Medicaid Managed Care: Challenge of Holding Plans Accountable Requires Greater State Effort

Published by the Government Accountability Office on 1997-05-16.

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

                 United States General Accounting Office

GAO              Report to Ranking Minority Member,
                 Committee on Commerce, House of

May 1997
                 MEDICAID MANAGED
                 Challenge of Holding
                 Plans Accountable
                 Requires Greater State

      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Health, Education, and
      Human Services Division


      May 16, 1997

      The Honorable John D. Dingell
      Ranking Minority Member
      Committee on Commerce
      House of Representatives

      Dear Mr. Dingell:

      Over the past decade, Medicaid expenditures have soared. By fiscal year
      1996, they reached $160 billion—nearly quadrupling fiscal year 1986
      expenditures. Although the annual growth rate abated significantly in
      1996, Medicaid expenditures continue to exert strong pressure on federal
      and state budgets. To help bring these costs under control, states
      increasingly are mandating significant numbers of their Medicaid
      population to enroll in managed care programs. By emphasizing primary
      and preventive care and treatment, it is hoped that managed care will
      improve beneficiary health care while curbing health care costs.

      As of June 1996, about 11 million Medicaid beneficiaries were enrolled in
      “capitated” managed care programs.1 Under a capitated managed care
      model, states contract with managed care plans, such as health
      maintenance organizations (HMO), and pay them a monthly, or capitated,
      fee per Medicaid enrollee to provide most medical services—which are
      coordinated through primary care physicians. This model, with its fixed
      prospective payment for a package of services, creates an incentive for
      plans to provide preventive and primary care and to ensure that only
      necessary medical services are provided. However, managed care also can
      create an incentive to underserve or even deny beneficiaries access to
      needed care since plans and, in some cases, providers can profit from not
      delivering services. Moreover, Medicaid beneficiaries required to enroll in
      managed care may find it difficult to seek alternative care if they find that
      plan providers fail to meet their needs.

      Because of your concern about these issues, we reviewed state efforts to
      hold managed care plans accountable for meeting Medicaid program goals
      and for providing beneficiaries enrolled in capitated managed care plans
      the care they need. As agreed with your office, we focused our study on
      the difficulties that purchasers, including states, have in monitoring

       Based on the most current data available from the Health Care Financing Administration (HCFA) on
      managed care enrollment. Another 4 million individuals were enrolled in noncapitated managed care
      programs. Of the total 15 million managed care enrollees, about 2 million were enrolled in more than
      one plan, according to HCFA.

      Page 1                                 GAO/HEHS-97-86 Medicaid Managed Care Accountability

                   managed care programs and on state efforts to (1) ensure Medicaid
                   beneficiaries have access to appropriate providers, (2) assess the
                   adequacy of medical care provided through contracted plans, and
                   (3) determine beneficiary satisfaction with plan performance.

                   To understand the types of issues states face in ensuring accountability
                   and quality in their capitated Medicaid managed care programs and the
                   steps taken to address these issues, we visited four states—Arizona,
                   Pennsylvania, Tennessee, and Wisconsin. At the time of our review, these
                   four states collectively had almost 1.9 million Medicaid beneficiaries
                   enrolled in their managed care programs. To analyze and illustrate state
                   actions, we focused the scope of our work on 10 core accountability
                   measures or processes deemed essential by HCFA and experts we
                   contacted.2 We reviewed these states’ contracts with managed care plans
                   and other plan requirements, as well as their efforts to monitor plan
                   performance. Appendix I provides more detailed information on our scope
                   and methodology.

                   Ensuring that managed care plans provide enrollees the care that they
Results in Brief   need is a formidable task for private and public purchasers alike. In
                   establishing their managed care programs, purchasers can require
                   contracted plans to meet certain conditions—such as maintaining
                   adequate provider networks and complying with data collection
                   requirements—that help to hold them accountable for providing enrollees
                   with appropriate care. However, establishing criteria for these conditions
                   and monitoring plan compliance are often difficult because of a lack of
                   population-based standards or benchmarks for what constitutes
                   appropriate care or expected outcomes. In addition, individual-level data
                   on patient care, such as those that are generated in a claims-based
                   fee-for-service system, are not readily available. For states, establishing
                   standards of care and tapping into alternative information sources on
                   service utilization to assess the care that Medicaid beneficiaries receive
                   can be a challenge. The four states that we visited—Arizona, Pennsylvania,
                   Tennessee, and Wisconsin—have built access and data collection
                   requirements into their contracts with managed care plans. We found,
                   however, that plan compliance with the requirements we reviewed does
                   not necessarily ensure that beneficiaries are receiving the care that they

                    Our work did not include a complete assessment of each state’s entire quality assurance process.

                   Page 2                                 GAO/HEHS-97-86 Medicaid Managed Care Accountability

A number of these states’ requirements aim to ensure managed care plans
develop and maintain provider networks that are sufficient to meet the
needs of Medicaid beneficiaries. Some are criterion-based, such as
patient-to-primary-care-physician ratios. For example, two states required
that plans not exceed a maximum patient-to-primary-care-physician ratio
of 2,500 to 1. Compliance with such a requirement, however, does not
necessarily demonstrate that a network is sufficient to meet the needs of
Medicaid beneficiaries. Patient-to-primary-care-physician ratios generally
do not consider the number of networks a primary care physician
participates in or a physician’s capacity or willingness to see Medicaid
patients. Of the states that we visited, only Arizona required physicians to
report their work load in full-time-equivalent terms and identified primary
care physicians who participate in more than one plan and could be
counted more than once. The four states also require plans to provide a
full range of specialty services, even if this means beneficiaries must be
referred to providers outside the plan’s network. However, because there
are no established standards for specialists, these states have not specified
the types and numbers of specialists to include in plan networks, making it
difficult for these states to measure the adequacy of plan specialist
networks before awarding a contract. Once plans have a contract, states
can monitor the numbers and types of specialists participating in the
network, but this does not necessarily indicate whether beneficiaries
actually gain access to specialty care when they need it.

Given the difficulties associated with gauging the adequacy of a provider
network, the four states that we visited have taken additional steps to
assess the adequacy of the medical care that beneficiaries enrolled in
managed care receive. For example, each state has looked at aggregated
statistics on the use of specific services. Some have found that, compared
with fee-for-service, Medicaid managed care recipients were more likely to
receive certain preventive and diagnostic services, such as childhood
immunizations and cancer screenings. Arizona, Tennessee, and
Pennsylvania also have invested in developing encounter data—the
individual-level data on all services provided to all patients. Encounter
data can enable states to conduct their own analyses on a wider array of
services than is possible using aggregated statistics. These analyses allow
states to examine patterns of care across plans, such as differences in
service delivery by selected types of services, beneficiary groups, and
providers. To date, Arizona has made the most use of its encounter data,
including using them as the state begins to develop quality indicators.
Tennessee’s early efforts primarily focused on developing and validating
its encounter data; more recently, the state has begun to use these data to

Page 3                       GAO/HEHS-97-86 Medicaid Managed Care Accountability

             assess service utilization patterns. Pennsylvania’s use of encounter data
             was even more limited. All four states also use data from plan-conducted
             clinical studies and state-conducted medical record audits to help assess
             patient care. Improved plan and state methodologies, however, could
             increase the usefulness of the data collected from these reviews.

             The four states that we visited also have sought to assess the adequacy of
             patient care by tapping into information provided directly by Medicaid
             beneficiaries enrolled in managed care, such as patient satisfaction
             surveys and data gathered from grievance processes. While it is important
             to gauge patients’ satisfaction with the care they receive, satisfaction data
             generally are not reliable measures of quality; most people lack the
             knowledge needed to adequately evaluate the appropriateness of the care
             they receive—or do not receive. In addition, newcomers to managed care
             may not fully understand how the system operates to effectively access
             services, advocate on their own behalf, or register dissatisfaction with
             their plan or provider. This is especially true for individuals with diverse
             language and cultural needs. Regardless, we found that if the states we
             visited improved certain methodologies for designing satisfaction surveys
             and stratified their survey and grievance data, they would have a better
             understanding of the needs and concerns of their Medicaid beneficiaries
             enrolled in managed care—especially those with special needs or chronic
             illnesses, who may experience problems in accessing services but whose
             numbers are too small to show up in analyses of broad-based data.

             Medicaid, a joint federal-state health financing program for the poor,
Background   provides health care for about 37 million low-income people.3 In fiscal year
             1996, Medicaid expenditures accounted for more than 20 percent of state
             budgets. To help control expenditures and expand access to health care,
             36 states have mandated enrollment for some portion of their Medicaid
             population in managed care programs. As of June 1995, nearly 14 percent
             of Medicaid eligibles were enrolled in capitated programs.

             Under a capitated managed care system, states pay contracted plans a
             monthly per-enrollee amount before services are delivered—a distinct
             departure from the traditional claims-based fee-for-service system in
             which providers are paid for each service as bills are submitted. In turn,
             the plans employ or subcontract with primary care physicians, who

             Medicaid was established in 1965 as title XIX of the Social Security Act (42 U.S.C. 1396 et seq.).
             Medicaid is administered at the state level, with federal oversight by HCFA within the Department of
             Health and Human Services (HHS).

             Page 4                                 GAO/HEHS-97-86 Medicaid Managed Care Accountability

coordinate the delivery of health services.4 Some plans pay their
subcontracted providers on a fee-for-service basis for care provided, while
others pass certain financial risks on to providers by linking the providers’
revenues or profits to the total number of services provided to plan
enrollees. While capitated managed care has strong cost-containment
incentives, it also provides incentives for plans and providers to limit
services—not only must plans and providers absorb all costs that exceed
the capitation rate, they profit if the capitation rate exceeds their costs.

Nationwide, most states initially implemented Medicaid capitated
managed care programs by allowing beneficiaries to enroll on a voluntary
basis in limited geographic areas. These programs were largely targeted to
low-income families who received financial assistance under Aid to
Families With Dependent Children (AFDC) and pregnant women and
children who qualified for Medicaid. Increasingly, states are mandating
beneficiary enrollment and expanding their programs to more geographic
areas. In addition, they are beginning to include more populations with
specialized needs, such as blind or disabled individuals who qualify for
Medicaid under the Supplemental Security Income (SSI) program. As we
reported in July 1996, 17 states had extended their Medicaid managed care
programs to these more vulnerable populations.5

States must comply with certain federal statutory requirements for the
development and oversight of their managed care programs. HCFA can
waive some of these requirements—such as a beneficiary’s freedom to
choose any provider—to enable states to restrict beneficiaries to the
providers participating in a managed care network. Waivers also allow
states to expand the scope of their programs to populations not otherwise
eligible for Medicaid. These waivers are of two types: program or
demonstration.6 Program waivers allow states to require beneficiaries to
join a managed care plan, but beneficiaries are generally allowed to switch
plans every 30 days. Demonstration waivers provide states with greater
flexibility, and while they are more difficult to obtain than program
waivers, they have been granted more frequently in recent years. States
request demonstration waivers to establish mandatory programs that lock
beneficiaries into one plan for periods of up to 12 months or to expand

 Primary care physicians may be general internal medicine practitioners, family and general
practitioners, pediatricians, or obstetricians and gynecologists.
 See Medicaid Managed Care: Serving the Disabled Challenges State Programs (GAO/HEHS-96-136,
July 31, 1996).
 Program waivers are authorized under section 1915 of the Social Security Act. Demonstration waivers
are also known as section 1115 waivers, after the section of the Social Security Act that authorizes

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                                      eligibility to uninsured populations. Table 1 compares various
                                      characteristics of the two waiver types.

Table 1: Characteristics of Managed
Care Programs Under Program and       Program waivers                                        Demonstration waivers
Demonstration Waivers                 General characteristics
                                      Allow for waiver of certain Medicaid                   Allow for waiver of a broader range of
                                      requirements.                                          Medicaid requirements.
                                      Waivers renewed for 2- to 5-year periods.              Generally not renewed.a
                                      Generally used to establish primary care More recently used to establish broad
                                      case management programs and home-and changes in Medicaid programs.
                                      community-based service programs.
                                      Characteristics pertaining to capitated managed care
                                      Plans must comply with 25% requirement for Plans may enroll Medicaid patients
                                      private enrollment.                        exclusively.
                                      Full range of mandatory services must be               Benefit package may be modified.b
                                      Beneficiaries may be mandated to enroll in   Beneficiaries may be locked in for up to 12
                                      plan and can be locked in for no longer than months.
                                      1 month.c
                                          The Congress has authorized renewal of some demonstration waivers.
                                       To date, only Oregon has been permitted to modify the benefit package for traditional Medicaid
                                      beneficiaries. Other states have been permitted to offer a modified package only to those newly
                                      eligible for Medicaid coverage under the demonstration.
                                          Lock-in is up to 6 months for capitated plans meeting certain federal requirements.

                                      At the time of our review, Arizona and Tennessee had demonstration
                                      waivers for their mandatory statewide programs, which served both AFDC
                                      and SSI populations. Wisconsin had a program waiver for its mandatory
                                      program, which served only the AFDC populations in 5 of its 72 counties. In
                                      contrast, Pennsylvania had voluntary and mandatory managed care
                                      programs. The voluntary program—the larger program at the time of our
                                      review—served both AFDC and SSI populations in 13 of its 90 counties.7 This
                                      program required no federal waiver.

                                      To ensure that states comply with statutory and HCFA requirements, HCFA
                                      reviews state contracts with managed care plans. It also monitors state
                                      programs through independent evaluations and periodic reviews of
                                      state-submitted information on expenditures, medical services, and

                                       At the time of our review, 475,000 beneficiaries were enrolled in Pennsylvania’s voluntary managed
                                      care program. With the February 1997 expansion of its mandatory program, 177,000 beneficiaries were
                                      participating in the voluntary program as of April 1, 1997; 66,000 are projected to be in the voluntary
                                      program by 1998.

                                      Page 6                                    GAO/HEHS-97-86 Medicaid Managed Care Accountability

                       enrollment data, which HCFA requires all states to report. The nature of
                       HCFA’s requirements and oversight role depends on the waiver type. For
                       example, under a demonstration waiver, HCFA develops terms and
                       conditions that vary by state, depending on the provisions being waived.
                       (For a more detailed discussion of federal regulations and HCFA
                       requirements for waiver programs, see app. II.)

                       Purchasers of managed care face a number of difficulties in ensuring
Difficulties in        enrollees receive the care that they need. In contrast to fee-for-service
Monitoring Managed     care—where the incentive is to oversupply services to increase
Care Stem From         revenues—capitated managed care, with its fixed payment system,
                       contains incentives to provide fewer services to maximize short-term
Limited Standards of   profits. Assessing how well the care delivered matches beneficiary needs
Care and Data on       is difficult because few aggregate or population-based utilization
                       standards or benchmarks on delivery of care patterns have been
Service Utilization    established for managed care. Benchmarks derived from providers and
                       patients in the fee-for-service sector may not be appropriate since service
                       utilization patterns are expected to change under managed care.

                       Even where standards of care do exist for selected conditions or
                       procedures, such as for prenatal care or childhood immunizations,
                       monitoring the actual delivery of such services in capitated managed care
                       is difficult because data on service utilization do not flow as readily as in a
                       fee-for-service environment. In fee-for-service care, data on service
                       delivery are captured in individual claims, which are submitted for
                       payment as services are provided. In managed care, however, purchasers
                       prospectively pay plans a monthly fee for services not yet provided. Unless
                       plans capture service data in another form, it is difficult to identify the
                       services actually provided. Without specific data collection requirements,
                       providers may lack the incentive to accurately report individual-level data
                       on all services provided since payment is not linked to documentation of
                       the care provided.

                       To learn more about what transpires in the delivery of managed care
                       services—and to help ensure that the health care services they contract
                       for are appropriately provided—private and public purchasers also rely on
                       other measurement tools and data sources. Among these are reviews of
                       patient medical records and surveys of patients on the care they receive
                       from plans. Reviews of medical records can help purchasers assess the
                       care provided to individual patients. These assessments, however, are
                       time-consuming and costly and are generally undertaken for small

                       Page 7                        GAO/HEHS-97-86 Medicaid Managed Care Accountability

                        numbers of patients. Information from patients, while more accessible
                        than medical records, can be problematic as well. Patients typically are
                        not in a position to know what specific care or services they need for a
                        given condition and often cannot assess the appropriateness of the care
                        they receive—or do not receive. In addition, patients new to managed care
                        may confuse differences in the way the system is meant to operate with
                        deficiencies in the care provided. Problems associated with obtaining
                        meaningful patient survey information may be even more pronounced for
                        those in the surveyed population with unique language or cultural needs or
                        who are unaccustomed to receiving routine health care in a structured
                        system. Educating and informing prospective and newly enrolled
                        beneficiaries about managed care and helping them learn how to use the
                        system—as some states have done in their Medicaid managed care
                        programs—can mitigate these problems.8

                        Most states are grappling with these and other issues associated with
                        adapting and developing systems and processes for managed care—a
                        relatively new health care environment. According to some experts, many
                        states are struggling to maintain the staff needed to establish and oversee
                        their programs, since frequent turnover of staff with managed care
                        expertise is common. It is not surprising, then, that states are at various
                        stages in their program development and monitoring efforts. The four
                        states that we visited have taken a number of steps to overcome these
                        various challenges and improve the odds that their money is well spent in
                        their managed care programs. These states have established contract
                        requirements that aim to ensure that participating managed care plans
                        have the capacity to provide adequate care to enrolled Medicaid
                        beneficiaries. Prominent among these requirements are standards for
                        plans’ provider networks. In monitoring participating plans, these states
                        obtain information to assess actual services delivered from various
                        sources, including plan-collected and -submitted data, state reviews of
                        patient medical records, and beneficiaries’ reports on their experiences.

                        Before a contract is awarded, managed care plans must demonstrate that
Measures to Assess      their provider networks are sufficient to meet the anticipated needs of
Beneficiaries’ Access   enrolled Medicaid beneficiaries. In an attempt to measure provider
to Care Are Still       network sufficiency, the states we visited—Arizona, Pennsylvania,
                        Tennessee, and Wisconsin—have focused on quantitative or other
Evolving                measures related to primary care physicians and specialist care. But just

                         See Medicaid: States’ Efforts to Educate and Enroll Beneficiaries in Managed Care
                        (GAO/HEHS-96-184, Sept. 17, 1996).

                        Page 8                                 GAO/HEHS-97-86 Medicaid Managed Care Accountability

                          as there are few standards for health service utilization, there are few
                          standards for what constitutes a sufficient provider network. Three of the
                          four states have established a specific number of primary care physicians
                          that a plan must have, and all require plans to provide a full range of
                          specialty services. The states also have relied on criteria that measure
                          beneficiaries’ ability to reach their primary care physician within a
                          reasonable time, in terms of maximum travel distances and waiting times.
                          After contract award, the states use various monitoring techniques to
                          determine the extent to which provider practices are in fact open to
                          Medicaid beneficiaries. These measures, however, do not necessarily
                          ensure that beneficiaries have access to the care that they need. Whether
                          these measures provide meaningful information on beneficiary access is
                          largely dependent on whether state monitoring efforts are independent
                          and systematic and go beyond plan-reported, paper-based indications of

Compliance With Primary   One criterion that states have established in an effort to ensure a sufficient
Care Physician            provider network relates to the availability of primary care physicians,
Requirements Provides     expressed as a ratio of enrolled beneficiaries per primary care physician.9
                          At the time of our review, Arizona and Tennessee used a maximum
Incomplete Information    patient-to-primary-care-physician ratio of 2,500 to 1, as required by the
About Network Adequacy    conditions of their demonstration waivers, and Pennsylvania required
                          plans to meet a ratio of 1,600 to 1.10 Wisconsin did not have specific
                          contractual requirements for plans but looked for a ratio of approximately
                          1,200 to 1. To monitor plan compliance with these ratios, the states require
                          plans to submit updated provider listings either annually, to coincide with
                          contract renewal, or as frequently as monthly. The states also require
                          plans to report all changes to the network as they occur and to note in
                          their provider directories given to beneficiaries those providers who
                          currently do not accept new patients.11

                          The states that we visited have found that plans in their managed care
                          programs have complied with their patient-to-primary-care-physician
                          ratios. But compliance with these ratios may not indicate actual physician
                          capacity or Medicaid beneficiaries’ access to care. We believe that the

                           In 1994, there was one primary care physician for every 1,173 United States citizens (based on GAO
                          analysis of the HHS Area Resource File).
                           Beginning in October 1997, Arizona will require plans to have maximum
                          patient-to-primary-care-physician ratios of 1,800 to 1 for adults and 1,200 to 1 for children under age 13.
                           Typically, plan directories are updated annually; consequently, beneficiaries must directly contact the
                          managed care plan for more current information on physician availability.

                          Page 9                                   GAO/HEHS-97-86 Medicaid Managed Care Accountability

                              number of primary care physicians and their availability to treat patients
                              may be overstated for two reasons. First, if the state reviews a plan’s
                              network capacity by looking at only that plan rather than looking at all
                              plans collectively, providers who participate in more than one plan may be
                              counted more than once. Second, if the state does not use full-time-
                              equivalency data to determine network capacity, network physicians’
                              other lines of business, such as treating Medicare or privately insured
                              patients, are not taken into account. Of the states that we visited, only
                              Arizona reviews provider participation across plans and assesses provider
                              capacity in full-time-equivalency terms.

                              For patient-to-primary-care-physician ratios to be an effective measure of
                              patient access to care, states must also ensure that plan physicians are
                              actually available to treat Medicaid beneficiaries. Ratios simply indicate
                              the number of physicians that have contracted with a plan; they do not
                              indicate the number of patients physicians are willing to treat and the
                              extent to which physicians actually provide services. Arizona and
                              Pennsylvania independently assess the extent to which physician practices
                              are open to Medicaid beneficiaries by periodically or randomly calling
                              physician offices to determine whether they are accepting new Medicaid
                              patients. When done on a systematic basis, these checks can better ensure
                              that provider practices are open to Medicaid beneficiaries.

                              To improve oversight of its provider networks, Arizona increased plans’
                              quarterly provider reporting requirements in September 1996. Previously,
                              plans were required to report provider names and the number of
                              beneficiaries seen by providers. Plans must now submit additional data on
                              provider access, such as the maximum number of Medicaid beneficiaries
                              that a provider will accept, the total number of beneficiaries currently
                              assigned to a plan, the providers who are accepting new members,
                              specialty services that are available, and foreign languages spoken by

Specialist Mix Is Not         Patients often require more specialized care than their primary care
Specified in Plan Contracts   physician can provide—such as oncological, urological, or pediatric
                              subspecialty care. Yet, assessing beneficiary access to such care is even
                              more difficult than assessing access to primary care physicians. And as
                              states move more beneficiaries with special needs or chronic conditions
                              into managed care, ensuring beneficiary access to appropriate specialty
                              services will become even more critical.

                              Page 10                      GAO/HEHS-97-86 Medicaid Managed Care Accountability

                           Assessing the availability of specialty providers within a network is
                           problematic for at least two reasons. First, there are no criteria or
                           standards—in fee-for-service or managed care—for the number and mix of
                           specialists needed to serve a population or for when and how often
                           beneficiaries should be referred to specialists. Second, some
                           specialists—especially those that are used infrequently—often are not
                           included in the network and can only be accessed outside the network.
                           Since these specialists are not in the network, states cannot readily assess
                           their availability to beneficiaries when needed.

                           The four states that we visited require that contracted plans provide a full
                           range of specialty services, even if this requires referring beneficiaries to
                           providers outside the plan’s network. Without recognized standards,
                           requirements for specialists are often vague and expressed in terms of an
                           objective—such as, “provide access to necessary specialty care”—that
                           cannot be measured before the contract award. While the four states do
                           not specify in the contracts the types and numbers of specialists that plans
                           must include in their networks, they do count the number and type of
                           specialists available in any one plan. This is done by reviewing the listing
                           of providers in a plan network during the contracting and contract renewal
                           processes. Each of these states also reviews plan listings periodically and
                           requires plans to report all changes in their specialty networks. For
                           example, Tennessee officials told us that the state uses a zip-code-based
                           computer program to check the location of specialists each quarter—or
                           more frequently if inquiries or questions come up on a particular provider
                           type. States then rely on the judgment of their experienced contract
                           staff—which may include health care professionals—to determine
                           whether the plans’ specialist networks are adequate.

                           This type of review, however, does not inform states of the specialist
                           services that Medicaid beneficiaries may use or request, especially if the
                           services involve out-of-network referrals. In the absence of accepted
                           standards for specialty care, states have relied on other information
                           sources—such as data on service utilization and beneficiary
                           satisfaction—to help them monitor the appropriateness of care provided.

Maximum Travel and         As additional criteria for assessing the adequacy of provider networks,
Waiting Requirements Are   states commonly stipulate the maximum time and distance beneficiaries
Additional Criteria for    must travel to their primary care physician’s office, the number of days
                           they must wait for an appointment to see their physician, and the time they
Assessing Beneficiary      wait in the physician’s office to be examined. These measures were
Access to Care

                           Page 11                      GAO/HEHS-97-86 Medicaid Managed Care Accountability

developed on the premise that certain factors—such as lengthy travel
times and distances, a physician’s failure to schedule appointments in a
timely manner, and excessive wait times in the physician’s office—can
discourage patients from seeking care.

In general, the states we visited established maximum travel requirements
of 20 miles or 30 minutes for urban areas and 30 miles or 30 minutes for
rural areas. For their specialist networks, the four states do not have or
grant some exceptions to travel requirements, since significant portions of
their Medicaid population can reside in rural areas where certain types of
specialty care may not be available. These states also require providers to
meet state-established standards for scheduling appointments and
attending to beneficiaries in a timely manner.12

To determine whether plans are complying with the time and distance
travel requirements, each state we visited reviews documentation on the
location of provider sites prior to contracting with a plan and on a periodic
schedule after contracting. Arizona and Tennessee, for example, use a
computer-based zip-code program. This allows them to determine whether
the locations of the primary care physicians and other providers in the
network, such as dentists and hospitals, meet contractual time and
distance requirements. In addition, each state requires plans to provide
transportation for beneficiaries who require medical attention and who
cannot get to their provider’s location on their own, such as the elderly.

These four states use various approaches—involving plan-provided data or
independent checks—to monitor provider compliance with wait-time
requirements. For example, each state requires plans to include
appointment standards in its subcontracts with providers and to review
logs to ensure that providers comply. During their periodic compliance
reviews, the states review the plans’ procedures to ensure that providers
have complied with the standards; the states also review selected sign-in
and appointment books. For example, Tennessee found during one
quarterly review of plan networks that some plans were not complying
with the contractual travel requirements for their dental networks.
According to state officials, the plans were notified of the deficiencies, and
most took actions to resolve them. In at least one case, a plan did not take
action and the state withheld 10 percent of the plan’s capitation payment

 Generally, the four states’ requirements to schedule appointments with primary care physicians are
same-day appointments for emergency care, within 24 to 48 hours for urgent or sick care, and 2 to 3
weeks for routine preventive care. Requirements for in-office waiting times are generally 30 to 45
minutes. Some states also specify appointment standards for specialty referrals and dental services, as
well as maternity, mental health, and substance abuse services.

Page 12                                 GAO/HEHS-97-86 Medicaid Managed Care Accountability

                        until it was in compliance. States also have independently assessed
                        provider compliance by periodically or randomly calling provider offices
                        to schedule appointments. However, such periodic calls may not be
                        systematic enough to provide the information required to identify
                        problems. As one means of gaining additional insight into beneficiary
                        experience with providers, Arizona and Tennessee have included
                        questions in their beneficiary satisfaction surveys that are specifically
                        related to wait times.

                        Recognizing the challenges associated with measuring the capacity of plan
Systems for Assessing   provider networks and their ability to ensure adequate care, states can use
Adequacy of Medical     other accountability measures and processes to assess the actual care
Care Provided Can Be    Medicaid beneficiaries receive. To identify average levels or recent
                        changes in the use of services by beneficiaries enrolled in managed care,
Further Improved        states can use plan reports of utilization statistics, which summarize
                        selected services provided to specific populations. For more extensive
                        analyses, states can use encounter data, which are individual-level data for
                        each service provided to each enrollee. Encounter data allow states to
                        identify the care received by any individual and the provision of any
                        procedure. In addition, states can conduct, or require plans to conduct,
                        other analyses—such as clinical studies and medical record audits—that
                        review the full medical records to assess the appropriateness of the care
                        received by a sample of beneficiaries.13

                        The four states that we visited have taken different approaches in
                        implementing their data collection methods. For example, Pennsylvania
                        and Wisconsin have relied primarily on collecting and using aggregated
                        utilization statistics to measure the adequacy of care. Arizona and
                        Tennessee also have required plans to collect and submit encounter data.
                        However, both states have found that developing reliable and useful
                        encounter data has required lengthy and continuing investment. As a
                        result, these two states have primarily used their encounter data to
                        identify services that may be over- or underutilized and health care areas
                        on which to focus their studies and audits. Arizona has begun to use its
                        encounter data to develop standards for measuring the quality of the care
                        provided.14 For all four states, we found that certain improvements in their

                         For specific federal regulations and guidance related to these accountability measures and processes,
                        see table II.1.
                         Arizona further uses its encounter data to estimate the cost of serving beneficiaries in each county
                        and to set capitation rates by county. See Arizona Medicaid: Competition Among Managed Care Plans
                        Lowers Program Costs (GAO/HEHS-96-2, Oct. 4, 1995).

                        Page 13                                GAO/HEHS-97-86 Medicaid Managed Care Accountability

                             methodologies for conducting clinical studies and medical record audits
                             could increase the usefulness of these reviews.

States Challenged to         Although utilization statistics and encounter data both capture patient use
Develop Effective            of services, utilization statistics are summary data that are generally relied
Utilization Statistics and   on to show the frequency with which a service is accessed by a specific
                             population. As such, there are several difficulties associated with using
Encounter Data for           these summary statistics in assessing services provided under managed
Monitoring Managed Care      care. For example, utilization statistics are often compiled for only specific
                             types of services, such as mammograms or childhood immunizations.
                             Consequently, utilization statistics cannot be used to determine the full
                             range of services that beneficiaries may receive. For example, in a prior
                             study, we found that analyses of utilization statistics on early and periodic
                             screening, diagnosis, and treatment (EPSDT) could not determine the actual
                             number of EPSDT-eligible children who received required screenings or
                             whether children with post-screen referrals actually received follow-up
                             diagnosis and treatment.15 Utilization statistics also have generally not
                             been used to assess the performance of individual providers. To obtain
                             utilization statistics for other sets of services or services supplied by
                             individual providers, states would need to modify their reporting
                             requirements—which could be problematic for plans if they have to alter
                             their data systems or provider reporting requirements to meet new state

                             Unlike utilization statistics, which aggregate service use by a population,
                             encounter data document all services that individual patients receive.
                             While encounter data have certain limitations, these data provide states
                             more flexibility to detect problems in beneficiary care by identifying
                             patterns of service use by individual beneficiaries and services provided
                             by individual providers. For example, these data can be used to assess the
                             participation of any provider or group of providers and analyze patterns of
                             care for specific diagnoses or procedures. With encounter data, states also
                             can explore service delivery beyond what is captured by utilization
                             statistics. These statistics allow plans and providers to “teach to the test,”
                             that is, focus on service delivery areas that they know will be measured,
                             perhaps to the exclusion of other services. Since encounter data
                             encompass all services for all beneficiary populations, all plan-provided
                             services are subject to state review, and the services being reviewed can

                              See Medicare Managed Care: More Competition and Oversight Would Improve California’s Expansion
                             Plan (GAO/HEHS-95-87, Apr. 28, 1995).

                             Page 14                             GAO/HEHS-97-86 Medicaid Managed Care Accountability

be changed periodically without adding to the administrative burden of

Certain analyses of encounter data, however, are currently constrained by
the limited number of benchmarks or standards against which states can
measure the care provided for certain conditions. For example, while
recognized standards exist for prenatal care and childhood immunizations,
many diagnoses have multiple alternative treatments or therapies. Vocal
chord stress, for instance, might be treated with medication, voice therapy,
or surgery. Individual-level encounter data cannot show the
appropriateness of many treatments provided to beneficiaries, nor can
they provide information about beneficiaries who do not seek treatment.
Regardless of these constraints, encounter data are valuable in that they
support a wider array of analyses than do utilization statistics. Moreover,
they provide the potential for supporting even more analyses as additional
benchmarks are developed.

To ensure that the utilization statistics and encounter data are usable, data
collection standards must be established and plans must be monitored for
compliance with these standards. Validating the accuracy and
completeness of encounter data requires additional measures—especially
in a fully capitated system where provider payment is not directly linked
to the documentation of each service provided. Although the data
collection efforts in the four states that we visited varied
considerably—due, in part, to the federal guidelines and requirements
associated with their waiver type—overall, their use of encounter data to
identify problems in beneficiary care has been minimal.

Wisconsin requires contracted plans to collect and submit on a quarterly
basis utilization statistics on 59 types of health care services, including
maternal and child health, mental health, and emergency room visits.16
Using fee-for-service experience as the benchmark, the state
analyzes—and publicly discloses in periodic reports—plan-submitted
statistics on certain services, such as childhood immunizations; lead
testing; mammograms; and dental, vision, and hearing examinations. For
example, the state found that certain preventive services, such as Pap
smears and childhood immunizations, increased in managed care, whereas
emergency room visits decreased—a redistribution of service settings that
is consistent with the goals of managed care. In addition, the state found

  For each indicator for which summary statistics are reported, plans also report a complete
individual-level patient history file, which documents all services that the patient has received. This
system allows Wisconsin to determine the actual number of beneficiaries who receive a service and to
conduct more extensive analyses on areas of concern.

Page 15                                 GAO/HEHS-97-86 Medicaid Managed Care Accountability

that beneficiary use of dental services was less in managed care than in
fee-for-service care and took action to improve beneficiary access to these
services. In relying on utilization statistics rather than on encounter data,
however, Wisconsin cannot easily or independently assess the care that
Medicaid beneficiaries receive beyond the 59 services. Such analyses
would require encounter data for 100 percent of the services provided,
which the state has opted not to collect in an effort to limit the
administrative burden that collecting encounter data can place on the
state and the plans.

Pennsylvania requires each plan participating in its voluntary managed
care program to collect both utilization statistics and encounter data. But
the state does not prescribe a method for collecting and validating the
encounter data and does not require plans to routinely submit these data
to the state for review and analysis.17 In April 1996, the state required all
plans to submit EPSDT data for a specific time period to respond to
concerns regarding Medicaid beneficiaries’ access to this service.

As part of their demonstration waiver requirements,18 Tennessee and
Arizona require plans to collect and submit encounter data on 100 percent
of services, potentially giving these states the greatest flexibility in their
analyses. Tennessee’s efforts to date have focused on providing technical
assistance to help plans configure their computer systems and data
elements to ensure accuracy. HCFA is also providing the state with
technical assistance in developing methodologies to analyze its encounter
data. Despite these start-up issues, the state has begun to analyze its
encounter data and to review provider practice patterns to identify
potential over- or underutilization of care.

Of the states we visited, Arizona has the most comprehensive system for
validating and analyzing plan-generated encounter data and has made the
most use of these analyses to guide state actions. To ensure that its
encounter data are accurate, complete, and timely, the state conducts two
validation studies of plan-submitted encounter data each contract year.
The first study takes a random sample of medical records and manually
compares these records with the encounter data submitted by the plans.
The second study compares the number of inpatient maternity

  Pennsylvania requires plans to submit encounter data for Medicaid beneficiaries enrolled in the
state’s mandatory managed care program. At the time of our review, 75,000 beneficiaries were enrolled
in mandatory managed care. Nearly 500,000 are now enrolled as a result of the state’s February 1997
 HCFA requires all states with a demonstration waiver to collect encounter data for 100 percent of

Page 16                                GAO/HEHS-97-86 Medicaid Managed Care Accountability

                           hospitalizations with newborn reports from hospitals. The state also uses
                           its encounter data to evaluate individual plan performance. Furthermore,
                           beginning October 1997, Arizona will require plans to compile encounter
                           data on specific measures, including mammography screening, cervical
                           cancer screening, children’s dental services, and well-child care.19 In
                           essence, Arizona will require plans to use their encounter data to compute
                           certain utilization statistics. This should make the information available to
                           the state sooner. Arizona also is creating a quality management system
                           that uses outcome-based standards and, over the past several years, has
                           been creating a baseline for these standards. The system will seek to
                           produce data that could indicate whether preventive care—such as dental
                           visits for children, mammograms, and Pap smears—prevent more serious
                           health problems.

                           In the three states with mandatory managed care programs, plans may be
                           sanctioned if they do not comply with utilization statistics or encounter
                           data requirements. Tennessee assesses a 10-percent withhold on
                           capitation payments for each month that a plan does not comply with data
                           submission requirements. If the problem is not corrected within 6 months,
                           the state keeps the withheld funds. Arizona imposes a financial penalty
                           based on the number of data errors identified in its plans’ encounter data.
                           Wisconsin may impose financial penalties if plans do not meet accuracy
                           and timeliness requirements. Over the last 2 years, the amount collected in
                           penalties by Tennessee and Arizona has been minimal, and Wisconsin has
                           not assessed any penalties.

More Targeted Clinical     Recognizing the limitations of utilization statistics and encounter data,
Studies and Medical        each of the four states that we visited uses reviews of samples of
Record Audits Are Needed   individual patient’s medical records to determine whether appropriate and
                           adequate care has been provided. Each state requires contracted plans to
to Assess Impact of        conduct at least one clinical study each year. A clinical study focuses on
Medicaid Managed Care      certain aspects of health care services, such as maternal health, to answer
                           questions about the quality and appropriateness of care that has been
                           provided. Each state also conducts its own medical record audits—as
                           required by federal regulation—either internally or through a contracted
                           external review organization, such as the State Peer Review Organization.
                           Medical record audits also have the potential to assess the appropriateness

                            The required measures are based on Medicaid Health Plan Employer Data Information Set (HEDIS).
                           Medicaid HEDIS provides guidance that states may use to measure, improve, and report on health plan
                           performance. Medicaid HEDIS was the collaborative effort of representatives from state Medicaid
                           agencies, managed care plans, the National Committee on Quality Assurance (NCQA), professional
                           health and welfare organizations, beneficiary advocacy groups, HCFA, the U.S. Public Health Service,
                           and others.

                           Page 17                               GAO/HEHS-97-86 Medicaid Managed Care Accountability

                               of the care provided as well as determine whether patients’ medical
                               records properly document the health care and services that they received.

                               The states’ current approaches to conducting these studies and audits
                               could be improved to yield more useful findings. For example, we found
                               that clinical studies often focus on the Medicaid population as a whole and
                               less frequently target populations that may not fare as well under managed
                               care, such as people with disabilities or chronic illnesses.20 In addition, the
                               states’ sample sizes for its medical record audits appear to be insufficient
                               to enable states to draw conclusions about the adequacy of the
                               documentation of beneficiary care, particularly for certain populations or
                               conditions too small to show up in pure random samples.

Managed Care Plans’ Clinical   Pennsylvania, Tennessee, and Wisconsin allow plans to select a topic to
Studies                        study from one or more health care areas that the state identifies.21 In
                               selecting study areas, the three states rely on the professional judgment
                               and experience of staff in the state Medicaid agency and on independent
                               expert opinion the states may seek. While studies of this nature can
                               provide states with valuable information on plan performance and a
                               baseline for evaluating subsequent plan performance, we found that the
                               plan-conducted studies had several limitations. For example, only
                               Wisconsin specified study areas that included conditions for which
                               beneficiaries might require more care than the general Medicaid
                               population, such as children with special care needs. Problems in the care
                               for such beneficiaries may not be detected in studying samples of the
                               overall Medicaid population because, relative to the larger population,
                               their numbers are too small. In addition, allowing plans to select their
                               clinical study topics gives them the latitude to select a topic where
                               improvement may be needed, but it also allows them to select a topic that
                               would yield positive results about plan performance. Finally, allowing
                               plans to select topics to study does not enable states to compare results
                               across plans for certain conditions or topics.

                               We also found that the states we visited conducted limited reviews of plan
                               methodologies for clinical studies. Pennsylvania, for example, reviews
                               plan methodologies during periodic quality assurance audits—after the
                               plans’ clinical studies have been completed. Wisconsin recently revised its
                               process for reviewing plan methodologies. Previously, the state required

                                See “Differences in 4-Year Health Outcomes for Elderly and Poor, Chronically Ill Patients Treated in
                               HMO and Fee-for-Service Systems: Results From the Medical Outcomes Study,” The Journal of the
                               American Medical Association, Vol. 276, No. 13 (Oct. 2, 1996).
                                 Arizona requires plans to submit a topic for state approval.

                               Page 18                                  GAO/HEHS-97-86 Medicaid Managed Care Accountability

                                plans to submit a one-paragraph description of their methodologies, on
                                which the state would base its approval. For the contract year beginning
                                October 1996, Wisconsin began to require plans to submit detailed
                                descriptions of the study topic and the methodology for conducting the
                                study. To validate the results of the plans’ clinical studies, Pennsylvania
                                and Tennessee review a sample of patient records during compliance
                                reviews for their annual contracts. However, these states generally pull
                                only a handful of records to verify the clinical study results.

States’ Medical Record Audits   Medical record audits document problems with patient medical records,
                                such as incomplete patient histories, lack of indication of follow-up care,
                                and illegibility and unavailability of records. These audits also can help
                                identify underlying causes of service delivery or access problems. If a
                                plan’s medical records are inadequate or indicate a service delivery
                                problem, a state can require the plan to take corrective action. All four
                                states that we visited use utilization statistics, encounter data, or both to
                                focus their audits of Medicaid beneficiary medical records. For example,
                                Wisconsin found through its analyses of utilization statistics that use of
                                dental services was infrequent and, therefore, conducted a medical record
                                audit to determine why Medicaid beneficiaries were not getting dental

                                While these states’ periodic audits of beneficiary records have revealed
                                weaknesses in the documentation of beneficiary care, we found that their
                                audit methodologies often yielded results that were not statistically valid
                                or may not have been sufficient to identify problems experienced by
                                different groups of Medicaid beneficiaries. Specifically, the samples of
                                records that the states used to conduct their audits generally were not
                                stratified by specific conditions or populations—which could result in an
                                underrepresentation of Medicaid beneficiaries with special needs—and
                                the sample sizes may not have been adequate to identify areas that warrant
                                further investigation. For example, Wisconsin uses a random sample of
                                about 2 percent of cases for medical record audits. Arizona bases its
                                sample sizes on the number of beneficiaries enrolled in a plan, with the
                                sample sizes ranging from 30 to 100 patient records. Although the state
                                agrees these sample sizes are not statistically valid, it believes that these
                                audits, when combined with other periodic on-site reviews, are sufficient
                                to identify best practices as well as problem areas to target for corrective

                                Page 19                       GAO/HEHS-97-86 Medicaid Managed Care Accountability

                             In assessing the performance of managed care plans, indicators of
States Could Learn           beneficiary satisfaction can complement other analyses of provider
More From Improved           network capacity and the services provided. To gauge the extent to which
Design and Analysis          beneficiaries are satisfied with Medicaid managed care and their managed
                             care plan, the states that we visited review the results of beneficiary
of Data on Beneficiary       satisfaction surveys, grievance data, and the rates at which beneficiaries
Experience With              choose to switch plans or, if enrolled in a voluntary program, leave
                             managed care altogether. While analyses of such data have helped these
Managed Care                 states identify problems that Medicaid beneficiaries have with managed
                             care, such as difficulty in scheduling appointments or accessing
                             specialists, certain improvements in the design of their surveys and data
                             collection methods could enhance the usefulness of their analyses.

Improved Beneficiary         Although the results of patient satisfaction surveys may not be the best
Survey Designs Could Yield   indicator of quality care, periodic satisfaction surveys—administered
More Useful Data             statewide or at the plan level—can help measure the degree to which
                             Medicaid beneficiaries are happy with the providers and services offered
                             in their managed care plan. To ensure that survey findings are reliable and
                             useful in identifying areas that need systemwide improvement, the survey
                             design and process must be methodologically sound, however.22 In
                             addition, the survey must be designed to address several difficulties
                             inherent in surveying the Medicaid population, such as effectively
                             administering a survey instrument in multiple languages and overcoming
                             historically low response rates.

Plan-Conducted Beneficiary   Pennsylvania, Tennessee, and Wisconsin require plans to conduct periodic
Surveys                      surveys to assess beneficiary satisfaction with network providers and
                             services. Pennsylvania and Tennessee review the plans’ survey
                             methodologies during their annual contract compliance reviews, but they
                             do not routinely examine the survey methods before the surveys are
                             conducted. Wisconsin requires plans to describe in detail the methodology
                             they intend to use before the contract is awarded. Once the contract is
                             awarded, the state reviews and approves each plan’s survey methodology
                             and instrument before it is administered. However, none of these states
                             prescribes a methodology for conducting satisfaction surveys.
                             Consequently, these states cannot compare survey results across plans.

                               Medicaid HEDIS provides states with technical guidance on designing a satisfaction survey for
                             Medicaid beneficiaries. This guidance includes how to identify topics for surveys and the trade-offs
                             between phone and mail surveys, such as data collection costs, time required for data collection,
                             response rates, sample sizes, and overall quality of data. In addition, HHS is developing beneficiary
                             satisfaction surveys for both general and special needs populations, which should be of further help to
                             the states once completed.

                             Page 20                                 GAO/HEHS-97-86 Medicaid Managed Care Accountability

Statewide Surveys   Statewide surveys allow states to compare results across plans for various
                    access and quality measures, such as use of specialty services, average
                    waiting time for physician office visits, and beneficiary perception of the
                    quality of care provided. As a condition of its demonstration waiver,
                    Tennessee is required to conduct statewide satisfaction surveys annually.
                    Arizona—on its own initiative—will soon complete a statewide beneficiary
                    satisfaction survey. Pennsylvania and Wisconsin plan to conduct surveys
                    as part of their planned program expansions.

                    Since implementing its managed care program in 1994, Tennessee has
                    conducted two annual statewide surveys. HCFA required that the state’s
                    beneficiary satisfaction survey include questions on referrals to
                    specialists, average waiting time for physician office visits, and reasons for
                    disenrollment. Tennessee has used these surveys to identify trends in
                    service use. For example, the state found that between 1993—the last year
                    of fee-for-service care—and 1995, hospital use decreased 6 percent, and
                    visits to doctors’ offices increased 8 percent—a redistribution of service
                    settings that is hoped for in managed care. In addition, its 1995 survey
                    showed that 75 percent of enrollees were satisfied with the care they
                    received through their managed care plan compared with a 61-percent
                    satisfaction rate in 1994. Although this showed improvement in overall
                    beneficiary satisfaction, the state also could use these survey results to
                    further explore remaining causes of dissatisfaction for one fourth of the

                    Arizona is issuing the results of its third statewide beneficiary survey in
                    spring 1997.23 The comprehensive survey included questions on the use of
                    health services, time elapsed in getting an appointment with a physician
                    and in waiting in the physician’s office, problems with access to specialty
                    care, and an overall rating of the plan and quality of care. The state
                    conducted telephone interviews, which allowed interviewers to verify that
                    they were speaking with the appropriate beneficiary and to ask
                    appropriate follow-up questions. Of the current 450,000 beneficiaries
                    enrolled in the program, over 14,000 were interviewed. The state intends
                    to use the survey results to provide feedback to plans.

                     Arizona’s first survey, administered in 1989 by an advocacy group, was a comprehensive look at all
                    health services used. The second, administered in 1995 by the Arizona State University Survey
                    Research Laboratory, was a focused survey on prenatal and maternity care.

                    Page 21                                GAO/HEHS-97-86 Medicaid Managed Care Accountability

Targeted Analyses of       To satisfy a federal requirement for operating a Medicaid managed care
Grievance Data Help        program, states must ensure that participating plans have an internal
Identify Areas That Need   grievance process through which beneficiaries can report their
                           dissatisfaction with plan providers, services, and benefits. Through these
Improvement                grievance processes, the states that we visited have been able to identify
                           and address a number of beneficiary concerns. Some states also look at
                           individual beneficiary grievances to identify specific and localized
                           problems. Other opportunities for analyzing grievance data, however,
                           exist. For example, monitoring the volume of grievances
                           filed—particularly across plans—could reveal previously unidentified
                           problems. Even a low number of grievances could indicate that
                           beneficiaries do not understand the grievance process.

                           Arizona requires beneficiaries to submit grievances directly to the plan.
                           Pennsylvania and Wisconsin have no such requirement but encourage this
                           practice; they also allow beneficiaries to submit grievances directly to the
                           state. Tennessee requires beneficiaries to submit grievances directly to the
                           state. After receiving a grievance, the plans must provide beneficiaries
                           with resolution and action in a reasonable time frame, ranging from 30 to
                           90 days. If a beneficiary is not satisfied with a plan’s decision, the
                           beneficiary can appeal to the state. Most grievances are resolved at the
                           plan level, however, according to officials in the states we visited. At a
                           minimum, the plans that directly receive grievances are required to
                           periodically report to the state the number and type of grievances they
                           received—such as denial of requests for out-of-plan services or difficulty
                           in locating a provider or in scheduling an appointment—and the status of
                           these cases. To probe beyond such aggregated information, which may
                           mask specific or localized problems, Arizona and Wisconsin informed us
                           that they review each grievance that plans receive.

                           In addition to the grievance process, each state has developed other means
                           for beneficiaries to voice their concerns. For example, Tennessee has a
                           toll-free information hotline to respond to beneficiary questions and
                           concerns. Tennessee also sponsors hotlines run by advocacy groups to
                           answer questions posed by beneficiaries with special needs, such as
                           persons with acquired immune deficiency syndrome (AIDS) or human
                           immunodeficiency virus (HIV), hemophiliacs, and persons with disabilities,
                           as well as the general Medicaid population. In addition to state-run
                           hotlines, Wisconsin requires each plan to have a beneficiary advocate who
                           serves as a liaison between the state, the plan, and the beneficiary. The
                           plan advocate identifies major areas of concern, such as lack of access to

                           Page 22                      GAO/HEHS-97-86 Medicaid Managed Care Accountability

                           mental health care, and works with the plan and the state to correct the
                           problem. This can obviate the need for beneficiaries to register grievances.

States’ Analyses of        Beneficiaries who disenroll from a managed care plan may do so because
Disenrollment Data Could   of dissatisfaction with the care they receive through the plan. Therefore,
Help Identify Problem      collecting and analyzing data on disenrollments can provide important
                           insights into plan performance. In a voluntary program, such as the one we
Areas                      visited in Pennsylvania, beneficiaries can switch plans or return to
                           fee-for-service care. In mandatory programs—such as those in Arizona,
                           Tennessee, and Wisconsin—beneficiaries can switch plans during open
                           seasons, which occur every 6 or 12 months.24 The states we visited,
                           however, generally do not conduct routine disenrollment studies.

                           According to officials in these states, they would conduct a disenrollment
                           study if a significant number of disenrollments were detected.25 They
                           believe that disenrollments—especially in low numbers—could signify a
                           number of occurrences other than beneficiary dissatisfaction or problems
                           with the plan. For example, in 1992, Arizona conducted a disenrollment
                           study and found that most of the beneficiaries who changed plans during
                           open enrollment—which was less than 5 percent of all beneficiaries in
                           managed care—did so for reasons other than plan dissatisfaction.
                           Specifically, the state found that some beneficiaries disenrolled because
                           they wanted to continue to see a provider who was no longer in their
                           plan’s network. Others switched to have all family members in one plan,
                           and still others wanted to enroll in a plan where provider location was
                           more convenient. Unless it sees a substantial change in enrollment rates
                           during an annual open season, Arizona has no plans to conduct another

                           More analyses of these disenrollment data—even if the rate at which
                           beneficiaries leave or switch plans is low—could reveal significant
                           problems. Disenrollments concentrated in an area or among people having
                           similar needs, such as people with AIDS, may indicate a potential problem
                           in a plan. Also, any plan having higher disenrollment rates than other plans
                           may merit scrutiny to determine the reason.

                             Under a demonstration waiver, states can obtain federal authorization to require beneficiaries to
                           remain enrolled in a specific health plan for 12 months. Under certain circumstances, such as
                           relocation, beneficiaries can change plans at other times.
                            In 1995, disenrollment rates in Arizona and Tennessee—the two demonstration waiver states where
                           enrollment only changes annually—were 4 and 6 percent, respectively.

                           Page 23                                 GAO/HEHS-97-86 Medicaid Managed Care Accountability

                     In view of the billions of dollars that are being paid prospectively to
Observations         managed care plans and the questions about the degree to which managed
                     care is meeting the health care needs of Medicaid beneficiaries, there is a
                     new demand for public accountability. The continuing trend toward
                     expansion of mandatory, capitated Medicaid managed care programs
                     requires that states have the ability to adequately oversee their contracts
                     with health plans and ensure that states get what they are paying for.
                     However, developing systems to hold plans accountable for ensuring that
                     Medicaid beneficiaries receive the care that they need has been a
                     challenge for states—especially since there are few benchmarks and
                     standards against which states can measure beneficiary access to network
                     providers and the appropriateness of the care provided.

                     The four states that we visited have made progress toward developing
                     accountability measures to ensure that beneficiaries have access to quality
                     care. As they expand or refine their Medicaid managed care programs,
                     these states continue to scale the steep learning curve to becoming an
                     effective purchaser of managed care. Yet, to instill greater public
                     confidence that managed care can effectively and efficiently meet the
                     health care needs of Medicaid beneficiaries, more effort is needed. For
                     example, to varying extents, these states could improve their
                     methodologies for collecting and analyzing data—especially encounter
                     data—on beneficiary care. They could better target their clinical studies,
                     medical record audits, beneficiary satisfaction surveys, and reviews of
                     grievance data on specific services and beneficiary groups—particularly
                     those with special needs or conditions whose numbers may be too small
                     to show up in broad-scale surveys or studies. The need for these
                     improvements takes on even greater importance for those states planning
                     to expand their managed care programs to other geographic areas or
                     populations, such as people with disabilities or other special needs.

                     We provided a draft of this report to the Administrator, HCFA. We also
Agency Comments      provided a draft to Medicaid officials in each of the four states we visited
and Our Evaluation   and to independent experts and researchers from the Center for Health
                     Care Strategies, Medical College of Virginia, and National Academy for
                     State Health Policy. Each provided technical or clarifying comments,
                     which we incorporated as appropriate.

                     In addition to technical comments, each state informed us of recent or
                     planned initiatives for ensuring plan and provider accountability in their
                     programs. For example, in February 1997, Pennsylvania implemented

                     Page 24                       GAO/HEHS-97-86 Medicaid Managed Care Accountability

HealthChoices—a mandatory managed care program projected to serve
more than a half million Medicaid beneficiaries in the state by 1997. With
this new program, Pennsylvania plans to improve those accountability
measures used under its voluntary program or adopt new accountability
measures, such as disenrollment studies. HCFA, Arizona, and Wisconsin
also noted that the draft did not discuss all accountability or quality
assurance measures that were in use at the time of our review and were
concerned that the account of state efforts was incomplete. In the final
report, we state that the focus of our work was on 10 key measures or
processes that states commonly use to assess plan accountability—not on
each state’s entire quality assurance process.

Arizona and Wisconsin also commented that the draft report did not
reflect in all respects their experience with managed care. For example,
they disagreed with our premise that since managed care plans receive
prospective capitated payments, there is a financial incentive to limit or
not provide needed services. HCFA echoed this comment. The two states
pointed out, for example, that the use of certain preventive services
increased when they moved to managed care. In response to their
comments, we revised the report to include examples of their experience
in the changing patterns of care under managed care. Nevertheless, in a
prepaid capitated system, the incentive remains to provide fewer services
in order to maximize short-term profits, as the HCFA Administrator recently
testified before the Senate Committee on Finance. Concern about plans
and providers having a short-term focus is exacerbated by the fact that
significant numbers of beneficiaries frequently gain and lose Medicaid
eligibility within a short period of time.

Arizona also made a number of comparisons between managed care and
fee-for-service and suggested that our report include such comparisons.
The purpose of our report was not to weigh the merits of one system
against those of another. Rather, we set out to identify potential problems
Medicaid beneficiaries may have in accessing services through managed
care and state efforts to address these access issues.

Several reviewers, including HCFA, agreed with our conclusion that certain
measures of physician capacity do not adequately ensure beneficiary
access to care. It was suggested that we report on other important criteria
states use to assess the adequacy of provider networks—specifically,
beneficiary travel and waiting times. The final report reflects additional
information on this issue.

Page 25                      GAO/HEHS-97-86 Medicaid Managed Care Accountability

Finally, the experts we consulted generally agreed with the accuracy and
comprehensiveness of our presentation of the issues. They also
emphasized that the transformation of existing state systems and
processes to an effective managed care program—especially one with
meaningful oversight mechanisms—requires great change accompanied by
continuous refinements and adaptations. Each state—with varying levels
of experience with managed care, resources, and in-house
expertise—understandably approaches this evolutionary process with
varying strategies and time frames. Even as states confront their many
challenges in implementing managed care, strong and consistent
accountability systems remain integral to their success in meeting the
needs of Medicaid beneficiaries. This perspective is more fully reflected in
the final report.

As arranged with your office, unless you announce its contents earlier, we
plan no further distribution of this report until 30 days after the date of
this letter. At that time, we will send copies of this report to the Secretary
of Health and Human Services, the Administrator of HCFA, state officials in
the four states we visited, appropriate congressional committees, and
other interested parties. We will also make copies available to others upon

Please contact me on (202) 512-7114 or Kathryn G. Allen on (202) 512-7059
if you or your staff have any questions. Major contributors to this report
are listed in appendix III.

Sincerely yours,

William J. Scanlon
Director, Health Financing and
  Systems Issues

Page 26                       GAO/HEHS-97-86 Medicaid Managed Care Accountability
Page 27   GAO/HEHS-97-86 Medicaid Managed Care Accountability

Letter                                                                                               1

Appendix I                                                                                          30

Scope and
Appendix II                                                                                         33

Federal and State
Oversight Roles of
Medicaid Managed
Appendix III                                                                                        36

Major Contributors to
This Report
Tables                  Table 1: Characteristics of Managed Care Programs Under                      6
                          Program and Demonstration Waivers
                        Table I.1: Selected Accountability Measures and Processes                   30
                        Table I.2: Description of the Four States’ Medicaid Managed Care            31
                          Programs That GAO Reviewed
                        Table II.1: Federal Regulations, Requirements, and Guidance for             35
                          Selected Accountability Measures and Processes Within States’
                          Medicaid Managed Care Programs


                        AFDC      Aid to Families With Dependent Children
                        AIDS      acquired immune deficiency syndrome
                        EPSDT     early and periodic screening, diagnosis, and treatment
                        HCFA      Health Care Financing Administration
                        HEDIS     Health Plan Employer Data Information Set
                        HHS       Department of Health and Human Services
                        HIV       human immunodeficiency virus
                        HMO       health maintenance organization
                        NCQA      National Committee on Quality Assurance
                        SSI       Supplemental Security Income

                        Page 28                     GAO/HEHS-97-86 Medicaid Managed Care Accountability
Page 29   GAO/HEHS-97-86 Medicaid Managed Care Accountability
Appendix I

Scope and Methodology

                                     To ensure quality in their Medicaid managed care programs, states use a
                                     number of quality assurance and oversight mechanisms. For example,
                                     some states require accreditation of plans by independent entities, such as
                                     the National Committee on Quality Assurance. Most states build into their
                                     contracts with managed care plans a variety of accountability measures
                                     and processes. Once states have contracted with plans, they monitor the
                                     plans to ensure that they comply with these requirements.

                                     Based on our review of federal requirements and guidelines and state
                                     contracts and supporting documents, we identified a number of
                                     accountability measures and processes that states commonly include in
                                     their contracts with managed care plans. States can rely on various
                                     controls to assess compliance with some of these measures—including
                                     plan licensing, physician credentialing, and fiscal solvency requirements.
                                     Some accountability measures are more difficult to develop controls for
                                     and, therefore, are more difficult to monitor.

                                     To assess state efforts to hold managed care plans accountable for
                                     meeting Medicaid program goals and providing beneficiaries enrolled in
                                     capitated managed care plans the care they need, we narrowed the focus
                                     of our study to three areas: ensuring an adequate provider network,
                                     tracking the medical care provided to beneficiaries, and assessing
                                     beneficiary satisfaction. From among numerous quality assurance
                                     measures and processes, we identified 10 that states commonly use to
                                     monitor plan compliance in these accountability areas. Health Care
                                     Financing Administration (HCFA) officials and experts we contacted agreed
                                     that these measures and processes are essential to ensuring that plans
                                     meet the terms of their contracts. (See table I.1.)

Table I.1: Selected Accountability
Measures and Processes               Accountability area                      Measure or process
                                     Adequacy of provider network             —Patient-to-primary-care-physician ratio
                                                                              —Access to specialists
                                                                              —Travel distances and waiting times
                                     Adequacy of medical care                 —Utilization statistics
                                                                              —Encounter data
                                                                              —Clinical studies
                                                                              —Medical record audits
                                     Beneficiary satisfaction                 —Satisfaction surveys
                                                                              —Grievance procedures
                                                                              —Disenrollment data

                                     Page 30                        GAO/HEHS-97-86 Medicaid Managed Care Accountability
                                     Appendix I
                                     Scope and Methodology

                                     To examine how these accountability measures and processes were
                                     implemented, we visited four states—Arizona, Pennsylvania, Tennessee,
                                     and Wisconsin—and reviewed their systems for ensuring access to quality
                                     care in their managed care programs. To select these states, we first
                                     identified a universe of 14 states that, as of June 1994, had more than
                                     100,000 beneficiaries enrolled in capitated Medicaid managed care
                                     programs. We chose that date because we believed that, even for states
                                     just entering the managed care market, they would have had at least 2
                                     years at the time we began our review to develop and implement their
                                     accountability systems. We then judgmentally selected four states that
                                     would provide a mix of experiences for a variety of factors. These factors
                                     included type of program (Medicaid demonstration waiver, program
                                     waiver, or voluntary nonwaiver), years of managed care experience, size
                                     of program, and geographic diversity. (See table I.2 for a brief description
                                     of each state’s Medicaid managed care program.)

Table I.2: Description of the Four
States’ Medicaid Managed Care        State                      Program name and description
Programs That GAO Reviewed           Arizona                    Arizona Health Care Cost Containment System is a mandatory
                                                                statewide demonstration program, operational since 1982, with
                                                                Aid to Families With Dependent Children (AFDC) and
                                                                Supplemental Security Income (SSI) enrollment of over 450,000
                                                                in 14 participating health plans. Arizona did not have a
                                                                Medicaid program before the waiver.
                                     Pennsylvania               The state’s voluntary nonwaiver program has been operational
                                                                since 1972, with enrollment of about 435,000 AFDC and SSI
                                                                beneficiaries in 18 counties in 11 health maintenance
                                                                organizations (HMO) as of June 1996. (The scope of our work
                                                                focused on the state’s voluntary program.) The state also had a
                                                                mandatory program, Health Pass, in certain areas of
                                                                Philadelphia from 1986 to January 31, 1997. On February 1,
                                                                1997, a new program waiver, HealthChoices, began in 5
                                                                Philadelphia-area counties; the voluntary program will continue
                                                                in 13 counties. Within the next 2 years, the state plans to apply
                                                                for a statewide demonstration waiver.
                                     Tennessee                  TennCare is a mandatory, statewide demonstration waiver
                                                                program, operational since 1994, with enrollment of 849,000
                                                                AFDC and SSI Medicaid beneficiaries and over 334,000
                                                                uninsured persons in 12 participating HMOs at the time of our
                                     Wisconsin                  The state’s mandatory program waiver for its AFDC population
                                                                has been operational since 1984 in 5 counties, with enrollment
                                                                of 138,000 in 11 participating HMOs. A modified waiver was
                                                                approved October 1, 1996, to expand mandatory enrollment to
                                                                68 of the state’s 72 counties.
                                      As of January 1997, Tennessee began to contract solely with HMOs. Before this, Tennessee also
                                     contracted with other health plans, such as preferred provider organizations.

                                     Page 31                              GAO/HEHS-97-86 Medicaid Managed Care Accountability
Appendix I
Scope and Methodology

For each state, we reviewed the contractual and other requirements the
states have established with plans for these selected accountability
indicators. We also interviewed officials from the state Medicaid, health,
and insurance agencies to discuss specific contract requirements with
managed care plans, state oversight activities and state actions available
or taken as a result of monitoring, and state plans for changes in and
expansions to their managed care programs.

To identify federal requirements and guidance available to states to
oversee their Medicaid managed care programs, we interviewed officials
from HCFA’s central office and Chicago and Philadelphia regional offices,
the Department of Health and Human Services’ (HHS) Office of Inspector
General, and state-level advocacy groups. We also interviewed experts
with The George Washington University Center for Health Policy
Research, the National Association of Managed Care Regulators, the
National Committee on Quality Assurance, and the National Association of
Insurance Commissioners. Finally, we consulted with the following
experts and researchers in the course of our work: Jane Horvath, National
Academy for State Health Policy, Washington, D.C.; Robert Hurley,
Medical College of Virginia, Richmond, Virginia; and Stephen Somers and
Karen Brodsky, Center for Health Strategies, Princeton, New Jersey.

We performed our work between October 1995 and March 1997 in
accordance with generally accepted government auditing standards.

Page 32                      GAO/HEHS-97-86 Medicaid Managed Care Accountability
Appendix II

Federal and State Oversight Roles of
Medicaid Managed Care

               By virtue of the mandated federal-state Medicaid partnership, states must
               meet certain federal requirements when developing their managed care
               programs. States may implement managed care programs under one of
               three options. The first option is a nonwaiver program that allows states to
               contract with managed care plans to deliver health care services to
               Medicaid beneficiaries who voluntarily participate. Certain conditions
               must be met, such as allowing beneficiaries the freedom to stay in a
               traditional fee-for-service system or enroll with a managed care plan from
               which they can disenroll at any time. Plans also must adhere to a “75-25
               rule,” which prohibits participating managed care plans from enrolling
               75 percent or more Medicaid and Medicare beneficiaries. The managed
               care program in Pennsylvania that we reviewed is a program of this type.

               The other two options for managed care—program and demonstration
               waivers—allow HCFA to waive certain provisions of the Medicaid statute,
               including beneficiaries’ freedom to choose from among participating
               providers. Under a program waiver, enrollment can be mandatory, but
               states are still required to ensure that plan enrollment of Medicaid and
               Medicare beneficiaries does not reach 75 percent and, in most cases, plans
               cannot lock in enrollment for more than 1 month. Wisconsin operates its
               mandatory managed care program under a program waiver. Under a
               demonstration waiver, states may be given permission to contract with
               plans that do not comply with the 75-25 rule and to exclusively enroll
               Medicaid beneficiaries. They also have been permitted to lock in
               beneficiary enrollment for up to 12 months. The managed care programs
               in Arizona and Tennessee are statewide mandatory programs operated
               under demonstration waivers. In addition, some states, such as Tennessee,
               have used demonstration waivers to expand eligibility to include
               non-Medicaid-eligible people who were formerly uninsured.

               Certain federal regulations, requirements, and guidance influence the
               development of state managed care programs and state monitoring of
               managed care plan performance. The extent of these requirements often
               depends on waiver type and can vary by state. In general, HCFA monitors
               the planning for and implementation of demonstration waivers more than
               for program waivers. The initial terms and conditions of approval for
               demonstration waivers are more detailed than for program waivers and
               are more specific in the content and timing of reporting requirements. For
               example, HCFA’s terms and conditions for a demonstration waiver have
               required that states specify in their contracts with plans a specific
               patient-to-primary-care-physician ratio that plans must meet. HCFA also
               requires that most states establish travel-related requirements for plan

               Page 33                      GAO/HEHS-97-86 Medicaid Managed Care Accountability
Appendix II
Federal and State Oversight Roles of
Medicaid Managed Care

networks, such as maximum times and distances beneficiaries must travel
to reach their primary care physician. In contrast, under a program waiver,
HCFA suggests that states establish a patient-to-primary-care-physician
ratio or that providers be located near beneficiaries. Under demonstration
waivers, HCFA also requires states to provide an overall quality assurance
monitoring plan and, as part of that plan, requires states to specify a
minimum data set of encounter data. This minimum data set must receive
prior HCFA approval. Program waivers, in contrast, have guidelines on
quality assurance programs but not as many specific requirements. For
example, HCFA does not require states to develop encounter data under
program waivers.

Table II.1 summarizes federal requirements and guidance by selected
accountability measures and processes.

Page 34                            GAO/HEHS-97-86 Medicaid Managed Care Accountability
                                       Appendix II
                                       Federal and State Oversight Roles of
                                       Medicaid Managed Care

Table II.1: Federal Regulations,
Requirements, and Guidance for                                                                          Additional HCFA
Selected Accountability Measures and   Accountability measure or                                        requirements and
Processes Within States’ Medicaid      process                          Federal regulation              guidancea
Managed Care Programs                  Patient-to-primary-care-         Plans must ensure that          For demonstration waivers,
                                       physician ratio                  beneficiaries in managed        states must meet maximum
                                                                        care have the same access       2,500 to 1 ratio. For
                                                                        to providers and services       program waivers, HCFA
                                                                        as beneficiaries in             suggests ratios be
                                                                        fee-for-service plans.          evaluated.
                                                                        (42 C.F.R. 434.20(c)(2))
                                       Availability of specialists      Services are to be the same     HCFA suggests that states
                                                                        as those provided under         have a system for
                                                                        fee-for-service plans. (42      authorizing and
                                                                        C.F.R. 434.20(c)(2))            coordinating specialty
                                       Utilization statistics and       Requires plans to maintain      HCFA requires all states
                                       encounter data                   appropriate record systems      with demonstration waivers
                                                                        for services provided to        to collect 100% encounter
                                                                        enrollees. (42 C.F.R.           data and requires all states
                                                                        436.6(a)(7))                    to quarterly report
                                                                                                        aggregated statistics on
                                                                                                        selected services.
                                       Clinical studies                 Plans must have an internal     HCFA suggests states
                                                                        quality assurance system.       conduct quality-of-care
                                                                        (42 C.F.R. 434.34)              studies.
                                       Medical record audits            States must annually        HCFA requires states to
                                                                        conduct an audit of medical comply with federal
                                                                        records. (42 C.F.R. 434.53) regulation for medical
                                                                                                    record audits.
                                       Beneficiary satisfaction         Plans must have an internal     For demonstration waivers,
                                       surveys                          quality assurance system.       a state may be required to
                                                                        (42 C.F.R. 434.34)              conduct a survey as HCFA
                                                                                                        prescribes. For program
                                                                                                        waivers, HCFA suggests
                                                                                                        plans conduct periodic
                                       Grievance procedures             Plans must have an internal     HCFA requires states to
                                                                        grievance procedure             report grievance data
                                                                        approved by the state that      quarterly.
                                                                        provides for prompt
                                                                        resolution. (42 C.F.R.
                                       Disenrollment studies            States must monitor           HCFA suggests states
                                                                        enrollment and termination analyze enrollment statistics.
                                                                        practices. (42 C.F.R. 434.63)
                                        For demonstration waivers, additional requirements and guidance are in the terms and
                                       conditions that HCFA develops when it approves a state’s waiver request. These terms and
                                       conditions can vary by state. For risk-based managed care plans, such as program waivers,
                                       HCFA’s guidance is included in Monitoring Risk-Based Managed Care Plans: A Guide for State
                                       Medicaid Agencies, report prepared under contract for the Medicaid Bureau/HCFA by the
                                       Medicaid Management Institute of the American Public Welfare Association (Washington, D.C.:
                                       HHS, July 1993).

                                       Page 35                              GAO/HEHS-97-86 Medicaid Managed Care Accountability
Appendix III

Major Contributors to This Report

               Kathryn G. Allen, Acting Associate Director, (202) 512-7059
               Karyn L. Papineau, Evaluator-in-Charge, (202) 512-7155
               Karin A. Lennon, Senior Evaluator
               Karen M. Sloan, Communications Analyst
               Betty J. Kirksey, Evaluator
               Daniel S. Meyer, Senior Evaluator

(101385)       Page 36                      GAO/HEHS-97-86 Medicaid Managed Care Accountability
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