oversight

Medicaid Managed Care: Delays and Difficulties in Implementing California's New Mandatory Program

Published by the Government Accountability Office on 1997-10-01.

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

                United States General Accounting Office

GAO             Report to the Ranking Minority Member,
                Committee on Government Reform and
                Oversight, House of Representatives


October 1997
                MEDICAID MANAGED
                CARE
                Delays and Difficulties
                in Implementing
                California’s New
                Mandatory Program




GAO/HEHS-98-2
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Health, Education, and
      Human Services Division

      B-276078

      October 1, 1997

      The Honorable Henry A. Waxman
      Ranking Minority Member
      Committee on Government Reform
        and Oversight
      House of Representatives

      Dear Mr. Waxman:

      California’s Medicaid program, Medi-Cal, served 5.2 million
      beneficiaries—almost one-seventh of Medicaid beneficiaries
      nationwide—at a cost of nearly $18 billion in federal, state, and local
      Medicaid funds in fiscal year 1996. Over the past 2 decades, Medi-Cal has
      increasingly relied on managed care delivery systems with the aim of
      improving beneficiary access to quality care while reducing the rate of
      program cost growth. In 1992, California began planning a major
      expansion of its Medi-Cal managed care program—one that would
      eventually require more than 2.2 million beneficiaries in 12 counties to
      enroll in one of two managed care plans participating in each county.

      In a 1995 report, we expressed concern about California’s ability to
      successfully carry out such an expansion because of several weaknesses
      that we identified in the Medi-Cal managed care program, including the
      state’s potential inability to effectively monitor its contracts with managed
      care plans and to ensure that the services that plans were contracted to
      provide were actually provided.1 Now, nearly 5 years after planning began,
      the state has repeatedly delayed its completion date for full
      implementation of the expansion.

      In light of these delays and the magnitude of the state’s Medicaid program,
      you asked us to follow up on our earlier report and (1) determine the
      implementation status of California’s managed care expansion, including
      identifying the primary causes of delays; (2) assess the degree to which
      state efforts to educate beneficiaries about their managed care options and
      enroll them in managed care have encouraged beneficiaries to choose a
      plan; (3) evaluate the management of the state’s education and enrollment
      process for the new program, including state and federal oversight of
      enrollment brokers that the state contracted with to carry out these
      functions; and (4) make an initial assessment of the impact of the managed


      1
       Medicaid Managed Care: More Competition and Oversight Would Improve California’s Expansion
      Plan (GAO/HEHS-95-87, Apr. 28, 1995).



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                   care expansion on current safety-net providers, such as community health
                   centers, that serve low-income beneficiaries.

                   To conduct our work, we interviewed officials from California’s
                   Department of Health Services (DHS); DHS’ former and current enrollment
                   brokers; selected managed care plans and advocacy groups; and the
                   Department of Health and Human Services’ Health Care Financing
                   Administration (HCFA), which oversees the Medicaid program. We also
                   reviewed relevant state statutes and regulations and DHS policies and
                   procedures on the education and enrollment process, as well as the
                   enrollment broker contracts. For more detailed information on our scope
                   and methodology, see the appendix.


                   Despite California’s extensive planning and managed care experience,
Results in Brief   implementation of its 12-county expansion program is more than 2 years
                   behind its initial schedule and is still incomplete. California originally had
                   planned to implement the program simultaneously in all affected counties
                   by March 1995. However, as a number of unforeseen difficulties arose,
                   such as in contracting with and developing managed care plans, the state
                   began to stagger implementation as it became clear that some counties
                   would be ready before others. Still, as of July 1997, the program had been
                   fully implemented in only seven counties. The most recent schedule
                   estimated complete implementation in all 12 counties by December 1997,
                   at the earliest.

                   The state’s efforts to encourage beneficiaries to choose a health plan have
                   been undermined by problems in the process for educating and enrolling
                   beneficiaries. According to HCFA, beneficiary and provider advocates, and
                   managed care plans, a number of problems contributed to confusion for
                   many beneficiaries, including incorrect or unclear information about the
                   mandatory Medi-Cal program and participating plans as well as erroneous
                   assignments of beneficiaries to plans. Officials from one plan said that
                   beneficiaries did not understand the changes in their health care coverage,
                   and some beneficiaries thought that they were losing Medi-Cal benefits
                   altogether. Available data show that, on average, almost half of affected
                   beneficiaries have not actively chosen their own plan but instead have
                   been automatically assigned to one by the state.

                   Other problems were evident in DHS’ management of the program, such as
                   insufficient performance standards for the enrollment brokers that DHS
                   had contracted with to provide information to beneficiaries about their



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managed care options and enroll them in the Medi-Cal program. The
enrollment brokers also believed that difficult operating conditions—such
as continual changes in state program and policy directives—contributed
to the implementation problems. Poor internal communication and weak
ties with advocacy and community-based organizations further
exacerbated the difficulties DHS encountered in implementing its
mandatory managed care program.

California has taken a number of actions to improve the implementation
and administration of its mandatory expansion program. For example, DHS
has begun translating into a number of different languages and redesigning
the enrollment materials to make them more comprehensible and has
instituted on-site monitoring of the enrollment broker’s processes for
enrolling beneficiaries. DHS also has taken steps to work more closely with
community-based organizations to improve outreach efforts. However,
these actions were taken too late to benefit the many beneficiaries who
have already enrolled in the seven counties where full program
implementation has been completed. And problems persist—some serious
enough to have prompted HCFA to delay full implementation of the
program in several counties earlier this year. HCFA is in the process of
developing federal guidelines on designing and implementing an education
and enrollment program. But these guidelines are not expected to be
available before October 1997—too late to help influence design and early
implementation issues for California’s program.

Despite the fact that the state’s 12-county expansion program was
designed to help ensure that federally qualified health centers, community
and rural health centers, and other safety-net providers participate in the
provider networks, some safety-net providers have reported difficulty
maintaining their patient base. Though the new mandatory program
provides some assurances that health plans assign beneficiaries to
safety-net providers, it does not guarantee these providers any specified
level of enrollments. Many beneficiaries who have chosen a primary care
physician have opted to select a provider other than a participating
safety-net provider.




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             Medi-Cal was implemented in 1965, the year the Medicaid statute was
Background   enacted.2 Administered by the California DHS,3 in fiscal year 1996, Medi-Cal
             provided a wide range of services to approximately 5.2 million low-income
             individuals at an estimated cost of about $17.7 billion—about 11 percent of
             national Medicaid expenditures. Medi-Cal managed care, which is
             composed of several programs, including the 12-county expansion
             program, is expected to serve over 3 million Medi-Cal beneficiaries once
             fully implemented.

             Since 1968, the state has contracted with prepaid health plans
             (PHP)—California’s equivalent of the federal definition of “health
             maintenance organizations”—to provide, on a capitated basis, preventive
             and acute-care Medicaid services, as well as case management. In the
             1980s, the state established three additional managed care programs:
             Primary Care Case Management (PCCM), County Organized Health System
             (COHS), and Geographic Managed Care (GMC).4 In early 1993, the state
             completed conceptual development of its most ambitious program to date:
             the “two-plan model,” which requires more than 2.2 million Medi-Cal
             beneficiaries to enroll with one of two health plans participating in each of
             12 counties.5




             2
              Established under title XIX of the Social Security Act, Medicaid finances health care for about
             37 million low-income families, and aged, blind, and disabled individuals nationwide. Jointly funded by
             the federal government and the states, Medicaid is administered by states within broad federal
             guidance.
             3
              DHS determines policy, establishes fiscal and management controls, contracts with managed care
             plans, and reviews program activities.
             4
              PCCMs, operated primarily by physicians and physician groups, contract with the state to provide
             certain outpatient health care services for a capitated fee. Services not capitated are available to
             beneficiaries on a fee-for-service basis. COHSs—which operate in San Mateo, Santa Barbara, Solano,
             Orange, and Santa Cruz counties—are local entities that contract with DHS to administer a capitated,
             comprehensive, case-managed health care delivery system. Under the GMC model—currently
             operating in Sacramento County and planned for San Diego County—the state contracts directly with
             several managed care plans to provide covered services to beneficiaries on a capitated basis. PCCM
             enrollment is voluntary; COHS enrollment is mandatory for all Medicaid-eligible populations; and GMC
             enrollment is mandatory for Aid to Families With Dependent Children (AFDC) and AFDC-related
             beneficiaries. As of April 1997, about 1.2 million beneficiaries were enrolled in the PHP, PCCM, COHS,
             and GMC programs.
             5
              In January 1996, HCFA approved California’s request under section 1915(b) of the Social Security Act
             to waive three sections of the act. Section 1902(a), which requires a Medicaid program to be available
             throughout the state, was waived, enabling the state to implement the two-plan model in selected
             counties only. Section 1902(a)(10)(B), comparability of services, was waived, enabling the state to
             offer additional benefits not available to Medi-Cal beneficiaries not enrolled in the two-plan model.
             And section 1902(a)(23), freedom of choice, was waived, enabling the state to restrict beneficiary
             choice of providers under the two-plan model and to require certain beneficiaries to enroll. The 2-year,
             renewable waiver expires January 22, 1998.



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The Two-Plan Model   California’s managed care expansion program—often referred to as the
                     two-plan model—was designed to ensure that each of the two managed
                     care plans operating in each county could achieve an enrollment level
                     sufficient to spread risk and that beneficiaries could obtain care from
                     health plans that also served privately insured individuals. In addition, the
                     model was developed to make the most of limited state resources by
                     restricting the number of plans the state would need to monitor.

                     Selection of the 12 counties to use the two-plan model was made on the
                     basis of two criteria.6 First, the counties must have had a minimum of
                     45,000 Medicaid beneficiaries eligible to participate in managed care,7 and,
                     second, the counties must have had an interest in the program or a
                     significant managed care presence already established in the county. (See
                     table 1 for the number of eligibles and current enrollees by county and
                     plan.)




                     6
                      The 12 counties are Alameda, Contra Costa, Fresno, Kern, Los Angeles, Riverside, San Bernardino,
                     San Francisco, San Joaquin, Santa Clara, Stanislaus, and Tulare.
                     7
                      Former AFDC and AFDC-related beneficiaries are required to enroll in the two-plan model.
                     Supplemental Security Income (SSI) and SSI-related beneficiaries may enroll in managed care plans on
                     a voluntary basis. California will continue to use this eligibility criteria until the Governor and state
                     legislature agree on an approach to determining eligibility under the new Temporary Assistance for
                     Needy Families (TANF) program, which replaced AFDC.



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Table 1: Medi-Cal Eligibles and Enrollees by County and Plan
                                                                                            Health plans
                        Eligibles as of April 1997 Enrollees as                                                               Dates of initial
Two-plan counties     Mandatory       Nonmandatory of July 1997                Names of plans                                     operation
Alameda                  116,934                61,105          73,535         Alameda Alliance for Health                             1/1/96
                                                                25,440         Blue Cross of California                                7/1/96
Contra Costa              55,431                27,734          42,706         Contra Costa Health Plan                                2/1/97
                                                                 3,392         Foundation Health Systems                               3/1/97
Fresno                   145,558                44,352        105,015          Blue Cross of California                               11/1/96
                                                               17,429          Foundation Health Systems                               1/1/97
Kern                     102,639                30,606          53,212         Kern Family Health Care                                 7/1/96
                                                                23,195         Blue Cross of California                                9/1/96
Los Angeles            1,119,120               435,208        191,964          LA Care                                                 4/1/97
                                                              256,812          Foundation Health Systems                               7/1/97
Riverside and San        368,588               106,249        130,624          Inland Empire Health Plan                              9/1/96
Bernardino                                                        N/A          Molina Medical Centers                               Unknown
San Francisco             44,155                58,408          23,079         San Francisco Health Plan                               1/1/97
                                                                15,585         Blue Cross of California                                7/1/96
San Joaquin               84,383                29,427          59,199         Health Plan of San Joaquin                              2/1/96
                                                                11,329         OMNI                                                    2/1/97
Santa Clara               97,815                51,029          42,917         Santa Clara Health                                      2/1/97
                                                                34,466         Authority Blue Cross of California                     10/1/96
Stanislaus                63,901                21,410             N/A         Blue Cross of California (as local                     10/1/97
                                                                               initiative)
                                                                 9,145         OMNI                                                    2/1/97
Tulare                    71,608                19,945             N/A         MediCo                                       4th quarter 1997
                                                                   N/A         Foundation Health Systems                    4th quarter 1997
Total                  2,270,132               885,473      1,119,044
                                           Note: N/A = not applicable.



                                           In each county, beneficiaries are required to enroll in either the “local
                                           initiative”—a publicly sponsored health plan cooperatively developed by
                                           local government, clinics, hospitals, and other providers—or the
                                           commercial plan, under contract in a beneficiary’s county of residence.8
                                           The local initiative concept was developed to support health care
                                           safety-nets—those providers, such as community health centers and
                                           federally qualified health centers, that provide health care services to the
                                           indigent. Minimum enrollment levels were set for both the commercial and
                                           local initiative plans to ensure their financial viability. A maximum
                                           enrollment level was also set for each commercial plan to further protect
                                           local initiatives and their subcontracted safety-net providers. The state

                                           8
                                            Fresno County did not develop a local initiative, so Fresno has two commercial plans.



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                        contracted with the local initiatives on a sole-source basis, while the
                        commercial plan contracts were awarded on a competitive basis.

                        The situation in Los Angeles County, however, is unique. While California
                        contracted with a local initiative and a commercial plan in Los Angeles
                        County, the county has, in essence, 10 plans because the local initiative
                        plan subcontracted with 7 plans, and the commercial plan subcontracted
                        with 2 plans.9 Beneficiaries can choose a primary care physician from any
                        one of the 10 plans.


Health Care Options     Medi-Cal beneficiaries required to enroll in the two-plan expansion
Program Educates and    program are informed about managed care and their choices of health care
Enrolls Beneficiaries   plans through DHS’ Health Care Options (HCO) program. HCO also enrolls
                        and disenrolls beneficiaries in managed care plans.10 The state contracts
                        with an enrollment broker to conduct HCO program activities.

                        Beneficiaries are informed about the mandatory expansion program and
                        their available choices primarily through an enrollment packet that they
                        receive through the mail. The enrollment packet includes information on
                        managed care, how to join a health plan, available plans and participating
                        providers, phone numbers to call for assistance, and an enrollment form.
                        The packet also includes the first of three standard notices that inform
                        beneficiaries of the 30-day time frame in which they have to choose a plan
                        and the plan to which they will be automatically assigned if they do not
                        return an enrollment form.11

                        Beneficiaries also can learn about the two-plan model and their plan
                        options at HCO presentations, which are often held daily at county social
                        service offices. At these face-to-face presentations, HCO counselors provide
                        information on managed care, plans available in the county, how to fill out

                        9
                         The plan partners in the local initiative—LA Care—are Blue Cross, Care 1st, LA Community Health
                        Plan, Maxicare, United Health Plan, Tower, and Kaiser Foundation Health Plan. The plan partners in
                        the commercial plan—Foundation Health Systems—are Universal Care and Molina Medical Centers.
                        Unlike Foundation Health Systems, LA Care does not directly provide health care services.
                        10
                          DHS’ Medi-Cal Managed Care and Payment Systems divisions share responsibility for the HCO
                        program. The Medi-Cal Managed Care Division makes all policy decisions regarding the program, while
                        the Payment Systems Division implements and manages the HCO program and monitors HCO
                        activities, which are contracted to an enrollment broker. The Payment Systems Division assumed this
                        responsibility from the Medi-Cal Managed Care Division in March 1997.
                        11
                          The state assigns beneficiaries according to an established methodology, which generally stipulates
                        that once the local initiative reaches a minimum number of enrollments, the state would assign every
                        other beneficiary who did not choose a plan to the commercial plan. Beneficiaries who were already
                        enrolled in one of the plans operating under the two-plan model are not re-assigned by the state.
                        Beneficiaries have the option to change plans at any time.



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                       the enrollment form, beneficiary rights and responsibilities, how to resolve
                       problems with plans, and who to contact for more information.
                       Enrollment materials are available at the presentations. Beneficiaries also
                       can contact HCO’s toll-free call center to obtain enrollment packets and to
                       have enrollment-related questions or concerns addressed.

                       Since 1984, DHS has contracted with an enrollment broker to provide
                       certain education and enrollment services.12 Initially, enrollment broker
                       responsibilities consisted primarily of conducting HCO presentations in
                       selected counties and helping beneficiaries complete enrollment forms.
                       With the expansion of Medi-Cal’s mandatory program, broker
                       responsibilities increased. In addition to distributing enrollment packets
                       and providing HCO presentations, the broker was tasked with processing
                       beneficiary enrollments and disenrollments in 18 counties with managed
                       care and operating a call center to assist beneficiaries.


                       Full implementation of Medi-Cal’s mandatory expansion program is more
Implementation of      than 2 years behind its initial implementation schedule. Originally, local
Expansion Program Is   initiatives and commercial plans in each of the 12 affected counties were
More Than 2 Years      to become simultaneously operational in March 1995. However, repeated
                       delays in the awarding of contracts and the development of plans made it
Behind Initial         clear that some counties would be ready for implementation before others.
Schedule               Implementation therefore took place county by county. As of July 1997,
                       plans in 7 of the 12 affected counties had been fully implemented, and full
                       implementation in all counties was scheduled for the end of 1997 at the
                       earliest. Figure 1 shows the 12 counties and their stages of
                       implementation. As of July 1997, over 1.1 million beneficiaries were
                       enrolled in the 12-county expansion program.




                       12
                        Between October 1991 and December 1996, Medi-Cal contracted with an Oregon-based enrollment
                       broker, Benova, formerly HealthChoice, Inc. In 1995, the enrollment broker contract was re-bid and
                       awarded to Virginia-based Maximus, which began operations January 1, 1997.



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Figure 1: 12 Counties Participating in
the Expansion Program and Their
Stages of Implementation as of
July 1997




                                         Overly optimistic time frames and unanticipated difficulties resulted in a
                                         number of delays throughout the state’s planning and awarding of
                                         managed care contracts. Developing a Request for Applications for
                                         commercial plans and a Detailed Design Application for local initiatives
                                         took several months longer than expected. Once applications were
                                         submitted, the state did not at first meet its 90-day turnaround goal for
                                         approving submissions. Some plans protested the contract awards, further




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delaying the contracting process 6 to 8 months. In addition, the state
unexpectedly had to obtain—at the request of the developers of the local
initiatives—additional state legislative authority, such as exemptions from
regulations on public meetings that would enable the local initiatives to
hold closed-door sessions to negotiate rates with providers.

There also were delays in establishing local initiatives and commercial
plans. Some local initiatives took 3 years to develop, instead of the
expected 2 years. Unlike commercial plans, local initiatives had to develop
health care plans from scratch and, as public entities, they had to interact
with community stakeholders. In Fresno County, consensus on whether or
not to develop a local initiative could not be reached. As a result, no local
initiative was developed, and the state awarded a second commercial
contract. The local government in Stanislaus County also had difficulty
establishing a local initiative. Consequently, the local initiative contract
was awarded to a commercial plan, which will operate in informal
partnership with the county. It also took longer than expected for some
commercial plans to begin operating under the two-plan model. In addition
to obtaining approval of material modifications to their operating licenses,
commercial plans had to develop provider networks in counties where the
plans were not already operating.

Even after implementation of the expansion program began—with
Alameda County in January 1996—the state and HCFA took actions that
further delayed implementation. For example, DHS delayed full
implementation of the program in Fresno, Contra Costa, San Joaquin, and
Santa Clara counties to allow the new enrollment broker to fully test its
automated systems and capacity to handle all of the enrollment and
disenrollment functions. Because of concerns about the education and
enrollment process in Santa Clara, San Joaquin, and Los Angeles counties,
HCFA temporarily prohibited the automatic assignment of beneficiaries
who did not choose a plan and required DHS instead to maintain them in
the fee-for-service system. As a result, the pace of enrollment was slowed
in these counties, even though plans were allowed to receive voluntary
enrollments.

As of July 1997, the expansion program had been fully implemented in
seven counties—Alameda, Kern, Fresno, San Francisco, Santa Clara, San
Joaquin, and Contra Costa—with beneficiaries required to enroll in either
the local initiative or the commercial plan. In four of the remaining
counties—San Bernardino, Riverside, Stanislaus, and Los Angeles—the
program was partially implemented, with only one plan operating in San



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                      Bernardino, Riverside, and Stanislaus counties. Although Los Angeles
                      County had both plans operating, the program was in effect only partially
                      implemented because HCFA had delayed automatic assignment and the
                      state had prohibited additional enrollment in the commercial plan until
                      some remaining contract issues were resolved. In Tulare County, neither
                      plan was operating.

                      The December 1997 target date for full implementation may not be met
                      since some of the plans in counties where the program has yet to be fully
                      implemented have had difficulty developing and complying with
                      regulations. For example, although both plans in Tulare County were
                      tentatively scheduled to become operational by the end of the year, the
                      plans were having difficulty organizing provider networks; implementation
                      target dates have already been moved from spring 1997 to the end of the
                      year. In San Bernardino and Riverside counties, the local initiative began
                      operating in September 1996, but the commercial plan’s operation was
                      delayed because it had not complied with the federal Medicaid
                      requirement that effectively prohibited plan enrollment of Medicaid
                      beneficiaries from reaching 75 percent.13 This requirement was repealed in
                      August 1997; however, because of concerns the state has with other
                      aspects of the plan’s operations, it is still not clear when this plan will
                      begin operating under the two-plan model.


                      Despite California’s efforts to encourage beneficiaries to choose a health
Education and         plan, many beneficiaries have been assigned to a plan by the state.
Enrollment Problems   Long-standing problems with California’s HCO program, which provides
Contributed to Low    beneficiaries with information about their managed care options and
                      enrolls them in a plan, may have contributed to this and to widespread
Beneficiary Choice    confusion among beneficiaries. While many agree that the HCO program is
Rate and Confusion    running smoother now than in the past, deficiencies persist—some serious
                      enough to have prompted HCFA to delay full implementation in several
                      counties earlier this year.




                      13
                        Specifically, the commercial plan was in violation of Medicaid’s “75/25” restriction, which provides
                      that a plan’s Medicaid (and Medicare, if any) enrollment must be less than 75 percent of its total
                      enrollment. Under its current PHP contract, the commercial plan that serves both San Bernardino and
                      Riverside counties had not complied with the requirement. The Balanced Budget Act of 1997, section
                      4703, repealed the requirement.



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State’s Education Process   To encourage Medi-Cal beneficiaries to choose their own managed care
Has Not Resulted in         plan, California’s HCO program provides them information on managed
Beneficiary Selection of    care and their available health plan options. Plans, advocates, and
                            researchers agree that beneficiaries who are well informed about managed
Plan                        care—and how it differs from fee-for-service—are more likely to choose a
                            health plan, and those who choose a health plan are more likely to stay
                            with that plan. Experts also believe that well-informed beneficiaries are
                            more likely to use health services appropriately, such as relying more on a
                            primary care physician and less on inappropriate use of emergency room
                            services.

                            Despite its efforts, the state estimated in January 1997 that the majority of
                            enrollments had been the result of automatic assignments by the state. The
                            automatic assignment rate for Alameda County at the beginning of
                            implementation was estimated as high as 80 percent. Although automatic
                            assignment rates have declined—the automatic assignment rate for
                            two-plan counties averaged 45 percent from March to June 1997—the rates
                            ranged widely from county to county. For example, the automatic
                            assignment rate in Contra Costa County in April 1997 was 72 percent,
                            while in Santa Clara County it was 32 percent.14 Unlike other states,
                            California has not established a numeric goal for automatic assignments.
                            Regardless, California’s automatic assignment rates have varied enough
                            across counties to indicate potential problems with HCO’s program.

                            HCFA, advocates, and managed care plans have expressed concerns about
                            the adequacy of the state’s efforts to inform beneficiaries about their
                            Medi-Cal managed care options. According to these groups, information in
                            the enrollment packet was complex, lengthy, and written at too high a
                            grade level.15 In some cases, the information was incorrect. For example,
                            enrollment packets sent to some beneficiaries in San Bernardino and
                            Riverside counties stated that automatic assignments would be made to
                            Molina Medical Centers—a plan not contracted to serve beneficiaries in
                            the expanded program in these counties at that time. Information in the
                            enrollment packets could also be confusing. In anticipation of the Los
                            Angeles County local initiative’s beginning operations in April 1997,
                            thousands of beneficiaries in Los Angeles County received packets with
                            cover letters dated January 8, 1997, that instructed them to respond by
                            January 18, 1997—which did not allow beneficiaries the required 30 days

                            14
                             DHS believes that the default rate is high because many beneficiaries do not prefer one plan over the
                            other or because they agree with the assignment that the state intends to make.
                            15
                             HCFA first identified problems with the content of the enrollment materials with the implementation
                            of the GMC program in Sacramento in 1994.



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to respond. DHS remailed the letters and provided additional time for
beneficiaries to respond. And it has only been recently—more than a year
after full implementation of the mandatory program in the first
county—that many of the enrollment materials have begun to be
translated into all of the state’s “threshold” languages.16 Although DHS has
established a work group to address problems associated with the
enrollment packet, all planned changes are not expected until
November 1997, at which time many beneficiaries will have already been
enrolled.17

Initially, there also were a number of problems with the toll-free call
center, which was set up to provide beneficiaries access to additional
information about how health plans operate and how to use them. The call
center, however, often was a source of frustration and confusion because
callers could not get through, messages went unanswered, voicemail
boxes were full, or counselors provided incorrect information. However, a
review of HCO’s recently instituted “problem log” revealed that the
problems have largely disappeared under the current enrollment broker,
Maximus, which expanded the call-center operation.

There also have been problems with the HCO presentations. Through
county-by-county preimplementation reviews, HCFA often found that the
presentations were confusing, not conducted in the appropriate language,
not accurate or performed as scripted or scheduled, or not sufficiently
informative. In addition, beneficiary attendance has been low. State
officials recognize that the limited number of presentation sites may make
it difficult for beneficiaries to attend. For example, in June 1997, Los
Angeles County—which comprises 88 cities and 136 unincorporated areas
and covers over 4,000 square miles—had 35 presentation sites.

Officials from one managed care plan we contacted believed that poor
attendance at the HCO presentations was due in part to limitations in the
state’s outreach to beneficiaries. The officials believed that by working
closely with community-based organizations that beneficiaries know and
trust, such as churches and legal aid services, more beneficiaries could be
reached; in addition, these organizations could provide outreach services

16
  The state requires the enrollment broker to provide linguistically appropriate services to a population
group of mandatory Medi-Cal eligibles residing in a proposed service area whose primary language is
not English if these eligibles meet a specific numeric “threshold” in a proposed service area. For
example, in Alameda County, the first county in which the program was implemented, the number of
eligibles whose primary language was not English exceeded the threshold for Spanish, Cantonese,
Vietnamese, and Farsi. The state’s threshold languages are Cambodian, Cantonese, Farsi, Hmong, Lao,
Russian, Spanish, Vietnamese, and Armenian.
17
 A number of changes have already been completed, such as translation of some of the enrollment
materials, including the enrollment exemption form and the list of important telephone numbers.


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                         B-276078




                         and thereby supplement HCO presentations. HCFA, advocates, and managed
                         care plans have long called for increased outreach efforts—not only to
                         beneficiaries, who can be difficult to reach, but to providers and others in
                         the community as well. Some plans and advocates have, at their own
                         expense, conducted outreach activities to fill the perceived gap in the
                         state’s efforts.

                         Yet even with high automatic assignment rates and poor attendance at the
                         HCO presentations, it was not until October 1996 that DHS began
                         development of an outreach campaign that was implemented in selected
                         counties in March 1997. The campaign consisted of bus billboards and
                         posters sent to HCO presentation sites, managed care plans, and
                         community-based organizations. Brochures, a video, and radio
                         announcements were also recently added.

                         DHS has recently begun to explore additional ways to improve outreach
                         and involve community-based organizations in HCO activities, such as
                         participating in DHS-sponsored work groups. DHS asked community-based
                         organizations to identify additional HCO presentation sites in Los Angeles
                         County and plans to require Maximus to contract with a number of
                         community-based organizations to provide HCO presentations to their
                         clients. Recognizing that provider education could also be improved, DHS
                         has begun to better disseminate information to participating providers on
                         managed care programs, such as DHS provider bulletins that give HCO
                         program updates. In addition, DHS created the HCO Education and Outreach
                         Unit in June 1997 to develop and implement strategies to ensure
                         beneficiaries, providers, legislators, advocates, and other interested
                         parties are well informed and educated about the expansion program.


Enrollment Processing    Some of the problems with enrolling beneficiaries persisted throughout
Improved, but Problems   the state’s first year of implementation of its new mandatory program and
Still Persist            were exacerbated by the timing of the changeover between enrollment
                         brokers. While many agree that enrollment processing is functioning much
                         smoother now, there was enough lingering concern to have prompted HCFA
                         to slow the pace of enrollment in several counties earlier this year.

                         During the first year of implementation, the volume of enrollments may
                         have overwhelmed Benova, the former enrollment broker. Enrollment
                         materials were not always sent on time, and, in one county, it could not be
                         determined whether they were sent at all. Enrollment data were not
                         accurately or completely entered into the enrollment information system,



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                            and some beneficiaries were enrolled in a plan other than the one they
                            chose or were assigned to a plan that was not an option for them. State
                            assignments of beneficiaries who did not choose a plan were not always
                            timely, which meant that plans lost capitation revenue. The situation
                            worsened when Benova lost its bid for the enrollment broker contract and
                            began losing significant numbers of staff.

                            HCFA  and managed care plans agree that Medi-Cal’s enrollment process has
                            begun to function more smoothly. Maximus has more resources to process
                            and track enrollments, and the state has begun to implement long-needed
                            fixes, such as improved monitoring of the enrollment broker. However,
                            problems have continued to occur. For example, in April 1997, thousands
                            of beneficiaries in Riverside County were sent letters with dates that
                            implied beneficiaries had already been assigned to a plan. The state
                            remailed the letters with corrected dates.

                            Because of continuing concerns, HCFA slowed enrollment in several
                            counties earlier this year. According to HCFA, it would not approve the
                            February 1997 full implementation in Santa Clara and San Joaquin
                            counties because it had found, during its preimplementation reviews,
                            deficiencies in the education process that “grossly violated” the HCO
                            process and the conditions of California’s waiver. For example, enrollment
                            packets sent to beneficiaries were incomplete, and the state could not
                            verify whether a subsequent mailing was sent.

                            At the end of March 1997, HCFA decided to slow enrollment in Los Angeles
                            County, prior to full implementation. HCFA took this action, in part,
                            because the enrollment broker had not yet demonstrated an ability to send
                            timely or accurate mailings to beneficiaries or to properly train HCO
                            counselors to make accurate and informative presentations to
                            beneficiaries. Adequately educating beneficiaries in Los Angeles about
                            their plan options is especially difficult, since there are multiple plans
                            from which beneficiaries can choose. Furthermore, with over 1 million
                            beneficiaries who will be mandatorily enrolled, and another 400,000
                            voluntarily eligible, the consequences of enrollment errors in Los Angeles
                            County could be significant.


Potential Impact of         Based on anecdotal evidence from HCFA, advocates, and managed care
Education and Enrollment    plans, the problems with the education and enrollment processes
Problems on Beneficiaries   throughout the implementation of the two-plan model have affected
                            beneficiaries and plans alike. Officials from one plan said that
and Plans


                            Page 15                       GAO/HEHS-98-2 California’s Managed Care Expansion
                      B-276078




                      beneficiaries were not only confused but concerned because they did not
                      understand what was happening to their health care coverage—some
                      beneficiaries thought they were losing Medi-Cal benefits altogether.
                      According to some plans, enrollment problems have resulted in significant
                      financial loss due to lost capitation revenue and unanticipated operating
                      and administrative costs. For example, if enrollment was delayed, some
                      plans not only lost revenue but may have unnecessarily expended funds
                      for staffing, facilities, and advertising. Officials at one local initiative
                      claimed gross revenue losses of almost $2 million due to a 25-day delay in
                      the mailing of enrollment materials. The lost capitation revenue required
                      the plan to draw upon an existing line of credit—with interest—from the
                      county.

                      Because of long-standing problems and concerns over the implementation
                      of the two-plan model, some groups wanted implementation either
                      stopped or further delayed. Yet, some plans urged the state and HCFA not to
                      delay implementation and enrollment further because of the financial
                      repercussions. HCFA officials agreed that long delays in implementation
                      could present financial hardship for some plans.


                      Over the past several years, California has been criticized for a number of
Weaknesses in State   weaknesses in the management of its Medi-Cal managed care program. In
Management of the     a 1993 report, HCFA questioned whether DHS, with its existing staffing and
HCO Program           processes, could effectively monitor the state’s contracts with Medi-Cal
                      managed care plans.18 Two years later, we echoed similar concerns. In
Contributed to        1994, HCFA also cited a number of weaknesses in the implementation of
Implementation        Sacramento’s GMC program, including the need for early and ongoing local
                      input into the planning process and deficiencies in the education and
Difficulties          enrollment process.19 More recently, Mathematica Policy Research, Inc., in
                      its 1996 report on Medi-Cal managed care, cited limited time and resources




                      18
                       HCFA region IX, “Review of California’s Administration of Its Managed Care Program” (internal
                      document, fiscal year 1993).
                      19
                        According to HCFA, there were a number of lessons learned from the GMC implementation
                      experience, including the critical need for a well-informed provider and beneficiary population and the
                      importance of an effective monitoring system, such as key performance indicators like disenrollment
                      rates.



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                            as the cause of initial enrollment problems experienced by beneficiaries in
                            Sacramento’s GMC program.20

                            These and other management weaknesses—such as insufficient contract
                            performance requirements for enrollment brokers, inadequate monitoring
                            of the HCO program, and poor communication with and involvement of
                            outside groups—contributed to the problems the state encountered in
                            implementing its two-plan model.21 Benova and Maximus also cited
                            reasons that made it difficult for them to perform as efficiently as possible.
                            The state has taken a number of long-needed actions aimed at improving
                            various aspects of the HCO program. However, the effect of some of these
                            actions remains to be seen.

                            Federal guidance on designing and implementing a mandatory managed
                            care program, especially when education and enrollment functions are
                            contracted to an enrollment broker, may have assisted the state in
                            improving its program implementation in its earlier stages. Although HCFA
                            is currently developing such guidance, HCFA’s oversight of California’s
                            program has consisted primarily of approving the waiver application and
                            conducting preimplementation reviews of each county prior to full
                            implementation.22


Contracts Insufficient to   DHS’ contract with Benova, the former enrollment broker, contained no
Hold Enrollment Brokers     specific performance standards. Performance standards should make clear
Accountable                 the level of service expected of the broker and enable a state to gauge the
                            sufficiency of the broker’s operations. When tied to payment, performance


                            20
                              Specifically, the Mathematica report said the initial enrollment process was “chaotic,” partially due to
                            enrollment materials that were incomplete, confusing, and sometimes misleading and a call center that
                            was overwhelmed with the volume of calls. Because of the magnitude and frequency of problems, the
                            state provided beneficiaries additional time in which to choose. Mathematica Policy Research, Inc.,
                            Managed Care and Low-Income Populations: A Case Study of Managed Care in California (Washington,
                            D.C.: Mathematica Policy Research, Inc., May 1996).
                            21
                             According to DHS, understaffing has also plagued the program. For fiscal year 1996, the Medi-Cal
                            Managed Care Division requested an additional 126 staff to operate its managed care program.
                            However, the state legislature approved somewhat less than two-thirds of these positions. The
                            Payment Systems Division is currently seeking an additional 26 staff positions for the HCO program.
                            Officials say that they need to request more staffing but have been unable to devote the resources
                            needed to prepare the justification.
                            22
                              HCFA’s approval of California’s waiver was contingent upon several factors, including agreement
                            that full implementation of the two-plan model would not commence in a county until HCFA had
                            conducted a satisfactory on-site, preimplementation review that focused on policies and procedures
                            regarding enrollment, beneficiary access, quality of care, and plans’ financial solvency. The waiver also
                            included a requirement that the state demonstrate that it had allocated sufficient and appropriate staff
                            to all areas of responsibility, particularly with regard to setting up and monitoring such a large and
                            complex program.



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                     standards can provide incentives for the enrollment broker to provide the
                     services required and penalties for nonperformance.

                     DHS’ contract with Maximus, the current enrollment broker, contained
                     several performance standards; however, few were tied to payment. For
                     example, although call-center staff were required to answer phones within
                     three rings and process enrollment forms within 2 days, there was no
                     penalty for noncompliance. More importantly, no performance standards
                     that were tied to payment related to potential quality indicators, such as
                     the rate of automatic assignment, beneficiary satisfaction with the
                     education and enrollment process, or the rate of beneficiary
                     disenrollment.23 California is planning to amend Maximus’ contract to
                     include additional performance standards and to increase the number of
                     standards that are tied to payment, which should help strengthen the
                     contract and make it more enforceable.


HCO Program Poorly   According to HCFA, many of the problems with the state’s process for
Monitored            educating and enrolling beneficiaries were the result of inadequate
                     monitoring of the HCO program. Until recently, DHS did not conduct on-site
                     monitoring of enrollment broker activities nor did it have staff with the
                     expertise to monitor the broker’s automated systems. In addition, HCO’s
                     management information and reports were not adequate to effectively
                     monitor the program.

                     According to DHS, regular, on-site monitoring of Benova was difficult since
                     Benova’s operations were about 80 miles from DHS headquarters in
                     Sacramento. Without on-site monitoring, however, DHS could not
                     guarantee that critical broker responsibilities, such as the mailing of
                     enrollment packets, were carried out. For example, it was not until
                     enrollment broker operations were transitioning to Maximus that DHS
                     found that thousands of beneficiary enrollment packets had not been sent
                     from a Benova mail facility. To help ensure this does not recur, as a
                     condition of its contract, Maximus operations are located in or near
                     Sacramento. DHS also has dedicated five full-time Payment Systems
                     Division staff, four of whom have automated systems expertise, to conduct
                     on-site monitoring at Maximus’ various locations. To help ensure Maximus
                     complies with the terms of its contract, DHS staff observe the broker’s
                     operations and test the automated systems. Staff also observe mail facility


                     23
                      DHS does not believe that it would be fair to tie performance standards on these indicators to
                     payment because the enrollment broker contract does not provide the broker with much flexibility in
                     how to conduct the HCO program.



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operations to ensure the timeliness, completeness, and accuracy of the
enrollment materials mailed to beneficiaries.

Until recently, HCO program staff did not have the expertise to evaluate
automated systems operations and ensure that their outputs were valid.
Without such expertise, the state could not determine if beneficiaries had
been assigned to plans as intended. Moving day-to-day HCO program
operations from the Medi-Cal Managed Care Division to the Payment
Systems Division provided the program with the expertise required to
make such determinations. In addition, in March 1997, DHS contracted with
a systems consultant, Logicon, to test Maximus’ automated systems and
validate its output by July 1997. According to a DHS official, the testing and
validation process will allow DHS to better understand the enrollment
broker’s system and thus have greater confidence in its output. Validating
system output will likely enhance the reliability of the information that the
system generates, such as enrollment and disenrollment data. As of the
end of August 1997, however, Logicon had yet to complete its contract. As
a result, according to HCFA, there remains no external verification that the
enrollment broker can effectively handle the increased volumes of
enrollment that will result when plans in the remaining counties, like Los
Angeles, become fully implemented.

Management information and reporting also were not sufficient to
effectively monitor the HCO program. According to one DHS official, HCO
reports were not managerially useful. For example, while data were
provided on the number of beneficiaries who chose a plan, the number
who were automatically assigned to a plan,24 and the number who
disenrolled from a plan, the reports did not include trend analyses. And
while an automatic assignment rate was calculated, a disenrollment rate
was not, which can serve as an important indicator of beneficiary
satisfaction with plans.25 In addition, certain key terms, such as
“disenrollment,” have yet to be defined, and the data have yet to be
verified, which provides little confidence in its meaning or accuracy.26 As
part of its contract, Logicon is required to ensure that numbers across



24
  Prior to January 1997, DHS did not publish data on automatic assignments.
25
 While DHS requires plans to conduct annual enrollee satisfaction surveys, there is no requirement to
distinguish between beneficiaries who chose the plan and those who were automatically assigned.
26
 For example, disenrollment can be involuntary due to loss of Medicaid eligibility. Voluntary
disenrollments can be due to moving outside the plan service area or dissatisfaction with the plan or
provider services. Analyzing reasons for disenrollment can provide valuable information about a plan’s
performance.



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                         reports are consistent and reconcilable and to identify reports that are
                         needed for the state to effectively monitor enrollment broker activities.

                         Finally, DHS initially had no system to determine whether problems
                         reported to DHS were recorded or addressed. Although DHS began keeping
                         an HCO “problem log” in January 1997 to capture and track the status of
                         problems and complaints reported to either DHS, the enrollment broker, or
                         the Medi-Cal managed care ombudsman,27 DHS had not summarized or
                         systematically analyzed the information collected at the time of our
                         review.


Insufficient             HCFA, managed care plans, and advocates have long expressed concern
Communication and        over a lack of effective state internal communication and timely
Involvement of Outside   communication with and involvement of outside groups in planning and
                         decision-making. We found, for example, that until recently, HCO policy
Groups                   decisions often were not officially documented or disseminated to the
                         appropriate state staff. DHS has taken some steps to improve its internal
                         communications, such as requiring HCO’s policy unit to provide written
                         documentation of all HCO policy decisions to the chief of the Headquarters
                         Management Branch, Payment Systems Division, for review and
                         systematic dissemination.

                         DHS has also increased its communication efforts with outside groups. To
                         provide a forum to discuss and address issues and concerns, the state has
                         convened or participates in several work groups. For example, the Policy
                         Workgroup was formed in January 1997 to improve the education and
                         enrollment process, such as by redesigning and translating the enrollment
                         materials. The group includes representatives from DHS, HCFA, health plans,
                         advocacy groups, and Maximus. The state also convened in June 1997 a
                         Stakeholder Advisory Group to provide policy advice on and oversight of
                         program implementation in Los Angeles County. The group is composed of
                         advocates, provider representatives, DHS, Maximus, and the Los Angeles
                         commercial plan and local initiative. It plans to meet monthly.




                         27
                           The Office of the Ombudsman began operating July 1996. Its purpose, in part, is to investigate and
                         resolve complaints about Medi-Cal managed care and to provide information to and assist Medi-Cal
                         beneficiaries by mediating on their behalf and verifying the resolution of complaints.



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Enrollment Brokers Cite     Benova and Maximus, the two enrollment brokers DHS has contracted
Operating Conditions That   with, also cited a number of factors that they believed adversely affected
Affected Their              their performance. According to these brokers, DHS made frequent policy
                            and program changes and often provided little lead time to appropriately
Performance                 implement these changes. According to Maximus, during the first 7 weeks
                            of its contract period—which began January 1997—DHS made about 300
                            policy changes, sometimes giving Maximus little time to implement them.
                            To comply with DHS’ time frames, Maximus believed it necessary to
                            sometimes bypass quality assurance measures that it had established to
                            ensure that such system changes did not have unintended consequences.
                            In one instance, changes made to the mailing dates in one county caused
                            Maximus to inadvertently halt mailings to another county.

                            Benova believed that its performance as Medi-Cal’s enrollment broker
                            suffered because of DHS’ often-changing directions and its lack of
                            responsiveness. For example, DHS denied Benova’s request to transfer calls
                            during peak times to call centers in other states—an arrangement Benova
                            believed would have improved service. According to Benova, DHS also
                            denied its request for cost-reimbursement for additional equipment
                            needed to handle increasing volumes of enrollment.

                            Benova and Maximus officials also stated that, relative to their experience
                            with other states, California limited their contact with plans, advocacy
                            groups, and community-based organizations. DHS was concerned about
                            remaining informed about program operations and not burdening limited
                            contractor staff with additional responsibilities. DHS recently has relaxed
                            its policy and begun to allow the enrollment broker to participate in
                            community meetings.


Limited Federal Guidance    HCFA’s oversight of California’s education and enrollment functions has
on Education and            consisted primarily of reviewing and approving the state’s waiver
Enrollment Functions        application to implement its mandatory managed care program and
                            conducting preimplementation reviews in each county. As of August 1997,
                            few federal guidelines existed for states to use for their process of
                            educating Medicaid beneficiaries and enrolling them in mandatory
                            managed care programs—two relatively new functions for states.28 In
                            addition, guidelines did not exist for contracting out these functions. With

                            28
                              HCFA has issued guidelines to assist states in developing Medicaid managed care marketing
                            standards, which could be applied broadly to the education process. Specifically, federal regulations
                            require that states’ contracts with health plans specify the methods by which the plans will ensure that
                            marketing plans, procedures, and materials are accurate and do not mislead, confuse, or defraud
                            beneficiaries or the state.



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                  such guidance, some of the problems that California experienced in
                  expanding its Medi-Cal managed care program might have been avoided.

                  HCFA is in the process of developing guidelines to assist states with
                  designing and implementing an effective education and enrollment
                  program, including contracting with enrollment brokers—an increasing
                  trend. Earliest issuance of these guidelines was projected for
                  October 1997.29


                  An expressed objective of the two-plan model was to protect existing
Some Safety-Net   health care safety nets in the new competitive environment of managed
Providers Are     care. Safety-net providers—such as federally qualified health centers, and
Encountering      community and rural health centers—provide health care services to the
                  medically indigent. However, while the two-plan model provides some
Difficulties      assurances that plans will assign beneficiaries to safety-net providers, it
                  does not guarantee that these providers will receive a specified level of
                  enrollment, nor can it guarantee that they will maintain their enrollments.
                  Some providers have reported that they are having difficulty operating
                  under the two-plan model, especially in maintaining their former patient
                  base.

                  The two-plan model has several provisions and incentives aimed at
                  protecting safety-net providers. The model’s local initiative arrangement
                  enables counties to develop a plan that reflects local needs and priorities
                  and includes county-operated health facilities. Once developed, the local
                  initiative must contract with any safety-net provider that complies with the
                  local initiative’s specific requirements and standards and accepts the rates
                  offered. Although commercial plans are not required to contract with
                  safety-net providers, they were awarded extra points during the evaluation
                  process for the extent to which their networks included safety-net
                  providers. The model also requires that automatic assignments be made to
                  the local initiative until preestablished minimum enrollment levels are
                  reached. In addition, the local initiatives and commercial plans are
                  required to ensure—to the maximum extent possible—that existing
                  patient-physician relationships are maintained. Furthermore, the local
                  initiative must develop a process that “equitably assigns” to safety-net
                  providers those beneficiaries who do not choose a primary care provider;
                  similarly, the commercial plan must develop a process that

                  29
                    HCFA developed the guidelines with input from selected states; an expert researcher; a review of
                  reports from the National Academy for State Health Policy and GAO; review of states’ requests for
                  proposals and contracts; and information from advocacy groups, trade organizations, and the managed
                  care industry.



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                             “proportionately” assigns such beneficiaries.30 According to DHS, it did not
                             require plans to assign a specific number of beneficiaries to safety-net
                             providers because federal law requires states to ensure that beneficiaries
                             have a choice of providers.

                             Despite these protections, an initial assessment of the two-plan model’s
                             impact on safety-net providers suggests that some are experiencing
                             difficulties, especially in maintaining their levels of enrollment. According
                             to the state and HCFA, a couple of factors have affected safety-net
                             providers’ enrollment bases. Beneficiaries in managed care are required to
                             designate only one provider as their primary care physician, although they
                             may have visited more than one provider in fee-for-service care.
                             Consequently, some safety-net providers say that they have seen fewer
                             beneficiaries under the two-plan model. However, many beneficiaries who
                             choose a provider are not choosing safety-net providers, and many who
                             are assigned to these providers disenroll. HCFA has reported that in Los
                             Angeles County, 12,600 beneficiaries—or 70 percent—who had been
                             assigned to a safety-net provider chose to disenroll within 5 days.

                             The two-plan model does not prescribe, other than in general terms, how
                             plans are to assign beneficiaries to individual providers. However, a
                             number of plans favor safety-net providers in their assignment
                             methodology. One plan had designed a four-tier assignment methodology
                             that gives priority to contracted safety-net providers and other providers
                             that have at least a 50-percent Medi-Cal enrollment base. Another plan
                             seeks to maintain a 60/40 assignment ratio, with approximately 60 percent
                             of beneficiaries assigned to private providers and the remaining 40 percent
                             assigned to county and community clinics.31


State Assessing Safety-Net   The state has begun to assess measures that could be taken to assist
Issue and Taking Some        safety-net providers and has taken action in one county. To reduce the
Steps to Assist Providers    number of beneficiaries assigned by plans away from their safety-net
                             providers, the state planned to provide information on beneficiaries’ last
                             provider of record to plans beginning August 1997. With this information,
                             plans could assign the beneficiary to that provider if the provider was part
                             of the plan’s network.

                             30
                               “Proportionately” means that the number of enrollees assigned should approximate the proportion
                             that the providers represent in the network. For example, if the safety-net providers represent
                             20 percent of a plan’s network, they should receive approximately 20 percent of beneficiaries.
                             31
                               According to a plan representative, the actual assignment ratio is closer to 70/30, since an average of
                             80 percent choose their provider, leaving few beneficiaries for the plan to assign—only 1,500 over the
                             last 5 months.



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              Safety-net providers in Fresno County were particularly concerned about
              their viability since the county’s two-plan model did not include a local
              initiative. An agreement was reached between the state, providers, and the
              two commercial plans that addressed some of the short- and long-term
              concerns of these safety-net providers. For example, the two plans agreed
              to assign all state-assigned beneficiaries who had not designated a primary
              care physician to a safety-net provider. Over the longer term, a special
              team composed of state, plan, and provider representatives will be
              established to oversee the implementation of managed care in Fresno
              County.


              California’s expansion of its Medi-Cal managed care program is currently
Conclusions   the largest effort of its kind in the nation in terms of the number of
              beneficiaries involved. Although California invested nearly 5 years in both
              conceptual and implementation planning of its two-plan mandatory
              program, implementation has not been smooth. Many of the circumstances
              that contributed to implementation problems were within the state’s
              control, while others were not. For example, the timing of the transition
              from one enrollment broker to another undoubtedly contributed to the
              implementation delays and difficulties. Had the transition not occurred in
              the midst of the two-plan implementation in several counties, some
              problems might have been less severe.

              Many of the problems that occurred in implementing the new mandatory
              program were foreshadowed by the state’s earlier efforts to implement
              managed care. These earlier problems—documented in prior evaluations
              by other organizations—should have convinced the state that many of its
              policies and procedures needed retooling. The state is now taking certain
              actions to improve the program, but many are too late to benefit those
              beneficiaries already enrolled in the seven counties where implementation
              has been completed.

              HCFA’s preimplementation reviews enabled HCFA to identify problem areas
              in California’s implementation of its two-plan model; the reviews did not,
              however, always result in immediate improvements. At the same time that
              DHS was attempting to address these problems, managed care plans were
              exerting pressure to push ahead with program implementation since their
              large investments—and financial viability—were dependent on receiving
              enrollments and associated revenues according to set time frames. As a
              result, while HCFA identified the need for significant improvements, it did
              not halt program implementation to effect such changes. HCFA also did not



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                         have sufficient written guidance in place to assist the state in developing
                         and implementing its program.

                         Despite these delays and difficulties, California’s experience can be
                         instructive for other states as they develop, expand, or adapt their
                         mandatory Medicaid managed care programs. Specifically, California’s
                         experience points to several potential lessons learned:

                     •   Incremental implementation allows for adjustments and improvement.
                         Simultaneous or quick-succession implementation in multiple areas does
                         not give sufficient time for program modifications when unforeseen
                         problems arise.
                     •   Sufficient staff—including individuals who have expertise in managed care
                         program design and implementation—are needed to conduct program
                         activities. Of particular importance are systems analysts and contract
                         specialists.
                     •   Stakeholder and community input and involvement, sought early and
                         often, can contribute significantly to effective education and enrollment
                         processes and problem resolution.
                     •   Effective monitoring systems, including adequate management
                         information and reporting, can ensure accountability for program
                         operations—especially if there is heavy reliance on a contractor for
                         integral parts of the program. Including performance standards for key
                         areas of operation in enrollment broker contracts and tying these
                         standards directly to broker payment might help to ensure maximum
                         contractor performance.


                         To help states design and implement Medicaid managed care programs
Recommendation           that ensure beneficiaries who enroll—especially those who are mandated
                         to do so—are able to make an informed choice in selecting a plan, we
                         recommend that the Secretary of Health and Human Services direct HCFA
                         to promptly finalize guidelines for developing and operating an education
                         and enrollment program. To help ensure accountability, these guidelines
                         should include considerations regarding appropriate performance
                         standards and measures and monitoring mechanisms, especially when a
                         state contracts out these functions to an enrollment broker.


                         We provided a draft of this report to the Administrator, HCFA; Director,
Agency Comments          California DHS; and officials of Benova and Maximus, the former and
and Our Evaluation


                         Page 25                         GAO/HEHS-98-2 California’s Managed Care Expansion
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current enrollment brokers. Each entity provided technical or clarifying
comments, which we incorporated as appropriate.

HCFA  concurred with our recommendation and stated it is working to
finalize its education and enrollment guidelines. For example, it sponsored
a joint industry and Medicaid managed care meeting in September to
discuss the draft guidelines. HCFA did not, however, indicate a target date
for finalizing the guidelines. HCFA’s Administrator stated that, because the
guidelines are not requirements, it is important to take the necessary time
to reach consensus on them in order to obtain necessary buy-in and
endorsement from those affected in order to give the guidelines credibility
and acceptability.

DHS  agreed with our conclusions and recommendation, saying that the
state has already adopted or is working toward implementing the lessons
learned that were outlined in the conclusions. It acknowledged that there
have been problems associated with California’s transition to managed
care for its Medi-Cal population and emphasized its efforts to address
these problems in partnership with HCFA, plan partners, medical providers,
and advocacy groups; however, the state was concerned that the report
did not sufficiently acknowledge its efforts in this regard. DHS provided to
us additional information on its efforts to be responsive to identified
problems, which we incorporated where appropriate. In terms of the
evidence and findings presented in the report, DHS questioned the
objectivity of information obtained from some sources, such as some
contracted health plans and the former enrollment broker, with whom the
state is involved in formal contract disputes or litigation. Being aware of
these ongoing disputes and litigation during the course of our work, we
were sensitive to the use of information obtained from all affected parties.
In this regard, we either corroborated the testimonial evidence we
obtained with independent sources or clearly attributed the information to
its source in the report.

Both Benova and Maximus generally concurred with our findings. Benova
provided additional information on several findings in order to more fully
explain its relationship with the state and the resulting impact on Benova’s
performance. For example, Benova contends that its contract was not
adequately funded to fulfill the enrollment contract functions. We chose,
however, not to include these additional details because of ongoing
litigation between the two parties. Maximus generally agreed with our
assessment of the program and implementation issues. Despite the
difficulties cited in the report, Maximus believed that it has gained sound



Page 26                        GAO/HEHS-98-2 California’s Managed Care Expansion
B-276078




administrative control of the basic enrollment processes, such as the call
center operations, the enrollment process, and the computer system
operations. While Maximus endorsed holding all program participants
accountable, it emphasized that establishing standards for functions that
are not entirely within its control can be problematic—especially when
these functions are tied to payment. Maximus added that the California
experience has served as an important learning opportunity in its role as
enrollment broker in other states.


As arranged with your office, unless you announce its contents earlier, we
plan no further distribution of this report until 30 days after its issuance
date. At that time, we will send copies to the Secretary of Health and
Human Services; the Administrator, HCFA; the Director, California DHS; and
interested congressional committees. Copies of this report will also be
made available to others upon request.

If you or your staff have any questions about the information in this report,
please call me or Kathryn G. Allen, Acting Associate Director, at
(202) 512-7114. Other contributors were Aleta Hancock, Carla Brown, and
Karen Sloan.

Sincerely yours,




William J. Scanlon
Director, Health Financing and
  Systems Issues




Page 27                          GAO/HEHS-98-2 California’s Managed Care Expansion
Contents



Letter                                                                                     1


Appendix                                                                                  30

Scope and
Methodology
Table         Table 1: Medi-Cal Eligibles and Enrollees by County and Plan                 6


Figure        Figure 1: 12 Counties Participating in the Expansion Program and             9
                Their Stages of Implementation as of July 1997




              Abbreviations

              AFDC       Aid to Families With Dependent Children
              COHS       County Organized Health System
              DHS        Department of Health Services
              GMC        Geographic Managed Care
              HCFA       Health Care Financing Administration
              HCO        Health Care Options
              PCCM       Primary Care Case Management
              PHP        prepaid health plan
              SSI        Supplemental Security Income
              TANF       Temporary Assistance for Needy Families


              Page 28                       GAO/HEHS-98-2 California’s Managed Care Expansion
Page 29   GAO/HEHS-98-2 California’s Managed Care Expansion
Appendix

Scope and Methodology


             To determine the status of California’s expansion of its Medi-Cal managed
             care program and identify potential reasons for delays in implementing the
             two-plan model, we interviewed officials from the California Department
             of Health Services (DHS) and reviewed their implementation
             schedules—the initial schedule and subsequent updates—for the two-plan
             model. We also interviewed Medicaid officials in HCFA’s region IX office in
             San Francisco and examined their preimplementation reviews, which are
             conducted in each affected county to determine the state’s readiness to
             implement the two-plan model in that county.

             To identify the state’s efforts to educate Medi-Cal beneficiaries about
             managed care and enroll them into one of the state-contracted plans, and
             to evaluate its management of the education and enrollment process, we
             interviewed DHS and HCFA region IX officials and obtained and reviewed
             relevant state law, regulations, policies, and procedures; the state’s
             strategic plan for expanding its Medi-Cal managed care program; the
             state’s two-plan model waiver application submitted to HCFA; Health Care
             Options (HCO) program documents, including enrollment materials;
             minutes from DHS’ Policy and Transition Workgroup meetings; HCO’s
             problem log; enrollment broker contracts and the 1995 Request for
             Proposal; HCO management reports, including monthly enrollment
             summaries; and HCFA’s preimplementation reviews. We also interviewed
             officials from two commercial and four local-initiative health plans that
             served 11 of the 12 two-plan counties; Benova, Medi-Cal’s previous
             enrollment broker, and Maximus, its current enrollment broker; and
             advocacy and consumer groups. We reviewed documents obtained from
             these officials, including minutes from the California Alliance of Local
             Health Plan Enrollment Workgroup meetings and written testimony of
             some stakeholders on the implementation of the two-plan model provided
             in February 1997 before the California state legislature. We also reviewed
             reports by Mathematica Policy Research, Inc., and the Medi-Cal
             Community Assistance Project that discussed issues and concerns about
             DHS’ expanded program.


             To evaluate the state and federal oversight of California’s enrollment
             broker, we obtained and analyzed California’s past and current enrollment
             brokers’ contracts and amendments. To obtain detailed information on
             specific DHS activities to monitor enrollment broker performance, we
             interviewed DHS and HCFA region IX officials. We also visited Maximus’
             administrative office, which houses its systems operations and call center,
             and one of the subcontracted mail facilities to observe broker operations.
             At these facilities, we met with DHS and Maximus officials to discuss



             Page 30                        GAO/HEHS-98-2 California’s Managed Care Expansion
           Appendix
           Scope and Methodology




           oversight activities and broker operations. We also reviewed program
           information generated by Maximus. To identify federal monitoring of
           contracted enrollment broker functions and guidance for states to use in
           monitoring contracted enrollment broker activities, we met with officials
           in HCFA’s Baltimore Office of Managed Care and region IX Medicaid
           officials. In addition to reviewing HCFA’s guidelines for state compliance
           with federal regulations on Medicaid managed care marketing, we
           obtained and reviewed HCFA’s “Managed Care Pre-Implementation Review
           Guide” and its draft guidelines to states for enrolling beneficiaries in
           managed care programs.

           To make an initial assessment of the two-plan model’s impact on
           safety-net providers, we interviewed officials from DHS, HCFA, and two
           commercial and two local initiative plans. We also reviewed the state’s
           strategic plan, which discusses how safety-net providers would be
           included under the two-plan model; state requirements for assigning
           beneficiaries to plans; and selected plan assignment methodologies. In
           addition, we reviewed reports by the Medi-Cal Community Assistance
           Project and Mathematica, which examined the experiences of some
           safety-net providers.

           We performed our work between January and August 1997 in accordance
           with generally accepted government auditing standards.




(101533)   Page 31                        GAO/HEHS-98-2 California’s Managed Care Expansion
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