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entitled 'Medicare+Choice: Selected Program Requirements and Other 
Entities' Standards for HMOs' which was released on December 02, 2002.



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Report to the Chairman, Subcommittee on Health, Committee on Ways and 

Means, House of Representatives:



October 2002:



Medicare+Choice:



Selected Program Requirements and Other Entities’ Standards for HMOs:



GAO-03-180:



Contents:



Letter:



Results in Brief:



Background:



Selected M+C Requirements for HMOs:



Selected FEHBP Requirements for HMOs:



Selected NAIC, JCAHO, and NCQA Requirements for HMOs:



Comments from CMS and the Other Entities:



Appendixes:



Appendix I: Benefit Package Proposals:



Appendix II: Beneficiary Enrollment:



Health Plan Enrollment Opportunities for M+C and FEHBP Beneficiaries:



Appendix III: Marketing and Enrollee Communication Materials:



Appendix IV: Quality Improvement:



Appendix V: Coments from the Centers for Medicare & Medicaid Services:



Tables:



Table 1: Selected Requirements for Benefit Package Proposals, M+C and 

FEHBP:



Table 2: Selected Requirements for Beneficiary Enrollment in HMOs, M+C 

and FEHBP:



Table 3: Opportunities for Medicare Beneficiaries to Enroll in an M+C 

Health Plan or Make Health Plan Changes Under M+C’s Lock-in Provision:



Table 4: Opportunities for FEHBP Beneficiaries to Enroll in a Health 

Plan or Make Health Plan Changes:



Table 5: Selected Requirements for Marketing and Enrollee Communication 

Materials, M+C, FEHBP, NAIC, JCAHO, and NCQA:



Table 6: Selected Requirements for Quality Improvement for M+C, FEHBP, 

NAIC, JCAHO, and NCQA:



Figures:



Figure 1: Timeline for Submission, Review, and Approval of HMOs’ 
Benefit 

Package Proposals for Benefit Year 2001:



Figure 2: Timeline for Submission, Review, and Approval of HMOs’ 
Benefit 

Package Proposals for Benefit Years 2003 Through 2005:



Abbreviations:



AAAHC: Accreditation Association for Ambulatory Health Care, Inc.



ACR: adjusted community rate:



ACRP: adjusted community rate proposal:



BBA: Balanced Budget Act of 1997:



BBRA: Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 

1999:



BIPA: Medicare, Medicaid, and SCHIP Benefits Improvement and Protection 

Act of 2000:



CAHPS: Consumer Assessment of Health Plans:



CHCD: clinical health care disparities:



CLAS: culturally and linguistically appropriate services:



CMS: Centers for Medicare & Medicaid Services:



EGHP: employer group health plan:



ESRD: end-stage renal disease:



FAR: Federal Acquisition Regulation:



FEHBP: Federal Employees Health Benefits Program:



FFS: fee-for-service:



HCFA: Health Care Financing Administration:



HEDIS: Health Plan Employer Data and Information Set:



HHS: Department of Health and Human Services:



HMO: health maintenance organization:



HOS: Health Outcomes Survey:



JCAHO: Joint Commission on Accreditation of Healthcare Organizations:



M+C: Medicare+Choice:



M+CQRO: Medicare+Choice quality review organization:



NAIC: National Association of Insurance Commissioners:



NCQA: National Committee for Quality Assurance:



OIG: Office of Inspector General:



OPM: Office of Personnel Management:



PBP: plan benefit package:



PFFS: private fee-for-service:



PPO: preferred provider organization:



QAPI: quality assessment and performance improvement:



QI: quality improvement:



QIO: quality improvement organization:



QISMC: quality improvement system for managed care:



SSSG: similarly sized subscriber groups:



VAIS: value-added items and services:



Letter:



October 31, 2002:



The Honorable Nancy L. Johnson

Chairman

Subcommittee on Health

Committee on Ways and Means

House of Representatives:



Dear Madam Chairman:



Since the early 1980s, health maintenance organizations (HMO) have 

entered into risk-based contracts with Medicare and offered 

beneficiaries an alternative to the traditional fee-for-service (FFS) 

program.[Footnote 1] By 1997, approximately 5.2 million Medicare 

beneficiaries (14 percent) were enrolled in an HMO.[Footnote 2] 

Although Medicare HMOs were available in most urban areas, they were 

often unavailable in rural areas. The Medicare+Choice (M+C) program, 

established by the Balanced Budget Act of 1997[Footnote 3] (BBA), was 

designed to expand beneficiaries’ health plan choices by encouraging 

the wider availability of HMOs and permitting Medicare to contract with 

organizations offering other types of health plans, such as preferred 

provider organization (PPO) plans and private fee-for-service (PFFS) 

plans.



In practice, however, virtually all M+C health plans in 2002 are 

offered by HMOs and the number of health plan choices has decreased in 

each of the last 4 years.[Footnote 4] From 1998 to 2002, the number of 

Medicare contracts with HMOs declined from about 340 to 147, and the 

percentage of beneficiaries with access to at least one HMO in the area 

where they lived declined from 74 to 61 percent.[Footnote 5] Enrollment 

in Medicare HMOs, which had reached 6.3 million in 1999, had fallen to 

less than 5 million (12 percent of all Medicare beneficiaries) as of 

July 2002.



Representatives of the managed care industry have stated that declining 

HMO participation in Medicare is largely due to inadequate M+C payment 

rates and excessive administrative requirements. The Medicare, 

Medicaid, and SCHIP Balanced Budget Refinement Act of 1999[Footnote 6] 

(BBRA) and the Medicare, Medicaid, and SCHIP Benefits Improvement and 

Protection Act of 2000[Footnote 7] (BIPA) increased payment rates and 

made other changes to help address the industry’s concerns. But these 

legislative changes have not halted the decline in HMO 

participation.[Footnote 8] To encourage health plans to participate in 

M+C, legislative proposals have been made to further increase M+C 

payment rates and streamline the program’s administrative requirements.



To assist in your consideration of potential M+C reforms, you asked us 

to summarize the program’s HMO requirements in four areas: (1) the 

annual benefit package proposals that HMOs submit, (2) the beneficiary 

enrollment process, (3) marketing materials and enrollee 

communications, and (4) quality improvement.[Footnote 9] To provide 

benchmarks that could be used when examining M+C requirements, you 

asked us to summarize parallel requirements for HMOs that participate 

in the Federal Employees Health Benefits Program (FEHBP), another large 

purchaser of health care. You also asked us to describe the HMO 

requirements established by other entities in one or more of the four 

M+C areas we reviewed. In consultation with your office, we selected 

three entities that are not health care purchasers but that do set 

requirements for HMOs: the National Association of Insurance 

Commissioners (NAIC), the Joint Commission on Accreditation of 

Healthcare Organizations (JCAHO), and the National Committee for 

Quality Assurance (NCQA).[Footnote 10] NAIC, a nonprofit 

organization for state regulators, drafts and publishes model acts and 

regulations that set standards for insurers that any state may adopt in 

whole or in part.[Footnote 11] JCAHO and NCQA, both nongovernmental and 

nonprofit organizations, operate nationally recognized accreditation 

programs for HMOs.[Footnote 12]



To conduct our work, we summarized the applicable M+C requirements in 

federal statutes and regulations, M+C operational guidance to HMOs, and 

other materials prepared by the Centers for Medicare & Medicaid 

Services (CMS), the agency within the Department of Health and Human 

Services (HHS) that administers Medicare.[Footnote 13] We obtained 

additional information from CMS officials. We gathered and summarized 

FEHBP requirements in federal statutes and regulations and FEHBP 

operational guidance to HMOs, various NAIC model requirements, and 

relevant standards from the current JCAHO and NCQA accreditation 

manuals.[Footnote 14] We also interviewed officials from the Office of 

Personnel Management (OPM), the agency that administers FEHBP, and 

representatives of NAIC, JCAHO, and NCQA. Because M+C requirements are 

broadly similar to the requirements set by other entities, but may be 

different in specific details, we compiled our work into summary tables 

that provide information on the key details of each entity’s 

requirements (see appendixes I through IV). Our work was performed from 

June 2001 through September 2002 in accordance with generally accepted 

government auditing standards.



Results in Brief:



M+C has HMO requirements pertaining to benefit package proposals, the 

beneficiary enrollment process, marketing and enrollee communication 

materials, and quality improvement, among other areas. An HMO must 

annually submit a benefit package proposal to CMS for each M+C health 

plan that the HMO intends to offer.[Footnote 15] In its proposal, the 

HMO must include its projected Medicare revenues, detailed cost 

estimates by service category, and other information to demonstrate 

compliance with M+C requirements, such as those that limit a health 

plan’s cost-sharing requirements for Medicare-covered services. M+C 

requirements for the beneficiary enrollment process specify the 

information that an HMO must include in its enrollment application and 

the checks that it must perform to ensure that beneficiaries who submit 

applications are eligible to enroll in the HMO’s health plan. M+C 

marketing requirements prohibit HMOs from using inaccurate or 

misleading language in advertisements or materials distributed to 

enrollees. To ensure that advertisements and enrollee materials comply 

with M+C requirements, HMOs must submit advance copies to CMS for 

review and approval. M+C requirements for quality improvement specify 

that HMOs must undertake multiyear projects intended to improve the 

quality of health care and must routinely gather and report performance 

data to CMS.



FEHBP, another large purchaser of health care, has requirements for 

HMOs in all four areas we examined. For example, FEHBP requires HMOs to 

annually submit benefit package proposals to OPM for review. An HMO 

must include information to show that its proposed FEHBP premium is no 

higher than the premium it would charge to similarly sized commercial 

customers for the same package of benefits. FEHBP has relatively few 

requirements for HMOs regarding the beneficiary enrollment process 

because most of this function is performed by OPM or delegated to other 

federal agencies. FEHBP’s marketing requirements specify that HMOs must 

produce comprehensive annual benefit brochures and obtain OPM approval 

before distributing the brochures to potential enrollees. Finally, 

FEHBP has set certain quality standards and requires HMOs to submit 

performance data to OPM.



Although NAIC, JCAHO, and NCQA do not purchase health care, each has 

established HMO requirements in two of the four areas we reviewed: 1) 

marketing and enrollee communication materials and 2) quality 

improvement. All three entities require HMOs to produce complete 

information, although JCAHO’s standards do not apply to marketing 

materials given to prospective members. The three entities also require 

HMOs to design, implement, and evaluate quality improvement projects. 

NAIC’s model requirements pertain to all HMOs in states that set HMO 

licensing and operating standards based on NAIC’s recommendations. 

JCAHO’s and NCQA’s standards represent requirements that must be met by 

all HMOs that want to be accredited by JCAHO or NCQA. The requirements 

established by NAIC, JCAHO, and NCQA are not specifically focused on 

HMOs that serve Medicare beneficiaries.



In commenting on a draft of this report, CMS stated that it generally 

agreed with our observations. We also provided a draft of the report to 

OPM, NAIC, JCAHO, and NCQA and incorporated the technical comments we 

received from those organizations and from CMS as appropriate.



Background:



M+C and FEHBP both represent large health care purchasing programs that 

contract with HMOs and other types of health care organizations to 

provide services. NAIC, JCAHO, and NCQA are not purchasers of health 

care, but they play important roles in establishing certain HMO 

requirements.



M+C:



M+C is a component of Medicare, the federal entitlement program for 

adults age 65 and older and some individuals who are disabled or have 

end-stage renal disease (ESRD).[Footnote 16] Medicare beneficiaries can 

choose to receive covered services through the FFS program or through 

an M+C health plan if one is offered in the area where they 

live.[Footnote 17] HMOs and other types of health care organizations 

contract with CMS to offer M+C health plans.[Footnote 18] HMOs 

participating in M+C receive fixed monthly payments for enrolled 

beneficiaries, regardless of what their enrollees’ care actually costs, 

in return for providing all Medicare-covered benefits, except hospice 

care, and complying with all M+C requirements. CMS monitors each HMO 

and periodically conducts an on-site review to determine whether the 

HMO is complying with program requirements. The agency also requires 

HMOs to regularly submit certain information, such as enrollment and 

other data used to compute HMO payments.



In creating M+C, BBA included many requirements from the previous risk-

contract program. For example, the M+C requirement that HMOs submit 

marketing and enrollee communications for agency approval was a 

requirement of the risk-contract program. BBA also included 

requirements that were modifications of previous ones and others that 

were new. For example, BBA included quality assurance requirements--

such as those pertaining to the collection, analysis, and reporting of 

health outcomes and member satisfaction--that were more comprehensive 

than previous requirements. BBA required that M+C payments to an HMO be 

adjusted to reflect the relative health status of that HMO’s enrollees 

beginning in 2000. The law directed the Secretary of HHS to require 

HMOs to submit data on their enrollees’ use of inpatient hospital 

services and data on other services as the Secretary deemed necessary. 

In addition to the inpatient hospital data requirement, the Secretary 

required HMOs, in 1998, to collect data on the use of physician and 

hospital outpatient services. BBA also limited, effective January 1, 

2002, the number of opportunities beneficiaries had each year to enroll 

or change enrollment in a M+C health plan.



M+C’s requirements have continued to evolve since BBA, partly as a 

result of subsequent legislation. Some legislative changes addressed 

HMOs’ concerns about BBA’s initial implementation. For example, BBRA 

increased the amount of time that HMOs have each year to develop their 

benefit package proposals by moving the annual submission deadline from 

May 1 to July 1. To reduce the administrative burden on HMOs that are 

monitored by both a private accreditation organization and the agency, 

BBRA increased the number of topical areas where HMOs may fulfill M+C 

requirements by receiving accreditation from an organization that has 

standards, as well as a process for ensuring compliance with those 

standards, which are determined by CMS to meet or exceed M+C 

requirements. BBA allowed accreditation standards to be applied for 

quality assurance and confidentiality of records requirements. BBRA 

expanded this list to include antidiscrimination, access to services, 

advance directives,[Footnote 19] and provider participation 

requirements. Under BIPA, CMS must expedite review of HMO marketing 

materials that use agency-specified language without modification. BIPA 

also required HMOs to expand their quality improvement activities to 

include a separate focus on racial and ethnic minorities. The Public 

Health Security and Bioterrorism Preparedness and Response Act of 

2002[Footnote 20] (Bioterrorism Act) made temporary modifications to 

M+C requirements. It enabled Medicare to reinstate, through 2004, 

beneficiaries’ opportunities to change enrollment into any M+C health 

plan accepting new enrollments or switch to the FFS program on a 

monthly basis. It also moved the annual submission deadline for HMOs’ 

benefit package proposals to the second Monday in September for benefit 

years 2003 through 2005.



CMS has also modified certain M+C requirements, in some instances to 

reduce the administrative burden on participating HMOs. In 2001, for 

example, the agency postponed the date by which HMOs would have to 

begin submitting data on beneficiaries’ use of physician and hospital 

outpatient services. In 2002, CMS gave HMOs more flexibility in 

advertising plan benefits not available in the FFS program. For 

example, HMOs were allowed to describe their health plans’ pharmacy 

discounts in the standard summary of benefits distributed to 

beneficiaries. CMS has also made changes to address shortcomings that 

agency staff or outside groups identified. The process for reviewing 

and approving HMOs’ marketing materials was revised, in part, to 

correct problems we identified in 1999.[Footnote 21]



Since BBA was enacted, CMS has issued Federal Register notices and 

other written instructions to inform HMOs about program changes. During 

2001, CMS began releasing chapters of a new Medicare managed care 

manual intended to inform HMOs about program requirements.[Footnote 22] 

As of July 11, 2002, the agency had released 9 of a planned 20 

chapters.[Footnote 23] No release dates have been announced for the 

remaining chapters.



FEHBP:



FEHBP is the largest employer-sponsored group health insurance program 

in the United States. In 2002, FEHBP covers approximately 8.28 million 

individuals, consisting of 2.19 million federal employees, 1.86 million 

federal retirees, and 4.23 million dependents.[Footnote 24] Like most 

Medicare beneficiaries, FEHBP beneficiaries may select from among 

available health plans during an annual open enrollment period. OPM 

contracts with HMOs and other types of health care organizations to 

offer health plans to FEHBP beneficiaries. The number of HMOs 

participating in FEHBP has declined in recent years, from 476 HMOs in 

1996 to about 200 HMOs in 2002. In 2002, about 2.42 million FEHBP 

beneficiaries (29 percent) are enrolled in HMOs. The remaining 5.86 

million beneficiaries (71 percent) are enrolled in other types of 

health plans, such as PPOs.



NAIC:



NAIC is a nonprofit association of the insurance regulators of the 50 

states, the District of Columbia, and 4 United States territories. Its 

mission includes promoting consistent health insurance 

regulations.[Footnote 25] To help achieve this objective, NAIC prepares 

model requirements that any state may adopt, in whole or in part, to 

regulate HMOs operating in the state. NAIC’s model requirements are 

largely written in general terms to provide a framework that states can 

tailor to meet local needs. According to NAIC, approximately 30 states 

have passed legislation based on the requirements in NAIC’s Model HMO 

Act, which provides a legal framework for the organization and 

functioning of HMOs and a regulatory framework for state oversight.



JCAHO and NCQA:



JCAHO and NCQA provide accreditation programs for HMOs and other health 

care entities that contract with public and private employers to serve 

their employees and retirees, with state governments to serve Medicaid 

beneficiaries, or with the federal government to serve Medicare 

beneficiaries. JCAHO’s and NCQA’s accreditation standards focus on the 

HMO operations that affect the quality of care delivered and 

interactions with members, rather than on all the requirements that a 

purchaser would typically specify for an HMO, such as the benefits 

offered and the cost of providing those benefits. HMOs may seek 

accreditation from a nationally recognized organization, such as JCAHO 

or NCQA, to signal their commitment to quality and to help attract 

business. Some potential purchasers consider an HMO’s accreditation 

status when deciding whether to contract with the HMO.[Footnote 26] An 

HMO’s accreditation status may also be an important consideration for 

some potential enrollees. For that reason, OPM lists the accreditation 

status of participating HMOs in the annual guide made available to 

FEHBP beneficiaries. In addition, HMOs with M+C health plans that have 

received full accreditation from JCAHO or NCQA, and have been 

determined by one of those organizations to have met certain additional 

standards, are considered by CMS to have met the M+C quality 

requirements discussed in this report.[Footnote 27]



Selected M+C Requirements for HMOs:



An HMO that contracts to serve Medicare beneficiaries must meet M+C 

program requirements specified by CMS regarding benefit package 

proposals, the beneficiary enrollment process, marketing and enrollee 

communications, and quality improvement. Requirements pertaining to 

benefit package proposals specify the information that HMOs must 

annually submit to CMS and set coverage parameters, such as limits on 

beneficiary cost sharing. Beneficiary enrollment process requirements 

establish how HMOs must collect and process applications, conduct 

beneficiary eligibility checks, transmit information to CMS, and 

reconcile data discrepancies. Communication requirements, which cover 

both general advertising and specific communications to enrollees, set 

standards for the information that HMOs distribute to beneficiaries and 

establish CMS’s review and approval process for these materials. 

Requirements for quality improvement specify that HMOs have the 

capacity to undertake projects designed to improve the quality of 

health care and annually measure their clinical and administrative 

performance and the satisfaction of current and former enrollees.



Benefit Package Proposals:



For each M+C health plan that it intends to offer, an HMO must annually 

submit a benefit package proposal for CMS review and approval. BBRA 

specified that proposals are due at the beginning of July--6 months 

before the start of the benefit year. The Bioterrorism Act temporarily 

changes the benefit package proposal submission deadline to the second 

Monday in September for 2002 through 2004.[Footnote 28] The proposals, 

formally known as adjusted community rate proposals (ACRP), specify the 

health plan’s covered benefits, beneficiary cost sharing, and 

beneficiary premiums. An HMO must cover all services available in the 

FFS program except hospice. An HMO may also offer additional services, 

such as outpatient prescription drugs, and charge beneficiaries for 

these services. If Medicare’s payments to an HMO are expected to exceed 

its cost of providing Medicare-covered services plus the amount of 

profit or additional revenue that the HMO would normally earn on non-

Medicare contracts, the HMO must use the additional money to cover 

additional items or services, reduce beneficiary cost sharing, or 

contribute to a benefit stabilization fund--an escrow-like account that 

can be drawn upon in future years to help maintain benefit levels--or a 

combination of these. The HMO’s benefit package proposal describes the 

extent to which these options will be used.[Footnote 29]



CMS reviews HMOs’ benefit package proposals and approves them if they 

comply with M+C requirements. For example, an HMO may set beneficiary 

cost-sharing requirements on individual services that differ from those 

in the FFS program, but the sum of the actuarial value of its cost-

sharing requirements--the total amount that the average beneficiary 

would be expected to pay in deductibles, coinsurance, and copayments--

and the health plan premium may not exceed the actuarial value of cost 

sharing in the FFS program. The agency has generally approved the 

proposals before the start of Medicare’s annual enrollment period in 

November. BIPA requires the agency’s Chief Actuary to review all 

benefit package proposals submitted on or after May 1, 2001, to 

determine whether the data values and underlying assumptions in the 

proposals are reasonable. According to CMS officials, actuary reviews 

will begin with benefit package proposals submitted in 2002. BBA 

requires CMS each year to audit the benefit package proposals from at 

least one-third of the participating M+C HMOs.[Footnote 30] CMS uses a 

risk-based approach to select some of the HMOs to audit, but the 

majority of audited HMOs are randomly selected.



Beneficiary Enrollment Process:



HMOs are required to play a major role in the beneficiary enrollment 

process. A beneficiary who wants to enroll in a health plan submits an 

application to the HMO, which then must make a preliminary 

determination about whether the beneficiary lives in the geographic 

area served by the health plan and is otherwise eligible to enroll. The 

HMO then forwards the beneficiary’s information to CMS. After CMS 

confirms enrollment eligibility, the HMO must determine the date that 

coverage will begin and notify the beneficiary. Through December 31, 

2004, beneficiaries are allowed to join or leave health plans each 

month. After that date, beneficiaries will have fewer opportunities 

each year to make health plan changes.



Marketing and Enrollee Communication Materials:



HMOs must provide accurate and complete information to prospective 

beneficiaries and current enrollees. CMS’s requirements cover the 

advertising and marketing materials that HMOs distribute to prospective 

beneficiaries and the communications between HMOs and their enrollees, 

such as explanations of benefits or coverage denials. For some 

materials, such as the summary document that each HMO must produce to 

describe its health plan’s benefits, CMS requires HMOs to use templates 

with standardized language and formats. Prior to distribution, HMOs 

must submit all of their marketing and most of their enrollee 

communication materials to CMS for review and approval.



Quality Improvement:



HMOs must meet M+C requirements designed to improve the quality of care 

and services they deliver. Every year, an HMO must begin a multiyear 

quality improvement project that focuses on a topic specified by CMS 

(the national quality improvement project). For example, in 2002, CMS 

requires HMOs to participate in the national quality improvement 

project designed to improve breast cancer screening rates. An HMO must 

also demonstrate that its previous quality improvement projects have 

resulted in demonstrable performance improvements and sustain those 

improvements for at least 1 year.[Footnote 31] HMOs must participate in 

annual CMS-sponsored standardized satisfaction surveys of current 

enrollees and recent disenrollees and provide clinical and 

administrative data to CMS.



Recently, CMS determined that AAAHC’s, JCAHO’s, and NCQA’s standards, 

and their processes for ensuring compliance with those standards, meet 

or exceed M+C requirements for quality improvement. As a result, an HMO 

that has received full accreditation from AAAHC, JCAHO, or NCQA may now 

choose to have the accreditation organization, instead of CMS, monitor 

its compliance with M+C quality improvement requirements.



Selected FEHBP Requirements for HMOs:



FEHBP has requirements for HMOs in all four areas we examined: benefit 

package proposals, the beneficiary enrollment process, marketing 

materials and enrollee communications, and quality improvement. 

Although FEHBP and Medicare both function as purchasers and are broadly 

similar in terms of offering a choice of plans to beneficiaries, there 

are key differences in how the two programs operate, which may account 

for some of the variation in requirements. For example, market forces 

determine HMO payment rates in FEHBP. In contrast, a statutory formula 

specifies HMO payment rates in M+C.[Footnote 32] The difference in 

rate-setting methodologies affects the type of information that OPM and 

CMS require HMOs to include in their benefit package proposals. The 

programs also differ in size and beneficiary characteristics. FEHBP 

covers about one-fifth as many individuals as Medicare does. Moreover, 

FEHBP beneficiaries tend to be younger and to use fewer health care 

services than Medicare beneficiaries.



Benefit Package Proposals:



HMOs that intend to participate in FEHBP must annually submit benefit 

package proposals to OPM for each health plan they offer. The proposals 

are due in May, at least 7 months before the start of the benefit year. 

In general, the FEHBP benefit package that an HMO offers in a 

geographic area provides the same coverage that the HMO offers to most 

enrollees in the same area. Each proposal includes the proposed health 

plan premium, which must be based on the lowest community-rated premium 

that the HMO charges to commercial customers for a similar number of 

covered lives.[Footnote 33] OPM actuaries evaluate an HMO’s supporting 

documentation for the proposed premium. The benefits to be covered by a 

health plan and its cost to the government and to enrollees may be 

affected by subsequent discussions between OPM and the HMO. For 

example, OPM may question specific cost estimates submitted by an HMO 

if they are much higher than other HMOs’ estimates. In such a 

situation, according to OPM, the agency will not agree to a rate unless 

these higher costs are adequately justified. Negotiations are generally 

concluded in August, at least 2 months before the start of FEHBP’s 

annual enrollment period in November.



FEHBP HMOs are subject to audits by OPM’s Office of Inspector General 

(OIG). If an HMO is found to have overcharged the government, the HMO 

must repay the amount of the overcharge plus interest. The OPM OIG has 

a goal of auditing every HMO at least once every 7 years. However, its 

audit strategy is risk based and concentrates resources on HMOs where 

problems are thought most likely to be found.



Beneficiary Enrollment Process:



While FEHBP has some enrollment process requirements for HMOs, they are 

limited because OPM and agencies that employ federal workers are 

responsible for most enrollment activities. FEHBP HMOs’ primary 

enrollment responsibility is to confirm that applicants live in, or in 

some cases work in, the geographic area served by their health plan. 

HMOs must also quarterly reconcile enrollments with agencies. 

Beneficiaries who are active workers enroll through the federal 

agencies that employ them, either in writing or through an automated 

telephone system or a dedicated Web site. The agencies determine 

eligibility and coverage start dates. Retirees enroll through an 

automated telephone system or a dedicated Web site. Agencies conduct 

tentative eligibility determinations for retirees that OPM then 

confirms. In general, FEHBP allows beneficiaries to switch health plans 

once a year, during the annual open season.



Marketing and Enrollee Communication Materials:



FEHBP requires HMOs to produce annual brochures in a standard format 

using standard language. The brochure must completely describe the 

covered benefits, limitations, and exclusions. According to OPM 

officials, the brochures represent a contractual document between HMOs 

and OPM. OPM must approve HMOs’ brochures before they can be 

distributed. HMOs must conform to OPM and NAIC guidelines in preparing 

materials that supplement the brochure and marketing materials, such as 

descriptive circulars and leaflets. According to OPM representatives, 

the agency focuses its review efforts on the annual brochures, but may 

selectively review other marketing materials distributed by HMOs.



Quality Improvement:



HMOs must meet performance standards specified in their FEHBP 

contracts. These standards cover such areas as timeliness of telephone 

responses and wait times for appointments. FEHBP HMOs must annually 

conduct a standardized enrollee satisfaction survey and provide 

clinical and administrative performance data to OPM. FEHBP HMOs 

currently do not have to conduct quality improvement projects. However, 

in 2001, HMOs had to submit their business plans and timelines for 

attaining accreditation from an approved external accreditation 

organization; OPM currently recognizes JCAHO, NCQA, and URAC/American 

Accreditation HealthCare Commission. To achieve accreditation from such 

an organization, HMOs have to undertake quality improvement projects.



Selected NAIC, JCAHO, and NCQA Requirements for HMOs:



NAIC, JCAHO, and NCQA have established standards for HMOs in two of the 

areas we examined: 1) marketing and enrollee communication materials 

and 2) quality improvement. NAIC, JCAHO, and NCQA have not set 

standards for either benefit package proposals or beneficiary 

enrollment--two areas that health care purchasers must address. The 

three entities tend to establish standards that are less specific than 

parallel M+C requirements and that may be modified or interpreted to 

fit local circumstances.



Marketing and Enrollee Communication Materials:



NAIC’s model requirements for marketing materials specify that an HMO 

must produce advertising that is clear, complete, and does not mislead 

beneficiaries. HMOs may be required to annually certify that their 

marketing materials comply with a state’s insurance laws and 

regulations or to submit their marketing materials to a state insurance 

commissioner prior to distribution. NAIC’s model requirements for 

enrollee communications focus on HMO contract documents and specify 

that state insurance commissioners can require HMOs to file these 

documents for approval by the state prior to issuance. NAIC’s model 

requirements pertain to the general contents of contract documents, but 

not the use of standardized formats or language.



JCAHO’s and NCQA’s accreditation standards require HMOs to provide 

complete information to their enrollees. NCQA’s accreditation standards 

also apply to marketing materials intended for prospective members. 

Both organizations have general content requirements and review 

marketing materials during their on-site accreditation visits. NCQA 

requires that HMOs have a systematic and ongoing process for assessing 

how clearly new enrollees understand HMO policies and procedures.



Quality Improvement:



NAIC’s model requirements specify that HMOs must have a quality 

improvement program to improve care delivery and health outcomes and to 

collect and analyze information specific to their enrollees, such as 

satisfaction with the HMO. However, NAIC does not specify the types of 

quality improvement projects that HMOs must conduct or require the use 

of standardized satisfaction surveys or standardized performance 

measures.



Both JCAHO’s and NCQA’s accreditation standards require HMOs to design 

and conduct quality improvement projects in clinical and administrative 

areas that achieve meaningful, sustainable performance improvements 

affecting a significant percentage of their enrollees. JCAHO and NCQA 

evaluate quality improvement project results during their accreditation 

site visits. Both organizations also require HMOs to measure enrollee 

satisfaction and submit administrative and clinical performance data.



Comments from CMS and the Other Entities:



In written comments on a draft of this report, CMS stated that it 

generally agreed with our observations and that the tables contained in 

the appendixes effectively contrast M+C’s, FEHBP’s, and the other 

entities’ HMO requirements. (App. V contains the full text of CMS’s 

comments.) CMS suggested that an expanded analysis of the differences 

between M+C and FEHBP programs, and a more detailed discussion of M+C’s 

legislative history, could help readers understand why M+C’s HMO 

requirements may be more stringent.



We recognize that there are fundamental differences between Medicare--

a large public entitlement program--and FEHBP--an employer-sponsored 

health insurance program--and that an HMO requirement that is 

appropriate in one program may not be appropriate in the other. In this 

report, we provide background information on M+C, FEHBP, and the other 

entities to help provide context for their HMO requirements. We also 

understand that behind M+C’s current set of requirements lies a complex 

legislative history and a series of administrative decisions. The 

report highlights important Medicare HMO requirement changes introduced 

by BBA and subsequent actions taken by CMS and the Congress to improve 

M+C for beneficiaries and encourage participation by HMOs. However, the 

report’s focus is on the requirements that M+C HMOs face today. By 

displaying these requirements with the HMO requirements established by 

other entities, the summary tables may facilitate comparisons and 

inform discussions about particular M+C requirements and how they 

contribute to the program’s objectives.



We also provided a draft of the report to OPM, NAIC, JCAHO, and NCQA 

and incorporated the technical comments we received from those 

organizations and from CMS as appropriate.



As agreed with your office, unless you publicly announce the contents 

of this report earlier, we plan no further distribution of it until 30 

days from the date of this report. We will then send copies of this 

report to the Administrator of CMS, the Director of OPM, NAIC, JCAHO, 

NCQA, and other interested parties. We will also make copies available 

to others upon request. In addition, the report will be available at no 

charge on the GAO Web site at http://www.gao.gov.



If you or your staff have questions about this report, please contact 

me at (202) 512-7119 or James Cosgrove at (202) 512-7029. Other 

contributors to this report include Jennifer Podulka, Lisa Rogers, and 

Yorick F. Uzes.



Sincerely yours,



Signed by Laura A. Dummit:



Laura A. Dummit

Director, Health Care--Medicare Payment Issues:



[End of section]



Appendixes:



Appendix I: Benefit Package Proposals:



M+C and FEHBP have HMO requirements that pertain to benefit package 

proposals. Our summary of those requirements is organized as follows.



Determination of Costs, Benefits, and Government and Beneficiary 

Contributions:



* Purpose of benefit package proposals:



* Determination of HMO costs or rates:



* Covered benefits:



* Government contribution:



* Beneficiary contribution:



* Limits on premiums and required cost sharing:



Submission, Review, and Approval of Benefit Package Proposals:



* Call for proposals:



* Number of proposals submitted:



* Contents of proposals:



* Transmission of proposals:



* Proposal submission deadline:



* Deadline for informing CMS/OPM that existing health plan will not 

renew:



* Review process:



* Schedule for approving proposals:



* Reconciliation process:



Benefit Package Proposal Audits:



* Entities that conduct audits:



* Selection criteria for audits and number of HMOs audited annually:



* Information subject to audit:



* Timing of audits:



* Contents of audit reports:



* Consequences of audit findings:



Table 1 summarizes selected M+C and FEHBP requirements for HMOs’ 

benefit package proposals. Figure 1 depicts the 2001 benefit-year 

timeline for activities associated with the submission, review, and 

approval of HMOs’ benefit packages.[Footnote 34] The timing of these 

activities for M+C will be altered for benefit years 2003 through 2005. 

Figure 2 depicts the M+C and FEHBP timeline for benefit package 

proposal activities for those benefit years.



Table 1: Selected Requirements for Benefit Package Proposals, M+C and 

FEHBP:



Topic: Determination of costs, benefits, and government and beneficiary 

contribution.



Topic: Purpose of benefit package proposals; M+C requirements: 

Determination of costs, benefits, and government and beneficiary 

contribution: HMO must submit, for CMS approval, benefit package 

proposals, called adjusted community rate proposals (ACRP), that are 

used to determine covered benefits and beneficiary premiums and cost 

sharing.; FEHBP requirements: Determination of costs, benefits, and 

government and beneficiary contribution: HMO must submit, for OPM 

approval, benefit package proposals that are used to determine covered 

benefits, the government contribution, and beneficiary premiums and 

cost sharing..



Topic: Determination of HMO costs or rates; M+C requirements: 

Determination of costs, benefits, and government and beneficiary 

contribution: HMO must, for each health plan it intends to offer, 

estimate its per enrollee direct medical cost of providing Medicare-

covered benefits. The HMO must also list the payments per enrollee it 

requires to cover administrative costs and provide other additional 

revenue, for such items as profits or contribution to reserve for 

nonprofit HMOs. (The profit included in the proposal must be comparable 

to the profits the HMO normally earns on other contracts.) The HMO must 

follow the same methodology to estimate its cost and revenue of 

providing benefits not covered by Medicare. The sum of all direct 

medical and administrative costs and additional revenue per enrollee, 

known as the adjusted community rate (ACR), must be based on the amount 

the HMO would charge a commercial or other customer to provide 

benefits, adjusted for differences in the utilization characteristics 

of the HMO’s expected Medicare enrollees.; FEHBP requirements: 

Determination of costs, benefits, and government and beneficiary 

contribution: HMO must, for each health plan it intends to offer, 

develop its FEHBP premium rates using the same methodology it uses for 

other purchasers. Each HMO must identify two purchasers in the FEHBP 

contract area with enrollments closest to the number of its FEHBP 

enrollees in that area. These purchasers are referred to as similarly 

sized subscriber groups (SSSG). The HMO must apply the same 

methodologies it used to calculate premium rates for its SSSGs and 

select the method that yields the lowest premium rate for FEHBP.; ; The 

premium rate may be adjusted to incorporate findings from rate 

reconciliation audits..



Topic: Covered benefits; M+C requirements: Determination of costs, 

benefits, and government and beneficiary contribution: HMO must provide 

all Medicare-covered benefits except hospice care. HMO may enhance 

Medicare’s benefit package by reducing beneficiary cost-sharing 

requirements or providing coverage for additional benefits, such as 

prescription drugs. If projected Medicare payments exceed the HMO’s 

ACR, the HMO must use the excess by enhancing benefits or contributing 

to a benefit stabilization fund that it can draw on in future years to 

help finance the cost of covered benefits, or a combination of these.; 

; Beginning in 2003, HMO may pay all or part of a beneficiary’s 

Medicare part B premium.[A]; FEHBP requirements: Determination of 

costs, benefits, and government and beneficiary contribution: In 

general, an HMO’s FEHBP benefit package is expected to be based on the 

benefit package it provides to the most enrollees in the community. OPM 

may require HMOs to provide coverage for certain benefits, such as 

prescription drugs or child immunizations, or may establish coverage 

parameters, such as minimum copayments or parity for mental health 

benefits. OPM may restrict benefits, such as dental coverage, that 

might result in an HMO attracting a disproportionate number of healthy 

beneficiaries, a phenomenon known as favorable selection..



Topic: Government contribution; M+C requirements: Determination of 

costs, benefits, and government and beneficiary contribution: CMS 

follows a formula specified in law to establish the government 

contribution to an M+C HMO in each geographic payment area (generally a 

county).[B]; ; ; ; ; ; ; ; ; M+C payment rates are adjusted, up or 

down, to better reflect the likely health care costs associated with 

certain beneficiary characteristics such as age, sex, Medicaid 

enrollment status, and prior hospitalizations for selected conditions.; 

FEHBP requirements: Determination of costs, benefits, and government 

and beneficiary contribution: OPM follows a formula specified in law to 

establish the government premium contribution.[C] For each enrollee, 

the government pays the HMO the lesser of:; ; 1. 72 percent of the 

weighted average premium of all health plans offered to government 

employees (average premium weighted by the number of FEHBP enrollees in 

each health plan), or; 2. 75 percent of the health plan’s premium.

; OPM does not adjust payments for the characteristics of individual 

enrollees..



Topic: Beneficiary contribution; M+C requirements: Determination of 

costs, benefits, and government and beneficiary contribution: 

Beneficiary premium is established in conjunction with the health 

plan’s cost-sharing requirements. In general, beneficiaries are 

expected to pay, in premiums and cost sharing, the difference between 

the health plan’s ACR for its entire benefit package and the portion of 

Medicare’s payment used by the health plan for current benefits.[D]; 

FEHBP requirements: Determination of costs, benefits, and government 

and beneficiary contribution: Beneficiary pays the difference between 

health plan’s premium and the government contribution per enrollee. 

Beneficiary must pay a minimum of 25 percent of the health plan’s 

premium. In addition, beneficiary must pay any required cost sharing..



Topic: Limits on premiums and required cost sharing; M+C requirements: 

Determination of costs, benefits, and government and beneficiary 

contribution: No minimum premiums or required cost sharing.; ; For 

Medicare-covered benefits as a whole, the expected premiums and cost 

sharing per beneficiary cannot exceed a nationally established amount 

representing the actuarial value of FFS’s deductibles and coinsurance. 

CMS may limit cost sharing for individual items and services if it 

determines that the health plan’s proposed cost sharing would, for 

example, discriminate or discourage enrollment of severely ill or 

chronically ill beneficiaries.; ; For benefits not covered by Medicare, 

the expected revenue per beneficiary cannot exceed the health plan’s 

ACR for the group of benefits.; FEHBP requirements: Determination of 

costs, benefits, and government and beneficiary contribution: No 

maximum premiums or required cost sharing.; ; OPM sets some minimum 

copayment amounts..



Topic: Submission, review, and approval of benefit package proposals.



Topic: Call for proposals; M+C requirements: Determination of costs, 

benefits, and government and beneficiary contribution: No later than 

March 1 of each year, which has been temporarily changed to no later 

than the second Monday in May in 2004 and 2005, CMS announces the M+C 

payment rates for each geographic payment area that will be in effect 

during the next calendar year.[E] (M+C benefit year coincides with the 

calendar year.); FEHBP requirements: Determination of costs, benefits, 

and government and beneficiary contribution: In March or early April, 

OPM sends out a “call letter” asking HMOs to submit their benefit 

package proposals for the next benefit year. The call letter contains 

information on any program changes that could affect an HMO’s rates..



Topic: Number of proposals submitted; M+C requirements: Determination 

of costs, benefits, and government and beneficiary contribution: CMS 

received about 650 ACRPs in 2001.[F]; FEHBP requirements: Determination 

of costs, benefits, and government and beneficiary contribution: OPM 

received about 300 benefit package proposals in 2001..



Topic: Contents of proposals; M+C requirements: Determination of costs, 

benefits, and government and beneficiary contribution: An HMO must 

submit an ACRP for each heath plan it intends to offer. The ACRP 

consists of two 

parts--(1) a set of six standardized spreadsheets that support the 

health plan’s ACR and (2) a standardized list, known as the plan 

benefit package (PBP), that details all the benefits the HMO will 

offer.; ; The six ACR spreadsheets ask for the following information.; 

; * Summary projections of enrollment, Medicare’s average payment rate, 

and revenue collected from beneficiaries.; * Base-year actual costs and 

revenues. (HMO uses recent historical costs and revenues as a basis to 

project benefit-year costs and revenues. The base year is the period 

when historical costs and revenues are measured. Base-year costs are 

adjusted for expected trends and other factors to project benefit-year 

costs and revenues.); * HMO financial information.; * Premiums and 

cost-sharing details for various categories of services.; * Expected 

variation in costs and revenues by health care service category.; * 

Calculation comparing the ACR to Medicare’s projected average payment 

rate.; FEHBP requirements: Determination of costs, benefits, and 

government and beneficiary contribution: An HMO must submit, for each 

health plan it intends to offer, information that describes how it 

developed rates for its SSSGs and shows that it used the same 

methodology to develop its FEHBP rates.; ; HMO submits OPM-required 

forms and supporting documentation for each of its health plans. OPM 

forms primarily consist of a series of questions. Many questions have 

multiple-choice answers; others ask for a narrative description of the 

HMO’s rate development methodology. The supporting documentation can be 

submitted in any form that is convenient for the HMO and supplies the 

necessary information. The number of forms and amount of documentation 

required vary according to whether the health plan serves more or less 

than 1,500 FEHBP enrollees and whether total income from FEHBP is less 

than or more than $500,000.[G].



Topic: Transmission of proposals; M+C requirements: Determination of 

costs, benefits, and government and beneficiary contribution: HMO 

submits ACRPs electronically and mails a paper copy of the ACR to CMS 

along with narrative descriptions that may contain additional 

explanations or cost justifications.; FEHBP requirements: 

Determination of costs, benefits, and government and beneficiary 

contribution: HMO mails two paper copies of benefit package proposals 

or other required documentation to OPM..



Topic: Proposal submission deadline; M+C requirements: Determination of 

costs, benefits, and government and beneficiary contribution: July 1 

before the start of the benefit year. For benefit years 2003 through 

2005 only, the deadline is the second Monday in September.[H]; FEHBP 

requirements: Determination of costs, benefits, and government and 

beneficiary contribution: May 31 before the start of the benefit year..



Topic: Deadline for informing CMS/OPM that existing health plan will 

not be renewed; M+C requirements: Determination of costs, benefits, and 

government and beneficiary contribution: July 1 before the start of the 

benefit year. For benefit years 2003 through 2005 only, the deadline is 

the second Monday in September.; FEHBP requirements: Determination of 

costs, benefits, and government and beneficiary contribution: May 31 

before the start of the benefit year. If OPM does not receive a benefit 

package proposal for an existing health plan by that date, the agency 

regards the health plan as one that will not be renewed..



Topic: Review process; M+C requirements: Determination of costs, 

benefits, and government and beneficiary contribution: CMS 

electronically reviews each ACRP, primarily to check that all required 

fields are completed. CMS and CMS’s contractors conduct a desk review 

of the ACRP. The desk review includes verifying that any projected 

Medicare average payment rate in excess of the HMO’s ACR is used to 

offer additional benefits, to reduce premiums or cost sharing, or is 

placed in the stabilization fund; that benefits detailed in the PBP are 

included in the ACR; and that all values in the ACR appear reasonable 

and are supported by adequate documentation.; ; ; BIPA requires 

Medicare’s Chief Actuary to review all ACRs submitted on or after May 

1, 2001, and determine the appropriateness of both the actuarial 

assumptions and the data used by HMOs.[I] CMS officials have stated 

that actuarial reviews will begin with ACRs submitted in 2002.; FEHBP 

requirements: Determination of costs, benefits, and government and 

beneficiary contribution: OPM uses a two-stage process to review HMOs’ 

benefit package proposals and begin negotiations. First, OPM’s Office 

of Insurance Programs reviews each proposed benefit package. OPM may 

negotiate to have the HMO alter its proposed benefit package. Second, 

OPM’s Office of the Actuary reviews the proposed premium rate and the 

data and methodology the HMO used to develop the rate. (These two 

stages do not necessarily occur in strict sequence and OPM may continue 

benefit negotiations while reviewing the HMO’s premium rates.); ; OPM’s 

Office of the Actuary focuses review efforts on benefit package 

proposals that cover more than 1,500 FEHBP enrollees.; ; For benefit 

package proposals covering 1,500 or more FEHBP enrollees, OPM checks 

that the HMO used the same methodology for its SSSG as for FEHBP. About 

160 benefit package proposals were subject to this detailed review in 

2001.; ; For benefit package proposals covering fewer than 1,500 FEHBP 

enrollees, OPM determines whether the proposed rates appear to be 

reasonable (for example, by comparing the rates with those submitted by 

similar HMOs)..



Topic: Schedule for approving proposals; M+C requirements: 

Determination of costs, benefits, and government and beneficiary 

contribution: CMS generally completes its review of ACRPs and approves 

them before the start of Medicare’s annual enrollment period in 

November.[J]; FEHBP requirements: Determination of costs, benefits, and 

government and beneficiary contribution: OPM tries to finish all 

negotiations by mid-August--approximately 10 weeks before the start of 

FEHBP’s open season that begins in November..



Topic: Reconciliation process; M+C requirements: Determination of 

costs, benefits, and government and beneficiary contribution: No 

applicable requirements.; FEHBP requirements: Determination of costs, 

benefits, and government and beneficiary contribution: In early March 

of the benefit year, each HMO must tell OPM what rate it actually 

negotiated with its SSSGs. (The HMO may have signed contracts with its 

SSSGs after submitting its FEHBP rate proposal.) If the lowest SSSG 

rate differs from the one listed in the HMO’s FEHBP rate proposal, OPM 

reconciles the difference and determines whether the HMO undercharged 

or overcharged FEHBP. The reconciliation process is also used to make 

adjustments for FEHB program changes announced after benefit package 

proposals were finalized and approved. An HMO cannot use the 

reconciliation process to update its estimates of beneficiary use of 

services.; ; OPM maintains a contingency reserve fund for HMOs, and may 

charge an HMO up to 3 percent of its health plan’s premium to establish 

and maintain the fund..



FEHBP requirements: Determination of costs, benefits, and government 

and beneficiary contribution: M+C requirements Topic : : Funds are paid 

out of the health plan’s contingency reserve to: compensate a health 

plan if its rate at the time of reconciliation (late spring, early 

summer) is higher than that agreed to in rate negotiations; reduce the 

rate otherwise applicable for a year if the contingency reserve is 

projected to exceed the minimum balance; and reimburse the Federal 

Employees Health Benefits Fund for audit findings against a health 

plan..



Topic: Benefit package proposal audits.



Topic: Entities that conduct audits; M+C requirements: Determination of 

costs, benefits, and government and beneficiary contribution: For 

audits of benefit year 2000 ACRPs, CMS contracted with three private 

certified public accounting firms and HHS’s Office of Inspector General 

(OIG). For audits of benefit year 2001 ACRPs, CMS contracted with only 

private firms.; FEHBP requirements: Determination of costs, benefits, 

and government and beneficiary contribution: OPM OIG..



Topic: Information subject to audit; M+C requirements: Determination of 

costs, benefits, and government and beneficiary contribution: BBA 

grants the Secretary of HHS the right to audit and inspect any books 

and records of the HMO that pertain to the ability of the organization 

to bear the risk of potential financial losses, or to services 

performed or determinations of amounts payable under the contract.; ; 

Audits analyze each of the six ACR worksheets, but primarily focus on 

two aspects of the ACR-the actual costs incurred in the base year, and 

the methodology the HMO used to project benefit-year costs from base-

year costs.; FEHBP requirements: Determination of costs, benefits, and 

government and beneficiary contribution: OPM OIG conducts two types of 

audits: rate reconciliation audits of benefit package proposals for the 

current benefit year, and historical audits that generally review 

benefit package proposals from 5 previous benefit years.; ; Audits 

determine whether the HMO’s rate was developed according to the 

contract, the Federal Acquisition Regulation (FAR), which contains 

generic procurement rules contractors follow in doing business with the 

federal government, and the Federal Employees Health Benefits 

Acquisition Regulation, which tailors FAR to FEHBP..



Topic: Selection criteria for audits and number of HMOs audited 

annually; M+C requirements: Determination of costs, benefits, and 

government and beneficiary contribution: CMS is required to audit at 

least one-third of the participating HMOs annually.[K]; ; CMS selected 

every third HMO contract from those filing ACRPs for 2000. CMS then 

used a risk-based approach to eliminate or add HMO contracts based on 

the desk reviews and prior experience with particular HMO contracts.; ; 

CMS audited 80 of the 238 M+C contracts for the 2000 benefit year. 

CMS’s goal is to audit all M+C contracts over a 3-year period.; FEHBP 

requirements: Determination of costs, benefits, and government and 

beneficiary contribution: The FEHB Act permits, but does not require, 

audits of HMOs. OPM OIG performs a risk analysis by assigning all of an 

HMO’s health plans a numerical value for criteria such as nature of 

previous findings, size of health plan, dollar volume, and time elapsed 

since last audit. Aggregate score for each HMO is computed, and HMOs 

with the highest risk scores are audited.; ; In 2001, OPM OIG performed 

20 rate reconciliation audits and 23 historical audits of HMOs. OPM 

tries to audit each HMO at least once every 7 years..



Topic: Timing of audits; M+C requirements: Determination of costs, 

benefits, and government and beneficiary contribution: Audits of ACRPs 

for benefit year 2000 were conducted from May through November 2000. 

(HMOs had originally submitted these ACRPs in July 1999.); FEHBP 

requirements: Determination of costs, benefits, and government and 

beneficiary contribution: Rate reconciliation audits of benefit package 

proposals are conducted from May through August of the benefit year 

covered by the proposal. Historical audits are conducted from August 

through May..



Topic: Contents of audit reports; M+C requirements: Determination of 

costs, benefits, and government and beneficiary contribution: CMS’s 

contract for benefit year 2000 required that the audit reports contain 

a discussion of each audit finding, a revised ACRP showing the 

estimated dollar effect of each audit finding, and a conclusion about 

the reasonableness of the audited ACRP.; FEHBP requirements: 

Determination of costs, benefits, and government and beneficiary 

contribution: Audit reports contain a discussion of each audit finding 

and the dollar effect of each audit finding..



Topic: Consequences of audit findings; M+C requirements: Determination 

of costs, benefits, and government and beneficiary contribution: 

Depending on the audit findings accepted by CMS, an HMO could be 

subject to administrative sanctions, civil money penalties, and be 

required to return double the excess amount charged in violation. The 

excess amount charged is deducted from the penalty and returned to the 

Medicare enrollee(s) concerned.; ; CMS has provided copies of the 2000 

benefit-year audit reports to HMOs. The agency is considering the 

actions it will take to address the audit findings.; FEHBP 

requirements: Determination of costs, benefits, and government and 

beneficiary contribution: If OPM OIG determines that rates equivalent 

to the SSSGs’ rates were not applied to the FEHBP, it can return a 

finding of defective pricing. FEHBP is then entitled to a downward rate 

adjustment to compensate for any overcharges and interest on 

overcharges..



[A] Part A of Medicare provides coverage for inpatient hospital, 

skilled nursing facility, hospice, and certain home health care 

services, for which beneficiaries do not pay a premium. To receive 

coverage for physician and other services provided under part B of 

Medicare, beneficiaries must pay a monthly premium to Medicare. In 

general, a beneficiary enrolled in an M+C health plan must pay 

Medicare’s part B premium in addition to any premium charged by the 

health plan.



[B] Balanced Budget Act of 1997 (BBA), Pub. L. No. 105-33, §4001, 111 

Stat. 251, 299 (classified to 42 U.S.C. 1395w-23).



[C] 5 U.S.C, §8906.



[D] Under certain circumstances, an HMO may contribute a portion of its 

Medicare payment to a benefit stabilization fund to finance benefits in 

future years, or draw on its previous contributions to finance current 

benefits.



[E] Public Health Security and Bioterrorism Preparedness and Response 

Act of 2002 (Bioterrorism Act), Pub. L. No. 107-188, §532(d), 116 Stat. 

594, 696.



[F] This reflects the number of revised ACRPs filed following the 

enactment of BIPA, which required HMOs to submit revised ACRPs to cover 

the portion of the 2001 contract year--March through December--when 

BIPA specified increased payment rates would be in effect.



[G] OPM measures enrollment for this purpose in terms of numbers of 

contracts between an FEHBP health plan and federal employees, retirees, 

or surviving dependents. Thus, the number of contracts is less than the 

number of covered lives, which includes covered spouses and dependent 

children.



[H] Bioterrorism Act, §532(b), 116 Stat. 696.



[I] Medicare, Medicaid, and SCHIP Benefit Improvement and Protection 

Act of 2000 (BIPA), Pub. L. No. 106-554, Appendix, F, §622, 114 Stat. 

2763A-463, 2763A-566.



[J] The Bioterrorism Act temporarily changes the date of the annual 

enrollment period that occurs before the start of each benefit year 

(§532(c), 116 Stat. 696). BBA specified the month of November as the 

annual enrollment period (BBA, §4001, 111 Stat. 282). For benefit years 

2003 through 2005, the Bioterrorism Act delays the start of the annual 

enrollment period to November 15 and extends its conclusion to December 

31 during the years 2002 through 2004 (§532(c), 116 Stat. 696). For the 

2003 benefit year, CMS intends to complete its review of submitted 

ACRPs by November 1, 2002, approximately 2 weeks prior to the start of 

Medicare’s open enrollment period.



[K] BBA, §4001, 111 Stat. 320. Audits were first conducted for benefit 

year 2000 ACRPs.



Source: GAO summary of information provided by CMS and OPM, including 

applicable federal statutes, operational guidance, and other agency 

materials pertaining to HMOs, and interviews with officials. :



[End of table]



Figure 1: Timeline for Submission, Review, and Approval of HMOs’ 

Benefit Package Proposals for Benefit Year 2001:



[See PDF for image]



Source: GAO summary of information provided by CMS and OPM, including 

applicable federal statutes and regulations, operational guidance and 

other agency materials pertaining to HMOs, and interviews with 

officials.



[End of figure]



Figure 2: Timeline for Submission, Review, and Approval of HMOs’ 

Benefit Package Proposals for Benefit Years 2003 Through 2005:



[See PDF for image]



Note: For benefit years after 2005, schedule of M+C activities will 

revert to the schedule shown in 

fig. 1.



[A] CMS announced payment rates for benefit year 2003 in March 2002.



Source: GAO summary of information provided by CMS and OPM, including 

applicable federal statutes and regulations, operational guidance and 

other agency materials pertaining to HMOs, and interviews with 

officials.



[End of figure]



[End of section]



Appendix II: Beneficiary Enrollment:



M+C and FEHBP have HMO requirements that pertain to beneficiary 

enrollment. Our summary of those requirements is organized as follows.



Enrollment Process:



* Enrollment application:



* Eligibility determination:



* Transmission of enrollment information to HMOs:



* Reconciliation of data between HMO and administering agency:



Timing of Enrollment Changes:



* Opportunities to enroll or change enrollment:



* Requirements for health plans to accept new enrollees:



* Determination of effective coverage dates:



Enrollment and Disenrollment Forms and Notices:



* Enrollment forms:



* Notifications for other enrollment-related situations:



* Forms and notifications for voluntary disenrollment:



* Notifications for other disenrollment-related situations:



Table 2 summarizes selected M+C and FEHBP requirements pertaining to 

beneficiary enrollment. Table 3 summarizes the annual opportunities for 

Medicare beneficiaries to enroll in an M+C health plan, change M+C 

health plans, or switch to FFS under M+C’s enrollment “lock-in” 

provision. This provision was in effect during the first half of 2002 

and will be implemented again as of January 1, 2005. Until that date, 

Medicare beneficiaries may make enrollment changes every month. Table 4 

summarizes the annual opportunities for FEHBP beneficiaries to make 

health plan enrollment changes.



Table 2: Selected Requirements for Beneficiary Enrollment in HMOs, M+C 

and FEHBP:



Topic: Enrollment process.



Topic: Enrollment application; M+C requirements: Enrollment process: 

Medicare beneficiaries apply in writing to HMO. HMO must accept mailed 

and faxed enrollment forms and those presented in person.; FEHBP 

requirements: Enrollment process: Employees: During open season, 

agencies may permit or require their employees to submit applications 

to OPM via an automated telephone system or Web site. Employees who do 

not use the automated systems apply in writing to their agency’s human 

resources office.; ; Retirees: During open season, retirees may change 

enrollment via an automated telephone system or Web site provided by 

OPM. Outside of open season activities, retirees make enrollment 

changes by using a toll-free telephone number provided by OPM..



Topic: Eligibility determination; M+C requirements: Enrollment 

process: HMO must verify completion of enrollment forms and perform 

initial checks to verify eligibility for M+C. Eligibility determination 

requires, but is not limited to, verification of enrollment in Medicare 

parts A and B and residence in the health plan’s service area. HMO may 

access CMS data to verify enrollment in Medicare parts A and B.; ; HMO 

must electronically submit new enrollments to CMS monthly. CMS performs 

final eligibility checks. HMO can electronically review the results of 

CMS reports to confirm eligibility for new enrollees.[A]; FEHBP 

requirements: Enrollment process: HMO plays a limited role in the 

eligibility determination process. Agencies must determine eligibility 

for employees. For retirees, agencies must conduct initial 

determinations, then submit the results of those determinations to OPM 

for confirmation. HMO’s responsibility is to confirm that applicants 

are eligible for its particular health plan or health plans. For 

example, if an HMO offers a health plan only in a designated service 

area, it must confirm that applicants reside in that service area..



Topic: Transmission of enrollment information to HMOs; M+C 

requirements: Enrollment process: HMO receives enrollment forms 

directly from beneficiary.; FEHBP requirements: Enrollment process: 

Employees: Excluding open season activities, agencies send copies of 

the enrollment forms directly to HMO. The copies must be forwarded at 

least every week. Several agencies send changes indirectly through 

OPM’s enrollment processing center in Macon, Georgia. During open 

season, OPM sends enrollments received electronically to HMO via its 

enrollment processing center. These transactions occur weekly.; ; 

Retirees: HMO receives non-open season enrollment changes directly from 

OPM. During open season, enrollment changes are made via an automated 

telephone system or a Web site provided by OPM. OPM sends these changes 

to the HMO electronically through its enrollment processing center..



Topic: Reconciliation of; data between HMO and administering agency; 

M+C requirements: Enrollment process: Enrollment data are 

electronically reconciled between HMO and CMS monthly. HMO can 

electronically view reports with results of CMS eligibility 

confirmation.; FEHBP requirements: Enrollment process: Enrollment data 

are reconciled in writing between the HMO and agency personnel and 

payroll offices quarterly..



Topic: Timing of enrollment changes.



Topic: Opportunities to enroll or change enrollment; M+C requirements: 

Enrollment process: During the first 6 months of 2002, Medicare 

beneficiaries were subject to a lock-in provision that limited the 

number of opportunities they had each year to enroll or change 

enrollment in M+C health plans. HMOs were required to track a 

beneficiary’s enrollment changes to ensure compliance with those 

limits. On June 12, 2002, the lock-in requirement was temporarily 

dropped until January 1, 2005. Through December 31, 2004, Medicare 

beneficiaries can enroll, on a monthly basis, into any M+C health plan 

accepting new enrollments or switch to the FFS program. (See table 3 

for beneficiaries’ opportunities to make health plan changes under the 

lock-in provision.); FEHBP requirements: Enrollment process: OPM 

requirements delineate specific opportunities to enroll or change 

enrollment in FEHBP health plans. FEHBP eligibles enroll in their first 

health plan and are then locked into that health plan until the annual 

open season, unless special circumstances arise.; ; Employees and 

retirees enrolled in FEHBP generally may only change health plans 

during the annual open season.; ; FEHBP enrollees in certain 

circumstances have other opportunities to change enrollment. For 

example, they may change health plans if their employment status or 

family status changes. (See table 4 for specific FEHBP enrollment 

opportunities.).



Topic: Requirements for health plans to accept new enrollees; M+C 

requirements: Enrollment process: In general, unless an HMO’s health 

plan has reached its CMS-approved capacity limit, it must accept 

beneficiaries who apply.; ; HMO may not screen beneficiaries prior to 

enrollment. HMO may not reject beneficiaries who have preexisting 

conditions, other than end-stage renal disease.; FEHBP requirements: 

Enrollment process: HMO must accept all eligible applicants.; ; ; ; HMO 

may not reject applications due to preexisting conditions..



Topic: Determination of effective coverage dates; M+C requirements: 

Enrollment process: HMO must determine effective coverage dates based 

on the election period.; ; * Elections made during the 3 months prior 

to beneficiary’s entitlement to Medicare parts A and B are effective 

the first date of entitlement.; ; ; ; * Elections made during the 

annual election period are effective January 1.; ; ; ; ; ; ; ; ; ; ; * 

At other times, the effective date is the first day of the month after 

HMO receives the complete enrollment form.; FEHBP requirements: 

Enrollment process: Agency personnel offices must determine effective 

coverage dates based on the election period.; ; * Elections cannot be 

made prior to the first date of eligibility. Generally, elections made 

within the 60-day window posteligibility are effective the first day of 

the first pay period after the agency personnel office receives the 

enrollment request and follows a period during which the enrollee was 

in pay status.; ; * Employees: Initial enrollments made during the 

annual open season are effective the first day of the first pay period 

that begins in the following year and that follows a pay period during 

any part of which the enrollee was in pay status. Changes in 

enrollments made during the annual open season are effective the first 

day of the first pay period that begins the following year.; ; * 

Retirees: Enrollments made during open season are effective January 1.; 

; * Effective dates vary for employees and retirees enrolling during 

special circumstances, such as when a health plan terminates its 

participation in FEHBP..



Topic: Enrollment and disenrollment forms and notifications.



Topic: Enrollment forms; M+C requirements: Enrollment process: 

Beneficiaries must submit enrollment forms to HMO.; ; HMO is not 

required to use a standard enrollment form. CMS provides three model 

enrollment forms that HMO may choose to use:; ; * the individual 

enrollment form,; * the employer group health plan (EGHP) enrollment 

form, or; * the short enrollment form (for beneficiaries switching 

health plans within an HMO).

; If HMO chooses to use its own enrollment form, the form must include 

data elements specified by CMS. CMS also requires that certain 

statements appear in the HMO enrollment form (to which the beneficiary 

need agree). For example, the enrollment form must state that the 

beneficiary understands that enrollment in more than one health plan 

with the same effective date will cancel all enrollments.; ; CMS must 

review HMO enrollment forms prior to their use. If HMO uses model 

enrollment forms without modifications, CMS is required to review them 

within 10 days of submission. If HMO chooses to use its own enrollment 

forms, CMS is required to review them within 45 days of submission.; 

FEHBP requirements: Enrollment process: FEHBP employees submit 

enrollment forms to the agencies.; ; Employees: Employees must complete 

a standard form to enroll or change enrollment to another health plan.; 

; Retirees: Retirees must use an automated telephone system or Web site 

to change enrollment to another health plan.; ; ; ; HMO may not require 

completion of its own enrollment or application form. HMO’s electronic 

reproduction of enrollment form must contain the same data elements as 

the standard form.; ; ; ; ; ; ; No applicable requirements..



Topic: Notifications for other enrollment-related situations; M+C 

requirements: Enrollment process: CMS requires HMO to provide 

notifications to applicants in certain situations. For example, HMO 

must send applicants a written notice confirming receipt of a complete 

enrollment form and a confirmation when CMS has made the final 

determination of eligibility. Model forms are available from CMS for 

these required communications. HMOs must also provide identification 

cards to enrollees.; FEHBP requirements: Enrollment process: OPM 

requires HMO to send identification cards to new enrollees..



Topic: Forms and notifications for voluntary disenrollment; M+C 

requirements: Enrollment process: M+C enrollees disenroll from health 

plans by changing to another health plan or by contacting the Social 

Security Administration, a Railroad Retirement Benefits office, CMS, or 

the HMO.; ; When CMS notifies HMO that a beneficiary has disenrolled 

from its health plan, HMO must send its former enrollee a notice 

confirming the disenrollment.; ; If HMO receives a verbal request from 

an enrollee, HMO must either ask for the request in writing or send the 

enrollee a disenrollment form and an accompanying letter. Once HMO 

receives either a written request or the completed disenrollment form, 

HMO must send a copy of the request and disenrollment letter to the 

former enrollee.; ; Model forms and letters are available from CMS for 

all these required communications.; FEHBP requirements: Enrollment 

process: FEHBP enrollees disenroll from health plans by either changing 

enrollment to another health plan or canceling enrollment in FEHBP. 

Employees disenroll with the standard form or electronically. Retirees 

disenroll through a toll-free telephone number or an automated system..



Topic: Notifications for other disenrollment-related situations; M+C 

requirements: Enrollment process: CMS also requires HMO to provide 

notification to enrollees in other disenrollment-related situations. 

For example, HMO must send written notification to the enrollee upon 

deciding to disenroll the enrollee due to failure to pay premiums. CMS 

provides a model letter for this purpose. HMO must also send an 

enrollee a written notice if it terminates or withdraws from the 

enrollee’s service area or continuation area-a CMS-approved area 

outside of the HMO’s service area where the HMO provides, or arranges 

to provide, services to existing enrollees-will no longer include the 

area where the enrollee lives. CMS does not provide a model 

notification for this purpose.; FEHBP requirements: Enrollment process: 

No applicable requirements..



[A] We use the term “enrollee” to refer to a Medicare beneficiary who 

has already enrolled in an M+C health plan.



Source: GAO summary of information provided by CMS and OPM, including 

applicable federal statutes and regulations, operational guidance and 

other agency materials pertaining to HMOs, and interviews with 

officials.



[End of table]



Health Plan Enrollment Opportunities for M+C and FEHBP Beneficiaries:



Before 2002, a beneficiary in FFS or an M+C health plan could enroll, 

on a monthly basis, into any M+C health plan accepting new enrollments 

or switch from an M+C health plan to FFS. BBA included an enrollment 

lock-in provision, effective January 1, 2002, that limited the number 

of opportunities, called election periods, for beneficiaries to make 

such changes (see table 3).[Footnote 35] Once a beneficiary used an 

election period to enroll in a health plan, he or she was locked into 

that health plan until eligible for another election period. All 

beneficiaries were eligible for at least two election periods per year-

-one during the annual election period in November and a second during 

the first 3 months of the benefit year (6 months in 2002). However, the 

number of election periods each year was higher for beneficiaries with 

certain characteristics. For example, beneficiaries enrolled in a 

health plan on their 65THbirthday had four election periods during 

their first 12 months in the program. Institutionalized beneficiaries 

could change health plans an unlimited number of times throughout the 

year.



On June 12, 2002, the Bioterrorism Act was signed into law. This act 

temporarily lifted the enrollment lock-in provision that had been 

implemented as of January 1, 2002; the lock-in provision is scheduled 

to be reinstated beginning January 1, 2005.[Footnote 36]



Employees and retirees enrolled in FEHBP generally may change health 

plans one time each year, during the annual open enrollment period. 

However, FEHBP does permit changes at other times under certain 

circumstances, such as a change in family status (see table 4).



Table 3: Opportunities for Medicare Beneficiaries to Enroll in an M+C 

Health Plan or Make Health Plan Changes Under M+C’s Lock-in Provision:



Election period: First year of eligibility: Initial coverage election; 

Length of election period: First year of eligibility: 3 months prior to 

eligibility for Medicare parts A and B; Are health plans required to be 

open to new enrollment?: First year of eligibility: Yes, unless at 

capacity.



Election period: First year of eligibility: Open enrollment for newly 

eligible individuals; one change is allowed[A]; Length of election 

period: First year of eligibility: 6 months posteligibility in 2005; 3 

months posteligibility in 2006 and beyond; Are health plans required to 

be open to new enrollment?: First year of eligibility: No.



Election period: First year of eligibility: Annual election; Length of 

election period: First year of eligibility: November; Are health plans 

required to be open to new enrollment?: First year of eligibility: Yes, 

unless at capacity.



Election period: First year of eligibility: Open enrollment; one change 

is allowed; Length of election period: First year of eligibility: 

January-June in 2005; January-March in 2006 and beyond; Are health 

plans required to be open to new enrollment?: First year of 

eligibility: No.



Election period: First year of eligibility: Special opportunity for 

beneficiaries aged 65 to return to FFS; Length of election period: 

First year of eligibility: 1 year following enrollment within 

Medicare’s initial enrollment period at 65[TH] birthday; Are health 

plans required to be open to new enrollment?: First year of 

eligibility: Not applicable.



Election period: First year of eligibility: Annual election; Length of 

election period: First year of eligibility: November; Are health plans 

required to be open to new enrollment?: First year of eligibility: Yes, 

unless at capacity.



Election period: First year of eligibility: Open enrollment; one change 

is allowed; Length of election period: First year of eligibility: 

January-June in 2005; January-March in 2006 and beyond; Are health 

plans required to be open to new enrollment?: First year of 

eligibility: No.



Election period: First year of eligibility: Beneficiary moves out of 

health plan’s service area or continuation area; Length of election 

period: First year of eligibility: Includes the month prior to the 

move, the month of the move, and the month after the move; Are health 

plans required to be open to new enrollment?: First year of 

eligibility: Yes, unless at capacity.



Election period: First year of eligibility: Beneficiary’s health plan 

discontinues service; Length of election period: First year of 

eligibility: Varies depending on circumstance; Are health plans 

required to be open to new enrollment?: First year of eligibility: Yes, 

unless at capacity.



Election period: First year of eligibility: Beneficiary is living in an 

institution; Length of election period: First year of eligibility: 

Year-round; Are health plans required to be open to new enrollment?: 

First year of eligibility: No.



Election period: First year of eligibility: Beneficiary’s health plan 

violates contract; Length of election period: First year of 

eligibility: Varies depending on circumstance; Are health plans 

required to be open to new enrollment?: First year of eligibility: Yes, 

unless at capacity.



Election period: First year of eligibility: Beneficiary enrolled in an 

EGHP; Length of election period: First year of eligibility: When an 

individual in the EGHP makes an election; Are health plans required to 

be open to new enrollment?: First year of eligibility: Yes, unless at 

capacity.



Election period: First year of eligibility: Exceptional conditions as 

determined by CMS; Length of election period: First year of 

eligibility: Specified by CMS; Are health plans required to be open to 

new enrollment?: First year of eligibility: Yes, unless at capacity.



[A] However, in 2005 and beyond, the election period must not extend 

past December 31 of the same calendar year.



Source: GAO summary of information provided by CMS, including 

applicable federal statutes and regulations, operational guidance and 

other agency materials pertaining to HMOs, and interviews with 

officials.



[End of table]



Table 4: Opportunities for FEHBP Beneficiaries to Enroll in a Health 

Plan or Make Health Plan Changes:



[See PDF for image]



[A] Agencies may allow employees to make late elections if employees 

demonstrate they missed the original deadline due to causes beyond 

their control. Employees make a request to their agency, and if the 

request is granted, they have 60 additional days from the date the 

request was granted to make an election.



Source: GAO summary of information provided by OPM, including 

applicable federal statutes and regulations, operational guidance and 

other agency materials pertaining to HMOs, and interviews with 

officials.



[End of table]



[End of section]



Appendix III: Marketing and Enrollee Communication Materials:



M+C, FEHBP, NAIC, NCQA, and JCAHO have HMO requirements that pertain to 

marketing and enrollee communication materials. Our summary of those 

requirements is organized as follows.



Types of Materials Subject to Standards:



* Advertising and prospective member materials:



* Materials that explain HMO operations:



Approach Used to Ensure that Materials Conform to Standards:



* Prior approval:



* Postdistribution review:



* Ongoing assessment of new members’ understanding of HMO operations:



Standards for Documents and Information:



* Preenrollment documents related to benefits and coverage:



* Deadline for distributing preenrollment documents:



* Postenrollment documents related to benefits and coverage:



* Deadline for distributing postenrollment documents:



* Standard language and formats:



* Model language and formats:



* Guidelines for preparing materials:



* Language phrases:



* Readability:



* Producing materials in other languages and formats:



* Telephone numbers:



* References to statistical studies:



* References to competitors:



* References to outpatient prescription drug benefit:



Standards for Marketing Activities:



* Promotional activities:



* Prohibited activities:



* Items not covered in contract:



Review of Materials:



* Reviewing officials:



* Frequency of review:



* Timing of review:



* Time frames for standard review:



* Time frames for expedited review:



* Final verification of beneficiary notification materials:



* Annual certification of compliance in preparing marketing materials:



Table 5 summarizes selected M+C, FEHBP, NAIC, JCAHO, and NCQA 

requirements for marketing and enrollee communication materials.



Table 5: Selected Requirements for Marketing and Enrollee Communication 

Materials, M+C, FEHBP, NAIC, JCAHO, and NCQA:



[See PDF for image]



[A] For the 2002 and 2003 beneficiary education/open season campaigns, 

CMS has temporarily suspended final verification of beneficiary 

notification materials, including the summary of beneficiary 

notification materials, including the summary of benefits, the evidence 

of coverage, and all other materials prepared as part of HMO’s 

enrollment package(s).



Source: GAO summary of information provided by CMS and OPM, including 

applicable federal statutes and regulations, operational guidance and 

other agency materials pertaining to HMOs, and interviews with 

officials. GAO summary of information provided by NAIC, JCAHO, and 

NCQA, including NAIC model requirements for HMOs, standards from the 

current JCAHO and NCQA accreditation manuals for HMOs, and interviews 

with NAIC, JCAHO, and NCQA officials.



[End of figure]



[End of section]



Appendix IV Quality Improvement:



M+C, FEHBP, NAIC, JCAHO, and NCQA have HMO requirements that pertain to 

quality improvement (QI). Our summary of those requirements is 

structured along the following dimensions.



Elements of a Quality Improvement Program:



* Purpose:



* Performance improvement projects:



* Annual performance measurement:



Administration of Quality Improvement Program:



* Leadership involvement:



* Organizational structure:



* Program documentation:



* Program description:



* Meeting documentation:



* Annual work plan:



* Evaluation report:



* Provider participation:



* Enrollee participation:



* Accreditation:



Performance Improvement Projects:



* Number of projects:



* Choice of project topics:



* Choice of quality measures:



* Required results:



* Minimum performance levels and benchmarks:



* Demonstrable performance improvement:



* Sustained performance improvement:



* Evaluation:



* How HMO reports:



* Who evaluates:



* What is evaluated:



* Potential actions based on evaluation:



Annual Performance Measurement:



* Clinical and administrative performance:



* Who participates:



* How data are externally validated:



* Who pays for external validation:



* When annual data are submitted:



* Member satisfaction survey measures for current enrollees:



* Who participates:



* Who is sampled:



* Who pays for survey administration:



* Member satisfaction survey measures for disenrolled members:



* Who participates:



* Who is sampled:



* Who pays for survey administration:



* Member health status survey measures:



* Who participates:



* Who is sampled:



* Who pays for survey administration:



Table 6 summarizes selected M+C, FEHBP, NAIC, JCAHO, and NCQA 

requirements for QI.



Table 6: Selected Requirements for Quality Improvement for M+C, FEHBP, 

NAIC, JCAHO, and NCQA:



[See PDF for image]



[A] HMO must use CMS’s Quality Improvement System for Managed Care 

(QISMC) standards and guidelines to meet the requirements of Part 422, 

Subpart D, Quality Assurance, of Title 42 of the Code of Federal 

Regulations. Since January 1998, CMS has released three versions of 

QISMC, with the most current version issued as of July 26, 2000. OMB 

has approved the July 26, 2000, version of QISMC through July 31, 2002. 

CMS is in the process of incorporating the QISMC standards and 

guidelines into the chapters of the Medicare Managed Care Manual; once 

this is accomplished, QISMC as a stand-alone document will cease to 

exist for Medicare.



[B] NAIC uses the phrase QI activities rather than QI projects.



[C] JCAHO uses the phrase performance improvement activities rather 

than performance improvement projects.



[D] HEDIS is a set of standardized performance measures sponsored by 

NCQA. Since 1992, NCQA has collaborated with managed care 

organizations, academic researchers, corporate purchasers, and 

consumer representatives to create HEDIS. HEDIS includes measures that 

address effectiveness of care, accessibility and availability of care, 

satisfaction with the experience of care received, cost of care, health 

plan stability, informed health care choices, use of services, and 

health plan descriptive information.



[E] In 2002, CMS eliminated the requirement that an HMO annually 

initiate a multiyear QAPI project on a topic the HMO selected.



[F] CMS contracts with QIOs, who are responsible for promoting 

effective, efficient, and economical delivery of quality health care 

services to Medicare beneficiaries.



[G] National topics chosen by CMS include: diabetes (1999), community-

acquired pneumonia (2000), congestive heart failure (2001), breast 

cancer screening (2002), clinical health care disparities (CHCD) or 

culturally and linguistically appropriate services (CLAS) (2003), and 

diabetes (2004). CMS originally informed HMOs that the 2002 national 

QAPI projects would be CHCD or CLAS, but postponed these projects until 

2003 based on industry feedback. CMS has contracted for two CLAS 

projects to produce case studies that HMOs may replicate if they choose 

to do so.



[H] CMS defines seven clinical focus areas, such as primary, secondary, 

or tertiary prevention of acute conditions, high-volume services, and 

high-risk services, and two nonclinical areas, such as availability, 

accessibility, and cultural competency of services.



[See PDF for image]



[I] NCQA also requires HMOs to adopt or establish quantitative measures 

to assess their performance and to identify and prioritize areas for 

improvement for three clinical areas, including at least one behavioral 

health measure. However, NCQA does not currently require an HMO to 

demonstrate a meaningful performance improvement for the behavioral 

health topic being measured.



[J] CMS has not established or required minimum performance levels or 

benchmarks for standardized quality measures for any of the national 

QAPI projects. However, CMS is exempting HMOs that achieved a breast 

cancer screening rate of 80 percent or better using HEDIS 2001 or 2002 

measure specifications from participating in the 2002 national QAPI 

project on breast cancer screening. Based on HEDIS 2001 Medicare 

results, CMS exempted 39 HMOs.



[K] Beginning in January 2002, HMO can fill out and electronically 

submit its Project Completion Report through a Web-based CMS data 

system.



[L] CMS regional offices evaluate the overall administration of an 

HMO’s QAPI program and health information systems, but not the QAPI 

projects.



[M] CMS has not required any HMO to conduct a CMS-directed special 

project.



[N] NAIC stated that the insurance commissioner may be able to take 

action against an HMO not meeting applicable requirements under the 

general authority to regulate HMOs, although, in some states, the 

authority to regulate HMOs is done by another state agency or the 

insurance commissioner shares oversight with another state agency, 

usually the Department of Health.



[O] CMS excludes two HEDIS measures--Practitioner Compensation and 

Arrangements with Public Health, Educational and Social Service 

Organizations. The Medicare Health Outcomes Survey is included as a 

HEDIS measure; we excluded the Medicare Health Outcomes Survey in 

reporting the 23 Medicare HEDIS measures as the survey is discussed 

separately in this table.



[P] NCQA defines two types of HEDIS compliance audits, partial or full. 

A partial audit occurs when the HMO, state regulator, or purchaser 

selects the HEDIS measures to be audited. A full audit occurs when a 

HEDIS auditor selects a core set of measures to review and extrapolates 

the core set findings to all measures reported by the HMO.



[Q] CAHPS is a standardized member satisfaction survey.



rThe CAHPS Disenrollment-Assessment survey collects information on 

Medicare beneficiaries’ experiences with their former HMO, and the 

CAHPS Disenrollment-Reasons survey collects information on Medicare 

beneficiaries’ motivations for changing coverage.



[S] Medicare beneficiaries voluntarily disenrolling chose to leave 

their HMO for reasons other than death, termination of Medicare parts 

or part B, moving out of the service area, or HMO nonrenewals.



[T] The Medicare HOS, part of the HEDIS measurement set, is a 

longitudinal survey that utilizes the HCFA Short Form-36 (SF-36), an 

instrument used to collect data on physical and mental functioning and 

other beneficiary characteristics.



Source: GAO summary of information provided by CMS and OPM, including 

applicable federal statutes and regulations, operational guidance and 

other agency materials pertaining to HMOs, and interviews with 

officials. GAO summary of information provided by NAIC, JCAHO, and 

NCQA, including NAIC model requirements for HMOs, standards from the 

current JCAHO and NCQA accreditation manuals for HMOs, and interviews 

with NAIC, JCAHO, and NCQA officials.



[End of figure]



[End of section]



Appendix V: Comments from the Centers for Medicare & Medicaid Services:



DEPARTMENT OF HEALTH & HUMAN SERVICESCenters for Medicare & Medicaid 

Service:



Administrator Washington, DC 20201:



To:Laura A. Dummit:



Director, Health Care-Medicare Payment Issues General Accounting 

Office:



From: Thomas A. Scully

Administrator

Centers for Medicare & Medic:



Subject:General Accounting Office (GAO) Draft Report, 
“Medicare+Choice:

Selected Program Requirents and Other Entities’ Standards for: HMOs,” 

(GAO-02-905):



Thank you for the opportunity to review and comment on the above-

referenced report. The Centers for Medicare & Medicaid Services (CMS) 

is committed to ensuring that Medicare beneficiaries continue to have 

many health options available to them.



In general, we agree with the observations cited in the report. This 

report has no recommendations or concluding observations. Rather, it 

summarizes requirements on managed care organizations imposed by two 

Federal programs, Medicare and the Federal Employees Health Benefits 

Program, as well as, certain requirements imposed by three non-

governmental entities.



Specifically, the tables in the appendices do a good job explaining the 

differences between CMS and other entities. However, the format fails 

to completely explain why CMS requirements may be more stringent. The 

first paragraph on page 14 offers some reasons why the Federal 

Employees Health Benefit Program (FEHBP) differs from M+C, but more 

detailed analysis of these differences could bring a more complete 

picture of how the programs differ. We suggest that GAO discuss a more 

detailed history of the BBA and the legislative changes made to the 

program since 1997 in order to provide a more comprehensive view of the 

CMS role as a regulator subject to Congressional enactments and a 

mandated payment formula.



Again, thank you for the opportunity to review this report. We look 

forward to continuing our work with you on this important issue.



FOOTNOTES



[1] Under a risk-based contract, an HMO receives from Medicare a fixed 

monthly amount per enrollee and is at financial risk for the cost of 

providing covered services. Some Medicare HMOs are paid under different 

financial arrangements.



[2] Figures for HMOs throughout this report exclude organizations that 

receive payments based on their costs or operate under a Medicare 

demonstration program.



[3] Pub. L. No. 105-33, §4001, 111 Stat. 251, 275.



[4] As of July 2002, approximately 23,000 beneficiaries were enrolled 

in two PFFS plans. Unlike HMOs, these plans do not restrict beneficiary 

choice of provider.



[5] Approximately 75 percent of beneficiaries have access to a Medicare 

HMO or PFFS plan in 2002.



[6] Pub. L. No. 106-113, Appendix F, Title V, 113 Stat. 1501A-321, 

1501A-378-394.



[7] Pub. L. No. 106-554, Appendix F, Title VI, 114 Stat. 2763A-463, 

2763A-554-569.



[8] U.S. General Accounting Office, Medicare+Choice: Recent Payment 

Increases Had Little Effect on Benefits or Plan Availability in 2001, 

GAO-02-202 (Washington, D.C.: Nov. 21, 2001).



[9] M+C requirements may be different for other types of M+C 

arrangements, such as PFFS or PPO plans.



[10] The entities vary from one another in the term each one uses to 

refer to an HMO. For consistency, we use “HMO” throughout the report to 

mean an organization that generally requires its enrollees to receive 

care from a network of providers and is paid a fixed monthly amount per 

enrollee to provide all services. We use the term “health plan” to 

refer to a package of benefits an HMO offers in a specific geographic 

area.



[11] In this report, the provisions in NAIC model acts and regulations 

are referred to as model requirements.



[12] Although their HMO standards are not discussed in this report, 

other organizations, such as the Accreditation Association for 

Ambulatory Health Care, Inc. (AAAHC) or URAC/American Accreditation 

HealthCare Commission, offer national accreditation programs for HMOs.



[13] CMS was previously named the Health Care Financing Administration 

(HCFA). We use the term HCFA to refer to the agency prior to its 

renaming as of July 1, 2001, and CMS for references to the agency after 

that date.



[14] JCAHO’s standards for HMO accreditation are effective January 1, 

2001, through December 31, 2002. NCQA’s standards for HMO accreditation 

are effective July 1, 2001, through June 30, 2003.



[15] An HMO may offer multiple health plans to Medicare beneficiaries. 

For each health plan, the HMO must specify the benefits offered and the 

geographic area served.



[16] Approximately 85 percent of Medicare’s 40 million beneficiaries 

are over age 65; the remaining 15 percent are under age 65 and disabled 

or have ESRD.



[17] In general, beneficiaries who have ESRD may not enroll in an M+C 

HMO. However, beneficiaries who develop ESRD while enrolled in an M+C 

HMO may continue their enrollment in that M+C HMO.



[18] Some beneficiaries currently have access to HMOs reimbursed on a 

cost basis. This arrangement is not part of the M+C program and is 

scheduled to end after 2004.



[19] An advance directive documents a beneficiary’s health care 

preferences and instructs providers if the beneficiary cannot otherwise 

communicate.



[20] Public Health Security and Bioterrorism Preparedness and Response 

Act of 2002 (Bioterrorism Act), Pub. L. No. 107-188, §532, 116 Stat. 

594, 696.



[21] U.S. General Accounting Office, Medicare+Choice: New Standards 

Could Improve Accuracy and Usefulness of Plan Literature, GAO/HEHS-99-

92 (Washington, D.C.: Apr. 12, 1999).



[22] Completed chapters are available electronically through the CMS 

Web site. CMS intends to update released chapters quarterly.



[23] The nine released chapters cover enrollment and disenrollment, 

marketing, quality assurance, risk-based payments, organization 

compliance with state law and preemption by federal law, contracts, 

effect of change in ownership or leasing of facilities during term of 

contract, cost-based payments, and procedures for handling contract 

disputes.



[24] OPM enrollment estimates as of July 11, 2002.



[25] All HMOs, including those in M+C, must comply with requirements 

set by the states in which they operate. However, federal law 

specifically preempts state laws or standards pertaining to M+C in the 

areas of benefits (including cost sharing), inclusion and treatment of 

providers, coverage determinations (including grievances and appeals), 

and marketing materials and benefit summaries.



[26] A February 2002 survey conducted by NCQA found that 153 Fortune 

500 companies, 42 percent of which are Fortune 100 companies, relied on 

NCQA accreditation when making their health plan purchasing decisions.



[27] HMOs may also satisfy M+C quality requirements by receiving full 

accreditation from AAAHC and meeting certain additional standards. The 

accreditation standards of AAAHC, JCAHO, and NCQA do not address every 

M+C quality requirement specified by CMS. These organizations agreed to 

implement and enforce standards specifically for M+C HMOs. For 

instance, as part of their M+C accreditation processes, AAAHC and JCAHO 

agreed to require M+C HMOs to evaluate annually the effectiveness of 

their quality assurance and performance improvement program strategies.



[28] Bioterrorism Act, §532(b), 116 Stat. 696.



[29] GAO-02-202.



[30] For a review of the first year’s audits, see U.S. General 

Accounting Office, Medicare+Choice Audits: Lack of Audit Follow-up 

Limits Usefulness, GAO-02-33 (Washington, D.C.: Oct. 9, 2001).



[31] Before 2002, an HMO also had to initiate a multiyear quality 

improvement project on a topic that the HMO selected. In 2002, CMS 

eliminated this requirement. An HMO must report on the improvements 

achieved from projects begun in 1999 and 2000, but does not have to 

maintain them. An HMO must report the topic and baseline data for the 

project it began in 2001, but does not have to maintain the project.



[32] BBA, §4001, 111 Stat. 299.



[33] Community-rated premiums reflect the average actual or anticipated 

cost of all enrollees in a specific geographic area.



[34] For benefit year 2002, CMS allowed M+C HMOs to submit benefit 

package proposals as late as September 17, 2001, and extended the 

annual enrollment period through December 31, 2001.



[35] BBA, Pub. L. No. 105-33, §4001, 111 Stat. 251, 281-283.



[36] Bioterrorism Act, Pub. L. No. 107-108, §532(a), 116 Stat. 594, 

696.



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