Medicaid Managed Care: Challenge of Holding Plans Accountable Requires
Greater State Effort (Letter Report, 05/16/97, GAO/HEHS-97-86).

Pursuant to a congressional request, GAO reviewed state efforts to hold
managed care plans accountable for meeting Medicaid program goals and
for providing beneficiaries enrolled in capitated managed care plans the
care they need, focusing on state efforts to: (1) ensure Medicaid
beneficiaries have access to appropriate providers; (2) assess the
adequacy of medical care provided through contracted plans; and (3)
determine beneficiary satisfaction with plan performance.

GAO noted that: (1) ensuring that managed care plans provide enrollees
the care that they need is a formidable task for private and public
purchasers alike; (2) the four states GAO visited, Arizona,
Pennsylvania, Tennessee, and Wisconsin, have built access and data
collection requirements into their contracts with managed care plans;
(3) a number of these states' requirements aim to ensure managed care
plans develop and maintain provider networks that are sufficient to meet
the needs of Medicaid beneficiaries; (4) some are criterion-based, such
as patient-to-primary-care-physician ratios; (5)
patient-to-primary-care-physician ratios generally do not consider the
number of networks a primary care physician participates in or a
physician's capacity or willingness to see Medicaid patients; (6) the
four states also require plans to provide a full range of specialty
services, even if this means beneficiaries must be referred to providers
outside the plan's network; (7) however, because there are no
established standards for specialists, these states have not specified
the types and numbers of specialists to include in plan networks, making
it difficult for these states to measure the adequacy of plan specialist
networks before awarding a contract; (8) given the difficulties
associated with gauging the adequacy of a provider network, the four
states GAO visited have taken additional steps to assess the adequacy of
the medical care that beneficiaries enrolled in managed care receive;
(9) Arizona, Tennessee, and Pennsylvania also have invested in
developing encounter data, the individual-level data on all services
provided to all patients; (10) all four states also use data from
plan-conducted clinical studies to help assess patient care; (11) the
four states also have sought to assess the adequacy of patient care by
tapping into information provided directly by Medicaid beneficiaries
enrolled in managed care, such as patient satisfaction surveys and data
gathered from grievance processes; (12) while it is important to gauge
patients' satisfaction with the care they receive, satisfaction data
generally are not reliable measures of quality; and (13) regardless, GAO
found that if the states it visited improved certain methodologies for
designing satisfaction surveys and stratified their survey grievance
data, they would have a better understanding of the needs and concerns *

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

 REPORTNUM:  HEHS-97-86
     TITLE:  Medicaid Managed Care: Challenge of Holding Plans 
             Accountable Requires Greater State Effort
      DATE:  05/16/97
   SUBJECT:  Health care programs
             Managed health care
             Health maintenance organizations
             Health resources utilization
             State-administered programs
             Health care cost control
             Health services administration
             Data collection
             Surveys
IDENTIFIER:  Medicaid Managed Care Program
             Arizona
             Tennessee
             Pennsylvania
             Medicaid Program
             Supplemental Security Income Program
             Wisconsin
             Aid to Families with Dependent Children Program
             AFDC
             
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Cover
================================================================ COVER


Report to Ranking Minority Member, Committee on Commerce, House of
Representatives

May 1997

MEDICAID MANAGED CARE - CHALLENGE
OF HOLDING PLANS ACCOUNTABLE
REQUIRES GREATER STATE EFFORT

GAO/HEHS-97-86

Medicaid Managed Care Accountability

(101385)


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

  AFDC - Aid to Families With Dependent Children
  AIDS - acquired immune deficiency syndrome
  EPSDT - early and periodic screening, diagnosis, and treatment
  HCFA - Health Care Financing Administration
  HEDIS - Health Plan Employer Data Information Set
  HHS - Department of Health and Human Services
  HIV - human immunodeficiency virus
  HMO - health maintenance organization
  NCQA - National Committee on Quality Assurance
  SSI - Supplemental Security Income

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


B-270335

May 16, 1997

The Honorable John D.  Dingell
Ranking Minority Member
Committee on Commerce
House of Representatives

Dear Mr.  Dingell: 

Over the past decade, Medicaid expenditures have soared.  By fiscal
year 1996, they reached $160 billion--nearly quadrupling fiscal year
1986 expenditures.  Although the annual growth rate abated
significantly in 1996, Medicaid expenditures continue to exert strong
pressure on federal and state budgets.  To help bring these costs
under control, states increasingly are mandating significant numbers
of their Medicaid population to enroll in managed care programs.  By
emphasizing primary and preventive care and treatment, it is hoped
that managed care will improve beneficiary health care while curbing
health care costs. 

As of June 1996, about 11 million Medicaid beneficiaries were
enrolled in "capitated" managed care programs.\1 Under a capitated
managed care model, states contract with managed care plans, such as
health maintenance organizations (HMO), and pay them a monthly, or
capitated, fee per Medicaid enrollee to provide most medical
services--which are coordinated through primary care physicians. 
This model, with its fixed prospective payment for a package of
services, creates an incentive for plans to provide preventive and
primary care and to ensure that only necessary medical services are
provided.  However, managed care also can create an incentive to
underserve or even deny beneficiaries access to needed care since
plans and, in some cases, providers can profit from not delivering
services.  Moreover, Medicaid beneficiaries required to enroll in
managed care may find it difficult to seek alternative care if they
find that plan providers fail to meet their needs. 

Because of your concern about these issues, we reviewed state efforts
to hold managed care plans accountable for meeting Medicaid program
goals and for providing beneficiaries enrolled in capitated managed
care plans the care they need.  As agreed with your office, we
focused our study on the difficulties that purchasers, including
states, have in monitoring managed care programs and on state efforts
to (1) ensure Medicaid beneficiaries have access to appropriate
providers, (2) assess the adequacy of medical care provided through
contracted plans, and (3) determine beneficiary satisfaction with
plan performance. 

To understand the types of issues states face in ensuring
accountability and quality in their capitated Medicaid managed care
programs and the steps taken to address these issues, we visited four
states--Arizona, Pennsylvania, Tennessee, and Wisconsin.  At the time
of our review, these four states collectively had almost 1.9 million
Medicaid beneficiaries enrolled in their managed care programs.  To
analyze and illustrate state actions, we focused the scope of our
work on 10 core accountability measures or processes deemed essential
by HCFA and experts we contacted.\2 We reviewed these states'
contracts with managed care plans and other plan requirements, as
well as their efforts to monitor plan performance.  Appendix I
provides more detailed information on our scope and methodology. 


--------------------
\1 Based on the most current data available from the Health Care
Financing Administration (HCFA) on managed care enrollment.  Another
4 million individuals were enrolled in noncapitated managed care
programs.  Of the total 15 million managed care enrollees, about 2
million were enrolled in more than one plan, according to HCFA. 

\2 Our work did not include a complete assessment of each state's
entire quality assurance process. 


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

Ensuring that managed care plans provide enrollees the care that they
need is a formidable task for private and public purchasers alike. 
In establishing their managed care programs, purchasers can require
contracted plans to meet certain conditions--such as maintaining
adequate provider networks and complying with data collection
requirements--that help to hold them accountable for providing
enrollees with appropriate care.  However, establishing criteria for
these conditions and monitoring plan compliance are often difficult
because of a lack of population-based standards or benchmarks for
what constitutes appropriate care or expected outcomes.  In addition,
individual-level data on patient care, such as those that are
generated in a claims-based fee-for-service system, are not readily
available.  For states, establishing standards of care and tapping
into alternative information sources on service utilization to assess
the care that Medicaid beneficiaries receive can be a challenge.  The
four states that we visited--Arizona, Pennsylvania, Tennessee, and
Wisconsin--have built access and data collection requirements into
their contracts with managed care plans.  We found, however, that
plan compliance with the requirements we reviewed does not
necessarily ensure that beneficiaries are receiving the care that
they need. 

A number of these states' requirements aim to ensure managed care
plans develop and maintain provider networks that are sufficient to
meet the needs of Medicaid beneficiaries.  Some are criterion-based,
such as patient-to-primary-care-physician ratios.  For example, two
states required that plans not exceed a maximum
patient-to-primary-care-physician ratio of 2,500 to 1.  Compliance
with such a requirement, however, does not necessarily demonstrate
that a network is sufficient to meet the needs of Medicaid
beneficiaries.  Patient-to-primary-care-physician ratios generally do
not consider the number of networks a primary care physician
participates in or a physician's capacity or willingness to see
Medicaid patients.  Of the states that we visited, only Arizona
required physicians to report their work load in full-time-equivalent
terms and identified primary care physicians who participate in more
than one plan and could be counted more than once.  The four states
also require plans to provide a full range of specialty services,
even if this means beneficiaries must be referred to providers
outside the plan's network.  However, because there are no
established standards for specialists, these states have not
specified the types and numbers of specialists to include in plan
networks, making it difficult for these states to measure the
adequacy of plan specialist networks before awarding a contract. 
Once plans have a contract, states can monitor the numbers and types
of specialists participating in the network, but this does not
necessarily indicate whether beneficiaries actually gain access to
specialty care when they need it. 

Given the difficulties associated with gauging the adequacy of a
provider network, the four states that we visited have taken
additional steps to assess the adequacy of the medical care that
beneficiaries enrolled in managed care receive.  For example, each
state has looked at aggregated statistics on the use of specific
services.  Some have found that, compared with fee-for-service,
Medicaid managed care recipients were more likely to receive certain
preventive and diagnostic services, such as childhood immunizations
and cancer screenings.  Arizona, Tennessee, and Pennsylvania also
have invested in developing encounter data--the individual-level data
on all services provided to all patients.  Encounter data can enable
states to conduct their own analyses on a wider array of services
than is possible using aggregated statistics.  These analyses allow
states to examine patterns of care across plans, such as differences
in service delivery by selected types of services, beneficiary
groups, and providers.  To date, Arizona has made the most use of its
encounter data, including using them as the state begins to develop
quality indicators.  Tennessee's early efforts primarily focused on
developing and validating its encounter data; more recently, the
state has begun to use these data to assess service utilization
patterns.  Pennsylvania's use of encounter data was even more
limited.  All four states also use data from plan-conducted clinical
studies and state-conducted medical record audits to help assess
patient care.  Improved plan and state methodologies, however, could
increase the usefulness of the data collected from these reviews. 

The four states that we visited also have sought to assess the
adequacy of patient care by tapping into information provided
directly by Medicaid beneficiaries enrolled in managed care, such as
patient satisfaction surveys and data gathered from grievance
processes.  While it is important to gauge patients' satisfaction
with the care they receive, satisfaction data generally are not
reliable measures of quality; most people lack the knowledge needed
to adequately evaluate the appropriateness of the care they
receive--or do not receive.  In addition, newcomers to managed care
may not fully understand how the system operates to effectively
access services, advocate on their own behalf, or register
dissatisfaction with their plan or provider.  This is especially true
for individuals with diverse language and cultural needs. 
Regardless, we found that if the states we visited improved certain
methodologies for designing satisfaction surveys and stratified their
survey and grievance data, they would have a better understanding of
the needs and concerns of their Medicaid beneficiaries enrolled in
managed care--especially those with special needs or chronic
illnesses, who may experience problems in accessing services but
whose numbers are too small to show up in analyses of broad-based
data. 


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

Medicaid, a joint federal-state health financing program for the
poor, provides health care for about 37 million low-income people.\3
In fiscal year 1996, Medicaid expenditures accounted for more than 20
percent of state budgets.  To help control expenditures and expand
access to health care, 36 states have mandated enrollment for some
portion of their Medicaid population in managed care programs.  As of
June 1995, nearly 14 percent of Medicaid eligibles were enrolled in
capitated programs. 

Under a capitated managed care system, states pay contracted plans a
monthly per-enrollee amount before services are delivered--a distinct
departure from the traditional claims-based fee-for-service system in
which providers are paid for each service as bills are submitted.  In
turn, the plans employ or subcontract with primary care physicians,
who coordinate the delivery of health services.\4 Some plans pay
their subcontracted providers on a fee-for-service basis for care
provided, while others pass certain financial risks on to providers
by linking the providers' revenues or profits to the total number of
services provided to plan enrollees.  While capitated managed care
has strong cost-containment incentives, it also provides incentives
for plans and providers to limit services--not only must plans and
providers absorb all costs that exceed the capitation rate, they
profit if the capitation rate exceeds their costs. 

Nationwide, most states initially implemented Medicaid capitated
managed care programs by allowing beneficiaries to enroll on a
voluntary basis in limited geographic areas.  These programs were
largely targeted to low-income families who received financial
assistance under Aid to Families With Dependent Children (AFDC) and
pregnant women and children who qualified for Medicaid. 
Increasingly, states are mandating beneficiary enrollment and
expanding their programs to more geographic areas.  In addition, they
are beginning to include more populations with specialized needs,
such as blind or disabled individuals who qualify for Medicaid under
the Supplemental Security Income (SSI) program.  As we reported in
July 1996, 17 states had extended their Medicaid managed care
programs to these more vulnerable populations.\5

States must comply with certain federal statutory requirements for
the development and oversight of their managed care programs.  HCFA
can waive some of these requirements--such as a beneficiary's freedom
to choose any provider--to enable states to restrict beneficiaries to
the providers participating in a managed care network.  Waivers also
allow states to expand the scope of their programs to populations not
otherwise eligible for Medicaid.  These waivers are of two types: 
program or demonstration.\6 Program waivers allow states to require
beneficiaries to join a managed care plan, but beneficiaries are
generally allowed to switch plans every 30 days.  Demonstration
waivers provide states with greater flexibility, and while they are
more difficult to obtain than program waivers, they have been granted
more frequently in recent years.  States request demonstration
waivers to establish mandatory programs that lock beneficiaries into
one plan for periods of up to 12 months or to expand eligibility to
uninsured populations.  Table 1 compares various characteristics of
the two waiver types. 



                                Table 1
                
                Characteristics of Managed Care Programs
                Under Program and Demonstration Waivers

Program waivers                     Demonstration waivers
----------------------------------  ----------------------------------
General characteristics
----------------------------------------------------------------------
Allow for waiver of certain         Allow for waiver of a broader
Medicaid requirements.              range of Medicaid requirements.

Waivers renewed for 2-to 5-year     Generally not renewed.\a
periods.

Generally used to establish         More recently used to establish
primary care case management        broad changes in Medicaid
programs and home-and community-    programs.
based service programs.


Characteristics pertaining to capitated managed care
----------------------------------------------------------------------
Plans must comply with 25%          Plans may enroll Medicaid patients
requirement for private             exclusively.
enrollment.

Full range of mandatory services    Benefit package may be modified.\b
must be offered.

Beneficiaries may be mandated to    Beneficiaries may be locked in for
enroll in plan and can be locked    up to 12 months.
in for no longer than 1 month.\c
----------------------------------------------------------------------
\a The Congress has authorized renewal of some demonstration waivers. 

\b To date, only Oregon has been permitted to modify the benefit
package for traditional Medicaid beneficiaries.  Other states have
been permitted to offer a modified package only to those newly
eligible for Medicaid coverage under the demonstration. 

\c Lock-in is up to 6 months for capitated plans meeting certain
federal requirements. 

At the time of our review, Arizona and Tennessee had demonstration
waivers for their mandatory statewide programs, which served both
AFDC and SSI populations.  Wisconsin had a program waiver for its
mandatory program, which served only the AFDC populations in 5 of its
72 counties.  In contrast, Pennsylvania had voluntary and mandatory
managed care programs.  The voluntary program--the larger program at
the time of our review--served both AFDC and SSI populations in 13 of
its 90 counties.\7 This program required no federal waiver. 

To ensure that states comply with statutory and HCFA requirements,
HCFA reviews state contracts with managed care plans.  It also
monitors state programs through independent evaluations and periodic
reviews of state-submitted information on expenditures, medical
services, and enrollment data, which HCFA requires all states to
report.  The nature of HCFA's requirements and oversight role depends
on the waiver type.  For example, under a demonstration waiver, HCFA
develops terms and conditions that vary by state, depending on the
provisions being waived.  (For a more detailed discussion of federal
regulations and HCFA requirements for waiver programs, see app.  II.)


--------------------
\3 Medicaid was established in 1965 as title XIX of the Social
Security Act (42 U.S.C.  1396 et seq.).  Medicaid is administered at
the state level, with federal oversight by HCFA within the Department
of Health and Human Services (HHS). 

\4 Primary care physicians may be general internal medicine
practitioners, family and general practitioners, pediatricians, or
obstetricians and gynecologists. 

\5 See Medicaid Managed Care:  Serving the Disabled Challenges State
Programs (GAO/HEHS-96-136, July 31, 1996). 

\6 Program waivers are authorized under section 1915 of the Social
Security Act.  Demonstration waivers are also known as section 1115
waivers, after the section of the Social Security Act that authorizes
them. 

\7 At the time of our review, 475,000 beneficiaries were enrolled in
Pennsylvania's voluntary managed care program.  With the February
1997 expansion of its mandatory program, 177,000 beneficiaries were
participating in the voluntary program as of April 1, 1997; 66,000
are projected to be in the voluntary program by 1998. 


   DIFFICULTIES IN MONITORING
   MANAGED CARE STEM FROM LIMITED
   STANDARDS OF CARE AND DATA ON
   SERVICE UTILIZATION
------------------------------------------------------------ Letter :3

Purchasers of managed care face a number of difficulties in ensuring
enrollees receive the care that they need.  In contrast to
fee-for-service care--where the incentive is to oversupply services
to increase revenues--capitated managed care, with its fixed payment
system, contains incentives to provide fewer services to maximize
short-term profits.  Assessing how well the care delivered matches
beneficiary needs is difficult because few aggregate or
population-based utilization standards or benchmarks on delivery of
care patterns have been established for managed care.  Benchmarks
derived from providers and patients in the fee-for-service sector may
not be appropriate since service utilization patterns are expected to
change under managed care. 

Even where standards of care do exist for selected conditions or
procedures, such as for prenatal care or childhood immunizations,
monitoring the actual delivery of such services in capitated managed
care is difficult because data on service utilization do not flow as
readily as in a fee-for-service environment.  In fee-for-service
care, data on service delivery are captured in individual claims,
which are submitted for payment as services are provided.  In managed
care, however, purchasers prospectively pay plans a monthly fee for
services not yet provided.  Unless plans capture service data in
another form, it is difficult to identify the services actually
provided.  Without specific data collection requirements, providers
may lack the incentive to accurately report individual-level data on
all services provided since payment is not linked to documentation of
the care provided. 

To learn more about what transpires in the delivery of managed care
services--and to help ensure that the health care services they
contract for are appropriately provided--private and public
purchasers also rely on other measurement tools and data sources. 
Among these are reviews of patient medical records and surveys of
patients on the care they receive from plans.  Reviews of medical
records can help purchasers assess the care provided to individual
patients.  These assessments, however, are time-consuming and costly
and are generally undertaken for small numbers of patients. 
Information from patients, while more accessible than medical
records, can be problematic as well.  Patients typically are not in a
position to know what specific care or services they need for a given
condition and often cannot assess the appropriateness of the care
they receive--or do not receive.  In addition, patients new to
managed care may confuse differences in the way the system is meant
to operate with deficiencies in the care provided.  Problems
associated with obtaining meaningful patient survey information may
be even more pronounced for those in the surveyed population with
unique language or cultural needs or who are unaccustomed to
receiving routine health care in a structured system.  Educating and
informing prospective and newly enrolled beneficiaries about managed
care and helping them learn how to use the system--as some states
have done in their Medicaid managed care programs--can mitigate these
problems.\8

Most states are grappling with these and other issues associated with
adapting and developing systems and processes for managed care--a
relatively new health care environment.  According to some experts,
many states are struggling to maintain the staff needed to establish
and oversee their programs, since frequent turnover of staff with
managed care expertise is common.  It is not surprising, then, that
states are at various stages in their program development and
monitoring efforts.  The four states that we visited have taken a
number of steps to overcome these various challenges and improve the
odds that their money is well spent in their managed care programs. 
These states have established contract requirements that aim to
ensure that participating managed care plans have the capacity to
provide adequate care to enrolled Medicaid beneficiaries.  Prominent
among these requirements are standards for plans' provider networks. 
In monitoring participating plans, these states obtain information to
assess actual services delivered from various sources, including
plan-collected and -submitted data, state reviews of patient medical
records, and beneficiaries' reports on their experiences. 


--------------------
\8 See Medicaid:  States' Efforts to Educate and Enroll Beneficiaries
in Managed Care (GAO/HEHS-96-184, Sept.  17, 1996). 


   MEASURES TO ASSESS
   BENEFICIARIES' ACCESS TO CARE
   ARE STILL EVOLVING
------------------------------------------------------------ Letter :4

Before a contract is awarded, managed care plans must demonstrate
that their provider networks are sufficient to meet the anticipated
needs of enrolled Medicaid beneficiaries.  In an attempt to measure
provider network sufficiency, the states we visited--Arizona,
Pennsylvania, Tennessee, and Wisconsin--have focused on quantitative
or other measures related to primary care physicians and specialist
care.  But just as there are few standards for health service
utilization, there are few standards for what constitutes a
sufficient provider network.  Three of the four states have
established a specific number of primary care physicians that a plan
must have, and all require plans to provide a full range of specialty
services.  The states also have relied on criteria that measure
beneficiaries' ability to reach their primary care physician within a
reasonable time, in terms of maximum travel distances and waiting
times.  After contract award, the states use various monitoring
techniques to determine the extent to which provider practices are in
fact open to Medicaid beneficiaries.  These measures, however, do not
necessarily ensure that beneficiaries have access to the care that
they need.  Whether these measures provide meaningful information on
beneficiary access is largely dependent on whether state monitoring
efforts are independent and systematic and go beyond plan-reported,
paper-based indications of compliance. 


      COMPLIANCE WITH PRIMARY CARE
      PHYSICIAN REQUIREMENTS
      PROVIDES INCOMPLETE
      INFORMATION ABOUT NETWORK
      ADEQUACY
---------------------------------------------------------- Letter :4.1

One criterion that states have established in an effort to ensure a
sufficient provider network relates to the availability of primary
care physicians, expressed as a ratio of enrolled beneficiaries per
primary care physician.\9 At the time of our review, Arizona and
Tennessee used a maximum patient-to-primary-care-physician ratio of
2,500 to 1, as required by the conditions of their demonstration
waivers, and Pennsylvania required plans to meet a ratio of 1,600 to
1.\10 Wisconsin did not have specific contractual requirements for
plans but looked for a ratio of approximately 1,200 to 1.  To monitor
plan compliance with these ratios, the states require plans to submit
updated provider listings either annually, to coincide with contract
renewal, or as frequently as monthly.  The states also require plans
to report all changes to the network as they occur and to note in
their provider directories given to beneficiaries those providers who
currently do not accept new patients.\11

The states that we visited have found that plans in their managed
care programs have complied with their
patient-to-primary-care-physician ratios.  But compliance with these
ratios may not indicate actual physician capacity or Medicaid
beneficiaries' access to care.  We believe that the number of primary
care physicians and their availability to treat patients may be
overstated for two reasons.  First, if the state reviews a plan's
network capacity by looking at only that plan rather than looking at
all plans collectively, providers who participate in more than one
plan may be counted more than once.  Second, if the state does not
use full-time-
equivalency data to determine network capacity, network physicians'
other lines of business, such as treating Medicare or privately
insured patients, are not taken into account.  Of the states that we
visited, only Arizona reviews provider participation across plans and
assesses provider capacity in full-time-equivalency terms. 

For patient-to-primary-care-physician ratios to be an effective
measure of patient access to care, states must also ensure that plan
physicians are actually available to treat Medicaid beneficiaries. 
Ratios simply indicate the number of physicians that have contracted
with a plan; they do not indicate the number of patients physicians
are willing to treat and the extent to which physicians actually
provide services.  Arizona and Pennsylvania independently assess the
extent to which physician practices are open to Medicaid
beneficiaries by periodically or randomly calling physician offices
to determine whether they are accepting new Medicaid patients.  When
done on a systematic basis, these checks can better ensure that
provider practices are open to Medicaid beneficiaries. 

To improve oversight of its provider networks, Arizona increased
plans' quarterly provider reporting requirements in September 1996. 
Previously, plans were required to report provider names and the
number of beneficiaries seen by providers.  Plans must now submit
additional data on provider access, such as the maximum number of
Medicaid beneficiaries that a provider will accept, the total number
of beneficiaries currently assigned to a plan, the providers who are
accepting new members, specialty services that are available, and
foreign languages spoken by providers. 


--------------------
\9 In 1994, there was one primary care physician for every 1,173
United States citizens (based on GAO analysis of the HHS Area
Resource File). 

\10 Beginning in October 1997, Arizona will require plans to have
maximum patient-to-primary-care-physician ratios of 1,800 to 1 for
adults and 1,200 to 1 for children under age 13. 

\11 Typically, plan directories are updated annually; consequently,
beneficiaries must directly contact the managed care plan for more
current information on physician availability. 


      SPECIALIST MIX IS NOT
      SPECIFIED IN PLAN CONTRACTS
---------------------------------------------------------- Letter :4.2

Patients often require more specialized care than their primary care
physician can provide--such as oncological, urological, or pediatric
subspecialty care.  Yet, assessing beneficiary access to such care is
even more difficult than assessing access to primary care physicians. 
And as states move more beneficiaries with special needs or chronic
conditions into managed care, ensuring beneficiary access to
appropriate specialty services will become even more critical. 

Assessing the availability of specialty providers within a network is
problematic for at least two reasons.  First, there are no criteria
or standards--in fee-for-service or managed care--for the number and
mix of specialists needed to serve a population or for when and how
often beneficiaries should be referred to specialists.  Second, some
specialists--especially those that are used infrequently--often are
not included in the network and can only be accessed outside the
network.  Since these specialists are not in the network, states
cannot readily assess their availability to beneficiaries when
needed. 

The four states that we visited require that contracted plans provide
a full range of specialty services, even if this requires referring
beneficiaries to providers outside the plan's network.  Without
recognized standards, requirements for specialists are often vague
and expressed in terms of an objective--such as, "provide access to
necessary specialty care"--that cannot be measured before the
contract award.  While the four states do not specify in the
contracts the types and numbers of specialists that plans must
include in their networks, they do count the number and type of
specialists available in any one plan.  This is done by reviewing the
listing of providers in a plan network during the contracting and
contract renewal processes.  Each of these states also reviews plan
listings periodically and requires plans to report all changes in
their specialty networks.  For example, Tennessee officials told us
that the state uses a zip-code-based computer program to check the
location of specialists each quarter--or more frequently if inquiries
or questions come up on a particular provider type.  States then rely
on the judgment of their experienced contract staff--which may
include health care professionals--to determine whether the plans'
specialist networks are adequate. 

This type of review, however, does not inform states of the
specialist services that Medicaid beneficiaries may use or request,
especially if the services involve out-of-network referrals.  In the
absence of accepted standards for specialty care, states have relied
on other information sources--such as data on service utilization and
beneficiary satisfaction--to help them monitor the appropriateness of
care provided. 


      MAXIMUM TRAVEL AND WAITING
      REQUIREMENTS ARE ADDITIONAL
      CRITERIA FOR ASSESSING
      BENEFICIARY ACCESS TO CARE
---------------------------------------------------------- Letter :4.3

As additional criteria for assessing the adequacy of provider
networks, states commonly stipulate the maximum time and distance
beneficiaries must travel to their primary care physician's office,
the number of days they must wait for an appointment to see their
physician, and the time they wait in the physician's office to be
examined.  These measures were developed on the premise that certain
factors--such as lengthy travel times and distances, a physician's
failure to schedule appointments in a timely manner, and excessive
wait times in the physician's office--can discourage patients from
seeking care. 

In general, the states we visited established maximum travel
requirements of 20 miles or 30 minutes for urban areas and 30 miles
or 30 minutes for rural areas.  For their specialist networks, the
four states do not have or grant some exceptions to travel
requirements, since significant portions of their Medicaid population
can reside in rural areas where certain types of specialty care may
not be available.  These states also require providers to meet
state-established standards for scheduling appointments and attending
to beneficiaries in a timely manner.\12

To determine whether plans are complying with the time and distance
travel requirements, each state we visited reviews documentation on
the location of provider sites prior to contracting with a plan and
on a periodic schedule after contracting.  Arizona and Tennessee, for
example, use a computer-based zip-code program.  This allows them to
determine whether the locations of the primary care physicians and
other providers in the network, such as dentists and hospitals, meet
contractual time and distance requirements.  In addition, each state
requires plans to provide transportation for beneficiaries who
require medical attention and who cannot get to their provider's
location on their own, such as the elderly. 

These four states use various approaches--involving plan-provided
data or independent checks--to monitor provider compliance with
wait-time requirements.  For example, each state requires plans to
include appointment standards in its subcontracts with providers and
to review logs to ensure that providers comply.  During their
periodic compliance reviews, the states review the plans' procedures
to ensure that providers have complied with the standards; the states
also review selected sign-in and appointment books.  For example,
Tennessee found during one quarterly review of plan networks that
some plans were not complying with the contractual travel
requirements for their dental networks.  According to state
officials, the plans were notified of the deficiencies, and most took
actions to resolve them.  In at least one case, a plan did not take
action and the state withheld 10 percent of the plan's capitation
payment until it was in compliance.  States also have independently
assessed provider compliance by periodically or randomly calling
provider offices to schedule appointments.  However, such periodic
calls may not be systematic enough to provide the information
required to identify problems.  As one means of gaining additional
insight into beneficiary experience with providers, Arizona and
Tennessee have included questions in their beneficiary satisfaction
surveys that are specifically related to wait times. 


--------------------
\12 Generally, the four states' requirements to schedule appointments
with primary care physicians are same-day appointments for emergency
care, within 24 to 48 hours for urgent or sick care, and 2 to 3 weeks
for routine preventive care.  Requirements for in-office waiting
times are generally 30 to 45 minutes.  Some states also specify
appointment standards for specialty referrals and dental services, as
well as maternity, mental health, and substance abuse services. 


   SYSTEMS FOR ASSESSING ADEQUACY
   OF MEDICAL CARE PROVIDED CAN BE
   FURTHER IMPROVED
------------------------------------------------------------ Letter :5

Recognizing the challenges associated with measuring the capacity of
plan provider networks and their ability to ensure adequate care,
states can use other accountability measures and processes to assess
the actual care Medicaid beneficiaries receive.  To identify average
levels or recent changes in the use of services by beneficiaries
enrolled in managed care, states can use plan reports of utilization
statistics, which summarize selected services provided to specific
populations.  For more extensive analyses, states can use encounter
data, which are individual-level data for each service provided to
each enrollee.  Encounter data allow states to identify the care
received by any individual and the provision of any procedure.  In
addition, states can conduct, or require plans to conduct, other
analyses--such as clinical studies and medical record audits--that
review the full medical records to assess the appropriateness of the
care received by a sample of beneficiaries.\13

The four states that we visited have taken different approaches in
implementing their data collection methods.  For example,
Pennsylvania and Wisconsin have relied primarily on collecting and
using aggregated utilization statistics to measure the adequacy of
care.  Arizona and Tennessee also have required plans to collect and
submit encounter data.  However, both states have found that
developing reliable and useful encounter data has required lengthy
and continuing investment.  As a result, these two states have
primarily used their encounter data to identify services that may be
over- or underutilized and health care areas on which to focus their
studies and audits.  Arizona has begun to use its encounter data to
develop standards for measuring the quality of the care provided.\14
For all four states, we found that certain improvements in their
methodologies for conducting clinical studies and medical record
audits could increase the usefulness of these reviews. 


--------------------
\13 For specific federal regulations and guidance related to these
accountability measures and processes, see table II.1. 

\14 Arizona further uses its encounter data to estimate the cost of
serving beneficiaries in each county and to set capitation rates by
county.  See Arizona Medicaid:  Competition Among Managed Care Plans
Lowers Program Costs (GAO/HEHS-96-2, Oct.  4, 1995). 


      STATES CHALLENGED TO DEVELOP
      EFFECTIVE UTILIZATION
      STATISTICS AND ENCOUNTER
      DATA FOR MONITORING MANAGED
      CARE
---------------------------------------------------------- Letter :5.1

Although utilization statistics and encounter data both capture
patient use of services, utilization statistics are summary data that
are generally relied on to show the frequency with which a service is
accessed by a specific population.  As such, there are several
difficulties associated with using these summary statistics in
assessing services provided under managed care.  For example,
utilization statistics are often compiled for only specific types of
services, such as mammograms or childhood immunizations. 
Consequently, utilization statistics cannot be used to determine the
full range of services that beneficiaries may receive.  For example,
in a prior study, we found that analyses of utilization statistics on
early and periodic screening, diagnosis, and treatment (EPSDT) could
not determine the actual number of EPSDT-eligible children who
received required screenings or whether children with post-screen
referrals actually received follow-up diagnosis and treatment.\15
Utilization statistics also have generally not been used to assess
the performance of individual providers.  To obtain utilization
statistics for other sets of services or services supplied by
individual providers, states would need to modify their reporting
requirements--which could be problematic for plans if they have to
alter their data systems or provider reporting requirements to meet
new state requirements. 

Unlike utilization statistics, which aggregate service use by a
population, encounter data document all services that individual
patients receive.  While encounter data have certain limitations,
these data provide states more flexibility to detect problems in
beneficiary care by identifying patterns of service use by individual
beneficiaries and services provided by individual providers.  For
example, these data can be used to assess the participation of any
provider or group of providers and analyze patterns of care for
specific diagnoses or procedures.  With encounter data, states also
can explore service delivery beyond what is captured by utilization
statistics.  These statistics allow plans and providers to "teach to
the test," that is, focus on service delivery areas that they know
will be measured, perhaps to the exclusion of other services.  Since
encounter data encompass all services for all beneficiary
populations, all plan-provided services are subject to state review,
and the services being reviewed can be changed periodically without
adding to the administrative burden of plans. 

Certain analyses of encounter data, however, are currently
constrained by the limited number of benchmarks or standards against
which states can measure the care provided for certain conditions. 
For example, while recognized standards exist for prenatal care and
childhood immunizations, many diagnoses have multiple alternative
treatments or therapies.  Vocal chord stress, for instance, might be
treated with medication, voice therapy, or surgery.  Individual-level
encounter data cannot show the appropriateness of many treatments
provided to beneficiaries, nor can they provide information about
beneficiaries who do not seek treatment.  Regardless of these
constraints, encounter data are valuable in that they support a wider
array of analyses than do utilization statistics.  Moreover, they
provide the potential for supporting even more analyses as additional
benchmarks are developed. 

To ensure that the utilization statistics and encounter data are
usable, data collection standards must be established and plans must
be monitored for compliance with these standards.  Validating the
accuracy and completeness of encounter data requires additional
measures--especially in a fully capitated system where provider
payment is not directly linked to the documentation of each service
provided.  Although the data collection efforts in the four states
that we visited varied considerably--due, in part, to the federal
guidelines and requirements associated with their waiver
type--overall, their use of encounter data to identify problems in
beneficiary care has been minimal. 

Wisconsin requires contracted plans to collect and submit on a
quarterly basis utilization statistics on 59 types of health care
services, including maternal and child health, mental health, and
emergency room visits.\16 Using fee-for-service experience as the
benchmark, the state analyzes--and publicly discloses in periodic
reports--plan-submitted statistics on certain services, such as
childhood immunizations; lead testing; mammograms; and dental,
vision, and hearing examinations.  For example, the state found that
certain preventive services, such as Pap smears and childhood
immunizations, increased in managed care, whereas emergency room
visits decreased--a redistribution of service settings that is
consistent with the goals of managed care.  In addition, the state
found that beneficiary use of dental services was less in managed
care than in fee-for-service care and took action to improve
beneficiary access to these services.  In relying on utilization
statistics rather than on encounter data, however, Wisconsin cannot
easily or independently assess the care that Medicaid beneficiaries
receive beyond the 59 services.  Such analyses would require
encounter data for 100 percent of the services provided, which the
state has opted not to collect in an effort to limit the
administrative burden that collecting encounter data can place on the
state and the plans. 

Pennsylvania requires each plan participating in its voluntary
managed care program to collect both utilization statistics and
encounter data.  But the state does not prescribe a method for
collecting and validating the encounter data and does not require
plans to routinely submit these data to the state for review and
analysis.\17 In April 1996, the state required all plans to submit
EPSDT data for a specific time period to respond to concerns
regarding Medicaid beneficiaries' access to this service. 

As part of their demonstration waiver requirements,\18 Tennessee and
Arizona require plans to collect and submit encounter data on 100
percent of services, potentially giving these states the greatest
flexibility in their analyses.  Tennessee's efforts to date have
focused on providing technical assistance to help plans configure
their computer systems and data elements to ensure accuracy.  HCFA is
also providing the state with technical assistance in developing
methodologies to analyze its encounter data.  Despite these start-up
issues, the state has begun to analyze its encounter data and to
review provider practice patterns to identify potential over- or
underutilization of care. 

Of the states we visited, Arizona has the most comprehensive system
for validating and analyzing plan-generated encounter data and has
made the most use of these analyses to guide state actions.  To
ensure that its encounter data are accurate, complete, and timely,
the state conducts two validation studies of plan-submitted encounter
data each contract year.  The first study takes a random sample of
medical records and manually compares these records with the
encounter data submitted by the plans.  The second study compares the
number of inpatient maternity hospitalizations with newborn reports
from hospitals.  The state also uses its encounter data to evaluate
individual plan performance.  Furthermore, beginning October 1997,
Arizona will require plans to compile encounter data on specific
measures, including mammography screening, cervical cancer screening,
children's dental services, and well-child care.\19 In essence,
Arizona will require plans to use their encounter data to compute
certain utilization statistics.  This should make the information
available to the state sooner.  Arizona also is creating a quality
management system that uses outcome-based standards and, over the
past several years, has been creating a baseline for these standards. 
The system will seek to produce data that could indicate whether
preventive care--such as dental visits for children, mammograms, and
Pap smears--prevent more serious health problems. 

In the three states with mandatory managed care programs, plans may
be sanctioned if they do not comply with utilization statistics or
encounter data requirements.  Tennessee assesses a 10-percent
withhold on capitation payments for each month that a plan does not
comply with data submission requirements.  If the problem is not
corrected within 6 months, the state keeps the withheld funds. 
Arizona imposes a financial penalty based on the number of data
errors identified in its plans' encounter data.  Wisconsin may impose
financial penalties if plans do not meet accuracy and timeliness
requirements.  Over the last 2 years, the amount collected in
penalties by Tennessee and Arizona has been minimal, and Wisconsin
has not assessed any penalties. 


--------------------
\15 See Medicare Managed Care:  More Competition and Oversight Would
Improve California's Expansion Plan (GAO/HEHS-95-87, Apr.  28, 1995). 

\16 For each indicator for which summary statistics are reported,
plans also report a complete individual-level patient history file,
which documents all services that the patient has received.  This
system allows Wisconsin to determine the actual number of
beneficiaries who receive a service and to conduct more extensive
analyses on areas of concern. 

\17 Pennsylvania requires plans to submit encounter data for Medicaid
beneficiaries enrolled in the state's mandatory managed care program. 
At the time of our review, 75,000 beneficiaries were enrolled in
mandatory managed care.  Nearly 500,000 are now enrolled as a result
of the state's February 1997 expansion. 

\18 HCFA requires all states with a demonstration waiver to collect
encounter data for 100 percent of services. 

\19 The required measures are based on Medicaid Health Plan Employer
Data Information Set (HEDIS).  Medicaid HEDIS provides guidance that
states may use to measure, improve, and report on health plan
performance.  Medicaid HEDIS was the collaborative effort of
representatives from state Medicaid agencies, managed care plans, the
National Committee on Quality Assurance (NCQA), professional health
and welfare organizations, beneficiary advocacy groups, HCFA, the
U.S.  Public Health Service, and others. 


      MORE TARGETED CLINICAL
      STUDIES AND MEDICAL RECORD
      AUDITS ARE NEEDED TO ASSESS
      IMPACT OF MEDICAID MANAGED
      CARE
---------------------------------------------------------- Letter :5.2

Recognizing the limitations of utilization statistics and encounter
data, each of the four states that we visited uses reviews of samples
of individual patient's medical records to determine whether
appropriate and adequate care has been provided.  Each state requires
contracted plans to conduct at least one clinical study each year.  A
clinical study focuses on certain aspects of health care services,
such as maternal health, to answer questions about the quality and
appropriateness of care that has been provided.  Each state also
conducts its own medical record audits--as required by federal
regulation--either internally or through a contracted external review
organization, such as the State Peer Review Organization.  Medical
record audits also have the potential to assess the appropriateness
of the care provided as well as determine whether patients' medical
records properly document the health care and services that they
received. 

The states' current approaches to conducting these studies and audits
could be improved to yield more useful findings.  For example, we
found that clinical studies often focus on the Medicaid population as
a whole and less frequently target populations that may not fare as
well under managed care, such as people with disabilities or chronic
illnesses.\20

In addition, the states' sample sizes for its medical record audits
appear to be insufficient to enable states to draw conclusions about
the adequacy of the documentation of beneficiary care, particularly
for certain populations or conditions too small to show up in pure
random samples. 


--------------------
\20 See "Differences in 4-Year Health Outcomes for Elderly and Poor,
Chronically Ill Patients Treated in HMO and Fee-for-Service Systems: 
Results From the Medical Outcomes Study," The Journal of the American
Medical Association, Vol.  276, No.  13 (Oct.  2, 1996). 


         MANAGED CARE PLANS'
         CLINICAL STUDIES
-------------------------------------------------------- Letter :5.2.1

Pennsylvania, Tennessee, and Wisconsin allow plans to select a topic
to study from one or more health care areas that the state
identifies.\21 In selecting study areas, the three states rely on the
professional judgment and experience of staff in the state Medicaid
agency and on independent expert opinion the states may seek.  While
studies of this nature can provide states with valuable information
on plan performance and a baseline for evaluating subsequent plan
performance, we found that the plan-conducted studies had several
limitations.  For example, only Wisconsin specified study areas that
included conditions for which beneficiaries might require more care
than the general Medicaid population, such as children with special
care needs.  Problems in the care for such beneficiaries may not be
detected in studying samples of the overall Medicaid population
because, relative to the larger population, their numbers are too
small.  In addition, allowing plans to select their clinical study
topics gives them the latitude to select a topic where improvement
may be needed, but it also allows them to select a topic that would
yield positive results about plan performance.  Finally, allowing
plans to select topics to study does not enable states to compare
results across plans for certain conditions or topics. 

We also found that the states we visited conducted limited reviews of
plan methodologies for clinical studies.  Pennsylvania, for example,
reviews plan methodologies during periodic quality assurance
audits--after the plans' clinical studies have been completed. 
Wisconsin recently revised its process for reviewing plan
methodologies.  Previously, the state required plans to submit a
one-paragraph description of their methodologies, on which the state
would base its approval.  For the contract year beginning October
1996, Wisconsin began to require plans to submit detailed
descriptions of the study topic and the methodology for conducting
the study.  To validate the results of the plans' clinical studies,
Pennsylvania and Tennessee review a sample of patient records during
compliance reviews for their annual contracts.  However, these states
generally pull only a handful of records to verify the clinical study
results. 


--------------------
\21 Arizona requires plans to submit a topic for state approval. 


         STATES' MEDICAL RECORD
         AUDITS
-------------------------------------------------------- Letter :5.2.2

Medical record audits document problems with patient medical records,
such as incomplete patient histories, lack of indication of follow-up
care, and illegibility and unavailability of records.  These audits
also can help identify underlying causes of service delivery or
access problems.  If a plan's medical records are inadequate or
indicate a service delivery problem, a state can require the plan to
take corrective action.  All four states that we visited use
utilization statistics, encounter data, or both to focus their audits
of Medicaid beneficiary medical records.  For example, Wisconsin
found through its analyses of utilization statistics that use of
dental services was infrequent and, therefore, conducted a medical
record audit to determine why Medicaid beneficiaries were not getting
dental care. 

While these states' periodic audits of beneficiary records have
revealed weaknesses in the documentation of beneficiary care, we
found that their audit methodologies often yielded results that were
not statistically valid or may not have been sufficient to identify
problems experienced by different groups of Medicaid beneficiaries. 
Specifically, the samples of records that the states used to conduct
their audits generally were not stratified by specific conditions or
populations--which could result in an underrepresentation of Medicaid
beneficiaries with special needs--and the sample sizes may not have
been adequate to identify areas that warrant further investigation. 
For example, Wisconsin uses a random sample of about 2 percent of
cases for medical record audits.  Arizona bases its sample sizes on
the number of beneficiaries enrolled in a plan, with the sample sizes
ranging from 30 to 100 patient records.  Although the state agrees
these sample sizes are not statistically valid, it believes that
these audits, when combined with other periodic on-site reviews, are
sufficient to identify best practices as well as problem areas to
target for corrective action. 


   STATES COULD LEARN MORE FROM
   IMPROVED DESIGN AND ANALYSIS OF
   DATA ON BENEFICIARY EXPERIENCE
   WITH MANAGED CARE
------------------------------------------------------------ Letter :6

In assessing the performance of managed care plans, indicators of
beneficiary satisfaction can complement other analyses of provider
network capacity and the services provided.  To gauge the extent to
which beneficiaries are satisfied with Medicaid managed care and
their managed care plan, the states that we visited review the
results of beneficiary satisfaction surveys, grievance data, and the
rates at which beneficiaries choose to switch plans or, if enrolled
in a voluntary program, leave managed care altogether.  While
analyses of such data have helped these states identify problems that
Medicaid beneficiaries have with managed care, such as difficulty in
scheduling appointments or accessing specialists, certain
improvements in the design of their surveys and data collection
methods could enhance the usefulness of their analyses. 


      IMPROVED BENEFICIARY SURVEY
      DESIGNS COULD YIELD MORE
      USEFUL DATA
---------------------------------------------------------- Letter :6.1

Although the results of patient satisfaction surveys may not be the
best indicator of quality care, periodic satisfaction
surveys--administered statewide or at the plan level--can help
measure the degree to which Medicaid beneficiaries are happy with the
providers and services offered in their managed care plan.  To ensure
that survey findings are reliable and useful in identifying areas
that need systemwide improvement, the survey design and process must
be methodologically sound, however.\22 In addition, the survey must
be designed to address several difficulties inherent in surveying the
Medicaid population, such as effectively administering a survey
instrument in multiple languages and overcoming historically low
response rates. 


--------------------
\22 Medicaid HEDIS provides states with technical guidance on
designing a satisfaction survey for Medicaid beneficiaries.  This
guidance includes how to identify topics for surveys and the
trade-offs between phone and mail surveys, such as data collection
costs, time required for data collection, response rates, sample
sizes, and overall quality of data.  In addition, HHS is developing
beneficiary satisfaction surveys for both general and special needs
populations, which should be of further help to the states once
completed. 


         PLAN-CONDUCTED
         BENEFICIARY SURVEYS
-------------------------------------------------------- Letter :6.1.1

Pennsylvania, Tennessee, and Wisconsin require plans to conduct
periodic surveys to assess beneficiary satisfaction with network
providers and services.  Pennsylvania and Tennessee review the plans'
survey methodologies during their annual contract compliance reviews,
but they do not routinely examine the survey methods before the
surveys are conducted.  Wisconsin requires plans to describe in
detail the methodology they intend to use before the contract is
awarded.  Once the contract is awarded, the state reviews and
approves each plan's survey methodology and instrument before it is
administered.  However, none of these states prescribes a methodology
for conducting satisfaction surveys.  Consequently, these states
cannot compare survey results across plans. 


         STATEWIDE SURVEYS
-------------------------------------------------------- Letter :6.1.2

Statewide surveys allow states to compare results across plans for
various access and quality measures, such as use of specialty
services, average waiting time for physician office visits, and
beneficiary perception of the quality of care provided.  As a
condition of its demonstration waiver, Tennessee is required to
conduct statewide satisfaction surveys annually.  Arizona--on its own
initiative--will soon complete a statewide beneficiary satisfaction
survey.  Pennsylvania and Wisconsin plan to conduct surveys as part
of their planned program expansions. 

Since implementing its managed care program in 1994, Tennessee has
conducted two annual statewide surveys.  HCFA required that the
state's beneficiary satisfaction survey include questions on
referrals to specialists, average waiting time for physician office
visits, and reasons for disenrollment.  Tennessee has used these
surveys to identify trends in service use.  For example, the state
found that between 1993--the last year of fee-for-service care--and
1995, hospital use decreased 6 percent, and visits to doctors'
offices increased 8 percent--a redistribution of service settings
that is hoped for in managed care.  In addition, its 1995 survey
showed that 75 percent of enrollees were satisfied with the care they
received through their managed care plan compared with a 61-percent
satisfaction rate in 1994.  Although this showed improvement in
overall beneficiary satisfaction, the state also could use these
survey results to further explore remaining causes of dissatisfaction
for one fourth of the beneficiaries. 

Arizona is issuing the results of its third statewide beneficiary
survey in spring 1997.\23

The comprehensive survey included questions on the use of health
services, time elapsed in getting an appointment with a physician and
in waiting in the physician's office, problems with access to
specialty care, and an overall rating of the plan and quality of
care.  The state conducted telephone interviews, which allowed
interviewers to verify that they were speaking with the appropriate
beneficiary and to ask appropriate follow-up questions.  Of the
current 450,000 beneficiaries enrolled in the program, over 14,000
were interviewed.  The state intends to use the survey results to
provide feedback to plans. 


--------------------
\23 Arizona's first survey, administered in 1989 by an advocacy
group, was a comprehensive look at all health services used.  The
second, administered in 1995 by the Arizona State University Survey
Research Laboratory, was a focused survey on prenatal and maternity
care. 


      TARGETED ANALYSES OF
      GRIEVANCE DATA HELP IDENTIFY
      AREAS THAT NEED IMPROVEMENT
---------------------------------------------------------- Letter :6.2

To satisfy a federal requirement for operating a Medicaid managed
care program, states must ensure that participating plans have an
internal grievance process through which beneficiaries can report
their dissatisfaction with plan providers, services, and benefits. 
Through these grievance processes, the states that we visited have
been able to identify and address a number of beneficiary concerns. 
Some states also look at individual beneficiary grievances to
identify specific and localized problems.  Other opportunities for
analyzing grievance data, however, exist.  For example, monitoring
the volume of grievances filed--particularly across plans--could
reveal previously unidentified problems.  Even a low number of
grievances could indicate that beneficiaries do not understand the
grievance process. 

Arizona requires beneficiaries to submit grievances directly to the
plan.  Pennsylvania and Wisconsin have no such requirement but
encourage this practice; they also allow beneficiaries to submit
grievances directly to the state.  Tennessee requires beneficiaries
to submit grievances directly to the state.  After receiving a
grievance, the plans must provide beneficiaries with resolution and
action in a reasonable time frame, ranging from 30 to 90 days.  If a
beneficiary is not satisfied with a plan's decision, the beneficiary
can appeal to the state.  Most grievances are resolved at the plan
level, however, according to officials in the states we visited.  At
a minimum, the plans that directly receive grievances are required to
periodically report to the state the number and type of grievances
they received--such as denial of requests for out-of-plan services or
difficulty in locating a provider or in scheduling an
appointment--and the status of these cases.  To probe beyond such
aggregated information, which may mask specific or localized
problems, Arizona and Wisconsin informed us that they review each
grievance that plans receive. 

In addition to the grievance process, each state has developed other
means for beneficiaries to voice their concerns.  For example,
Tennessee has a toll-free information hotline to respond to
beneficiary questions and concerns.  Tennessee also sponsors hotlines
run by advocacy groups to answer questions posed by beneficiaries
with special needs, such as persons with acquired immune deficiency
syndrome (AIDS) or human immunodeficiency virus (HIV), hemophiliacs,
and persons with disabilities, as well as the general Medicaid
population.  In addition to state-run hotlines, Wisconsin requires
each plan to have a beneficiary advocate who serves as a liaison
between the state, the plan, and the beneficiary.  The plan advocate
identifies major areas of concern, such as lack of access to mental
health care, and works with the plan and the state to correct the
problem.  This can obviate the need for beneficiaries to register
grievances. 


      STATES' ANALYSES OF
      DISENROLLMENT DATA COULD
      HELP IDENTIFY PROBLEM AREAS
---------------------------------------------------------- Letter :6.3

Beneficiaries who disenroll from a managed care plan may do so
because of dissatisfaction with the care they receive through the
plan.  Therefore, collecting and analyzing data on disenrollments can
provide important insights into plan performance.  In a voluntary
program, such as the one we visited in Pennsylvania, beneficiaries
can switch plans or return to fee-for-service care.  In mandatory
programs--such as those in Arizona, Tennessee, and
Wisconsin--beneficiaries can switch plans during open seasons, which
occur every 6 or 12 months.\24 The states we visited, however,
generally do not conduct routine disenrollment studies. 

According to officials in these states, they would conduct a
disenrollment study if a significant number of disenrollments were
detected.\25 They believe that disenrollments--especially in low
numbers--could signify a number of occurrences other than beneficiary
dissatisfaction or problems with the plan.  For example, in 1992,
Arizona conducted a disenrollment study and found that most of the
beneficiaries who changed plans during open enrollment--which was
less than 5 percent of all beneficiaries in managed care--did so for
reasons other than plan dissatisfaction.  Specifically, the state
found that some beneficiaries disenrolled because they wanted to
continue to see a provider who was no longer in their plan's network. 
Others switched to have all family members in one plan, and still
others wanted to enroll in a plan where provider location was more
convenient.  Unless it sees a substantial change in enrollment rates
during an annual open season, Arizona has no plans to conduct another
study. 

More analyses of these disenrollment data--even if the rate at which
beneficiaries leave or switch plans is low--could reveal significant
problems.  Disenrollments concentrated in an area or among people
having similar needs, such as people with AIDS, may indicate a
potential problem in a plan.  Also, any plan having higher
disenrollment rates than other plans may merit scrutiny to determine
the reason. 


--------------------
\24 Under a demonstration waiver, states can obtain federal
authorization to require beneficiaries to remain enrolled in a
specific health plan for 12 months.  Under certain circumstances,
such as relocation, beneficiaries can change plans at other times. 

\25 In 1995, disenrollment rates in Arizona and Tennessee--the two
demonstration waiver states where enrollment only changes
annually--were 4 and 6 percent, respectively. 


   OBSERVATIONS
------------------------------------------------------------ Letter :7

In view of the billions of dollars that are being paid prospectively
to managed care plans and the questions about the degree to which
managed care is meeting the health care needs of Medicaid
beneficiaries, there is a new demand for public accountability.  The
continuing trend toward expansion of mandatory, capitated Medicaid
managed care programs requires that states have the ability to
adequately oversee their contracts with health plans and ensure that
states get what they are paying for.  However, developing systems to
hold plans accountable for ensuring that Medicaid beneficiaries
receive the care that they need has been a challenge for
states--especially since there are few benchmarks and standards
against which states can measure beneficiary access to network
providers and the appropriateness of the care provided. 

The four states that we visited have made progress toward developing
accountability measures to ensure that beneficiaries have access to
quality care.  As they expand or refine their Medicaid managed care
programs, these states continue to scale the steep learning curve to
becoming an effective purchaser of managed care.  Yet, to instill
greater public confidence that managed care can effectively and
efficiently meet the health care needs of Medicaid beneficiaries,
more effort is needed.  For example, to varying extents, these states
could improve their methodologies for collecting and analyzing
data--especially encounter data--on beneficiary care.  They could
better target their clinical studies, medical record audits,
beneficiary satisfaction surveys, and reviews of grievance data on
specific services and beneficiary groups--particularly those with
special needs or conditions whose numbers may be too small to show up
in broad-scale surveys or studies.  The need for these improvements
takes on even greater importance for those states planning to expand
their managed care programs to other geographic areas or populations,
such as people with disabilities or other special needs. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :8

We provided a draft of this report to the Administrator, HCFA.  We
also provided a draft to Medicaid officials in each of the four
states we visited and to independent experts and researchers from the
Center for Health Care Strategies, Medical College of Virginia, and
National Academy for State Health Policy.  Each provided technical or
clarifying comments, which we incorporated as appropriate. 

In addition to technical comments, each state informed us of recent
or planned initiatives for ensuring plan and provider accountability
in their programs.  For example, in February 1997, Pennsylvania
implemented HealthChoices--a mandatory managed care program projected
to serve more than a half million Medicaid beneficiaries in the state
by 1997.  With this new program, Pennsylvania plans to improve those
accountability measures used under its voluntary program or adopt new
accountability measures, such as disenrollment studies.  HCFA,
Arizona, and Wisconsin also noted that the draft did not discuss all
accountability or quality assurance measures that were in use at the
time of our review and were concerned that the account of state
efforts was incomplete.  In the final report, we state that the focus
of our work was on 10 key measures or processes that states commonly
use to assess plan accountability--not on each state's entire quality
assurance process. 

Arizona and Wisconsin also commented that the draft report did not
reflect in all respects their experience with managed care.  For
example, they disagreed with our premise that since managed care
plans receive prospective capitated payments, there is a financial
incentive to limit or not provide needed services.  HCFA echoed this
comment.  The two states pointed out, for example, that the use of
certain preventive services increased when they moved to managed
care.  In response to their comments, we revised the report to
include examples of their experience in the changing patterns of care
under managed care.  Nevertheless, in a prepaid capitated system, the
incentive remains to provide fewer services in order to maximize
short-term profits, as the HCFA Administrator recently testified
before the Senate Committee on Finance.  Concern about plans and
providers having a short-term focus is exacerbated by the fact that
significant numbers of beneficiaries frequently gain and lose
Medicaid eligibility within a short period of time. 

Arizona also made a number of comparisons between managed care and
fee-for-service and suggested that our report include such
comparisons.  The purpose of our report was not to weigh the merits
of one system against those of another.  Rather, we set out to
identify potential problems Medicaid beneficiaries may have in
accessing services through managed care and state efforts to address
these access issues. 

Several reviewers, including HCFA, agreed with our conclusion that
certain measures of physician capacity do not adequately ensure
beneficiary access to care.  It was suggested that we report on other
important criteria states use to assess the adequacy of provider
networks--specifically, beneficiary travel and waiting times.  The
final report reflects additional information on this issue. 

Finally, the experts we consulted generally agreed with the accuracy
and comprehensiveness of our presentation of the issues.  They also
emphasized that the transformation of existing state systems and
processes to an effective managed care program--especially one with
meaningful oversight mechanisms--requires great change accompanied by
continuous refinements and adaptations.  Each state--with varying
levels of experience with managed care, resources, and in-house
expertise--understandably approaches this evolutionary process with
varying strategies and time frames.  Even as states confront their
many challenges in implementing managed care, strong and consistent
accountability systems remain integral to their success in meeting
the needs of Medicaid beneficiaries.  This perspective is more fully
reflected in the final report. 


---------------------------------------------------------- Letter :8.1

As arranged with your office, 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 of
this report to the Secretary of Health and Human Services, the
Administrator of HCFA, state officials in the four states we visited,
appropriate congressional committees, and other interested parties. 
We will also make copies available to others upon request. 

Please contact me on (202) 512-7114 or Kathryn G.  Allen on (202)
512-7059 if you or your staff have any questions.  Major contributors
to this report are listed in appendix III. 

Sincerely yours,

William J.  Scanlon
Director, Health Financing and
 Systems Issues


SCOPE AND METHODOLOGY
=========================================================== Appendix I

To ensure quality in their Medicaid managed care programs, states use
a number of quality assurance and oversight mechanisms.  For example,
some states require accreditation of plans by independent entities,
such as the National Committee on Quality Assurance.  Most states
build into their contracts with managed care plans a variety of
accountability measures and processes.  Once states have contracted
with plans, they monitor the plans to ensure that they comply with
these requirements. 

Based on our review of federal requirements and guidelines and state
contracts and supporting documents, we identified a number of
accountability measures and processes that states commonly include in
their contracts with managed care plans.  States can rely on various
controls to assess compliance with some of these measures--including
plan licensing, physician credentialing, and fiscal solvency
requirements.  Some accountability measures are more difficult to
develop controls for and, therefore, are more difficult to monitor. 

To assess state efforts to hold managed care plans accountable for
meeting Medicaid program goals and providing beneficiaries enrolled
in capitated managed care plans the care they need, we narrowed the
focus of our study to three areas:  ensuring an adequate provider
network, tracking the medical care provided to beneficiaries, and
assessing beneficiary satisfaction.  From among numerous quality
assurance measures and processes, we identified 10 that states
commonly use to monitor plan compliance in these accountability
areas.  Health Care Financing Administration (HCFA) officials and
experts we contacted agreed that these measures and processes are
essential to ensuring that plans meet the terms of their contracts. 
(See table I.1.)



                               Table I.1
                
                  Selected Accountability Measures and
                               Processes

Accountability area                 Measure or process
----------------------------------  ----------------------------------
Adequacy of provider network        --Patient-to-primary-care-
                                    physician ratio
                                    --Access to specialists
                                    --Travel distances and waiting
                                    times

Adequacy of medical care            --Utilization statistics
                                    --Encounter data
                                    --Clinical studies
                                    --Medical record audits

Beneficiary satisfaction            --Satisfaction surveys
                                    --Grievance procedures
                                    --Disenrollment data
----------------------------------------------------------------------
To examine how these accountability measures and processes were
implemented, we visited four states--Arizona, Pennsylvania,
Tennessee, and Wisconsin--and reviewed their systems for ensuring
access to quality care in their managed care programs.  To select
these states, we first identified a universe of 14 states that, as of
June 1994, had more than 100,000 beneficiaries enrolled in capitated
Medicaid managed care programs.  We chose that date because we
believed that, even for states just entering the managed care market,
they would have had at least 2 years at the time we began our review
to develop and implement their accountability systems.  We then
judgmentally selected four states that would provide a mix of
experiences for a variety of factors.  These factors included type of
program (Medicaid demonstration waiver, program waiver, or voluntary
nonwaiver), years of managed care experience, size of program, and
geographic diversity.  (See table I.2 for a brief description of each
state's Medicaid managed care program.)



                         Table I.2
          
          Description of the Four States' Medicaid
          Managed Care Programs That GAO Reviewed

State           Program name and description
--------------  ------------------------------------------
Arizona         Arizona Health Care Cost Containment
                System is a mandatory statewide
                demonstration program, operational since
                1982, with Aid to Families With Dependent
                Children (AFDC) and Supplemental Security
                Income (SSI) enrollment of over 450,000 in
                14 participating health plans. Arizona did
                not have a Medicaid program before the
                waiver.

Pennsylvania    The state's voluntary nonwaiver program
                has been operational since 1972, with
                enrollment of about 435,000 AFDC and SSI
                beneficiaries in 18 counties in 11 health
                maintenance organizations (HMO) as of June
                1996. (The scope of our work focused on
                the state's voluntary program.) The state
                also had a mandatory program, Health Pass,
                in certain areas of Philadelphia from 1986
                to January 31, 1997. On February 1, 1997,
                a new program waiver, HealthChoices, began
                in 5 Philadelphia-area counties; the
                voluntary program will continue in 13
                counties. Within the next 2 years, the
                state plans to apply for a statewide
                demonstration waiver.

Tennessee       TennCare is a mandatory, statewide
                demonstration waiver program, operational
                since 1994, with enrollment of 849,000
                AFDC and SSI Medicaid beneficiaries and
                over 334,000 uninsured persons in 12
                participating HMOs at the time of our
                review.\a

Wisconsin       The state's mandatory program waiver for
                its AFDC population has been operational
                since 1984 in 5 counties, with enrollment
                of 138,000 in 11 participating HMOs. A
                modified waiver was approved October 1,
                1996, to expand mandatory enrollment to 68
                of the state's 72 counties.
----------------------------------------------------------
\a As of January 1997, Tennessee began to contract solely with HMOs. 
Before this, Tennessee also contracted with other health plans, such
as preferred provider organizations. 

For each state, we reviewed the contractual and other requirements
the states have established with plans for these selected
accountability indicators.  We also interviewed officials from the
state Medicaid, health, and insurance agencies to discuss specific
contract requirements with managed care plans, state oversight
activities and state actions available or taken as a result of
monitoring, and state plans for changes in and expansions to their
managed care programs. 

To identify federal requirements and guidance available to states to
oversee their Medicaid managed care programs, we interviewed
officials from HCFA's central office and Chicago and Philadelphia
regional offices, the Department of Health and Human Services' (HHS)
Office of Inspector General, and state-level advocacy groups.  We
also interviewed experts with The George Washington University Center
for Health Policy Research, the National Association of Managed Care
Regulators, the National Committee on Quality Assurance, and the
National Association of Insurance Commissioners.  Finally, we
consulted with the following experts and researchers in the course of
our work:  Jane Horvath, National Academy for State Health Policy,
Washington, D.C.; Robert Hurley, Medical College of Virginia,
Richmond, Virginia; and Stephen Somers and Karen Brodsky, Center for
Health Strategies, Princeton, New Jersey. 

We performed our work between October 1995 and March 1997 in
accordance with generally accepted government auditing standards. 


FEDERAL AND STATE OVERSIGHT ROLES
OF MEDICAID MANAGED CARE
========================================================== Appendix II

By virtue of the mandated federal-state Medicaid partnership, states
must meet certain federal requirements when developing their managed
care programs.  States may implement managed care programs under one
of three options.  The first option is a nonwaiver program that
allows states to contract with managed care plans to deliver health
care services to Medicaid beneficiaries who voluntarily participate. 
Certain conditions must be met, such as allowing beneficiaries the
freedom to stay in a traditional fee-for-service system or enroll
with a managed care plan from which they can disenroll at any time. 
Plans also must adhere to a "75-25 rule," which prohibits
participating managed care plans from enrolling 75 percent or more
Medicaid and Medicare beneficiaries.  The managed care program in
Pennsylvania that we reviewed is a program of this type. 

The other two options for managed care--program and demonstration
waivers--allow HCFA to waive certain provisions of the Medicaid
statute, including beneficiaries' freedom to choose from among
participating providers.  Under a program waiver, enrollment can be
mandatory, but states are still required to ensure that plan
enrollment of Medicaid and Medicare beneficiaries does not reach 75
percent and, in most cases, plans cannot lock in enrollment for more
than 1 month.  Wisconsin operates its mandatory managed care program
under a program waiver.  Under a demonstration waiver, states may be
given permission to contract with plans that do not comply with the
75-25 rule and to exclusively enroll Medicaid beneficiaries.  They
also have been permitted to lock in beneficiary enrollment for up to
12 months.  The managed care programs in Arizona and Tennessee are
statewide mandatory programs operated under demonstration waivers. 
In addition, some states, such as Tennessee, have used demonstration
waivers to expand eligibility to include non-Medicaid-eligible people
who were formerly uninsured. 

Certain federal regulations, requirements, and guidance influence the
development of state managed care programs and state monitoring of
managed care plan performance.  The extent of these requirements
often depends on waiver type and can vary by state.  In general, HCFA
monitors the planning for and implementation of demonstration waivers
more than for program waivers.  The initial terms and conditions of
approval for demonstration waivers are more detailed than for program
waivers and are more specific in the content and timing of reporting
requirements.  For example, HCFA's terms and conditions for a
demonstration waiver have required that states specify in their
contracts with plans a specific patient-to-primary-care-physician
ratio that plans must meet.  HCFA also requires that most states
establish travel-related requirements for plan networks, such as
maximum times and distances beneficiaries must travel to reach their
primary care physician.  In contrast, under a program waiver, HCFA
suggests that states establish a patient-to-primary-care-physician
ratio or that providers be located near beneficiaries.  Under
demonstration waivers, HCFA also requires states to provide an
overall quality assurance monitoring plan and, as part of that plan,
requires states to specify a minimum data set of encounter data. 
This minimum data set must receive prior HCFA approval.  Program
waivers, in contrast, have guidelines on quality assurance programs
but not as many specific requirements.  For example, HCFA does not
require states to develop encounter data under program waivers. 

Table II.1 summarizes federal requirements and guidance by selected
accountability measures and processes. 



                               Table II.1
                
                 Federal Regulations, Requirements, and
                  Guidance for Selected Accountability
                 Measures and Processes Within States'
                     Medicaid Managed Care Programs

                                                Additional HCFA
Accountability measure                          requirements and
or process              Federal regulation      guidance\a
----------------------  ----------------------  ----------------------
Patient-to-primary-     Plans must ensure that  For demonstration
care-physician ratio    beneficiaries in        waivers, states must
                        managed care have the   meet maximum 2,500 to
                        same access to          1 ratio. For program
                        providers and services  waivers, HCFA suggests
                        as beneficiaries in     ratios be evaluated.
                        fee-for-service
                        plans.
                        (42 C.F.R.
                        434.20(c)(2))

Availability of         Services are to be the  HCFA suggests that
specialists             same as those provided  states have a system
                        under fee-for-service   for authorizing and
                        plans. (42 C.F.R.       coordinating specialty
                        434.20(c)(2))           services.

Utilization statistics  Requires plans to       HCFA requires all
and encounter data      maintain appropriate    states with
                        record systems for      demonstration waivers
                        services provided to    to collect 100%
                        enrollees. (42 C.F.R.   encounter data and
                        436.6(a)(7))            requires all states to
                                                quarterly report
                                                aggregated statistics
                                                on selected services.

Clinical studies        Plans must have an      HCFA suggests states
                        internal quality        conduct quality-of-
                        assurance system. (42   care studies.
                        C.F.R. 434.34)

Medical record audits   States must annually    HCFA requires states
                        conduct an audit of     to comply with federal
                        medical records. (42    regulation for medical
                        C.F.R. 434.53)          record audits.

Beneficiary             Plans must have an      For demonstration
satisfaction surveys    internal quality        waivers, a state may
                        assurance system. (42   be required to conduct
                        C.F.R. 434.34)          a survey as HCFA
                                                prescribes. For
                                                program waivers, HCFA
                                                suggests plans conduct
                                                periodic surveys.

Grievance procedures    Plans must have an      HCFA requires states
                        internal grievance      to report grievance
                        procedure approved by   data quarterly.
                        the state that
                        provides for prompt
                        resolution. (42 C.F.R.
                        434.32)

Disenrollment studies   States must monitor     HCFA suggests states
                        enrollment and          analyze enrollment
                        termination practices.  statistics.
                        (42 C.F.R. 434.63)
----------------------------------------------------------------------
\a For demonstration waivers, additional requirements and guidance
are in the terms and conditions that HCFA develops when it approves a
state's waiver request.  These terms and conditions can vary by
state.  For risk-based managed care plans, such as program waivers,
HCFA's guidance is included in Monitoring Risk-Based Managed Care
Plans:  A Guide for State Medicaid Agencies, report prepared under
contract for the Medicaid Bureau/HCFA by the Medicaid Management
Institute of the American Public Welfare Association (Washington,
D.C.:  HHS, July 1993). 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

Kathryn G.  Allen, Acting Associate Director, (202) 512-7059
Karyn L.  Papineau, Evaluator-in-Charge, (202) 512-7155
Karin A.  Lennon, Senior Evaluator
Karen M.  Sloan, Communications Analyst
Betty J.  Kirksey, Evaluator
Daniel S.  Meyer, Senior Evaluator


*** End of document. ***