Health Maintenance Organizations
A Health Maintenance Organization (HMO) is a type of Managed Care Organization (MCO) that provides a form of health insurance coverage that is fulfilled through hospitals, doctors, and other providers with which the HMO has a contract. Unlike traditional indemnity insurance, care provided in an HMO generally follows a set of care guidelines provided through the HMO's network of providers. Under this model, providers contract with an HMO to receive more patients and in return usually agree to provide services at a discount. This arrangement allows the HMO to charge a lower monthly premium, which is an advantage over indemnity insurance, provided that its members are willing to abide by the additional restrictions.
Operation
In addition to using their contracts with providers for services at a lower
price, HMOs hope to gain an advantage over traditional insurance plans by
managing their patients' health care and reducing unnecessary services. To
achieve this, most HMOs require members to select a primary care physician
(PCP), a doctor who acts as a "gatekeeper" to medical services. PCPs are usually
internists, pediatricians, family doctors, or general practitioners. In a
typical HMO, most medical needs must first go through the PCP, who authorizes
referrals to specialists or other doctors if deemed necessary. Emergency medical
care does not require prior authorization from a PCP, and many plans allow women
to select an OB/GYN in addition to a PCP, whom they may see without a referral.
In some cases, a chronically ill patient may be allowed to select a specialist
in field of the illness as a PCP.
HMOs also manage care through utilization review. The amount of utilization is
usually expressed as a number of visits or services or a dollar amount per
member per month (PMPM). Utilization review is intended to identify providers
providing an unusually high amount of services, in which case some services may
not be medically necessary, or an unusually low amount of services, in which
case patients may not be receiving appropriate care and are in danger of
worsening a condition. HMOs often provide preventive care for a lower copayment
or for free, in order to keep members from developing a preventable condition
that would require a great deal of medical services. When HMOs were coming into
existence, indemnity plans often did not cover preventive services, such as
immunizations, well-baby checkups, mammograms, or physicals. It is this
inclusion of services intended to maintain a member's health that gave the HMO
its name. Some services, such as outpatient mental health care, are often
provided on a limited basis, and more costly forms of care, diagnosis, or
treatment may not be not covered. Experimental treatments and elective services
that are not medically necessary (such as elective plastic surgery) are almost
never covered.
Other methods for managing care are case management, in which patients with
catastrophic cases are identified, or disease management, in which patients with
certain chronic diseases like diabetes, asthma, or some forms of cancer are
identified. In either case, the HMO takes a greater level of involvement in the
patient's care, assigning a case manager to the patient or a group of patients
to ensure that no two providers provide overlapping care, and to ensure that the
patient is receiving appropriate treatment, so that the condition does not
worsen beyond what can be helped.
HMOs often shift some financial risk to providers through a system called
capitation, where certain providers (usually PCPs) receive a fixed payment per
member per month and in return provide certain services for free. Under this
arrangement, the provider does not have the incentive to provide unnecessary
care, as he will not receive any additional payment for the care. Some plans
offer a bonus to providers whose care meets a predetermined level of quality.
History
The earliest form of HMOs can be seen in a number of prepaid health plans. In
1910, the Western Clinic in Tacoma, Washington offered lumber mill owners and
their employees certain medical services from its providers for a premium of
$0.50 per member per month. This is considered by some to be the first example
of an HMO. In 1929, Dr. Michael Shadid created a health plan in Elk City,
Oklahoma in which farmers bought shares for $50 to raise the money to build a
hospital. The medical community did not like this arrangement and threatened to
suspend Shadid's licence. The Farmer's Union took control of the hospital and
the health plan in 1934. Also in 1929, Baylor Hospital provided approximately
1,500 teachers with prepaid care. This was the origin of Blue Cross. Around
1939, state medical societies created Blue Shield plans to cover physician
services, as Blue Cross covered only hospital services. These prepaid plans
burgeoned during the Great Depression as a method for providers to ensure
constant and steady revenue.
In 1970, the number of HMOs declined to less than 40. Paul Ellwood, often called
the "father" of the HMO, began having discussions with what is today the U.S.
Department of Health and Human Services that led to the enactment of the Health
Maintenance Organization Act of 1973. This act had three main provisions:
Grants and loans were provided to plan, start, or expand an HMO
Certain state-imposed restrictions on HMOs were removed if the HMOs were
federally certified
Employers with 25 or more employees were required to offer federally certified
HMO options alongside indemnity upon request
This last provision, called the dual choice provision, was the most important,
as it gave HMOs access to the critical employer-based market that had often been
blocked in the past. The federal government was slow to issue regulations and
certify plans until 1977, when HMOs began to grow rapidly. The dual choice
provision expired in 1995.
The largest HMO today is Kaiser Permanente, with 8.3 million members in nine
states and the District of Columbia. Kaiser Permanente is structured into eight
regional units; the organization's largest unit, the Northern California unit,
is itself larger than any other HMO in the country.
Starting in 1990, Switzerland has founded several HMOs which at the moment
include some 10 percent of the Swiss population. The percentage would be much
higher if there were HMOs in all regions. This is not possible because there are
mountainous regions where the population density is too low.
Types of HMOs
HMOs operate in a variety of forms. Most HMOs today do not fit neatly into one
form; they can have multiple divisions, each operating under a different model,
or blend two or more models together.
In the staff model, physicians are salaried and have offices in HMO buildings.
In this case, physicians are direct employees of the HMOs. This model is an
example of a closed-panel HMO, meaning that contracted physicians may only see
HMO patients.
In the group model, the HMO does not pay the physicians directly, but pays a
physician group. The group then decides how to distribute the money to the
individual physicians. This model is also closed-panel.
Physicians may contract with an independent practice association (IPA), which in
turn contracts with the HMO. This model is an example of an open-panel HMO,
where a physician may maintain his own office and may see non-HMO members.
In the network model, an HMO will contract with any combination of groups, IPAs,
and individual physicians.
Legal responsibilities
HMOs often have a negative public image due to their restrictive appearance.
HMOs have been the target of lawsuits claiming that the restrictions of the HMO
prevented necessary care. Whether an HMO can be held responsible for a
physician's negligence partially depends on the HMO's screening process. If an
HMO only contracts with providers meeting certain quality criteria and
advertises this to its members, a court may be more likely to find that the HMO
is responsible, just as hospitals can be liable for negligence in selecting
physicians. Since the HMO controls only the financial aspect of providing care,
not the medical aspect, it is often insulated from malpractice lawsuits. The
Employee Retirement Income Security Act (ERISA) can be held to preempt
negligence claims as well. In this case, the deciding factor is whether the harm
results from the plan's administration or the provider's actions.
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