Act 97-99 and the Regulation of HMOs in Connecticut:

Implications for Medicare Patients

Trinity College
Hartford, CT 06106

Acknowledgments

I would like to thank, without implicating, the following for their help in the preparation of this report: Margaret Gerundo, CHOICES; Cheryl Grenier, CHOICES; Kathy Hurwitt, American federation of State, County and Municipal Employees; Alice Knapp, Maine Bureau of Insurance; Mary Alice Leonhardt, Brown Rudnick, Freed and Gesmer; Kathleen McNamara, CHOICES; Pam Melisso, Center for medicare Advocacy; Adrienne Mitchem, Consumer’s Union; Austin Soares, Connecticut State Insurance Department; Cynthia Tudor, HCFA; Karen Walsh, HCFA.

1. Introduction

In the summer of 1997, the passage into law of Public Act 97-99, An Act Concerning Managed Care, as amended by Public Act 97-8 June 18 Special Session (referred to hereafter as Act 97-99) transformed the regulatory environment facing Managed Care Organizations (MCOs) operating in Connecticut. As with most pieces of legislation, Act 97-99 represents something of a compromise - in this case, between proponents and opponents of regulation of the managed care industry. Nevertheless, it has been argued that "[f]or the managed-care industry, this law will dramatically change the regulatory environment from one with limited regulatory oversight to one involving strict supervision and more direct control by the state Insurance Department. What has appeared to be "virtual immunity" from regulation for MCOs in Connecticut has ceased to exist" (Leonhardt, 1997, p.6)

The primary purpose of this report is to outline the impact of Act 97-99 on managed care plans offered by HMOs operating in Connecticut to beneficiaries of the Federal Medicare program. Section 2 provides a guide to the key provisions of Act 97-99. Section 3 reports on HMOs’ record of compliance with the new legislation, with a particular focus on HMOs who offer managed care plans to medicare patients (referred to hereafter as Medicare HMOs). Section 4 examines the question as to what, if any, effect Act 97-99 will have on purported practices of HMOs such as the "cherry picking" of patients, or the routine denial of eligible claims for payment. Once again, the particular focus of this section will be on the activities of Medicare HMOs. Finally, section 5 offers some conclusions.

2. A "Plain Person’s" Guide to Act 97-99

Passed and amended in June 1997, some of the provisions of Act 97-99 became effective immediately upon passage of the Act, while all others became effective on October 1, 1997. Act 97-99 affects the relationships between HMO’s, health care providers (doctors, hospitals, etc.) and enrollees in managed care plans - principally to the benefit of providers and, in particular, enrollees. The point of what follows is to summarize the main provisions of Act 97-99 with a particular emphasis on the benefits of this new legislation for enrollees in managed care plans.

i) Managed Care Contracts and Plan Descriptions

Both managed care contracts and plan descriptions are now regulated under Act 97-99. Both must contain certain types of provisions and/or information as specified by the new legislation. The point of these provisions is to improve both the flow of information from HMOs to their enrollees, and the legal position of the latter vis a vis the former.

As of October 1, 1997, any individual or group managed care contract issued in Connecticut must contain the sixteen provisions outlined in section 8(a) of Act 97-99. These provisions include:

- the name and address of the MCO;

- eligibility requirements, a statement of any out-of-pocket expenses an enrollee can expect to incur, a statement of the nature of the coverage (including any exceptions) and a statement of the service area and any out-of-network services;

- details of claims procedures and grievance procedures;

- indication that statements made by an enrollee in his/her application for a contract cannot be used by the HMO to void the contract or in the pursuit of any legal proceedings that concern the contract, unless the application is appended to the contract initially;

- a statement of the grace period for making a payment, which cannot be less than ten days.

 

In addition, section 8(b) of Act 97-99 specifies that MCOs must provide enrollees with a plain language description of their health plan, which description must include, amongst other things:

- a summary of the contract provisions discussed above;

- basic plan information, such as coverage and any exclusions, provider reimbursement procedures, procedures for obtaining referrals, preauthorization and utilization review procedures and internal grievance procedures;

- information that may shed light on the decision making processes of the HMO and the quality of care that it delivers, such as whether or not the plan is for-profit, the size of the medical loss ratio, enrollee satisfaction information, and the number of utilization review determinations that have refused to certify a treatment and how many of these determinations have been upheld or reversed upon appeal;

- a statement disclosing the nature of the financial arrangements and/or contractual agreements that the HMO has with providers;

- statements that draw attention to some of the provisions of Act 97-99 that are of direct benefit to enrollees, such as the prohibition of gag clauses, the requirement that any provider discounts received by an HMO be passed on to enrollees, and the annual development and distribution of a "consumer report card" on HMOs operating in Connecticut.

 

ii) State monitoring of HMOs through annual reports

Act 97-99 establishes a basis for the ongoing monitoring of HMO activity in Connecticut by legislating the development of two new annual reports based on information that HMOs must now legally provide to the State Insurance Department on an annual basis. First, section 4(a) of Act 97-99 requires that, beginning in 1998, HMOs must report to the Insurance Commissioner, before May 1 of each year, the following information:

- information on quality assurance plans and, in particular, quantitative and qualitative information related to complaints about providers, the quality of care and decisions about requests for treatment, and the types of remedial action taken in light of these complaints;

- a model contract;

- statements concerning the nature of financial and contractual arrangements existing between the HMO and providers;

- information deemed by the Commissioner to be necessary for the completion of the Insurance Department’s consumer report card.

On the basis of this information, two annual reports will be constructed. First, section 2 of Act 97-99 requires that, beginning in 1999 and on January 15 of each year thereafter, the Insurance Commissioner submit to the Governor and relevant standing committees of the General Assembly a report including:

- a summary of all HMOs’ quality assurance plans, together with recommendations for changes to these plans;

- suggested changes to the consumer report card;

- a summary of all complaints received by the Consumer Affairs Division of the State Insurance Department under the auspices of section 20 of Act 97-99, which creates a process by which appeals against HMO decisions on the necessity or propriety of a treatment may be made to the Insurance Commissioner;

- a summary of any violations of Act 97-99 on the part of HMOs observed by the Insurance Commissioner.

 

According to the State Insurance Department, the contents of this report will be public information and will be available to the public through either the Office of the Governor or the Insurance Department.

In addition to his/her report to the Governor and General Assembly, the Insurance Commissioner is also charged under section 13 of Act 97-99 with the task of developing a "consumer report card" on HMOs operating in Connecticut. The first of these report cards is to be distributed on or before March 15, 1999, and subsequent report cards will be distributed annually thereafter. Section 4(a)(4) of Act 97-99 stipulates that for the purposes of compiling the report card, the Insurance Commissioner collect from HMOs information including:

- organizational characteristics, such as an HMO’s profit or non-profit status, any national or regional accreditations it has received, and the length of time it has been licensed to operate in Connecticut or other states;

- financial information, such as medical loss ratios and any changes in a plan’s rates over the previous three years;

- medical protocols and utilization review standards;

- provider-patient ratios and the proportion of primary and speciality care providers who are board certified;

- quality assurance information (as required under section 4(a) of Act 97-99, discussed above);

- the number of hospital days per thousand enrollees and the average length of hospital stays for specific procedures (said procedures to be decided upon by the Insurance Commissioner).

 

According to section 4(a)(4), the Insurance Commissioner can, for the purposes of compiling the report card, collect information that "...may include, but need not be limited to" the precise forms of information listed in this section of the Act. Clearly, then, the contents of the consumer report card may change over time. According to the State Insurance Department, the Commissioner and the Insurance Department will determine how the contents of the report card evolves over time, based on legislative changes and solicited and unsolicited feedback from employers and members of the public. The first consumer report card is likely to be based on the information described in section 4(a)(4) of Act 97-99 together with any amendments judged necessary on the basis of feedback on the first report card arising from its "test marketing", as required by section 13(c) of the new legislation.

iii) Regulation of utilization review companies

As defined in section 15 of Act 97-99, a utilization review company is an organization other than an agency of the Federal or State government or of a hospital’s internal quality assurance program that assesses the necessity or propriety of allocating health care resources towards treatments, procedures, etc. that have been undertaken by an enrollee in a managed care plan, or that the enrollee is proposing to undertake. Utilization review companies thus play a critical role in determining what types of medical services enrollees may receive and whether or not they will be financially compensated for medical services that they have already received. Section 16(a) of Act 97-99 stipulates that no company can perform utilization reviews in Connecticut unless it is licensed by the Insurance Commissioner. Licenses must be renewed on an annual basis. Section 18 of the Act establishes certain minimum standards with which any utilization review company must comply if it is to receive a license to operate in Connecticut. These minimum standards include specific provisions regarding appeals and grievance processes connected with utilization review decisions, restrictions on the amount of time that a utilization review company may take to respond to a request for treatment from an attending physician in cases of medical emergency, and the stipulation that no utilization review company may provide financial incentives for its employees to deny certification of treatment.

iv) Regulation of grievance and appeals processes

A number of the provisions of Act 97-99 affect the nature of the grievance and appeal processes associated with managed care plans and, moreover, the rights of enrollees to grieve and/or appeal decisions made in connection with their health care by HMOs and/or utilization review companies. Most importantly, Section 20 of Act 97-99 creates an entirely new external appeals process administered by the State Insurance Commissioner. Hence effective January 1, 1998, an enrollee or any provider acting, with the enrollee’s consent, on behalf of the enrollee, may appeal a decision by an HMO or utilization review company to deny certification of a treatment to the State Insurance Commissioner, provided that all internal review mechanisms have first been exhausted. The appeals process, as specified in section 20(b), requires that a decision be appealed by the enrollee (or their provider) within thirty days of the enrollee’s receipt of a final written determination from the HMO or utilization review company. Upon receipt of the appeal and a filing fee of $25-00, the Insurance Commissioner will conduct a preliminary review to ensure that the appeal is legitimate. Following this, appeals that successfully negotiate the preliminary review will be referred by the Commissioner to an "impartial health entity" for a full medical review. This entity may be a medical peer review organization, an independent utilization review company or a nationally recognized institution or group of health care experts approved by the Insurance Commissioner. In all cases, the Commissioner is required to accept the decision of the reviewing entity and return a final decision on the appeal. The importance of section 20 for enrollees in managed care plans is demonstrated by the fact that the Consumer’s Union identifies the need for a Federal mandate to force states to set up external grievance and appeals processes as one of the most important possible forms of health care reform in the USA. Indeed, according to Leonhardt (1997, p.6), section 20 is "... one of the strongest MCO regulatory devices in the nation [and] places Connecticut at the forefront of managed-care plan regulation and accountability."

Act 97-99 also provides for the regulation of internal appeal and grievance procedures. Section 14 of the new legislation requires that all HMOs set up and maintain an internal grievance procedure, notifying enrollees of this procedure at the time of their enrollment and at least annually thereafter. Enrollee notifications must describe the process for filing grievances and the time frame within which grievances must be resolved, and draw attention to the fact that either the enrollee or a person acting on their behalf (including a health care provider) may file a grievance. Meanwhile, section 18 (a) of Act 97-99, which establishes minimum standards for utilization review companies operating in Connecticut, requires that utilization review companies keep and make available a written description of the procedure by which either an enrollee or his/her health care provider may appeal a decision not to certify treatment. Furthermore, these companies must also establish expedited appeals processes for emergency or life threatening cases, which must return decisions within two business days. Finally, under section 16 of the new legislation, the Insurance Commissioner is charged with investigating any grievances against utilization review companies filed by enrollees. Section 17 allows the Commissioner to impose penalties, which include fines, license revocation and/or compensating the State for expenses incurred in their investigation, on utilization review companies found to be violating the terms of Act 97-99.

v) Relationships between HMOs and health care providers

Strengthening the hand of health care providers in their relationship with an HMO can enhance the position of enrollees vis a vis the HMO. A number of the provisions of Act 97-99 perform just this function. For example, effective November 1, 1997, utilization review companies must respond within three hours to requests for approval of treatment from physicians attending casualties in acute care hospitals who, the physician believes, face life threatening or other serious injury/illness if treatment is not administered. Failure on the part of the utilization review company to respond to the attending physician’s request within the stipulated time frame will be deemed equivalent to approval of the request (Act 97-99, section 18(e)). Furthermore, section 9(c) of the new legislation makes it illegal for an HMO to threaten or take action against a health care provider who acts pursuant to section 18(e), or who helps an enrollee in his/her efforts to appeal a decision made by an HMO to the State Insurance Commissioner, whilst section 12 prohibits "gag clauses" designed to limit the nature of discussion between health care providers and enrollees. Hence it is now illegal for HMOs to contract health care providers on terms which prevent providers from discussing with their patients either treatment options (including those provided out of network or on an experimental basis) or the terms on which they (the providers) are compensated by the HMO. Finally, section 11 legislates that HMOs must calculate enrollee co-payments on the basis of either what a provider charges for a particular treatment, or the amount that the HMO must actually pay to the provider for the treatment, depending on which is the lesser. This ensures that any provider discounts are passed on by HMOs to those enrolled in managed care plans.

vi) Other provisions of interest

Act 97-99 contains a number of other provisions that stand to have an important impact on the quality of health care delivered by HMOs operating in Connecticut. These include:

- The requirement that HMOs notify enrollees "as soon as possible" in the event of an enrollee’s primary care provider withdrawing from the managed care plan to which they currently subscribe (section 5).

- Regulation of the medical protocols that govern HMOs’ decisions to allow or deny treatments. Under section 6 of Act 97-99, HMOs must consult with specialists - including physicians who are not their own employees or consultants - before introducing new protocols or substantially altering current protocols. Furthermore, HMOs are now required to make copies of their protocols available to participating providers, particularly in the event of a decision to deny a treatment.

- A provision that explicitly prohibits HMOs from selling the names of their enrollees for commercial purposes (section 21(b)).

- A requirement that all managed care plans allow their enrollees to claim expenses arising from "biologically-based mental or nervous conditions" in a fashion that makes the plans’ coverage of these illnesses at least equivalent to their coverage of other types of illness (section 27). Examples of these "mental or nervous conditions" include schizophrenia, major depressive disorder, autism, paranoia and obsessive-compulsive disorder.

3. Are Medicare HMOs Complying with Act 97-99?

There are currently seven HMOs that offer risk contracts to Medicare patients resident in Connecticut: CIGNA, Connecticare, Anthem Blue Cross and Blue Shield, M.D. Health, Oxford health, Physicians Health Services and US Health Care. According to information from Connecticut Programs for Health Insurance Assistance, Outreach, Information, Counseling and Eligibility Screening (CHOICES), an eighth HMO - Medspan - is likely to join this group early in 1998. An important question for Connecticut Medicare beneficiaries, then, is whether these HMOs have succeeded in bringing their Medicare risk contracts into compliance with Act 97-99?

The simple answer to this question is no. The reason for this is equally simple - the State Insurance Department is not attempting to force Medicare risk contracts to comply with the provisions of the new legislation, by virtue of its regarding Medicare risk contracts as the province of the Federal Health Care Financing Administration (HCFA). Indeed, there is no legal requirement that Medicare HMOs file with the State Insurance Department declaring that they do, in fact, offer Medicare risk contracts in Connecticut. The Insurance Department is aware of some of these risk contracts, by virtue of the fact that the HMOs in question market their services to the general population as well as Medicare patients. However, it does not deliberately attempt to maintain a complete list of the HMOs offering Medicare risk contracts in Connecticut.

Does this mean, then, that Act 97-99 is of no interest to Medicare beneficiaries? There are two reasons for this not being the case. First, some of the provisions of Act 97-99 will benefit Medicare beneficiaries regardless of the fact that the Insurance Department is not holding Medicare risk contracts to all of the standards that the Act stipulates. For example, the licensing and regulation of utilization review companies may favourably affect the appeals environment in which Medicare beneficiaries enrolled in HMOs find themselves operating. One of the most important provisions of Act 97-99 - the external appeals process created under section 20 - will not, however, be of use to of seniors enrolled in HMOs under the Medicare program. This is simply because the Medicare program has its own equivalent procedure and any decisions arising from this Federal procedure would automatically override determinations concerning Medicare made by the State appeals process. Hence if an HMO denies some treatment to a Medicare beneficiary and if this denial is upheld in the event of the beneficiary appealing the decision to his/her HMO, then the HMO in question must submit its decision to HCFA. HCFA, in turn, contracts the Center for Health Dispute Resolution to review these decisions - so any denial of treatment by an HMO operating in the Medicare system that is upheld upon appeal is automatically subject to an external review by HCFA.

The second and most important reason that Act 97-99 is not irrelevant for Medicare beneficiaries is that the State Insurance Department could attempt to enforce Medicare HMOs into compliance with many (all?) of the outstanding provisions of Act 97-99 that seniors will not automatically benefit from. This would likely be best achieved were the Insurance Department to work in conjunction with HCFA. Although Medicare is a Federal program, it is not immune to the effects of state health care legislation. Hence HCFA will tolerate any state legislation affecting HMO services delivered to Medicare beneficiaries as long as the latter emerge better off or at least no worse off than they would otherwise be under the provisions of the Federal Medicare program. For example, legislation in Maine that came into effect in October 1997 mandates that all managed care plans provide benefits that meet the state’s legislated definition of "basic health care services". As yet, there are no HMOs offering managed care plans to Medicare beneficiaries in Maine. However, the Maine Bureau of Insurance anticipates that two plans will shortly emerge. Furthermore, it intends to keep track of managed care plans offered to Medicare beneficiaries resident in Maine and hold these plans to the standards stipulated in its new health care legislation. The important conclusion that emerges, then, is that Connecticut seniors stand to benefit from initiatives designed to encourage the State Insurance Department to hold Medicare risk contracts to the same standards as regular group or individual contracts offered in Connecticut, as stipulated by Act 97-99.

4. Other Problems with the Provision of Medical Services to Medicare Patients by HMOs

Whilst applying all of the provisions of Act 97-99 to Medicare managed care plans would no doubt improve the lot of Connecticut seniors enrolled in such plans, Act 97-99 is not a panacea for all problems arising from the provision of Medicare services through HMOs. As intimated at the beginning of this report, Act 97-99 is a compromise; it does not address a number of problems that are commonly perceived as being connected with the delivery of Medicare services through HMOs. The purpose of this section is to explore some of these problems and, where possible, to suggest what mechanisms or behaviours are necessary in order to overcome them.

i) "Cherry picking"

The issue of "cherry picking" concerns the composition of the group of seniors who enroll in Medicare HMOs. Are they a more-or-less random sample of the eligible population and if not, why not? More particularly, is it the case that Medicare HMOs engage in deliberate strategies designed to ensure that they recruit and/or retain only the healthiest seniors as their enrollees ("cherry picking")?

There is no doubt that those who receive Medicare services through enrollment in a managed care plan are not a random sample of all Medicare beneficiaries. On the contrary, it is widely acknowledged that there exists a "selection bias". Specifically, at any point in time, the average wellness (i.e., state of health) of those enrolled in managed care plans exceeds that of the eligible population of all Medicare beneficiaries. For example, Morgan et al (1997) find that seniors enrolling in medicare HMOs are only two-thirds as likely to have used inpatient services in the year prior to their enrollment as seniors who remain in the fee-for-service program. Meanwhile, those disenrolling from HMOs are almost twice as likely to subsequently use inpatient services as those who continue in the fee-for-service program. Morgan at al (1997, p.169) also report a variety of findings from previous studies that are indicative of selection bias in Medicare HMO enrollments. These include the observations that Medicare HMO enrollees experience fewer hospitalizations, fewer days spent in hospital and lower per capita reimbursements prior to enrollment than those who remain in the fee-for-service program.

It is much harder, however, to determine the precise causes of this selection bias, and whether or not it is a function of deliberate enrollment strategies pursued by HMOs - i.e., cherry picking. First, some of the observed selection bias may be caused by self selection on the part of enrollees. That is to say, well seniors may be more likely to enroll in managed care plans regardless of any actions on the part of HMOs or the fundamental desires of these organisations to enroll only the healthiest members of the population. For example, unwell Medicare beneficiaries may be reluctant to join HMOs for fear of losing established relationships with particular providers, whilst well beneficiaries may perceive themselves as having less to lose from changing providers, making them more likely to enroll in an HMO. Furthermore, it is important to note that Medicare HMOs are not entitled to deny coverage to eligible enrollees, but are instead obliged to enroll any eligible applicant in their service area. Attempts by HMOs to cherry pick by screening enrollments would, therefore, be illegal, and based on conversations with Medicare advocacy groups such as CHOICES, it does not appear that this is something that actually happens.

However, this does not necessarily mean that selection bias is entirely explained by enrollee choices and that cherry picking does not exist. Rather, the latter behaviour may be the result of mechanisms more subtle than the outright denial of coverage to eligible seniors. For example, various agencies contacted in the course of preparing this report indicated that there is an abundance of anecdotal evidence suggesting that the way in which HMOs market their plans is conducive to their enrolling only the healthiest seniors. For example, it is more usual to hear of HMOs organizing a promotional breakfast or lunch designed to recruit new members at a country club rather than a seniors’ home, when it is surely likely that a greater concentration of less well potential enrollees would be found at the latter location. Furthermore, simply by distributing plan information and encouraging enrollment from centralised locations such as clubs, HMOs are inevitably promoting their services to a healthier-than-average subset of the eligible population, because it is unlikely that infirm and/or housebound seniors will be able to attend these events.

It is also noteworthy that selection bias is associated not only with the observation that those seniors enrolling in Medicare managed care plans are healthier than average, but also with the fact that less well seniors are more likely to disenroll from HMOs and return to the traditional, fee-for-service Medicare program. Some agencies believe that this latter observation is a result of HMOs making life so difficult for the chronically ill (through, for example, the manipulation of claims denials) that they are "encouraged" to leave. It must be noted, however, that interpreting the composition of the outflow of patients from Medicare HMOs is perilously difficult; it is not a "smoking gun" that demonstrates beyond doubt that cherry picking exists. Hence HMOs argue that those who leave their plans aren’t "pushed" but instead "jump", leaving of their own free will and volition, presumably because they believe they can obtain better health care elsewhere. The question remains, however, as to whether the disproportionate numbers of less well seniors who "choose" to leave managed care plans are not doing so because of the inferior service they experience as members of managed care plans relative to their healthier peers. Non-anecdotal evidence related to this question is, not surprisingly, very difficult to procure.

Note that, to the extent that cherry picking exists, it is likely a very general problem in the realm of privately provided health care, arising because, as intimated earlier, private (and frequently for-profit) health care providers have a clear incentive to care for only the healthiest members of the population in their quest to minimise costs (and, where applicable, maximise profits). Given, then, that the causes of this alleged problem are associated with the very core principles of private health care provision, it is not clear what, if anything, can be done about the problem, taking the current structure of health care delivery in the USA as given. Act 97-99 does address the misuse of application information by HMOs (Act 97-99, section 8(a), as discussed in section 2(i) of this report), but not the issue as to who HMOs contract with in the first place and/or how they go about their recruitment strategies. Nor does it provide a means of investigating why people leave HMOs. Upon reflection, this is surely not surprising. It is not at all clear that the administrative, marketing and other operations of HMOs could be subject to the intense public (i.e., regulatory) scrutiny that would enable the identification and elimination of a problem such as cherry picking without the state simply taking full responsibility for the provision of all health care. Ironically, of course, this is precisely the opposite of the direction in which the Federal Medicare program is moving as a result of HCFA’s desire to "contract out" the provision of Medicare services to private HMOs and reduce the number of Medicare beneficiaries enrolled in the traditional fee-for-service Medicare program.

Regardless of the existence of cherry picking and simply in light of observed selection bias in Medicare HMO enrollments, one is left to ponder the possible emergence of "two nations" in the Medicare system, with fitter beneficiaries enrolled in HMOs and those less healthy remaining in the traditional fee-for-service program. Quite what the implications of this would be for Medicare financing and distribution of health care services amongst seniors is an open question.

ii) Routine denial of eligible claims

In the course of their usual, day-to-day operations, HMOs regularly deny enrollee claims for treatment. This procedure is part of the process by which HMOs seek to limit the costs of providing health care - HMOs do not provide health services on demand or as a simple matter of entitlement. Hence those enrolled in HMOs are likely to find claims for treatment denied whenever the treatment in question is not covered by the enrollees managed care plan, or, in cases where the treatment is explicitly covered, whenever the HMO that administers the plan considers the treatment to be medically un-necessary.

However, some seniors claim that Medicare HMOs routinely deny what appear, under the terms of their managed care plans, to be eligible claims for treatment - even when the HMO has agreed to cover the treatment in the past. To the extent that seniors who find themselves in this position accept the HMOs’ decisions and pay for the treatments in question themselves, this represents a significant transfer of the financial burden of health care away from HMOs towards individual seniors, obviously leaving the latter worse off as a result. At worst, this suggests that, in the pursuit of their own (financial) interests, HMOs may be taking advantage of sub-group of the general population who are least able and/or least likely to challenge the decisions of external administrative authorities. To what extent is this the case?

Agencies such as CHOICES certainly do report that in their experience, the claim denial rate associated with Medicare HMOs exceeds that of both the traditional fee-for-service Medicare program and that of Medigap supplemental insurance plans. However, this does not necessarily imply any wrong doing on the part of HMOs. It is important to understand that HMOs operate differently from the traditional fee-for-service Medicare program. The administration of their delivery of health care services is governed by protocols which, to take a purely hypothetical example, may involve their automatically denying a claim for, say, the seventh visit to a provider for a particular treatment, even though they have covered the previous six visits. This abrupt discontinuation of coverage may appear to be unfair, capricious or even devious - but in fact it is more likely to be a routine administrative decision.

Of course, enrollees need not - indeed, should not - treat an initial denial of coverage as the "last word". First, contacting the HMO through informal channels (such as a telephone call to customer services) may set in motion a process which eventually results in the reversal of an initial decision to deny coverage. If this fails, then an enrollee might turn to the HMO’s formal appeals process, through which claim denials are internally reviewed. If the initial decision to deny coverage is upheld following the enrollee’s appeal, then note that there is still a final, independent review of the case undertaken by HCFA (see section 3 above). There is no reason, then, for seniors to accept the first negative decision they receive on a claim for coverage as the final decision.

Given, however, that seniors do report having difficulties with the propensity of HMOs to deny coverage, and even if the denials in question are a normal and legitimate part of the operation of managed care plans, what, if anything, can be done to improve upon the situation?

First, it is worth noting that some of the provisions of Act 97-99 might be of benefit to seniors as far as claims denials are concerned - if the Act were comprehensively applied to Medicare managed care plans. Hence Act 97-99 affects coverage claims in a number of ways, by regulating HMOs’ medical protocols (Act 97-99 section 6 - see section 2(vi) above) and their internal appeals and grievance procedures (Act 97-99 section 14 - see section 2(iv) above). It would seem, then, that the comprehensive application of Act 97-99 to Medicare managed care plans would benefit Medicare enrollees, by comprehensively regulating the procedures and organisations that are involved in the process of assessing claims for coverage.

Otherwise, however, the best advice for seniors is "buyer beware". This may appear to be a flippant response, but it is important to note that enrolling in a Medicare HMO is not simply a matter of improving the level of health care services to which a senior has access under the auspices of the traditional fee-for-service Medicare program. Other things are not equal, because of the important difference in provider mentality as between the traditional fee-for-service Medicare program and HMOs. If, at risk of creating caricatures, one was to describe the provider mentality of the former as one of "entitlement", then that of the latter would, in contrast, appear as one of "self-advocacy". In other words, having enrolled in a Medicare HMO, a beneficiary must be prepared to do more arguing for their health care services than they might expect to have to do in the traditional fee-for-service Medicare program. The onus on the individual to be their own health care advocate is a basic feature of managed care plans, one which can be reasonably conceived as a non-pecuniary cost of health care provision borne directly by the individual enrollee. Medicare beneficiaries should take this non-pecuniary cost of enrollment in a Medicare HMO into account when considering their Medicare options, weighing it against any perceived gains from enrollment before making a final decision as to whether or not to join a Medicare HMO.

iii) Loss of home health coverage

Discussions in the course of preparing this report with agencies to which Medicare beneficiaries turn for help and advice revealed that, in the experience of some seniors, enrolling in an HMO can result in a sudden reduction in, or even the complete loss of, the level of home health care coverage they were previously receiving under the traditional fee-for-service Medicare program. Reports of this problem of sudden loss of coverage seem to focus especially on home health care rather than being more-or-less randomly distributed across different types of coverage - as if HMOs are making a special attempt to scale back/eliminate this particular type of coverage. Is this the case, however? Are HMOs guilty of any wrong-doing in instances when they reduce or eliminate home health coverage that was previously provided by the fee-for-service Medicare program?

The answer to this latter question is, in all likelihood, no. The Federal Medicare program provides for a certain level of home health coverage, so Medicare risk contracts must contain this level of coverage at a minimum - and obviously they do, because HCFA would not sanction a risk contract that did not offer enrollees at least the level of health services that they are guaranteed by the Federal Medicare program. However, just because a managed care plan provides for a certain level of home health care doesn’t mean that all enrollees in the plan are automatically entitled to home health care coverage. Recall that HMOs can legitimately deny coverage on the basis of medical necessity (or the lack thereof). It is important to note, then, that the reduction or elimination of an enrollee’s home health coverage is quite legal under the terms of the risk contracts that HMOs negotiate with HCFA. HMOs are perfectly entitled to review the level of home health care a newly enrolling patient received under the traditional Medicare program, decide it is not warranted and thus reduce or eliminate altogether the services provided. Of course, this does not mean that HMOs always make appropriate decisions with regard to home health benefits and enrollees must be aware of their right to appeal negative determinations. If the original decision to deny coverage is upheld on appeal, recall that HCFA will automatically subject the decision to independent scrutiny, so enrollees should be safeguarded against capricious or unfair denials of coverage, as long as they pursue their right to appeal determinations. Once again, enrollees have to be aware of the need for a greater level of self-advocacy when receiving Medicare services from HMOs. They must take this and the right of HMOs to review and alter any benefits they are currently receiving into account when considering the desirability of changing the way they receive their Medicare benefits (and particularly when contemplating the transition from traditional fee-for-service provision to an HMO).

However, emphasis (once again) on "buyer beware" is not necessarily the be-all and end-all of possible responses to issues of home health coverage. To the extent that seniors are in any way dissatisfied with the general level of home health coverage to which they are, in principle, entitled, it is important to note that the state could pass legislation requiring all HMOs (including Medicare HMOs) to provide a minimum level of home health coverage in excess of that required by the Federal Medicare program. A legislative initiative may at least serve to raise the level of home health care for which seniors are eligible, in much the same way that Act 97-99 has sought to raise the levels of coverage that managed care plans must provide for mental illnesses (Act 97-99 section 27 - see section 2(vi) above).

5. Conclusion

Act 97-99 creates a "brave new world" of HMO regulation in Connecticut. However, not all of the provisions of this legislation will affect the quality of health care services that seniors can expect from Medicare HMOs. To the extent that provisions such as sections 8(a) and 8(b), which regulate the form of managed care contracts and the contents of plan descriptions respectively, would be of benefit to Connecticut seniors, it would obviously be desirable to encourage the State Insurance Department to ensure that all of the provisions of Act 97-99 that are compatible with HCFA’s administration of Medicare risk contracts are applied to Medicare HMOs operating in Connecticut.

However, Act 97-99 is not a panacea. Problems remain with the provision of Medicare health services through HMOs and as has been demonstrated above, at least some of these problems seem to be connected with the very way in which HMOs go about delivering health care. This does not, of course, diminish the negative impact of these problems on seniors. Nor does it suggest that nothing can be done - not least because the increased provision of Medicare services through HMOs is very much a political choice. In light of these considerations, it may behoove groups such as United Seniors in Action to attempt a dialogue with HMOs themselves, or else with the state government, in an effort to draw more attention to the plight of Connecticut Medicare beneficiaries and, ultimately, in the hope of improving upon the current situation.

References

Bulletin HC-54, State of Connecticut Insurance Department, July 9, 1997

Leonhardt, M.A. (1997) "Connecticut’s managed care reform law," Connecticut Lawyer, June/July, 6-9.

Morgan, R.O. et al (1997) "The Medicare-HMO revolving door: the healthy opt in and the sick opt out," The New England Journal of Medicine, 337, 169-75

Public Act 97-99, An Act Concerning Managed Care

Public Act 97-8, June 18 Special Session

Setterfield, M. (1997) "Could Connecticut require HMOs to provide standardized medical benefits to Medicare patients?" Trinity Center for Neighborhoods

Ware, J.E. et al (1996) "Differences in 4-year health outcomes for elderly and poor chronically ill patients treated in HMO and fee-for-service systems," Journal of the American Medical Association, 276, 1039-47

Abstract

This report examines the regulatory environment facing HMOs operating in Connecticut in light of the passage of Act 97-99, An Act Concerning Managed Care. The main provisions of Act 97-99 are outlined, following which the impact of the new legislation on Medicare HMOs - those HMOs that provide health services to Medicare beneficiaries - is discussed. It is shown that only some of the provisions of Act 97-99 will affect Medicare HMOs, mainly because of the current inclination of the Connecticut State Insurance Department not to hold Medicare HMOs responsible for meeting all of the standards set by the Act. Finally, a number of common problems that seniors encounter when dealing with Medicare HMOs are discussed, together with - where possible - some potential solutions.