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Medicare Contracting Risk/Medicare Risk Contracting: A Life-Cycle View from Twelve Markets


  • Robert E. Hurley,

  • Joy M. Grossman,

  • Bradley C. Strunk


Objective To examine the evolution of the Medicare HMO program from 1996 to 2001 in 12 nationally representative urban markets by exploring how the separate and confluent influences of government policy initiatives and health plans' strategic aims and operational experience affected the availability of HMOs to Medicare beneficiaries.

Data Source Qualitative data gathered from 12 nationally representative urban communities with more than 200,000 residents each, in tandem with quantitative information from the Centers for Medicare and Medicaid Services and other sources.

Study Design Detailed interview protocols, developed as part of the multiyear, multimethod Community Tracking Study of the Center for Studying Health System Change, were used to conduct three rounds of interviews (1996, 1998, and 2000–2001) with health plans and providers in 12 nationally representative urban communities. A special focus during the third round of interviews was on gathering information related to Medicare HMOs' experience in the previous four years. This information was used to build on previous research to develop a longitudinal perspective on health plans' experience in Medicare's HMO program.

Principal Findings From 1996 to 2001, the activities and expectations of health plans in local markets underwent a rapid and dramatic transition from enthusiasm for the Medicare HMO product, to abrupt reconsideration of interest corresponding to changes in the Balanced Budget Act of 1997, on to significant retrenchment and disillusionment. Policy developments were important in their own right, but they also interacted with shifts in the strategic aims and operational experiences of health plans that reflect responses to insurance underwriting cycle pressures and pushback from providers.

Conclusion The Medicare HMO program went through a substantial reversal of fortune during the study period, raising doubts about whether its downward course can be altered. Market-level analysis reveals that virtually all momentum for the program has been lost and that enrollment is shrinking back to the levels and locations found in the mid-1990s.