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Date:  Tuesday, Aug. 13, 1996
FOR IMMEDIATE RELEASE
Contact: HCFA Press Office, (202) 690-6145

Medicare may be overpaying some health maintenance organizations because the current payment formula does not take into account enrollees' better-than-average health status, according to a new study by the Health Care Financing Administration.

As a result of favorable selection, the payment formula for Medicare beneficiaries enrolled in risk HMOs may be too high by about 7 percent. For the nation as a whole, however, the extent of any overpayment may vary by plan and individual market areas.

The study will be published in the Health Care Financing Review's summer issue, scheduled for publication in late August.

Currently, risk HMO payments are set at 95 percent of the estimated average per capita cost of treating beneficiaries under the fee-for-service method, adjusted for an enrollee's age, sex, welfare status, and institutional status. According to the study, if HMO enrollees had stayed in fee-for-service, Medicare would have paid 88 percent of the national average. Taking into account the 95 percent payment, plans are currently overpaid by approximately 7 percent.

"This study clearly shows there still may be a problem of risk HMOs having healthier Medicare beneficiaries," said HCFA Administrator Bruce C. Vladeck, who oversees the Medicare program. "The findings confirm again the need for a payment method that adjusts for the health status of Medicare beneficiaries who enroll in HMOs." HCFA is sponsoring several research and demonstration projects to develop such a methodology.

"These findings reinforce our belief that we need to change the law on Medicare payments to HMOs," Vladeck said. Currently, more than 200 HMOs with risk contracts have a combined enrollment of 3.5 million Medicare beneficiaries.

The financial loss is also consistent with the findings of one earlier, more comprehensive evaluation of Medicare's HMO program by Mathematica Policy Research, which estimated losses of about 6 percent based on claims from 1990.

Another study this year by Price Waterhouse had concluded that Medicare is not paying more for beneficiaries in HMOs. However, because it relies on a larger and more recent sample, the 1996 HCFA study provides a more definitive analysis than the Price Waterhouse study.

The new HCFA study, using the most recent available data, confirms the results of most earlier research that Medicare beneficiaries enrolled in risk HMOs tend to be healthier than those in fee-for-service. HMO members reported better general health, better functional status, and less heart disease.

The study was based on data collected in late 1994 from the Medicare Current Beneficiary Survey. The survey contains several measures of health status, including chronic conditions and functional status, which indicate whether people have difficulty performing normal activities in their everyday lives. The survey also collects information on beneficiaries' health care costs, access to care, and satisfaction with health care services.

The study, conducted by HCFA's Office of Research and Demonstrations, used data on 863 survey respondents in risk HMOs and 4,576 respondents in fee-for-service.

The study in the HCFA Review is entitled "Health Status of Medicare HMO Enrollees in 1994." The authors are Gerald Riley, Cynthia Tudor, Yen-pin Chiang and Melvin Ingber.