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What Should Be the Basic Ground Rules for Plans Being Able to Participate in the Medicare Managed Care Market? Case Study: The California Public Employees' Retirement System

Tom J. Elkin*

Introduction

As an increasing number of Medicare-eligible individuals enroll in managed care health plans, there is a growing concern about how health plans will be held accountable for providing Medicare patients with affordable, quality care. This paper describes how one large public purchaser, the California Public Employees' Retirement System (CalPERS), assures its active and retired members that they will continue to have access to quality service at affordable premiums.

Managed care has proven to be a cost-effective method of organizing and delivering health care. The dramatic increase in popularity of health maintenance organizations (HMOs) in recent years is the result of their ability to counteract the rising cost of fee-for-service medicine. Faced with escalating cost of care employers are turning to managed care to control costs and more effectively manage health care for their employees and

*  

Independent health care consultant, Sacramento, California.



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--> L What Should Be the Basic Ground Rules for Plans Being Able to Participate in the Medicare Managed Care Market? Case Study: The California Public Employees' Retirement System Tom J. Elkin* Introduction As an increasing number of Medicare-eligible individuals enroll in managed care health plans, there is a growing concern about how health plans will be held accountable for providing Medicare patients with affordable, quality care. This paper describes how one large public purchaser, the California Public Employees' Retirement System (CalPERS), assures its active and retired members that they will continue to have access to quality service at affordable premiums. Managed care has proven to be a cost-effective method of organizing and delivering health care. The dramatic increase in popularity of health maintenance organizations (HMOs) in recent years is the result of their ability to counteract the rising cost of fee-for-service medicine. Faced with escalating cost of care employers are turning to managed care to control costs and more effectively manage health care for their employees and *   Independent health care consultant, Sacramento, California.

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--> retirees. In addition, increasing numbers of Medicare-eligible individuals are joining Managed Medicare Risk Plans to reduce their out-of-pocket costs and eliminate the added expense of purchasing supplemental policies. The success that managed care plans have had in reducing the cost of care has made them very attractive to purchasers. Yet there is a concern whether managed care can continue to reduce costs and still provide Medicare patients with access to quality health care. On the basis of the experiences of some large purchasers, a degree of oversight of the performance of health plans is necessary to ensure a balance between these two forces. The primary focus of HMOs is on cost reduction through the control of both the price and the utilization of care. To curb the uncontrolled increases in the costs of fee-for-service medicine, employers have embraced managed care without clearly assessing the potential weaknesses of such a system. Purchasers are becoming aware of the impacts that these forces will have on the service and quality of care provided to members of managed care plans. There is a growing concern about the for-profit emphasis of many managed care plans. The pressure to show a profit every quarter and to generate dividends to the stockholders could erode an HMO's commitment to deliver quality care. Many clinicians, purchasers, and consumers have expressed concern that the economic and utilization incentives of capitated, managed care plans may result in the underutilization of care and the erosion of customer service. To ensure the success of managed care as a viable health delivery system for the future, the needs of the members of health plans must be balanced with the need to reduce the cost and make more efficient use of our health resources. Some large employers and purchasing cooperatives have implemented monitoring and oversight requirements for HMOs to measure the services provided to their employees. These purchasers play an active role in assuring their employees, retirees, and their dependents that the health plans available to them provide access to affordable, quality care. The role of capitated, managed care is critical in reducing costs, effectively managing the utilization of care, and performing efficient enrollment and contractual tasks for purchasers. However, the individual member needs

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--> the support and, in some cases, the protection of an active, informed purchaser to hold health plans accountable (U.S. General Accounting Office, 1994, pp. 3-6). Background The CalPERS Health Benefits Program purchases health care for 1 million California public employees, retirees, and their dependents. The primary goal of the CalPERS Health Benefits Program is to provide access to quality health care for its members. To achieve this goal the CalPERS Board of Administration has put into place various requirements to hold health plans accountable to the terms and conditions of their contracts. The success that CalPERS has achieved in cost containment, as well as in quality and service improvements, is the result of the active role that the Board plays in managing its Health Benefits Program. The Board believes that it has a responsibility to assist members and their families in navigating through the complex and confusing issues related to selecting a health plan and a primary care physician to ensure that the members receive a high level of service (U.S. General Accounting Office, 1993, pp. 1-4). This is particularly critical for the Medicare population, which is enrolling in Managed Medicare Risk Plans in increasing numbers. The complex array of benefit options, copayment arrangements, marketing literature, and enrollment procedures can be confusing and, at times, misleading. This confusion can be overwhelming to a Medicare-eligible individual who is facing the transfer from a fee-for-service delivery system to a capitated, managed care plan for the first time in his or her life. The independence of the 13-member CalPERS Board and the fiduciary responsibility it has to its members are essential elements in the success of the CalPERS Health Benefits Program. CalPERS was established in 1932 to administer the retirement program for California STATE employees. Six of the 13 board members are elected by specific membership groups and 7 are appointed or are ex-officio members. The Board has broad authority, specified in Article XVI, Section 17, of the California Constitution, to administer the system and is independent of the executive and legislative branches of government.

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--> Board members serve 4-year terms of office on a nonpaid basis. They hold monthly public meetings and allow full participation by members of the system as well as the public at large. Because six members are elected by various membership groups and three members are California state constitutional officers, the CalPERS Board has a strong commitment to public accountability and member service. The Board has historically had a strong member orientation and strives to provide a high level of service to its members. This orientation is the force behind its active role in managing its health benefits program (California Public Employees' Retirement System, 1994, pp. 56). The health program provides medical coverage for active employees, retirees, and their dependents. One thousand California public employers participate in the program, representing 1 million covered lives. These employers include both employees and retirees of the State of California and the California State University System, as well as hundreds of smaller employers, including school districts, police departments, cities, counties, and special districts. More than 75 percent of the participating employers employ less than 100 workers. In recent years there has been a dramatic increase in the number of public employers joining the CalPERS Health Benefits Program because of the success in cost containment and improvements in service and quality standards (California Public Employees' Retirement System, 1994, pp. 349-382). CalPERS contracts with 22 separate health care plans, which provide Basic Plan coverage to approximately 852,000 covered lives and supplement Medicare or Medicare Risk Plan coverage to approximately 135,000 covered lives, who are eligible for both Part A and Part B Medicare. Approximately 82 percent of the membership has chosen to belong to an HMO, whereas the balance belong to one of the two self-funded preferred provider organization (PPO) plans available. CalPERS spends $1.5 billion annually for health care. Faced with double-digit premium increases during the 1980s, which threatened the stability of the program, and concern about the lack of accountability of health plans providing services to CalPERS members, the Board initiated numerous changes to

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--> increase the accountability of its managed care plans and to more aggressively negotiate premiums. These changes constituted a redefinition of the role of a purchaser in terms of negotiating premiums and measuring performance. By exercising its $1.5 billion purchasing power, CalPERS was able to improve service and quality, reduce costs, and increase the accountability of the plans contracting with CalPERS (LaRaja and Rosner, 1993, pp. 8-10). Basic Requirements for Participation CalPERS requires its health plans to meet numerous standards and requirements to participate in their program. These requirements fall into five major categories: statutory and regulatory compliance, provider access, quality and cost data, uniform benefit design, and customer service. These major categories encompass contractual requirements, conditions of participation, monitoring systems, and internal procedures and policies that enable the staff to monitor the performance of the health plans and hold them accountable. Statutory and Regulatory Compliance To contract with CalPERS, an HMO must be licensed by the California Department of Corporations (DOC) to do business in California and must comply with the requirements of the Knox-Keene Health Care Service Plan Act of 1975, Section 1340 of the California Health and Safety Code. The California Commissioner of Corporations administers this statute and is responsible for ensuring that all HMOs doing business in California comply with the licensing laws and regulations. This law requires the plans to be financially stable, defines the basic benefits to be provided, ensures that patient protections are in place, and specifies enrollment and advertising standards and grievance systems. Provider access, credentialing, and tangible net equity requirements are also reviewed by DOC. For a plan to be licensed it must submit a detailed application and undergo a thorough review by DOC staff.

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--> Provider Access For an HMO to participate in the CalPERS Health Benefits Program, it must be licensed by DOC and must meet additional requirements mandated by the CalPERS Board. One critical requirement is that the plan must have adequate providers to serve members of specific geographic areas. In reviewing a proposal from a new plan or a proposed expansion of an existing plan into a new geographic area in California, CalPERS staff perform a careful analysis of provider access. Even though DOC examines network coverage as part of its licensure review, CalPERS staff verify the actual network coverage in detail to determine whether adequate primary care physicians, clinics, specialists, and hospitals are available to serve the enrollees. In one incident during the review of a proposed plan expansion, CalPERS staff discovered that physicians were not taking new patients from that plan; therefore, physician access was inadequate to meet the anticipated enrollment. The plan was notified and the expansion was suspended until the provider access problem was resolved. Changes in contractual relationships between health plans and medical groups affect provider access by disrupting patient-physician relationships. CalPERS recognizes that contract disputes will occur in the evolving, competitive, managed care market. However, there must be a balance between the economic needs of the managed care company and those access needs of patients. A contractual impasse will occur when a health plan and a medical group cannot agree to the terms of their contract and the health plan terminates the contract. When this occurs the health plan notifies its members that they must select a new primary care physician from those still under contract. This causes disruption between patients and their physicians and generates dissatisfaction among the members of the plan. In one incident a plan terminated its contract with a large medical group within 60 days of the close of the annual open enrollment period. CalPERS members who had just selected their health plan and primary care physician were informed by the plan that they had to choose another physician. It was too late for them to change plans. This resulted in angry complaints

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--> from members and physicians who felt that the timing and notification of the contract termination was not in the best interest of the patient. CalPERS sanctioned the plan, required that letters of clarification be sent to all members affected, and allowed members of the plan who wanted to change plans outside the open enrollment period to do so. Many members switched to other HMOs. To minimize disruption to members who have selected a particular HMO and primary care physician, CalPERS requires health plans to inform members at least 60 days prior to any contract termination with a medical group and encourages health plans to minimize these contractual disputes during the contract year. Written communications to CalPERS members must be reviewed by staff prior to publication. The balance between the value of managed care in organizing and controlling the use of medical resources and the patient's need for access to appropriate medical care is an issue that CalPERS actively monitors and manages. Standard Benefit Design In 1992, in an effort to improve consistency of health care and to assist members in making more informed health care decisions, CalPERS designed a standard benefit plan and required all HMOs to provide the benefits specified in the plan. Prior to standardizing the benefits, the complex array of benefit choices, the definitions of benefits, copayment charges, and limitations and exclusions were confusing and, in some cases, misleading to the members. The wide variation in copayment charges, as an example, had no relationship to the premiums charged by the HMOs. Plans that had low copayment charges, in some cases, were more affordable, whereas some plans that had high copayment charges had high monthly premiums. There was no basis for comparison; there were four different copayment charges for physician's office visits, nine different charges for mental health outpatient visits, and nine different charges for prescription drugs, with three different volume limitations. To make an informed comparison a member would have to perform a complex analysis of his or her projected use of various

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--> services and compare that with the differences in premiums between the plans available in his or her area. A daunting task! The new benefit design used a standard definition for each benefit, the same copayment was to be charged for the same services, and many of the differences in exclusions and limitations were eliminated. By standardizing the benefit design, the members were better able to evaluate and compare the value of health plans and to be assured that they would receive the same level of benefits, regardless of the plan that they selected (U.S. General Accounting Office, 1993, pp. 8-10). In addition to simplifying the plan selection process, standardizing benefits required all HMOs to provide the same level of benefits, which increased competition between plans. This heightened the importance of the premiums that the plans charged, for price became an important measure of value. Negotiations were more focused on price and performance than on the differences between benefit configurations. After adjusting for age, sex, and family size, the fact that the benefits provided by the HMOs were the same made variations in premiums more difficult to justify and improved CalPERS's ability to negotiate better prices. CalPERS adopted a standard benefit design for Medicare Supplemental and Managed Medicare Risk Plans for the 19951996 contract year. To encourage CalPERS Medicare-eligible members enrolled in the PPO plan to enroll in Medicare Risk Plans, a standard benefit design was implemented with zero copayment charges for physician's office visits, durable medical equipment, emergency care services, home health services, hospice services, and blood and blood products. Prescription drugs required a $1.00 copayment. Standardizing the Medicare Supplemental and Managed Risk Plan benefits simplified the health plan selection process and assured Medicare-eligible CalPERS members that they would receive affordable, comprehensive services, regardless of the plan that they selected. The CalPERS Board believes that requiring HMOs to follow a standard benefit design has improved CalPERS' ability to hold its plans accountable, negotiate lower premiums, and simplify the plan selection process for its members (California Public Employees' Retirement System, 1995a, p. 16).

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--> Cost and Performance Data Collecting and analyzing cost and performance data are the most important changes that CalPERS has implemented. It is not possible to assure access to quality health care without basic information regarding cost, quality, and service. For decades purchasers, employees, and retirees have paid escalating prices for ill-defined, poorly quantified health care. Basic information regarding unit cost, comparative performance, and information on outcomes of medical interventions has not been available. In order to become a more informed purchaser and to hold health plans more accountable for the $1.5 billion annual premiums paid for care, CalPERS requires HMOs to provide basic cost and performance information on an annual basis. Initially, HMOs were required to submit data on cost, rating methodology, and basic performance in an attempt to compare the cost of care provided by the health plans. (California Public Employees' Retirement System, 1996, pp. 16-38). By comparing the reported costs on a per member, per month basis for both inpatient and outpatient services for 22 HMOs, CalPERS staff were able to identify those plans that had excessive variations from the median cost for a specific benefit. The variation between the per member, per month cost for similar benefits was wide. In one example, one plan reported paying 100 percent more for drug ingredients than its competitor. In another case, a plan was paying 80 percent more for inpatient care than several of its competitors in the same geographic region. In addition to reporting benefit costs, the plans were required to report administrative costs, including marketing costs and profit. This information enabled staff to identify high-cost areas that health plans should more effectively manage and supported CalPERS's efforts to reduce the costs of annual premiums. This information was key to CalPERS's success at the negotiating table. Once the standard benefit design was implemented, cost data became more meaningful, for all plans were providing the same benefits and charging the same copayments for each specific benefit to a similar demographic mix of CalPERS members. The comparisons were useful in evaluating the performance and value of each plan.

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--> In subsequent years CalPERS expanded the data requirements to include information about organization and accreditation, access to care, customer service, quality assessment, practice patterns, and quality measurement. The goal was to develop a profile for each plan to determine the value that each plan offered in terms of price, quality, service, and innovation. In 1994 CalPERS notified its health plans that it intended to provide its members with a Quality of Care Report Card in the spring of 1995 to assist them in making more informed choices. This marked the beginning of a major effort to independently collect and publish information by using 11 Health Plan Employer Data and Information Set (HEDIS, version 2.0) Quality Indicators developed by the National Committee for Quality Assurance. Central to this initiative was the requirement that the data be collected and analyzed by an independent third party. It would not be plan-reported, self-reported data, as had been used in the past. CalPERS joined with the Pacific Business Group on Health (PBGH) to implement this initiative and formed the California Cooperative HEDIS Reporting Initiative (CCHRI) to serve as the managing group to implement the project. All HMOs contracting with CalPERS were required to participate in the project. As the scope and importance of this initiative became apparent, eight additional California HMOs joined the project bringing the total number of plans participating in the project to 24. These HMOs represented 85 percent of the state's commercial HMO membership. CCHRI contracted with a health information consulting company to perform the data collection and analysis. The 24 HMOs funded the project and assisted in the successful completion of the initiative. A large random sample of patients was selected, and their medical charts were examined by a team of clinical reviewers to identify which specific preventive services had been performed. This information was compiled, analyzed, and reported to CCHRI, PBGH, and CalPERS. On April 15, 1995, CalPERS mailed 500,000 Open Enrollment Information Packets to its members. Included in these packets was a Health Plan Quality/Performance Report, which presented the results of the quality survey of the HEDIS Qual-

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--> ity Indicators. The report also included the results of a consumer experience survey conducted in 1994 (California Public Employees' Retirement Systems, 1995b, pp. 5-10). This was the first time that CalPERS had presented comparative quality information on health plans to its members. The report was well received and will be provided in subsequent years. As more sophisticated measures of quality become available, CalPERS will include them in its annual Health Plan Quality/Performance Report. The combination of the standard benefit design and the report card have greatly enhanced the consumer's ability to make an informed decision when choosing a health plan. They have also been instrumental in helping CalPERS reduce the cost of care and enable members to continue to receive comprehensive services at affordable prices. At a time when cost containment is often achieved by reducing benefits and limiting coverage of dependents and retirees, CalPERS has achieved significant cost containment by becoming a more informed and assertive purchaser. Customer Service One of the most important responsibilities of a purchasing cooperative is to manage and monitor customer service. The complex and very personal nature of health care requires a unique approach to service and customer satisfaction. Issues of choice, the requirement to use a primary care physician, and the use of network providers are key elements of the managed care environment. Learning to adapt to these new relationships and rules can be difficult for both active and retired members. For Medicare-eligible members who have been members of an indemnity or PPO for their entire working careers, moving into a managed care structure requires adapting to new and, at times, confusing rules. Many of the limitations of managed care generate member complaints about care or service when, in fact, nothing inappropriate has occurred. On the other hand, managed care companies must provide timely services and access to benefits and must not impede a member's ability to receive necessary and appropriate services. CalPERS has established various requirements and systems

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--> to assist its members in obtaining services within the managed care environment while attempting to balance the expectations and needs of the member with the discipline and structure of managed care. In addition to the Health Plan Quality/Performance Report, CalPERS conducts a consumer experience survey to measure how members feel about the care that they receive. The results of the survey are published and mailed to all members of the program. The results are also analyzed and included in the annual rate renewal negotiations, providing information about how well the members rate their respective plans. This survey has proven to be an effective monitoring technique as well as a pubic comparison of the views of the members of particular plans. It is an important method of measuring service (Bay Area Business Group on Health, 1994, pp. 8-10). Another survey that CalPERS initiated is an annual exit survey. Many individuals will not make formal complaints about their plan but, because of their dissatisfaction with the performance, will change plans during the annual open enrollment period. CalPERS determined that it would be useful to survey those individuals who changed plans and ask them basic questions about the reasons why they switched plans. The first exit survey was conducted in 1994, and the information was useful in monitoring the levels of service of specific plans. An improved exit survey was mailed to all members who changed plans during the 1995 open enrollment period, and the results will be used to identify problem areas. Advertising and marketing practices is another area CalPERS closely monitors during open enrollment. With the highly competitive managed care market in California, HMOs aggressively seek new members and can be very creative in how they represent themselves to potential members. In past years some health plans were less than accurate when portraying themselves to CalPERS members during open enrollment. In response to these problems, CalPERS now requires its HMOs to submit their advertising text to CalPERS staff for review and approval. There are strict rules regarding the use of the name ''CalPERS" and the representation of the results of surveys and comparisons.

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--> In 1993 CalPERS implemented the Ombudsperson Program for the Health Benefits Program. The purpose of this new program was to provide specific assistance to those members who had extraordinary enrollment or benefit problems. There are times when a member is involved with an unusually complex enrollment change or embroiled in a dispute over a covered benefit and needs special assistance. The CalPERS Board believed that additional assistance was appropriate for these types of cases and implemented the Ombudsperson Program to address these unique problems. The ombudspersons have access to both eligibility information and health plan benefit data and are able to cut across the traditional lines of the organization to bring the issue to closure quickly. The program has been very successful and is limited only by staff availability. Retired members who do not have the support and advice of peers at the work site have found this service to be particularly helpful in coping with the complexities of benefit and enrollment problems. The complex nature of enrollment systems and benefit policies can be confusing to consumers. The Ombudsperson Program is an attempt to provide additional support and assistance to those members who have difficulty navigating through the health care system. It is an example of the commitment that the CalPERS Board has made to customer service. A major strength of the CalPERS Health Benefits Program is that members can appeal directly to the Board for review of their complaints once they have exhausted their appeal rights with their health plan. Members are informed of this option annually during the open enrollment period and are given the address and telephone number of the Member Service Unit, which is staffed by CalPERS Health Benefits Program employees. These staff members answer questions and advise members of their right to appeal an issue once it has been adjudicated by the health plan. This offers the members the opportunity to explain their problem to a neutral third party who can intercede on their behalf, when appropriate, or advise the members of their options. The final element of customer service oversight is the development and distribution of information describing the eligibility

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--> rules and health plan options. CalPERS believes that the information distributed to its members prior to the annual open enrollment period should be clear, accurate, and free of marketing bias. The Health Plan Guide that is mailed to every member's home is prepared by CalPERS staff and clearly describes the process for making plan changes and enrollment changes as well the benefits, copayment charges, and deductibles for both HMO and PPO plans. Written text prepared by the health plans is reviewed and edited before it is inserted into the booklets so it complies with the Board's policy regarding the content of written material distributed to CalPERS members. This oversight of the development and distribution of procedures, policies, and health plan descriptions reduces confusion and assures the members, the Board, and the competing health plans that information will be presented fairly and accurately. Conclusion The CalPERS purchasing cooperative is a proactive model. Its use of purchasing power to achieve significant reductions in the price that it pays for health care has redefined the role and importance of the purchaser in the marketplace. Yet its active role in ensuring health plan accountability has had a significant impact on quality and service. Cost containment that is not balanced with measurements of service and quality is irresponsible. Value purchasing, something that the CalPERS Board is striving to achieve, means the effective balance of cost, quality, service, and patient satisfaction. As more of the nation's Medicare-eligible population moves from a fee-for-service environment into a capitated, managed care delivery system, it is essential that basic monitoring systems be put into place to assure the members, the health plans, and the taxpayers that the elderly members of our society will receive compassionate, quality care at the lowest possible price. Providing a neutral, independent, third-party entity to act as an informed purchaser, ombudsperson, and in some cases, advocate for the Medicare-eligible population is critical to ensuring that enrollees receive the benefits that managed care has to offer. All of the requirements and systems used by CalPERS to

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--> ensure provider access, cost and quality data, uniform benefit design, and customer service, can be used to strengthen the purchase and delivery of managed health care to the Medicare-eligible population. References Bay Area Business Group on Health. 1994. California Public Employees' Retirement System 1994 Employee Medical Plan Satisfaction Survey. San Francisco: Bay Area Business Group on Health. California Public Employees' Retirement System. 1994. State Constitution extract. California Public Employees' Retirement Law. Sacramento: California Public Employees' Retirement System. California Public Employees' Retirement System. 1995a. Health Plan Guide: Combined Information On: Basic, Supplement to Medicare and Managed Medicare Health Plans. Sacramento: California Public Employees' Retirement System. California Public Employees' Retirement System. 1995b. Health Plan Quality/Performance Report. Sacramento: California Public Employees' Retirement System. California Public Employees' Retirement System. 1996. 1995-96 Rate Renewal Questionnaire: Health Plan Administration. Sacramento: California Public Employees' Retirement System. LaRaja, R., and J. Rosner. 1993. How managed competition controls costs: The CalPERS experience. Progressive Policy Institute Policy Brief, No. 1. Washington, D.C.: Progressive Policy Institute. U.S. General Accounting Office. 1993. Health Insurance: California Public Employees' Alliance Has Reduced Recent Premium Growth . Washington D.C.: U.S. General Accounting Office. U.S. General Accounting Office. 1994. Access to Health Insurance: Public and Private Employers' Experience with Purchasing Cooperatives. Washington, D.C.: U.S. General Accounting Office.