instance, because most of the elderly have multiple diagnoses and the diagnostic codes have no impact on payment or treatment, many physicians may merely note a legitimate diagnosis, such as hypertension, even though another condition was the primary reason for a visit. If reliability of diagnostic data is established, it may be possible to apply automated logic programs to assess the appropriateness of ambulatory services based on acute or recurring diagnoses. Also the possibility exists that services can be linked across settings (such as hospital to outpatient), but, again, this deserves careful investigation.

Types of Problems

Because of the fundamental financial incentives for overuse of services, FFS quality assurance systems need to look carefully for overuse. When the FFS coverage has large deductibles and copayments or major coverage exclusions, however, then underuse also becomes a concern. The underuse problem may especially manifest itself among people never “entering the system,” whereas overuse may occur through additional services even within a single visit. Procedure-oriented practices may make overuse more likely because of a reimbursement structure that rewards procedures at the expense of counseling, cognitive services, or lengthy personal interaction between patient and physician; in this sense, the payment scheme may underwrite the cost of other services such as patient education and preventive care. In all cases, however, attention must be given to finding poor technical quality (PPRC, 1989).

Prepaid Capitated Systems

In some ways the prepaid group practice sector, although small, has advanced on the quality assurance front more than the FFS sector has. Prepaid plans were developing quality assurance programs long before the HMO Act of 1973 (P.L. 93–222) required federally qualified HMOs to have ongoing programs that “stress health outcomes” (see Weiner and Densen, 1958; Shapiro et al., 1960, 1967, 1976; Morehead et al., 1964). Federally qualified HMOs have to meet certain financial and structural requirements, to have ongoing quality assessment programs, and to be able to demonstrate this to outside reviewers. Even nonfederally qualified HMOs and HMOs serving Medicaid patients are often called on by state departments of health to demonstrate their quality assurance programs. For instance, in California the Knox-Keene Health Care Service Plan Act of 1975 stipulated that California HMOs assess the acceptability and accessibility of care and the adequacy with which the HMO met the health needs of the served population. In Kansas, a new law requires independent, on-site quality-of-care inspec-

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