Medicare: Changes to HMO Rate Setting Method Are Needed to Reduce Program Costs
HEHS-94-119
Published: Sep 02, 1994. Publicly Released: Sep 02, 1994.
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Highlights
Pursuant to a legislative requirement, GAO reviewed: (1) Medicare's rate setting methodology for health maintenance organizations (HMO); and (2) the ability of the Medicare risk contract program to achieve cost savings.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Health Care Financing Administration | The Administrator, HCFA, should direct the agency to sponsor further research and demonstration work on the four risk adjustors that GAO has identified. HCFA should identify ways to incorporate research on these adjustors into its overall research agenda. The demonstration projects GAO recommends should be independently evaluated in terms of each of the criteria GAO identified, and should be wide ranging enough to permit general conclusions. Specifically, demonstration projects should cover a wide geographic range and a sufficient number and variety of participating HMO. To achieve this goal, the demonstration project must be attractive enough to encourage HMO participation; HMO must be compensated fairly for any increase in administrative costs and, for the duration of the demonstration, they should not be paid less than under the current system because they volunteered for the demonstration. |
Closed – Implemented
As part of its Medicare Choices demonstration, HCFA is sponsoring research on health-based risk adjusters. In addition, the Balanced Budget Act of 1997 mandates that HCFA develop health-based risk adjusters and implement them program-wide no later than January 1, 2000.
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| Health Care Financing Administration | The Administrator, HCFA, should direct the agency to conduct preliminary research on payment methods that could replace the reliance on fee-for-service reimbursement to determine base payment rates for HMO. |
Closed – Implemented
HCFA issued a RFP to conduct a demonstration project that would have set Denver-area HMO payment rates through a competitive bidding process. The Balanced Budget Act of 1997 prohibits HCFA from executing the specific demonstration planned for Denver. However, the act also mandates that HCFA form a Competitive Pricing Advisory Committee to design a competitive pricing demonstration and select the demonstration areas. The act requires that these demonstrations begin no later than January 1, 1999.
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Topics
Health care cost controlHealth insurance cost controlHealth maintenance organizationsHealth services administrationMedical economic analysisMedical feesMedical information systemsMedical services ratesMedicarePaymentsRisk adjustments