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Restructuring quality assurance programs in HMOs and other competitive medical plans.

The Health Care Financing Administration recently established a new set of regulations for health maintenance organizations (HMOs) and other competitive medical plans (CMPs). These regulations require quality assurance (QA) programs in HMOs and CMPs to include a system for collecting data on provider performance and patient outcomes, ensuring that physicians and other health professionals review the processes involved in service delivery, and taking corrective action when inappropriate care is delivered. As a result of these new requirements, QA programs in HMOs and other CMPs have come under greater scrutiny than ever before by numerous external review organizations. This article describes a model for restructuring QA plans to meet the demands of the current regulatory environment.

Health Maintenance Organizations

The entry of HMOs into the Medicare market: implications for TEFRA's mandate.

The Tax Equity and Fiscal Responsibility Act of 1982, under rules implemented in April 1985, creates incentives for HMOs and other competitive medical plans to significantly expand their participation in Medicare on an at-risk basis. In an attempt to gauge the likely response of HMOs to the new incentives, we examined data on a census of HMOs operating in 1982 to look for differences between HMOs that entered the Medicare program at risk under the earlier National Medicare Competition demonstration and those that did not. The most consistent difference we found was that HMOs in areas with a high adjusted average per capita cost were more likely to enter the Medicare market. HMOs with prior experience serving Medicare beneficiaries were also more likely to join the demonstration, as were HMOs that were federally qualified. No other HMO characteristics appeared to significantly affect the likelihood of entry.

Catchment Area, Health

Medicare risk contracting. Lessons from an unsuccessful demonstration.

The Tax Equity and Fiscal Responsibility Act of 1982 provided a full-risk Medicare capitation financing option for health maintenance organizations and competitive medical plans. Two rounds of demonstrations were conducted, followed by the publication of final regulations in January 1985. The first-round demonstration at Marshfield, Wis, was operational for 28 months. Thirty-seven percent of all resident beneficiaries enrolled. Aggregate losses exceeded $3 million (11.6% of revenue). Management implemented increasingly more stringent utilization review. Overall hospital utilization declined 261.7 days per 1000 from fiscal year 1981 to 1982; nonetheless, federal reimbursement was insufficient to meet program costs and the demonstration was terminated. The central reimbursement method used in Medicare risk contracting (adjusted average per capita cost) does not adequately control for enrollment selection, unmet medical need, or recent regional cost variations. Reimbursement set at 95% of estimated fee-for-service costs does not recognize, and in the long run will not support, an efficiently operating delivery system.

Centers for Medicare and Medicaid Services, U.S.

Why there will be little or no physician surplus between now and the year 2000.

Most observers think that by the year 2000 there will be a considerable surplus of physicians in the United States. In this paper we present a new framework for estimating the future balance between supply and demand with respect to physicians' services. Our analysis suggests that even if competitive medical plans serve approximately half the population by the year 2000, there will probably be little or no physician surplus. Moreover, if a slight surplus should occur, it is likely to be largely erased by increased involvement of physicians in administrative activities and a variety of nontraditional clinical activities that currently occupy little of a physician's time. Our prediction of little or no surplus could be altered appreciably, however, by two forces that would have opposite effects: an acceleration of technological change would increase demand beyond our projections, whereas widespread rationing of beneficial services would constrain the demand for physicians' services.

Forecasting

Service use and costs for Medicare beneficiaries in risk-based HMOs and CMPs: some interim results from the National Medicare Competition Evaluation.

The Health Care Financing Administration (HCFA) initiated the Medicare Competition Demonstration in 1982 in anticipation of congressional intent to establish a national program. Interim results on the 1984 service use and cost experience of the health maintenance organizations (HMOs) and competitive medical plans (CMPs) participating in the demonstrations indicate that Medicare enrollees in the demonstration experienced a median of 1,951 hospital days per 1,000 person years, 57 per cent of the median of 3,432 days per 1,000 in the local markets from which the plans drew enrollment. Independent practice association (IPA) HMOs experienced higher hospital use rates than staff and group model HMOs. These comparisons are not adjusted for various risk factors, the absence of which were likely to favor the demonstration plans. Plans with lower hospital service use were federally qualified and had been operating for more than five years. The median total annual revenue per enrollee across all plans was $2,312, compared to median annual expenses per enrollee of $2,250. The distribution of median annual expenses per enrollee by major category of expense was: institutional expenses ($1,038/enrollee), medical expenses ($720/enrollee), supplemental services expenses ($154/enrollee), and administrative and other expenses ($295/enrollee). Future analysis, using beneficiary-level data, will examine the impact of the demonstration and the nature and extent of evident biased selection and will compare the quality of care in the demonstrations to that in the fee-for-service sector.

Aged

Patient satisfaction among elderly enrollees and disenrollees in Medicare health maintenance organizations. Results from the National Medicare Competition Evaluation.

More than 1 million Medicare beneficiaries have enrolled in health maintenance organizations (HMOs) and competitive medical plans under a new program in which beneficiaries can freely enroll in a risk-based HMO in their area or remain in the fee-for-service sector under Medicare. Based on a randomly selected nationwide sample of beneficiaries, we analyzed differences in patient satisfaction between 2091 beneficiaries who were continuously enrolled in an HMO plan for 1 year and 1000 beneficiaries in the fee-for-service sector. We also studied the reasons for disenrollment. No significant difference in overall satisfaction was found between HMO enrollees and fee-for-service beneficiaries. However, HMO enrollees expressed less satisfaction compared with fee-for-service beneficiaries regarding the professional competence of their health care providers and the willingness of the HMO staff to discuss problems. On the other hand, HMO enrollees were more satisfied than fee-for-service beneficiaries with waiting times and claims processing. Approximately half of the disenrollment from an HMO within 1 year was attributed to misunderstanding the terms of enrollment.

Consumer Behavior

Financing home health-care products and services.

Factors affecting growth of the home health-care (HHC) industry are identified, basic principles of HHC product and service reimbursement are reviewed, and third-party payer coverage criteria and payment methods for HHC products and services are discussed. Reimbursement for HHC services has suffered from the absence of a financing mechanism for long-term care. Providers of HHC services are burdened by the laborious process of obtaining favorable coverage determinations for short-term-care patients when home care substitutes for institutional care. When home care is covered benefit, there is often a complex mix of confusing coverage rules, coverage criteria that differ among public and private payers, and interpretations of coverage criteria that differ among local carrier personnel. Private financing obstacles and federal budget deficits will deter the development of an adequate financing mechanism for HHC. The growth of health-maintenance organizations and competitive medical plans will help to reduce reimbursement complexity. Long-term changes in HHC financing may become less important if capitation payment is successful.

Centers for Medicare and Medicaid Services, U.S.

Recent developments in organizing and financing health-care services.

Recent developments in the organization and financing of health-care services are described. All recent developments reflect an effort by both private and public payers to restrict use of health-care services, as well as to control price. Private use-review programs, such as second-surgical-opinion services and case-management services, are increasingly being used. The number of hospital admissions and length of patient stay continue to decline, but, because of increasing complexity of care, the cost of pharmaceutical services has not decreased proportionately. Points relating to health-care financing in the federal reconciliation budget effective May 1, 1986, are reviewed, as are other new federal regulations affecting the structure of services and terms of reimbursement under the Medicare and Medicaid programs. For Medicare, these include new scope objectives for professional review organizations, decreased return-on-equity payments to for-profit hospitals for outpatient services and to skilled nursing facilities, and elimination of waiver-of-liability presumptions for hospitals. Also, physicians must now identify specific services provided during each inpatient hospital visit. Most developments related to home health-care services pertain to limiting the cost of durable medical equipment. Alternative types of health care based on capitation funding, such as health maintenance organizations, competitive medical plans, and preferred provider organizations, will continue to grow in both the public and private sectors, and the use of private use-review programs for controlling costs is expected to accelerate in the next year.

Delivery of Health Care

Why managed care has failed to contain health costs.

Much evidence points to the fact that managed care plans (health maintenance organizations and preferred provider insurance) reduce costs and offer value for money. Yet they apparently have not helped to slow national health expenditures. One explanation is that the practices of purchasers (including government and employers), the tax laws, and other market imperfections have reduced the demand for real cost containment, depriving managed care plans of an adequate incentive to cut cost and price. These market conditions can and should be corrected; the managed competition proposal being discussed at the national level is a comprehensive plan for doing so.

Competitive Medical Plans

The marketplace in health care reform. The demographic limitations of managed competition.

BACKGROUND: The theory of managed competition holds that the quality and economy of health care delivery will improve if independent provider groups compete for consumers. In sparsely populated areas where relatively few providers are required, however, it is not feasible to divide the provider community into competing groups. We examined the demographic features of health markets in the United States to see what proportion of the population lives in areas that might successfully support managed competition. METHODS: The ratios of physicians to enrollees in large staff-model health maintenance organizations were determined as an indicator of the staffing needs of an efficient health plan. These ratios were used to estimate the populations necessary to support health organizations with various ranges of specialty services. Metropolitan areas with populations large enough to support managed competition were identified. RESULTS: We estimated that a health care services market with a population of 1.2 million could support three fully independent plans. A population of 360,000 could support three plans that independently provided most acute care hospital services, but the plans would need to share hospital facilities and contract for tertiary services. A population of 180,000 could support three plans that provided primary care and many basic specialty services but that shared inpatient cardiology and urology services. Health markets with populations greater than 180,000 would include 71 percent of the U.S. population; those with populations greater than 360,000, 63 percent; and those with populations greater than 1.2 million, 42 percent. CONCLUSIONS: Reform of the U.S. health care system through expansion of managed competition is feasible in medium-sized or large metropolitan areas. Smaller metropolitan areas and rural areas would require alternative forms of organization and regulation of health care providers in order to improve quality and economy.

Adolescent

Managed competition for the poor: more promise than value?

President Clinton and many other elected officials have proposed that managed competition be the cornerstone of health care reform. However, experiences of Medicaid recipients with managed care plans are at best mixed. These capitated programs report higher costs than do fee-for-service arrangements. Fortunately, these additional expenditures are partially offset by at least a perception of improved access to care. Due to difficulties in determining eligibility, delivering benefits, paying for needed services, and similar concerns, providing care for the poor and underserved will be complicated and expensive for the proposed sponsors of managed competition plans.

Competitive Medical Plans