Medicare HMO risk contracts: background, problems, and prognosis.

Area of Science:

• Health Policy
• Healthcare Management
• Public Health

Background:

• The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) significantly altered Medicare reimbursement.
• Capitation models were introduced for health maintenance organizations (HMOs) serving Medicare beneficiaries starting in 1985.

Purpose of the Study:

• To analyze the implementation and outcomes of TEFRA's capitated reimbursement system for Medicare beneficiaries.
• To examine the implications of early experiences with Medicare risk contracts and managed care.

Main Methods:

• Review of legislative changes and program implementation under TEFRA.
• Analysis of enrollment data and contract performance of Medicare HMOs.
• Examination of reasons for contract termination, including quality of care concerns.

Main Results:

• By May 1987, approximately 900,000 individuals were enrolled in Medicare risk contracts with HMOs.
• Variability in program results was observed, including the termination of a major contract due to quality issues.
• The Health Care Financing Administration (HCFA) terminated its risk contract with International Medical Centers, Inc. in May 1987.

Conclusions:

• The introduction of capitation in Medicare demonstrated mixed results, highlighting challenges in quality assurance.
• Current proposals for a "private health plan option" (PHPO) build upon these capitated and managed care principles.
• Future Medicare policy may expand capitated reimbursement to a broader range of beneficiaries and providers.