can consider a variety of other approaches to ameliorate the situation.

118

117

First, advocates should consider suits against individual HMOs to require compliance with those aspects of the appeals that are explicit. process Second, your state may have insurance and/or HMO practices acts that authorize claims, including ones for damages, to enjoin patterns of ineffective claims processing. Third, state business practice and consumer protection acts may similarly authorize injunctive relief and damages. 119 "Bad faith" processing of claims may also give rise to separate actions. Fourth, states may themselves regulate the time frame and manner in which HMOs must process claims. As long as these do not conflict with or frustrate federal requirements or policies, such regulations should be valid. 121

120

As with the similar non-federal claims discussed under Part III.A., raising these claims involves breaking new ground and, although containing potential pitfalls, provides interesting areas for advocacy.

IV. Quality and Coverage Problems

A. Quality of Care

Lock-in HMOs are financially at risk for providing all covered services to their enrollees. Their profits or losses turn on whether they can keep costs below the capitation rate; accordingly, they have a financial incentive to spend as little on services as possible. This can be done by stressing primary and preventive care (i.e. keeping enrollees in better health) or by skimping on services.

HMOS have often been accused of improperly delaying or denying care or of providing care of inferior quality, and Medicare HMOs are no exception. It is often difficult to assess such claims, since they may be based, in part at least, on comparisons to the "fee-for-service" system. The fee-for-service system has often been criticized for providing too many services so that providers receive more reimbursement if they provide more services, and it lacks some of the organizational features that are characteristic of HMOs. Congress has in fact cautioned that HMOs' special practice patterns must be taken into consideration in assessing certain quality-of-care complaints. 123

122

122. As organizations, HMOS will handle many administrative matters, including utilization approvals, through central offices that fee-for-service providers would individually handle themselves. 123. See THE JULY 16, 1986, GAO REPORT, supra note 9. 124. See The April 1985 Oversight Hearing, supra note 2, at 11, 46-47, 50, 53, 168-69, 171-72; The July 1984 Oversight Hearing, supra note 9, at 33-36, 70-74, 84, 92, 102-03; and Goldstein, supra note 9. See also letter from one San Francisco HMO to its

physicians recommending maximum possible deferral of elective surgery and avoidance of aggressive or heroic measures for "the frail elderly where a high morbidity or mortality rate could be expected" and reminding doctors that their contracts were for one-year periods only (July 9, 1986). When local advocates learned of the contents of the letter, several groups, as well as the state's HMO Licensure Agency, complained forcefully. As a result, the HMO issued a January 21, 1987, letter to its doctors clarifying that patient need is always the determining factor in decisions about care, and that quality of care is the basis for awarding physician contracts. Both letters are available from NHELP.

125. This is apparently commonplace with some HMOs. In particular, some HMOs may rely on interns and residents to monitor hospitalized patients. MEDICARE HMO/CMP MANUAL § 2153.4 allows nurse practitioners and physician assistants to work without supervision.

126. Thus, for example, one HMO that advertised coverage of "prescription" drugs in fact used a restricted formularly and indicated, under follow-up questioning, that it would not cover a potential enrollee's maintenance drug. In addition, services like podiatry and chiropractic may be provided by non-specialists. 127. See, e.g., The April 1985 Oversight Hearing, supra note 2, at 46. 128. See THE JULY 16, 1986, GAO REPORT, supra note 9. It is generally agreed that HMOs schedule appointments at longer intervals than "fee-for-service'' medicine. There have been numerous complaints about excessive delays in Medicare HMO appointment scheduling. See, e.g., Goldstein, supra note 9; The July 1984 Oversight Hearing, supra note 9, at 33-36; The April 1985 Oversight Hearing, supra note 2, at 11. In the Medicaid context, several states have found it necessary to require HMOs to schedule appointments within four to six-week periods. See, e.g., OHIO ADMIN. CODE § 5101:03-26-13. Treatment authorizations and scheduling are commonly handled by central offices whose task is utilization control.

129. 42 U.S.C. § 1395mm(c)(4)(A); 42 C.FR. § 417.416(e). See also MEDICARE HMO/CMP MANUAL § 2157.2, which states that "availability" also involves "location, hours of operation... and provision of after hours service." An HMO is not, however, required to furnish more services than are available to nonenrollees in its area, see 42 U.S.C. § 1395mm(c)(2); 42 C.FR. §§ 417.414(b), .440(b), except to the extent that it is common practice to refer patients out-of-area for such services, see 42 C.FR. § 417.414(b)(2)(ii).

130. 42 U.S.C. § 1395mm(i)(1); 42 C.FR. §§ 417.406(b), .494(b). 131. See, e.g., notes 76-79, supra, and the accompanying text. See also note 134, infra.

132. 42 U.S.C. § 1395mm(c)(5)(A); 42 C.FR. §§ 417.436(a)(2), .600.

procedure, 133 and before various state and federal agencies. 134

Improper delay or denial of care may, of course, give rise to a malpractice claim. 135 In addition, in October 1986, Congress authorized severe monetary penalties for HMOs' failure to provide needed care or services if the failure adversely affected, or has a substantial likelihood of adversely affecting, a Medicare enrollee.136 Your state may have a similar provision.

HMO marketing efforts do not clarify many restrictions on services and certainly do not advertise whether certain services are inferior. Accordingly, advocates should explore the possibility of relief under consumer protection laws137 or in

133. 42 U.S.C. § 1395mm(c)(5)(B); 42 C.FR. §§ 417.436(c)(2), .440(a)(2)(ii), .600-.638. See Part IV.C., supra.

134. "Federally qualified" HMOs are subject to sanctions under the Public Health Service Act. All HMOs are subject to sanctions by their state's licensing agency, see note 78, supra, and in some places under other special state laws, see notes 76-79, supra. In addition, HCFA has suggested that provision of poor-quality care can constitute a violation of Medicare fraud and abuse laws. See MEDICARE HMO/CMP MANUAL § 1020.

135. Nemore, Protecting Nursing Home Residents, 21 TRIAL 54 (Dec. 19, 1985). See generally HANDBOOK OF THE LAW OF TORTS, supra note 79.

136. 42 U.S.C. § 1395mm(i)(b) (added by Pub. L. No. 99-509, § 9312(f) (effective Oct. 21, 1986)). Subsection 6(B) provides: [A lock-in HMO] that fails substantially to provide medically necessary items and services that are required (under law or... [the Medicare] contract) to be provided..., if the failure has adversely affected (or has a substantial likelihood of adversely affecting) these individuals, is subject to a civil money penalty of not more than $10,000 for each such failure. [Emphasis added.]

The sanction is enforceable by the Secretary of HHS pursuant to 42 U.S.C. §§ 13302-7, -7a. See 42 U.S.C. § 1395mm(1)(6)(B). At the same time, Congress enacted the same provision for Medicaid HMOs and similar entities. See Pub. L. No. 99-509, § 9434(c) (1986).

The phrase "fails substantially" interjects increased ambiguity into the meaning of the provision. Further complicating is the fact that the conferees' statement that, in determining violations, the Secretary should take into consideration "generally accepted HMO practice patterns for the delivery of... care." See H.R. REP. No. 99-1012, supra note 41, at 3950.

137. See UNFAIR AND DECEPTIVE ACTS AND PRACTICES, supra note 76, and UNFAIR AND DECEPTIVE ACTS AND PRACTICES (1986 Cum. Supp.), supra note 77.

139. "PROS" are private, doctor-controlled organizations whose primary function heretofore has been to monitor hospitals' admission and discharge practices. See 42 U.S.C. §§ 1320c-1320c-13, 1395cc(a)(1)(F). Although the January 1985 Medicare HMO regulations, 42 C.FR. § 417.478(a), called for PRO review of HMO services, HCFA did not implement the requirement. In Pub. L. No. 99-272, § 9405 (Apr. 7, 1986), Congress mandated that PRO review begin on January 1, 1987. However, in Pub. L. No. 99-509, § 9353(a)(2), (6) (Oct. 21, 1986), Congress delayed the start-up to April 1 and authorized the Secretary to contract with non-PRO review entities in half the states.

140. PROS can, among other things, deny Medicare reimbursement in cases of substandard care pursuant to 42 U.S.C. § 1320c-3(a)(2), as amended by Pub. L. No. 99-272, § 9403(a) (1986), and/or initiate sanction proceedings under 42 C.FR. Part 474. It is unclear how this should work in the HMO capitated rate context. The government and the HMO industry were still wrestling with the specifics of the review format when this article was completed. HCFA's plan issued March 11th is as follows: There will be three levels to Medicare review of quality of care delivered by HMOS, depending on the capacity of a plan's internal review system. Once HCFA examines plans' internal review systems, HMOS will be subject to basic, limited, or intensified review. To qualify for limited status, HMO reviewers must review actual medical records and care in all settings via a reasonable sampling technique. Reviewers will look at inpatient admissions for 13 conditions identified by HCFA as possibly associated with inadequate outpatient care. A random sample will be taken of inpatient cases and non-trauma-related deaths, some ambulatory care, and all hospital transfers and readmissions. Detection of problems will trigger intensified review, involving larger samples. Basic review will be conducted at HMOs that lack internal review or have inadequate systems. Basic review samples will be larger than limited samples but smaller than samples under intensified review. 141. 42 U.S.C. § 1395y; 42 C.FR. §§ 409.30-.36, .42-.44. See also Wilson, Administrative Procedure Act Provides Basis for Challenges to Medicare Manuals, 17 CLEARINGHOUSE REV. 1211 (Mar. 1984).

142. See The July 1984 Oversight Hearing, supra note 9, at 33-36, 101 (regarding whether nursing care qualified as "skilled"). The situation may be further compounded by the fact that HMOS traditionally seek to substitute less costly (and perhaps not Medicarecovered) treatment regimens for more expensive ones. See MEDICARE AND HMOS: A FIRST LOOK, supra note 6, at 29-34.

145

144

A small number of Medicare HMOS that have asserted financial losses have terminated Medicare contracts these past two years. A larger number have modified their coverage at year's end. For example, they have dropped added services like prescription drugs, or increased the premiums that cover cost sharing. When an HMO intends to terminate its Medicare contract, it must provide written notice to its Medicare enrollees at least 60 days in advance. 146 If a contract is modified, HCFA determines what beneficiary notice is required and when it is sent. 147

Terminations and modifications can cause problems for beneficiaries. They may often have enrolled in the HMO with the expectation of long-term coverage. They may have given up other insurance, which is either hard to reinstate, will cost more, or will have waiting periods on coverage. Consequently, they may suffer lapses of coverage, and fragmentation and discontinuity of care-the exact opposite of what HMOs are supposed to promote.

148

Community education efforts can help alert beneficiaries to these potential problems. Congress or HCFA could require HMOs to provide notice further in advance and/or to offer limited continuation coverage. Advocates may be able to

149

143. 42 U.S.C. § 1395mm(i); 42 C.FR. § 417.474(c). These provisions authorize longer terms for an initial contract; however, the Secretary has thus far employed only one-year contracts. 144. 42 C.FR. §§ 417.488-.494. Changes in the services/cost-sharing package are considered "modifications." As noted in note 19, supra, HCFA should be confirming the actuarial propriety of the new package.

145. About 10 HMOs terminated contracts as of the end of 1986. See MEDICARE AND HMOS: A FIRST LOOK, supra note 6, at 13. In addition, 5 of the 32 "demonstration" HMOs eschewed risk contracts in early 1985. See The July 16, 1986, GAO Report, supra note 9, at 19.

146. 42 U.S.C. § 1395mm(i)(3)(B); 42 C.FR. § 417.488. See also the overlapping and slightly confusing provisions of 42 C.ER. § 417.494. The day limit is provided for in the regulation. The statute requires that the HMOs give their enrollees a written "description of alternatives for obtaining [Medicare]... benefits." 147. 42 C.FR. § 417.494(a)(2). The regulation does not specify how far in advance any notice must be given.

148. See Rose, supra note 9. For an excellent discussion of these

problems, see letter from Robin Sedman of Legal Assistance to the Elderly, San Francisco, to Bruce Millis (Nov. 20, 1986) (available from NHeLP). See also MEDICARE AND HMOs: A FIRST LOOK, supra note 6, at 13-14, 18-19.

149. HCFA is authorized to include in contracts "such other terms and conditions not inconsistent with... [section 1395mm] as the Secretary may find necessary and appropriate." See 42 U.S.C. §

153

151

Two other kinds of quality concerns involve HMOs' membership composition and range of providers. With respect to the former, federal law contains a waivable requirement that an HMO's Medicare/Medicaid membership not exceed 50 percent. This requirement has long been considered a qualityof-care protection, 154 but HCFA has been failing to enforce it.1 155 Accordingly, Congress recently reinforced the requirement; it can now be waived only for HMOs owned or operated by governments or to the extent that the population of the HMO's service area exceeds the 50-percent limit. 156

footnote 149 cont.

1395mm(i)(3)(D). Furthermore, the Secretary may exercise authority without regard to such provisions of law or regulations related to the making, performance, amendment, or modification of contracts of the United States as the Secretary may determine to be inconsistent with the furtherance of the purpose of... [Medicare].

The Secretary could consider, even during a contract year, incorporating in HMO contracts provisions requiring the HMOs to provide short-term Medigap-type coverage to enrollees in the event of a termination or modification.

150. In both Cincinnati and San Francisco, local Medigap insurers agreed to limit preexisting condition clauses to accommodate members of HMOs terminating contracts. In the case of one San Francisco HMO that terminated its contract, relief was also secured for self-pay beneficiaries who faced long coverage gaps. 151. See Ellis v. Choicecare, No. 85C 4575 (Ohio C.P., Hamilton County, filed Apr. 10, 1985). Choicecare, claiming significant financial losses, tried to terminate its contract before the end of the year. Plaintiffs, claiming that Choicecare's marketing indicated the plan would last indefinitely, alleged inter alia that defendant was guilty of "wrongful inducement" and "breach of contract." In late 1986, the case was settled on behalf of approximately 160 beneficiaries; however, the terms of the settlement are confidential.

152. See Edelman, Nursing Home Withdrawals from Medicaid, 17 CLEARINGHOUSE REV. 867 (Dec. 1983).

153. 42 U.S.C. § 1395mm(f) (as amended by Pub. L. No. 99-509, § 9312(c) (1986)); 42 C.FR. § 417.413(d), (e) (as amended by 52 Fed. Reg. 8898 (Mar. 20, 1987)).

154. See, e.g., GAO MEDICARE: ISSUES RAISED BY FLORIDA HEALTH MAINTENANCE ORGANIZATION DEMONSTRATIONS, HRD-86-97 at 30 (July 16, 1986). See also the Health Maintenance Organization Amendments of 1976, Pub. L. No. 94-460, and CONFERENCE COMM., H.R. REP. No. 94-1513 (to accompany H.R. 9019), reprinted in 1976 U.S. CODE CONG. & ADMIN. NEWS 4312.

155. See The July 1984 Oversight Hearing, supra note 9, at 31-34, 40. 156. Pub. L. No. 99-509, § 9312(c) (1986) (amending 42 U.S.C. §

1395mm(f)). Governmentally owned or operated HMOs can get waivers for three years provided that they continually make reasonable efforts to enroll "private" patients. HMOs that are granted waivers but fail to satisfy required limits may be sanctioned by suspension of enrollments or suspension of payments for new enrollees.

157. See The July 1984 Oversight Hearing, supra note 9, at 52. The report discusses one Florida HMO that operated through 103 "affiliated providers." Although the HMO's overall Medicare/ Medicaid membership was 67 percent, 45 affiliated providers had Medicare/Medicaid membership between 85 and 100 percent. 158. On May 1, 1987 HCFA cancelled its Medicare contract with International Medical Center Inc., (IMC) in Florida, in part because IMC did not keep its 1986 promise to increase private enrollment to 35 percent. As of the date of termination, Medicare enrollment was 78 percent. Also, earlier this year, Miguel Recarey, IMC president, was indicted on charges of racketeering, MEDICINE AND HEALTH (McGraw-Hill, Apr. 27, 1987); Perspectives, May 4, 1987.

160. 42 U.S.C. § 1395mm(c)(4); 42 C.FR. §§ 417.416(e), .440. 161. 42 U.S.C. § 1395mm(c), (h); 42 C.FR. §§ 417.406, .408. 162. 42 U.S.C. § 1395mm(c)(3)(E) (added by Pub. L. No. 99-509, § 9312(b)(1) (1986)); and 42 C.FR. §§ 417.428(a)(1), .436(a)(5). 163. Telephone conversation between Jane Perkins, NHELP, and Steve Ronfeldt, Alameda County Legal Assistance, Oakland, Cal. (Aug. 4, 1986). According to HCFA's Medicare HMO/CMP MANUAL § 2157.3, it is permissible for HMOS to contract with providers that exclude Medicare beneficiaries. However, the exclusion must have a reasonable "premise and cannot result in the selection of younger, healthier, and/or wealthier beneficiaries. Furthermore, the HMO's marketing materials may not mislead beneficiaries as

but at some level they clearly violate the conditions under which the HMO was approved and beneficiaries enrolled.

HCFA requires HMOs to obtain advance approval of contract modifications," but the term is not defined and the requirement does not indicate what actions HCFA may take. 165 The requirement could be amended to require specific HCFA prior approval of provider changes and advance notice to enrollees about them.166 HCFA should review such requests conservatively, inasmuch as they are arguably breaches of contract. Advocates should in fact consider the possibility that such actions may violate contract principles and consumer laws. 167 In those cases in which particular facilities are denied to beneficiaries but remain accessible to the HMO's nonMedicare enrollees, there may also be age, race, or handicap discrimination violations. 168

V. Conclusion

There is no question that Medicare HMO enrollment will grow; the only question is by how much. As the numbers increase in your area, there is a good chance that your clients will experience some of the problems discussed here. 169 There may already be clients in your area who have experienced these problems but are unaware that they have been wronged or that relief may be possible. This article has suggested different kinds of advocacy approaches that might be used to help clients; readers may have additional ones. 170 The need is great, the field is open, and the sky is the limit.

footnote 163 cont.

Michael C. Parks and Judith G. Waxman

to the providers that will be available to them. Whatever this provision means, it certainly did not prevent the action of which the beneficiaries complained.

164. Thus, for example, some providers may move, die, cease operations, or simply wish to cease relations with the HMO. It is not clear to what extent HMO subcontracts regulate avoidable changes during a contract year.

165. 42 C.FR. § 417.494.

166. The statute authorizes the Secretary to include in contracts "other terms and conditions not inconsistent with [section 1395mm]... as the Secretary may find necessary and appropriate." 42 U.S.C. § 1395mm(i)(3)(D).

167. See notes 76, 79, and 144, supra.

168. See 29 U.S.C. § 794 (handicap), 42 U.S.C. § 6102 (age), and 42 U.S.C. §§ 2000d et seq. (race).

169. Other problem areas that have come to advocates' attention include: getting out-of-plan providers whose services the HMO covers to accept the HMO's payment as payment in full; considering the consequences of an HMO's bankruptcy, which are just now unfolding in Los Angeles; improving the placement position of important information in marketing and membership material; and challenging an HMO's circumvention of financing and administrative protections through subcontracts.

170. We welcome the opportunity to discuss these matters and your work on them. Please contact Judy Waxman in NHELP's Washington, D.C., office.