Health Care Quality and Consumer Protection


Presented to

Committee on Labor and Human Resources
U.S. Senate


Gail R. Wilensky, Ph.D.
John M. Olin Senior Fellow
Project HOPE
March 6, 1997

Mr. Chairman and members of the Committee, thank you for inviting me here to testify about issues relating to health care quality and consumer protection. My name is Gail Wilensky, and I am a John M. Olin Senior Fellow at Project HOPE, an international health education foundation, as well as the chair of the Physician Payment Review Commission (PPRC). I am also a former Administrator of the Health Care Financing Administration. I am here today, however, representing only my own views on these issues and not necessarily those either of Project HOPE or PPRC.

Monitoring the quality of health care and protecting the consumers of healthcare has always been important, but these issues have become particularly important in an environment characterized by as much change as is currently occurring with the delivery of health care services. This is true for health care delivered through private sector financing as well as public sector financing.

It is and should be the responsibility of Medicare, for example, not only to provide access to care for seniors but also to make sure that the access includes both appropriate care and to care of high quality. Most of the initiatives in this area, particularly the recent initiatives, have focused on care delivered in HMO’s and other forms of managed care.

There is reason to be concerned about issues of quality and protection in managed care. Unlike fee for service medicine which provides incentives for overutilization, managed care carries with it incentives for the underprovision of services. In addition, there has been dramatic growth in the use of managed care. Nearly 60 million Americans are enrolled in HMO’s and another 90 million are in Preferred Provider Organizations. In Medicare, the growth in HMO enrollment has been very rapid, doubling in the last three years, with nearly 13 percent of the elderly now in risk or cost contract plans.

As important as it is to monitor quality and consumer protection provisions in managed care plans, it is also important to be equally vigilant in traditional fee for service medicine. First, more service does not mean more appropriate or even better care. Second, the vast majority of seniors remain in traditional, fee for service Medicare. Eighty seven percent are currently enrolled in traditional Medicare and two thirds of the elderly are still expected to be in traditional Medicare as of 2007, at least under current law projections. Unfortunately, it is much more difficult to assess quality of care provided outside systems of care, but we must remind ourselves that concern over poor quality and inappropriate care are as relevant for fee for service medicine as it is in risk-based managed care.

Establishing Standards for Plans in Medicare

The framework and requirements for health plans participating in Medicare are part of the Social Security Act. Law or regulations cover requirements for quality assurance, access to care, enrollment and disenrollment, benefits, marketing and solvency. For seniors in managed care, there are protections involving quality of care assessments by peer review organizations, grievance and appeals processes and arrangements for seniors whose plans lose their Medicare contracts. The Secretary of Health and Human Services is responsible for implementing these provisions and has a variety of enforcement tools at her disposal, including penalties, suspension of enrollment, and ultimately, contract termination. HCFA monitors compliance with managed care program requirements through paper reviews of plan documents and also by annual site visits to plans.
States also play a key role since Medicare requires plans to be licensed under applicable state law. By law and tradition, states have jurisdiction over insurers and health plans. HMO’s and some point of service plans typically are under the jurisdiction of state HMO laws; other types of plans may come under other state regulatory authorities.

As participation in Medicare is broadened to include network plans other than HMO’s, the debate has already started about how standards should be applied and who should apply them. This issue has become particularly controversial for Provider Service Organizations (PSOs). PPRC has concluded that the same core standards should apply to all private health plans participating in Medicare, but there needs to be flexibility in terms of how these provisions are implemented and enforced.

Applying Plan Standards in Medicare

The most important areas of concern include the adequacy of information provided to seniors, the adequacy of access to care provided seniors and the adequacy of quality of care.


The choices of plan types in Medicare is very limited, but the numbers of HMO’s and Medigap plans available are considerable. In addition, there is substantial interest in making many of the more flexible network types of plans that are available in the private sector available to seniors. As the number and types of plans increases, the need for understandable, unbiased information also increases. In order for seniors and/or their families to make choices that best meet their own needs and preferences, they need an enrollment process that encourages comparisons among options, readily available information from neutral sources and protection against marketing approaches that do not accurately represent the choices available.

These conditions do not exist in the current Medicare program. Seniors are required to familiarize themselves with their options in a relatively unstructured environment, with information provided primarily by the plans. HCFA is making some changes to address this problem but more will need to be done.

In managed care plans, seniors need good information after they are enrolled in addition to unbiased information about the choices available to them. According to an access survey of 3000 seniors in managed care plans sponsored last year by PPRC, almost all of the enrollees felt they had enough information when they enrolled but of the 25 percent who had a question or needed more information after they enrolled, one in five had problems getting it. Adequate information is also likely to be a problem in fee for service but the data to estimate the extent of the problem is not available.

Grievance and Appeals

All states require HMOs to have a grievance procedure but they do not specify the type of process the HMO must have. According to the PPRCs survey, almost one-third of the enrollees did not know they had a right to appeal their plan’s decisions not to provide or pay for a service.

There is also some concern about the amount of time it takes to review grievances. As a result, states are now beginning to put in place specific grievance procedures. The American Association of Health Plans (AAHP) recently issued a policy statement regarding concerns about grievance and appeals procedures urging their plans to develop easily understandable appeals rights provisions and expedited appeals processes. HCFA also needs to take steps to improve the appeals process, especially regarding dispute prevention and resolution.

Physician Gag Clauses

The so-called “gag clauses” references concerns that physicians in managed care plans may be prevented from fully informing patients about treatment options or options covered or not covered by their plan. They may also prohibit referrals to providers for services not covered by the plan, disclosing financial incentives or discussion how decisions to authorize or deny care are made.

Despite all the attention being given to this issue, there is very little information on the extent to which managed care physicians are subject to constraints affecting discussions with their patients. It is not a Medicare issue because the provision of information to patients by their physicians is regarded as a Medicare covered benefit and any clause limiting what a physician could tell a Medicare beneficiary therefore would be a violation of Federal law. Healthy plans recently received a letter from HCFA reminding them of this position. Despite the lack of empirical evidence concerning the problem, seventeen states have enacted laws restricting gag clauses since 1995 and legislation is pending in a dozen states. AAHP has also recently issued guidelines to address this issue.


General provisions designed to guarantee adequate access to health services are among the standards HCFA applies to all health plans. These include medically necessary services, 24 hours a day, 7 days a week and includes provisions for compensating non network services in emergency circumstances.

PPRC’s recent survey of managed care seniors indicated good access in most circumstances. A small minority of enrollees did perceive problems accessing specialty care and home health care. Six percent of those hospitalized felt they had been discharged too soon and 6 percent felt they had not been referred to a specialist when they believed it necessary. The numbers regarding home healthcare are larger. Seventeen percent of those who had used home health care services, wanted more services.

Coverage for Emergency Services

How to know when a medical problem is an emergency is a difficult issue for many consumers. About a dozen states have passed legislation requiring managed care plans to pay for emergency services when patients go for what they believed to be a serious illness, even if it turns out to be a minor problem. Some states require HMO’s to use a “prudent layperson” definition of emergency. Legislation designed to assure coverage based on “prudent layperson” was introduced in Congress last year and already in the 105th Congress. PPRC also has recommended including a prudent layperson’s perspective as one of the factors used in determining whether a plan should pay for initial screening and stabilization in an emergency.

Quality Assurance

HCFA has taken a number of steps to improve its quality assurance program. HCFA is about to start requiring plans to provide information on their performance and quality, using measures from HEDIS 3.0 developed by the National Committee on Quality Assurance (NCQA). PPRC is recommending that information from these measures be used in producing beneficiary-oriented performance reports, quality improvement programs and risk program monitoring. If these measures can be sufficiently refined, it may even be possible to use performance measures for performance-based payment or to guide selective contracting.

PPRC is also recommending eliminating an old plan standard as these new quality assurance measures are put in place. The enrollment composition standard requires that Medicare enrollees in total may not exceed 50 percent of plan enrollment. At best, this is a rough proxy for quality and not nearly as good as direct plan performance measures. PPRC has therefore recommended replacing the 50/50 rule with an enhanced QA program that uses health plan performance measures.

Physician Financial Incentives

HCFA recently issued a final rule on physician payment plans used by Medicare and Medicaid HMOs. The rule prohibits the use of physician payments to limit or reduce necessary services to enrollees. It also imposes disclosure and stop-loss insurance requirements when payments put physicians at substantial risk for services they don’t provide.
State and Federal Initiatives for Private Plans

States have long been involved with quality assurance in the sense that they have the primary responsibility for the licensure of health care providers. More recently, states have also become involved with managed care consumer protection legislation. A few states, such as New York, Georgia, Kansas, Maine, Rhode Island and West Virginia have passed comprehensive consumer protection legislation. Most have focused on only one or two areas of concern. A number of states, however, have indicated an interest in comprehensive legislation this year.

Early in the 1990’s, most of the state legislation focuses on “any willing provider” laws which require health plans to admit to their networks any qualified provider willing to follow the terms and conditions of the contract and “freedom of choice” legislation which allows enrollees to receive reimbursable health care services form any qualified provider they choose, regardless of whether the provider is a member of the plan’s network.

More recent legislation has focused on “direct access laws, which limit the ability of managed care plans to direct the flow of patients to specific providers, coverage for emergency room services using prudent lay-person type definitions, specification of grievance and appeals procedures, prohibition of physician gag clauses, restriction on the uses of financial incentives to influence provider behavior and mandated coverage provisions.

President Clinton also recently announced plans to appoint an Advisory Commission on Consumer Protection and Quality in the Health Care Industry, which will examine both the managed-care and fee for service sectors. The Commission is supposed to develop recommendations on a variety of quality and consumer protection issues, issuing a final report 18 months after its first meeting and a preliminary report September 30, 1997.

Concluding Note

Much of the quality and consumer protection legislation referenced in this testimony has only become effective in the past year or so. It is therefore very difficult to assess the effect this legislation has had. In many cases, such as with physician gag clauses, the magnitude of the underlying problem has also not been assessed empirically. What does appear to be clear, however, is that consumers need to have more understandable information available to them both before they choose and after they are enrolled in a plan. They need to understand what they have been promised, their rights and responsibilities as an enrollee and the opportunities for appeals and grievances in case of disputes.

The HCFA and PPRC currently are required to report to the Congress on access to care issues for Medicare beneficiaries under traditional Medicare. Given the rapid growth in Medicare managed care, either or both groups needs to be charged with the responsibility of reporting to the Congress on access to care for Medicare managed care enrollees.