oversight

Medicare: Fewer and Lower Cost Beneficiaries With Chronic Conditions Enroll in HMOs

Published by the Government Accountability Office on 1997-08-18.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                  United States General Accounting Office

GAO               Report to the Chairman, Subcommittee
                  on Health, Committee on Ways and
                  Means, House of Representatives


August 1997
                  MEDICARE
                  Fewer and Lower Cost
                  Beneficiaries With
                  Chronic Conditions
                  Enroll in HMOs




GAO/HEHS-97-160
          United States
GAO       General Accounting Office
          Washington, D.C. 20548

          Health, Education, and
          Human Services Division

          B-277316

          August 18, 1997

          The Honorable William M. Thomas
          Chairman, Subcommittee on Health
          Committee on Ways and Means
          House of Representatives

          Dear Mr. Chairman:

          Some analysts contend that a way to slow the growth in Medicare
          spending is to enroll more people in health maintenance organizations
          (HMO), which offer to provide all covered care to patients for set fees but
          restrict the choice of physicians and closely monitor treatment decisions.
          Whether increased HMO use will save Medicare money depends, in part, on
          whether HMOs can attract and retain beneficiaries now in traditional,
          fee-for-service (FFS) Medicare, particularly those with expensive chronic
          conditions.1

          Research conducted on data from the 1980s and 1990s has shown that
          Medicare HMOs have benefited from favorable selection—they serve
          healthier-than-average beneficiaries—relative to FFS.2 To explore whether
          HMO enrollment and disenrollment patterns of those with and without
          chronic conditions might explain the favorable selection that has
          occurred,3 we examined a mature managed care market to determine

      •   the extent to which Medicare beneficiaries with chronic conditions enroll
          in HMOs,
      •   whether beneficiaries with chronic conditions who enroll in HMOs are as
          costly as those remaining in FFS, and


          1
           Unlike FFS, HMOs provide care in return for fixed premiums and therefore are financially at risk for
          all covered services beneficiaries use. Medicare pays the same basic rate to all HMOs that serve
          residents of a particular county, a rate equal to 95 percent of the projected average FFS Medicare
          payments in counties in a plan’s service area. This amount is then adjusted in an attempt to reflect
          differences in expected levels of spending by age and sex, and by Medicaid, working, and
          institutionalization status.
          2
           For a review of recent studies and an analysis concluding that Medicare risk contract HMOs continue
          to benefit from favorable selection, see Physician Payment Review Commission, Annual Report to
          Congress 1996 (Washington, D.C.: 1996), ch. 15. See also “Policy Implications of Risk Selection in
          Medicare HMOs: Is the Federal Payment Rate Too High?” Issue Brief, No. 4 (Washington, D.C.: Center
          for Studying Health System Change, Nov. 1996).
          3
           In addition to new enrollees from FFS (who may be somewhat healthier than the average HMO
          enrollee), the health status of HMO populations is affected by the extent to which beneficiaries with
          chronic conditions age into Medicare HMOs and enrollees acquire chronic illnesses as they age within
          established HMOs.



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                   •   whether beneficiaries with chronic conditions rapidly disenroll from HMOs
                       to FFS at rates different from other newly enrolled beneficiaries.

                       To address these questions, we used data on Medicare beneficiaries in
                       California, one of the most heavily Medicare HMO-penetrated states, to
                       determine the HMO enrollment and disenrollment decisions of beneficiaries
                       belonging to three health status groups. The state’s Medicare risk HMO
                       enrollment experienced rapid growth, increasing nearly five-fold between
                       1987 and 1995. By 1995, California accounted for over one-third of all
                       Medicare HMO enrollment, and five California plans were among the seven
                       largest in the nation. Medicare HMO penetration rates averaged 27 percent
                       in California compared with the national average rate of about 7 percent.4

                       We obtained 1991 through mid-1995 enrollment and FFS claims data for
                       approximately 1.3 million elderly Medicare beneficiaries in California.5 To
                       determine the health status of the beneficiaries in our FFS cohort, we
                       screened claims records for a diagnosis of any of five chronic conditions:
                       diabetes mellitus, ischemic heart disease, congestive heart failure,
                       hypertension, and chronic obstructive pulmonary disease. Beneficiaries
                       were then categorized as having either zero, one, or several of the selected
                       conditions.6 For each health status category, we determined the
                       proportion and relative costs (using 1992 average monthly FFS costs) of
                       those who enrolled in an HMO in 1993 and 1994, and those who disenrolled
                       within 6 months.7 Appendix I provides a detailed description of our scope
                       and methodology. Appendix II presents information on the prevalence and
                       average expenditures of beneficiaries with selected chronic conditions in
                       the California FFS Medicare population in 1992.


                       Data on California’s FFS beneficiaries who enrolled in HMOs help explain
Results in Brief       why, despite the presence of chronic conditions among new HMO enrollees,

                       4
                        Localities where Medicare managed care is particularly well established and experiencing rapid
                       growth include Riverside, San Bernardino, and San Diego counties, which each had HMO market
                       penetration rates exceeding 40 percent.
                       5
                        The Health Care Financing Administration (HCFA) bases its payments to Medicare HMOs on these
                       data, which we did not independently verify. Also, although our analysis pertains to a large portion of
                       the risk contract program, we cannot generalize our findings to other states or to the nation.
                       6
                        The group classified as having none of the selected chronic conditions refers to all individuals not
                       captured by our five claims screens for chronic illnesses. It may include some beneficiaries with
                       chronic conditions that we failed to identify through claims records, as well as people with other
                       conditions, such as cancer, that may be considered chronic by other analysts.
                       7
                        The use of prior costs is necessary because no other relevant cost data are available. After a
                       beneficiary enrolls in an HMO, the Medicare program receives no information on the health care
                       services provided to the beneficiary or their costs.



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                              their average costs are lower than the average FFS beneficiary. The health
                              status of beneficiaries, as measured by the number of selected chronic
                              conditions they have, showed significant differences between those who
                              enrolled in an HMO and those who remained in FFS. Also, when comparing
                              beneficiaries categorized by the presence of none, one, or multiple chronic
                              conditions, new HMO enrollees tended to be the least costly in each health
                              status group. This resulted in a substantial overall cost difference between
                              those that did and did not enroll in HMOs.

                              About one in six 1992 California FFS Medicare beneficiaries enrolled in an
                              HMO in 1993 and 1994. HMO enrollment rates differed significantly for
                              beneficiaries with selected chronic conditions compared with other
                              beneficiaries. Among those with none of the selected conditions,
                              18.4 percent elected to enroll in an HMO compared with 14.9 percent of
                              beneficiaries with a single chronic condition and 13.4 percent of those
                              with two or more conditions.

                              Moreover, we found that prior to enrolling in an HMO a substantial cost
                              difference, 29 percent, existed between new HMO enrollees and those
                              remaining in FFS because HMOs attracted the least costly enrollees within
                              each health status group. Even among beneficiaries belonging to either of
                              the groups with chronic conditions, HMOs attracted those with less severe
                              conditions as measured by their 1992 average monthly costs.

                              Furthermore, we found that rates of early disenrollment from HMOs to FFS
                              were substantially higher among those with chronic conditions. While only
                              6 percent of all new enrollees returned to FFS within 6 months, the rates
                              ranged from 4.5 percent for beneficiaries without a chronic condition to
                              10.2 percent for those with two or more chronic conditions. Also,
                              disenrollees who returned to FFS had substantially higher costs prior to
                              enrollment compared to those who remained in their HMO. These data
                              indicated that favorable selection still exists in California Medicare HMOs
                              because they attract and retain the least costly beneficiaries in each health
                              status group.



Background

HMOs Offer Additional         Compared with the traditional Medicare FFS program, HMOs typically cost
Benefits but Limit Provider   beneficiaries less money and cover additional benefits. In addition to
Choice                        covering all Medicare part A and part B benefits, advantages of Medicare



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                         HMOs typically include low or no monthly premiums, expanded benefit
                         coverage, and reduced out-of-pocket expenses.8 In effect, the HMO often
                         acts much like a Medicare supplemental policy (Medigap insurance) by
                         covering deductibles, coinsurance, and additional services.

                         On the other hand, beneficiaries may be reluctant to enroll in HMOs
                         because they give up their freedom to choose any provider. If a beneficiary
                         enrolled in an HMO seeks nonemergency care from providers other than
                         those designated by the HMO or seeks care without following the HMO’s
                         referral policy, the beneficiary is liable for the full cost of that care.9 In
                         addition, beneficiaries may be reluctant to drop Medigap coverage and
                         enroll in an HMO because it may be difficult to obtain supplemental
                         insurance later at a reasonable price if they return to FFS.10 Because the
                         elderly face a higher risk of serious illness, they may prefer to remain in
                         the FFS program to take advantage of the ability to visit any provider or
                         maintain their relationships with current providers.11


Medicare Beneficiaries   Medicare HMOs have enrollment procedures that reflect beneficiaries’
Have Freedom to Switch   freedom to move between the FFS program and HMO plans. Medicare rules
Between HMOs and FFS     allow beneficiaries to select any of the federally approved HMOs in their
                         area and to switch plans or to return to the FFS program monthly.
                         Beneficiaries who otherwise would be reluctant to try an HMO know they
                         can easily leave if a plan does not meet their expectations. Because of this
                         freedom to change plans every 30 days, disenrollments can indicate
                         enrollee dissatisfaction with an HMO. Beneficiaries can also shift to HMOs to
                         get specific benefits when needed and then disenroll with ease to return to
                         FFS.




                         8
                          Under FFS Medicare, beneficiaries pay for most self-administered prescription drugs when not in a
                         hospital or skilled nursing facility. Cost-sharing features include a per admission deductible of over
                         $700 for hospital expenses, a $100 calendar year deductible for most other expenses, and 20 percent
                         copayment for most nonhospital expenses. Beneficiaries enrolled in HMOs must continue to pay the
                         Medicare part B premium and any specified HMO copayments.
                         9
                          In 1996, HCFA clarified its position that a “point-of-service” option (also known as a “self-referral” or
                         “open-ended” option) was available. This option, which covers beneficiaries for some care received
                         outside of the network, is not yet widely offered by Medicare HMOs.
                         10
                           After the initial 6 months of enrollment in part B Medicare, insurers in most states can deny a
                         Medigap policy based on an applicant’s medical history. Insurers are especially selective when issuing
                         a Medigap policy covering prescription drugs. See Medigap Insurance: Alternatives for Beneficiaries to
                         Avoid Medical Underwriting (GAO/HEHS-96-180, Sept. 10, 1996).
                         11
                          With the exception of staff model HMOs, changing to or among HMOs does not necessarily require
                         switching physicians because physicians can contract with multiple HMOs.



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                            Because enrolling more beneficiaries enables HMOs to spread their risk and
                            better ensure profitability, recruiting or retaining beneficiaries in a plan is
                            important. HMOs’ marketing strategies often call attention to the size and
                            geographic scope of the provider network and the quality of physicians in
                            the network.12 However, as we have previously reported, some HMO sales
                            agents have misled beneficiaries or used otherwise questionable sales
                            practices to attract new enrollees.13


                            For a number of reasons, it would be expected that beneficiaries with
Beneficiaries With          chronic conditions would be drawn to HMO plans. HMOs have the potential
Chronic Conditions          to provide a range of integrated services required by such people. Ideally,
Less Likely to Enroll       HMO providers should have the flexibility to treat patients with chronic
                            conditions or refer them to an appropriate mix of medical and nonmedical
in an HMO                   services. They have a financial incentive for keeping people healthy and as
                            fully functioning as possible. To avoid use of emergency room and costly
                            acute-care services, HMOs often emphasize prevention services that
                            address the development or progression of disease complications.

                            The combination of more extensive benefits and lower costs was evident
                            in the benefit packages offered by the five largest California Medicare
                            HMOs (accounting for 83 percent of the state’s enrollment). In 1994, these
                            plans offered

                        •   zero to $30 monthly premiums;
                        •   hospital coverage in full with unlimited days;
                        •   physician and specialist visits with a copayment of $5 or less;
                        •   emergency room care, in or out of the area, with a copayment of $5 to $50
                            (waived if admitted to the hospital);
                        •   coverage for preventive health services, including an annual exam, eye
                            glasses, routine eye and hearing tests, and health education;
                        •   outpatient pharmacy coverage in three of the five plans, with copayments
                            of $5 to $7 per prescription and an annual cap from $700 to $1,200; and
                        •   outpatient mental health services with a copayment of $10 to $20 per visit,
                            in most cases.

                            Despite these extra benefits of HMOs, California Medicare beneficiaries
                            with chronic conditions were less likely to enroll in an HMO than

                            12
                              Attracting new enrollees to a plan can be expensive. According to some estimates, advertising, public
                            relations, sales, and administrative costs for signing up an enrollee can average $500 to $600.
                            13
                             See Medicare: HCFA Should Release Data to Aid Consumers, Prompt Better HMO Performance
                            (GAO/HEHS-97-23, Oct. 22, 1996).



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                          beneficiaries without any of the selected conditions. As a result, the new
                          enrollee group had, on the whole, better health status than those who
                          stayed in FFS.


Enrollment Rates Lowest   HMO enrollment typically involves only a fraction of FFS beneficiaries each
for Beneficiaries With    year. Between January 1993 and December 1994, 16.4 percent of the
Multiple Chronic          beneficiaries in our decision-making cohort enrolled in an HMO.14 But
                          beneficiaries with a single chronic condition were 19 percent less likely to
Conditions                join an HMO than those without any of the selected conditions, and those
                          with multiple chronic conditions enrolled at a rate 27 percent below those
                          with none of the conditions.

                          One reason beneficiaries with chronic illnesses may be reluctant to enroll
                          in an HMO is because they are more likely than nonchronic beneficiaries to
                          have established provider relationships. In addition, because HMOs require
                          that a primary care physician or “gatekeeper” decide when a patient needs
                          a specialist or hospitalization, these beneficiaries may be particularly
                          concerned about their access to specialty providers. Beneficiaries
                          diagnosed with chronic conditions may prefer to remain in the FFS
                          program to take advantage of the ability to visit any provider or to
                          maintain relationships with current providers.

                          Within each health status group, HMO enrollment rates declined with age.
                          This may indicate that younger seniors are more familiar with HMOs and
                          thus less reluctant to try them or that they have less severe medical
                          problems and are more willing to switch physicians, if necessary.
                          Reflecting both age and health status, beneficiaries over 85 years old who
                          had multiple chronic conditions enrolled at about half the rate of those
                          aged 65 to 69 without any of the conditions. (See table 1.)




                          14
                            For simplicity, this analysis excluded all FFS beneficiaries who died or moved during 1993 and 1994.
                          This has the effect of excluding too many high-cost cases from the FFS group and thus understating
                          the difference in costs between the group staying in FFS and the group of new HMO enrollees.



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Table 1: Rates at Which FFS
Beneficiaries Joined HMOs in 1993 and    Numbers in percent
1994, by Number of Selected Chronic                                         All           Aged            Aged            Aged       Aged 85
Conditions and Age                                                beneficiaries           65-69           70-74           75-84     and older
                                         All beneficiaries                   16.4           18.8           16.7            15.4           12.5
                                         Beneficiaries with
                                         none of the selected
                                         chronic conditions                  18.4           20.7           18.6            17.2           13.7
                                         Beneficiaries with
                                         only one of the
                                         selected conditions                 14.9           16.4           15.2            14.6           12.3
                                         Beneficiaries with
                                         two or more of the
                                         selected conditions                 13.4           14.8           13.8            13.3           10.9



New HMO Enrollees Show                   Comparing the two groups of beneficiaries, those who enrolled in an HMO
Better Health Status                     and those who remained in FFS, we found that a larger proportion of the
Overall                                  enrolled group had better health status. Whereas beneficiaries with none
                                         of the selected chronic conditions represented 49 percent of those staying
                                         in FFS, they represented 57 percent of the group enrolling to HMOs.
                                         Conversely, the share with multiple conditions was 26 percent greater in
                                         the group remaining in FFS than in the group joining an HMO. (See table 2.)

Table 2: Distribution of Beneficiaries
Who Enrolled in HMOs and Those Who       Numbers in percent
Remained in FFS, by Number of                                                                          Beneficiaries
Selected Chronic Conditions, 1993 and                                                                  who enrolled Beneficiaries who
1994                                                                                                       in HMOs   remained in FFS
                                         All beneficiaries                                                        100.0                  100.0
                                         Beneficiaries with none of the selected chronic
                                         conditions                                                                56.5                   49.0
                                         Beneficiaries with only one of the selected
                                         conditions                                                                28.0                   31.3
                                         Beneficiaries with two or more of the selected
                                         conditions                                                                15.6                   19.7

                                         Among the 12 California Medicare HMOs receiving the largest number of
                                         new enrollees from FFS,15 the health status of most plans’ new enrollees
                                         resembled aggregate patterns. However, at one plan, 22.2 percent of its

                                         15
                                           New HMO enrollment in California was concentrated in a few large Medicare risk contract HMOs. Of
                                         the roughly 176,000 beneficiaries leaving FFS to enroll in HMOs during 1993-94, 12 plans accounted for
                                         92 percent of the new enrollees. Plans receiving the largest number of new enrollees from FFS
                                         included Pacificare of Southern California with almost 60,000 enrollees (34 percent); FHP with about
                                         33,000 beneficiaries (19 percent); and HealthNet and Pacificare of Northern California, each with
                                         about 14,000 beneficiaries (8 percent).



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                                        new enrollees had two or more selected chronic conditions. At another
                                        plan, 8.6 percent of its new enrollees had two or more chronic conditions.


                                        Not only were the enrollment rates for beneficiaries with chronic
New HMO Enrollees                       conditions lower than those with none of the selected conditions, but the
With Chronic                            prior costs of those who enrolled were substantially less than those who
Conditions Are Low                      remained in FFS. As a result, the average cost of new enrollees was nearly
                                        one-third below the cost of FFS beneficiaries that did not enroll.
Cost Compared With
Their FFS
Counterparts
New Enrollees’ Costs                    New enrollees with chronic conditions are potential heavy users of
Varied Dramatically by                  expensive health care services in HMOs. Preenrollment data indicate that
Number of Conditions                    new enrollees with the selected chronic conditions had considerably
                                        higher FFS costs than those without one of the chronic conditions. On
                                        average, 1992 FFS costs for new enrollees were more than twice as high for
                                        beneficiaries with a single chronic condition compared with persons with
                                        none.

                                        Having multiple chronic conditions dramatically increased the prior cost
                                        of care among new enrollees, rising to 7 times the per capita costs of
                                        persons with none of the conditions. Even when the age of the beneficiary
                                        was taken into account, those with more than one chronic condition had
                                        substantially higher costs. For example, the 1992 average monthly FFS cost
                                        for new enrollees 70 to 74 years old ranged from $74 for individuals with
                                        none of the selected conditions to $565 for those with two or more
                                        conditions. (See table 3.)

Table 3: 1992 Average Monthly FFS
Cost of Beneficiaries Who Enrolled in                            All new    Aged        Aged        Aged     Aged 85
HMOs in 1993 and 1994, by Number of                            enrollees    65-69       70-74       75-84   and older
Selected Chronic Conditions and Age     All new enrollees          $198      $143        $182        $245        $275
                                        New enrollees with
                                        none of the selected
                                        chronic conditions           81        60          74         103         128
                                        New enrollees with
                                        only one of the
                                        selected conditions         224       197         210         244         261
                                        New enrollees with
                                        two or more of the
                                        selected conditions         580       544         565         608         582




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Most Costly Beneficiaries               The enrollment patterns show that Medicare HMOs attracted people who
in Each Health Status                   did not need as costly medical care. Beneficiaries who enrolled in an HMO
Group Remained in FFS                   in 1993 or 1994 had substantially lower 1992 costs compared with those
                                        that remained in FFS during that period. As a group, new enrollees cost
                                        29 percent less than those who did not join an HMO.16 This pattern of
                                        drawing new HMO enrollees from FFS beneficiaries with low costs held true
                                        for each of the health status categories. The differences in prior costs
                                        ranged from 31 percent among those with no chronic conditions to
                                        16 percent for those with multiple chronic conditions. (See table 4.)

Table 4: Comparison of 1992 Average
Monthly FFS Costs for Beneficiaries                                                    Beneficiaries
Who Enrolled in an HMO and Those                                                       who enrolled Beneficiaries who
Who Remained in FFS, by Number of                                                          in HMOs remained in FFS                     Ratio
Selected Chronic Conditions, 1993 and   All beneficiaries                                        $198                   $280            0.71
1994                                    Beneficiaries with none of the
                                        selected chronic conditions                                 81                    117           0.69
                                        Beneficiaries with only one of the
                                        selected conditions                                       224                     275           0.81
                                        Beneficiaries with two or more of
                                        the selected conditions                                   580                     692           0.84



                                        Medicare beneficiaries voluntarily disenroll from HMOs for a variety of
Early Disenrollment                     reasons. A 1996 Mathematica Policy Research, Inc., survey found that
Rates Were Highest                      disenrollees to FFS who had been in their plan for 6 months or less were
Among Those With                        more likely than longer-term stayers to cite their reasons for disenrolling
                                        as dissatisfaction with the choice of primary care physicians, a
Chronic Conditions                      misunderstanding of HMO rules, and an inability to obtain appointments




                                        16
                                          These results are consistent with others that show favorable selection in the Medicare program. We
                                        recently reported that California HMO enrollee costs were about two-thirds of comparable FFS
                                        beneficiary costs in the year before enrollment. See Medicare HMOs: HCFA Can Promptly Eliminate
                                        Hundreds of Millions in Excess Payments (GAO/HEHS-97-16, Apr. 25, 1997). Similarly, the Physician
                                        Payment Review Commission reported that spending by new HMO enrollees was 63 percent of that for
                                        FFS beneficiaries in the 6 months before they joined an HMO. See Physician Payment Review
                                        Commission, Annual Report to Congress 1996, ch. 15. In addition, an analysis of Medicare enrollment
                                        and billing records for southern Florida from 1990 to 1993 showed that the rate of use of inpatient
                                        services for a group of HMO enrollees during the year before enrollment was 66 percent of the rate in
                                        the FFS group. See Robert O. Morgan, Beth A. Virnig, Carolee A. DeVito, and others, “The
                                        Medicare-HMO Revolving Door—The Healthy Go In and the Sick Go Out,” New England Journal of
                                        Medicine, Vol. 337, No. 3 (July 17, 1997).



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                            when needed.17 High early disenrollment rates may reflect beneficiaries’
                            lack of familiarity with the HMO concept. For example, a beneficiary may
                            realize only after joining a plan that it does not pay for care from an
                            out-of-network provider. These early disenrollees were more likely to
                            return to FFS Medicare, while beneficiaries who disenrolled after a longer
                            period were more likely to join other risk plans.


New Enrollees With          Early disenrollees to FFS were a small group relative to all new enrollees.
Multiple Chronic            The vast majority of new enrollees, 91.5 percent, were still enrolled in their
                            HMO 6 months after joining their plan.18 Within this brief period, 6 percent
Conditions Were Most
                            returned to FFS and 2.5 percent switched to another HMO.19
Likely to Disenroll Early
and Return to FFS           New HMO enrollees with chronic conditions rapidly disenrolled and
                            returned to FFS at higher rates than healthier new enrollees.20 The early
                            disenrollment rates were highest among those with multiple chronic
                            conditions, which might indicate greater access barriers and less
                            satisfaction with HMOs for such beneficiaries. Those with two or more of
                            the selected conditions disenrolled at a rate more than twice that of new
                            enrollees with none of the conditions. Also, a greater proportion of older
                            seniors disenrolled than younger beneficiaries, regardless of health status.
                            (See table 5.)




                            17
                              Physician Payment Review Commission, Access to Care in Medicare Managed Care: Results From a
                            1996 Survey of Enrollees and Disenrollees, Selected External Research Report No. 7 (Washington,
                            D.C.: Mathematica Policy Research, Inc., Nov. 1996). A 1993 survey found that disenrollees were more
                            likely than enrollees to have perceived problems with access to primary and specialty care, and
                            unsympathetic behaviors that potentially restrict service access. See Beneficiary Perspectives of
                            Medicare Risk HMOs, Department of Health and Human Services, Office of Inspector General,
                            OEI-06-91-00730 (Washington, D.C.: Mar. 1995).
                            18
                              To distinguish voluntary from administrative disenrollments, the group of new enrollees was reduced
                            to exclude beneficiaries who had moved or died within 6 months of joining an HMO. We also
                            eliminated apparent disenrollments when an HMO no longer participated in the risk contract program
                            or merged with another risk plan.
                            19
                             The rate of plan switching may indicate that, at least for some beneficiaries, the system of care itself
                            was not problematic, but rather that the market is highly competitive in these counties. Medicare
                            enrollees can switch fluidly from plan to plan, attracted by competing HMOs offering better or less
                            expensive benefit packages and wider provider networks.
                            20
                              People with chronic conditions who are enrolled in managed care plans have reported being denied
                            access to treatment and services that they need and of being assigned to primary care physicians who
                            are not as well acquainted with their condition as a specialist might be. For an overview of recent
                            research on chronic illness, see Catherine Hoffman and Dorothy P. Rice, Chronic Care in America: A
                            21st Century Challenge (Princeton, N.J.: The Robert Wood Johnson Foundation, Aug. 1996).



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Table 5: Rates of Early Disenrollment
to FFS for 1993 and 1994 New            Numbers in percent
Enrollees, by Number of Selected                                 All new     Aged       Aged        Aged      Aged 85
Chronic Conditions and Age                                     enrollees     65-69      70-74       75-84    and older
                                        All new enrollees            6.0       4.6         5.6         7.0          8.3
                                        New enrollees with
                                        none of the selected
                                        chronic conditions           4.5       3.4         4.2         5.7          6.5
                                        New enrollees with
                                        only one of the
                                        selected conditions          6.7       6.1         6.5         6.9          8.4
                                        New enrollees with
                                        two or more of the
                                        selected conditions         10.2       8.9        10.0        10.6         11.6

                                        In the 12 plans enrolling most of new enrollees, the early disenrollment
                                        rates for beneficiaries in each health status group exhibited a fairly
                                        consistent pattern. At most plans, beneficiaries with two or more of the
                                        selected chronic conditions disenrolled at about twice the rate of new
                                        enrollees with none of the conditions. However, the disenrollment rates
                                        for new enrollees with no chronic conditions ranged from 1.8 percent to
                                        15.4 percent. For beneficiaries with two or more of the selected
                                        conditions, disenrollment rates varied even more widely, from 3.3 percent
                                        at one plan to 34.4 percent at another.

                                        Taking the enrollment and disenrollment rates together, we found that
                                        those beneficiaries who were least likely to enroll in an HMO were also
                                        those that were most likely to disenroll early. For example, among
                                        beneficiaries 70 to 74 years old with multiple chronic conditions,
                                        13.8 percent enrolled in an HMO and 10.0 percent of those beneficiaries
                                        disenrolled early. This compares with 18.6 percent and 4.2 percent,
                                        respectively, for beneficiaries of the same age group with none of the
                                        conditions.

                                        This pattern of early disenrollment accentuates the health status
                                        differences between those who joined an HMO and those who remained
                                        continuously enrolled in FFS. Most of the disenrollees returning to FFS,
                                        58 percent, had at least one of the selected chronic conditions. The
                                        composition of the group that stayed on in their HMO had better health
                                        status, with 42 percent having a chronic condition. (See table 6.)




                                        Page 11                                GAO/HEHS-97-160 HMO Enrollment Patterns
                                         B-277316




Table 6: Distribution of New Enrollees
Who Returned to FFS and Those Who        Numbers in percent
Remained in Their HMO, by Number of                                                              Beneficiaries
Selected Chronic Conditions                                                                               who Beneficiaries who
                                                                                                disenrolled to remained in their
                                                                                                 FFS within 6     HMO for more
                                                                                                      months     than 6 months
                                         All new enrollees                                                100.0              100.0
                                         New enrollees with none of the selected
                                         chronic conditions                                                42.5                57.8
                                         New enrollees with only one of the selected
                                         conditions                                                        31.5                27.7
                                         New enrollees with two or more of the selected
                                         conditions                                                        26.0                14.5



New Enrollees With the                   The higher early disenrollment rate for those with multiple chronic
Highest Preenrollment                    conditions reinforces the cost implications of an underrepresented
Costs Disenrolled to FFS                 enrollment of beneficiaries with chronic conditions. Disenrollment
                                         appears to winnow many of the highest cost beneficiaries out of the newly
                                         enrolled HMO population, widening the gap between FFS and managed care.

                                         Prior Medicare expenditures for early disenrollees ranged from $132 per
                                         month for those with none of the selected conditions to $690 for those
                                         with multiple conditions (see table 7). Costs generally increased with age
                                         for beneficiary groups with none or one of the selected chronic conditions.
                                         However, among disenrollees with multiple conditions, younger seniors
                                         had the highest costs. Compared with the prior cost of new enrollees
                                         (shown in table 3), the disenrollees’ prior costs were higher in every health
                                         status group. On average, 1992 costs were 66 percent higher for early
                                         disenrollees than for new enrollees.

Table 7: 1992 Average Monthly FFS
Cost of New Enrollees Who                                                All           Aged       Aged            Aged     Aged 85
Disenrolled Early to FFS, by Number of                               elderly           65-69      70-74           75-84   and older
Selected Chronic Conditions and Age      All new enrollees             $329            $295        $315           $350        $364
                                         New enrollees with
                                         none of the selected
                                         chronic conditions             132             109         126            150         150
                                         New enrollees with
                                         only one of the
                                         selected conditions            296             294         259            313         338
                                         New enrollees with
                                         two or more of the
                                         selected conditions            690             739         714            672         632




                                         Page 12                                         GAO/HEHS-97-160 HMO Enrollment Patterns
                                      B-277316




                                      Comparing the two groups of beneficiaries, those who disenrolled early
                                      also had substantially higher 1992 costs than those remaining in their HMO.
                                      This was true for all the health categories. The weighed average cost for
                                      beneficiaries who returned to FFS was 79 percent more than those who
                                      stayed on in an HMO. (See table 8.)

Table 8: Comparison of 1992 Average
Monthly FFS Costs for Beneficiaries                                                  New
Who Returned to FFS and Those Who                                              enrollees      New enrollees
Remained in Their HMO                                                                who    who remained in
                                                                           disenrolled to     their HMO for
                                                                            FFS within 6        more than 6
                                                                                 months             months     Ratio
                                      All new enrollees                             $329              $184       1.79
                                      New enrollees with none of the
                                      selected chronic conditions                    132                77       1.71
                                      New enrollees with only one of the
                                      selected conditions                            296               214       1.38
                                      New enrollees with two or more of
                                      the selected conditions                        690               555       1.24

                                      The low prior costs of those who enrolled in an HMO and remained there
                                      for more than 6 months are in sharp contrast to costs for those who stayed
                                      in FFS continuously for the 24-month period (as shown in table 4).
                                      Longer-term HMO enrollees had far lower preenrollment costs than the FFS
                                      stayers, with cost differences ranging from 20 percent lower among
                                      beneficiaries with multiple chronic conditions to 34 percent lower for
                                      those with none of the conditions.


                                      Compared with healthier beneficiaries, California Medicare beneficiaries
Conclusions                           with selected chronic conditions were less likely to enroll in HMOs and
                                      more likely to rapidly disenroll from HMOs. This pattern was evident
                                      despite the fact that California HMOs’ coverage of more services
                                      (particularly preventive care and prescription drugs) with less cost-sharing
                                      would be expected to attract beneficiaries with chronic conditions.

                                      Furthermore, the debate about the better health status of HMO enrollees
                                      hinges on a subtle point, but one that has significant cost implications.
                                      That is, beneficiaries grouped within health status categories—the
                                      presence of zero, one, or multiple chronic conditions—incur a range of
                                      costs depending on the severity of their chronic condition(s) or the
                                      presence of other conditions (not accounted for in this analysis). Those at
                                      the low end tend to be the new HMO enrollees, whereas those at the high



                                      Page 13                                 GAO/HEHS-97-160 HMO Enrollment Patterns
B-277316




end are likely to remain in FFS. Thus, this study helps explain a pattern of
favorable selection in California Medicare HMOs despite the presence of
some new enrollees with chronic conditions.


We provided copies of a draft of this report to health care analysts at HCFA,
the Physician Payment Review Commission, and the Prospective Payment
Assessment Commission. They generally agreed with the information
presented and offered some technical suggestions that we incorporated
where appropriate.

As arranged with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days from the
date of this letter. At that time, we will send copies to interested parties
and make copies available to others on request. Please call me on
(202) 512-7119 if you or your staff have any questions. Other major
contributors to this report include Rosamond Katz, Robert Deroy, and
Rajiv Mukerji.

Sincerely yours,




Bernice Steinhardt
Director, Health Services Quality
  and Public Health Issues




Page 14                                 GAO/HEHS-97-160 HMO Enrollment Patterns
Page 15   GAO/HEHS-97-160 HMO Enrollment Patterns
Contents



Letter                                                                                            1


Appendix I                                                                                       18
                        Scope and Data Sources                                                   18
Scope, Data Sources,    Identifying FFS Beneficiaries With Chronic Conditions                    19
and Methodology         Analyzing HMO Enrollment and Disenrollment Patterns of FFS               20
                          Beneficiaries

Appendix II                                                                                      22
                        Chronic Conditions Were Prevalent Among Half the Elderly                 22
Prevalence and Cost     Beneficiaries With Multiple Chronic Conditions Are Far More              23
of FFS Beneficiaries      Costly Than Those Without the Conditions
With Selected Chronic
Conditions in
California, 1992
Related GAO Products                                                                             24


Tables                  Table 1: Rates at Which FFS Beneficiaries Joined HMOs in 1993             7
                          and 1994, by Number of Selected Chronic Conditions and Age
                        Table 2: Distribution of Beneficiaries Who Enrolled in HMOs and           7
                          Those Who Remained in FFS, by Number of Selected Chronic
                          Conditions, 1993 and 1994
                        Table 3: 1992 Average Monthly FFS Cost of Beneficiaries Who               8
                          Enrolled in HMOs in 1993 and 1994, by Number of Selected
                          Chronic Conditions and Age
                        Table 4: Comparison of 1992 Average Monthly FFS Costs for                 9
                          Beneficiaries Who Enrolled in an HMO and Those Who Remained
                          in FFS, by Number of Selected Chronic Conditions, 1993 and
                          1994
                        Table 5: Rates of Early Disenrollment to FFS for 1993 and 1994           11
                          New Enrollees, by Number of Selected Chronic Conditions and
                          Age
                        Table 6: Distribution of New Enrollees Who Returned to FFS and           12
                          Those Who Remained in Their HMO, by Number of Selected
                          Chronic Conditions
                        Table 7: 1992 Average Monthly FFS Cost of New Enrollees Who              12
                          Disenrolled Early to FFS, by Number of Selected Chronic
                          Conditions and Age




                        Page 16                              GAO/HEHS-97-160 HMO Enrollment Patterns
Contents




Table 8: Comparison of 1992 Average Monthly FFS Costs for               13
  Beneficiaries Who Returned to FFS and Those Who Remained in
  Their HMO
Table II.1: Prevalence of Chronic Conditions Among FFS                  22
  Beneficiaries, by Number of Selected Chronic Conditions and
  Age
Table II.2: 1992 Average Monthly Costs for FFS Beneficiaries, by        23
  Number of Selected Chronic Conditions and Age




Abbreviations

EDB        Enrollment Database
FFS        fee for service
HCFA       Health Care Financing Administration
HMO        health maintenance organization
SAF        Standard Analytic Files


Page 17                             GAO/HEHS-97-160 HMO Enrollment Patterns
Appendix I

Scope, Data Sources, and Methodology


                 This appendix describes our (1) scope and data sources, (2) methodology
                 for identifying Medicare fee-for-service (FFS) beneficiaries with selected
                 chronic conditions, and (3) methodology for analyzing the health
                 maintenance organization (HMO) enrollment and disenrollment patterns of
                 FFS beneficiaries.



                 Our study is an analysis of HMO enrollment and disenrollment patterns in
Scope and Data   14 counties in California from January 1993 through June 1995. We chose
Sources          California because it has been the hub of Medicare HMO activity
                 nationwide. In 1995, over 40 percent of all Medicare beneficiaries enrolled
                 in risk contract HMOs21 resided in the state. California had 32 HMOs with
                 Medicare risk contracts, including 5 of the nation’s 7 plans that had the
                 largest number of beneficiaries enrolled.

                 We selected California counties where opportunities for enrollment were
                 not limited by HMO participation. The 14 counties22 included in our study
                 each had at least one risk contract HMO operating within its boundaries,
                 and 10 counties listed two or more Medicare HMOs.23 In addition, all of the
                 counties had over 1,000 Medicare beneficiaries enrolled in risk contract
                 HMOs and together accounted for 99.2 percent of California risk contract
                 HMO enrollment. As a result of substantial HMO enrollment growth, several
                 of these counties had high Medicare HMO market penetration rates (the
                 proportion of Medicare beneficiaries enrolled in an HMO) in 1994: San
                 Bernardino (47 percent), Riverside (47 percent), San Diego (42 percent),
                 and Orange (36 percent).

                 We used the Health Care Financing Administration’s (HCFA) Enrollment
                 Database (EDB) file to select a cohort of FFS beneficiaries who lived in the
                 14-county area in December 1992. The EDB is the repository of enrollment
                 and entitlement information of anyone ever enrolled in Medicare. It
                 contains information on a beneficiary’s age, sex, entitlement status, state
                 and county of residence, and HMO enrollment history. To focus on the
                 enrollment behavior of people who had no recent HMO experience, we
                 identified beneficiaries who were eligible for Medicare part A and part B

                 21
                  Under risk contracts, HMOs receive a fixed payment for each beneficiary enrolled. As a result, they
                 assume a level of risk in managing the cost of providing care because, for any particular patient, the
                 cost of care may exceed the fixed payment.
                 22
                  Los Angeles, San Diego, Orange, Riverside, San Bernardino, Ventura, Kern, San Francisco, San Mateo,
                 Sacramento, Santa Clara, Santa Barbara, Marin, and Butte.
                 23
                  Although some Medicare managed care plans were cost plans or health care prepayment plans, most
                 of them converted to risk contract HMOs during 1993 and 1994. Therefore, all plans were included in
                 our analysis.



                 Page 18                                              GAO/HEHS-97-160 HMO Enrollment Patterns
                         Appendix I
                         Scope, Data Sources, and Methodology




                         for all of 1992 but were not in an HMO at any point during that year. We
                         further narrowed the cohort by excluding patients with end-stage renal
                         disease and those entitled to Medicare benefits because they were
                         disabled and under 65 years old.

                         We used HCFA’s Standard Analytic Files (SAF) to determine Medicare’s
                         payments for each FFS beneficiary. The SAFs contain final action claims
                         data for various types of Medicare-covered services, including inpatient
                         hospital, outpatient, home health agency, skilled nursing facility, hospice,
                         physician/supplier, and durable medical equipment. We obtained
                         expenditure information from the “payment amount” portion of the claim
                         and added pass-through and per diem expenses to the payment amount for
                         inpatient claims. From the claim files, we computed 1992 monthly average
                         expenditures for each beneficiary enrolled in FFS throughout 1992.

                         Individual expenditure information was combined with EDB data to
                         produce a single enrollment and expenditure file containing information
                         on 1,270,554 California FFS Medicare beneficiaries.


                         We also used claims information contained in the SAFs to determine the
Identifying FFS          health status of each beneficiary, as measured by the presence or absence
Beneficiaries With       of any of five chronic conditions; that is, whether a claimant had been
Chronic Conditions       diagnosed with zero, one, or two or more of the chronic conditions. The
                         chronic conditions included in this analysis were diabetes mellitus,
                         ischemic heart disease, congestive heart failure, hypertension, and chronic
                         obstructive pulmonary disease. These five conditions were identified by
                         Medicare officials as ranking among the most highly prevalent in the
                         elderly population and generating the highest costs to the program.

                         For each cohort beneficiary, we screened 1991 and 1992 inpatient,
                         outpatient, skilled nursing facility, home health agency, and
                         physician/supplier claims for diagnoses (3-digit ICD-9 codes) related to the
                         five chronic conditions. A beneficiary was classified as having a given
                         chronic condition if he or she had

                     •   one or more hospital claims with a diagnosis of any of the five chronic
                         conditions,
                     •   two or more other claims with the diagnosis of diabetes mellitus or
                         chronic obstructive pulmonary disease, or




                         Page 19                                GAO/HEHS-97-160 HMO Enrollment Patterns
                      Appendix I
                      Scope, Data Sources, and Methodology




                  •   three or more other claims with the diagnosis of hypertension, ischemic
                      heart disease, or congestive heart failure.24

                      We then summarized the information for each beneficiary to determine if
                      he or she had zero, one, or two or more chronic conditions.


                      We analyzed information contained in the EDB to determine the cohort’s
Analyzing HMO         HMO enrollment patterns from January 1993 to December 1994. For each
Enrollment and        beneficiary, there were four possible occurrences: death, change of
Disenrollment         residence (out of county), enrollment in an HMO, or 24 months of
                      continuous enrollment in FFS. If the first occurrence for any beneficiary
Patterns of FFS       was death or a move, we excluded those beneficiaries from further
Beneficiaries         analysis. During the period, the proportion who died was 6.2 percent for
                      those with none of the selected conditions, 9.6 percent for those with one
                      condition, and 18.6 percent for those with two or more conditions; the
                      percentage who moved was about 5 percent for each health status group.

                      Excluding beneficiaries who died or moved during the 2-year period
                      reduced the size of the cohort to 1,074,819 beneficiaries. We then
                      calculated their 1992 average monthly FFS expenditures, by number of
                      chronic conditions and age group, and the proportion of the remaining
                      beneficiaries that enrolled in an HMO.25 This 24-month requirement made
                      our pool of potential enrollees a somewhat healthier group than otherwise,
                      and therefore, our estimates of HMO enrollment rates were more favorable
                      than if this requirement were not a criterion for inclusion. Also, because
                      people in their last 12 months of life have costs that are significantly
                      higher than those of other Medicare beneficiaries, the health status and
                      1992 average costs for those who stayed in FFS was below what they would
                      be if a less stringent criterion were used.

                      To determine the early disenrollment rates, we tracked those beneficiaries
                      who joined an HMO (175,951) for 6 months after they enrolled using
                      January 1993 to June 1995 EDB information. Disenrollments may occur for
                      administrative reasons (the individual died or moved out of the HMO’s


                      24
                        The screens may undercount or overcount beneficiaries with each chronic condition. For example,
                      patients may stop visiting a doctor following their recovery from heart failure or ischemic diseases. On
                      the other hand, the Montana-Wyoming Foundation for Medical Care, which developed and tested the
                      screen for beneficiaries with diabetes, found that it overcounted by 3 percent the number of those with
                      diabetes that could be identified through medical record reviews.
                      25
                        The program payments associated with each beneficiary pertain to all services claimed, not only
                      those related to the treatment of chronic conditions. For example, the average monthly expenditure
                      for a patient with diabetes could include expenses for treating acute back pain.



                      Page 20                                              GAO/HEHS-97-160 HMO Enrollment Patterns
Appendix I
Scope, Data Sources, and Methodology




service area) or voluntarily (to return to FFS or switch to another HMO). We
excluded from further analysis those beneficiaries who disenrolled for
administrative reasons, leaving a cohort of 14,455 who voluntarily
disenrolled within 6 months.26 We then calculated the proportion of
beneficiaries who chose to return to FFS and their 1992 average monthly
FFS expenditures, for each health status and age group.


We conducted our review of enrollment and disenrollment patterns
between April 1996 and June 1997 in accordance with generally accepted
government auditing standards.




26
 During this period, the California HMO market experienced a number of mergers among its risk
contract plans. Beneficiaries whose plan enrollment changed due to a merger were not counted as
voluntary disenrollees.



Page 21                                            GAO/HEHS-97-160 HMO Enrollment Patterns
Appendix II

Prevalence and Cost of FFS Beneficiaries
With Selected Chronic Conditions in
California, 1992
                                      Chronic conditions may begin in middle age but often progress in terms of
                                      severity of symptoms and the degree to which they limit a person as the
                                      person ages. Many people with any kind of a chronic condition have more
                                      than one condition to manage, further adding to their health care burden.
                                      Those who are chronically ill have substantially higher utilization of health
                                      care services, accounting for a large share of emergency room visits,
                                      hospital admissions, hospital days, and home care visits. This appendix
                                      presents 1992 data on the proportion of California FFS beneficiaries that
                                      had selected chronic conditions and how their costs compared with those
                                      without the conditions.


                                      In 1992, about 660,000 or one-half of the elderly Californians in our cohort
Chronic Conditions                    were identified as having diabetes, ischemic heart disease, congestive
Were Prevalent                        heart failure, hypertension, or chronic obstructive pulmonary disease. Of
Among Half the                        these, about 40 percent had more than one of these chronic condition. As
                                      shown in table II.1, the prevalence of these conditions is greatest among
Elderly                               the oldest of the elderly. For example, for those over 75 years old, one in
                                      three beneficiaries had a single chronic condition and at least one in four
                                      had two or more of these chronic conditions.

Table II.1: Prevalence of Chronic
Conditions Among FFS Beneficiaries,   Numbers in percent
by Number of Selected Chronic                                       All    Aged        Aged       Aged      Aged 85
Conditions and Age                                              elderly    65-69       70-74      75-84    and older
                                      All beneficiaries          100.0     100.0       100.0      100.0       100.0
                                      Beneficiaries with
                                      none of the selected
                                      chronic conditions          48.1      59.1        51.1        42.2        37.3
                                      Beneficiaries with only
                                      one of the selected
                                      conditions                  30.6      26.3        30.1        33.1        33.1
                                      Beneficiaries with two
                                      or more of the
                                      selected conditions         21.3      14.6        18.8        24.8        29.7




                                      Page 22                                GAO/HEHS-97-160 HMO Enrollment Patterns
                                         Appendix II
                                         Prevalence and Cost of FFS Beneficiaries
                                         With Selected Chronic Conditions in
                                         California, 1992




                                         There were substantial cost differences between beneficiaries who had
Beneficiaries With                       none, one, or several of the selected conditions. The average cost for a
Multiple Chronic                         beneficiary with multiple chronic conditions was over 6 times the cost for
Conditions Are Far                       a beneficiary with none of the conditions, and more than twice the cost for
                                         a beneficiary with only one of the conditions.27 As shown in table II.2, even
More Costly Than                         within the same age group, costs varied widely across health status groups.
Those Without the
Conditions
Table II.2: 1992 Average Monthly Costs
for FFS Beneficiaries, by Number of                                          All          Aged           Aged           Aged        Aged 85
Selected Chronic Conditions and Age                                      elderly          65-69          70-74          75-84      and older
                                         All beneficiaries                 $328            $237           $289           $379           $445
                                         Beneficiaries with
                                         none of the selected
                                         chronic conditions                  127             96            113            151             185
                                         Beneficiaries with only
                                         one of the selected
                                         conditions                          308            268            283            325             371
                                         Beneficiaries with two
                                         or more of the
                                         selected conditions                 812            756            775            839             854




                                         27
                                           We found that a significant share of our cohort, 14 percent, showed no claims for Medicare
                                         reimbursement in 1992. A small proportion, less than 3 percent, of FFS beneficiaries with chronic
                                         conditions (identified from 1991 claims data) did not use Medicare-covered services, probably because
                                         they did not experience an acute health problem in 1992. By comparison, about 28 percent of the FFS
                                         beneficiaries with none of the selected conditions had no Medicare claims in 1992.



                                         Page 23                                             GAO/HEHS-97-160 HMO Enrollment Patterns
Related GAO Products


              Medicare HMOs: HCFA Can Promptly Eliminate Hundreds of Millions in
              Excess Payments (GAO/HEHS-97-16, Apr. 25, 1997).

              Medicare HMOs: Rapid Enrollment Growth Concentrated in Selected States
              (GAO/HEHS-96-63, Jan. 18, 1996).

              Medicare Managed Care: Growing Enrollment Adds Urgency to Fixing HMO
              Payment Problems (GAO/HEHS-96-21, Nov. 8, 1995).

              Medicare: Changes to HMO Rate Setting Methods Are Needed to Reduce
              Program Costs (GAO/HEHS-94-119, Sept. 2, 1994).




(108269)      Page 24                             GAO/HEHS-97-160 HMO Enrollment Patterns
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