GAO Views on Medicare Payments to Health Maintenance Organizations

T-HRD-90-27: Published: May 8, 1990. Publicly Released: May 8, 1990.

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GAO discussed Medicare payments to health maintenance organizations (HMO) and the administration's proposal to increase the medicare HMO payment rate. GAO found that: (1) HMO agree to provide all covered health care services to enrolled Medicare beneficiaries in return for a fixed payment; (2) the payment was set at 95 percent of Medicare's estimate of the average cost of fee-for-service health care; (3) the administration proposed increasing the HMO payment from 95 to 100 percent of the adjusted average per capita cost (AAPCC), in order to save Medicare funds; (4) the fixed payment amount for Medicare HMO enrollees was intended to be 5 percent less than the expected Medicare cost if the enrollees had remained in the fee-for-service sector; (5) increasing the payment rate to 100 percent would eliminate potential savings from the HMO program; (6) recent studies show that even with the rate at 95 percent of AAPCC, risk contracts with HMO may not reduce Medicare outlays; (7) Medicare beneficiaries enrolled in HMO tended to be healthier and less likely to use health care services than non-HMO beneficiaries; (8) the methodology used to calculate AAPCC did not accurately reflect those cost differences; and (9) the adjusted community rate was not meeting its objective.

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