E

The Structure and Accountability for Medicare Health Plans: Government, the Market, and Professionalism

Lynn Etheredge*

The U.S. Congress and President are now considering major reforms in the Medicare program that would, among other major provisions, rapidly expand the opportunities for 37 million aged and disabled Medicare enrollees to join private sector health plans. This legislation follows the rapid movement of most of the insured population under age 65 from traditional health insurance plans into managed care plans.

The reconciliation bill's health plan provisions reflect many agendas for Medicare's future. The most widely discussed goal is to limit future Medicare spending. More enrollment of Medicare beneficiaries in health plans—with preset capitation payments—would help to achieve that end. Another important aim is to develop competition for excellence among health plans to provide better medical care than the fee-for-service Medicare program. Federal budget restraints will automatically be achieved through legislative spending formulas. Improved health care for Medicare enrollees, however, is not guaranteed. It will depend on how effectively health plans are held accountable for excellence. If the accountability measures work well,

*  

Private consultant, Washington, D.C.



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--> E The Structure and Accountability for Medicare Health Plans: Government, the Market, and Professionalism Lynn Etheredge* The U.S. Congress and President are now considering major reforms in the Medicare program that would, among other major provisions, rapidly expand the opportunities for 37 million aged and disabled Medicare enrollees to join private sector health plans. This legislation follows the rapid movement of most of the insured population under age 65 from traditional health insurance plans into managed care plans. The reconciliation bill's health plan provisions reflect many agendas for Medicare's future. The most widely discussed goal is to limit future Medicare spending. More enrollment of Medicare beneficiaries in health plans—with preset capitation payments—would help to achieve that end. Another important aim is to develop competition for excellence among health plans to provide better medical care than the fee-for-service Medicare program. Federal budget restraints will automatically be achieved through legislative spending formulas. Improved health care for Medicare enrollees, however, is not guaranteed. It will depend on how effectively health plans are held accountable for excellence. If the accountability measures work well, *   Private consultant, Washington, D.C.

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--> the Medicare program's future may see unprecedented advances in improving the lives of its elderly and disabled enrollees, as well as a sound financial future. The reconciliation bill structures a market that will allow Medicare enrollees to choose to join (or leave) private health plans that provide Medicare benefits. The proposed design is similar to the Federal Employees Health Benefits Plan (FEHBP), the nation's largest health insurance purchasing arrangement, which now covers some 9 million government employees, their families, and retirees. In this model, health plans are held accountable to the federal government for meeting basic statutory conditions of participation and, via consumers' ability to switch plans, to enrollees for excellence in meeting their needs. This paper is intended to provide a framework for the Institute of Medicine (IOM) committee to discuss the key accountability issues in structuring this new Medicare health plan market. It is organized into three sections: an overview of how governments structure markets, including the traditional fee-for-service health care market; a consideration of how the new Medicare model would differ from the traditional health care market in terms of who is accountable, what they are accountable for, and how they are held accountable; and a discussion of three strategies for how federal legislation might structure the respective influences of government, consumers, and professionalism differently to achieve excellent performance from Medicare health plans. Accountability in Context In the modern world, a vast amount of day-to-day activity is organized around "the market." Individuals purchase (rather than produce) most of the goods and services that they use; most individuals work for organizations that exchange their products for money. Although the concept of the market can be a useful abstraction, there are many individual markets that differ greatly by the actors involved, how they interact, their industry,

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--> government policy, cultural norms, and in other ways (Fukuyama, 1995; Hamilton, 1994; Swedberg, 1994). A generic model for how government and consumers are related in most U.S. markets would include two basic features: Government structures the basic market framework, such as the entry requirements and rules of the game; provides for incorporation, licensure, and enforceable contracts; and prohibits fraud, misleading advertising, and anticompetitive practices. Consumers exercise broad freedom of choice in how to spend their own money, including choices that some might regard as unwise or foolish. A totally "free" market with no government involvement, although sometimes romanticized as an ideal, can hardly be found. Nevertheless, rhetoricians can spin beguiling tales about the "hidden hand" of the market. There is an economist's joke which goes, Question: "How many free-market economists does it take to change a light bulb?" Answer: "None. If the light bulb needed to be changed, the market would already have changed it.'' Examples of instances of more extensive government involvement include the following: establishing health and safety standards for products and services, for example, food quality, prescription drugs, automobile seat belts, public health inspections, building codes, and Federal Aviation Administration airline standards; regulatory oversight of the banking and insurance industry to ensure financial solvency; standardizing information disclosure, for example, requirements for audited corporate financial statements, food labeling, and credit card insurance rates; standards and inspections, particularly where public funds are involved, to ensure service quality for vulnerable populations, for example nursing home inspections; and licensure of professions and trades. Many of these interventions involve, to some degree, the

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--> issue of how best to deal with the practicalities of a world with imperfect knowledge and competence among consumers, a world where some choices are not good ones for some consumers, where suppliers pursue their own interests, and where advertising and marketing aim to persuade more than inform. Government market interventions often involve strategies such as (1) making sure that better consumer information is available and/or (2) acting, on behalf of consumers, to remove choices from the market. With such correctives, consumers can buy with greater confidence that they will get what they think they are buying. The research evidence on how best to structure markets is more equivocal than the idealized perfect competition theory—with easy market entry and many suppliers—taught in undergraduate economics courses. A leading economics text on markets and industrial structure summarizes the field this way: Readers seeking a precise, certain guide to public policy are bound to be disappointed by this survey, for we have found none. The competitive norm does seem to serve as a good first approximation, but it is difficult to state in advance how much competition is needed to achieve desirable economic performance, nor can we formulate hard and fast rules for identifying cases in which a departure from competition is desirable (Scherer and Ross, 1990, p. 55). The imperfections of a market do not, however, mean that government interventions will prove a desirable remedy. There is a long history of regulatory capture by private interests, especially to block new entrants and stifle change. When government limits options it may also reduce the welfare of consumers who would have chosen an excluded possibility. As well, the recent savings and loan scandals should be an apt reminder that even layers of regulatory oversight may not protect the public's interests. U.S. health care financing has departed from a competitive market system by sharply reducing the role of consumer purchasing decisions that are the ultimate adjudicatory force in most markets. Reliance has been placed, instead, on professionalism (supported by open-ended insurance financing) as the primary determinant of performance. In the traditional health system, individual physician decision making was estimated to

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--> control 70 to 80 percent of health care spending. Government helped to erode the market and ensure professional dominance through large tax subsidies for insurance coverage, profession-dominated licensure and accreditation, and (until recently) sparse funding for consumer-oriented effectiveness and outcomes studies. When Medicare was enacted 30 years ago, it adopted this private health insurance model. Medicare has seldom been a market-oriented purchaser of care, nor has it made much effort to inform Medicare enrollee choices about health care providers, treatment options, or competing private health plans. Several laudable exceptions have been disclosure of nursing home inspections, public listing of hospitals with high mortality rates, preventive care mailings, and some use of centers of excellence arrangements. A New Era of Accountability The Era of Assessment and Accountability is dawning at last (Relman, 1988). As winds of change have swept across the health care landscape, they have brought with them new ideas on how to improve the health care system's performance via market accountability to purchasers and consumers. The most important of these concepts, now becoming private sector practices, are reflected in the reconciliation bill's proposals for how to restructure the Medicare program (this paper does not discuss the bill's medical savings account option). These new market-oriented concepts alter who is accountable, what they are accountable for, and how they will be held accountable. Who Is Accountable? The fundamental change in the new health care model is to introduce the health plan as a locus of accountability. Reorganizing fragmented medical care suppliers into systems of care, managed within a capitated budget, has been a favored idea of health care reformers for most of this century. Nearly every major health system actor has been nominated, at

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--> one time or another, as the best theoretical manager for such a system: the federal government, state governments, health alliances, community hospitals, tertiary care hospitals, community health centers, multispeciality physician groups, physician-hospital organizations, insurance companies, health maintenance organizations (HMOs) and their kin, employers, and individuals. During the last few years, private sector managed care plans, with a variety of sponsors, have replaced most traditional health insurance plans. The health plan's management role—overseeing physicians and holding them accountable to the health plan—conflicts with the traditional deference to individual physician decision making. Yet it also creates opportunities for new professional influences through a health plan's medical director and groups of health professionals working collectively to improve quality of care, assess new medical research and treatment protocols, and devise team approaches to disease management. The reconciliation bill creates the basic market rules for a new Medicare health plan market. Its requirements deal with subjects such as (1) who can offer such plans, such as expanding sponsorship to include provider-sponsored organizations and association-sponsored plans; (2) types of plans, such as expanding beyond HMOs to include preferred provider organization (PPO) and fee-for-service options; (3) benefits, such as providing at least the basic Medicare benefit package; (4) licensure and regulation, such as requiring that most plans be licensed under state or federal law; and (5) key marketing rules, such as guaranteed issue, renewal, and antidiscrimination provisions. What Are They Accountable for? The second systemic change is to conceive of a health plan as accountable for the health of its enrolled population. Health care providers, in fee-for-service arrangements, have been accountable for technical competence in dealing with specific medical issues for individual patients, for example, diagnosis and treatment of individuals who show up in their offices or hospitals. This accountability has proved to be too narrow to deal with non-acute-care issues, such as prevention (immunizations, prenatal care) and chronic care (mental health, substance

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--> abuse, AIDS). Many government programs have been started to fill in such gaps in services that a fragmented, fee-for-service system does not do well. The broadened accountability of an organized health plan makes possible the establishment of a single point of accountability for all aspects of medical care. The notion that a health care system should be accountable for the health of its population has also been influenced by the best practices in private sector quality management. Quality management started more than a century ago with a workstation and individual procedure focus (standardizing equipment, training personnel) and then progressed to a focus on production processes and assembly lines through end-of-the-line measures (statistical quality control). It has since expanded to total (institution-wide) quality management and continuous quality improvement (TQM/CQI), comparisons of performance with benchmarks and best practices, and an emphasis that quality should ultimately be measured by value to the consumer. Seen in light of these private sector advances, the health system's practices have been defective because they have been too narrowly concerned with the performance of individual workers and procedures. Only recently has the health sector started to adopt institutional TQM and benchmarking techniques; its ability to deal with the whole patient is seriously limited so long as hospitals, physicians, and other service providers are fragmented. In 1990, an IOM committee recommended that Medicare adopt modern quality management techniques (Lohr, 1990). What society should want from its health system-clear, powerful, and reliable accountability for improving health status—needs a health plan that is accountable for dealing with all aspects of care. The reconciliation legislation addresses these aspects of a health plan's accountability primarily by requiring that health plans have internal quality assurance programs, in accordance with U.S. Department of Health and Human Services (DHHS) regulations, that include features such as (1) stressing health outcomes, (2) health professional review of the provision of services and written protocols for utilization review, and (3) external review or accreditation by a qualified independent organization.

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--> How Is Accountability to Be Achieved? The third major shift is to structure a market so that consumer choice among competing health plans rewards excellence in health care quality and outcomes, service, and economy. In contrast to the traditional approach of viewing quality as conformity to professional norms (and reviews that mostly seek to identify bad practices and errors), the competitive Medicare market is intended to foster competition for improving state-of-the-art practices and to reward excellence in performance. This is consistent with the ideas of continuous quality improvement (the second half of the acronym TQM/CQI) that managers should be accountable for ensuring that quality is continuously improving. To generate such competitive market forces, the federal government would provide consumers with comparative information on health plan performance (report cards). The income gain or loss from Medicare enrollees—collectively, the largest untapped market for managed care—deciding to join or leave a health plan on the basis of such information and their own experience could be a powerful lever on health plans to offer quality products and services that match or exceed those of their competitors. In the private sector, the National Committee for Quality Assurance, through its Health Plan Employer Data and Information Set (HEDIS), has pioneered efforts to develop such reporting standards. To date, this effort has focused on HMOs for the nonelderly. The next version of HEDIS is being expanded to include Medicare health plans, and there is a joint private sector-Health Care Financing Administration (HCFA) effort through the new Foundation for Accountability (FAcct) to provide assessment measures common to both public and private payers. In the proposed Medicare model, the government would exert no preselection, screening, negotiating, or purchasing role; the consumer alone would choose, and government premium payments would be determined by a formula. The grading of professional performance may have another competitive dynamic working for its success. At a meeting with medical society leaders, after describing the theory of consumer

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--> choice, I was approached by a psychiatrist who said (with a smile), "I'm always fascinated to hear economists talk about their theories about why people do things. . . . I do think these proposals are going to work, but not for the reasons you described. I know a lot of physicians—and they're the most competitive people in the world. They got to be physicians by being compulsive about getting top grades. The report cards are going to be what makes this proposal work; no physician is going to want to be known as second-rate." The reconciliation bill structures this market by assigning to DHHS responsibility to (1) provide an annual open season in which Medicare enrollees may enroll or disenroll in health plans and (2) provide comparative information about health plans to assist individuals in making an informed choice. In turn, health plans would be required to provide DHHS with the information that it requested for this purpose and would need to have government approve their marketing materials. Accountability for Medicare Health Plans How well will the reconciliation bill's health plan accountability structure, through government statutory requirements and consumer choice, work to produce competition for excellence? Skeptics question how well Medicare enrollees, on their own, will be able to be sophisticated and demanding purchasers of health care. This is an extremely difficult task today, even for experts. The report cards with which Medicare enrollees are expected to make informed judgments have yet to be developed, and it is not clear just how many data will really be available, how soon they will be available, and whether they will be valid, reliable, and useful for beneficiaries. The utility of health plan-level data is also questioned; some researchers report that consumers do not understand the relevance of population-based plan statistics and are, instead, much more interested in information relevant to their choice of a physician. Others worry that Medicare enrollees can be misled by sophisticated marketing, particularly individuals who have reduced capacities to make wise choices.

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--> Skeptics also question that motives of health plans, particularly the large numbers of for-profit organizations that are likely to seek Medicare enrollees aggressively. They note that, in the absence of appropriate premium risk adjustors, health plans have better business strategies than competing for excellence-notably profiteering from artful risk skimming (practices that the insurance industry has honed in the FEHBP program). With health plans seeing per capita premiums averaging $5,000+ per enrollee (and rising to multiples of that amount), the profit potentials for plans and commissioned sales forces for signing up profitable patients is quite large. (The distribution of health care expenses among Medicare enrollees follows that of the population under age 65; that is, about 10 percent of enrollees use 70 percent of the care in a year, and about 20 percent of enrollees do not file claims.) Health plans also have incentives to avoid being known as better than their competitors at services that would lead to enrollment by populations with greater needs (on whom they will predictably lose money). There is also a history of substandard health plans and fly-by-night operators in two previous national efforts to expand Medicare HMO enrollments, and many other health insurance scams can be found (Multiple Employer Welfare Associations [MEWAs], Medicaid) (Dallek et al., 1995). If the accountability system does not work, it is conceivable that the arrangements in the reconciliation bill will prove to be simply a budget-cutting exercise, and even that competition could lead to health plans' exploitation and underservice of elderly persons who trusted in government's oversight of health plans, resulting in worse medical care and outcomes. Although there are grounds for seriously questioning the reconciliation bill's provisions, there are a number of ways in which it is a major advance for Medicare's elderly and disabled population. Today's enrollees may only choose between Medicare and HMOs and have no comparative information or organized open season; the reconciliation bill features an organized health plan market, with a common open season for all plans, comparative report card information, more types of plans (including the PPO and point-of-service [POS] options that are most popular among those under age 65), and many more plans from which to choose. The FEHBP consumer choice model is not untried-it is the nation's largest employer-sponsored plan

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--> and includes many retirees. The Medicare plans will offer enrollees more benefits, lower costs, and less paperwork than the basic Medicare program. Medicare consumers' satisfaction with HMO enrollment is generally high, and there are several areas, for example, in California and Florida, where 50 percent of Medicare enrollees have switched to HMOs. The reconciliation bill leaves the decision up to the Medicare beneficiary whether to remain with the traditional Medicare program or to switch to a private plan that he or she decides will better meet his or her needs. Public policy can opt for a consumer choice, competitive health plan model for Medicare reform and still strengthen health plan accountability compared with that in the reconciliation bill's provisions. Three broad strategies could make Medicare health plans more effectively accountable and could promote competition for excellence. They would involve a stronger role of government for enhancing consumer use of consumer purchasing power and for strengthening professional influences on health plan policies and practices. These strategies are described below, along with some specific options. A Stronger Role for Government The reconciliation bill provides Medicare beneficiaries, in important respects, with far less assistance than employers normally provide their employees in the health care market. Most private and public employers, for example, take an active "purchasing" role in the competitive selection of the health plans to be offered to their workers. This strong employer role allows for the use of group purchasing power to obtain better premium rates and performance guarantees, to lessen the potential for risk skimming, to obtain large amounts of data, and to engage professional expertise (benefit consultants, actuaries) in evaluating available plans. The FEHBP model, by contrast, involves little preselection of plans. FEHBP makes available some 400 plans nationally, with approximately 20 to 40 plans being offered to enrollees in many metropolitan areas. In general, the federal government sponsors HMOs that meet basic conditions (but limits the number of fee-for-service plans) and provides some comparative plan

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--> TABLE E-1 Number of Health Plan Choices for Private Sector Employees, 1993 Number of Health Plans Offered per Establishment Weighted by Number of Establishments (%) Weighted by Number of Employees (%) 1 76 48 2 16 23 3 5 12 4 2 6 5 or more health plans 1 11   SOURCE: Preliminary tabulations from the 1993 Robert Wood Johnson Foundation Employer Health Insurance Survey (courtesy of Steve Long). information and an annual open season. The federal government does not normally negotiate on behalf of federal employees to achieve better cost or improve quality. Table E-1 from recent RAND research by Steve Long and colleagues, provides national estimates for the number of health plan choices available to private sector employees. As shown in the right column, the most usual arrangement for employees (nearly half [48 percent]) is to be offered only a single plan [no choice], and an additional 23 percent of workers can choose among only two health plans. Some 83 percent of workers can choose among three or fewer health plans, and only 17 percent can choose among four or more offerings. When the number of offerings is tabulated by establishment, which reflects the large number of smaller firms, the range of choice is even more limited; 76 percent of firms offering health insurance offer only a single plan, and an additional 16 percent offer only a single option (i.e., two plans). Some 97 percent of private establishments offer three or fewer health plans, and only 3 percent offer four or more health plans. Employer purchasing alliances expand the very limited choices typically available to workers at small firms and also typically play a strong role in selecting the plans to be offered, in negotiating premiums, and other issues. Table E-2, developed

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--> TABLE E-2 Number of Health Plan Choices by Purchasing Alliances Purchasing Alliance Number of Health Plans and Options Health Insurance Plan of California 20 insurance companies, 18 HMOs, and 3 PPOs Connecticut Business Industry Association 4 insurance companies, each offering an HMO and POS plan Cooperative for Health Insurance Purchasing (Colorado) 4 insurance companies, each offering an HMO and POS plan Employees Health Purchasing Cooperative (Washington, mostly Seattle) 3 POS plans with #plan designs, a choice of 9 plan options Florida Community Health Purchasing Alliances (11 alliances) Statewide: 46 Accountable Health partnerships offering 75 plan options Illinois Employer Benefits Alliance Plans to offer a POS, PPO, and 2 or 3 HMO plans Plan Source (Kentucky) 13 health plans LIA Health Alliance (Long Island) 3 insurance companies, each offering an HMO and POS plan Minnesota Employees Insurance Program 4 HMOs and 3 indemnity plans (where HMOs are not available) Texas Insurance Purchasing Association 13 insurance companies offer 20 plans with multiple options in Gulf region; across 6 other regions, 11 carriers offer 15 plans   SOURCE: Institute for Health Policy Solutions, 1995. by the Institute for Health Care Solutions, summarizes the number of plans available for 10 of these alliances. All of the purchasing alliances (except for those in Florida) have the ability to selectively contract with health plans. In Washington State, employers choose the health plan for their workers, and Florida and Illinois employers choose the plans from which their workers may select. Other purchasing alliances offer open employee choice. A recent Lewin-VHI study of the nation's nonfederal public employer plans—which are large group purchasers covering 3.7

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--> million workers—shows that they also usually select a number of health plans, on a competitive basis, from which workers can choose. Nearly all report that they actively negotiate with plans to restrain costs and on other provisions; in general, their practices mirror those of the large private sector employers. Some states go much farther than others in the number of plans made available. The California Public Employees' Retirement System (CalPERS) offers enrollees a choice of six PPOs and 21 HMOs; CalPERS is an active negotiator with these health plans. In the Lewin-VHI study, about two thirds of the states (30 of 47 states responding) reported offering at least a choice of three types of plans (indemnity, PPO or POS, and HMO); 12 states (27 percent) limited choice to two types of plans; only 3 states offered only a single plan (Lewin-VHI, 1995). An active government-run bidding process is also used by the federal government for the U.S. Department of Defense's (DOD) Civilian Health and Medical Program of the Uniformed Services health insurance program. Structuring a competitive market so that it will have an active group-purchasing agent has clear analogies to wholesale markets in other sectors. Often, it is this wholesale level, where professional, expert purchasers can buy in quantity, that features the toughest competition for technical quality and price, for example, Sears purchasing for its Kenmore appliance line or the Giant grocery chain procuring the products that it will put on its shelves. Consumers can then choose, in the retail market, from among products and product features with better assurance of receiving good value merchandise. The proposed FEHBP-Medicare model thus forgoes whatever preselection, negotiating for better features and performance, improved risk adjustment mechanisms, and consumer protection potential an active group purchaser would bring to the market. Medicare's 37 million enrollees would certainly get more choice than is available to most Americans but would also face a greater possibility of making a bad choice. The following are among the options for a more active government role in helping Medicare enrollees. Option #1. Raise the standards for entry into the Medicare health plan market. Tightening the rules on market entry is one

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--> of the options most often used by government to intervene in markets. Applied to the Medicare health plan market, a higher entry threshold could be used to help ensure that the plans offered to Medicare beneficiaries had already proven themselves to be viable, well-run companies that offer high-quality health care. The concerns about anti-managed care bias in DHHS administrative decisions could be lessened by using objective criteria. Of the reconciliation bill's provisions that are more lenient than current law, the ones that are most open to question are the minimum plan enrollment provisions (5,000 individuals in current law would be lowered to 1,500 individuals generally and to 500 individuals in rural areas) and 50/50 requirements (health plans could be more than 50 percent Medicare enrollment). Both of these rules have helped to ensure that the health plans offered to Medicare enrollees were well-established operations that had already proved that they could grow and prosper in the competitive employer-choice market and that they were not started solely to profiteer off skimming the Medicare market. The current law's provisions might be continued and strengthened in several ways, such as (1) requiring that a health plan would need to be in existence for at least 3 years to demonstrate financial and operational competence and lessen the market's attractiveness to quick-buck operators; (2) providing that none of the plan's executives or marketing personnel could have prior convictions for violating state insurance or HMO laws, to lessen the prevalence of sharp operators, after being shut down in one state, simply moving to another state; and (3) setting benchmark scores on report card ratings, above minimal accreditation thresholds, that would need to be met for Medicare market entry. Option #2. Strengthen the federal government's role as a purchaser of health plans on behalf of Medicare enrollees. The federal government could go beyond setting higher minimum entry requirements to actively using Medicare's purchasing power, $160 billion of outlays, to promote competition for excellence in the Medicare health plan market. This option would involve the federal government making use of the best practices of large employer and purchasing alli-

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--> ances as wholesale or group purchasers. Plan selection could be done through an extensive request-for-proposal (RFP) competitive bidding process in which the government requires that proposers address a number of quality, service, and other measures that are important to Medicare's elderly and disabled populations. Only a selected menu of plans would be offered. Contract provisions could be negotiated to get quality and service performance guarantees for Medicare enrollees. Contract terms could also include financial incentives and penalties related to performance; for example, the St. Louis business coalition will put 4 percent of plan premiums aside for its plans to earn depending on their scores on objective, audited performance criteria. An expertly run RFP process would allow for the use of more, and more sophisticated, criteria for selection than consumer report cards and could be designed to strengthen competition for excellence in serving Medicare's higher-need populations. A stronger purchasing or negotiating role would also allow the federal government to take much more effective measures to deal with risk adjustment problems on a market-by-market basis, ranging from banning plans that skim the Medicare market or that ''demarket" higher-expense populations to closed-door bargaining with plans' representatives to develop appropriate risk adjustors, high-cost capitation arrangements, and other approaches to fair pricing. Over time, this negotiating capability would allow the federal government to move beyond the Average Adjusted Per Capita Cost (AAPCC) payment formula to implement competitive premium bidding. The implementation barriers to this approach are challenging because of the potential need for the federal government to take on this new, sophisticated role in a large number of market areas. Fortunately, the Medicare health plan market is now so concentrated that this expanded role could be initiated selectively on a demonstration or research and development basis. The most promising areas would likely include Florida and California, which have 60 percent of Medicare HMO enrollees and a highly competitive Medicare market. This type of purchasing strategy could also be fostered by the federal government by chartering competing consumer pur-

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--> chasing cooperatives (as described in the next section) to perform the same functions. If the consumer cooperative approach is followed, the federal government could assume this purchasing role in areas underserved by private cooperatives such as rural areas. The federal government could also contract out its purchaser function to state-chartered health plan cooperatives or state employees plans, for example, CalPERs or the Health Insurance Plan of California. Contracting issues for government programs have been discussed by Donahue (1989). Enhance Consumers' Information and Influence A second strategy for competitive excellence is to seek ways to make consumers even better shoppers on the basis of health plan performance and to increase health plan responsiveness to them. Option #1. Expand information about health plans for consumers. The information provided to consumers is a critical link for the actuality of accountability. It is clear, however, that a lot more work still needs to be done in this area, for example, the National Committee on Quality Assurance's (NCQA) Medicare HEDIS is still under development; these technical efforts need to be complemented by market research on consumers' choice criteria. Other papers address these issues in depth. The information needed may go beyond the report card performance measures on health care quality and outcomes. A few more critical elements-now not provided even to FEHBP participants-might simply be called full disclosure so that the consumer has a better idea of what he or she is getting and how a plan operates. In a recent New York Times piece, Michael Stocker (1995) (Chief Executive Officer of Empire Blue Cross/Blue Shield) recommended that HMO enrollees be given much more information about health plans. Among the items of information that he suggested HMOs be required to advise their Medicare and other enrollees of are guidelines that they want their doctors to follow when treating patients, treatments not covered, including limitations on drugs that physicians may prescribe, and

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--> payments to physicians, including bonuses related to cost containment and quality of care. Other types of information that should help to make sure that health plans know that they are being carefully watched for misbehavior include enrollee complaints. The Minnesota HMO law, for example, requires each health plan to list its four highest administrative (e.g., scheduling) and four highest clinical (e.g., poor service) complaints and describe what is being done to deal with them. This information needs to be part of each plan's marketing material. Option #2. Create Medicare ombudsman offices. A network of Medicare ombudsman offices, operating in areas with significant Medicare health plan enrollments, could be provided to assist Medicare enrollees who are considering health plan enrollments and those who have complaints about their health plans. The Medicare program now has an underdeveloped consumer assistance function; its placement of personnel in local Social Security offices ceased when HCFA was created. Assistance in addition to enrollment would be useful because of the many potential problems that consumers can encounter. The Medicare data on health plan performance show complaint rates that vary by a factor of 25:1, from 0.18 complaints per 1,000 enrollees for Group Health of Puget Sound to 4.58 complaints per 1,000 enrollees at Humana (Florida). The ombudsman office would assume some of the functions normally undertaken by an employer benefits office on behalf of employees in trying to deal with health plan issues that arise in day-to-day operations. The ombudsman could have the right to investigate patient complaints; to make unannounced inspections of facilities and records; to make public reports on findings; and to seek actions from DHHS such as "cease and desist" orders, suspension of new enrollments, and fines and U.S. Justice Department and state attorney general referrals for instances of criminal negligence, recurrent malpractice, and other egregious misbehavior. Various ombudsman functions could also be carried out by state and local governments and by private sector groups. Option #3. Create voluntary consumer purchasing cooperatives. An idea recently proposed by David Kendall of the Pro-

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--> gressive Policy Institute is that Medicare beneficiaries be given an option to join voluntary consumer cooperatives. James Firman and the National Council on the Aging have also proposed consumer cooperatives for Medicare beneficiaries. These cooperatives would have the power to negotiate on behalf of their Medicare enrollees with health plans on cost, quality, and other issues. They would be federally chartered, would offer a menu of options, and would be financed by a fixed percentage of the premiums that they handle. Multiple, competing cooperatives would be allowed, and beneficiaries would be able to decide whether to select their plans from the federal government's FEHBP-type arrangement or from one of the consumer cooperatives. In this approach, the voluntary consumer cooperatives, selected by beneficiaries, would assume the purchasing functions that government would take on in a previously described option. Compared with federally run purchasing arrangements, private sector cooperatives may have more flexibility and freedom from political pressures (Kendall, 1995). Strengthen Professional Influences Strengthening the influence of health care professionals who are committed to advancing clinical practice is a third strategy that could be used to promote health plan excellence. The following options are among the measures that could be considered. Option #1. Provide a better clinical basis for medical care of the Medicare elderly and disabled population. At the American Association of Retired Persons' (AARP) 30th anniversary conference on Medicare, Robert Brook suggested a major national effort on clinical effectiveness and outcomes studies for the elderly. He noted that although many such studies are still needed for the population under age 65, the research literature is far more sparse for the population over age 65. Given the advances in research methods, his view was that this clinical knowledge could now advance rapidly. If health plan medical directors, accrediting agencies, health care professionals, report card designers, and Medicare enrollees are to perform their roles better, they need a far better scientific basis for their judgments. IOM might be well suited for sponsoring a study by a com-

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--> mittee of clinicians, health services researchers, medical directors of health plans, and others that would consider how to organize and conduct a major national effort on clinical effectiveness and outcomes for Medicare's elderly and disabled populations. This effort would build on the Agency for Health Care Policy and Research's work and other efforts in these areas. Option #2. Assure effective public accountability and high professional standards for the accrediting organizations for Medicare health plans . The reconciliation bill's requirement that health plans pass muster with an accrediting organization is potentially a critical element of their accountability for meeting high professional standards. The accrediting organizations' identities, structure, and accountability are not spelled out. Too often, health care licensing and accrediting organizations have settled for (or eroded to) standards that can easily be met and become rubber stamps for second-rate performers. There are also examples of professional standard setting, under government oversight, that seem to work well, for example, the Financial Accounting Standards Board (which is sponsored by all of the major professions involved)-Securities and Exchange Commission relationship. NCQA, FAcct, and the Joint Commission on Accreditation of Healthcare Organizations are among those already vying for an accreditation role. The nature, sponsorship, funding, and accountability of the accrediting organization(s) for Medicare health plans are worthy of careful consideration by public policy makers if they are to require high standards rather than minimally acceptable performance. Option #3. Develop best practice benchmarks and centers of excellence as competitive Medicare options. The competitive market can be used to influence health plan performance by making sure that the fee-for-service Medicare program offers the toughest possible competition with health plans for excellent health care. If the Medicare program identifies best practices and outstanding providers-and selectively contracts with such providers, possibly using a centers of excellence and preferred provider model-it can ensure that there are high competitive standards, on a procedure-by-procedure and disease-by-disease basis, that health plans will need to meet if they want to attract patients. If health plans do not measure up to these

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--> competitive benchmarks, they would risk losing enrollees and being seen as second-rate. Medicare's selective contracting can extend to organized programs of care that specialize in the treatment of various chronic or high-cost conditions and to negotiated payment arrangements combining fee-for-service, capitation, risk sharing, and performance incentives. Competition for Excellence There are as yet many unanswered questions about how well a consumer choice health plan market, based on the FEHBP model, will work in fostering competition for excellence. This paper has focused on strategies for strengthening the roles of government, the consumer, and high professional standards while still retaining the basic reconciliation bill market reforms. The Medicare program could better assure competition for excellence by adopting elements from among these strategies. References Dallek, G., C. Jimenez and M. Schwartz. 1995. Consumer Protection in State HMO Laws . Los Angeles: Center for Health Care Rights. Donahue, J. 1989. The Privatization Decision. New York: Basic Books. Fukuyama, F. 1995. Trust. New York: Free Press. Hamilton, G. 1994. Civilizations and the Organizations of Economies. In N. Smelser and R. Swedberg, eds. The Handbook of Economic Sociology. Princeton, N.J.: Princeton University Press. Institute for Health Policy Solutions. 1995. A Comparison of Small Employer Purchasing Alliances. Washington, D.C.: Institute for Health Policy Solutions. Kendall, D. 1995. A New Deal for Medicare and Medicaid: Building a Buyer's Market for Health Care (Report 25). Washington, D.C.: Progressive Policy Institute. Lewin-VHI. 1995. States as Purchasers: Innovations in State Employee Health Benefit Programs. Washington, D.C.: National Institute for Health Care Management. Lohr, K. 1990. Medicare: A Strategy for Quality Assurance. Washington, D.C.: National Academy Press. Relman, A. 1988. Assessment and accountability: The third revolution in health care. N. Engl. J. Med. 319:1221-1222. Scherer, F. M., and D. Ross. 1990. Industrial Market Structure and Economic Performance, p. 55. Boston: Houghton Mifflin.

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--> Stocker, M. 1995. The ticket to better managed care. New York Times, October 28. Swedberg, R. 1994. Markets as social structures. In N. Smelser and R. Swedberg, eds. The Handbook of Economic Sociology. Princeton, N.J.: Princeton University Press.