Medicare Managed Care:

Enrollment Growth Underscores Need to Revamp HMO Payment Methods

T-HEHS-95-207: Published: Jul 12, 1995. Publicly Released: Jul 12, 1995.

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Pursuant to a congressional request, GAO discussed the: (1) recent trends in Medicare beneficiary enrollment in health maintenance organizations (HMO); (2) obstacles that are preventing Medicare from realizing potential savings from HMO; (3) strategies that will enable Medicare to realize HMO savings; and (4) Health Care Financing Administration's (HCFA) efforts to test HMO payment reforms. GAO noted that: (1) recent enrollment growth in Medicare HMO has been rapid and has made it necessary for HCFA to correct rate-setting flaws that lead to unnecessary Medicare spending; (2) HCFA cannot realize the same savings as private-sector payers if HCFA does not tailor its HMO capitation payments to the physical condition of HMO enrollees; (3) a multi-pronged approach to rate-setting is best because of the inequity of market conditions between states; (4) HCFA can mitigate its capitation rate problem by introducing a better health status risk adjuster; and (5) HCFA should test competitive bidding and other approaches to setting HMO rates that reduce Medicare costs.

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