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7
Structure and Finances
CHAPTER SUMMARY
This chapter describes Quality Improvement Organizations (QIOs)
and the organizations that held QIO contracts for the 7th scope of
work, including their structure, governance, staffing, and finances.
This is followed by discussions of the QIO Support Centers and
the overall funding of the QIO program. This background material
serves to give an overall general picture of the structure and financ-
ing of the QIO program.
STRUCTURE OF QIOS
The Peer Review Improvement Act of 1982 (P.L. 97-248) modified and
extended existing laws and regulations to create the current Quality Im-
provement Organization (QIO) structure, replacing Professional Standards
Review Organizations (PSROs) with Utilization and Quality Control Peer
Review Organizations (PROs), later renamed QIOs (Bhatia et al., 2000;
CMS, 2004b). The legislation defined the organizational basis for QIO con-
tractors and restricted the kinds of organizations that qualify for QIO sta-
tus. Although this 24-year-old statute included provisions not applicable to
the current health care environment, it provided sufficient flexibility to al-
low significant adaptation to modern practices and issues in terms of per-
formance criteria, standards, and the requirements of the U.S. Department
of Health and Human Services (Jost, 1989). This inherent flexibility per-
mits the use of newer definitions of quality, the expression of new concerns
for patients' rights, and a changed emphasis from identifying outliers to
changing systems. These changes were made, in part, to encourage provid-
ers to view QIOs as collaborative partners rather than regulatory bodies
(CMS, 2004b).
160
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STRUCTURE AND FINANCES 161
Physician-Sponsored and Physician-Access Designations
To be eligible to compete for a QIO contract, an entity must meet
certain criteria for designation as either a "physician-sponsored" or a
"physician-access" organization (CMS, 2004b). For a physician-sponsored
organization, either (1) at least 20 percent of the practicing physicians in
the state are owners or members of the organization or (2) 10 percent of
practicing physicians are owners or members and the organization can dem-
onstrate that the organization represents an additional 10 percent of prac-
ticing physicians in that state. For a physician-access organization, organi-
zations must have arrangements with licensed and practicing physicians to
conduct reviews and include "at least one physician, licensed in the state,
from every generally recognized specialty and subspecialty who is in active
practice in your review area" (CMS, 2004c:2). An organization may not
qualify for either designation if it is a health care facility, an association of
health care facilities, or a health care facility affiliate.1
These designations retain some qualities of the QIO predecessor orga-
nizations that favored local peer review. In the past, providers objected to
reviews by out-of-state providers, arguing that practice patterns differed by
region. However, the evolving recognition of national standards challenges
the perceived need for local review (personal communication, T. Jost, Wash-
ington and Lee University School of Law, January 7, 2005). Repeal of the
requirement for this designation might encourage other entities to compete
for QIO contracts. Also, QIOs may be better served by geographically dis-
persed reviewers, which would allow expanded representation by individu-
als in clinical specialties and subspecialties and allow the identification of
common local practice patterns that are inconsistent with generally accepted
evidence-based knowledge.
One exception may be the distinction in the practice patterns of rural
providers. In these circumstances, patient care is influenced by confounding
circumstances, such as geography, transportation, and the availability of
medical technologies; but the practice patterns under these circumstances
might be comparable among rural providers around the country (IOM,
2005). However, if the requirement for physician-sponsorship or physician-
access designations were eliminated and other entities were allowed to par-
1The QIO manual defines a health care facility as "An institution that directly provides or
supplies health care services for which payment may be made in whole or in part under title
XVIII of the Social Security Act" (CMS, 2004c:c2p3). The QIO manual defines a health care
facility affiliate as "An organization that has a board on which more than 20 percent of the
members are also either a governing board member, officer, partner, five percent or more
owner, or managing employee in a health care facility or association of health care facilities in
the QIO area" (CMS, 2004c:c2p3).
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162 MEDICARE'S QUALITY IMPROVEMENT ORGANIZATION PROGRAM
ticipate as QIOs, there might be concerns about those organizations, which
could have multiple agendas, having access to private health information of
patients and providers. Currently, when a QIO contract is open for bid-
ding, the Centers for Medicare and Medicaid Services (CMS) gives priority
to physician-sponsored organizations (CMS, 2004b). The committee found,
using its web-based data collection tool, that 27 of the 52 reporting QIOs
identified themselves as physician sponsored and 19 said that they were
physician access. (Note that four answered "both" and two said "neither,"
even though neither of these responses are technically acceptable for a QIO
contractor.)
Organizational Characteristics
During the 7th scope of work (SOW), 41 organizations held QIO con-
tracts for 53 individual QIO core contracts--one for each state, the District
of Columbia, Puerto Rico, and the Virgin Islands. According to the web-
based data collection tool, the majority of the organizations (22 of 41) were
established before 1975. Thirty-five of the 41 organizations stated they were
originally established for the purpose of holding a QIO contract. Only six
claimed to be subsidiaries of other organizations. Seventeen organizations
reported that they had their own subsidiaries. Nearly all of the organiza-
tions (38 of 41) held a not-for-profit tax status. QIOs were asked whether
or not they held specific accreditations. Data on the specific accreditations
are presented in Table 7.1.
Additionally, some organizations listed types of accreditations. Four
reported that they were certified independent review organizations (either
state or national), four said that they were licensed utilization review man-
agers (generally by state), and three said that they were accredited providers
of continuing medical education credits. Seven organizations listed other
accreditations including state certifications (such as medical review or-
ganization or patient safety organization) and National Committee for
Quality Assurance licenses (Health Plan Employer Data and Information
Set [HEDIS] auditor or HEDIS survey vendor).
The web-based data collection tool also asked the individual QIOs
about Baldrige National Qualitytype awards. Although most states seem
to have this type of award, most QIOs do not apply for them. Of the 52
reporting QIOs, 18 said that their state has no such award. Of the 34 QIOs
in states with Baldrigetype awards, 23 have not applied for the state award,
eight applied and received the award, and three applied but did not receive
the award.
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STRUCTURE AND FINANCES 163
TABLE 7.1 Accreditations Held by Organizations with QIO Contracts
for the 7th SOW
Accreditation Number of Organizations
HEDISa 4
ISO 9000 0
ISO 9001:2001 4
Six Sigma 1
URACb case management 2
URAC claims processing 0
URAC consumer-directed health care 0
URAC corec 5
URAC credential verification 0
URAC disease management 1
URAC healthy call center 0
URAC health provider credentialing 0
URAC utilization management 11
URAC health website 0
URAC HIPAA privacy 0
URAC HIPAA security 0
URAC independent review 7
URAC worker's compensation utilization management 1
URAC vendor certification 0
NOTE: One organization anticipated achieving ISO 9001:2001 in March 2005 (shortly after
data collection ended), and another had URAC core accreditation pending. HEDIS = Health
Plan Employer Data and Information Set; HIPPA = Health Insurance Portability and Account-
ability Act of 1996; ISO = International Standards Organization; URAC = Utilization Review
Accreditation Commission.
aHEDIS is a set of standardized measures used to compare performance of managed care
plans. HEDIS also includes a consumer-perspective survey (NCQA, 2005).
bThe Utilization Review Accreditation Commission was renamed to "URAC" in 1996 when
it expanded its accreditation process. URAC sometimes does business as the American Ac-
creditation HealthCare Commission, Inc. (URAC, 2005).
cOne organization chose "prefer not to answer/information not available."
SOURCE: IOM committee web-based data collection tool (n = 41 organizations).
QIO Staff
In the web-based data collection tool, all 52 reporting QIOs said that
their employee with the shortest length of employment had been employed
for 2 years or less, and almost all (50 of 52) said that the employee had been
there less than 1 year. For the longest length of employment of a single
employee, responses ranged from 5 years to more than 25 years. In fact, 22
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164 MEDICARE'S QUALITY IMPROVEMENT ORGANIZATION PROGRAM
TABLE 7.2 QIO Employee Turnover Rates, 2002 to 2004
Percentage of turnover among QIO employees
2002 2003 2004
Statistic TP SS TP SS TP SS
Minimum 0 0 0 0 0 0
First quartile 2.56 0.03 6.12 0 5.69 0.06
Median 12.00 5.00 13.00 3.99 12.15 3.22
Mean 13.00 15.50 19.53 11.80 12.38 10.93
Third quartile 19.00 24.50 23.00 21.22 18.00 11.30
Maximum 50.00 86.00 114.00 50.00 39.00 167.00
NOTE: TP = technical or professional staff; SS = support staff.
SOURCE: IOM committee web-based data collection tool (n = 52 QIOs).
QIOs related that the longest length of employment of at least one em-
ployee was 25 or more years, and 35 QIOs had had at least one employee
for more than 20 years. The reported average length of employment among
all employees ranged from 1.32 to 10.00 years, with a mean of 5.97 years.
Examination of employee turnover within the QIO program is impor-
tant, especially in light of the new priorities of transformational change in
which the employee turnover rate is used as a measure of success. From
2002 to 2004, employee turnover rates varied greatly among both the tech-
nical or professional staff and the support staff of the QIOs. The average
turnover rate for both of these categories ranged from 10.93 to 19.53 per-
cent. (Loss of a QIO contract can account for turnover rates of more than
100 percent, which can skew average turnover rates.) The individual turn-
over rates reported by the QIOs are provided in Table 7.2.
QIO Leadership
In the web-based data collection tool, the chief executive officers
(CEOs) of 52 QIOs rated the extent to which they believed that each of 14
"leadership competencies," derived from the National Center for Healthcare
Leadership competency model (National Center for Healthcare Leadership,
2004), were represented. These competencies are collaboration, relation-
ship building, team development, performance measurement, communica-
tion skills, change leadership, process management and organizational de-
sign, strategic orientation, innovative thinking, community orientation,
achievement orientation, self-development, impact or influence, and talent
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STRUCTURE AND FINANCES 165
development. A majority of the CEOs rated their leadership teams as dem-
onstrating each of the leadership competencies to a "substantial" extent.
This finding was particularly evident in the cluster of competencies that
appear to be the most obviously related to the type of work required during
the 7th SOW--collaboration, relationship building, team development, and
performance measurement--with more than 88 percent of CEOs rating
these competencies "substantial." For only one competence--talent devel-
opment--did any CEO indicate that it was represented "not at all"; overall,
this particular leadership competence is least well represented across leader-
ship teams, with 19 of 52 QIOs rating it "modest" and only 32 of 52 QIOs
rating it "substantial."
Governing Board
The governing board of a QIO is responsible for the "efficient and
effective management" of its QIO (CMS, 2004c:4). When responding to
the CMS requests for proposals (to bid on the QIO contract), the organiza-
tion must specify how the board will oversee the management of the QIO.
CMS sets minimum standards in the official request. The QIO has substan-
tial discretion in selecting the members of its governing board and their
term lengths and responsibilities. Hence, each QIO can adapt its board to
the vision and requirements of its own organization.
There is one notable exception to this flexibility: the board must have
at least one consumer representative. The Omnibus Budget Reconciliation
Act of 1986 (P.L. 99-509) added this requirement. The consumer represen-
tative must be a Medicare beneficiary and live in the state represented by
the board's organization. The consumer representative cannot be a practic-
ing or retired physician, nor can the consumer representative be "a govern-
ing board member, officer, partner, owner of more than five percent inter-
est in a health care facility, or managing employee of a health care facility
or association of health care facilities" (CMS, 2004c:6). Additionally, the
consumer representative must meet at least four of the following five crite-
ria (CMS, 2004b):
· Experience with consumer advocacy,
· Knowledge of state organizations working on senior issues,
· Knowledge of the needs of beneficiaries and providers in their state
or jurisdiction,
· Basic understanding of the Medicare program,
· Experience serving on or working with other boards or commissions.
QIOs representing states with both fee-for-service and managed care Medi-
care contracts must ensure the adequate representation of each. Therefore,
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166 MEDICARE'S QUALITY IMPROVEMENT ORGANIZATION PROGRAM
these QIOs must have an additional consumer member (for the population
not represented on the governing board) "as a permanent member of at
least one appropriate committee/group" (CMS, 2004c:6). In the case of
organizations holding more than one QIO contract, the consumer rep-
resentative may reside in any of the states served by those QIOs. The orga-
nizations are not required to have a representative of the fee-for-service
Medicare population for each state. However, a managed care consumer
representative for each state (if managed care plans exist in the state) must
sit either on the governing board or on a committee or group.
Overall, the demographics of the board should represent the diversity
of the Medicare population in the state(s) that it serves. Additionally, no
more than 20 percent of board members may be "affiliated with a health
care facility or association of health care facilities located in the area of any
of the following capacities: a governing member; an officer; a partner; an
owner of five percent or more; or a managing employee" (CMS, 2004c:4).
QIO Board Size (7th SOW)
Data supplied by the CEOs of the 41 organizations holding QIO con-
tracts for the 7th SOW via the web-based data collection tool showed that
the allowed and the actual board sizes varied widely. The maximum board
sizes permitted by individual bylaws ranged from 6 to 52 members, with a
mean of 21. The actual sizes ranged from 4 to 30 members, with a mean of
17. Most organizations (32 of 41 organizations) reported that 3 years was
the typical term length for board members. Just over half of the organiza-
tions (21 of 41) limit the number of board terms. Most of the boards (29 of
41) meet on a quarterly basis, with the frequencies of meetings varying for
the remaining organizations. Figure 7.1 shows the distribution of the num-
ber of organizations reporting the existence of specific standing committees.
Twenty-six of the 41 organizations reported that they had one or more
regular standing board committees other than those listed in Figure 7.1. In
most cases, the additional committees did not have regularly scheduled
meetings and were used on an ad hoc basis.
QIO Board Expertise (7th SOW)
According to the web-based data collection tool, most CEOs of organi-
zations holding QIO contracts for the 7th SOW (30 of 37 respondents) did
not anticipate the need for additional board expertise for the 8th SOW. Of
the seven CEOs who foresaw such a need, three specified expertise in home
health care in particular. Other responses related to more general areas of
expertise, such as business or financial management.
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STRUCTURE AND FINANCES 167
36
31
23
15
11
8 8 7
3 2
e w
Audit vie
ecutiv Finance Re
Ex vernance Planning Outreach elopment
Nominating v
Go De
ategic Compensation
vider
Str Pro
Business
FIGURE 7.1 Numbers of QIO boards with the indicated standing committees (7th
SOW).
SOURCE: IOM committee web-based data collection tool (n = 41 organizations).
The web-based data collection tool also requested information on the
primary professional background of each board member; the organizations
could report on up to 30 board members. The respondents selected the
backgrounds from among 15 options. Physicians were the only professional
type represented on all boards. Just less than 60 percent of these organiza-
tions included executives or managers from non-health-care-related busi-
nesses, and 56 percent included hospital executives or managers. The only
other profession represented on at least one-third of the boards was nursing
(41 percent). Professionals with backgrounds relevant to the tasks required
in the 7th SOW other than hospital quality improvement--executives or
managers in nursing homes and home health care agencies--were included
on relatively few boards (28 and 2.56 percent, respectively).
Among all boards, physicians clearly dominated: 67 percent of all orga-
nizations' board members were physicians (427 of 639 board members for
whom data were reported). Nurses were the second largest group, at just
under 8 percent of all board members, followed by executives in non-health-
care-related businesses (about 7 percent) and hospital executives or manag-
ers (about 6.5 percent). All other professional categories each accounted for
less than 5 percent of board members.
Examination of the board compositions revealed that three or fewer
different professional backgrounds were represented on the boards of about
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168 MEDICARE'S QUALITY IMPROVEMENT ORGANIZATION PROGRAM
half of the organizations. Ten of 41 boards contained individuals with only
two different types of professional backgrounds, although there was con-
siderable variety in the second of the two backgrounds represented across
the organizations (the common one being physicians). One organization's
board included individuals with 11 different types of professional back-
grounds, the boards of three organizations included individuals with seven
different types of professional backgrounds, and the boards of four organi-
zations included individuals with six different types of professional back-
grounds. It is noteworthy, however, that the respondents were limited to
choosing one background, and some board members may have had mul-
tiple relevant experiences in their professional careers.
QIO Board Members' Affiliations (7th SOW)
The web-based data collection tool requested information on the pri-
mary affiliation of each board member and showed a predominant repre-
sentation of individuals from office-based practices and hospitals. The re-
spondents selected from among 11 choices on a drop-down menu. Clinicians
in office-based practice settings represented the only affiliation seen on the
board of every organization holding a QIO contract for the 7th SOW. Al-
most 85 percent of these organizations' boards included members affiliated
with hospitals. Among all boards, members affiliated with office-based prac-
tices dominated (294 of 636 board members [46 percent] for whom this
information was reported). The second largest group was board members
affiliated with hospitals (121 members [19 percent]).
Boards tended to have more variety in primary affiliations than in pro-
fessional backgrounds. Five or six different affiliations were represented on
a typical board; two boards had as many as nine different affiliations, and
one board had eight. Each board had individuals with at least two different
primary affiliations. Despite the potential that organizations with larger
boards might demonstrate more diversity in professional backgrounds or
primary affiliations, statistical analyses revealed no such relationship for
the boards of these organizations. As was mentioned above in the discus-
sion of primary backgrounds, it is noteworthy that the respondents were
limited in their choices, so members may represent more than one profes-
sion or affiliation. This is notable because the QIO contract requires at least
one consumer representative on each board, yet not all organizations re-
ported a member with "Medicare beneficiary" or "consumer" as his or her
primary affiliation. This indicates that some organizations have consumer
representatives with other significant affiliations that they consider to be
dominant over their role as a consumer representative.
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STRUCTURE AND FINANCES 169
QIO Board Selection, Compensation, and Evaluation (7th SOW)
Overall, at least 34 of the 41 boards for organizations holding QIO
contracts for the 7th SOW had some form of involvement in either the
selection or the approval of their own new board members. About half of
the organizations (21 of 41) reported via the web-based data collection tool
that board members are selected by or with the approval of the organiza-
tion's current board. An additional 10 organizations' boards were at least
partially involved in the nomination or selection process.
The data also revealed that the vast majority of board members are
generally compensated in some way. Thirty-four of 37 reporting organiza-
tions provide compensation (not including travel expenses) to board mem-
bers. A 2005 article in the Washington Post reported on the salaries and
compensation for QIO board members (Gaul, 2005). The author outlined
specific examples of compensation to board members of up to $45,000
each, or $250 per hour, for QIO-related activities, including one board in
which 19 of the 21 board members received some form of compensation. In
comparison, the article cites an estimate that nationally, only 2 percent of
nonprofit groups provide financial compensation to their board members.
The web-based tool collected data on the evaluation of board perfor-
mance. Those data revealed that most organizations do not regularly evalu-
ate their boards individually or as a whole. Only 10 of 38 reporting organi-
zations had formal mechanisms in place for the evaluation of individual
board member performance. Ten of 38 organizations stated that they had
mechanisms in place to evaluate the overall board performance.
Consumer Advisory Council
The QIO contract for the 7th SOW required each QIO to establish a
Consumer Advisory Council (CAC) to meet at least quarterly to advise the
organization on policy directions for consumer-related issues. "CAC mem-
bership must include representatives from community and business organi-
zations. . . . More than half of the CAC members must be from organiza-
tions whose primary responsibility is protecting the interest of Medicare
beneficiaries" (CMS, 2002:35). Members are chosen at the discretion of the
QIO contractor. The example in Box 7.1 shows the membership of the CAC
for the Health Services Advisory Group (Arizona's QIO).
Ability to Perform Case Review Activities
Organizations bidding for QIO contracts must demonstrate the ability
to perform required review activities by documenting past or current
experience or providing a detailed performance plan (CMS, 2004b). The
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170 MEDICARE'S QUALITY IMPROVEMENT ORGANIZATION PROGRAM
BOX 7.1 Health Services Advisory Group's
CAC Member Organizations
AARP Arizona
ABC Coalition
Aging and Adult Administration
Alzheimer's Association
Area Agency on Aging
Arizona Academy of Family Physicians
The Arizona Center for Disability Law
Arizona College of Public health
Arizona Health Care Cost Containment System
Arizona Latin-American Medical Association
Arizona Medical Association
Arizona Rural Health Association
Consumers/Senior Community Activists
Foundation for Senior Living
Gold & Associates
Governor's Advisory Council on Aging
HSAG Board of Directors
Inter-Tribal Council Agency
State Health Insurance Assistance Program
University of Arizona College of Medicine
SOURCE: Health Services Advisory Group (2005).
organization must submit a document outlining its policies and procedures,
including sections on rules of confidentiality, methods of information col-
lection, the criteria used in the review process, and a mechanism for manag-
ing complaints and appeals. Additionally, the organization must provide a
list of its staff and an organizational chart showing physician management
of the process as well as the process for the collection of information by
clinical staff. Finally, the organization must be able to demonstrate experi-
ence or an ability to analyze the medical review data (CMS, 2004b). Spe-
cific case review requirements, activities, and goals are discussed in Chap-
ter 12. Several QIOs hold special accreditations related to case review
activities (as discussed above).
Subcontracting
Data from the web-based data collection tool revealed substantial ex-
perience with the use of subcontractors for work both for CMS and for
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STRUCTURE AND FINANCES 181
Core Contract
As of December 2004, estimated obligations for the core contract of the
7th SOW (Tasks 1 to 3 plus information and contractual costs) were $790.1
million, which represents approximately 68 percent of the entire QIO pro-
gram budget (personal communication, C. Lazarus, March 17, 2005). (Note
that the totals differ from those presented in Table 7.6 because of slight
differences in the breakdowns of estimated budgets and estimated obliga-
tions prepared at different times during the 7th SOW.) The core contract
funds distributed to the QIOs are indicated in Table 7.7.
For Task 1 of the 7th SOW, QIO expenditures for statewide work
accounted for approximately two-thirds of the total expenditures for each
of the subtasks related to the nursing home (69 percent), home health
(67 percent), and hospital (67 percent) settings (CMS Dashboard, 12/19/
05). In the hospital setting during the 7th SOW, QIOs only worked at the
statewide level. While the majority of the total expenditures went toward
these statewide-level activities, work with the identified participants was
more intense with fewer providers. For example, as shown in Table 7.8,
QIO work with nursing homes in the 7th SOW had a monthly cost of
$170.97 for each provider in the state or jurisdiction. (This includes both
TABLE 7.7 Core Contract Obligations During the 7th SOW
(as of December 2004)
Estimated Obligations Percentage of
Task (millions) Core Contract
Task 1 (quality improvement activities) $449.0 56.8
Task 2 (communications) $104.2 13.2
Task 3 (case review) $161.7 20.5
Task 3a (beneficiary complaints) $45.5 5.8
Task 3b (Hospital Payment
Monitoring Program) $41.2 5.2
Task 3c (other case review) $75.0 9.5
Information services $50.4 6.4
Contractual requirements $24.8 3.1
7th SOW total core contract $790.1 100.0
NOTE: Calculations are approximate and were done by the IOM committee on the basis of
CMS data.
SOURCE: Personal communication, C. Lazarus, March 17, 2005.
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182 MEDICARE'S QUALITY IMPROVEMENT ORGANIZATION PROGRAM
TABLE 7.8 QIO Expenditures on Tasks 1a1d for the 7th SOW
Average Average
Actual Monthly Monthly
Cumulative Total Cost per Total Cost per
Cost (in Number of Provider Number of Identified
millions of Providers (nationwide)a,c Identified Participant
Task dollars)a (nationwide)b (in dollars) Participantsb (in dollars)a,d
1a 89.2 16,560 170.97 2,479 350.35
1b 56.7 2,595 211.40 1,405 132.07
1c 87.3 N/A 581.48 NA NA
1d 105.9 209,349 15.89 10,463 71.18
NOTE: NA = not applicable; N/A = not available.
aData current as of August 2, 2005, calculated from cumulative QIO invoices.
bData current as of October 9, 2003.
cCalculated as cumulative cost divided by total number of providers (nationally) divided by
number of invoices.
dCalculated as costs associated with work with identified participants divided by the num-
ber of identified participants divided by the number of invoices.
SOURCE: CMS Dashboard (accessed December 19, 2005).
state-level and identified participant activities, and is calculated per pro-
vider for the total number of providers in the state or jurisdiction.) How-
ever, the QIOs' focused work with a subset of nursing homes cost $350.35
per identified participant, even though this work only accounted for 31 per-
cent of total expenditures for this subtask. These data are significant since
statewide work accounted for the majority of the total expenditures, but
work with identified participants for nursing homes and physicians' offices
had higher expenditures per provider. In contrast, in the home health set-
ting, the cost per provider was higher for all providers statewide overall
than for identified participants. In the 7th SOW, QIOs did not work with
identified participants in the hospital setting.
In the web-based data collection tool, the core contract accounted for a
highly variable percentage of the total revenues for each organization hold-
ing a QIO contract for the 7th SOW and ranged from 16 to 100 percent.
However, as shown in Table 7.9, 17 of 39 reporting organizations related
that the core contract accounted for at least 70 percent of their total
revenues.
As of May 2005, the core contract budget for the 8th SOW was $860
million (personal communication, D. Adler, May 23, 2005). However, as
discussed in Chapter 12, the Medicare, Medicaid, and SCHIP Benefits Im-
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STRUCTURE AND FINANCES 183
TABLE 7.9 Percentage of Total Revenue from the Core
Contract of the 7th SOW
Total Proportion of Revenue Number of Organizations,
from Core Contract Holding QIO Contracts for the 7th SOW
<10 percent 0
1019 percent 1
2029 percent 4
3039 percent 6
4049 percent 4
5059 percent 4
6069 percent 3
7079 percent 6
8089 percent 5
9099 percent 4
100 percent 2
SOURCE: IOM committee web-based data collection tool (n = 39 organiza-
tions).
provement and Protection Act (P.L. 106-554) (BIPA) of 2000 requires QIOs
to perform a new type of review (BIPA reviews) in the 8th SOW. Funding
for these reviews is estimated to be $125 million for the budget for the 8th
SOW (personal communication, D. Rimel, March 3, 2006). As opposed to
other core contract activities, funding designated for BIPA reviews may not
be reallocated to other activities. Therefore, when $125 million is subtracted
from the $860 million allocation, there is, in essence, a reduction in funding
for core activities during the 8th SOW.
Special Studies3
At CMS, the Office of Clinical Standards and Quality's Science Council
formulates developmental study priorities and criteria for consideration of
special study proposals (personal communication, C. Lazarus, March 17,
2005). CMS solicits proposals with a "call letter" to Central and Regional
Office staff. Project Officers also send the letter to individual QIOs. Indi-
vidual QIOs may propose unsolicited special studies on the basis of
individual interests or state needs, but most special studies arise as a result
of solicitation by CMS. When multiple QIOs submit proposals for a CMS-
3The information in this section was provided by CMS. Costs are estimated as of April 29,
2004.
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184 MEDICARE'S QUALITY IMPROVEMENT ORGANIZATION PROGRAM
solicited special study, the council sets the criteria for evaluation of the
proposals. Final project approvals are based on priorities and review crite-
ria, budget analysis, and an assessment of the QIO's capability. All propos-
als are considered and voted upon by the Special Studies Review Panel.
In the 7th SOW, as of March 2005, estimated obligations for special
studies totaled $63.8 million, which represents approximately 5.5 percent
of total program costs (personal communication, C. Lazarus, March 17,
2005). At that time 72 special projects were under way, and more than
one state was involved in 11 of those studies (see Table A.4 in Appen-
dix A). Twenty-seven QIOs participated in at least one special study. Of
the states with special studies, seven states were involved in only one
study and nine states participated in four or more special studies. Two
states (Colorado and Maryland) were involved in nine studies each. The
amount of funding for individual studies ranged from $10,491 for a con-
tinuing medical education project to $11.0 million for the Doctor's Office
Quality-Information Technology pilot project (personal communication,
C. Lazarus, March 17, 2005).
Historically, QIOs have shared the results of these studies by routine
information-sharing methods (such as e-mail lists), as well as through pre-
sentations at national and regional conferences. CMS is currently develop-
ing a specific area on its internal website, QIONet (see Chapter 13), on
which it will list current studies, including the topic, contact information,
and periodic updates (personal communication, R. W. Nelson, June 10,
2005). In the long term, CMS is exploring options to make this information
even more accessible and will provide the information at various levels of
accessibility. This would allow Project Officers to monitor projects online
and would also allow the public access to basic information. CMS also
hopes to test other ways in which QIOs doing studies can share their infor-
mation with other QIOs.
Support Contracts
Support contracts contribute to the operations of the QIO program but
are not directly a part of the core contract (Tasks 1 to 4). These contracts
are usually awarded to organizations not holding QIO contracts. Estimated
obligations for support contracts in the 7th SOW (as of April 2004) were
$243.5 million, or approximately 21.1 percent of the total QIO program
budget (personal communication, C. Lazarus, March 17, 2005). In the 7th
SOW, 52 support contracts (see Table A.4a in Appendix A) ranged in cost
from $20,000 for a collaboration with the American Medical Association
for the Doctor's Office QualityInformation Technology project to $50.2
million for the Clinical Data Abstraction Centers (personal communica-
tion, C. Lazarus, March 17, 2005). Other large contracts included $31.0
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STRUCTURE AND FINANCES 185
million for the Standard Data Processing System and $33.4 million for the
Consumer Assessment of Health Plans Survey.
The CMS Financial Management Investment Board (FMIB) oversees
certain types of spending for CMS, including the funding of the support
contracts of the QIO program, and consists of one member from each of-
fice of CMS's Central Office and one member from each Regional Office.
A QIO Support Small Group assists with the review and prioritization of
support activities and projects at the beginning of each budget cycle (per-
sonal communication, C. Lazarus, March 17, 2005). This group consists
of FMIB members along with representatives from the Central Office and
the Regional Offices. Support projects are funded every 3 years, in con-
cert with the SOW cycle. Once the priorities of the support activities are
set, CMS uses the same process used in special studies to solicit proposals
with call letters. This letter goes out at the beginning of each SOW and
seeks projects to help meet the predetermined priorities and goals. When
reviewing individual project proposals, FMIB considers how the project
supports the QIO program and whether the proposed resources are ap-
propriate. Information technology investments are considered separately
under the Information Technology Investment Review Process. All pro-
posed projects are then categorized and prioritized according to the need
for funding. After a 3-year budget target is developed, the QIO Support
Small Group considers the requests and proposes a plan to FMIB. The
group aims to meet most of the priority needs. After FMIB approval, the
FMIB chair presents the planned budget to the CMS Executive Council
for final approval. Most funded projects have existed in previous SOWs
and continue to support the QIO program as a whole (personal communi-
cation, C. Lazarus, March 17, 2005).
QIO Program Activities and Revenues Not Related to Core Contract
QIOs can receive funding from CMS to finance non-core contract ac-
tivities, such as QIOSCs and special studies (as described above). For the
7th SOW, the estimated obligations for these activities (as of April 2004)
totaled about $130.8 million, or approximately 11.3 percent of the total
program budget. Of this, about $67.0 million (5.8 percent) was for activi-
ties that supported the core contract (such as QIOSCs), not including spe-
cial studies or support contracts (personal communication, C. Lazarus,
March 17, 2005).
Non-CMS Activities and Revenues
QIOs may serve both CMS and non-CMS clients. This section presents
the results from the web-based data collection tool, which asked all 53
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186 MEDICARE'S QUALITY IMPROVEMENT ORGANIZATION PROGRAM
individual QIOs about their non-CMS work activities and all organizations
holding QIO contracts for the 7th SOW about their revenues from non-
CMS federal sources and nonfederal sources.
Non-CMS Activities
Aside from work on the QIO core contract and other CMS work (such
as special studies or QIOSCs), many QIOs perform duties for non-CMS
clients. When the 53 QIOs responded to questions on the web-based data
collection tool about their work for non-CMS clients, they reported strong
experience with data collection, management, and analysis; project man-
agement; and record abstraction and review. Their activities included the
services indicated in Table 7.10 within and outside of their home states.
Forty-nine QIOs reported on their 3-year strategic plans for services to
non-CMS clients. Of the 20 types of specific services that the QIOs were
asked about (Table 7.11), all were included in the strategic plans of six or
more organizations. The planned activities again showed a predominance
of data-related activities, record reviews, and project implementation.
Other Federal Sources of Revenue
In the web-based data collection tool, 26 of 40 reporting organizations
holding QIO contracts for the 7th SOW related that they had received no
revenue from federal grants or contracts other than from CMS during the
7th SOW. Ten reported that non-CMS federal grants or contracts accounted
for less than 20 percent of their total revenues, two reported that it totaled
20 to 30 percent of their total revenues, and one stated it accounted for just
under 40 percent of its total revenue. During this period, only one organiza-
tion indicated that it had received more than half (55 percent) of its total
revenue from non-CMS federal grants and contracts.
Nonfederal Sources of Revenue
Table 7.12 details the nonfederal revenue sources for the organizations
holding QIO contracts for the 7th SOW, as reported via the web-based data
collection tool. State agencies, including Medicaid, were the sources of funds
for many QIOs.
Total Revenue (All Lines of Work)
Table 7.13 illustrates the range of total revenues (from all sources) for
organizations holding QIO contracts for the 7th SOW. The total amounts
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STRUCTURE AND FINANCES 187
TABLE 7.10 Services by QIOs for Non-CMS Clients During the 7th
SOW
Number Percentage
Number Percentage of QIOs of QIOs
of QIOs of QIOs Doing This Doing This
Doing This Doing This Work in Work in
Work in Work in Another Another
Type of Work Own State Own State State(s) State(s)
Data analysis 43 81.13 25 47.17
Quality improvement projects or 40 75.47 22 41.51
consulting
Medical necessity reviews 39 73.58 29 54.72
Medical record abstraction 37 69.81 24 45.28
Independent external review 34 64.15 25 47.17
Utilization management 32 60.38 23 43.40
Data management 31 58.49 19a 35.85
Diagnosis-related group coding and 29 54.72 18 33.96
validation
Project management 27 50.94 16 30.19
Continuing education 26 49.06 12 22.64
Health or clinical services research 25 47.17 1b 1.89
HEDIS-related activities 21 39.62 13a 24.53
Software development 21 39.62 12a 22.64
Claims validation 20 37.74 10 18.87
Service to public reporting efforts 17a 32.08 6a 11.32
Consumer and patient surveys 17 32.08 7 13.21
Fraud and abuse investigation 15 28.20 6 11.32
Other 14a 26.42 13a 24.53
Case management 11 20.75 10 18.87
Disease management 11 20.75 13 24.53
Health information exchange networks 10 18.87 5 9.43
Facility accreditation 8 15.09 3 5.66
Credentialing 7 13.21 4 7.55
Discharge planning 7 13.21 6 11.32
NOTE: HEDIS = Health Plan Employer Data and Information Set.
aOne respondent selected "prefer not to answer/information not available."
bEight respondents selected "prefer not to answer/information not available."
SOURCE: IOM committee web-based data collection tool (n = 53 QIOs).
ranged from less than $10 million to more than $200 million. However, the
majority of reporting organizations (35 of 39) declared that their total rev-
enues were less than $70 million, and most (28 of 39) had total revenues of
less than $40 million.
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188 MEDICARE'S QUALITY IMPROVEMENT ORGANIZATION PROGRAM
TABLE 7.11 Planned Services by QIOs for Non-CMS Clients
Number Percentage
Reporting Reporting
Planned Service Plans Plans
Quality improvement projects and consulting 45 91.84
Medical necessity reviews 43 87.76
Data analysis 42 85.71
Independent external review 41 83.67
Medical record abstraction 39 79.59
Data management 35 71.43
Diagnosis-related group coding and validationa 35 71.43
Utilization management 34 69.39
Project management 33 67.35
Health and clinical services research 30 61.22
Continuing educationa 29 59.18
Health information exchange network services 27 55.10
Claims validation 24 48.98
Surveys (of providers and consumers) 24 48.98
Software development 23 46.94
Disease management 22 44.90
HEDIS-related servicesa 19 38.78
Fraud and abuse investigationa 13 26.53
Professional credentialing servicesa 10 20.41
Facility accreditation servicesa 6 12.24
NOTE: HEDIS = Health Plan Employer Data and Information Set.
aFor a few service types, one reporting organization indicated that its subsidiary would
provide the indicated service(s) in its own state.
SOURCE: IOM committee web-based data collection tool (n = 49 QIOs).
SUMMARY
This chapter has discussed issues related to the overall structure and
financing of the QIO program. The following are some of the main themes
of this chapter, which are reflected in the finding and conclusions presented
in Chapter 2:
· Some of the structural requirements are based on outdated priorities
(such as the physician-access and physician-sponsored designations and con-
fidentiality requirements) or are tied to their current case review activities
(as is the case for the conflict-of-interest rules). Confidentiality restrictions
prohibit sharing of data and current regulations are antagonistic to the qual-
ity improvement process.
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STRUCTURE AND FINANCES 189
TABLE 7.12 Sources of Nonfederal Revenue in the 7th SOW
Number Total Number of
Reporting Organizations Responding
Source "Yes" to This Questiona
Medicaid program, own state 26 37
Other state agencies, own state 20 34
Medicaid programs, other states 14 32
Managed care organizations 12 32
Other private-sector health care organizations 12 30
Other private-sector non-health care organizations 8 34
Universities or colleges 7 28
Hospitals 7 30
State or local foundations 4 27
Local governments, own state 3 27
National foundations 3 28
Nursing homes 1 26
Physicians or physicians' groups 1 27
aDepending on the source, 4 to 15 organizations chose not to report on the source(s) of their
nonfederal revenues.
SOURCE: IOM committee web-based data collection tool.
TABLE 7.13 Range of Total Revenues for
Organizations Holding QIO Contracts for the
7th SOW
Total Revenue (millions) Number of Organizations
< $10 4
$1020 10
$2030 9
$3040 5
$4050 1
$5060 4
$6070 2
$7080 0
$8090 1
$90100 0
$100200 2
>$200 1
SOURCE: IOM committee web-based data collection tool
(n = 39 organizations).
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190 MEDICARE'S QUALITY IMPROVEMENT ORGANIZATION PROGRAM
· The governing boards of QIOs, in general, lack a broad representa-
tion by individuals with different areas of expertise and are especially defi-
cient in their consumer representation. Also, the boards lack key commit-
tees likely to enhance their guidance and lack transparency about their
compensation.
· Most organizations holding QIO contracts for the 7th SOW have
acted as QIOs (or their predecessor organizations) for many years, with
few contracts changing hands across the country with each new SOW. Al-
most all organizations were created to serve in this role, and almost all
hold not-for-profit status. Almost every QIO had at least one staff person
with a long length of employment, representing institutional and histori-
cal knowledge of the program. QIOs demonstrate substantial experience
with subcontracting.
· QIOSCs serve the QIOs as central sources of information on core
contract tasks, acting as a communications link to disseminate information
and develop universal task materials. Overall, however, the QIOs believe
that the assistance provided by the QIOSCs was not timely enough and that
the QIOSCs were hindered from being innovative.
· The QIO program's budget is small relative to total Medicare spend-
ing on services (0.10 percent), and it is distributed to cover a large variety of
tasks. About two-thirds of the total budget goes toward core contract
activities.
· In the past, information about special studies has been relatively in-
accessible to all QIOs, but CMS plans to share this information more widely
in the future. CMS proposes most of the special studies; few of the special
studies arise from unsolicited proposals by QIOs.
· Many QIOs perform a wide variety of services for multiple clients;
these are mostly concentrated on data-related activities, record reviews, and
quality improvement project implementation. However, the majority of or-
ganizations holding QIO contracts for the 7th SOW (24 of 39) said that the
core contract accounted for more than half of their total revenues.
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Representative terms from entire chapter:
identified participants
