Medicare HMO Institutional Payments

A growing number of seniors--about 5 million out of 38 million Medicare beneficiaries--receive care through health maintenance organizations (HMO) that participate in Medicare's risk contract program. Unlike fee-for-service providers, which are paid on a per-claim basis, these HMOs receive from Medicare a monthly fixed sum per enrolled beneficiary--a capitation rate--and assume the risk of providing beneficiary health care, regardless of the actual costs involved. The estimated 2.6 million beneficiaries in nursing homes and other long-term care facilities often incur greater-than-average Medicare-covered expenses. Consequently, the "institutional" risk adjuster generally raises capitation payments for Medicare HMO enrollees in such facilities. However, some of the facilities GAO visited that HMOs had classified as institutional residences provided no medical care but rather offered recreational activities for seniors capable of living independently. The Health Care Financing Administration (HCFA) acted on this finding by narrowing the definition of eligible institutions, effective January 1, 1998. Even with more stringent criteria, however, HCFA relies on the HMOs to determine which beneficiaries qualify for institutional status. HCFA conducts only limited interviews, about every two years, to confirm the accuracy of HMO records. The task of ensuring accurate data may be further complicated by HCFA's policy allowing HMOs three years to retroactively change institutional status data in beneficiary records. HCFA generally waits two years to verify that HMOs have corrected inaccurate record-keeping systems, even when serious errors have been identified. Moreover, HCFA continues to use 20-year-old cost data to determine payment rates for institutionalized enrollees. As a result, HCFA overcompensates HMOs for their enrolled, institutionalized beneficiaries. Although HCFA has revised its definition of eligible institutions, concerns remain that HCFA's oversight of payments for institutional status is inadequate.

GAO noted that: (1) HCFA's broad definition of institution allowed HMOs to claim institutional status for individuals residing in facilities not likely to house sicker-than-average seniors; (2) some of the facilities GAO visited that HMOs had classified as institutional residences provided no medical care but rather offered a menu of recreational activities for seniors capable of living independently; (3) HCFA acted on GAO's findings and those of others by narrowing the definition of eligible institutions, effective January 1, 1998; (4) even with more stringent criteria, however, HCFA relies on the HMOs to determine which beneficiaries qualify for institutional status; and conducts only limited reviews to confirm the accuracy of HMO records; (5) studies by the Department of Health and Human Services Inspector General reviewing the accuracy of HMO institutional status data support GAO's finding that HCFA's reviews are not adequate to detect the extent of errors or overpayments resulting from HMOs' misclassification of beneficiaries; (6) the task of ensuring accurate data may be further complicated by HCFA's policy that allows HMOs 3 years to retroactively change institutional status data in beneficiary records; (7) the lack of a systematic approach for identifying errors limits HCFA's efforts to recover overpayments and ensure that appropriate payments are made to HMOs; (8) HCFA generally waits 2 years to verify that HMOs have corrected inaccurate recordkeeping systems, even when serious errors have been identified; (9) HCFA continues to use 20-year-old cost data in determining the payment rates for institutionalized enrollees and, as a result, HCFA overcompensates HMOs for their enrolled, institutionalized beneficiaries; (10) this overpayment problem may be corrected when HCFA implements a revised set of risk factors in 2000; (11) however, provisions of the Balanced Budget Act of 1997 that use 1997 rates as the basis for 1998 and future rates effectively preclude a revision to the institutional risk factor at this time; (12) while HCFA has revised its definition of eligible institutions, concerns remain that HCFA's oversight of payments for institutional status is inadequate; (13) HCFA has no system to estimate and recover total overpayments when institutional status errors are detected or to verify HMOs' retroactive adjustment requests; and (14) further, HCFA does not ensure timely review of those HMOs found to have submitted inaccurate institutional status data, and its use of outdated cost data in determining payments continues to overcompensate HMOs for institutionalized enrollees.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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