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MEDI IE :
PREPAYMENT: _
eee :
BIBLIOGRAPHIC
ESSAY

U.S. DEPARTMENT OF
HEALTH & HUMAN SERVICES

Public Health Service

Health Resources

and Services Re eee Kale

JUL 19 1988
''HEALTH RESOURCES
AND SERVICES ADMINISTRATION
‘““HRSA—Helping Build A Healthier Nation”’

The Health Resources and Services Administra-
tion has leadership responsibility in the U.S. Pub-
lic Health Service for health service and resource
issues. HRSA pursues its objectives by:

¢ Supporting states and communities in delivering
health care to underserved residents, mothers
and children and other groups;

Participating in the campaign against AIDS;
Serving as a focal point for federal organ trans-
plant activities,

Providing leadership in improving health profes-
sions training;

Tracking the supply of health professionals and
monitoring their competence through operation
of a nationwide data bank on malpractice claims
and sanctions; and

Monitoring developments affecting health facili-
ties, especially those in rural areas.

 
'' 

 

Administrative Document

MEDICAID
AND
PREPAYMENT:

A
BIBLIOGRAPHIC
ESSAY

August 1988

U.S. DEPARTMENT OF
HEALTH & HUMAN SERVICES

Public Health Service

Health Resources
and Services Administration

Bureau of
Health Care Delivery Assistance
''S4IF06%™X
PUBL

(pF
pul

KA 13

(joAI2My
| A%%

PUBL
''Forward

This bibliographic essay on Medicaid and prepayment
updates and supplements an earlier version prepared by
George Strumpf and Margo Vignola in December 1980.
Medicaia enrollment now stands at about 2.3 million and is
expected to increase over the next several years. This
document should assist States, HMOs, community and migrant
health centers and other providers who are participating

in prepaia Medicaid programs.

Special thanks go to Joyce Dubow whose tireless
etforts to produce this document deserve many thanks. The
Support and aavice of the Health Care Financing
Administrator's staff is also appreciated, particularly

the assistance given by Sidney Treiger.

iii

 
''Po
''Section

II

III

IV

VI

VII

VIII

Table of Contents

Forward

Introduction

Federal Legislative Background
State Efforts to Reform Medicaid
Rate Setting and Reimbursement
Risk and Reinsurance

Marketing and Enrollment
Utilization of Services
Management Information

Quality Assurance

Patient Satisfaction

Bibliography

iii

vii

13
29
38
49
58
64

70

75

 
''''Introduction

In December 1980, DHHS published Medicaid
Beneficiaries in Health Maintenance Orgaizations: An

Annotated Bibliography, which contained references to

 

about one hundred sources dealing with generic HMO
subjects, aS well as issues specifically related to

Medicaid prepayment.

This bibliographic essay supplements the earlier
annotatea bibliography and updates that aocument.
References included here date from 1980 to late 1987. The
essay is divided into nine sections, each of which reviews
the major isssues addressed in the literature listed in
the bibliography. Readers are referred to the specific

references for detailed discussions of these issues.

In making this listing available, the Health
Resources and Services Administration (HRSA) and in
particular the Bureau of Health Care Delivery and
Assistance (bHCDA), recognize the continued and growing
interest in the field of Medicaid prepayment on the part
of states, HMO's, community health centers, and other

alternative delivery organizations, and the need to assist
''them in gaining access to current information concerning

Medicaid contracting.

For the convenience of those who may use this
bibliography, the listings included have been arranged in
several different ways. In addition to an alphabetical
listing by author, the materials are grouped by state.
Articles addressing the HCFA demonstration projects are
listed separately, as are those pertaining to AHCCCS (the
Arizona Health Care Cost Containment System). Although
generic articles pertaining generally to HMO's or
prepayment were deliberately omitted from this
bibliography, three sources which have appeared since 1980
are deemed especially useful to those interested in
prepaid Medicaid contracting and therefore, have been
included under separate heading. These listings can be

found beginning on page 75.

viii
''I Federal Legislative Background

The Medicaid program, enacted in 1965 as Title XIX of
the Social Security Act, was designed as a federal/state
Supported assistance program to provide medical care
services to specified low income people eligible to
receive assistance under the welfare programs of the

Social Security Act.

At the time of its enactment, when resources were
plentiful (43), the Medicaid program was intended to
mirror the prevailing fee-for-service delivery system, and
was not expectea to become an expensive federal
initiative.(65) The Medicaid program lacked emphasis on
primary and preventive services, and permitted the use of
hospital outpatient and emergency departments as routine
sources of care. It did not address problems of access and
quality of care (84) and ultimately resulted in a program
in size and scope second only to its sister entitlement

program, Medicare (65).

Several states attempted to rectify these problems by
contracting with HMO's to provide Medicaid services.
Specific legislation authorizing state Medicaid agencies

to contract with HMO's was contained in section

 
''1902(a)(23) of the Social Security Act, part of the 1967
social security amendments. The most noteworthy of the
early efforts to reform Medicaid occurred in California in
the early 1970's, where that state entered into 50
contracts covering 250,000 recipients.(84) Widespread
criticism eventually led to federal legislation aimed at
improving prepaia Medicaid-HMO programs by eliminating
some of the perceived abuses. PL 94-460, enacted in 1976,
limited Medicaid contracting to federally qualified

HMO's. An important exception to this limitation
permitted states to contract with prepaid health plans
(PHP's) on a capitated risk basis. PHP's were exempted
from the more stringent provisions applicable to HMO's;
therefore, organizations like community health centers and
migrant health centers were permitted to participate in
Medicaid contracting.(20) P.L. 94-460 also limited the
permissible number of Medicaid and Medicare beneficiaries

enrolled in an HMO to 50% of the plan's total enrollment.

The spiralling inflation in health care costs in the
70's caused the states to restrict Medicaid eligibility
and curtail the scope of Medicaid services. At the
federal level, the passage of the Omnibus Budget
Reconciliation Act of 1981 (OBRA, PL 97-35), marked the

beginning of an effort to redefine the federal role by
''stemming increases in federal expenditures. Eventually,
this led to a reduction in the number of recipients as
well as a reduction in the federal contribution to
Medicaid.(64) The rate of increase for Medicaid spending
declined from 17.3% between 1979-82 to 6.4% between 1981-

82. (38)

However, OBRA also included several reforms which
granted the states greater flexibility to implement
innovative approaches to cost-containment and alternative
delivery systems. [Before OBRA, section 1115 of the Social
Security Act, which emphasized experimentation and
research, had been the primary means by which states could
obtain waivers from the federal Medicaid
requirements.(26)] Section 2175 of OBRA provided the
opportunity for far greater flexibility to test new

systems by broadening the scope of the waiver process.

Four classes of waivers were added under section
1915(b) to permit (a) implementation of a primary care
case management system, (b) localities to act as brokers
to assist recipients to choose among competing plans, (c)
states to share with recipients savings arising from their
use of competing health plans such as HMO's and, (qd)

restricting recipients to specific cost effective

 
''providers for non-emergency care.(23,38,82,20,26) In
addition, section 2175 allows states to establish
competitive bidding procedures for Medicaid services, and
to "lock-in recipients who overutilize services and "lock-
out" inefficient providers subject to prior notice and

hearing.

Section 2178 of OBRA of 1981 amended section 1903(m)
of the Social Security Act to encourage and facilitate
greater use of prepaid organizations by state Medicaid
agencies. It authorized states to enter into contracts
with entities which are not federally qualified to serve
Medicaid recipients so long as those entities (a) have
adequate plans against the risk of insolvency and, (b)
make services available to the same extent to enrolled
Medicaid recipients as are available to Medicaid
recipients in the area who are not receiving services from
the plan. In addition, the cap on Medicare/Medicaid
enrollment which had been imposed under PL 94-460 was
raised from 50 to 75 percent of total enrollment. To
create greater Medicaid enrollment stability, section
2178(b) of OBRA added subsection 1902(e)(2)(A) which gives
states the option of guaranteeing a recipients's

eligibility for a period of six months from the date of
'' 

enrollment in a qualified HMO or federally funded
community health center, even if the enrollee looses

his/her eligibility before the six months elapse.

In summary, OBRA furthered delivery reform by
allowing additional delivery arrangements, providing
incentives for recipients to enroll in alternative
delivery systems, and encouraging enrollment in
HMO's(38). It resulted in significant increases in the
number of Medicaid recipients enrolled in HMO's. Thus,
between June 1984 and June 1985, there was a 45% increase
in the number of Medicaid recipients enrolled in

HMO's(20).

The Consolidated Omnibus Budget Reconciliation Act of
1985 (COBRA), PL 99-272, altered the requirements for
contracted Health Insuring Orgaizations [HIO's, (risk
bearing intermediaries)] by requiring HIO's to meet the
same requirements as Medicaid contracting HMO's, including
the cap limiting the number of enrolled Medicaid/Medicare
enrollees in the entity, and permitting disenrollment on
demand. New HIO's may have difficulty meeting these
federal contract requirements (29); therefore, this type

of entity may be eliminated as a realistic option for
''Medicaid contracting.(3) The legislation modifiea
enrollment on demand by adding subsection 1903(m)(2)(F) in
PL 99-272 which enables states to modify their state plans
to permit Medicaid recipients enrolled in either a
federally qualified HMO or federally funded community
health center to be "locked-in" as an enrollee for six
months. This effort to stabilize Medicaid enrollment by
reducing the constant enrollment fluctuations
characteristic of Medicaid contracting is an incentive to
prepaid organizations to enter into Medicaid contracts on

a prepaid basis. (31)
'' 

V/ II State Efforts to Reform Medicaid

Although the states may set eligibility standards
and administer their own progams, federally mandated
eligibility through entitlement, mandatory benefits, free
choice of provider, and cost reimbursement, integral to
the Medicaid program since its inception, are factors
which have made Medicaid spending difficult to predict and

aifficult to control.

The legislative changes made in the 1980's broadened
the opportunities for change. The rising cost of the
Medicaid program, coupled with the legislative opportunity
to effect change, coincided with a time of tremendous
growth in the HMO industry. ‘The HMO strategy, which was
gaining such widespread support in the private sector,
undoubtedly encouraged state officials to reshape their
traditional Medicaid programs along the same Lines by
applying innovative approaches such as prepayment and
managed care systems. In the long run, it may be that
instead of cutting benfits or limiting eligibility,
(approaches that have been used by states to contain
costs) the implementation of these systems will prove to

be more effective in meeting the desired objective of
''reducing costs. Mauskopf, et al. suggest that "...in many
cases, benefit limits and payment controls seem to have
statistically insignificant effects on the use of health
care services by Medicaid enrollees“.(55) Even when there
is an indication that the utilization of services is
responsive to programmatic controls, "...in some cases the
direction of the change may be opposite to that

anticipated by the policymaker". (55)

In turning to managed health care, states are
addressing recognized deficiencies in the present system
(25,39,63,31 56a). These include: (a) substantial and
steady increases in aggretgate costs, (b) unnecessarily
high rates of use for selected services due in part to
"doctor shopping" by self-referral of Medicaid recipients
with resulting inappropriate utilization of laboratory and
prescription drug services, (c) lack of adequate access to
primary care forcing the use of hospital emergency rooms
for routine care, (d) poor quality resulting from episodic
and fragmented are, (e) declining physician participation
due to low fees (which have not kept pace with fees paid
by private insurance companies or Medicare), and (f) other
problems in the administration of the payment system.
These factors have contributed to increasing Medicaid

expenditures and exacerbate the growing budgetary concerns
'' 

at all levels of government. " Medicaid is the largest
single state-administered program in state budgets,
constituting about 10% of state general fund

expenditures". (18)

Managed care ("case managment" or "gatekeeping") is
in essence a coordinating and rationing strategy..."(27).
Spitz views the concept as a means of achieving greater
value for limited tax dollars. (75) He characterizes case
management as "a vehicle for living with less", an
approach which "increases access to a point of care (the
case manager) while reducing generalized access to care
(that is, to other providers through self-referrals by the

patient)". (75)

Proponents of managed care believe that it need not
reduce service access or quality of care. Compared to
earlier years, since 1981, Medicaid managed care plans
have proliferated, due in the main to the aesire of states
to contain and otherwise control expenditures for
Medicaid.(48,10) "Total HMO Medicaid enrollment exceeds
900,000 with about 200,000 enrollees in non-HMO forms of
prepaid managed care and about 400,000 in fee-for-service
primary care case managment systems."(56a) Where states

have implemented managed care and other cost-containment
'' 

approaches, many have stemmed the tide of Medicaid
increases ana realized substantial savings from these
efforts. By setting the reimbursement to providers at
less than what they would be paying on a fee-for-service
basis, states have reduced their outlays for Medicaid.
Thus, typical rates have been 80-95 percent of fee-for-
service rates.(85) Notwithstanding the opportunities for
savings (which are derived essentially from constraining
utilization of services), Heinen et al. observe that "the
opportunities for cost savings may be limited.(36a) For
example, plans usually pay participating providers more
than what they would receive from Medicaid fee-for-
service. In addition, Anderson and Fox point out that
states cannot expect to eliminate all administrative
responsibilities or expenses upon the adoption of prepaid
contracting. Eligibility data must be maintained, and the
need to monitor and evaluate utilization and other reports
submitted by contractors (which might require skilled
personnel) will be on-going.(3) Merlis suggests
that..."even if a prepaid contractor can effect sizeable
efficiencies at the outset,...rate increases for
subsequent years must keep pace with the real cost
increases the plan experiences, or the plan will choose
not to renew its contract".(56a) Rowland and Lyons report

that in Wisconsin, inspite of expectations that

-10-
'' 

administrative activities would decline with the HMO
initiative, this has not been the case because enrollees
only constitute 27% of the statewide Medicaid population.
"Thus the state has to maintain the old fee-for-service
claim system as well as the HMO system. Any
administrative savings from the HMO initiative have been
offset by additional costs for data systems for monitoring

HMO quality and utilization."(69)

Freund identifies several characteristics which are
common to the approaches to managea care: (a) limitations
on freedom of choice of provider, (b) attempts to modifiy
patient utilization patterns by coordinating service
delivery, (c) financial incentives and risk sharing to
alter physician behavior, and/or to encourage the

formation of new orgaizational entities. (25)

Anderson and Fox cite the four most common types of ,~
Programs which encompass managed care: (a) HMO's, (b) fee-
for-service with primary care case-management, (c) health
insuring organizations (HIO's) and (d) partially capitated
primary care case-managment (3). The National Governors'
Association montiors the status of managed care programs
on a state-by-state basis (see 77) and has recently

published a useful handbook on prepaid Medicaid

-ll-
''contracting for state managers of such programs. (See
56a.) The Intergovernmental Health Policy Project of the
George Washington University also chronicles changes in

state Medicaid programs. (See 44.)

=i 5s
'' 

III Rate Setting and Reimbursement

Setting equitable rates which meet the objectives of
cost-containment, and the provision of accessible and
appropriate care to Medicaid recipients, is a complex and
difficult problem in designing competitive schemes
involving Medicaid eligibles.(32) The rate paid by the
state for prepaid services may not exceed that which would
otherwise be paid under the fee-for-service system. Van
Steenwyk points out "...it is not enough simply to assure
that the price paid ... results in savings to the state.
HCFA regulations --and prudence-- require that each state
show the rates paid to HMO's are reasonable or equitable,
based on objective and measurable factors". (85) On the
other hand, "states must balance the need for payment
rates generous enough to attract plans and providers

against the goal of containing costs". (36a)

From the prepaid organization's perspective, whether
it is an HMO, a CHC, or any other type of organization,
rate-setting is obviously the critical function upon which
the financial viability of the plan rests. The
organization must be sure that the reimbursement it
receives adequately covers the cost of services, including

all direct and indirect expenses associated with caring

-]3-
''for the target population. (80)

States have considerable flexibility and discretion
in setting rates. A majority of states establish a fee-
for-service maximum (ie., the cost of providing services
to the eligible population in the same area, on a fee-for-
service basis), aS a point of departure (1) and then to
guarantee savings, negotiate rates which discount the fee-
for-service maximum. This is done by applying a
percentage to the fee-for-service base, usually between 90-
95 percent, although sometimes the discounts are
greater.(21) In Michigan, a sliding scale of
reimbursement is used to take into account the length of
time the plan has been in operation, as well as its total
enrollment. This scale runs from a maximum of 98% of the
fee-for-service expenditures to a minimum of 90%. (58)
Michigan's approach assumes the plan gains in cost-

 eiogs potential as it acquires experience in

prepayment. Frequently, states encounter a conflict
between the goal of providing accessible, quality care and
the political necessity of paying less for prepaid
services than the prevailing fee-for-service rates. In
the final analysis, "the selection of the ratio of HMO
rates to fee-for-service costs is a policy issue." (4)

Rowland and Lyons point out that "...implementing broad-

-14-
''scale reform is easier if the capitation rates are

generous and competitive with private rates." (69)

In determining the fee-for-service-maximum, a state
identifies the most recent "typical" base year for which
complete data are available. Therefore, trending factors
and asssumptions play an important part in the ultimate
level of the rate, as does determining proper adjustment
levels for various utilization indices. "...Controversies
arise in predicting expenditures to establish a
prospective premium". (3) States which have experience in
prepayment will have available current data upon which to
project future rates. Thus, for example, Michigan's rate
calculations are based on fee-for-service expenditures for
the fiscal year immediately preceding the contract
year.(57) Organizations with little or no previous
experience in caring for Medicaid recipients on a prepaid
basis usually lack the data to dispute a state's rate-
setting methodology. (See 78,23) Fox and Anderson cite
the experiences of Missouri and Minnesota where
Capitations had to be reduced due to lower than expected Y
fee-for-service revenues. (69) There are reports that
rate negotiation in some states has taken longer than
anticipated due to the combined inexperience of the state

and the plan with capitation arrangements. (2)

-15-
''Other components of the rate may include
utilization, age, sex, category of assistance, benefits to
be covered, geographic area, and other variables. (See
rate setting methodologies of Santa Barbara Health
Authority, Monroe County, New York, Minnesota, and
Michigan, 33,7,23,57, respectively.) In her 1984 summary
of the HCFA demonstration projects, Haynes noted that
"rate setting methodologies vary with respect to how they
distinguish between eligibility groups and utilization
patterns. The New Jersey rates were based on age, Sex,
county of residence and category of eligibility. The
Missouri rates only differentiated between adults and
children, while the Santa Barbara program's rates were
based on aid category, with no age or sex adjustment. The
Minnesota demonstration considered age, sex, institutional

setting and Medicare status."(36)

Heinen, et al. identify four areas of difficulty
concerning the rate setting process:(36a) (a) "inadequate
documentation of the rate setting methodology, (b) trend
factors viewed as unfairly low, (c) too many or too few
rate cells and lack of homogeneity within rate cells, (d)

inappropriate geographic base."

Based on her analysis of utilization patterns before

=16 =
'' 

and after HMO enrollment by Medicaid recipients,

DesHarnais notes, "the relative health risk of the HMO
enrollees, compared to those Medicaid beneficiaries who do
not enroll in HMO's" should be included as a variable in
the rate-setting process, as well. (19) Heinen, et al.
point out that the result of favorable or adverse

selection is "under or over payment by a rate structure
that assumes average risk". (36a) In his study on
selectivity in enrollment and disenrollment, Bice
determined that among Medicaid patients enrolled in an

HMO, those disenrolling were younger and healthier than «~~
those who remained in the plan. The "characteristics of
new enrollees do not compensate for those of disenrollees,
leading gradually to a predominance of the latter." He
therefore concluded, "setting HMOs' premiums on the basis
of average fee-for-service costs will result in wf
underpayment of HMO's. This would indicate that actuarial

approaches to setting premiums would receive greater

attention than they have to date."(8)

Minnesota tried to grapple with the health status
issue by contracting with a consultant to develop a health
status adjustment. They still hope to incorporate such an
adjustment "but preliminary efforts have not yet produced

a fully satisfactory approach". (23)

“175
''"Other rate setting problems include lack of cost
data when the state changes benefits, difficulties
imputing administrative costs, and decisions about how to
accrue interest earned from investing capitation
payments."(3) In addition, problems arise from the areas
in prepayment and Medicaid programs which are
fundamentally incompatible. (36a) For example, court

V ordered treatment can be problematic because the courts
may order services which may be covered by the capitation
payment to the plan but which have not been authorized by
the plan. In this case, who would be financially

responsible, the state or the plan?

Adjustments to the rate (either additions or
reductions) may be made for risk pools, stop-loss
insurance (to protect against unanticipated adverse
selection), and different levels of benefits from the fee-
for-service package, etc.(21,29). As experience in
prepayment is gained, fee-for-service, as a basis for rate
setting, may be replaced by a process which more closely
reflects a plan's true costs as determined by projected
utilization of the target population.(29) In his status
assessment of the HCFA demonstration programs, Hurley
notes that the fee-for-service base is no longer stable

due to major changes in the methods of health delivery and

-1§-
'' 

a declining number of programs. He sees the erosion of the
fee-for-service base as having the potential to inhibit
participation and "destabilize provider relations". (40)
Curtis states, "In general the combined effects of low
Medicaid payment and pressures to reduce utilization make |~
it more difficult for HMO's to operate within fee-for-
service equivalent rates."(18) "Rate setting has now
arrived at center stage, especially for the mature

programs assessing the long-term possibilities of case

management ."(40)

In the future, Wisconsin plans to set capitation
rates based on" a percentage reduction off the average
cost per beneficiary enrolled in an HMO".(69) In
Michigan, although fee-for-service will continue to be the
basis for rates offered to HMO's, the state and the
participating plans have expressed a desire "to make the
rates more ‘actuarial' and less subject to aberrations in
paid fee-for-service data".(4) Therefore, changes will be
made to base 1988 rates on date of service rather than

date of payment of claims.
The rate-setting process may involve competitive V
bidding, direct negotiations, or a combination of these.

The 1985 DHHS study on HMO Medicaid contracting reported

-19=
'' 

that “approximately 45% of the state Medicaid agencies set
the capitation rate and 45% negotiate the reimbursement
rate with the HMO. Very few state Medicaid agencies
(MA's) use the competitive bid process with a cap set by
the Medicaid agency and there were no state MA's
interviewed that set the rate by a competitive bid.(82)
For example, Arizona conducts competitive bidding, (which
includes negotiation), California enters into "selective
contracting", and Wisconsin pays a negotiatea capitation

which must be below a ceiling determined by the state.

Competitive bidding recently has been promoted by
policymakers as a market based approach which will help to
achieve cost containment in the provision of Medicaid
services.(6) It is also an approach which responds to a
dilema faced by public authorities who want to reduce
spending for Medicaid, but don't have data to justify
lower levels of reimbursement. "Bidding offers one
appealing way of dealing with overpricing per unit of
service that comes from ...unduly high profits or
differential inefficiency. The great virtue of bidding is
that it allows the buyer to achieve a price close to the
efficient cost of production even though the buyer starts

with absolutely no information about production

-20-
''costs".(11) Presumably, bidders have an incentive to
provide and deliver care in a cost-effective way to permit
them to set their bids at a level which would result in
the award of a contract. High cost bidders might risk
losing a contract and so competitive bidding discourages
fee and charge increases.(15) Christianson et al.
contrast these aavantages to the shortcomings of the
existing system "where providers are reimbursed on a cost-
plus basis (and) there is little incentive for them to
restrain cost increases or innovate in the delivery of
medical care since either action would reduce their cost

base and hence, their revenues." (17)

Perhaps the best known example of competitive bidding
for Medicaid prepaid health services is AHCCCS, the
Arizona Health Care Cost Containment System. AHCCCS is
the first system to implement a comprehensive competitive
procurement state-wide for Medicaid services.(83) When
the Arizona legislature established AHCCCS in November
1981, a competitive bidding process to select providers
Participating in the program was one of the six key cost
Containment features of the legislation. "Although the
legislation and the contractual arrangements are
intricate, the underlying premise is simple: prepaid care,

contractea for competitively —- and operated with proper

=—gi-

 
'' 

oversight -- is the most cost-effective means of providing
appropriate care for the state's poor".(24) The bidding
process was only generally defined in the legislation and
placed few limits on the types of bidders who might
participate.(16) Thus, HMO's, hospitals, county
facilities, and other private organizations were invited
to offer bids. At the program's inception, providers
could bid on a service area basis to provide services in
whatever category of care they selected (ie. inpatient
care, outpatient services, including dental and emergency
care, pharmacy, laboratory, x-ray). Now, only full
service bidders are accepted.(52) Finally, bidders were
required to submit capitated bids for separate categories
of enrollees: AFDC, blind, aged, disabled, and the state
sponsored medically indigent population. "Bidders are
required to describe how the benefits are to be provided,
the cost of providing those benefits, and the case mix and
utilization assumptions underlying proposed rates". (52)
They are also asked to indicate how many recipients they
can accomodate, by county, if they are awarded a
contract. To foster competition, the legislation
stipulated that more than one provider, preferably more

than two, would be selected for each county. (86)

While there are those who believe that competitive

-22-
''bidding is "conceptually superior to the publicly financed
Medicare and Medicaid programs" (86), there has only been
limited experience with competitive bidding for health
care services, primarily in Arizona and California, most
of which is quite recent and not fully evaluated. (20)
Several studies which evaluate the procurement aspects of
the AHCCCS project point out that due to several policy
decisions made in the course of its implementation,
AHCCCS, in fact did not use competitive bidding in its
pure form. Kirkman-Liff et al., believe "the competitive
approach to controlling costs did not work as
designed".(47) A GAO study concluded that price
competition was reduced because AHCCCS did not limit the
number of contracts to be awarded, and awarded them at
various prices, lessening the bidders' risk of '
nonselection. In addition, data on the use and cost of
medical services for Arizona's indigent care population
were not adequate to assist potential bidders in
calculating competitive rates.(83) "Finally because
Arizona statutes prohibited direct negotiation with
bidders, AHCCCS had to substitute a voluntary price =
reduction method after publicizing bids, which may have
resulted in less competition because initial bid prices
were known to all bidders." (83) Christianson, et al.

concur with this conclusion and note "there were strong

-23-

 
'' 

feelings expressed in interviews with bidders and program
officials in Arizona that at least some bidders
anticipated negotiation after bid submission and included
a margin in their bids which could be given up in the
negotiation process".(16) They further report that
"bidding was considered by many providers to be a risky
proposition, given the lack of data on utilization
patterns and on the historical costs in Arizona of
providing prepaid care to the eligible groups". (16)
Thus, Hillman, et al. conclude that an analysis of the
implementation experience in Arizona, "clearly suggests
that competitive bidding, as implemented in practice, is
generally likely to have less than ideal incentives for

cost containment...".(37)

It is clear that maximizing the cost-saving potential
of a rate setting method like competitive bidding must be
balanced with programmatic objectives. Bovbjerg points
out that unless requirements concerning quality are
thoroughly specified in advanced (which is difficult to
do), if a contract is awarded to the lowest bidder,
"quality will be set as low as permitted by the quality-
monitoring mechanism".(11) In addition, although ideally,
those winning contracts during one cycle of bidding should

face the possibility of losing the contract in the future

-24-
''if competitive bidding is to be maximized, the state's
desire for continuity of care which would result in
favoring incumbent contract holders, conflicts with this

objective. (16)

California has used selective contracting, most
notably in setting hospital rates. This is considered a
modified competitive bidding system because it contains
elements of negotiation.(20) Legislation enacted in 1982
authorized the Medi-Cal program and private insurers to
contract with hospitals and physicians for "alternative",
ie. negotiated rates. The objective was to enable large
purchasers of care to use their leverage so that only
hospitals and physicians willing to accept a negotiated
price for their services would receive a contract.
Hospitals were asked to bid by offering prospective all- +~
inclusive per diem rates. Although this process was
called "bidding", the rates were actually arrived at by
means of a negotiation between the provider and a
specially designated negotiator. The explicit goal of
this legislation was to achieve large savings in health
Care expenditures, primarily arising from two interrelated
etfects.(1l) Inpatient days were expected to be shifted
from high cost providers to lower cost providers, and the

prices paid to the contracting hospitals were expected to

-25-

 
'' 

be lower than they otherwise would have been under
traditional reimbursement policies. Johns, et al. point
out that "selective contracting may indeed induce price
competition among providers anxious to ensure a flow of
patients and "prudent buyer" attitudes among payers for
care, thereby promoting cost-containment. On the other
hand, selective contracting may restrict consumer freedom
of choice of provider in various ways, with possible
detrimental effects on access to care, quality of service,
and health status."(46) For example, after one year of
Medi-Cal selective contracting, 67% of all hospitals which
had submitted "best and final" offers won contracts. (20)
However, Igelhart notes that the then California Secretary
of Health and Welfare, stated that the state had
contracted for far more hospital inpatient capacity than

it needed in the first round of negotiations. (42)

The selective contracting process resulted in savings
of 15%.(45) However, Christianson et al. point out that
the rates resulting from selective contracting "may bear
little relationship to the actual costs of providing care
(put rather) the relative bargaining power and incentives
of the participants... (the result of which) is likely to

be an accomodation between the rate setting body and

providers which does not necessarily restrain cost

-26-
''increases". (17)

While it may be too soon to judge the ultimate
effectiveness of selective contracting as a rate setting
process, Johns et al. point to several lessons gleaned
from the California experience with important policy
implications.(46) The authors note that under selective
contracting, not every provider is guaranteed a contract
to provide services because entitlement is a disincentive
to serious negotiation. Second, "if the state's goal is
to moderate overall inflation in health care costs and not
merely to stanch the flow of funds from the Medicaid
program, the opportunity to engage in selective
contracting must also be available to private payers" in
order to avoid cost-shifting from one sector to the
other. Under this process, there must be a method to
review utilization to assure that under-utilization does

not occur with reduced prices.

Whatever method is used to establish the
reimbursement rate, organizations with little or no
experience in operating under a prepaid system, such as “
community health centers, are particularly vulnerable in
the early years of such a program. The development of

adequate systems to monitor experience on an on-going

-97-

 
''basis is critical. See (80) and (60) for discussions of
financial planning for developing prepaid systems which is
applicable to a CHC's existing grant and fee-for-service

structure as well as prepayment.

-28-
'' 

IV Risk and Reinsurance

The ability to contain health care expenditures has
been the key reason states have been so interested in
prepaid managed care systems. Strategies such as
"gatekeeping" and "case management", assume the
Physician's ability to control and coordinate care,
thereby modifying utilization patterns but assuring an
appropriate level of services to each patient. (25)
Financial incentives, especially in the form of risk-
sharing, are a means of affecting provider behavior in

order to achieve this desired cost-effectiveness.

[Although financial incentives can be integral,
"reimbursement changes alone are only a first step toward

Significant delivery reform".(62) Freund notes (29) that

administrative mechanisms such as utilization management ~~
can also affect physician behavior and such mechanisms
need not involve financial incentives. She cautions that
financial incentives alone, are not sufficient to assure
the financial viability of a plan. "Evidence across

“

plans, suggests that even the strongest financial
incentives in current capitated plans are not successful
in reducing health care costs in the absence of strong

administrative controls...". (27) "Management

-29-

 
'' 

control in the form of information, utilization review,
and prior approval are viewed as necessary complements to
any financial arrangement made with physcians."(25) (See

section VI on utilization management.) ]

The methods of distributing risk can be reflected in
a variety of different structural relationships. Freund
and Neuschler identify five approaches states have taken
to incorporate managed care into their Medicaid systems
which encompass three dimensions of variation, including
financial incentives. [The other two are organizational
arrangements and recipient participation.(31)] These
categories are: traditional fee-for-service, where the
primary care provider becomes a case manager; contracting
with a health-insuring intermediary which is paid ona
capitated basis; contracting with HMO's or other prepaid
plans on a capitated basis; contracting by state, or HIO
with a primary care provider ona paritally capitiated
basis (ie., only primary care services plus lab and x-ray
are capitated. All other covered services are paid for by
traditional methods.); encouraging enrollment in prepaid
health options, such as HMO'S, while maintaing the fee-for-

service system as an option.

In simple terms, risk is transferred by the state and

-30-
''is borne either by the provider of care (eg. the

physician), or the insurer of benefits (eg. an HMO, CHC,

HIO, etc.), or both. See (40) for a graphic description

of these relationships. When the insuring entity shares

the risk with participating physicians, such entity may
receive a capitation from the state (and is therefore, at —
risk) and then reimburses its providers on a capitated

basis. Or, the insuring entity may reimburse its -
providers on a fee-for-service basis but withhold a

portion of the fee pending settlement of outstanding

claims. The insuring entity may also share Savings and/or  —.
losses with its providers by identifying levels of
utilization (expressed in dollars or units of service)

above or below which providers will gain or lose by

sharing surpluses generated from savings, or help finance
losses through reduction in fees or increased withholds.
There are numerous operational examples of these

approaches in the literature, a few of which will be

identified below. [See also, (7),(22)]

Prepaid capitation is the most typical of the
reimbursement methods used by states to transfer risk to
another entity. In some cases, the state Medicaid agency
contracts directly with providers who assume all or a

portion of the risk of providing covered services. Freund

<%~
'' 

describes this model as one which is operating ina
"competitive", environment where the provider entity is
competing with others to enroll and retain Medicaid
patients.(25) If an organization aecides to enter into a
contract with the state to assume risk, it must understand
the full affect the assumption of risk will have on its
financial viability. "It is critical that an accurate
analysis be conducted to determine if the anticipated
revenue from capitation payments will cover the costs

incurred" by the contracting entity. (80)

An example of a state contracting directly with a
provider of care can be found in the HCFA demonstration in
Kansas City, Missouri, where five organizations (including
two teaching hospitals, two CHC's and an HMO) participated
aS prepaid health plans and were offered to AFDC
recipients. kach PHP received a prepaid monthly

capitation and was at risk for the entire benefit package.

Plans may decide to purchase insurance to protect
themselves from unanticpated adverse experience or claims
fiuctuations. In Missouri, the state established three
risk-limiting risk pools in which participation was
mandatory. These were designed to protect the PHP's in

specific cases: long-term maternity or neonatal stays,

=32—
'' 

enrollment of a disproportionate number of high risk
enrollees, and high delivery rates (when deliveries
exceeded 105% of the rates for participating PHP's) .(2)
The availability of this type of risk protection was
particularly helpful to the participating community health
centers, which were not required by the state to maintain
risk reserves.(2) The per capita cost for insurance in
these three areas was deaucteda from the monthly capitation
payment. Missouri offered two additional optional
reinsurance provisions which could be selected at the
discretion of the PHP. These included stop-—loss coverage we
which covered expenses for inaividuals in excess of

$20,,000 per year, and an adjustment for the right to
recover and retain payments from third party insurers. As
with the mandatory reinsurance, the per capita cost of

each optional provision selected was deducted from the
monthly capitated remittance to the PHP. See (36) for
mention of reinsurance approaches in other HCFA
demonstrations. Fox and Heinen describe the risk
limitations in the Minnesota program where participating
plans received a capitation based on 90% of the fee-for-
service base.(23) Although the capitation included drugs,
all physician services and ancillary services, routine

nursing home costs were not included. Further, the state

paid 80% of annual expenses per indiviaual in excess of

-33-

 
'' 

$15,000 for AFDC eligibles and $30,000 for other
categories under a stop-loss arrangement. Plans able to
demonstrate financial adequacy could elect to waive the
state proviaed reinsurance in favor of higher capitation
rates. McCall (52) describes the evolution of reinsurance
in the AHCCCS program where state covered reinsurance
levels were based on plan enrollment. Individual plans
were permitted to purchase reinsurance above the limits
provided by the state. However, "contractors (were)
precluded from obtaining ...any reinsurance coverage that
would reduce plan liability below 25% of the applicable

reinsurance level during any contract year". (52)

Another means states use to transfer the risk of
underwriting the cost of insuring the Medicaid population
is to contract with a risk-assuming intermediary such as a
health authority or a health insuring organization.

Freund describes this as a "non-competitive" environment /
because counties are responsible for the delivery system.
(25) [Competition can take place among providers
contracting with the intermediary.] There were two HCFA
demonstration projects in California which illustrate this
moael, one in Santa Barabara and one in Moneterey. In

each case a quasi-public authority was established to

Operate the Medicaid program. Aved states the purpose of

-34-
''this intermediary was to “avoid the potential conflict of
interest posed by the county being a direct provider of
care and to remove a financial liability from the
county".(5) The health authority acted as the case
manager and was responsible for contracting for coverea
services with the full range of providers, including
physicians, hospitals, etc. Spitz describes the risk
arrangements under the now defunct Citicare program in

Louisville, Kentucky where the state and HealthAmerica,
(which acted as an HIO) reinsured expenses exceeding

Ccapitated revenue. (76)

The Monterey and Santa Barbara projects shared the
same legislative origins, (33,78) but they differed in
their approaches to delivering services. The Monterey
County Special Health Care Authority, which was in
Operation for almost two years before terminating in
bankruptcy, was intended to test the use of primary care
physicians as gatekeepers. It maintained fee-for-service
reimbursement, although the health authority received a
fixed capitation from the state and therefore was at
financial risk. To stimulate provider participation,
physicians were paid at rates that were "generally higher
than what the state would have paid for some physician

visits and hospital stays", (5) plus a $3.00 case

-35-
'' 

management fee. (This fee was eventually reduced to
$1.50.) "The Authority ended up being squeezed between
the fixed capitation payments it received from the state
to serve the Medi-Cal population and its own open-ended
payment arrangements with providers."(78) The approach
taken in Monterey demonstrates the "limitations of case

management without adequate financical risk sharing".(25)

The Santa Barbara Health Initiative received
capitated revenues from the state but compensated its
participating primary care physicians on a capitated
basis. The capitation paid to primary care physicians
covered physician services (primary care and referral),
hospital, lab, x-ray and pharmacy services. The primary
care physician received 80% of the capitation allocated
for primary care. The balance of the capitation was
placea in a reserve pool. If there were savings at the
end of the year, the primary care physician would share
these. If there was a deficit, the primary care physician
would share losses up to 20% of the primary care

capitation, or the amount of the monthly withhold. (33)

Reinsurance arrangements in Santa Barbara changed
over time. During the first year the case manager was at

risk for the first $15,00 per individual, and the state

-36-
'' 

for expenses in excess of this amount. During the second
year, the health authority's and the provider's exposure
was increased to $25,000 per individual; in this case the
physician case manager assumed the risk for $7,500 -

$15,000 and the authority for $10,000. (33)

-37-
'' 

V Marketing and Enrollment

The methods traditionally used by HMO's to market in
the commercial sector are not generally effective in
marketing to the Medicaid population. This is attributed
to "a lack of direct access for the HMO to eligible
populations due to confidentiality restrictions in Title
XIX regulations, a high turnover rate in enrollment, a
lack of incentive for beneficiaries to enroll, and a lack
of information for beneficiaries about the HMO
option".(32) In contrast to marketing to commercial
clients, before selling can begin, the plan must identify
and motivate prospective members, then, the "sale" must
be conducted on a one-on-one basis rather than in a

group. (68)

The National Governors' Association identifies three
main enrollment alternatives to traditional freedom of
choice (77): "mandatory enrollment", where all affected
Medicaid recipients must join (or be assigned) the
particular plan; "mandatory choice", where all eligibles

must choose among the participating providers; "voluntary

—38-
'' 

enrollment", where the choice of whether or not to enroll

is at the Medicaid recipient's discretion.

The opportunity for states to mandate enrollment ina
managed care program has simplified and facilitated the
enrollment process. [With the OBRA 1981 modification of
the "freedom of choice" provision of Title XIX, more than
half of the states have sought waivers from this
requirement.(69)] From the state and plan perspective,
mandatory enrollment or mandatory choice are desirable,
Projected cost-savings are assured if all Medicaid
eligibles are required to join a plan with whom the state
has negotiated a fixed, predetermined rate. From the plan ,~
perspective, cash flow is more certain due to the steady
flow of patients who will be required to join, and
marketing expenses are lower (1). Notwithstanding the
apparent advantages to both parties, it is interesting to
note that the 1985 study on HMO contracting activities of
state agencies, indicated that "enrollment in the HMO
program is voluntary in ninety percent of the state
Medicaid agencies and a forced choice is made in the
rest".(82) In Spitz's spring 1987 survey, he noted 12
mandatory programs.(75) He also pointed out that while
the term "mandatory" may have a pejoritive connotation,

states which require participation in designated programs

-39-
'' 

as a requisite to receive services often enhance client
choices rather than restrict them. He found that the
"restrictive aspects of (mandatory) programs did not
appear overly burdensome" and provide information to
prospective members that "was not normally available". (75)
It is interesting to note that among the states who
participated in the HCFA demonstrations, "all but New
Jersey chose to make enrollment mandatory, principally to
increase the numbers of participants. Cost savings was
the prime motivation because, historically, voluntary
programs have had low participation rates and the
potential for cost savings increases with the number of

participants". (36a)

Freund notes, however, that "whether simple mailing
of extensive multimedia advertising is used, somewhere
between 30% and 50% of the eligible population never makes
a choice of plan at the required time and therefore must
be randomly assigned to a provider (health plan or
physician)".(26) In examining the HCFA demonstration
projects, (all of which are mandatory except New Jersey )
Hurley, too, found "a high percentage" of individuals fail
to select a provider under a mandatory enrollment
program.(40) The states use various approaches to "auto-

enroll" those who fail to select a provider during the

-40-
'' 

specified timeframe. For example, in the Preferred
Enrollment Initiative in Milwaukee, "if beneficiaries did
not voluntarily choose an HMO within four months, the
state assigned them to the HMO nearest to their residences
with the lowest capitation rate, as long as the HMO had
not exceeded its maximum number of enrollees". (69)
Minnesota, contracted with a non-profit company to act as
a broker between the plans and the enrollees and to assist
in disseminating information about the participating
plans. When a Medicaid recipient failed to select a
provider after 45 days of his/her receipt of an
informational mailing, the client was randomly assigned to
one of the plans by the broker. Inspite of the use of
various efforts to communicate with new clients to inform
them of the different options (including phone-calls,
written materials, special arrangements for those needing
assistance to attend presentations, etc.), "low attendance
at early presentations...resulted in a high rate of random
assignment of beneficiaries failing to elect" a plan.(23)
After these disappointing results, literature was revised,
and renewed efforts to follow-up mailings were initiated.
Nevertheless, these new approaches haven't entirely
eliminated the problem.(23) The MediCap program in Monroe
County, (Rochester) New York, conducted orientations in

the county welfare offices. If a client failed to select

-41-
'' 

a provider within 23 days (s)he was automatically assigned
one on the basis of geographic location, prior use by the
enrollee, and "any other pertinent information provided
during the initial interview".(7) Approximately one-third
of the enrollees were auto-assigned by MediCap.(7) AHCCCS
initially applied an auto-assignment algorithm designed to
maintain each plan's historical percentage of enrollment
within each zip code. After 1984, the algorithm was
changed so that an equal share was assigned to all plans
within each zip code. (There are exceptions to this within
certain counties, such as Maricopa (Phoenix), where the
Maricopa Health Plan received half of the assignments and
the balance was distributed in equal shares to the other
plans.(52) Interestingly, in Wisconsin, there was a very
high rate of voluntary enrollment (75.5%), which is
attributed to the extensive advertising campaign by the
participating HMO's in an extremely competitive market.
"Advertising created a strong public awareness, and people
apparently perceived differences among HMO's and preferred

not to be assigned to one by the state government."(21)

There are problems associated with auto-assignment.
For example, "in Missouri, it has been surmised that auto-
assigned enrollees have higher out-of plan use rates than

self-assigned enrollees; in New York high rates of

-42-
'' 

provider switching among auto-assigned enrollees led some
providers to develp their own schemes of transferring
capitation payments in order to reconcile accounts". (40)
(Also see 7.) Fox and Anderson observe that "in states
with mandatory enrollment, the primary issue is whether
high-risk patients (such as pregnant women who enroll late

in their terms) are distributed evenly among plans". (3)

There does not appear to be general agreement
concerning the most effective Medicaid marketing
techniques. What works in one location often is not
successful in another. Differing regulation precludes
uniformity. Based on the California PHRED (Prepaid
Health, Research, Evaluation and Demonstration) project,
which was funded by the federal government in 1976 to
develop model programs which could be used by any state,
Owen states, "the Project demonstrated the viability of
applying the dual-choice concept, long a basis of HMO
marketing, to the Medicaid market".(67) She identifies
three types of issues which must be taken into account in
the course of Medicaid marketing, when there is a
governmental unit involved in the process: (a) "practical
issues" (deciding who makes the marketing presentation,
who monitor's the plan's presentation, who decides on the

content of the presentation, what types of additional

-43-
'' 

marketing approaches should be made, (eg. advertising),
how much should the government spend in preparing
information and assigning staff to disseminate and explain
it, how much the plan should spend to supplement
government efforts), (b) "political issues", (concerns
about freedom of choice, addressing concerns of fee-for-
service sector of provider community); (c) "ethical
issues", (objectivity vs savings, whether dual or multiple

choice should be provided to Medicaid recipients. ) (67)

The PHRED project found major abuses in door-to-door
“ solicitation as an enrollment technique. In addition, to
being expensive, this approach was deemed subject to fraud
and misrepresentation.(67) Accordingly, in California, the
welfare office became the site of enrollment. Galblum and
Trieger report that the preliminary PHRED evaluation
indicated that "marketing in the welfare offices can yield
sufficient enrollment of Medicaid AFDC beneficiaries to
permit elimination of door-to-door solicitation without
adversely affecting the viability of the health plan
contracts... and welfare office enrollments cost about $9
per person enrolled whereas door-to-door marketing cost
between $45 and $50 per person enrolled". (32) Other
states concur with this assesment of door-to-door

solicitation. Wisconsin prohibits it, as does Missouri.

-44-
'' 

Initially, in Michigan, door-to-door marketing was
permitted and the enrollment of "a significant number" of
recipients was attributed to its use.(58) However, the
Michigan Attorney General subsequently ruled that
releasing the names and addresses of recipients was a
breach of confidentiality. Therefore, the practice was
discontinued. In states where door-to-door marketing is
permissible, but where the states do not release recipient —
names, plans market "cold" by soliciting in housing
projects where large numbers of Medicaid recipients may
reside, or provide materials to the state to mail to
recipients. Plans also go door-to-door when prospective
members have signed response cards mailed to the HMO
requesting additional information. "This was found to be
an effective means of enrolling Medicaid recipients but it
was also found to be very expensive and time-consuming".
(82) Sometimes, marketing is permitted door-to-door but
enrollment must take place in the welfare office as a
means of assuring full and fair disclosure. "Under the
HCFA demonstrations, states either prohibited direct

marketing to consumers or constrained it." (36a)
Other marketing tools include brochures, enrollment
packets, mass mailings, mass media advertising, slide/tape

presentations, group presentations and word of mouth.(80)

-45-
'' 

Marketing materials "should be developed specifically for
the Medicaid population and should be clear, concise, and
written at the appropriate level. Special care should be
taken to provide for non-English speaking populations,
where applicable." (80) Link, et al. report that an
effort by HIP in New York City to enroll AFDC recipients
recognized the link between benefit explanation and
literature aistribution. "...To ensure enrollee retention
through realistic program expectations, literature highly
informative as to plan benefits was developed. In
addition, a manual for Medicaid enrollment... (provided) a
step-by-step guide to enrollment, including those topics
to be discussed between enroller and prospective
client."(49) With regard to the dissemination of
literature, this program found the most effective approach
to be a mass mailing which was included with the public
assistance checks. This was considered effective because,
"first, the offering literally entered the prospective
enrollee's home and was sure to be seen. Second, the
volume of mailing assured a substantial amount of
inquiries. Third, and most important, the offering was
sent by the New York City Department of Social Services,
which legitimized the offering through association with
the public assistance check."(49) McCall at al. recognize

"the importance of providing sufficient information about

-46-
'' 

available options so that members can make informed
choices and of allowing plans to compete vigorously for
new members. These considerations must be balanced
against the potential for abusive marketing practice."

(52)

Freund points out the important relationship between
the marketing/enrollment process and eligibility/
certification. She notes the reliance of Medicaid
programs on the welfare/social service subsystem. "As
eligible individuals become certified and choose a
provider, this information must be provided in a timely
fashion to providers either directly or through the HIO.
Delays or breakdowns in this process can prove disruptive
to the program, harmful to the eligibles, or costly to the
providers who become responsible for providing or
authorizing care once the recipient is enrolled in their
panel."(29) The GAO assessment of AHCCCS concurs with
this and notes that due to a substantial delay between
eligiblity determination and enrollment during the
program's first year, the cost to the state was
great.(83) This lag has apparently been reduced but not
entirely eliminated. Therefore, the GAO recommended that

"fee-basis costs should be budgeted for (by the state)

during the period between application for Medicaid

-47-
''coverage and enrollment in a prepaid plan." (83)

The HHS survey of the contracting activities of HMO's
and state Medicaid agencies noted the link between
enrollment turnover and the absence of extended
eligibility, problems in timely and accurate eligibility
determination, and marketing access problems.(82) These
four areas were noted as the most frequent sources of
frustrations HMO's found in dealing with state Medicaid
agencies. High turnover of Medicaid enrollees means that
HMO's "must market themselves aggressively and
continuously just to keep their Medicaid enrollment from

declining. Many are not willing to make this effort". (31)

43=
'' 

VI Utilization of Services

An assessment of the rates of utilization of services
in Medicaid prepayment programs is essential to any
evaluation of the efficacy of such programs. Although
studies are underway, results are not conclusive. Abrams
points out that "studies are spotty at best and tend to
raise more questions than they answer".(1) Furthermore,
as noted in Group Health Association of America's (GHAA)
survey on national HMO trends, the fact that (Medicaid)
enrollment in prepaid programs is not widespread, "dilutes
national statistics". "Utilization figures, therefore,
are based on a small sample size--13% to 18% of the
respondents..." (35) (Note: this survey counted only
Medicaid enrollment in federally qualified and state-

certified HMO's.)

In comparing the utilization of Medicaid recipients
enrolled in HMO's with those who were not enrolled, the
GHAA survey found that based on 1985 data, "Medicaid
recipients not enrolled in HMO's average 1,345 inpatient
days per 1,000, (have) an average length of stay of 8.2
days, and 166 discharges per 1,000. This compares to an
inpatient rate of 467 days per 1,000, an average length of

stay of 4.3 days and a discharge rate of 111.9 for those

-49-
'' 

recipients who are enrolled in HMO's".(35) These data
are significant because expenditures for inpatient
services constitute such a large portion (29.2% in 1984)

of total Medicaid expenditures (HCFA Statistics, 9/86)

Bonham and Barber compared utilization of Medicaid
recipients before and at the end of the Citicare (primary
care network with physicans capitated and subject to
sharing in savings and loses) program in Louisville. They
found that the rate of hospitalization did not change
during the Citicare program, nor was there significant
difference in the overall amount of ambulatory care or
prescription drugs prescribed. However, emergency room

use was 40% lower during enrollment in the program. (10)

Bice and Wintringham recently compared the use and
costs of services of Medicaid recipients enrolled in an
HMO to those of other HMO enrollees and to fee-for-
service Medicaid recipients. "Overall, Medicaid
beneficiaries enrolled in the HMO consume more health
services than either FFS Medicaid or Group Health
Cooperative (GHC) general population. This pattern is
particularly evident with respect to inpatient services:
the GHC Medicaid population's annual rate of use is nearly

twice that of the other populations." (9) In view of

-50-
''these findings, the authors conclude that HMO's do meet
the objective of improving access to care but may do so at
higher cost. They suggest that higher utilization by
Medicaid recipients "constitutes a potentially large
financial loss to the HMO".(9) This prospect could be a
serious deterrent to HMO involvement in managed care
programs unless reimbursement methods are adjusted to take

into account these findings.

Freund, et al. have reported the first survey results
concerning utilization from the Nationwide Evaluation of
the Medicaid Competition Demonstrations funded by HCFA.

By means of a consumer survey, they investigated whether
enrollees in the Santa Barbara and Missouri HCFA
demonstrations used fewer services than non-enrolled
comparison groups in the Medicaid population. This study
is considered the first opportunity to assess the impact
of prepaid case management on service use in a competitive
environment for the Medicaid population. "Results
indicate some success on the part of the capitated
alternatives to control utilization, although the effects »—
differ according to the state, and to the eligibility
group of interest."(57) However, the authors note that
the survey data are derived from the first years of

operation of the demonstrations which were studied.

-51-
''Therefore, they caution, "it 1s entirely possible, given
the health problems of Medicaid beneficiaries, and their
lack of experience in capitated arrangements, that it will
take much longer for HMO's or other capitated plans
enrolling Medicaid beneficiaries to stabilize their
utilization patterns. This problem may be a particularly
significant operational problem for plans that experience
substanital turnover in Medicaid enrollment due to the

nature of eligiblity problems."(28)

The problem of turnover of Medicaid enrollees is "the
most common problem experienced by HMO's.(82) In their
study of the effects of turnover on utilization of
services by Medicaid recipients, Wintringham and Bice note
that the high annual rate of turnover (between 25-30%)

f° wcssounites for "higher rates of use and, therefore, higher
costs."(89) In their study, the authors found that the
average tenure for all Medicaid recipients in the HMO was
slightly more than one year. They found use rates of
Medicaid enrollees higher than the general HMO population
and "the rates of use are especially high among
disenrollees", (ie., those who disenrolled after only a
year's enrollment) particularly for inpatient services
where the "Medicaid beneficiaries' admission rate is more

than 50% higher than that of GHC's general enrollment,

-52-
''and the Medicaid population's rate of inpatient days is
nearly 352% greater". (89) Although the impact of start-

up effects are great, as tenure increases, the utilization
rates of Medicaid recipients begin to level off and

approach that of the non-Medicaid membership.(28) In view

of these findings, Wintringham and Bice recommend a

minimum period of guaranteed enrollment of about two years “
to enable the HMO to recoup its front-end costs and to

allow states to avail themselves of the benefits of HMO

cost efficiencies.

Wintringham and Bice's concern about adverse
selection leads them to conclude that the initial higher
utilization of services of Medicaid recipients is at least
in part due to the "exceptionally high needs" of such
members. There are those who express the opposite
concern that HMO's and other prepaid plans may benefit
from "preferred selection", whereby "disproportionately
more of the low utilizers and the nonutilizers" select the
prepaid option.(19) DesHarnais speculates that since
Medicaid eligibles generally do not incur out-of pocket
costs for their medical care, "lower-risk people may be
more likely to enroll in HMO's because they do not have to
sever existing doctor-patient relationships to join an

HMO".(19) Indeed, her research demonstrated that "those

-53-
''families with no physician contacts while under the fee-
for-service option were the ones who were most likely to
join the HMO's".(19) Further, her data showed higher than
average utilization rates following HMO disenrollment.
DesHarnais suggests that "those HMO enrollees who required
the most care had more opportunities to become
dissatisfied with their HMO's. These higher risk people
may have disenrolled in order to have access to other
physicians."(19) [Spitz also suggests the possibility that
physicians try to urge selective aisenrollment of Sick
patients.(75)] However, DesHarnais notes that she found
no evidence that participating HMO physicians influenced

high users of care to disenroll.

Vogel and others point out the possibility of "cream-
skimming".(86) Freund and Neuschler note that this
problem is avoided from the state perspective in
mandatory enrollment programs where all Medicaid
recipients are required to enroll ina prepaid plan. Of
course, individual provider groups could suffer adverse
selection. Nevertheless, “absent any empirical evidence
to suggest biased selection is occurring, states usually
feel comfortable that they are saving money when Medicaid
recipients voluntarily enroll in HMO's. This assumption

will be tested in all HCFA funded evaluations". (31)

-54-
'' 

"While the extent of cost containment depends on many
factors, virtually all prepaid organizations have in
common utilization controls designed to ensure appropriate
use of medical resources, and to eliminate unnecessary
services." (80) These kinds of controls are usually
incorporatea into utilization management programs which
are defined as the "evaluation, in a timely manner, of the
necessity, appropriateness and timliness of services
Provided to a member... The goal of utilization management
is to develop responsible providers, both clinically and
financially."(61) The introduction of prepaid Medicaid
enrollees into HMO's does not disturb such a plan's
Customary way of conducting business. However, for
Organizations such as community health centers which are ,~—
new to prepayment, and which usually provide services ona
fee-for service-basis, the introduction of an enrolled
membership represents a departure from the way they

normally deliver services. (80,61)

Plans participating in the HCFA demonstrations
display a variety of approaches to utilization managment.
In Monroe County, New York, for example, "the extent of
internal utilization review systems varied widely by
provider". (7) Techiniques included monitoring lengths of

Stay for inpatient services, pre-admission certification,

-55-
'' 

concurrent and retrospective review, and prior
authorization requirements for ambulatory care services,
and prohibitions on self-referrals. "Many of the
affiliated providers do not have established procedures
for handling inappropriate use of emergency room services,
but they are currently being developed and will be
included in newly created UR programs."(7) In Santa
Barbara, the Health Authority established a 3-tiered,
centralized process which incorporated prospective,

/Y concurrent and retrospective reviews. The prospective
review includea referral and treatment authorizations.
Concurrent review involved on-site review of hospitals,
including length of stay assessment. Retrospective review
was conducted by means of peer review and internal review
of reports from the management information system. (33)

The Monterey Health Initiative relied on each primary care
physician to monitor utilization patterns of assigned
patients without a centralized system of utilization
management. The initial design of the program had no
formal prior authorization requirements but relied
instead on "informal peer pressure and management
information reports to control physicians' behavior". (78)
Eventually, prior authorization mechanisms were
implemented, but they came a year after the program became

Operational. Although, the Monterey program began to gain

-56-
''control of its utilzation, "it came too late... and was

too little in the face of the large deficit already
incurred."(78) Michigan has undertaken a "Lock-In or
Recipient Monitoring Project" where Medicaid clients with
historic over-utilization are restricted and monitored

more closely than under other programs. This has yielded

a 60% reduction in expenditure.(76)

In studying the primary care physician's gatekeeper
role in rural clinics in Arizona under the AHCCCS program,
Silverstein, et al. found "many medical providers did not
fully understand their expected gatekeeper role ina
capitated system, nor had they been educated as to the
cost of providing their services".(73) In addition to
having inadequate information about covered services, the
authors found the the participating physicians also lacked
manuals concerning information about protocols and
procedures. The authors conclude that to adequately
control utilization, "providers need to be well-informed
on covered services under any prepaid plan with which they
contract; they need to know what the expectations are in
their role as gatekeeper; and they need to know who to

contact for questions or grievances."(73)

-57-
''VII Management Information

An MIS can be defined as "a set of interrelated
functional modules that provide information to assist
managers in decision-making throughout the business cycle
of the prepaid system, that is, in planning and budgeting,
in service delivery, in operations, in financial
Management and accounting, and in evaluation." (80)
"...While having an MIS is not an assurance of an
effective program, its absence has profound negative
consequesnces in such areas as the following: program
operation and assessment, eligibility and enrollment
linkages, provider participation and payment, financial
monitoring, utilization review and managment, quality

assurance". (40)

In prepaid Medicaid contracting both the state
Medicaid agency and the contracting provider must have
access to timely and accurate information to properly
Manage the program. Many emphasize the importance for
both parties of having management information systems in
place before program implementation.(78) Spitz states, "A
primary care network must have an information system in

place prior to enrolling... The system should accomodate
''internal needs for management, as well as cost and
utilization reporting requirments by the

purchaser." (76) Freund reports plan administrators
consider management control in the form of information
utilization review, and prior approval ...as necessary

complements to any financial arrangement with

physicians."(25)

In another study Freund notes, "A common reason for
bankruptcy of a new alternative delivery system is failure
to implement an adequate MIS in a timely manner."(27) She
cites the Monterey Health Care Initiative as a case in
point. Aved concurs, noting "perhaps the most significant
factor (in Monterey's bankruptcy) was the project's
failure to produce solid financial and utilization
data". (5) In studying case management initiatives,
Freund and Neuschler found "the weakest element of program
Operations has been the failure to develop management
information systems, ana put them in place on a timely
basis".(31) Nevertheless, they note that as program
managers gain experience with prepayment, the significance
of appropriate feedback "has become increasingly

apparent". (32)

In her review of public sector examples of

-59-

—

-
''competitive health plans and alternative payment
arrangements, Freund summarizes the range of information
systems currently found in the field. "The most
sophisticated management information systems allow timely
on line computer entries by the physician or the health
plan ana give them the capacity for instant tabulation of
data in any format desired. Less sophisticated systems
which are common in the (HCFA) demonstrations only permit

remote entry of data and do not permit instant data
retrieval py the plan administrators, physicians or other
interested parties. Thus, daily activities cannot easily
be relatea to its overall financial performance. In the
more sophisticated systems, utilization review and prior
authorization are an integral part of the management

information system; in the less developed systems, they

are independent activities."(25)

In describing the MIS put in place in their plan (a
state-certified HMO with a CHC commponent), LaAsmar and
Tierney note that the purposes and objectives of the
system have changed over time. Initially, the MIS
objectives were to automate and increase the speed of
processing data, improve accuracy, develop and monitor
utilization review and quality assurance programs, and

conduct basic medical research studies. Over the years,

-60-
''the system has been changed and simplified "to provide
enrollment and demographic information, utilization
statistics, and financial information."(5) The authors
summarize the reports produced by the plan's MIS for each
functional area including enrollment, utilization review
and finance. See (80) for a complete set of sample module
specifications for community health centers, including the
functional capabilities and features recommended for each

module.

The states require information from the participating
plans to assure that the plans are delivering the services
for which they are contracted. A particular concern is
underutilization.(23) In its evaluation of AHCCCS, the
GAO recommended that the state's Medicaid Management
Information System "be directed toward detecting
underservicing.(83) The GAO noted that HCFA did not have
standards for a prepaid information system, and AHCCCS was
encountering many difficulties in trying to develop one."
Several states require plans with capitated contracts to
submit pseudo, or dummy claims, ie. the "equivalent to
itemized bills under fee-for-service reimbursement". (23)
(HCFA required all demonstrations to submit pseudo
claims.)(36a) The purpose of these claims is "to permit

comparison of utilization and cost information between fee-

-61-
''for-service providers and prepaid health plans."(2) This
requirement can be burdensome, particularly for HMO's
which don't prepare such claims in the normal course of
doing business. However, Anderson notes that in
Missouri, those plans which are accustomed to submitting
Medicaid claims will not incur additional expenses to
comply with state requirements.(2) In addition, states
use the data to assure the adequacy or appropriateness of
the capitation payments to the participating plans. In
their evaluation of the Minnesota demonstration project
Fox and Heinen note that "the ultimate use of data that
the MHPs (prepaid plans) are required to submit has not
been fully thought through".(23) and «ss"it is not. clear

that the states will, in fact, make use of the da ". (36a)

In their evaluation of AHCCCS, McCall, et al. make
four recommendations concerning information systems: (a)
"Careful consideration should be given to the design of an
intormation system specifically tailored for a prepaid
environment. (b) States and prepaid plans should commit
resources early in the planning process to ensure that
information systems are in place. (c) Incentives and
sanctions need to be established that encourage prepaid
plans to submit encounter and financial data on a regular

basis. (d) Useful comparative management reports should be

-62-
''provided to the plans on a timely basis to encourage
submission of complete and accurate financial and
utilization data."(54) Heinen, et al. suggest that "if
states wish to collect utilization data, they should plan
carefully for uniform (emphasis added) reporting and
efficient transfer of the information to state

databases". (36a)

-63-
'' 

VIII Quality Assurance

Strategies such aS prospective payment, selective
contracting and other alternative financing capitation
approaches that reimburse providers on a fixed,
predetermined basis regardless of the number or kinds of
services rendered can, "especially where the consumer's
options are constrained, create incentives for
underservice or reduced quality and access."(18)
Therefore, the Medicaid prepaid programs tend to focus on
under-utilization as the main area of quality assurance
concerns and "much of what has been cited as quality
assurance activities are largely utilization review

issues". (36)

Somers points out the critical issue concerning
quality assurance in general, that is the “lack of
professional agreement as to the optimum or even the
minimum, content of primary care. What conditions would
be handled by the primary care practitioner? What would
be referred? Universal and rigid rules on this matter are
clearly impossible."(74) Schaller et al. agree that
determining what "quality" is is difficult because there
is no "single, generally accepted parameter for measuring

quality of care". Rather, "it reflects a wide

-64-
''variety of characteristics of both provider setting, and
there is no single measure by which quality can be
quantified and compared".(71) Therefore, these authors
suggest that "quality of care" must be defined in the
context of prepaid systems to "maintain the integrity of
the provider-patient encounter system".(71) At AHCCCS a
working definition was developed to include
"accessibility, acceptability, continuity,
comprehensiveness, documentaton, reasonable cost, and an
assessment of the therapy as measured against the outcome
of care".(71) AHCCCS developed systems to monitor these
elements which include, grievance and appeals processes,
client advocacy at the state level, encounter data

processing, and medical audits.

One of the components of the AHCCCS quality assurance
program is a medical audit which is conducted by the
Accreditation Association for Ambulatory Health Care, Inc.
(AAAHC), a non-profit company under contract to the
state. The first audit of oranizations and providers
participating in AHCCCS took place in 1983. Over time,
the audit process itself has been evaluated and refined so
that it now consists of six distinct components: (a) a
checklist to review medical records; (b) provider site

evaluations (ie. assessment of physical facilities and

-65-
''environment), (c) EPSDI component to randomly review
charts for patients under 21 years of age, (d) low back
pain paradigm, (e) hypertension paradigm, (f) standards
review (ie. review of credentials, medical recordkeeping
practices, observance of patient rights, etc.) The
results of the annual audits are shared with the
participating providers who receive a written report from
AAAHC and AHCCCS. The providers are required to submit

corrective action plans to the AHCCCS medical director.

Hurley lists the typical quality assurance activities
he found in his status report of the second year
activities of the HCFA demonstrations: "Employment of
clinical personnel at the state or risk-assuming tiers to
oversee or conduct quality assurance efforts, monitoring
of 24 hour availability of the primary care case manager,
on-site medical record audits, operationalizing of quality
assurance plans and committees by providers, development
of clinical managment protocols for selected high

prevalence conditions."(36)

The efficacy of the quality assurance programs to
date is unclear. In general, these programs appear to be
in an evolving state. Spitz found that most states have

not yet defined or established "clinical standards or

-66-
''expectations that differ(ed) from (the states') treatment
of fee-for-service physicians".(75) He acknowledges that
as these programs mature states will introduce cane
appropriate standards. Hurley also found that the HCFA
demonstrations plan to devote more attention to quality
issues in the future.(36) Similarly, Rowland and Lyons
reported that in Wisconsin, a recent study found that in
spite of state requirments to submit specified encounter
data, "HMO's had quality assurance systems that were
either poorly developed or not yet operational". (69)
Early assessments of the AHCCCS program found this to be
true in Arizona as well.(54) However, McCall notes that
"the AHCCCS Administration has made quality assurance a
priority, improving its procedures for monitoring quality
of care and more strictly enforcing AHCCCS provider

contract requirements in this area". (52)

In the early 1980's, Luft attributed savings
achieved by HMO's to a 40% reduction in hospital we
admissions and hospital days. To determine the
comparative effects on HMO membership with fee-for-service
care, the federal government funded the Rand Health
Insurance Experiment. In their comparison of health
outcomes of poor and non-poor individuals assigned to

either an HMO or fee-for-service providers, Ware, et al.

-67-
''found "health outcomes in the two systems of care differed
for high and low income individuals who began the
experiment with health problems... The low income
initially sick group assigned to the HMO reported
Significantly more bed-days per year due to poor health
and more serious symptoms than those assigned free (ie.,
no out of pocket expenses) fee-for-service care, and a
greater risk of dying by comparison with pay (ie., cost-
sharing in the form of copayments of deductibles) fee-for-
service plans" .(87) "For the high and low income
Subgroups that began the experiment in good health, there
were no significant differences between the systems of
care" (ie., in terms of health outcomes). (87) ‘Thus,
based on their findings that the low-income sick
population didn't fare as well as the sick, higher-income
group enrolled in an HMO, Ware, et. al suggest that "high
and low income groups may realize different benefits from
prepaid group practice and FFS systems". However, the
authors were not able to explain the differences they
found. They point out that the low-income population may
have greater ditficulty in negotiating the HMO system and
are not comfortable with certain procedures established by
HMO's such as obtaining appointments, etc. Although, Ware
acknowledges that HMO's routinely address these kinds of

problems by means of outreach and other patient education

-68-

a
''IX Patient Satisfaction

There are several ways to assess patient
satisfaction. These include patient surveys, formal and
informal complaints ana grievance procedures. Merlis notes
that "generally, surveying low income populations poses
special difficulties. In face-to-face or telephone
interviews, results may be biased by beneficiaries' fears
that their answers will somehow affect their welfare
benefits; they may try to guess what the interviewer wants
to hear. Overall, reported satisfaction rates tend to be
high, and it can be difficult to pinpoint enrollees'
problems with access to care." (56) Freund agrees that
"satisfaction is another complex issue, including whether it
is an input affecting use or an outcome resulting from

use ."(29)

Through the Center of Health Policy and Program
Evaluation at the University of Wisconsin, the state
contracted to conduct a telephone survey of Medicaid
recipients enrolled in HMO's in two counties, Milwaukee and
Dane, to ascertain levels of satisfaction with enrollment in
participating HMO's. The study analyzed sixteen dimensions
of satisfaction, broadly categorized as "overall

Satisfaction, "access", and "the doctor-patient

-70-

 
''programs, he notes that those patients who particpated in
the Rand study were not eligible for such services.
Therefore, Olberg and Polich caution that the Ware

findings should be considered carefully because failure
to provide this type of education "may have had a yn
significant effect on the health outcomes experienced by

the experiemental group". (65)

-69-
''relationship".(50) A high percentage expressed overall
satisfaction with the medical care they received in HMO's
(80%); a lower percentage (60%) were satisfied with the
mandatory enrollment policy. Difterences were observed
between the two counties most notably regarding satisfaction
with the ability to get after-hours care, care in an
emergency, and the ability to get an appointment when
needed.(50) The study also looked at the degree of
switching HMO's among the enrollees and found that the most
frequent reason for wanting to change plans was the desire
to see a previous provider. Another reason was the ability
to see the same provider at each visit. There were those
who wanted to switch but hadn't done so because their
preferred plan was over-subscribed, or because they did not

know how to go about doing it.

Other studies report satisfaction with the care
received in HMO's. Bonham et al. found that seven out of
eight recipients felt they received good or excellent
quality care while enrolled in Citicare in Louisville.(10)
Heinen, et al. report that in the HCFA demonstrations,
“overall consumer reactions...appeared to range from neutral
to positive although only limited data are available". (36a)
McCall indicates that a 1983 study determined that 76% of

AHCCCS enrollees were satisfied with the health services

-71-
''they received. "However, 71% reported that they did not
know how to report a complaint about medical care provided
them".(54) Rowland and Lyons found that "beneficiaries who
are not satisfied with the care they receive frequently do
not know where or how to complain".(35) They suggest that
Medicaid HMO enrollees also may be reluctant to file
complaints because they fear they might lose their Medicaid

cards.

Providing Medicaid enrollees with information about how

to properly use the HMO system is important. In Milwaukee
it was found that ..."lack of post-enrollment counseling
results in frequent misunderstanding between beneficiaries
and their HMO's."(69) McCall states that because many
AHCCCS enrollees will not have had previous experience with
prepaid systems, it is important that plans have mechanisms
to educate members about how to access services and how to
use the system properly".(52) AHCCCS regulations require
participating plans to send member handbooks and a
description of the grievance procedures within ten days of a
member's enrollment. The HCFA study on disenrollment
concluaed that realistic expectations on the part of the

enrolled recipients will result in less dissatisfaction.

The Secretary of Health and Human Services was mandated

-72-
''in the Omnibus Reconciliation Act of 1981 to study the
extent and reasons for termination of enrollment by Medicaid
recipients in HMOs. Accordingly, HCFA studied three

states, Massachuesetts, California, and Wisconsin, to
examine the rate of disenrollment for Medicaid clients and
to identify the reasons for disenrollment.(see 84) The
study classifies reasons for disenrollment as either
voluntary or involuntary. The former occurs when a member
chooses to terminate his/her relationship with the HMO due
to dissatisfaction with the plan, including the "convenience
and amenities of the service system".(84) Involuntary
enrollment occurs due to a change in the recipient's status
(eg. moving out of the area), legal changes, programmatic
changes (eg. eligibility criteria), and administrative

error.

The study concluded that "recipients' interest in
maintaining pre-enrollment physician relationships was the
largest and most consistent reason for disenrolling from an
HMO".(84) "Resistance to the idea of HMO's is greater than
dissatisfaction with actual access to care or quality of
care in HMO'sS. On the basis of its findings, HCFA
recommended that an attempt should be made to maximize
physician participation in prepaid plans to facilitate the

continuation of existing patient-doctor realtionships upon

-73-
''enrollment in prepaid plans. Second, greater effort should
be made to create realistic expectations by means of
appropriate education before enrollment. Third, temporary
lock-ins may help Medicaid members become more accustomed to
HMO membership. "The inducement of guaranteed eligibility
and freedom to choose among participating providers within
the program may help people to accept being locked-in."(84)
In 1985 Michigan conducted a six month lock-in study and
reached the opposite conclusion from HCFA. This study
determined that since enrollees initiate voluntary
disenrollment, the HMO and the member may have the
opportunity to resolve complaints and grievances, thereby
promoting the possibility of member retention. In addition,
the study noted that the "lock-in is perceived by recipients
as restrictive and a disincentive to HMO enrollment". (73)
Furthermore, the state did not want to undertake the
extensive administrative steps required to meet federal
regulations concerning the lock-in provision. Finally, the
Michigan study found that there "was no significant
difference in total disenrollments between the two groups

(ie., those who were locked-in and those who weren't).(73)

-74-
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Policy Research, American Enterprise Institure, August
1985.

34. Gordon, Toby, De Angelis, Catherine, Peterson, R.
"Capitation Reimbursement for Pediatric Primary Care",
Pediatrics, January 1986.

35. Group Health Association of America. "1987 Survey of
HMO Industry Trends", Washington, D.C., 1987.

36. Haynes, Pamela. Summary of Case Studies of Medicaid
Competition Demonstration Projects. HCFA # 500-83-0050,
Research Triangle, June 1984.

 

36a. Heinen, LuAnn, Fox, Peter, Anderson, Maren. Summary
of Findings and Policy Issues From the Medicaid
Competition Demonstrations: A Guide for States, Lewin and
Associates, Washington, D.C., January 1988.

37. Hillman, D.G., Christianson, J.B. "Competitive Bidding
as a Cost-Containment Strategy for Indigent Medical Care:
The Implementation Experience in Arizona". Journal of
Health Politics, Policy and Law, Vol. 9, #3, Fall 1984.

38. Holahan, John. The Effects of the 1981 Qmnibus Budget
Reconcilliation Act on Medicaid. Urban Institute,
Washington, D.C., March 1986.

39. Hurley, Robert. Evaluation of Medicaid Competition
Demonstrations-—- Overview of Year Two Case Studies. HCFA #
500-83-0050, University of North Carolina, Chapel Hill,
August 1986.

40. Hurley, Robert. "Status of the Medicaid Competition
Demonstrations". Health Care Financing Review, Winter
1986, Vol. 8, #2.

41. Hurley, Robert. “Toward a Behavioral Model of the
Physician as Case Manager". Social Science and Medicine
Vol. 23, #1.

 

-78-
''42. Igelhart, John. "Cutting Costs of Health Care for the
Poor in California--A Two Year Follow-up"., The New v
England Journal of Medicine, Vol. 31l, #1, Sept. 13, 1984.

43. Igelhart, John, "Medicaid Turns to Prepaid Managed
Care" New England Journal of Medicine, Vol. 308, #16 (Ap
21, 1983).

44. Intergovernmental Health Policy Project. "Major
Changes in State Medicaid and Indigent Care Programs". The
George Washington University, July 1986 (scheduled to be
updated in 11/87 to cover 1/87-8/87).

45. Johns, L. "Selective Contracting in California".
Health Affairs, 4:3, Fall 1985. RA 3qz Al yy

46. Johns, L, Derzon, R., Anderson, M. "Selective
Contracting in California: Early Effects and Policy
Implications". Inquiry, Spring 1985. -(///CL-

47. Kirkman-Liff, B.L., Williams, F.G., Wilson, L.A.
"Medicaid and Capitated Contracting: The Arizona
Experince"., New England Journal of Human Services, Summer

1985. Coc, We) HYILNS

48. Levy, Mark. "Containing Medicaid Costs and Improving
Services Through Primary Care Networks: The Kansas
Experience". New England Journal of Human Services, Summer
1985.

49. Link, A. Austin, Greenidge, James, E., Monti, Nina, C.
"Successful Outreach and Market Strategies for Medicaid
Subscribers in a Large Urban HMO. Proceedings of the 30th
Annual Group Health Institute-- Skills Development for the
HMO Managers of the 1980's, May 1980.

50. Liss, Barry, Dunham, Nancy Cross. "Satisfaction With
Wisconsin's Preferred Enrollment Initiative: Results of a
Survey". Policy paper 86-3, Center of Health Services,
University of Wisconsin, March 1986.

51. Labitz, J., Gornick, M. "Symposium: Data ina
Capitated Environment" in Health Care Financing Review.
1986 Annual Supplement. See LaAsmar and Tierney,
"Chesapeake Health Plan, Inc., pp 80-83.

-79-
''52. McCall, Nelda. "Evaluation of the Arizona Health Care
Cost Containment System, Second Implementation and
Operation Report. Working Paper Series, #87-3, SRI
International, Menlo Park, CA, 6/87.

53. McCall, Nelda. "Evaluation of the Arizona Health Care
Cost-Containment System". Working Paper Series, #85-6,
SRI International, Menlo Park, CA., Oct. 1985.

54. McCall, Nelda, Henton, D., Crane, M., Haber, S.,
Freund, D., Wrightson. W.,"Evaluation of the Arizona
Health Care Cost-Containment System". Health Care
Financing Review, Vol. 7, #2, Winter 1985.

55. Mauskopf, Josephine, Rodgers, Jack, Dobson, Allen.
"State Medicaid Program Controls and Health Care Services
Utilization". Health Care Financing Review, Vol. 7, #2,
Winter 1985.

 

56. Merlis, Mark. "State Actions: Arizona, Wisconsin Chart
Health Care Quality in Medicaid Programs". Business and
Health, November 1986.

56a. Merlis, Mark. Medicaid Contracts With HMO's and
Prepaid Health Plans, Health Plans Policy Studies, Center
for Policy Research, National Governors' Association,
Washington, D.C., December 1987.

57. Michigan Department of Social Services. "HMO and
Clinic Plan Capitation Rate Setting Process". Lansing, MI,
4/85 ( See also, "Overview of the HMO and Clinic Rate
Setting Process", 5/86.

58. Michigan Department of Social Services. "Overview of
Medicaid/HMO Program in Michigan". 11/84 (Also see
"Overview of the Medicaid/PPSP Program in Michigan)

59. Michigan Department of Social Services. "Study of Loss
of Medicaid Enrollment in Contracted Michigan HMO's".
Lansing, MI, (undated).

60. National Association of Community Health Centers.
Capitation Techinical Assistance Manual. NACHC, Inc.,
Washington, D.C., 1984.

61. National Clearinghouse for Primary Care Information.
Primary Care Perspectives, Winter 1987.

 

-80-
''62. National Study Group on State Medicaid Strategies.
Restructuring Medicaid: Agenda for Change. Center for
Study of Social Policy, Washington, D.C., January 1983.

 

63. Neuschler, Edward, Squarrell, Karen. Prepaid and
Managed Care Under Medicaid: Overview of Current
Initiatives. National Governor's Association, Washington,
D.C., Winter 1985.

64. Oberg, Charles. "Medicaid and Managed Health Care:
Enrollment in HMO's and Other Alternatived Health
Systems". GHAA Journal, Summer 1987, vol. 8, #1.

65. Oberg, C.N., Polich, L.C. Medicaid: Entering the Third
Decade--Enrollment in HMO's and Alternative Health

stems. Interstudy Center for Aging and Long-term Care,
Excelsior, MN, 1986.

 

66. Orient, Jane, E. "The Arizona Health Care Cost
Containment System--A Prepayment Model for A National
Health Service?". Western Journal of Medicine, Vol. 145,
July 1986.

67. Owen, Elizabeth. "Mainstream Marketing for Medicaid:
What Works, What Doesn't and Why". Proceedings of the 30th
Annual Group Health Institute,-—Skills Development for the
HMO Managers of the 1980's, May 1980, Washington, D,C.

 

 

68. Owen, Elizabeth. "When the Bureaucrat Does the
Selling:, Government's Role in Marketing HMO's to
Medicaid: Issues and Concerns". Proceedings of the Fourth
Annual HMO National Policy Conference-——Policy and
Regulatory Issues in HMO Development, January 1981,
Washington, D.C.

 

69. Rowland, Diane, Lyons, Barbara. "Mandatory HMO Care
for Milwaukee's Poor". Health Affairs, Spring 1987.

70. Schaller, Donald, F. "The AHCCCS Director Responds".
The Western Journal of Medicine, Vol. 145, July 1986.

71. Schaller, Donald, Bostrom, A., Rafferty, J. " Quality
of Care: Recent Experience in Arizona". Health Care
Financing Review, 1986 Annual Supplement, December 1986.

72. Schneider, Lana "Marketing Medicaid: Selling AFDC
Applicants on the HMO Alternative". 1984 Group Health
Institute Proceedings— HMO's in a New Era of Health
Benefits, GHAA, Washington, D.C.

-81-
''73. Silverstein, Gail, Olsen-Garewale, J. Kristin, Yates,
Sheila. "AHCCCS in Rural Arizona: the Gatekeeper Role
Explored". in 1986 Group Health Proceedings, New Health
care Systems: HMO's and Beyond, June 1986.

74. Somers, Anne. "And Who Shall be the Gatekeeper? The
Role of the Primary Physician in the Health Care Delivery
System". Inguiry, 20 Winter 1983.

75. Spitz, Bruce. "A National Survey of Medicaid Case
Management Programs". Health Affairs, Spring 1987.

76. Spitz, Bruce. "Medicaid Case Management: Lessons for
Business". Business in Health, July/Aug 1985.

77. Squarrell, K., Hansen, S., Neuschler, E. "Prepaid and
Managed Care Under Medicaid: Characteristics of Current
Initiatives". Health Policy Studies- Center for Policy
Research, National Governors' Association, Washington,
D.C., 1985.

78. Sullivan, Sean. Evaluation of Medicaid Competition
Demonstrations, The Monterey Special Health Care
Authority. HCFA #500-83-0050, Center for Health Policy
Research, American Enterprise Institute, Setptember
1985.

79. Temkin-Greener, Helena. "Medicaid Families Under
Managed Care". Medical Care, Vol. 24, #8, August 1986.

80. U.S. Department of Health and Human Services, Bureau
of Health Care Delivery and Assistance. Preparing for
Prepaid Health Services- A Challenge for Community Health
Centers. BHCDA contract #240-84-0117, Silver Spring, MD,
Spring 1986.

81. U.S. Department of Health and Human Services, Bureau
of Health Care Delivery and Assistance. "Review of the
Impact of Medicaid Waiver and Policy Changes on State
Medicaid Programs and on the Bureau of Health Care
Delivery and Assistance". July 1984.

82. U.S. Department of Health and Human Services, Health
Resources and Services Administration/BHMORD. Contracting
Activities of HMO's and State Medicaid Agencies: Pre and
Post OBRA 1981. HRSA/BHMORD, Rockville, August 1985.

83. U.S. General Accounting Office. "Medicaid: Lessons
Learned from Arizona's Prepaid Program", GAO/HRD-87.

-82-
''84. United States Health Care Financing Administration,
Office of Research and Demonstrations. "Report to
Congress: Medicaid HMO Disenrollment". Dec. 1986.

85. van Steenwyk, John. Capitation Rates Paid to Health
Maintenance Organizations by State Medicaid Agencies— A
Brief Introduction. Springhouse, Pa., June 1986.

86. Vogel, Ronald. "An Analysis of Structural Incentives
in the Arizona Health Care Cost-containment System".
Health Care Financing Review , Vol. 5, #4, Summer 1984.

87. ware, John, E. Jr., et al. "Comparison of Health =
Outcomes at a Health Maintenance Organization With Those
of Fee for Service Care. The Lancet, May 3, 1986.

88. Wilson, Judith. Memorandum from HMO Section Manager,
Michigan Department of Social Services, "Six Month Lock-in
Study". June 12, 1985.

89. Wintringham, Karen, Bice, Thomas “Effects of Turnover
on Use of Services by Medicaid Beneficiaries in a Health
Maintenance Organization". The Group Health Journal,
Spring 1985.

90. Yesalis, Charles E. et al. "Capitation Payment for
Pharmacy Services". Medical Care, Vol 22., #8, August
1984.

91. Yesalis, Charles, et al. "Use and Costs Under the Iowa
Capitation Drug Program". Health Care Financing Review,
Vol. 3 #1, September 1981.

Generic HMO Publications

A. Birch and Davis Associates, ed. HMO Critical
Performance Measures— A Monograph for HMO Managers and
Boards. OHMO, #282-81-0050, Spring 1983.

B. Fox, P., Heinen, L., Steele, R. Determinants of HMO

Success. Lewin and Associates, Contract #BHMORD 240-83-
0095, January 1986.

-83-
''C. Plotnick, D., ed. Utilization Management- Techniques in
Prepaid Group Practice Health Maintenance Organizations.
Group Health Association of America, Washington, D.C.,
Nov. 1983.

 

CROSS REFERENCES
(numbers refer to those in the alphabetical listing)

Sources Dealing With Arizona Health Cost Containment
System (AHCCCS) :

a) 6. Babbitt, Rose. "Building a Better Mousetrap: Health
Care Reform and the Arizona Program".

b) 11. Bovbjerg, et al. "Privatization and Bidding in the
Health Care Sector".

c) 12. breecher. "Medicaid Comes to Arizona: A First Year
Year Report on AHCCCS".

dq) 16. Christianson, et al. "The Arizona Experiment:
Competitive Bidding for Indigent Medical Care".

e) 17. Christianson, et al. "A Comparison of Existing and
Alternative Competitive Bidding Systems for Indigent
Medical Care".

f£) 25. Freund."Competitive Health Plans and Alternative
Payment Arrangements for Physicians in the U.S.: Public
Sector Examples".

g) 37. Hillman, Christianson. "Competitive Bidding as a
Cost-containment Strategy for Indigent Medical Care: The
Implementation Experience in Arizona".

h) 47. Kirkman-Liff, et al. "Medicaid and Capitated
Contracting: The Arizona Experience".

i) 52. and 53. McCall."Evaluation of the Arizona Health
Care Cost Containment System" (Working Paper Series #85-6
and #87-3).

3) 54. McCall, et al. "Evaluation of the Arizona Health
Care Cost-—Containment System".

-84-
''k) 66. Orient."The Arizona Health Care Cost Containment
System- A Prepayment Model for a National Health
Service?".

1) 70. Schaller. "The AHCCCS Director Responds".

m) 71. Schaller, et al. "Quality of Care: Recent
Experience in Arizona".

n) 73. Silverstein, et al. "AHCCCCS in Rural Arizona: the
Gatekeeper Role Explored".

©) 83. United States General Accounting Office. "Medicaid:
Lessons Learned from Arizona's Prepaid Program".

Sources Dealing With HCFA Demonstrations

* See Health Care Financing Extramural Report. Nationwide
Evaluation of Medicaid Competition Demonstrations,
September 1986. The following papers are found in this
publication:

a) 2. Anderson.Evaluation of Medicaid Competition
Demonstrations: The Missouri Managed Health Care Project.

b) 7. Bagby, N., Flynn,T. Evaluation of Medicaid
Competition Demonstrations: The Monroe County Medicap

Program.

c) 22. Flynn, T. Evaluation of Medicaid Competition
Demonstrations: The New Jersy Personal Physician Plan.

d) 23. Fox, P., Heinen, L. Evaluation of Medicaid
Competition Demonstrations: The Minnesota Prepaid Medicaid
Demonstration.

e) 33. Gibson-Kern, R. Evaluation of Medicaid Competition
Demonstrations: The Santa Barbara Health Initiative.

£) 39. Hurley. Evaluation of Medicaid Competition
Demonstrations: Overview of Year Two Case Studies.

g) 78. Sullivan. Evaluation of Medicaid Competition
Demonstrations: The Monterey Special Health Care

Authority °

~85-
''Other materials dealing with HCFA demonstrations:

a) 3. Anderson, M., Fox, P. "Lessons Learned from Medicaid
Managed Care Approaches".

b) 5. Aved, B. "The Monterey County Health Initiative: A
Post-mortem analysis of a California Demonstration
Project".

c) 29. Freund, D., Hurley, R. "Managed Care in Medicaid:
Selected Issures in Program Origins, Design and Research".

d) 36. Haynes, P. "Summary of Case Studies of Medicaid
Competition Demonstration Projects".

e) 36a. Heinen, et al. Summary of Findings and Policy
Issues From the Medicaid Competition Deomonstratons: A
Guide for States.

 

 

f) 40. Hurley, R. "Status of the Medicaid Competition
Demonstrations".

State Specific Materials

CALIFORNIA

a) 3. Anderson, Fox. "Lessons Learned from Medicaid
Managed Care Approaches".

b) 5. Aved. "The Monterey County Health Initiative: A Post-
mortem Analysis of a California Demonstration Project".

c) 11. Bovbjerg, et al. "Privatization and Bidding in the
Health Care Sector".

d) 17. Christianson, et al. "A Comparison of Existing and
Alternative Competitive Bidding Systems for Indigent
Medical Care".

e) 20 Dyckman, Anderson. "Competitive Bidding for Health
Care Services".

f) 26. Freund. Medicaid Reform: Four Case Studies of Case
Management.

g) 33. Ginbson-Kern. Evaluation of Medicaid Competition
Demonstrations: The Santa Barbara Health Initiative.

 

 

 

-86-
''h) 36a. Heinen, et al. Summary of Findings and Policy
Issues From the Medicaid Competition Demonstrations: A
Guide for States.

i) 42. Igelhart."Cutting Costs of Health Care for the Poor
in California".

3) 45. Johns. "Selective Contracting in California".

k) 46. Johns, et al. "Selective Contracting in California:
karly Effects and Policy Implications".

1) 78. Sullivan. Evaluation of Medicaid Competition
Demonstrations: The Monterey Special Health Care

Authority ‘

m) 84. U.S. HCFA. "Report to Congress: Medicaid
Disenrollment".

IOwA
a) 90. Yesalis, et al. "Capitation Payment for Pharmacy
Services".

b) 91. Yesalis, et al. "Use and Costs Under the Iowa
Capitation Drug Program".

KANSAS

48. Levy. "Containing Medicaid Costs and Improving
Services Through Primary Care Networks: The Kansas
Experience".

KENTUCKY

a) 10. Bonham, et al. "Use of Health Care Before and
During Citicare".

b) 26. Freund. Medicaid Reform: Four Studies of Case
Management.

c) 76. Spitz. "Medicaid Case Management: Lessons for
Business".

MASSACHUESETTS

84. U.S. HCFA. "Report to Congress: Medicaid HMO
Disenroliment".

=87=—
''MICHIGAN

a) 4. Ann Arbor Actuaries. "Medicaid Rate Setting for
HMO's in Michigan: A Review of the Process".

b) 26. Freund. Medicaid Reform- Four Studies of Case
Managment.

c) 57. Michigan Department of Social Services. "HMO and
Clinic Plan Capitation Rate Setting Process".

 

d) 58. Michigan Department of Social Services. "Overview
of Medicaid/HMO Program in Michigan".

e) 59. Michigan Department of Social Services. "Study of
Loss of Medicaid Enrollment in Contracted Michigan HMO's".

f£) 76. Spitz. "Medicaid Case Managment: Lessons for
Business".

g) 88. Wilson. "Six Month Lock-in Study".
MINNESOTA

a) 3. Anderson, Fox. "Lessons Learned From Medicaid
Managed Care Approaches".

b) 23. Fox, Heinen. Evaluation of Medicaid Competition
Demonstrations: The Minnesota Prepaid Medicaid
Demonstration.

 

 

c) 36a. Heinen, et al. Summary of Findings and Policy
Issues From the Medicaid Competition Demonstrations: A
Guide for States.

 

 

MISSOURI

a) 2. Anderson. Evaluation of Medicaid Competition
Demonstrations: The Missouri Managed Health Care Project.

 

 

b) 3. Anderson, Fox. "Lessons Learned from Medicaid
Managed Care Approaches".

c) 30. Freund, et al. "The Performmance of Urban and

Public Hospitals and Neighborhood Health Centers Under
Medicaid Capitation Programs".

-88-
''d) 36a. Heinen, et al. Summary of Findings and Policy
Issues From the Medicaid Competition Demonstrations: A
Guide for States.

 

 

NEW JERSEY
a) 3. Anderson, Fox "Lessons Learned from Medicaid Managed
Care Approaches".

b) 22. Flynn. Evaluation of Medicaid Competition
Demonstrations: The New Jersey Medicaid Personal Physician
Plan.

 

 

c) 36a. Heinen, et al. Summary of Findings and Policy
Issues From the Medicaid Competition Demonstrations: A
Guide for States.

 

NEW YORK

a) 3. Anderson, Fox. "Lessons Iearned from Medicaid
Managed Care Approaches".

b) 7. Bagby, Flynn. Evaluation of Medicaid Competition
Demonstrations: The Monroe County Medicap Program.

c) 36a. Heinen, et al. Summary of Findings and Policy
Issues From the Medicaid Competition Demonstrations: A
Guide for States.

da) 49. Link, et al. "Successful Outreach and Market
Strategies for Medicaid Subscribers in a Large Urban HMO".

UTAH

26. Freund. Medicaid Reform: Four Studies of Case
Management.

WISCONSIN

 

a) 21. England. "Setting Health Maintenance Organization
Capitation Rates for Medicaid in wisconsin".

b) 50. Liss, et al. "Satisfaction with Wisconsin's
Preferred Enrollment Initiative: Results of a Survey."

c) 69. Rowland, Lyons. "Mandatory HMO Care for Milwaukee's
Poor".
''d) 84. U.S. HCFA "Report to Congress to Congress: Medicaid
HMO Disenrollment".

Please note:

The National Evaluation of Medicaid Competition
Demonstrations, prepared under contract by the Center for
Health Research, Research Triangle Institute, Research
Triangle Park, North Carolina, sponsored by the U.S.
Health Care Financing Administration is scheduled to be
published in the fall of 1988.

RU.S. Government Printing Office : 1988 - 201-875/83666

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U.C. BERKELEY LIBRARIES

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