Health Financing and Systems Issue Area Plan--Fiscal Years 1997-99
(Letter Report, 09/01/96, GAO/IAP-96-26).

GAO provided information on its Health Financing and Systems issue area
plan for fiscal years 1997 to 1999.

GAO plans to: (1) review the Health Care Financing Administration's
efforts to collect payments from other insurers in the Medicare
Secondary Payer program; (2) review states' ability to monitor managed
care plans' financial solvency and administrative costs; (3) review
managed care programs for special needs populations; (4) examine the
private sector's use of bundled payments for certain types of care and
the potential for applying this technique more widely in Medicare; (5)
review the major changes in the Medicaid program that accompanied the
shift to managed care delivery models; (6) analyze the implications of
raising the age threshold for Medicare eligibility on Medicare outlays,
private employers, and individuals; and (7) assess state equity
differences in allocating Medicaid funds through block grants and other
federal contribution arrangements.

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

 REPORTNUM:  IAP-96-26
     TITLE:  Health Financing and Systems Issue Area Plan--Fiscal Years 
             1997-99
      DATE:  09/01/96
   SUBJECT:  Health care programs
             Health insurance cost control
             Medical services rates
             Health maintenance organizations
             Health services administration
             State-administered programs
             Intergovernmental fiscal relations
             Health care services
             Managed health care
             Financial management
IDENTIFIER:  Medicare Program
             Medicaid Program
             AFDC
             Aid to Families with Dependent Children Program
             Medicare Secondary Payer Program
             
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Cover
================================================================ COVER


Health, Education, and Human Services Division

September 1996

HEALTH FINANCING AND SYSTEMS ISSUE
AREA PLAN

FISCAL YEARS 1997-99

GAO/IAP-96-26



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


FOREWORD
============================================================ Chapter 0

As the investigative arm of the Congress and the nation's auditor,
the General Accounting Office is charged with following the federal
dollar wherever it goes.  Reflecting stringent standards of
objectivity and independence, GAO's audits, evaluations, and
investigations promote a more efficient and cost-effective
government; expose waste, fraud, abuse, and mismanagement in federal
programs; help the Congress target budget reductions; assess
financial information management; and alert the Congress to
developing trends that may have significant fiscal or budgetary
consequences.  In fulfilling its responsibilities, GAO performs
original research and uses hundreds of databases or creates its own
when information is unavailable elsewhere. 

To ensure that GAO's resources are directed toward the most important
issues facing the Congress, each of GAO's 32 issue areas develops a
strategic plan that describes the significance of the issues it
addresses, its objectives, and the focus of its work.  Each issue
area relies heavily on input from congressional committees, agency
officials, and subject-matter experts in developing its strategic
plan. 

The Health Financing and Systems Issue Area examines the financing
and delivery arrangements of America's complex health care
marketplace.  Its scope encompasses Medicare and Medicaid--the
insurance programs for the elderly, disabled, and poor--as well as
the provision of private health insurance and the organization of
health services markets.  Health Financing and Systems pays special
attention to the federal and state government interactions that are
built into Medicaid, the interactions between private markets and the
Medicare and Medicaid programs, and comparisons of current programs
with alternative models of financing and delivering health care.  The
issue area also focuses on the use of federal grants to states and
localities to promote federal health care and other objectives. 

GAO's work in Health Financing and Systems concentrates on the
following issues: 

  -- identifying actions to improve the management and financial
     integrity of the Medicare program and assessing how financing
     arrangements affect Medicare beneficiaries' access to quality
     care;

  -- examining new strategies for paying for Medicare and Medicaid
     services that promote cost containment while preserving quality
     and access;

  -- identifying measures to improve the management and
     accountability of the Medicaid program;

  -- assessing the impact of Medicaid managed care on vulnerable
     populations, such as the disabled;

  -- evaluating private- and public-sector innovations in health care
     delivery or financing that offer models for the Medicare and
     Medicaid programs;

  -- analyzing the interactions between the Medicare and Medicaid
     programs and the private health care marketplace; and

  -- assessing and developing methods for targeting federal
     intergovernmental grant funds to achieve program goals and
     enhance equity. 

In the pages that follow, we describe our key planned work on these
important issues. 

Because events may significantly affect even the best of plans, our
planning process allows for updating and the flexibility to respond
quickly to emerging issues.  If you have any questions or suggestions
about this plan, please call me at (202) 512-7114. 

William J.  Scanlon
Director
Health Financing and Systems


CONTENTS
============================================================ Chapter 1


   FOREWORD
---------------------------------------------------------- Chapter 1:1

1


   TABLE I:  KEY ISSUES
---------------------------------------------------------- Chapter 1:2

4


   TABLE II:  PLANNED MAJOR WORK
---------------------------------------------------------- Chapter 1:3

8


   TABLE III:  GAO CONTACTS
---------------------------------------------------------- Chapter 1:4

11


TABLE I:  KEY ISSUES
============================================================ Chapter 2

Issues                                        Significance                                  Objectives                                    Focus of Work
--------------------------------------------  --------------------------------------------  --------------------------------------------  --------------------------------------------
Medicare management and access: What actions  Medicare, the nation's largest single payer   --Identify methods to improve the efficiency  --HCFA's use of new technologies to improve
are needed to improve the management and      for health care, serves more than 37 million  of Medicare claims processing and to          its Medicare claims processing
financial integrity of the Medicare program?  elderly and disabled people. In 1995,         increase beneficiary satisfaction.            --Medicare's process for resolving provider
How do financing arrangements, including      Medicare costs totaled approximately $180     --Identify methods to improve information     appeals
increased enrollment in managed care, affect  billionï¿½12percent of the federal budget.     provided to beneficiaries about the quality   --HCFA efforts to develop measures of
beneficiaries' access to quality care?        The program is complex. Currently, it         of health care Medicare managed care plans    Medicare access to quality services for
                                              reimburses nearly a million providers and     provide.                                      Medicare beneficiaries
                                              processes over 800 million individual claims  --Determine measures that HCFA and the        --HCFA efforts to improve information for
                                              each year. Effective management and           states can use to minimize fraud, waste, and  Medicare beneficiaries in managed care
                                              oversight of the fee-for-service portion are  abuse due to payment policies or oversight    plans
                                              essential to ensure that program dollars are  weaknesses.                                   --HCFA efforts to reduce fraud, waste,
                                              well spent and that opportunities for fraud,  --Identify strategies to improve oversight    abuse, and mismanagement in Medicare
                                              waste, and abuse are reduced. The program     of managed care plans that serve Medicare     --HCFA oversight activities of managed care
                                              also faces new challenges as more             beneficiaries.                                plans' contracting arrangements and
                                              beneficiaries enroll in managed care plans,                                                 administrative procedures
                                              which present a new set of incentives to                                                    --HCFA and state reviews of managed care
                                              providers.                                                                                  health plans' financial solvency
                                                                                                                                          --HCFA efforts to ensure managed care plans'
                                                                                                                                          compliance with quality assurance and
                                                                                                                                          operational requirements in their Medicare
                                                                                                                                          contracts

Medicaid management and accountability: What  Medicaid, jointly administered by the         --Identify methods to improve consumer        --HCFA and state oversight of managed care
actions are needed to improve the management  federal government and the states, serves     information about and oversight of managed    plans' financial solvency, contracting
and financial integrity of the Medicaid       low-income vulnerable populations and         care plans that serve Medicaid                arrangements, and administrative procedures
program?                                      reimburses a wide variety of providers.       beneficiaries.                                --HCFA and state efforts to develop measures
                                              Effective management and oversight are        --Examine budgetary implications of states'   of access to quality services for Medicaid
                                              essential to ensure that federal fundsï¿½in     Medicaid program designs and policies.        beneficiaries
                                              excess of $89 billionï¿½are well spent and      --Identify methods by which the states,       --State approaches to finance program
                                              that opportunities for fraud, waste, abuse,   HCFA, and the HHS Inspector General can       services for current populations to
                                              and mismanagement are reduced. The Medicaid   minimize fraud, waste, and abuse in the       accommodate constrained budgets
                                              program faces new challenges, as more         Medicaid program.                             --HCFA and state systems to prevent
                                              beneficiaries enroll in managed care plans,                                                 unqualified or fraudulent providers from
                                              with new incentives for providers.                                                          participating in Medicaid
                                              Legislative proposals granting states
                                              greater latitude over program design and
                                              operation could lessen accountability to the
                                              federal government.

Medicaid managed care for select populations  Almost all states now offer some form of      --Identify factors inhibiting access of       --State activities to ensure access to
and services: How does managed care affect    managed care, primarily to their AFDC         select Medicaid populations, such as the      health care for select Medicaid populations
access to quality care for select             populations. In 1995, about 12 million        disabled, to quality care.                    --State efforts to provide select services-
populations?                                  individuals were enrolled in Medicaid         --Identify ways to improve delivery of        -such as mental health, substance abuse
                                              managed care. However, as states have         select services (for example, mental health)  treatment, or long-term care--in managed
                                              attempted to shift their Medicaid             to Medicaid beneficiaries.                    care programs
                                              populations into managed care, certain
                                              eligible populations, such as the disabled,
                                              and certain services, such as mental health,
                                              have presented challenges.

Medicare and Medicaid payment strategies:     The collision of the large funding            --Identify payment strategies that provide    --Payment methods for HMOs that combine
What new approaches to health care payment    requirements for Medicare and Medicaid with   incentives for quality care while curbing     elements of capitation and fee-for-service
and what major modifications of current       the demands of deficit reduction underlies    health care spending.                         --HCFA's efforts to reform Medicare Part A
methods hold promise for restraining          the appeal of curbing spending growth in      --Determine ways to improve existing payment  payment methods for post-acute care
Medicare and Medicaid spending while          these health care entitlements. But           systems for nursing facility and home health  --Medicare payments for physical therapy and
preserving quality and access?                opportunities are shrinking for cutting       providers to enhance efficiency and           other services for nursing home residents
                                              provider payments sharply without             effectiveness.                                --Proposals for setting market-based rates
                                              threatening access to quality care. Hence, a  --Identify methods to ensure Medicare buys    for Medicare
                                              search for different payment strategies,      no more or pays no more than justified by     --Proposals for setting health plan rates
                                              offering a curb on spending growth and the    the marketplace and quality.                  that more accurately reflect the costs of
                                              potential for adequate funding for quality    --Propose administrative and statutory        serving enrolled beneficiaries
                                              care, is worthwhile. The shift toward         changes to Medicare HMO payment methods.
                                              managed care heightens the urgency for such   --Identify ways to improve the methods state
                                              innovations.                                  Medicaid agencies use to set capitated
                                                                                            payment rates for managed care plans.

Alternative delivery, benefits, and           The Congress is seeking alternative ways to   --Inform the Congress of alternative          --The role and effects of managed care in
financing models: What private-and public-    provide Medicare and Medicaid benefits while  delivery, benefits, and financing models      Medicaid
sector efforts offer lessons for the          controlling the growth of the programs. Both  that offer fiscal or program improvements to  --Medicare HMO premium changes in relation
Medicare                                      private and public experience with more       current Medicare and Medicaid approaches.     to market competition and beneficiary choice
and Medicaid programs?                        effective models of financing and delivery                                                  of plan
                                              of health care, as well as with the design                                                  --Competitive bidding and market-oriented
                                              of benefit packages, can guide improvements                                                 methods of purchasing medical services or
                                              in Medicare and Medicaid.                                                                   reimbursing providers and health plans
                                                                                                                                          --Disease management and case management
                                                                                                                                          techniques, and methods of paying for them
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Issues                                        Significance                                  Objectives                                    Focus of work
--------------------------------------------  --------------------------------------------  --------------------------------------------  --------------------------------------------
Interactions of public programs with private  Trends in private health care markets, such   --Provide the Congress with information on    --Impact of changes in Medicare eligibility
markets: What interactions between private    as erosion in employer-provided health        how changes in Medicare rules may affect the  requirements on the private insurance market
health care markets and federal               insurance, impinge on Medicaid and Medicare.  private insurance market.                     --Competitive bidding and related
health programs, such as Medicare and         Responses of providers, health plans, and     --Determine implications of local market      strategies, as used by Medicare and private
Medicaid, affect                              consumers to new legislation might undermine  conditions and variations for federal         entities in local markets
program operations significantly?             its intended effect. Changes in the methods   programs.                                     --Impact of National Health Service Corps in
                                              of payment and in the administrative rules    --Determine implications for Medicare and     local health insurance markets
                                              by which Medicare and Medicaid paid out more  Medicaid of trends in the market for private  --Changing features of private health
                                              than $270 billion alter the playing field     health insurance                              insurance policies, such as lifetime limits
                                              for all other actors.                         --Assess the role of taxes and other factors  --Impact of changes in tax treatment of
                                                                                            in affecting the trend in employer-based      employee health premiums
                                                                                            coverage.

Funding formulas for federal programs: To     In 1996, roughly $170 billion will be         --Improve the equity with which federal       --Formulas for equitable allocation of
what extent are federal grants to states and  distributed to state and local governments    funding formulas allocate funds to states     Medicaid funds to states
localities allocated in accordance            by formula, and over half of these funds      and localities.                               --Federal grants' effect on state and local
with their funding needs?                     will be for health programs. Continued        --Increase the extent to which federal        spending
                                              oversight of these formulas is needed to      funding formulas target funds to meet
                                              determine if they allocate federal funds in   program objectives.
                                              line with changing regional and state needs.
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

TABLE II:  PLANNED MAJOR WORK
============================================================ Chapter 3

Issue                         Planned Major Job Starts
----------------------------  --------------------------------------------------
Medicare management and       ï¿½Review HCFA efforts to collect payments from
access                        other insurers in the Medicare Secondary Payer
                              program.
                              ï¿½Examine Medicare Part B appeals.
                              ï¿½Examine differences across market areas in care
                              Medicare beneficiaries receive from integrated
                              delivery networks.
                              ï¿½Examine the problems in Medicare's system for
                              enrolling beneficiaries in HMOs and the lessons
                              for Medicare in alternative private-sector and
                              state systems of HMO enrollment.
                              ï¿½Examine the potential for duplicate federal
                              payments by Medicare for services received by
                              beneficiaries in nursing facilities.
                              ï¿½Examine managed care contracting and
                              subcontracting arrangements where management and
                              other intermediate entities receive funds but pass
                              the financial risk of health care along to
                              providers.
                              ï¿½Review states' activities and ability to monitor
                              and affect HMO financial solvency and
                              administrative costs in managed care plans.
                              ï¿½Review the effectiveness of the Medicare 50/50
                              rule, which requires that at least 50 percent of
                              plan enrollees be commercial members, in
                              protecting Medicare HMO enrollees from abuses and
                              poor quality.
                              ï¿½Examine the adequacy of HCFA's processes for
                              reviewing new Medicare HMO applications.

Medicaid management and       ï¿½Review states' ability to monitor managed care
accountability                plans' financial solvency and administrative
                              costs.
                              ï¿½Examine contracting arrangements where states and
                              managed care plans pass financial risk to
                              providers.
                              ï¿½Review states' ability to monitor the quality of
                              Medicaid services, including the use of clinical
                              encounter data systems.
                              ï¿½Review states' efforts to promote competitive
                              Medicaid managed care markets and secure efficient
                              capitated payment rates for HMOs.
                              ï¿½Examine the impact of Medicaid programs' long-
                              term care policies on use of Medicare home health
                              and nursing facility services.
                              ï¿½Assess the effectiveness of the process for
                              excluding providers from federal health programs
                              who have been sanctioned by the HHS Inspector
                              General or state Medicaid agencies.
                              ï¿½Identify the barriers to the exchange of
                              information among Medicaid agencies, Medicare
                              contractors, other federal health programs, and
                              the private sector that hamper efforts to reduce
                              fraud and waste.

Medicaid managed care for     ï¿½Review managed care programs for special needs
select populations and        populations, such as disabled children, focusing
services                      on access to adequate care.
                              ï¿½Examine state initiatives to provide mental
                              health and substance abuse services through
                              managed care.
                              ï¿½Assess the effectiveness of states' coordination
                              of Medicaid services with other programs, such as
                              Medicare, Title V, and home and community-based
                              care.

Medicare and Medicaid         ï¿½Examine the private sector's use of "bundled
payment strategies            payments" for particular types of episodes of care
                              and the potential for applying this technique more
                              widely in Medicare.
                              ï¿½Examine HMO payment methods for blending fee-
                              for-service and capitated incentives (for example,
                              risk corridors).
                              ï¿½Assess HCFA's efforts to reform Medicare Part A
                              payment methods for skilled nursing facilities and
                              home health agencies.
                              ï¿½Examine how the use of current Part B payment
                              methods has affected volume and mix of services
                              for Medicare beneficiaries in nursing homes.
                              ï¿½Examine alternative methods for reimbursement of
                              Medicare Part B home health services.
                              ï¿½Examine payments for equipment and supplies and
                              methods for HCFA to adjust payments to marketplace
                              prices.
                              ï¿½Review the Medicare rule that allows HMOs to
                              enhance benefits for enrollees rather than passing
                              on any part of above-average savings to the
                              program.
                              ï¿½Review the extent of federal overpayments to
                              Medicare HMOs due to inadequacies in criteria for
                              classifying beneficiaries as "institutionalized"
                              and in monitoring of the accuracy of capitated
                              payments for such beneficiaries.
                              ï¿½Analyze how costs in the last year of life relate
                              to Medicare HMO overpayments.

Alternative delivery,         ï¿½Review the major changes in the Medicaid program
benefits, and financing       that accompanied the shift to managed care
models                        delivery models.
                              ï¿½Analyze the effect of premium changes by Medicare
                              HMOs on beneficiaries' decisions to switch plans
                              or to switch to Medicare fee-for-service.
                              ï¿½Review the private sector's use of strategies for
                              purchasing health care coverage and their
                              applicability to Medicare and Medicaid.
                              ï¿½Identify successful examples of competitive
                              bidding for medical services and supplies, and
                              analyze the applicability of these examples and
                              alternative bidding systems to Medicare.
                              ï¿½Examine the degree to which the growth in HMO and
                              indemnity plan premiums in the Federal Employees
                              Health Benefit Plan was affected by market
                              competition versus the FEHBP sponsor (the Office
                              of Personnel Management).
                              ï¿½Assess emerging managed care models, including
                              benefit structure and payment methods, that
                              attempt to integrate medical and social services.

Interactions of public        ï¿½Analyze the implications of raising the age
programs with private         threshold for Medicare eligibility (from 65 to 67)
markets                       on Medicare outlays, private employers, and
                              individuals.
                              ï¿½Analyze the effect of competition in local
                              markets on premiums charged by Medicare HMOs and
                              its implications for Medicare, including the
                              potential savings from competitive bidding.
                              ï¿½Analyze the extent to which market responses
                              counteract the impact of the National Health
                              Service Corps on the local supply of health care
                              providers.
                              ï¿½Examine private health plans' use of lifetime
                              limits on the amount of an enrollee's claims they
                              will pay and the implications of eliminating or
                              raising such limits.
                              ï¿½Examine the nature and extent of cost-shifting
                              among providers, commercial health plans, and
                              Medicare resulting from changing private insurance
                              features or Medicare requirements.
                              ï¿½Identify sources of erosion in employer-based
                              health care coverage, and examine the implications
                              of that erosion for the tax treatment of health
                              premiums.

Funding formulas for federal  ï¿½Assess equity differences by state in formulas
programs                      for allocating Medicaid funds under block grants
                              and other constrained federal contribution
                              arrangements.
                              ï¿½Examine alternatives for designing formulas to
                              better achieve federal and state fiscal and
                              program objectives, such as for preventive health
                              services.
                              ï¿½Analyze the extent to which states and localities
                              have reduced their spending on programs aided by
                              federal grants.
--------------------------------------------------------------------------------

TABLE III:  GAO CONTACTS
============================================================ Chapter 4


      DIRECTOR
-------------------------------------------------------- Chapter 4:0.1

William J.  Scanlon (202) 512-7114


      ASSOCIATE DIRECTORS
-------------------------------------------------------- Chapter 4:0.2

Jonathan Ratner (202) 512-7114
Leslie Aronovitz (312) 220-7600


      SENIOR ASSISTANT DIRECTOR
-------------------------------------------------------- Chapter 4:0.3

Thomas Dowdal (202) 512-6588


      ASSISTANT DIRECTORS
-------------------------------------------------------- Chapter 4:0.4

Paul Alcocer (Chicago)
Kathryn G.  Allen
James C.  Cosgrove
Jerry Fastrup
Michael F.  Gutowski
William Reis (Boston Regional Office)
Scott L.  Smith
Donald Snyder
Barry Tice

*** End of document. ***