The impact of healthcare reform on HMO administrators

Over the years, congressional legislation toward healthcare reform has evolved, moving toward channeling indigent populations into managed care plans. Health Maintenance Organizations (HMOs) will have to respond to increased competition caused by this shift enrollment as each entity attempts to funnel these patients into its own provider network. It is likely that some HMOs may bid too low when contracting for patients, putting these organizations at risk for financial insolvency. This paper discusses the impact of Medicaid waivers on HMO administrators. HMO executives need to develop a strategy for monitoring the financial integrity and contractual performance of new and existing HMOs in light of changes taking place with respect to healthcare reform. The transition to managed care and the shift in enrollment pose many challenges for directors of HMOs as will be discussed by analyzing lessons learned from Medicaid managed care plans in Arizona and Oregon.     

Trends in health care financing: opportunities for family planning agencies

In response to spiraling health care costs in the US, several alternative health care delivery systems have evolved. The delivery of subsidized family planning services in particular is being affected by declining levels of government support. The most rapidly growing of alternative delivery systems is the health maintenance organization (HMO). HMOs provide a voluntarily enrolled population a guaranteed, specific range of physician and hospital services in return for a fixed periodic payment. There are 3 types of HMO: the group model, in which doctors are members of a partnership or service corporation that contracts with employers or individuals to provide medical services; the taff model, in which physicians are direct employees of the HMO; and the independent practice association (IPA) model, a physicians' group that enters into a contract with an HMO and receives reimbursement for every patient seen. In 1986, over 21 million Americans were enrolled in approximately 262 HMOs around the country. HMOs are unequaled in their success at reducing hospital utilization; they have achieved savings of hospital costs of 20-40%. Another system for delivering and financing health care is the preferred provider organization (PPO) under which patients are assigned to a designated panel of health care providers who offer services according to a discounted fee schedule. New hybrid systems that combine many of the features of both systems are emerging. Most of the newly organized health care delivery systems described focus on utilization control and keeping costs down. A common way of ensuring coordinated health care delivery is through primary care case management. To initiate or establish relationships with HMOs or other health care delivery systems, family planning agencies should consider such activities as: undertaking surveys to study the market; training new employees on developments in health care financing; and recruiting board members with HMO experience.     

Patient satisfaction under managed care

PURPOSE: In the USA, health maintenance organizations (HMOs) have pledged to control health care costs. Many patients have complained about the quality of care under the HMO regime and limits imposed on them, particularly access to care. Has quality of care been degraded under the HMO regime, resulting in an impact on patient satisfaction? There have been many studies that have compared the satisfaction of HMO patients with that of patients in the traditional fee-for-service payment system. The aim of this paper is to review HMO patient satisfaction. DESIGN/METHODOLOGY/APPROACH: A review of patient satisfaction under managed care arrangements with a focus on HMOs. The article describes the US history of managed care and its effect on the satisfaction of several patient categories including the general population, vulnerable patients and the elderly. FINDINGS: There is much information available on patient satisfaction with their insurers and most surveys indicate the lack of choice of a provider--a major source of discontent. Therefore, patient protection laws are necessary to avoid abuse. ORIGINALITY/VALUE: Patients have little ability or are not willing to rely on the information available when selecting a provider. The paper discusses patient awareness regarding satisfaction surveys and how the latter can be used when patients are seeking care.     

United Health Care of North Carolina

Physicians. While many of the rural physicians interviewed in North Carolina would prefer not to deal with HMOs at all, they are generally positive about their relationships with United Healthcare of North Carolina. These physicians chose to contract with the HMO to obtain new patients and to retain existing patients. They are satisfied that their participation has accomplished these goals. Their reimbursement arrangements are easy to understand, and most view the payment amounts as satisfactory. The physicians regard the size of the HMOs provider network and the open-access structure of the HMO as positive features that allow them to make referrals without the restrictions imposed by some other HMOs. To date, participation in United Healthcare of North Carolina has imposed few burdens on rural physicians. They are reimbursed on a fee-for-service basis, and their financial risk has been limited. They do not perceive that the HMO has had a significant impact on the way they practice medicine. This situation may change in the future if enrollees from United Healthcare of North Carolina and other HMOs constitute a greater proportion of their practices and if these HMOs move toward capitated reimbursement. The attitudes of rural physicians toward United Healthcare of North Carolina also may change if the HMO attempts to more actively manage the care provided to its enrollees. United Healthcare of North Carolina plans to eliminate physician risk sharing (in the form of withholds) and replace it with bonus payments. As one HMO executive said, the plan wants to “put incentives where they belong.” If rewarding good performance instead of punishing poor performance yields intended consequences, it may provide United Healthcare of North Carolina with a competitive advantage in rural areas. First, because such a change offers an opportunity to augment a physician's income instead of diminishing it, physicians might prefer to contract with the HMO rather than with other HMOs. Second, because bonus payments depend on performance, United Healthcare of North Carolina providers may produce outcomes that allow reductions in premium prices or expansions of benefits compared with the HMOs competitors. Hospitals. Rural hospitals cited similar motivations (attracting and retaining business) for participating in United Healthcare of North Carolina and similar levels of satisfaction with their relationships. In their experiences, the HMO has been fair in its negotiations and reimbursement. Although they contract with multiple HMOs, these rural hospitals do not perceive that HMO participation has had a significant impact on hospital operations. Because these hospitals, like many rural hospitals, rely heavily on Medicare (and, to a lesser degree, on Medicaid) as revenue sources, the future impact of managed care on their operations will depend in large part on the extent to which significant proportions of their Medicare and Medicaid patients enroll in HMOs.     

Contractual arrangements between residency programs and HMOs.

BACKGROUND. Although one out of seven health maintenance organizations (HMOs) is directly involved in graduate medical education (GME), either as an accredited sponsoring organization or through a contractual agreement with an academic medical center or teaching hospital to serve as an ambulatory rotation site, relatively little is known about the extent to which HMOs have provider contracts with faculty or residents of GME programs. Such provider contracts are not agreements to collaborate on the education of residents, but rather contractual arrangements under which individual physicians or groups (who happen to be residents or faculty) agree to provide services to HMO enrollees in return for some form of compensation. METHODS. In 1990, the Group Health Association of America conducted a survey of a sample of residency training programs in family medicine, internal medicine, and pediatrics to ascertain the extent to which (1) residents and faculty of residency training programs are participating physicians in HMOs; and (2) HMO enrollees are serving as the patient base for GME in ambulatory settings. RESULTS. Overall, 42% of the residency program respondents indicated that they contract with HMOs to provide services to enrollees. Nearly two thirds (64%) of family practice programs have provider contracts as compared with 28% of pediatrics programs and 24% of internal medicine programs. Provider contracts with independent practice associations are by far the most common, followed by group, network, and staff model contracts, in that order. CONCLUSIONS. It is apparent that provider contractual arrangements between HMOs and primary care residency programs are quite common, especially in the area of family practice. These contractual arrangements have probably resulted in a more predictable and stable patient revenue base for residency programs. The long-term effects on provider practice styles and the financing of graduate medical education are less clear.     

Medical Associates HMO

Medical Associates HMO is based on a multi specialty group practice located in a small metropolitan area. That group practice regards the HMO as an important strategy for maintaining and increasing patient referrals. A substantial portion of the HMOs service area is rural; therefore, the HMOs relationships with rural providers are important because they affect its ability to attract enrollees from rural areas and, potentially, non-HMO referrals as well. During the past few years, the competition for patients and for HMO enrollees has intensified in the HMOs market area. A major challenge facing this HMO is how to protect and enhance its market share while maintaining constructive, cordial relationships with providers in surrounding rural areas.     

Health maintenance organizations: the beginning or the end?

This article describes the changes taking place in a mature HMO market that has been identified as a bellwether HMO community, the Minneapolis-St. Paul metropolitan area. We describe how this market--previously characterized by traditional HMOs and traditional fee-for-service plans--has been transformed within the past five years into a market with a variety of plans competing on the dimensions of premiums, provider choice, and coverage. Among the most significant changes are the evolution of the local Blue Cross and Blue Shield plan into a form resembling an individual practice arrangement (IPA) with broad coverage and broad provider choice, and the appearance of preferred provider plans sponsored by the HMOs. We suggest that such changes have blurred the distinction between health plan types, making traditional plan designations no longer valid for either health policy analysis or health services research. For example, studies contrasting the performance of HMOs and fee-for-service plans should concentrate instead on the various dimensions of these plans, such as coverage and openness of provider choice. The article is intended to stimulate discussion and to suggest a new framework for describing health plan competition.     

Mandatory HMO enrollment in Medicaid: the issue of freedom of choice

In areas where HMOs have enrolled a small proportion of the general population, physician participation is less in mandatory HMO programs for Medicaid beneficiaries than in fee-for-service Medicaid. But where HMOs have enrolled over one-quarter of the general population, participation rates are indistinguishable under the two systems. In those areas, mandatory enrollment restricts freedom of choice of provider. A plausible reason for this is that individual practice associations, which contract with large numbers of physicians with both fee-for-service and HMO patients, are becoming the lead form of HMO.     

Are HMOs bad for health maintenance?

This study examines the impact of Health Maintenance Organization (HMO) coverage on the provision of preventive medicine. We investigate whether any association reflects selection effects on the part of patients and/or physicians or a causal impact of managed care itself. Causal effects may occur on the supply side or the demand side. Using a large national database of Medicare and non-Medicare patients, we investigate these issues for eight common preventive medical procedures. We find that preventive care is substantially higher with HMO coverage than with traditional fee-for-service reimbursement. Our findings also suggest that the impact of HMOs on preventive medicine is a causal one, and does not merely reflect selection effects. Both supply-side (e.g. provider) and demand-side (e.g. patient) factors appear to play a role in the higher incidence of preventive care among HMO enrollees. Patient demand effects are stronger for simple treatments such as physicals, while supply-side effects seem to dominate for relatively complex preventive care procedures such as mammograms.     

Implications of HMOs for Rural Providers and Consumers

The impact of the six HMOs studied on rural providers has, to this point, been relatively small. To expand their provider networks in rural areas, the HMOs have been responsive to provider concerns, implementing payment arrangements and utilization management approaches that are acceptable to most rural providers. However, at some sites, changes in HMO and provider relations appear to be on the horizon. These changes include the acceptance of greater financial risk by rural providers and the more aggressive management of costs by the HMOs.
With respect to employers, the impact of HMOs have been largely positive. The presence of HMOs in the rural study areas has provided rural employers with new options for structuring health benefits programs. According to some rural employers, health insurance costs have been reduced, or at least constrained, as a result. Rural employers have dealt with employee concerns about access limitations by demanding that HMOs offer broad provider networks and products that permit the use of non-network providers subject to co-payments and deductibles.
The impact on rural employees, as evidenced by their responses as well as the views of their employers, has been mixed. Rural employees generally appreciate the broader benefit coverage offered by HMOs as well as reduced paperwork and, sometimes, lower required out-of-pocket contributions toward premiums.
However, as with their urban counterparts, rural employees are concerned about restrictions on access to providers of their choice and financial incentives in physician payment arrangements that may discourage the provision of services or the arrangement of referrals.     

Systems begin pruning HMOs from holdings. HMO/PPO survey data indicate more health plans may go on selling block

The conflicting pressures of owning provider networks and an HMO are pushing some multihospital systems into selling off their HMOs to focus on care delivery, data from Modern Healthcare's 1996 survey of HMOs and PPOs reveals.     

Social Health Maintenance Organizations: assessing their initial experience.

The Social/Health Maintenance Organization (S/HMO) is a four-site national demonstration. This program combines Medicare Part A and B coverage, with various extended and chronic care benefits, into an integrated health plan. The provision of these services extends both the traditional roles of HMOs and that of long-term care community-service case management systems. During the initial 30 months of operation the four S/HMOs shared financial risk with the Health Care Financing Administration. This article reports on this developmental period. During this phase the S/HMOs had lower-than-expected enrollment levels due in part to market competition, underfunding of marketing efforts, the limited geographic area served, and an inability to differentiate the S/HMO product from that of other Medicare HMOs. The S/HMOs were allowed to conduct health screening of applicants prior to enrolling them. The number of nursing home-certifiable enrollees was controlled through this mechanism, but waiting lists were never very long. Persons joining S/HMOs and other Medicare HMOs during this period were generally aware of the alternatives available. S/HMO enrollees favored the more extensive benefits; HMO enrollees considerations of cost. The S/HMOs compare both newly formed HMOs and established HMOs. On the basis of administrator cost, it is more efficient to add chronic care benefits to an HMO than to add an HMO component to a community care provider. All plans had expenses greater than their revenues during the start-up period, but they were generally able to keep service expenditures within planned levels.     

North Med HMO

NorthMed HMO is viewed by its owners as an important vehicle for integrating rural providers in northern Michigan. Through the HMO, rural providers hope to be able to contract with government programs, while retaining private-sector patients through employer contracts. For most rural providers, NorthMed HMO does not yet represent a major source of revenues. However, the HMO is about to embark on an expansion that, if successful, will increase its importance to providers and its visibility within the service area. This planned expansion is likely to place severe demands on the financial and managerial resources of the organization. Physicians. NorthMed HMO offers a model of a rural-based HMO in which physicians play a dominant role. Rural physicians in northern Michigan own Northern Physician Organization, a physician organization which, in turn, is the major stockholder in NorthMed HMO. The geographic expansion of the HMO is tied, in large part, to the geographic expansion of the membership of Northern Physician Organization. NorthMed HMO enters new communities when a significant number of physicians in those communities joins Northern Physician Organization. When physicians purchase ownership shares in the physician organization, they indirectly become part owners of the HMO. Participation in NorthMed HMOs network has offered limited benefits to rural physicians at a minimal cost. By being a participating provider in NorthMed HMO, physicians can remain available to their patients who choose the HMO as a health insurance option. NorthMed HMO has not been aggressive in attempts to influence physician practices, and physicians bear no financial risk as a result of their participation. Participating physicians are paid under a fee-for-service arrangement with no risk sharing related to hospital use. Indirectly, through Northern Physician Organization's ownership role in the HMO, physicians have the potential to gain financially from NorthMed HMOs growth if the HMO were to be sold, but this diffuse incentive is unlikely to have an impact on physicians' day-to-day behavior. The relationship between NorthMed HMO and its physicians is likely to change soon. The number of HMO patients seen by physicians will increase if the HMO succeeds in securing Medicare and Medicaid contracts, and if its new point-of-service option attracts additional private-sector enrollees. NorthMed HMO plans to contract with Northern Physician Organization on a capitated basis to serve the HMOs enrollees, an arrangement that would place financial responsibility for managing care delivery more directly on participating physicians. This is likely to result in more aggressive utilization review and quality assurance measures. In effect, rural physicians will be faced with a difficult trade-off that they have, to this point, largely avoided: They will be asked to accept financial risk and oversight of their practices in return for the assurance that their HMO can successfully compete for local patients (and their insurance dollars) against health plans that are owned and managed by entities located outside of their rural area.     

The determinants of HMOs' contracting with hospitals for bypass surgery

Objective. Selective contracting with health care providers is one of the mechanisms HMOs (Health Maintenance Organizations) use to lower health care costs for their enrollees. However, are HMOs compromising quality to lower costs? To address this and other questions we identify factors that influence HMOs’ selective contracting for coronary artery bypass surgery (CABG). Study Design. Using a logistic regression analysis, we estimated the effects of hospitals’ quality, costliness, and geographic convenience on HMOs’ decision to contract with a hospital for CABG services. We also estimated the impact of HMO characteristics and market characteristics on HMOs’ contracting decision. Data Sources. A 1997 survey of a nationally representative sample of 50 HMOs that could have potentially contracted with 447 hospitals. Principal Findings. About 44 percent of the HMO‐hospital pairs had a contract. We found that the probability of an HMO contracting with a hospital increased as hospital quality increased and decreased as distance increased. Hospital costliness had a negative but borderline significant (0.10<p<0.05) effect on the probability of a contract across all types of HMOs. However, this effect was much larger for IPA (Independent Practice Association)‐model HMOs than for either group/staff or network HMOs. An increase in HMO competition increased the probability of a contract while an increase in hospital competition decreased the probability of a contract. HMO penetration did not affect the probability of contracting. HMO characteristics also had significant effects on contracting decisions. Conclusions. The results suggest that HMOs value quality, geographic convenience, and costliness, and that the importance of quality and costliness vary with HMO. Greater HMO competition encourages broader hospital networks whereas greater hospital competition leads to more restrictive networks.     

Satisfaction with HMOs. Accessibility issues top the list for patients in commercial groups

Most complaints about HMOs fall into three broad categories: quality of care, provider attitude, and accessibility to care. Of these, marketers should focus their efforts on the latter. Ensuring that subscribers understand their benefits can help reduce expectations and, therefore, dissatisfaction. Even though accessibility to care (as covered benefits) was very important in contributing to survey respondents' satisfaction with their health care, overall satisfaction did not affect a patient's decision to change physicians and only marginally affected the decision to change HMOs. In the member/provider relationship, the primary care physician may represent a barrier to benefits because he or she has the power to control access under the HMO structure.     

A Comparison of Practice Characteristics Among Physician Assistants in HMO and Non-HMO Settings

Abstract: Health maintenance organizations (HMOs) have continued to grow in both number and enrollment. A major goal of HMOs and other managed care structures is the containment of health care costs. The utilization of physician assistants (PAS) would seem to nicely mesh with these organizations. This study examines the roles, productivity, and clinical autonomy of PAS in HMO settings. In this examination, PAS working with HMOs are compared with PAS working in non-HMO settings, both urban and rural. The results of the study document that PAS working in HMO environments primarily focus on ambulatory care, with few inpatient or administrative responsibilities. Further, PAS working in HMO settings have a highly autonomous practice with approximately 70 percent of patient visits never being discussed with a supervising physician. Lastly, the results suggest that many of the attributes of an HMO practice are found in rural practice as well. Consequently, as HMOs reach out farther into rural America, PAS in rural settings will have fewer practice modifications to make than urban PAS in their transition to practice in an HMO modality.     

Risk Selection in the Massachusetts State Employee Health Insurance Program

Using the Diagnostic Cost Group (DCG) model developed from a national sample, we examine biased selection among one fee-for-service (FFS) plan, one preferred provider organization, and several health maintenance organizations (HMOs) in Massachusetts. The proportions of enrollees in low-risk groups are higher in the HMO plans and lower in the FFS plan. The average age in the FFS plan is 9 years greater than that in the HMO plans. Actual premiums are not consistent with risk levels among HMO plans, resulting in gains in some HMO plans and losses in others as high as 20% compared to expected expenses as computed by the DCG model.     

Determinants of information technology outsourcing among health maintenance organizations

We analyze the determinants of HMO information technology outsourcing using two studies. Study 1 examines the effect of asset specificity on outsourcing for development and operation activities, using HMO specific fixed effects to control for differences between HMOs. Study 2 regresses the HMO specific fixed effects from Study 1, which measure an HMO's propensity to outsource, on HMO characteristics. The data comes from a 1995 InterStudy survey about information technology organization of HMOs. While HMOs split roughly equally in outsourcing information technology development activities, they are extremely unlikely to outsource the day-to-day operation of information systems. The greater an HMO's information technology capability and the complexity of information systems supported, the less likely is an HMO to outsource. While HMOs less than two years old, for-profit HMOs, local or Blue Cross-affiliated HMOs, and mixed HMOs are more likely to outsource, federally qualified HMOs are less likely to outsource. Policy and managerial implications for the adoption and diffusion of new ways of organizing information technology, such as application service providers (ASPs), are discussed.     

How do HMOs achieve savings? The effectiveness of one organization's strategies.

OBJECTIVE: To examine how a group practice used organizational strategies rather than provider-level incentives to achieve savings for health maintenance organization (HMO) compared to fee-for-service (FFS) patients. DATA SOURCES/STUDY SETTING: A large group practice with a group model HMO also treating FFS patients. Data sources were all patient encounter records, demographic files, and clinic records covering 3.5 years (1986-1989). The clinic's procedures to record services and charges were identical for FFS and HMO patients. All FFS and HMO patients under age 65 who received any outpatient services during approximately 100,000 episodes of the seven study illnesses were eligible. STUDY DESIGN: Using an explanatory case design, we first compared HMO and FFS rates of resource utilization, in standardized dollars, which measured the impact of organizational strategies to influence patient and provider behavior. We then examined the effect of HMO insurance and organizational measures to explain total outpatient use. Key variables were standardized charges for all outpatient services and the HMO's strategies. PRINCIPAL FINDINGS: Patient and provider behavior responded to organizational strategies designed to achieve savings for HMO patients; for instance, HMO patients used midlevel providers and generalists more often and ER and specialists less often. Overall HMO savings, adjusted for case mix, were explained by the specialty of the physicians the patients first visited and appeared to affect patients with average health more than others. CONCLUSION: Organizational strategies, without resort to differential financial incentives to each provider, resulted in lower rates of outpatient services for HMO patients. Savings from outpatient use, especially for common diseases that rarely require hospitalization, can be substantial.     

HMO vs fee-for-service care of older persons with acute myocardial infarction.

OBJECTIVES. Health maintenance organizations (HMOs) continue to grow in number and in their enrollment of Medicare recipients. They are also increasingly viewed as organizational structures that might contribute to control of health care costs. Yet little is known about the quality of care that elderly HMO enrollees receive. METHODS. We compared patients from three HMOs to a fee-for-service (FFS) sample that was national in scope. Sickness at admission, the quality of process of care, and mortality were assessed for patients aged 65 years and older who had been hospitalized with a diagnosis of acute myocardial infarction. RESULTS. After adjustment for sickness at admission, there were no significant mortality differences between the HMO and FFS groups at either 30 (23.2% vs 23.5%) or 180 days (34.4% vs 34.5%) after admission. Compliance with process criteria was higher for the HMO group as a whole (P < .05). The HMOs had greater compliance with three of five scales measuring different aspects of care for patients with acute myocardial infarction. CONCLUSIONS. We conclude that older patients from our participating HMOs who were hospitalized for acute myocardial infarction received hospital care that was generally better in terms of process than that received by patients in a national FFS sample.