Konya Medical Services

What is a Health Maintenance Organization?

State Health Education Specialist, University of Missouri Extension

Health Maintenance Organizations (HMOs) are only one of many types of managed care arrangements. However, it is one of the oldest forms of managed care. Some describe it as "pure" managed care. If the different types of managed care were placed along a continuum. Managed indemnity plans, which are very similar to conventional insurance, would be at one end. At the other end would be HMO's. As one moves toward the HMO end of the continuum, the organizations becomes more complex and have higher operating costs. However, more emphasis is placed on prevention and quality of care. There is also more opportunity to control health care costs in HMOs than in indemnity plans.

Individuals who join an HMO are considered members. Typically HMOs provide members with comprehensive health care. When someone joins an HMO, they select a primary care physician from the list provided by the HMO. That primary care physician coordinates all of that member's medical care. If care by a specialist is needed, the primary care physician will refer the member to a specialist who is usually also in the HMO network. In an HMO, physicians may be employees of the HMO or the HMO may contract with independent physicians to provide care. Members who go outside of the network to receive care (unless given prior approval) will probably pay all or most of the cost of that care out of their own pockets.

HMOs use a "capitated" financing system. Care is provided to each member of the plan for a fixed amount. Typically, an employer contracts with an HMO to provide care for its employees and pays this fixed charge. If you are part of a Medicare HMO, than Medicare pays the fee. Some HMOs also charge individuals a small $5 to $10 co-payment for each visit. If the HMO is efficient and keeps its members healthy, it will make a profit. If it has too many members who require costly sick care, its profits are smaller or it may lose money. Remember under a "capitated system", the HMO is paid a fixed amount per person rather than for each visit or by type of service.

What is an HMO?

HMO's are both insurers and health care providers. They accept responsibility for a specific set of health care benefits offered to customers and provide those benefits through a network of physicians and hospitals.

Many people today are using HMO's. According to a New York Times article (Freudenheim, M. "Health Care in the Era of Capitalism," New York Times, April 2, 1996), an estimated 58 million Americans are enrolled in HMO's, and another 81 million are enrolled in other types of managed care. A July 8, 1996 Reuter's article says that more than 4 million Medicare beneficiaries and 12 million Medicaid recipients are in HMO's and other managed-care plans.

Staff model HMO's own and operate physician-staffed health centers that offer a broad range of medical care including laboratory, x-ray, vision, and pharmacy services.

Group practice HMO's contract with medical groups to provide health services to HMO members.

Independent Practice Associations (IPAs) are HMOs that contract with individual physicians.

How does Medicare provide services through HMO's?

HMO's that contract with Medicare are obliged to offer at least as much coverage as the traditional Medicare fee-for-service policy does. As an HMO member, you will probably be given the opportunity to choose a primary care physician. That physician will be in charge of your care, and will refer you to specialists if necessary.

How is Medicare HMO coverage better than Medicare fee-for-service coverage?

These are a number of possible benefits:

• Preventative Care. Insurance companies generally pay for medical services only upon illness or injury. HMO's are supposed to provide medical services that prevent illness or injury, making medical care both higher in quality and cheaper in the long run. One example is physicals: HMO's often require that members undergo physicals; traditional Medicare fee-for-service usually refuses to pay for physicals.

• Broader health coverage. HMO's sometimes offer more services and broader coverage than Medicare policies, even when those policies are supplemented with Medigap insurance. For instance, many HMO's provide dental and routine eye care.

• HMO's require less paperwork than Medicare insurance.

How is Medicare HMO coverage worse than Medicare fee-for-service?

HMO members face a number of restrictions:

• Members must live in the HMO service area.

• Members must use a primary care physician who belongs to the HMO, and often will not be granted access to a specialist without this physician's recommendation.

• Members may not be able to get their HMO's to provide them elective medical services, or may face delays for those services greater than under a traditional fee-for-service plan.

What is the debate over HMO's versus traditional fee-for-service all about?

You can probably see why industry, government organizations, and citizens might argue about the benefits and drawbacks of HMO's. During the past several years, this debate has grown quite heated. Critics of HMO's say that HMO's do not focus on preventative medicine as much as they should, and make large profits by restricting patient access to the services of medical specialists. HMO supporters counter that HMO's are focused on preventative medicine and do offer reasonable access to medical specialists.

One often-cited study (at least on the Internet) seems to indicate that fee-for-service (FFS) care is better than managed care for seniors. 2,235 chronically ill patients in Boston, Chicago and Los Angeles participated in a four-year study in which they reported they had worse physical outcomes when treated in HMO's than in FFS care.

HMO's and voices from industry, however, argue that the study is unreliable because participants rendered judgments on their own health. These critics said the study would have been more objective and accurate if physicians, and not participants, had reported the change in health.

Are there any organizations that rate the quality of HMO's?

Yes. The National Committee for Quality Assurance (NCQA) accredits HMO's and releases "report cards" on them. The accreditations and report cards take into consideration, among other things, the quality of doctor accreditations, the strength of prevent ion programs, the vigilance of quality management, and the satisfaction of HMO members with the service they receive. Because these consumer reports on HMO care have only recently begun, not all HMO's in the U.S. have been rated by NCQA. (See the bottom of this page for access to the NCQA Web site.)

Other sources of information on HMO quality include the California Department of Corporations (puts out a complaint data report and a list of California-licensed HMO's), the Health Care Financing Administration of the U.S. Department of Health and Human Services, and business and consumer groups.

What legal protections exist against HMO malpractice?

About 35 states have enacted legislation to protect consumers from HMO's. This legislation has included minimum requirements for access and quality of care to be provided. Some of the most aggressive HMO legislation is in New Jersey and Minnesota.

In California, the Department of Corporations is responsible for regulating HMO's. People with grievances against a California HMO should get in contact with the health division of the Department of Corporations to have their complaints addressed. (See the bottom of this page for access to their Web site.)

According to an article in the Chicago Tribune, however, even the most effective state legislation may not protect many Americans. Federal legislation prohibits states from regulating companies with 40 or more employees that are self-insuring.

What should I consider when joining an HMO?

The following HMO features should be kept in mind, according to the National Committee for Quality Assurance:

• Coverage. Most plans cover similar benefits, but the differences are in the details. Look at areas like mental health, home care, or chiropractic care, or anything that is particularly important to you.

• Choice. Is there a certain doctor you'd like to choose either for routine care or specialty care? Do you have a favorite hospital? Some plans might not include your preferences. If not, are the other choices acceptable to you? Some plans offer a "point-of-service" program that lets you get care from doctors or hospitals that are not part of the plan's network, but you'll pay more for it.

• Convenience. You probably want a plan that has doctors located near your home or office. But for you, convenience might also mean that it's easy to get pre******ions filled, or that evening and weekend appointments are available.

• Cost. You will pay all or part of the premium directly or through payroll deduction, and a visit fee, or co-payment, whenever you get care. If your coverage is through your employer, your benefits manager can tell you what your portion of the premium will be. If you are in a Medicare managed care plan, there may be no premium.

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 the field of their 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 covered. Experimental treatments and elective services that are not medically necessary (such as elective plasti  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.

Some critics regard HMOs as monopolies that distort the market for health care.