Health Maintenance Organizations

September 13, 2011

Health Maintenance Organization (HMO) is an allencompassing term that refers to organizations that integrate the financing and delivery of health services, based on a prepaid, fixed fee per enrollee. This is different from the traditional fee-for-service (FFS) system in which a provider is reimbursed for a given service rendered to the patient. The prepaid aspect of the financing of services rendered by Health Maintenance Organizationss implies a certain level of efficiency as well as a special emphasis on prevention, early intervention/treatment, and health promotion, with the intention to reduce the occurrence of costly episodes of care because of delay in seeking and receiving care.

First initiated in the 1920s, Health Maintenance Organizationss expanded rapidly with the financial support of the federal government, which viewed the development of Health Maintenance Organizationss as a possible model that could lead to national health insurance. The 1973 Health Maintenance Organization Act defined the structural and design requirements that plans had to meet. Health Maintenance Organizationss experienced significant increases in market share in the 1980s, and further expansions followed the enrollment of Medicare and Medicaid beneficiaries in managed care programs. As of the mid-1990s, between 30% and 50% of the population in certain states were enrolled in some form of managed care programs.

Health Maintenance Organizationss operate under different structures. In staffmodel Health Maintenance Organizationss, for example, physicians receive salary or incentive bonuses by the Health Maintenance Organizations or become partners with the Health Maintenance Organizations. In other models, such as group-model, network-model, and Independent Practice Association (IPA) model Health Maintenance Organizations, Health Maintenance Organizationss may contract with individual or groups of physicians that provide services to its members. Other arrangements include Preferred Provider Organization (PPO), where health services are purchased from a list of participating providers who may offer discounted rates in return for high volume. Beneficiaries may opt to use services by non-PPO providers, but at a higher rate of co-insurance and deductibles.

As its name implies, Health Maintenance Organizationss were initially developed with a strong commitment to health maintenance, including routine and preventive services. However, quality of care became an issue because of concerns that Health Maintenance Organizationss would limit enrollees’ services as a measure of cost containment, given that health care providers would have to offer health services while operating on a fixed payment per enrollee. Furthermore, critics have argued that, as a cost containment strategy, Health Maintenance Organizationss may engage in a practice of marketing to healthy individuals, while discouraging sicker individuals from enrolling—a practice commonly referred to as “cherry-picking.”

Numerous studies have compared quality of care between Health Maintenance Organizationss and traditional fee-for-service systems. There appear to be no conclusive patterns of better or worse quality of care among Health Maintenance Organizations enrollees as compared with fee-for-service beneficiaries. Findings from some studies have favored the fee-for-service system, while other studies have shown that Health Maintenance Organizations enrollees used preventive and routine/health maintenance services at a higher rate than their fee-for-service counterparts. In the case of cancer, for example, one study showed that Health Maintenance Organizations enrollees were more likely than their fee-for-service counterparts to be diagnosed at earlier stages of cancers that were amenable to screening, suggesting more effective strategies of cancer screening in Health Maintenance Organizationss than in fee-for-service settings. In addition, there are indications that the presence of Health Maintenance Organizationss in a given area may be associated with a dynamic in the local health care delivery system that favors higher use of preventive and screening services, as well as lower expenditures by fee-for-service beneficiaries residing in that area. On the other hand, it has been shown that uninsured people experience more difficulty accessing care in areas with higher Health Maintenance Organizations activity than in areas with lower Health Maintenance Organizations activity.

The management and coordination of care by Health Maintenance Organizationss usually entail “gatekeepers,” a term used to refer to the primary care physicians (PCPs) who attend to the patient’s primary health care needs. The PCP is also the one to decide whether a patient should be seen by a medical specialist for a particular health problem. Such arrangements have been perceived by patients as being restrictive. Restrictions may also apply to certain tests, procedures, and medications, and in the absence of conclusive evidence of the benefits of a given intervention, the tendency has been to favor less intensive care. Such restrictions have been a source of dissatisfaction in the provider community.

Performance indicators, such as the proportion of women enrolled in an Health Maintenance Organizations to initiate prenatal care in the first trimester, and the proportion of enrollees to undergo a cancer screening program, are now published in report cards for each Health Maintenance Organizations by the National Committee for Quality Assurance, and such measures are used in the accreditation of Health Maintenance Organizationss. Women have vested interest in closely monitoring such measures, given the significant expansion of Medicare and Medicaid managed care programs, and the disproportionately higher representation of women and vulnerable subgroups of the population among Medicare and Medicaid beneficiaries.

SEE ALSO: Health insurance, Medicaid, Medicare, Patients’ rights

Suggested Reading

  • Baker, L. C. (1999). Association of managed care market share and health expenditures for fee-for-service patients. Journal of the American Medical Association, 281(5), 432—437.
  • Gold, M. R. (Ed.). (1998). Contemporary managed care. Readings in structure, operations, and public policy. Chicago: Health Administration Press.
  • Riley, G. F., Potosky, A. L., Lubitz, J. D., & Brown, M. L. (1994). Stage of cancer at diagnosis for Medicare, Health Maintenance Organizations, and fee-for-service enrollees. American Journal of Public Health, 84(10), 1598-1604.

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