Increase in HMO Reimbursement Would Eliminate Potential Savings

HRD-90-38: Published: Nov 1, 1989. Publicly Released: Nov 1, 1989.

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Pursuant to a congressional request, GAO reviewed the legislative history of the 95-percent payment rate of the adjusted average per-capita cost (AAPCC) for health maintenance organizations (HMO) with Medicare risk contracts.

GAO found that: (1) Congress set the fixed payment amount for Medicare HMO enrollees at 5 percent less than the expected Medicare cost if the enrollees had remained in the fee-for-service sector; (2) the proposed increase to 100 percent of AAPCC would eliminate potential Medicare savings; (3) studies suggested that Medicare beneficiaries enrolled in HMO were healthier, tended to use fewer health care services, and were less costly to treat; and (4) because the risk factors used to adjust AAPCC rates did not accurately account for factors affecting health beneficiaries' health costs within each AAPCC category, Medicare may have paid more for HMO enrollees than if they had remained in the fee-for-service sector.

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