Executive Summary

America's health care system is being transformed at an unprecedented pace. As part of deficit reduction and the call for smaller government, public programs are being downsized, reorganized, and privatized. This call for smaller government comes in the wake of a dramatic revolution that continues to take place in the private health care sector, characterized by the move to managed care, increased vertical and horizontal integration, and new partnerships and relationships among insurers, providers, and purchasers in an increasingly competitive marketplace.

All of these changes and new dynamics have placed a special focus on the need to reform the Medicare program to make it more efficient and to secure its future viability. As the government's second biggest social program, Medicare expenditures grew from $34 billion in 1980 to an estimated $183.8 billion in 1995, representing an annual growth rate of 11.7 percent (Physician Payment Review Commission, 1996). With the inexorable upward trend in Medicare expenditures and the aging of the baby boom generation, deepening concern is being expressed about the future solvency of the program and its drain on the federal budget (Board of Trustees, 1996). The U.S. Congress is now intent on slowing Medicare growth and has become con-



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--> Executive Summary America's health care system is being transformed at an unprecedented pace. As part of deficit reduction and the call for smaller government, public programs are being downsized, reorganized, and privatized. This call for smaller government comes in the wake of a dramatic revolution that continues to take place in the private health care sector, characterized by the move to managed care, increased vertical and horizontal integration, and new partnerships and relationships among insurers, providers, and purchasers in an increasingly competitive marketplace. All of these changes and new dynamics have placed a special focus on the need to reform the Medicare program to make it more efficient and to secure its future viability. As the government's second biggest social program, Medicare expenditures grew from $34 billion in 1980 to an estimated $183.8 billion in 1995, representing an annual growth rate of 11.7 percent (Physician Payment Review Commission, 1996). With the inexorable upward trend in Medicare expenditures and the aging of the baby boom generation, deepening concern is being expressed about the future solvency of the program and its drain on the federal budget (Board of Trustees, 1996). The U.S. Congress is now intent on slowing Medicare growth and has become con-

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--> vinced that interventions that go beyond the traditional strategies of reducing provider payments or asking beneficiaries to pay more are needed. It is widely believed that more attention must be focused on controlling the volume of services used by the elderly to slow the growth in program expenditures. Strategies to reform and preserve Medicare focus on redesigning elements of the 31-year-old program to reflect some of the major financing and organizational changes revolutionizing the provision of health care services in the private sector. Chief among these changes has been a major influx of the population under age 65 into managed care, viewed by many researchers and policy specialists as holding the potential for providing more appropriate, quality services at costs lower than those of fee-for-service plans. A number of studies and surveys attribute the slowing rate of spending on health benefits by large employers over the past 2 years to the growth of managed care programs. Until recently, enrollment of the Medicare population in managed care programs has lagged the enrollment in such programs in the private sector: about 10 percent of all Medicare beneficiaries are enrolled in managed care, whereas more than 70 percent of the population under age 65 are enrolled in such programs.1 After existing for nearly a decade, the current Medicare risk contract program now appears to be attracting more beneficiaries. Enrollment more than doubled between 1987 and 1995, with the annual growth rate reaching about 25 percent between 1993 and 1994 (U.S. General Accounting Office, 1996). The pressing need to reduce Medicare's rate of growth and to create a more competitive, market-oriented environment for health delivery is resulting in a major emphasis on moving beneficiaries away from the current fee-for-service system, in which the vast majority of the Medicare population continues to receive care, into a broad range of managed care and other delivery options, including health maintenance organizations with a point-of-service option, preferred provider options, unrestricted private fee-for-service plans that have utilization review, a network of contracted providers, plans that combine insurance with 1   Enrollment in managed care is growing at approximately 2 percent per year.

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--> a high deductible with medical savings accounts, and plans offered by provider-sponsored organizations. In recent years the greatest growth in managed care arrangements for the population under age 65 has been in preferred provider organization and point-of-service-type networks. The existing fee-for-service Medicare program, which consists of a traditional indemnity insurance arrangement, would remain available. As major efforts move forward to shift Medicare patients into managed care plans, many experts and patient advocates are concerned whether the necessary information and protections are in place to enable Medicare patients to select an appropriate health care plan wisely and to ensure that this group continues to have access to high-quality care.2 The potentially daunting scope and speed of the transition by elderly Americans into what for most beneficiaries remains uncharted waters makes the need for high-quality and trustworthy information and accountability particularly critical. Only by laying a sound infrastructure in which individuals can make informed purchasing decisions and in which competition is based on quality performance can there be the public confidence needed to move Medicare beneficiaries safely and responsibly into a marketplace for choice and managed care. Among the 37 million Medicare beneficiaries are those with limited financial resources, those with very serious disabling conditions, and those for whom catastrophic medical expenses are commonplace. Medicare spending averaged about $4,000 for beneficiaries in 1993. For the 10 percent of beneficiaries with the highest health care costs, Medicare spent an average of more than $28,000 per beneficiary. Medicare paid no benefits on behalf of the healthiest 20 percent of beneficiaries (Henry J. Kaiser Family Foundation and Institute for Health Care Research and Policy, Georgetown University, 1995). Understanding this variation in expenditures is particularly important in any discussion of expanding capitated managed care coverage 2   The Institute of Medicine's 1991 report, Medicare: New Directions in Quality Assurance defines quality of care as, "the degree to which health services for individuals and populations increase the likelihood of desired health outcomes and are consistent with current professional knowledge."

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--> for Medicare. If capitation payments are not appropriately adjusted for health status, over or underpayments can be quite serious. The incentives to enroll only healthier enrollees or to encourage less healthy enrollees to disenroll may be formidable. Unlike many employed individuals, who have the help of their employers in screening and evaluating their health plan options, most Medicare beneficiaries must rely on their own information and judgment to select wisely. Yet, a recent study found a higher prevalence of inadequate functional health literacy skills, skills needed to function in the health care environment, among the elderly (Williams et al., 1995). For elderly individuals who have the skills required to select health plan options, they often are unable to make effective choices because the variation and array of coverage are confusing (McCall et al., 1986; Jost, 1994). Although the availability of useful and reliable information is critical for consumer choice, such information is still in a stage of infancy. Whether or not current Medicare reform legislation eventually becomes law, private industry and the Health Care Financing Administration (HCFA) are poised to lend a big boost to the managed care market for the elderly, a market already showing signs of rapid expansion. In 1994 health maintenance organization enrollment by Medicare beneficiaries was one of the health care industry's three fastest-growing market lines, in addition to enrollment in the Medicaid program and open-ended products. HCFA reports that 70,000 Medicare beneficiaries are enrolling in managed care plans each month. The current national debate over "bringing the market" to Medicare and offering choice in health plans with an emphasis on managed care arrangements stimulated the Institute of Medicine to appoint a committee that would provide guidance to policy makers and decision makers on ensuring public accountability, promoting informed purchasing, and installing the necessary protections to help Medicare beneficiaries to operate effectively, safely, and confidently in the new environment of greater health plan choice. Three tasks framed the committee's charge: to commission background papers from experts and practitioners in the field that review the literature and synthesize

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--> aspects of the leading issues and current policy proposals as they pertain to ensuring public accountability and informed purchasing in a system of broadened choice; to guide, develop, and convene an invitational symposium to (1) examine what is known (or not known) about ensuring public accountability and informed purchasing in the current Medicare program and other health plans, (2) recommend how public accountability and informed purchasing can be ensured for Medicare beneficiaries in managed care and other health plan choices, and (3) discuss options and strategies that can be used to help government and the private sector achieve the desired goals in this arena; and to produce a report that will include the commissioned background papers, a summary of the symposium discussion, and recommendations on the major issues that need to be addressed to ensure public accountability and the availability of information for informed purchasing by and on behalf of Medicare beneficiaries in managed care and other health care delivery options. The study was initiated in the fall of 1995 with the expectation that Medicare legislation providing broader beneficiary choice would pass the U.S. Congress before the study was completed. The committee used the Medicare reform provisions of the Balanced Budget Act of 1995 (H.R. 2491) as a template for its work agenda. Although, President Clinton vetoed the final bill, the committee believes that the bill's Medicare reform provisions still provide a useful and relevant framework for reform. In carrying out its charge, the committee recognized that the science-based and peer-reviewed literature on the major areas of the committee's scrutiny is sparse since the field is young and continues to evolve at an unprecedented pace. The state-of-the-art information in this arena resides primarily among a number of large private and public purchasers that currently define the field and various other organizations and agencies (i.e., the National Committee on Quality Assurance, HCFA, the Physician Payment Review Commission, the Foundation for Accountability, and the Agency for Health Care Policy and Research) that have a major interest in and programs directed to this area. With that in mind, the committee constructed a symposium

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--> primarily around real-world experts who could comment on and respond to the available research findings and to the current congressional Medicare reform proposals from their well-recognized experiences. The committee also was primarily interested in learning about current best practices in the public and private sectors as they relate to developing infrastructures for public accountability, informed purchasing, and competition based on performance. In considering its work and statement of task, the committee had to be mindful of the relatively short time frame within which this report had to be completed and the limited resources available to support the commissioned papers/research syntheses and the symposium activity. Given the committee's broad charge and the many issues that potentially fall under the rubric of ensuring public accountability and informed purchasing in an environment of choice and managed care, the committee believed that it was important and essential to set some priorities, parameters, and caveats regarding its work agenda. They are as follows: The task of the committee was not to judge the value of managed care as a vehicle for providing more appropriate, cost-effective care to Medicare beneficiaries or reducing the rate of escalation in the costs of the Medicare program over time. The committee operated under the assumption that managed care plans will continue to grow and develop and to be made available to the Medicare population. Several members of the committee, however, expressed concern that any balanced appraisal by the elderly population of the potential of managed care to provide better care may be made more difficult for two important reasons. One, current proposals to restructure Medicare are being viewed by many elderly as a means of financing deficit reduction and achieving other political objectives. Two, in the case of all areas of health in which fundamental change are being proposed, the media tends to focus on areas of discord and contention, contributing perhaps to additional anxieties among the already risk-averse elderly. In looking at the issue of public accountability and the availability of information for informed purchasing, the committee's major focus was the consumer (Medicare benefi-

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--> ciary) rather than plans, clinicians, or group purchasers. Much of the current information relating to performance and quality has been developed for these groups and may not be useful or relevant to the Medicare population. The committee was asked to focus its attention on the issue of choice and the number and range of health plans, not the inherent merit or value of individual types or forms of plans to be offered (i.e., preferred provider organizations versus medical savings accounts versus unrestricted fee-for-service indemnity coverage). Although the committee recognizes the great diversity of the Medicare population, this report focuses primarily on the "mainstream" Medicare beneficiary. The committee realizes that severely disabled individuals and dually eligible beneficiaries (Medicare and Medicaid recipients) may need additional protections with regard to public accountability and informed purchasing. It was not possible within the scope of this particular study to reflect adequately on the special and additional information and accountability requirements that may be needed by these groups as they enter a more market-oriented delivery environment. Many of today's elderly are particularly apprehensive about managed care and are concerned about their ability to make informed choices among health plan options. The committee heard evidence that the move to a choice paradigm with an emphasis on managed care represents greater challenges and problems for the current generation of Medicare beneficiaries, particularly the older cohort. With the increasing role of managed care, there is every expectation that future Medicare beneficiaries will have had considerable experience with this new delivery structure and therefore will be better informed and more comfortable consumers of managed care. The committee did not focus on the issue of risk selection, although it acknowledges that it is a major problem that must be addressed. Although the issues of fraud and abuse, estimated by the U.S. General Accounting Office to be in the range of 10 percent of Medicare health care costs, are a significant problem in the

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--> Medicare program, they were outside the mandate of the present study. The committee focused much of its work on learning from model programs and major purchasers in the private sector, with the full realization that Medicare as a government social insurance program requires, in many important respects, a different response. The committee also heard considerable testimony from public purchasers including state-based organizations and the Health Care Financing Administration. In defining the parameters and vehicles that can be used to promote public accountability and informed purchasing, the committee recognizes the importance of maintaining the necessary flexibility to respond in a timely, appropriate fashion to a dynamic and evolving marketplace. The committee's major charge and responsibility was to provide direction and guidance on how to promote public accountability and informed purchasing by and on behalf of Medicare beneficiaries in a new market-oriented environment characterized by choice and managed care. The committee was cognizant that in the new health care marketplace, Medicare beneficiaries as consumers or customers will be given both greater freedom and more responsibility for choosing their health plans and for making many of the important decisions associated with purchasing their health care and judging its value, adequacy, and responsiveness. Given the breadth and scope of its charge, the committee recognizes that many of the issues and topics that it addressed will benefit from additional review and analysis as better data and research findings become available. It should also be noted that the committee was carefully formulated to reflect a balance of expertise particularly relevant to its charge. It included two experts from health plans, two individuals from the world of large purchasers—one public and one private, two consumer advocates with special expertise in elderly consumers in the health care marketplace, an expert on state insurance laws and regulations, a geriatrician, and an economist who has written extensively on the issue of opening choice and the structure of choice under market conditions. The report is divided into three chapters and 12 appendixes. Chapter 1, an overview, provides the background, context, and

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--> parameters of the study. Chapter 1 also outlines how the committee defined and approached its charge and work agenda. Chapter 2 presents highlights from testimony heard at the invitational symposium held on February 1 and 2, 1996, and summarizes the major points made by the authors of the commissioned papers, by the invited respondents, and at the discussion that followed the panel presentations. As a summary, however, this section cannot do adequate justice to the rich and valuable data and information included in the eight commissioned papers found in Appendixes E to L. The information found in the papers contributed significantly to the committee's findings and recommendations. With these caveats and ruminations, the committee formulated its recommendations, which are summarized below and described in greater detail in Chapter 3. RECOMMENDATION 1. All Medicare choices3 that meet the standard conditions of participation and that are available in a local market should be offered to Medicare beneficiaries to increase the likelihood that beneficiaries can find a plan of value. Traditional Medicare should be maintained as an option and as an acceptable ''safe harbor" for beneficiaries, especially those who are physically or mentally frail. RECOMMENDATION 2. Enrollment and disenrollment guidelines, appeals and grievance procedures, and marketing rules should reflect Medicare beneficiaries' vulnerability and lack of understanding of traditional Medicare and Medigap insurance, and their current lack of trust in important aspects of alternative health plans. RECOMMENDATION 3. The committee recommends that special and major efforts be directed to building the needed consumer-oriented information infrastructure for Medicare beneficiaries. This resource should be developed at the na- 3   For the purpose of this report, the term Medicare choices is an umbrella term for alternative health plans (including managed care) as well as traditional Medicare and Medigap plans.

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--> tional, state, and local levels, with an emphasis on coordination and partnerships. Information and customer service techniques and protocols developed in the private sector should be used to guide this effort utilizing the best technologies available currently or projected to be available in the near term. RECOMMENDATION 4. The federal government should require all Medicare choices to be marketed during the same open season to promote comparability and to enable beneficiaries to adequately assess and compare the benefits and prices of the various options. RECOMMENDATION 5. The committee is concerned about the increasing restrictions on physicians (and the potential conflict of interest of physicians) when they act in their professional role as advocates for their patients and carry out their contractual responsibilities and receive economic incentives as health plan providers. The committee favors the abolition of payment incentives or other practices that may motivate providers to evade their ethical responsibility to provide complete information to their patients about their illness, treatment options, and plan coverages. So-called anticriticism clauses or gag rules should be prohibited as a condition of plan participation. RECOMMENDATION 6. The federal government should hold Medicare choices accountable by requiring them to meet comparable conditions of participation as a Medicare option and by monitoring and reporting on their compliance with these conditions. RECOMMENDATION 7. Serious consideration should be given and a study should be commissioned for establishing a new function along the lines of a Medicare Market Board, Commission, or Council to administer the Medicare choices process and hold all Medicare choices accountable. The proposed entity would include an advisory committee composed of key stakeholders, including purchasers, providers, and consumers.