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Health maintenance organization
A Health Maintenance Organization (HMO) is
a type of Managed Care Organization (MCO) that provides a form
of health insurance through hospitals, doctors, and other providers
with which the HMO has a contract. Unlike traditional indemnity
insurance, coverage under an HMO is limited to a comprehensive
list of pre-defined services provided by the HMO's network of
contracted providers. Under this model, providers enter a contract
with an HMO in order to recieve more patients and in return
usually agree to provide services at a discount. This arrangement
allows the HMO to lower its monthly premiums, offering an advantage
over indemnity insurance, provided that its members are willing
to abide by the additional restrictions.
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 unecessary services. To acheive
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 unusally high amount of services, in which case some services
may not be medically necessary, or an unusally 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 existance, 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.
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 consired 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 bough 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 Maintaince Organization Act in 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.
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 malpratice
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.