Medicare: Increased HMO Oversight Could Improve Quality and Access to
Care (Letter Report, 08/03/95, GAO/HEHS-95-155).

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-95-155
     TITLE:  Medicare: Increased HMO Oversight Could Improve Quality and 
             Access to Care
      DATE:  08/03/95
   SUBJECT:  Health maintenance organizations
             Medicare programs
             Contract monitoring
             Noncompliance
             Risk management
             Health care services
             Internal controls
             Quality assurance
             Beneficiaries
             Appellate procedure
IDENTIFIER:  Florida
             California
             Illinois
             
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Cover
================================================================ COVER


Report to the Special Committee on Aging, U.S.  Senate

August 1995

MEDICARE - INCREASED HMO OVERSIGHT
COULD IMPROVE QUALITY AND ACCESS
TO CARE

GAO/HEHS-95-155

Federal Oversight of Medicare HMOs

(101315)


Abbreviations
=============================================================== ABBREV

  CAP - corrective action plan
  HCFA - Health Care Financing Administration
  HEDIS - Health Plan Employer Data and Information Set
  HHS - Department of Health and Human Services
  HMO - health maintenance organization
  NCQA - National Committee for Quality Assurance
  NDG - Network Design Group
  PRO - peer review organization
  QA - quality assurance
  SSA - Social Security Administration
  UM - utilization management

Letter
=============================================================== LETTER


B-259299

August 3, 1995

The Honorable David H.  Pryor
Ranking Minority Member
The Honorable William S.  Cohen
Chairman
Special Committee on Aging
United States Senate

The Congress is considering ways to attract Medicare beneficiaries to
health maintenance organizations (HMO) and other forms of managed
care in hopes of containing cost growth while preserving or improving
quality and access to care.  HMOs are currently the only widely
available form of managed care in Medicare, and about 7 percent of
beneficiaries have joined prepaid, "risk contract" HMOs.\1

In contrast, HMOs enroll 25 percent of the employed population. 
Recent growth of HMO enrollment in both Medicare and employed
populations has been rapid.  The number of Medicare HMO risk
contracts increased 70 percent, to 154, in the 2 years preceding
January 1995. 

HMOs offer the potential to coordinate all the services needed to
treat a patient while controlling for overuse of costly services. 
The incentive for HMOs to control utilization comes from the payment
method in which HMOs are paid a fixed amount per beneficiary for
providing health care services.  HMOs bear the financial risk for
ensuring that their costs do not exceed their fixed payments. 

This report responds to your request that we review federal oversight
of HMOs that enroll Medicare beneficiaries.  Specifically, this
letter responds to your interest in (1) the Health Care Financing
Administration's (HCFA) monitoring of HMOs' compliance with federal
quality assurance standards, (2) HCFA's enforcement actions against
HMOs that do not meet federal standards, (3) the effectiveness of the
process available to beneficiaries to appeal an HMO's decision to
deny care, and (4) approaches the private sector is taking to assure
HMO beneficiaries of quality care.  HCFA is delegated this oversight
responsibility by the Secretary of Health and Human Services. 

To do our work, we reviewed federal HMO oversight standards,
practices, and compliance issues with HCFA officials at headquarters
and three regional offices.  We also reviewed three enforcement cases
that were in process as of June 1994.  In addition, we met with
representatives of the National Committee for Quality Assurance; the
Group Health Association of America; and the consumer advocacy group,
Center for Health Care Rights.  (See app.  II for details on our
scope and methodology.)


--------------------
\1 Our use of the term "Medicare HMOs" in this report includes both
HMOs and Competitive Medical Plans holding Medicare risk contracts
for prepaid care.  Competitive Medical Plans are subject to
regulatory requirements similar to those for HMOs, but they have more
flexibility in how they set premiums and services for commercial
members. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Although HCFA has instituted several promising improvements, its
process for monitoring and enforcing Medicare HMO performance
standards continues to suffer from three significant limitations: 

  Quality assurance reviews are not comprehensive.  Even HMOs with
     many serious documented quality problems were not found to be
     out of compliance with requirements by HCFA's routine
     monitoring.  HCFA routinely only reviews the HMO's description
     of its quality assurance processes--it does not check to see
     whether HMOs implement these processes effectively.  HCFA also
     does not adequately assess the financial risk arrangements that
     HMOs have with providers, although these arrangements can create
     incentives to underserve beneficiaries. 

  Enforcement actions are weak.  When HCFA has documented problems in
     HMOs that have been slow to correct deficiencies, it has been
     reluctant to use sanctions and other enforcement tools at its
     disposal.  Under HCFA's enforcement approach, serious
     improprieties by a few Medicare HMOs--subjecting beneficiaries
     to abusive sales practices, unduly delaying their appeals, or
     exhibiting patterns of poor quality care--have taken years to
     resolve. 

  Appeal process is slow.  Beneficiaries who appeal HMO denials often
     wait 6 months or more for resolution.  The consequences for
     beneficiaries can be prolonged uncertainty, high out-of-pocket
     costs, and having to disenroll from an HMO to obtain services. 

Increasingly, sponsors of employee health plans are requiring that
HMOs undergo accreditation reviews to obtain contracts with their
plans.  Moreover, the leading HMO accreditation agency publicizes
results of its reviews.  Some large employers also require
information about the care provided to gauge an HMO's overall
performance when making contract decisions.  HCFA's current
regulatory approach to ensuring good HMO performance lags behind
these latest private sector practices. 


   BACKGROUND
------------------------------------------------------------ Letter :2

HMOs are expected to provide all covered services to members in
return for fixed premiums.  HMOs may have their own staff of
physicians and other providers to deliver care, or they may contract
with individual providers or medical groups to deliver services. 
From the Medicare beneficiaries' perspective, HMOs may offer a more
comprehensive package of services than fee-for-service Medicare and
at a lower cost than beneficiaries might incur if they purchased such
coverage through supplementary insurance. 

HMOs were designed to offer preventive health services inexpensively
and to constrain the provision of expensive services, primarily
through the use of a reimbursement method known as capitation.  Under
capitation, Medicare pays HMOs a fixed amount per month for each
beneficiary.  This method typically places HMOs at risk for health
costs, thereby giving them a financial incentive to control the use
of services, emphasize preventative care, and avoid unnecessary care. 
Some HMOs, in turn, transfer a portion of their financial risk to
care providers, such as physicians or physician groups. 


      FEDERAL GOVERNMENT SETS
      INITIAL STANDARDS FOR HMO
      INDUSTRY
---------------------------------------------------------- Letter :2.1

To encourage commercial and Medicare use of HMOs, in the early 1970s,
the Congress authorized federal standards and oversight to ensure
reasonable care and service.\2 For example, initial legislation
authorizing a Medicare HMO program required quality of care standards
at least equal to those prevailing in the HMO's service area.  In
addition, HMOs had to have sufficient operating experience and
enrollment to permit evaluation of their capacity to provide
appropriate care, and to sustain financial losses if the Medicare
payment did not cover costs. 

Federal standards were strengthened as the government gained
experience with HMOs.  Currently, performance standards for HMOs
serving Medicare beneficiaries are designed to safeguard beneficiary
interests by ensuring the following: 

  Plans have adequate finances and management.  HMOs must meet
     financial solvency requirements, have minimum enrollments
     necessary to assume the financial risks, and provide adequate
     administration and management. 

  Plans manage quality, utilization, and access to medical care. 
     Plans must operate internal quality assurance systems to detect
     and correct patterns of underservice and poor quality care,
     provide reasonable access to specialists and services, and not
     transfer excessive financial risk to providers. 

  Plans treat enrollees fairly.  HMOs must use fair marketing
     practices that do not mislead or confuse enrollees, must provide
     necessary and covered services, and must follow equitable
     grievance and appeal procedures. 

Before an HMO may participate in Medicare, HCFA conducts a review to
determine if the HMO meets federal requirements.  During this
"certification" review, HCFA looks at several indicators of the HMO's
ability to provide services to Medicare beneficiaries.  These
indicators include documentation of financial condition, marketing
projections, qualifications of management staff, and management
information systems.  After awarding a Medicare contract to an HMO,
HCFA monitors its performance for continued compliance with federal
requirements.  HCFA also contracts with peer review organizations
(PRO)--independent, state-based organizations that use local doctors
and nurses--to assess quality of care provided to beneficiaries. 

HCFA has a variety of tools available to enforce compliance with
standards.  These include authority to sanction an HMO by terminating
or not renewing its contract, stopping enrollment, or imposing
monetary penalties.  Additionally, HCFA has numerous administrative
means to encourage compliance, such as withholding an HMO's request
for expanding service areas. 


--------------------
\2 Title 18 of the Social Security Act and title 13 of the Public
Health Service Act impose requirements HMOs must meet in order to
enter into contracts with Medicare and provide services to
beneficiaries. 


      PRIVATE SECTOR BUILDING ON
      FEDERAL STANDARDS
---------------------------------------------------------- Letter :2.2

HMO care has become widespread in the private sector.  In seeking
ways to ensure quality and value in HMO care, large employers and the
HMO industry are demanding HMO accountability beyond existing federal
protections.  Some large employers, for example, are requiring that
HMOs undergo quality accreditation reviews conducted by the National
Committee for Quality Assurance (NCQA).  NCQA is a private agency
that works with large employers to set and enforce HMO quality
standards.  Its standards focus primarily on quality assurance in
HMOs' management of medical operations, and its review and
enforcement methods differ from HCFA's.  In addition, a group of
large employers and HMOs are working with NCQA to develop standard
performance measures for HMOs that would enable employers and
consumers to compare HMOs and make informed choices. 


   DIFFICULTIES IN FEDERAL
   OVERSIGHT ILLUSTRATED BY
   FLORIDA CASE STUDY
------------------------------------------------------------ Letter :3

Recent enforcement cases show that HCFA processes remain slow at
addressing problems in HMOs that do not readily comply with federal
standards.  PRO sampling of care in Florida during 1991 raised
concerns with the quality of care at one HMO.  The HMO questioned
these findings, leading to a special PRO review and to the events
discussed below. 

In 1992 and 1993 the PRO found serious quality problems in most of
the risk contract HMOs in the Florida Medicare market, which has
about 17 percent of all Medicare HMO enrollees.  PRO review of
hospitalized patients at one HMO, for example, raised serious issues
about quality in 25 percent of the 109 cases sampled.  After
reviewing PRO findings, an internal HCFA task force suggested special
investigations of quality assurance and utilization management
practices at all Florida Medicare risk HMOs.  PRO sampling of care in
Florida Medicare HMOs, for example, found patterns of quality
problems, including incorrect diagnoses, inappropriate assessment of
test results, inappropriate treatment plans, underutilization, access
concerns, delays in treatment, and treatment that was not competent
or timely.  Specific cases included the following: 

  Delay in treatment.  A beneficiary suffered recurrent urinary tract
     infections, tested positive for protein and blood in the urine,
     and had test results that suggested the presence of prostate
     cancer.  Several months passed before the HMO referred him to a
     urologist and before the urologist performed further tests.  The
     patient ended up in a hospital emergency room, and was treated
     for undiagnosed bladder cancer that had perforated the large
     intestine. 

  Treatment not competent or timely.  A beneficiary was treated with
     a blood-thinning drug that requires careful monitoring to avoid
     excessive bleeding.  As a result of inadequate monitoring, the
     patient was admitted to a hospital with internal bleeding, which
     was found to be due to an excess of the blood-thinning drug. 

  Denial of access.  In a 24-hour period, a beneficiary with signs
     and symptoms of both pneumonia and a heart attack twice sought
     and was denied admission to a hospital.  The HMO primary care
     physician concurred with both denials of admission.  After the
     second attempt, the patient died on the way to his primary care
     physician. 

HCFA's oversight of one of the Florida risk HMOs illustrates the
pattern that has emerged between HCFA and HMOs that do not take
prompt actions to correct performance problems.  This HMO won a HCFA
demonstration contract in 1982.\3 After a series of financial
problems and other compliance violations, the HMO was declared
insolvent in 1987, and another HMO acquired its assets. 

The new HMO operates in four Florida markets under a single contract
with HCFA.  The HCFA enforcement activity documented in the following
paragraphs relates to the South Florida market, but enrollment and
payment statistics in table 1 relate to all four markets.  HCFA data
systems track the HMO's contract as though it were a single-market
HMO--the normal contracting arrangement for Medicare. 

Since 1987, HCFA repeatedly found that the HMO's South Florida
operations did not meet federal standards for quality assurance. 
During this period, HCFA undertook special studies and received PRO
reports that indicated continuing problems with quality of care. 
Nevertheless, it allowed the HMO to continue enrolling beneficiaries
and operating as freely as a fully compliant HMO, until HCFA's 1994
investigation of quality assurance practices led to voluntary
enrollment restrictions at selected medical centers.  From 1988 to
1994, the HMO maintained and increased its revenues from Medicare by
enrolling over 336,500 beneficiaries to replace the over 269,000 who
disenrolled.  The HMO had Medicare revenues in 1994 that exceeded $1
billion and constituted 72 percent of its total revenues. 

HCFA recently determined that the South Florida HMO has been
responsive to its 1994 findings and in January 1995 approved the
HMO's corrective action plan.  HCFA has since visited the HMO's
offices and declared the HMO in compliance with requirements,
effective July 5, 1995.  (Table 1 presents the history of HCFA's
oversight and enforcement related to the HMO's quality assurance
practices, including PRO reviews of quality of care.)



                                         Table 1
                         
                         An Example of an Ineffective Compliance
                                          Effort

                                                                New              Medicare
Time                                                       enrollme  Disenrollm  payments
fram                                                          nt in      ent in  (million
e     Activity                                                 year        year        s)
----  ---------------------------------------------------  --------  ----------  --------

 1987  HCFA notifies Florida-based HMO of intent to
       terminate contract because of quality assurance
 May   deficiency.
       Inspector General asks PRO to review the HMO's
       care.

 Jun   PRO finds the HMO's care below professional
 e     standards.
       State declares the HMO insolvent, and another HMO
       buys its assets.
       PRO to review quality assurance (QA).
                                                             39,194      28,151    $398.9
 1988  HCFA finds that the new HMO generally met QA
 Jun   requirements, while PRO decides more intense
 e     review is needed.
                                                             43,616      28,292     503.8
 1989  HCFA finds HMO's QA and utilization management
 Apr   (UM) deficient--lacks systematic data. Corrective
 .     action plan (CAP) required.
                                                             68,744      31,055     609.8
 1990  HCFA finds HMO's QA and UM deficient, requires
 Nov   CAP.
 .
                                                             54,033      32,862     780.4
 1991  PRO concern with quality warrants intensified
 Aug   review.
 .
       HCFA certifies that QA, UM requirements met, but
 Oct   requests intensified reporting.
 .
                                                             43,535      38,180     884.4
 1992  HCFA announces special PRO review to verify HMO's
 Jan   QA improvements since earlier findings.
 .
                                                             41,405      40,086   1,005.6
 1993  PRO study shows quality problems in 27 of 109
 Jan   hospitalization cases and in 22 of 30 complaints.
 .
       HCFA elects to study PRO data further.

 Feb   PRO data show quality problems at most Florida
 .     Medicare HMOs.
       Routine HCFA visit to the HMO finds no QA
 Jun   problems.
 e
                                                             46,029      37,602   1,062.5
 1994  PRO reports HMO has not taken corrective actions
 Jan   on PRO quality problems raised since 1992.
 .
       NCQA denies the HMO's South Florida market
       accreditation.
 Jun   HCFA announces investigation of the HMO's South
 e     Florida operations and plans investigations of
       other Florida HMOs.

       HCFA finds HMO's QA and UM deficient. HMO has
 Sep   modifications in process.
 t.

 1995  HCFA accepts HMO's CAP addressing QA and UM
 Jan   weaknesses noted in 9/94 investigation. PRO
 .     reports HMO's 1994 incidence of confirmed quality
       problems is lower than average for Florida
       Medicare HMOs.

       HCFA conducts follow-up visit to review HMO's
 May   progress in implementing CAP.

       HCFA finds HMO in compliance with federal
 Jul   requirements on the basis of evidence of
 y     corrections from January and May 1995 site visits.
-----------------------------------------------------------------------------------------
Source:  HCFA. 

Slow enforcement by HCFA was not unique to quality problems, or to
the Florida market.  Two other enforcement cases we reviewed to test
HCFA's processes were in California and Illinois and included

  marketing abuses, including high-pressure, illegal practices
     resulting in high levels of complaints and disenrollments from
     misinformed beneficiaries (see p.  12);

  nonpayment or slow payment of claims for beneficiaries' out-of-plan
     services, which can result in out-of-pocket expenses or bill
     collection actions against the beneficiaries; and

  not following prescribed appeal processes, resulting in some
     Medicare beneficiaries not receiving the services they are
     entitled to under the HMOs' Medicare contracts (see p.  13). 


--------------------
\3 In 1982 and 1983, HCFA awarded contracts under its demonstration
authority to 26 organizations to develop Medicare HMOs.  Such
demonstration projects became operational in 21 cities across the
country. 


   LIMITED OVERSIGHT OF MEDICARE
   HMO QUALITY ASSURANCE
------------------------------------------------------------ Letter :4

HCFA's monitoring and certification process has not been adequate to
ensure that Medicare HMOs comply with standards for ensuring quality
care.  This has been confirmed by HCFA, PRO, and NCQA findings
showing a mismatch between what HMOs are supposed to do and what they
actually do to manage and ensure quality of care.  NCQA recently
found many HMOs out of compliance with its standards.\4 Of the 15
Florida Medicare plans NCQA had reviewed as of December 1994, only 1
received full accreditation, 8 received less than full accreditation,
and 6 were denied accreditation. 

HCFA efforts to ensure that Medicare beneficiaries receive quality
care from HMOs continues to be inadequate for three reasons. 
Specifically, HCFA

  conducts limited quality assurance reviews,

  does not routinely collect utilization data that could most
     directly indicate potential quality problems, and

  does not assess HMO risk-sharing arrangements with providers that
     can trigger quality problems. 


--------------------
\4 Of plans reviewed nationally, 33 percent of HMOs requesting NCQA
review received full accreditation, 53 percent received less than
full accreditation, and about 13 percent were denied accreditation. 
These figures include a portion of Medicare HMOs.  By the end of
1995, NCQA will have reviewed 80 Medicare HMOs accounting for
two-thirds of Medicare HMO enrollment. 


      LIMITED QUALITY ASSURANCE
      REVIEWS
---------------------------------------------------------- Letter :4.1

HCFA's routine compliance monitoring reviews do not go far enough to
verify that HMOs monitor and control quality of care as federal
standards require.  The reviews check only that an HMO has procedures
and staff capable of quality assurance and utilization
management--they do not check for effective operation of these
processes.  While HCFA has PROs under contract to review the medical
care provided to HMO enrollees, HCFA does not link its contract
compliance monitoring with PROs' monitoring, nor does it draw on PRO
staff expertise that could help verify whether HMOs' quality
assurance programs actually work.  This explains why PROs were able
to identify patterns of quality of care problems--as they did in
1988, 1991, and 1993 at the South Florida HMO--at the same time HCFA
contract monitors cited no problems with the HMO's compliance with
quality standards. 

HCFA's routine review and certification of an HMO's quality assurance
program is completed without the participation of trained clinical
staff and without systematic consideration of PRO findings.  A
routine HCFA review visit at an HMO generally involves about three
people, without specialized clinical or quality assurance training,
who spend a week or less focused largely on Medicare requirements for
administration, management, and beneficiary services rather than on
medical quality assurance.  About a third of staff time is typically
spent on quality-related matters.  Monitoring officials of HCFA
headquarters and in regions expressed the need for added trained
staff to properly assess HMOs' quality assurance systems. 

In contrast with HCFA's approach, NCQA reviews last about a week, but
focus primarily on quality assurance.  The NCQA review team typically
consists of three people, including two physicians and another
clinician or administrator experienced in HMO operations.  In
addition to reviewing an HMO's quality assurance program design, NCQA
reviewers also test it by reviewing records and interviewing
providers, to assess whether the system is functioning as designed. 

Since 1994, HCFA has been studying ways to improve both quality
standards for HMOs and its methods for reviewing quality assurance. 
Through these efforts, HCFA is seeking to improve its current HMO
certification process and to assess ways to coordinate with other
organizations that oversee HMOs.  Three other internal HCFA studies
of its quality assurance certification practices were done over the
past 2 years. 


      LITTLE INFORMATION ON HMOS'
      SERVICES CURRENTLY AVAILABLE
      TO ENROLLEES
---------------------------------------------------------- Letter :4.2

Another factor limiting the effectiveness of HCFA's monitoring of
quality of care in HMOs has been the lack of data on beneficiaries'
utilization of services.  In the fee-for-service sector, claims data
are available and can be used to detect potential overutilization of
services.  No comparable data exist in the Medicare HMO program to
detect potential underutilization.  As a result, even such basic
information as hospitalization rates; the use of home health care; or
the number of people receiving preventive services, such as
mammograms, is unknown. 

Federal standards require that HMOs have information systems to
report utilization data and management systems to monitor utilization
of services.  Yet HMOs often lack these data, and HCFA has not
required that such data be standardized or that the data be submitted
to HCFA and to the PROs.  HCFA has broad legal authority to require
that HMOs regularly report a wide variety of statistical information
to the federal government.  This includes specific authority to
require data on patterns of utilization of medical services in HMOs,
and the availability and acceptability of those services. 

In contrast with HCFA, the private sector has, over the past few
years, moved to develop information and data standards that could
enable purchasers and consumers to compare different HMOs.  To enable
such assessment of health plans' cost effectiveness and performance,
a group of large employers and HMOs working with NCQA are developing
the Health Plan Employer Data and Information Set (HEDIS).  These
data constitute a set of performance measures to evaluate plans'
quality of care, access to care, member satisfaction, utilization of
services, and financial stability.  Some employers already require
their plans to submit HEDIS-based information. 

HCFA has now picked up on the private sector's approach and has begun
developing HEDIS-type HMO performance measures geared to services
provided to elderly Medicare beneficiaries.  A test of an initial set
of measures covers the preventive services of flu immunization and
mammography screening and will document the care of beneficiaries
with diabetes.  HCFA recently began testing the measures in 5 states
and 23 HMOs. 


      LITTLE ATTENTION PAID TO
      RISK-SHARING ARRANGEMENTS
---------------------------------------------------------- Letter :4.3

HCFA's HMO quality assurance monitoring processes also do not
adequately address risk-sharing arrangements between HMOs and their
providers.  The agency does not routinely assess whether HMO
risk-sharing arrangements create a significant incentive to
underserve, although the Congress gave the Department of Health and
Human Services (HHS) authority, beginning April 1, 1991, to limit
arrangements that it found provided excessive incentive to
underserve.  As of April 1995, HHS was still developing regulations
and had not developed methods for gauging how much risk an HMO can
legitimately pass to providers, or requirements that providers must
meet to accept such risk. 

One HMO that a PRO identified as having an unusually high number of
quality of care problems has been a concern to HCFA reviewers for
several years because of its financial risk arrangements with
providers.  Under its risk-sharing arrangement, the HMO takes about
23 percent of its capitated payment for ambulatory services to
administer the program and uses the remaining 77 percent to make
capitated payments to providers.  Over the years, several providers
have lost money on care they provided to the HMO's patients. 

These providers--often individual physicians or small physician
groups--are financially responsible to provide the HMO's enrollees
all of their needed ambulatory services.  Under such arrangements,
every time a patient uses a primary care physician or specialist, or
obtains diagnostic tests, the money comes out of the capitated
payments the HMO makes to the provider responsible for delivering and
managing the care.  This could give providers financial incentives to
withhold services, particularly if they are losing money on the HMO's
patients. 


   HCFA RELUCTANT TO FULLY UTILIZE
   ENFORCEMENT AUTHORITY
------------------------------------------------------------ Letter :5

In 1988 and again in 1991 we reported that HCFA was not using its
enforcement authority effectively to obtain corrective action from
those HMOs that were slow in correcting problems.\5 As highlighted
earlier, the cases we reviewed for this report illustrate this
problem. 

The Congress granted HCFA authority to impose sanctions or monetary
penalties on HMOs that fail to meet federal standards.  HCFA's
sanction authorities include stopping enrollment, stopping payment
for new Medicare enrollees, imposing monetary penalties, and revoking
Medicare contracts.  HCFA can impose these sanctions or penalties for
such actions as abusive marketing or underserving beneficiaries. 
Although the Congress first gave HCFA sanction authority in 1986, it
was not until 1994 that HCFA issued regulations implementing this
authority. 

Pursuing sanctions against noncompliant HMOs can be an
administratively cumbersome and staff-intensive process, according to
HCFA officials.  HCFA's enforcement approach is to seek to document
the causes of an HMO's problems and to attempt to get the HMO to
correct problems, without resorting to sanctions. 

Under this approach, after HCFA staff show that an HMO is not meeting
federal standards, the HMO then has an opportunity to address
deficiencies by developing a corrective action plan.  If the HMO does
not implement the corrective action or the action is inadequate, then
HCFA staff investigate the HMO's operations to further document the
problems.  An investigation could result in HCFA finding
noncompliance and requesting a new corrective action plan.  The
process can then repeat itself. 

The outcome of this approach is that an HMO, without sanction, can
take years before correcting identified deficiencies.  We question
whether this serves the best interests of Medicare or HMO
beneficiaries.  Two cases illustrate this: 

  An Illinois HMO enrolled 29,600 people during a period of marketing
     abuses.  In 1991, while the HMO was under investigation
     nationally for Medicare HMO marketing abuses, it purchased an
     Illinois HMO with a Medicare contract.  By early 1992, HCFA
     noted that one-third of new enrollees in the plan disenrolled
     within 3 months.  Moreover, HCFA began receiving beneficiary
     complaints about salespersons' misrepresentations and
     high-pressure tactics.  HCFA's March 1994 review of the HMO's
     marketing cited numerous instances of deceptive and
     high-pressure sales tactics, including misrepresentation.  HCFA
     also found instances of prohibited payments or gifts to induce
     people to enroll.  In April 1994, the HMO submitted a corrective
     action plan addressing its marketing tactics and supervision of
     commissioned sales agents.  In August 1994, HCFA and the HMO
     agreed on milestones for lowering the HMO's disenrollment rates. 
     HCFA is monitoring the HMO's progress toward lowering its
     disenrollment and complaint rates.  (See table I.1.)

  A California HMO tripled Medicare membership during a period when
     provider claims were not promptly paid and beneficiaries did not
     receive their appeal rights.  HCFA's 1992 monitoring report
     noted the HMO's late payment of claims from providers and
     failure to process beneficiary appeals in a timely manner.  The
     HMO submitted a corrective action plan to HCFA and for the next
     2 years reported progress in achieving compliance.  In 1994,
     however, HCFA found that the problems persisted.  HCFA concluded
     that the HMO lacked sufficient staff and systems to organize,
     plan, control, and evaluate the administrative and management
     aspects of its Medicare operations.  For example, HCFA found
     that the HMO failed to pay in a timely manner over 64 percent of
     the claims in a sample HCFA reviewed.  In over 62 percent of a
     sample of appeals cases, HCFA found that the HMO failed to
     forward beneficiaries' appeals to HCFA within the specified 60
     days.  HCFA's February 1995 visit found that the HMO had made
     substantial improvements in processing claims and appeals,
     although problems remained.  HCFA found additional unrelated
     problems as well.  The HMO submitted a corrective action
     plan--its third in 3 years--in April 1995.  In May 1995, HCFA
     approved most of the elements in the plan.  The HMO submitted a
     revised corrective action plan addressing the remaining elements
     in June 1995.  (See table I.2.)

HCFA does not routinely release the results of its monitoring visits,
or the comparative performance indicators it collects, to the public. 
Consequently, when an HMO violates federal standards, Medicare
beneficiaries could remain unaware of problems that could influence
their decision to join or remain enrolled in that HMO.  HCFA's
reluctance to disclose HMO-specific information it develops can work
to the benefit of poor-performing HMOs, to the detriment of
beneficiaries who make less-informed selections, and to the detriment
of HMOs that comply with standards. 


--------------------
\5 Medicare:  Experience Shows Ways to Improve Oversight of Health
Maintenance Organizations (GAO/HRD-88-73, Aug.  17, 1988) and
Medicare:  HCFA Needs to Take Stronger Actions Against HMOs Violating
Federal Standards (GAO/HRD-92-11, Nov.  12, 1991). 


   APPEAL PROCESS IS SLOW AND
   PLACES BENEFICIARIES AT
   FINANCIAL RISK
------------------------------------------------------------ Letter :6

Although intended to be a beneficiary protection against potential
underservice by HMOs, the appeal process is too slow to effectively
resolve disputes over services that beneficiaries believe are
urgently needed.  Moreover, some HMOs have extended the process even
more by not processing beneficiaries' appeals within the prescribed
time frames.  This results in some beneficiaries returning to
fee-for-service Medicare to obtain the services they believe they
need, while others remain in HMOs but incur substantial out-of-pocket
expenses with little certainty of repayment.\6

Under Medicare regulations, beneficiaries in HMOs may appeal denials
of service or the HMO's refusal to pay for services obtained from
out-of-plan providers.\7 The appeal process requires first that the
HMO deny the service and second that the beneficiary ask for a
reconsideration of the denial.  If the reconsideration decision is
not fully favorable to the beneficiary, the HMO is required to send
the denial, along with medical information concerning the disputed
services, to a HCFA contractor that adjudicates such denials.  Since
1989, HCFA has performed its appeal reconsideration function through
a contractor--the Network Design Group (NDG) of Pittsford, New York. 
NDG hires physicians, nurses, and other clinical staff to evaluate
beneficiaries' medical need for contested services and make
reconsideration decisions. 

Under current HCFA standards, the process allows up to 6 months from
the initial determination before an HMO must forward an appeal to
HCFA, as shown in figure 1.  Some HMOs take longer than HCFA
standards, contributing to further delays.  For instance, although
HCFA allows HMOs a maximum of 60 days to reconsider a beneficiary's
appeal, HCFA has found that several HMOs in California and Florida
inappropriately retained beneficiary appeals between 130 and 200
days, on the average, before forwarding them to HCFA's adjudication
contractor. 

   Figure 1:  Medicare Appeal
   Process

   (See figure in printed
   edition.)

Beneficiaries appealing their HMOs' coverage denial for nursing home
care, home health care, or urgently needed care may find the process
does not work quickly enough.  In addition to the time it takes for
an appeal to reach HCFA, most cases that reach HCFA for
reconsideration have taken longer to resolve than the target of 30
days that HCFA and its contractor strive for.  In 1993, 38 percent of
appeals to HCFA were straightforward enough for HCFA's contractor to
decide within 30 days.  About 45 percent required about 3-1/2 months. 
More complex cases, where medical information was missing or where
Medicare coverage rules were unclear, took over 6 months. 

Three examples illustrate how the process works for Medicare
beneficiaries: 

  A newly enrolled beneficiary requested physical therapy from an HMO
     physician to alleviate back pain.  The beneficiary had suffered
     for years from severe back problems, which had been controlled
     by physical therapy.  Although the HMO physician prescribed 17
     sessions of physical therapy, the plan covered only one session. 
     The beneficiary unsuccessfully appealed to the HMO and HCFA. 
     More than a year after her therapy services were denied, the
     beneficiary was still waiting for a decision from an
     Administrative Law Judge. 

  A beneficiary finding himself unable to walk or urinate was
     admitted to a hospital not affiliated with his HMO.  He was
     discharged 2 weeks later only to be readmitted the next day
     after falling at home.  The HMO denied the hospital's claim for
     $23,600 in services because it did not consider the need for
     care an emergency.  The hospital billed the beneficiary.  HCFA's
     reconsideration contractor concluded that the hospital services
     were needed to prevent renal failure, infection, and other
     complications.  HCFA's contractor found the HMO liable for the
     cost of the hospital services--over 7 months after the HMO's
     initial denial. 

  Following surgery for lung cancer, a beneficiary repeatedly
     complained of pain and tenderness in the chest.  X rays done
     shortly after surgery indicated possible remaining cancer, but
     no follow-up was done.  After 14 months of continued complaints
     of pain, externally visible swelling led to new tests and the
     diagnosis that cancer had spread to the chest wall.  An HMO
     oncologist explained that the only treatment available through
     the HMO had a modest success rate, and expressed willingness to
     refer the patient to a non-HMO center offering another treatment
     with a reported high success rate.  The HMO denied the
     beneficiary's request.  The beneficiary requested the services
     two more times.  Although the HMO denied the services three
     times, it did not inform the beneficiary of his right to appeal. 
     The HMO forwarded the case to HCFA for reconsideration after the
     third denial.  At this point, the beneficiary learned from
     HCFA's contractor of the ongoing appeal and his right for
     reconsideration.  HCFA's contractor upheld the HMO denial
     because of the experimental nature of the requested treatment
     and because the HMO offered a treatment considered appropriate. 
     The beneficiary paid for $13,000 in services he obtained from
     the non-HMO center prior to deciding to return to
     fee-for-service, where Medicare covered the treatment for some
     beneficiaries. 

Medicare HMO beneficiaries who pay for services they believe are
needed may be liable for those costs.  In 1994, HCFA decided over
3,100 appeals, 80 percent of which were denied claims for
reimbursement of services obtained from providers not affiliated with
the HMO.  The average claim was about $4,300, totaling over $15
million in disputed claims.  HCFA's reconsideration contractor upheld
HMO denials in 64 percent of the appeals, leaving beneficiaries
liable for over $11 million in claims. 

HCFA is aware of the potential for improving the appeal process and
has taken some steps toward this end.  In November 1994, HCFA
clarified its rules, allowing a beneficiary to appeal without a
written denial notice from the plan.  This could remove a significant
barrier that beneficiaries in some HMOs faced in initiating appeals. 

HCFA also issued a rule in November 1994 extending to beneficiaries
in HMOs the right to obtain expedited PRO review of HMO decisions to
discharge them from a hospital.  Since 1986, fee-for-service Medicare
beneficiaries have been able to request such a PRO review of a
hospital's discharge order when they believe they should remain
hospitalized. 

HCFA operations officials also recognize the potential for further
improvements.  They have proposed an expedited review process for
decisions on care perceived as urgently needed.  They also propose to
look at ways to better educate beneficiaries on their appeal rights
and the appeal process. 


--------------------
\6 A HCFA-sponsored study reviewed a sample of beneficiary appeals
for 1991 and found that 42 percent of the beneficiaries disenrolled
from their HMOS within 2 years following the disputed services, of
which 63 percent disenrolled within 90 days after their cases were
decided by HCFA. 

\7 Out-of-plan services must be covered by an HMO if the service is
an emergency or the enrollee is out of the HMO's operations area and
urgently needs the service. 


   PRIVATE SECTOR DEVELOPMENTS IN
   HMO QUALITY OVERSIGHT
------------------------------------------------------------ Letter :7

Some large employers, acting as the sponsor of their employees in
selecting health care plans, have begun to use accreditation and
performance data in checking HMOs' value, and in deciding whether to
accept an HMO into their health plans.  Nearly half the HMOs in the
country will have undergone NCQA review by the end of 1995.  NCQA
accreditation focuses primarily on standards related to quality
assurance and use of services--the areas in which federal
certification reviews are relatively weak.  The HEDIS performance
measurement set is expected to take the place of the varying data
requests employers already make to evaluate plans' quality of care,
access to care, member satisfaction, utilization of services, and
financial stability. 

The private sector also disseminates quality-related information to
purchasers and users.  NCQA publicizes its accreditation decisions,
which allows employers and employees to consider accreditation status
in their HMO decisions.  The effect is that HMOs that do not obtain
accreditation can lose business.  For example, a consortium of
employers has elected to exclude a Florida HMO from new business with
their employer-sponsored health plans because of the HMO's failure to
obtain accreditation. 

HCFA is the sponsor for Medicare beneficiaries in the selection and
oversight of Medicare contract HMOs, much like employers are for
their employees' health plans.  HCFA, however, does not routinely
provide beneficiaries the results of its monitoring reviews or other
performance-related information such as HMO disenrollment rates or
beneficiary complaints.  HCFA does routinely collect and analyze data
on Medicare HMOs' enrollment and disenrollment rates, appeals,
beneficiary complaints, financial condition, availability and access
to services, and marketing strategies. 


   OTHER ONGOING IMPROVEMENTS IN
   HCFA'S MEDICARE HMO CONTRACT
   OVERSIGHT
------------------------------------------------------------ Letter :8

HCFA has made ongoing improvements that enhance its ability to
monitor HMOs and enforce federal standards.  These improvements in
HMO contract oversight are in addition to those already mentioned. 
For example, HCFA has progressively improved its collection and
summarization of comparative performance indicators on individual
HMOs and makes these available to contract monitoring staff.  This
can aid HCFA in detecting problems in some cases.  The indicators
include enrollment and disenrollment statistics, including rapid or
early disenrollments, and rates of beneficiaries' appeals of denied
care.  In addition, three HCFA regional offices, accounting for about
three-fourths of Medicare HMO enrollments, have implemented an
automated tracking system for complaints. 

Beginning in 1994, HCFA has more aggressively used its regulatory
authority under title 13 of the Public Health Service Act to get at
root causes of HMO quality assurance problems.  HCFA officials
explained that they use the results to work cooperatively with plans'
top management to correct weaknesses.  Four investigations have been
conducted since July 1994 on HMOs with apparent quality assurance
problems, and a fifth was recently started.  The first three of these
investigations were done at Florida HMOs and resulted in findings of
noncompliance with federal standards.  The experience of designing
and conducting these investigations provides an excellent basis for
HCFA to design routine monitoring reviews that test HMOs' internal
quality assurance.  However, the experience gained from these
investigations shows that increased staffing with better training or
qualifications may be necessary for HCFA's routine monitoring. 

HCFA also announced that it plans to begin site visits to HMOs
annually, beginning in fiscal 1996.  Annual reviews may benefit where
HCFA needs follow-up verification that HMOs have corrected
deficiencies.  They also may permit HCFA to focus in any one year on
a particular aspect of HMO operations, potentially increasing
effectiveness. 


   CONCLUSIONS
------------------------------------------------------------ Letter :9

HCFA recognizes that it needs to be more active as a sponsor for
beneficiaries enrolling in Medicare HMOs.  This entails selecting
qualified HMOs to participate in the program, protecting
beneficiaries' interests after they join an HMO, and informing
beneficiaries of HMO performance.  Although HCFA, to its credit, has
taken a number of positive actions, it has not

  adequately developed and staffed routine monitoring of HMOs'
     quality assurance and other key operations to protect
     beneficiaries' interests;

  taken actions to obtain prompt compliance with existing
     quality-of-care or other beneficiary protection standards from
     those HMOs that are slow to correct problems; or

  given Medicare beneficiaries available information that could help
     them decide to enroll or to remain enrolled in an HMO. 

Moreover, HCFA has not issued regulations, originally called for in
1986 legislation, defining acceptable levels of financial risk an HMO
can transfer to subcontracted providers. 

Private sector progress, weighed against continued shortcomings in
HCFA's current compliance approach, suggests that HCFA needs to
overhaul its compliance approach to be more consumer-oriented.  This
would include forbidding noncompliant HMOs from continuing to enroll
beneficiaries, and publishing available data that beneficiaries can
use to gauge HMOs' relative performances.  In addition, HCFA could
strengthen its quality assurance review efforts and streamline its
beneficiary appeal process.  We have recommended a variety of similar
changes over the past decade and have observed some improvements in
monitoring.  But HCFA has remained reluctant to take strong
enforcement actions and continues to rely on reviews of HMOs' quality
assurance practices that do not verify their effectiveness. 


   RECOMMENDATIONS TO THE
   SECRETARY OF HEALTH AND HUMAN
   SERVICES
----------------------------------------------------------- Letter :10

We recommend that the Secretary of HHS direct the HCFA Administrator
to develop a new, more consumer-oriented strategy for administering
the Medicare HMO program.  This should include directing that HCFA

  routinely publish (1) comparative data it collects on HMOs such as
     complaint rates, disenrollment rates, and rates and outcomes of
     appeals, and (2) the results of its investigations or any
     findings of noncompliance by HMOs;

  verify the effective operation of all HMOs' quality assurance and
     utilization management practices, by applying sufficient trained
     staff during routine monitoring, and integrating PRO findings
     into HCFA's compliance monitoring reviews; and

  explore further options to streamline the appeal process. 


   AGENCY COMMENTS
----------------------------------------------------------- Letter :11

The Department of Health and Human Services disagreed with many of
the report's findings, emphasizing that the report discusses
monitoring and enforcement problems that occurred years ago and
largely ignores substantial changes made in the last 2 years.  HHS
agreed, however, that there is room for improvement in the appeal
process and in providing information to consumers.  The full text of
HHS' comments appears in appendix III. 

With regard to HHS' concerns about our use of old information, the
three enforcement cases presented in this report were as timely a
test of HCFA processes as we could select at the time of our review. 
They were the only cases identified by HCFA as either under
investigation or having the potential for legal action when we began
our fieldwork in June 1994.  In addition, the South Florida quality
assurance monitoring case was the first HMO to undergo HCFA's
enhanced investigation effort to get at root causes of problems. 

HHS was also concerned that we did not examine important initiatives
HCFA has recently undertaken to improve its HMO quality assurance
monitoring.  On the basis of additional information provided by HHS,
we revised the report to recognize those initiatives that were
relevant to the issues we addressed.  Although we agree that HCFA's
recent efforts have improved its monitoring capability, they do not
change our conclusion that HCFA's routine monitoring of HMOs' quality
assurance practices does not go far enough to verify compliance with
federal requirements.  This is primarily an issue of applying
sufficient and appropriately trained staff to the task, something
recognized by HCFA's own internal studies and endorsed by HCFA
operations staff we met with.  Other issues that affect the quality
of this monitoring--including the clarity and currency of regulations
and standards--are the subject of ongoing HCFA studies. 

HHS also disagreed with our position "that the number of times HCFA
levies monetary penalties against HMOs is a measure of the intensity
of .  .  .  [the agency's] .  .  .  oversight efforts." While we
agree with HHS that monetary penalties can "simply become a cost of
doing business for HMOs," our point is that more aggressive
enforcement can be more effective in bringing about HMO compliance. 
Our emphasis was on limiting HMOs' enrollment of new members as a
penalty until the HMOs can clearly demonstrate that they have
identified and corrected the root causes of problems.  Our report
also highlights another method of enforcing HMO compliance, which
focuses on providing comparative HMO performance information to
Medicare beneficiaries, who make marketplace decisions in selecting
particular HMOs. 

HHS noted that we should have more comprehensively compared HCFA and
NCQA quality assurance standards.  This was not done for two reasons. 
The difference between NCQA and HCFA reviews that we judged most
relevant was that NCQA reviews apply sufficient numbers of trained
staff to provide some verification that HMOs have effective quality
assurance and utilization management operations, while HCFA's routine
reviews do not.  The requirement for effective quality assurance and
utilization management is common to both organizations' standards. 
Also, HCFA had a contract in process to compare its standards and
review process with NCQA's and with several others. 

In the final analysis, our report emphasizes that HCFA is the primary
sponsor of Medicare beneficiaries' interests when they enroll in
HMOs.  As such, HCFA has a responsibility to be proactive in its
role, by collecting and publishing data to consumers in the
marketplace, and by acting quickly and firmly to protect beneficiary
interests when it has indications of poor care or abusive practices. 


--------------------------------------------------------- Letter :11.1

As arranged with your offices, unless you announce its contents
earlier, we plan no further distribution of this report until 30 days
after the date of this letter.  At that time, we will send copies to
the Secretary of Health and Human Services.  We will also make copies
available to others upon request. 

If you or your staffs have any questions about this work, please call
me on (202) 512-7123.  Major contributors to this report are listed
in appendix IV. 

Sincerely yours,

Sarah F.  Jaggar
Director, Health Financing
 and Public Health Issues


CHRONOLOGY OF EVENTS IN TWO RECENT
ENFORCEMENT CASES
=========================================================== Appendix I



                                        Table I.1
                         
                          An Illinois HMO Marketing Case History

                                                                                      New
                                                                                 enrollme
Time                                                                                nt in
frame      Activity                                                                  year
---------  --------------------------------------------------------------------  --------
1990
 Jan.       HCFA reviews plan that the HMO proposes to purchase.
            Based on troubles in Florida and Texas, HCFA starts investigation
            of marketing in all the HMO's markets. Investigation continues
            through 1992.
1991                                                                                1,525
 Feb.       HCFA notes that the HMO plans to raise marketing budget from $2.4
            million to $6.4 million in fiscal 1991.

 Mar.       The HMO completes purchase of Chicago HMO.
1992                                                                                7,584
 Mar.       HCFA requests that HMO investigate high rate of early
            disenrollments and complaints about marketing. HMO agrees that data
            indicate problem.
 Dec.
            HCFA and HMO debate disenrollment data.
1993                                                                                8,123
 Feb.       Routine HCFA site visit.

 June       HCFA site visit report notes marketing area "met," but
            disenrollments continue to be twice the national average. HCFA to
            continue to monitor.
 Sept.
            HCFA asks HMO to investigate complaints about high-pressure and
 Dec.       illegal marketing practices.

            HCFA meets with HMO to "encourage" it on sales agent turnover,
            early disenrollment. HMO questions the accuracy of HCFA's
            disenrollment data.
1994                                                                               12,360
 Jan.       HCFA decides to review HMO's marketing operations.

 Mar.       HCFA conducts marketing review, then issues formal notice of
            investigation asking what the HMO will do to correct apparent
            violations of Medicare law. HCFA also threatens notice in Federal
            Register and suspension of enrollment.
 Aug.
            HCFA acknowledges HMO's corrective action plan and timetable to
 Nov.       reduce early disenrollments.

            HMO reports progress in reducing rate of early disenrollment.
1995                                                                                3,802
 Apr.       Target date for closing title 13 investigation.
-----------------------------------------------------------------------------------------
Source:  HCFA. 



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

                                                                                      New
                                                                                 enrollme
Time                                                                                nt in
frame      Activity                                                                  year
---------  --------------------------------------------------------------------  --------
1990                                                                                   66
 Aug.       The HMO enters a Medicare risk contract as a competitive medical
            plan.
1991                                                                                5,215
 Feb.       HMO obtains its first service area expansion.
1992                                                                                6,244
 Apr.       HCFA conducts its first monitoring visit and finds that HMO lacks
            systems to ensure timely payment of claims and notification of
            denials.
 July
            HCFA approves a new service area expansion that was pending at the
            time of first monitoring visit.
            HCFA report of first visit informs HMO that HCFA will withhold
 Aug.       approval of any expansions until acceptable corrective action is
            implemented.
 Sept.
            HMO submits a corrective action plan (CAP).

            HCFA finds HMO's CAP insufficient to improve claims processing.
            HCFA meets with the HMO to discuss revisions to CAP.
1993                                                                               10,009
 Jan.       HMO submits an entirely new CAP addressing claims processing
            deficiencies.
 Feb.
            HMO is granted third service area expansion.
 Mar.
            HCFA approves HMO's CAP.
1992-
 1994       HMO sends HCFA three progress reports indicating its medical groups
            are in compliance or near compliance with federal claims processing
            requirements.
1994                                                                               13,503
 Mar.       HCFA's routine monitoring visit finds that claims processing
            problems persist; HMO does not provide beneficiaries notice of
            denials and does not notify beneficiaries of reconsideration
            decisions within the allowed 60 days.
 Apr.
            HCFA monitoring report stops further service area expansion until
            HMO can demonstrate that its operations are in compliance with
 May        Medicare standards.

            HCFA sends HMO a letter of concern because several of the problems
            addressed in the 1992 monitoring report and corresponding CAP
 June       persisted.
            HMO submits a CAP in response to the 1994 monitoring report.
 July
            HCFA approves 8 of 19 elements of HMO's CAP.
 Aug.
            HMO submits a significantly revised CAP to HCFA.
 Nov.
            HCFA approves the 11 remaining elements of HMO's CAP.

 Dec.       HCFA review of inquiries and complaints received from HMO's members
            indicates problems in enrollment and disenrollment. HCFA asks HMO
            to investigate.

            HCFA evaluates HMO's response. Because of problems in the HMO's
            operations, HCFA warns HMO it will evaluate the necessity of
            terminating Medicare contract.
1995                                                                                3,550
 Jan.       HCFA meets with HMO's Chief Executive Officer over concerns raised
            by the influx of member-specific problems received by HCFA.

 Feb.       HCFA conducts a follow-up visit.

 Mar.       HCFA reports substantial improvements in HMO's processing of claims
            and appeals, but finds significant problems in HMO's handling of
            enrollments and disenrollments.
 Apr.
            HCFA returns HMO's application for a fourth service area expansion,
            until HMO can demonstrate compliance with enrollment/disenrollment
            requirements.
 May        HMO submits a third CAP.

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

            HMO submits a new CAP on the rejected elements.
-----------------------------------------------------------------------------------------
Source:  HCFA. 


SCOPE AND METHODOLOGY
========================================================== Appendix II

We reviewed HCFA's current HMO monitoring and enforcement practices
and discussed them with managers and staff at HCFA's Office of
Managed Care, Health Standards and Quality Bureau, Region IX--San
Francisco, Region IV--Atlanta, and Region V--Chicago.  In addition,
we interviewed the PROs for California and Florida to obtain their
views about the Medicare HMO oversight process.  We accompanied HCFA
on an investigation of quality assurance practices at a Florida-based
HMO with a Medicare contract.  In addition, we selected ongoing
enforcement cases to verify the effectiveness of HCFA's oversight
practices.  We contacted officials from the HMOs cited as examples in
this report. 

We reviewed the statutory and regulatory requirements for the appeal
process and discussed them with HCFA staff at the Office of Managed
Care.  We also interviewed a representative of Network Design Group,
HCFA's contractor for processing appeals.  In addition, we obtained
and analyzed data on the timeliness, types, and outcomes of
beneficiary appeals to HCFA.  We also discussed with HCFA officials
proposals for improving the appeal process. 

We discussed federal, state, and private review, licensing, and
accreditation practices with officials from Florida's Agency for
Health Care Administration, the National Committee for Quality
Assurance, the Group Health Association of America, and the Los
Angeles-based consumer advocacy group, Center for Health Care Rights. 
We also discussed beneficiaries' rights to appeal denials of care
with this group. 




(See figure in printed edition.)Appendix III
COMMENTS FROM THE DEPARTMENT OF
HEALTH AND HUMAN SERVICES
========================================================== Appendix II



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV

Edwin P.  Stropko, Assistant Director, (202) 512-7108
Charles A.  Walter, Evaluator-in-Charge, (202) 512-4337
Lourdes R.  Cho, Senior Evaluator
Peter E.  Schmidt, Advisor
Sandra K.  Isaacson, Advisor



RELATED GAO PRODUCTS
============================================================ Chapter 0

Medicare:  Opportunities Are Available to Apply Managed Care
Strategies (GAO/HEHS-T-95-81, Feb.  10, 1995). 

Health Care:  Employers Urge Hospitals to Battle Costs Using
Performance Data Systems (GAO/HEHS-95-1, Oct.  3, 1994). 

Health Care Reform:  "Report Cards" Are Useful But Significant Issues
Need to Be Addressed (GAO/HEHS-94-219, Sept.  29, 1994). 

Medicare:  HCFA Needs to Take Stronger Actions Against HMOs Violating
Federal Standards (GAO/HRD-92-11, Nov.  12, 1991). 

Health Care:  Actions to Terminate Problem Hospitals From Medicare
Are Inadequate (GAO/HRD-91-54, Sept.  5, 1991). 

Medicare:  PRO Review Does Not Assure Quality of Care Provided by
Risk HMOs (GAO/HRD-91-48, Mar.  13, 1991). 

Medicare:  Physician Incentive Payments by Prepaid Health Plans Could
Lower Quality of Care (GAO/HRD-89-29, Dec.  12, 1988). 

Medicare:  Experience Shows Ways to Improve Oversight of Health
Maintenance Organizations (GAO/HRD-88-73, Aug.  17, 1988). 

Medicare and Medicaid:  Stronger Enforcement of Nursing Home
Requirements Needed (GAO/HRD-87-113, July 22, 1987). 

Medicare:  Issues Raised by Florida Health Maintenance Organization
Demonstrations (GAO/HRD-86-97, July 16, 1986). 

Problems in Administering Medicare's Health Maintenance Organization
Demonstration Projects in Florida (GAO/HRD-85-48, Mar.  8, 1985).