged by HCFA Senior Staff, the 
availability of HCFA resources, and the comments of other HCFA and 
Department staff are considered in making funding decisions.

B. Other Requirements

    1. This program is not covered by Executive Order 12372, 
``Intergovernmental Review of Federal Programs.''
    2. Applications approved by us for funding will contain a specific 
set of special terms and conditions that are applicable upon the 
applicant's acceptance of the award.
    These include the following:
    a. The HCFA project officer will be notified before formal 
presentation of any report or statistical or analytical material based 
on information obtained through this cooperative agreement. Formal 
presentation includes papers, articles, professional publications, 
speeches and testimony. In the course of this research, whenever the 
principal investigator determines that a significant new finding has 
been developed, he or she will immediately communicate it to the HCFA 
project officer before formal dissemination to the general public. As 
required by section 511 of the Departments of Labor, Health and Human 
Services, and Education and Related Agencies Appropriations Act of 1990 
(Pub. L. 101-166), the awardee, whenever issuing statements, press 
releases, requests for proposals, bid solicitations, and other 
documents (including reports and published articles) concerning this 
project or findings and results from this project, must clearly state 
(1) the percentage of the total cost of the project financed with 
Federal money, (2) the dollar amount of Federal funds for the project, 
and (3) the percentage and dollar amount of the total costs of the 
project financed by nongovernmental sources. The final report may not 
be released or published without permission from the HCFA project 
officer within the first 4 months following receipt of the report by 
the HCFA project officer. The final report will contain a disclaimer 
that the opinions expressed are those of the awardee and do not 
necessarily reflect the opinions of HCFA.
    b. At any phase of the project, including the project's conclusion, 
the awardee, if requested by us, must submit the analytic data file(s) 
with appropriate documentation, representing the data developed/used in 
end product analyses generated under the award. The analytic file(s) 
may include primary data collected, acquired, or generated under the 
award and/or data furnished by us. The content, format, documentation, 
and schedule for production of the data will be agreed upon by the 
principal investigator and the HCFA project officer. The negotiated 
format(s) could include both file(s) that would be limited to HCFA 
internal use and file(s) that HCFA could make available to the general 
public.
    c. At any phase of the project, including at the project's 
conclusion, the awardee, if so requested by us, must deliver to us any 
materials, systems, or other items developed, refined, or enhanced in 
the course of the project or under the award. The awardee agrees that 
HCFA will have royalty-free, nonexclusive, and irrevocable rights to 
reproduce, publish, or otherwise use and to authorize others to use the 
items for Federal Government purposes.
    d. Any additional specific project requirements.
    3. When a project is completed, the awardee must submit a final 
report. As a minimum, the report must contain the following:
    a. Identification of the project director, principal investigator, 
cooperative agreement or grant number, awardee, and title of the 
project.
    b. Acknowledgment of the support received from us and a disclaimer 
to the effect that the findings do not necessarily reflect the opinions 
or policies of HCFA.
    c. An executive summary (one or two pages) that provides an 
overview of the project and highlights significant findings.
    d. A description of the initial hypotheses, objectives, and scope 
of the project.
    e. An explanation of the study methodology.
    f. A discussion of significant findings and demonstration or 
research results (and the implications of these results, if any). In 
the final report, and on a semiannual basis during the course of the 
project, the awardee must provide a list and copies of all papers 
presented and of all articles, reports, and other types of publications 
that result from the project, for inclusion in a subject bibliography 
system maintained by ORD, HCFA. It is further requested that the 
awardee continue to provide the updated information for 2 years after 
the project's completion. The ORD ``Author's Guidelines for Cooperative 
Agreements, Grants and Contracts'' should be used in preparing the 
final report. This document is available on request from the ORD 
Publications Coordinator, room 1-C-9 Oak Meadows Building, 6325 
Security Boulevard, Baltimore, Maryland 21207-5187, (410) 966-6885.

C. Multiple Applications

    The applicant must indicate when the same or a similar application 
is submitted to another HHS agency, for example, the Social Security 
Administration or one of the Public Health Service programs.

D. Cooperative Agreement and Grant Policies

    Projects are funded through a competitive process and chosen from 
among the applications submitted in response to this announcement. In 
the case of demonstration projects, all awardees are expected to share 
directly in the costs of the project. Normally, this sharing must be at 
least 5 percent of the total project costs. For section 1115(a) of the 
Act projects, the amount that the single State agency will be expected 
to provide generally must be at least 5 percent of the special Federal 
project funds.
    If, following review of a proposed activity, we determine that a 
research or demonstration project presents a danger to the physical or 
mental well-being of a participant of the project, Federal funds will 
not be made available for that project without the written informed 
consent of each participant. Other policies, including 
responsibilities, awarding and payment procedures, special provisions, 
and assurances, may be found in 45 CFR parts 74 and 92.
    It is a national policy to place a fair share of purchases with 
small, minority-owned, and woman-owned business firms. HHS is strongly 
committed to the objectives of this policy and encourages all 
recipients of its cooperative agreements and grants to take affirmative 
steps to ensure such fairness; in particular, recipients should (1) 
place small, minority-owned, and woman-owned business firms on bidders' 
mailing lists, (2) solicit these firms whenever they are potential 
sources of supplies, equipment, construction, or services, (3) where 
feasible, divide total requirements into smaller needs and set delivery 
schedules that will encourage participation by these firms, and (4) use 
the assistance of the Minority Business Development Agency of the 
Department of Commerce, the Office of Small and Disadvantaged Business 
Utilization, HHS, and similar available State and local government 
agencies.

VII. Review of Applications

    An independent review will be conducted by a panel of not less than 
three experts. The panel will include experts from both HHS and the 
private sector. There will be at least one independent review panel for 
each priority area. An ORD chairperson will coordinate the panel's 
review but will not vote. The chairperson will also prepare the 
panelists' recommendations (summary statement) to the Director, ORD. 
The panelists' recommendations will contain numerical ratings (based on 
the specified rating criteria), ranking of all applications, and a 
written assessment of each application. These will be summarized in a 
ranking and approval list and in a matrix that will be prepared for 
each application. When the panelists determine that an application is 
unrelated to the announced funding priorities, numerical ratings will 
generally not be assigned to the application, and the application will 
generally not be considered for funding. Applicants may request in 
writing a copy of the summary statement of the review of their 
application after they have received from HCFA the letter announcing 
approval or disapproval. Summary statements will be made available 
subject to the applicable limitations of the Freedom of Information Act 
(5 U.S.C. 552), the Federal Advisory Committee Act (5 U.S.C. App. 2), 
the Privacy Act (5 U.S.C. 552a), and 45 CFR parts 5, 5b, and 11.

VIII. Closing Date and Time

    In order to be considered under this announcement, for the annual 
funding cycles for FYs 1994, 1995, and 1996, a cooperative agreement 
and grant application, as described in sections I and III of this 
notice, must be submitted to HCFA by March 24, 1994, by February 7, 
1995, or by February 6, 1996, respectively. Submissions by facsimile 
(FAX) transmission will not be accepted. Applications mailed through 
the U.S. Postal Service or a commercial delivery service will be ``on 
time'' if they are received on or before the closing date, or sent on 
or before the closing date and received in time for submission to the 
independent review group. Applicants are cautioned to request a legible 
U.S. Postal Service postmark or to obtain a legibly dated receipt from 
the commercial carrier or the U.S. Postal Service. Privately metered 
postmarks will not be acceptable as proof of timely mailing. 
Applications that do not meet the above criteria will be considered 
late applications. Those submitting late applications will be notified 
that the applications were not considered in the current competition.

    Authority: Sections 1110, 1115(a), 1875, 1881(c)(7) and 1881(f) 
of the Social Security Act (42 U.S.C. 1310, 1315(a) 1395ll, 
1395rr(c)(7) and 1395rr(f)); section 402 of the Social Security 
Amendments of 1967, as amended (42 U.S.C. 1395b-1); section 222(a) 
of the Social Security Amendments of 1972, as amended (42 U.S.C. 
1395-1 (note)).

(Catalog of Federal Domestic Assistance Program No. 93.779, Health 
Financing Research, Demonstrations and Experiments).

    Editorial Note: This document was received by the Office of the 
Federal Register on January 13, 1994.

    Dated: July 20, 1993.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
[FR Doc. 94-851 Filed 1-12-94; 8:45 am]
BILLING CODE 4120-01-P