Medicare Managed Care: Growing Enrollment Adds Urgency to Fixing HMO
Payment Problem (Letter Report, 11/08/95, GAO/HEHS-96-21).

Pursuant to a congressional request, GAO reviewed Medicare payments to
health maintenance organizations (HMO), focusing on: (1) current trends
in Medicare beneficiary enrollment in HMO; (2) flaws in Medicare's
rate-setting method that prevent it from realizing potential savings
from HMO; and (3) the Health Care Financing Administration's (HCFA)
efforts to test HMO payment reforms.

GAO found that: (1) since 1993, the annual increase in Medicare
beneficiary HMO enrollment has exceeded 20 percent; (2) HMO enrollment
increases have been concentrated in 15 states with little enrollment
growth occurring in the other 35 states; (3) Medicare links HMO payment
rates to the average cost of fee-for-service care and fails to adjust
HMO payment rates to reflect beneficiaries' health status or local
differences in utilization rates; (4) strategies to improve Medicare HMO
payments include giving HCFA new authority to use competitive bidding or
to negotiate with HMO, modifying the HMO rate-setting formula to include
a health status risk adjuster, and requiring larger discounts from HMO
in areas where HMO payment rates are too high; (5) HCFA could generate
the most savings if it combines all three cost-reduction strategies and
tailors the strategy to local conditions; and (6) although HCFA is
planning demonstration projects using competitive bidding and improved
risk adjustments, HCFA needs to gather and use available data to adjust
HMO payments.

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

 REPORTNUM:  HEHS-96-21
     TITLE:  Medicare Managed Care: Growing Enrollment Adds Urgency to 
             Fixing HMO Payment Problem
      DATE:  11/08/95
   SUBJECT:  Medicare programs
             Medical services rates
             Health maintenance organizations
             Health insurance cost control
             Elderly persons
             Overpayments
             Medical economic analysis
             Competition
             Risk management
IDENTIFIER:  Medicare Risk Contract Program
             Arizona
             Arizona Medicaid Managed Care Program
             California
             CalPERS Health Benefits Program (CA)