Kaiser-Permanente's Medicare Plus Project: A Successful Medicare Prospective Payment Demonstration

The Medicare Plus project of the Oregon Region Kaiser-Permanente Medical Care Program was designed as a model for prospective payment to Increase Health Maintenance Organization (HMO) participation in the Medicare program. The project demonstrated that it is possible to design a prospective payment system that costs the Medicare program less than services purchased in the community from fee-for-service providers; would provide appropriate payment to the HMO; and in addition, creates a “savings” to return to beneficiaries in the form of comprehensive benefits to motivate them to enroll in the HMO. Medicare Plus was highly successful in recruiting 5,500 new and 1,800 conversion members into the demonstration, through use of a media campaign, a recruitment brochure, and a telephone information center. Members recruited were a representative age and geographic cross section of the senior citizen population in the Portland, Oregon metropolitan area. Utilization of inpatient services by Medicare Plus members in the first full year (1981) was 1679 days per thousand members and decreased to 1607 in the second full year (1982). New members made an average of eight visits per year to ambulatory care facilities.