Evaluation of the Medicare Competition Demonstrations

By Langwell, Kathryn M.; Hadley, James P. | Health Care Financing Review, Winter 1989 | Go to article overview

Evaluation of the Medicare Competition Demonstrations


Langwell, Kathryn M., Hadley, James P., Health Care Financing Review


Evaluation of the Medicare Competition Demonstrations

A summary of findings from the Evaluation of the Medicare Competition Demonstrations is presented in this article. The purpose of this evaluation was to examine the implementation and operational experiences of the 26 health maintenance organizations that operated as demonstrations from 1983 to 1985, their experiences in marketing their plans, the factors that affected beneficiaries' decisions to join or not join a plan, the extent to which beneficiaries were satisfied with their choice of plans, the quality of care provided by the plans, and the impact of the demonstrations on Medicare beneficiaries' use and cost of services.

Medicare risk contracting

Between the time the original Medicare legislation was enacted in 1966 and the present, Medicare has offered a number of different contracting options to health maintenance organizations (HMOs) wishing to participate in the Medicare program. Initially, these options involved payment provisions that were based on the traditional benefit and cost-reimbursement philosophy of the original Medicare program; however, they have expanded and evolved over time in order to increase HMO participation in Medicare and to encourage beneficiary enrollment in prepaid plans.

By December 31, 1979, 14 years after the inception of the Medicare program, only 64 organizations, with a total enrollment of 521,894 beneficiaries, had signed contracts with the Medicare program. Thirty-one of these organizations were group practice prepayment plans (484,755 beneficiaries enrolled), 32 had cost contracts with Medicare (42,766 beneficiaries enrolled), and I had a risk contract with Medicare (19,268 beneficiaries enrolled).

Medicare's relative lack of success in attracting HMOs to participate in the program, particularly under the risk-based option, can be attributed to the fact that the contracting options offered by Medicare failed to provide HMOs with sufficient financial incentives, and the retrospective cost-based reimbursement and cost-finding procedures used by Medicare differed substantially from the HMOs' usual procedures of relying on prospectively determined rates. In order to test other methods of contracting that might increase HMO participation in the program, the Health Care Financing Administration (HCFA) solicited interest in and developed a series of demonstration projects to test alternative forms of HMO risk contracting. The first of these demonstrations, the Medicare Capitation Demonstrations, tested various reimbursement models among eight HMOs that began operation from 1980 to 1981. Reimbursements to individual plans ranged from 85 percent to 95 percent of the adjusted average per capita cost (AAPCC) and were linked to a number of risk-sharing arrangements.

Encouraged by the responses of both HMOs and beneficiaries to the initial demonstration, HCFA solicited HMO interest in a second demonstration entitled the Medicare Competition Demonstrations. More than 50 HMOs and competitive medical plans (CMPs) applied to participate. Because regulations were already being prepared to implement a national program that would permit HMOs and CMPs to enroll Medicare beneficiaries on a completely prepaid capitated basis, only 26 of these HMOs and CMPs were permitted to be a part of the Medicare Competition Demonstration.(1) The first of these began operation in 1982; the majority, however, became operational during 1983 and 1984.

In September 1983, Mathematica Policy Research, Inc. (MPR) and its principal subcontractor, Medical College of Virginia (MCV) were awarded a contract by HCFA to undertake a comprehensive evaluation of the Medicare Competition Demonstrations. In order to assess the demonstration HMOs' and CMPs' experience in and effects on the Medicare market, the following specific elements were evaluated: * The implementation and operational experiences of

the participating HMOs. …

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