Pre-enrollment reimbursement patterns of Medicare beneficiaries enrolled in "at-risk" HMOs

The Health Care Financing Administration (HCFA) has initiated several demonstration projects to encourage HMOs to participate in the Medicare program under a risk mechanism. These demonstrations are designed to test innovative marketing techniques, benefit packages, and reimbursement levels. HCFA's current method for prospective payments to HMOs is based on the Adjusted Average Per Capita Cost (AAPCC). An important issue in prospective reimbursement is the extent to which the AAPCC adequately reflects the risk factors which arise out of the selection process of Medicare beneficiaries into HMOs. This study examines the pre-enrollment reimbursement experience of Medicare beneficiaries who enrolled in the demonstration HMOs to determine whether or not a non-random selection process took place. The results of this study suggest that the AAPCC may not be an adequate mechanism for setting prospective reimbursement rates. The Marshfield results further suggest that the type of HMO may have an influence on the selection process among Medicare beneficiaries. If Medicare beneficiaries do not have to change providers to join an HMO, as in an IPA model or a staff model which includes most of the providers in an area, the selection process may be more likely to result in an unbiased risk group.