HMO Managed Care - How It All Began
When Health Maintenance Organizations (HMOs) first arrived on the scene in the late 1970s, the sales people touted this as prepaid health care. Their slogan was "You pay us a reasonable fee for future medical services, and we take care of everything." This was supposed to be the answer to holding down spiraling doctors' fees and hospital charges without reducing quality. Doctors and hospitals would share in the monthly revenue from our premiums, and we would have our health-care utopia.
During the first few years, many of the original HMO businesses collapsed. The costs of providing total care exceeded the HMO revenues largely because doctors continued to order an increasing number of prescribed diagnostic tests and high-technology treatments. In response, the insurance industry gave birth to a new corporate enterprise called managed care. The idea was to remove the absolute authority that physicians had enjoyed over their patients' course of treatment in order to keep costs down. They marketed these new plans to employers offering reduced premiums for plans that required members to choose from a network of physicians who had contractually agreed to the plan's terms and conditions. This effort mushroomed over a period of ten years and sprouted hundreds of insurance subsidiaries and independent insurance firms that collectively cut doctors' fees by two-thirds, reduced hospital charges, and made it harder for people to get medical care because most people can't afford to pay privately. The initial reduction of cost drew employers away from the traditional insurance plans, and soon individual health insurance buyers followed suit.
Gradually, the difference between HMO and regular health insurance all but disappeared because the insurance companies bought out the HMOs and converted the product back to insurance while keeping the cost-cutting features of the prepaid health plans. The HMO was originally a company that hired physicians, nurses, and other professionals and directly provided the health care. Now, although a few direct HMO providers still exist, most HMOs have reverted back to being third-party payers that have contracts with self-employed physicians, unaffiliated hospitals, laboratories, and other providers.
As time progressed, the insurance conglomerates, in purchasing the HMOs, became legally qualified as medical service providers and began purchasing hospitals and medical practices. In the reverse, large university-based medical centers bought out many area community hospitals and medical practices and became legally qualified as insurance companies empowered to provide medical services.
Therefore, in today's market, there is much less difference between the insurer and the health-care provider if you are a member of a managed-care health plan. Then again, there seems to be a trend among some of the more successful private physicians to discontinue their membership in HMOs because they no longer want to knuckle under to corporate interference. However, one would have to be confident of maintaining a clientele who can afford to pay large deductibles if not the full cost of his or her services. Unfortunately, most doctors are economically trapped because dropping HMO membership would cause a substantial loss of revenue. The trend toward using HMOs is not likely to be reversed, because a health insurance policy that offers you total freedom of choice with no interference in medical decision will cost about the same amounts in premiums as the HMO, while under the insurance policy, you have to risk paying an additional $6,000 per year if you become sick.
In 1995, when I was a health insurance company executive, I organized a new managed-care division. I gathered large groups of doctors by sending out mailings to every physician in the phone book in a given area. The response rate was about 80 percent from doctors who were begging to join. They wanted to enroll in a provider network list that they knew we would distribute to thousands of members of various unions. These union health plans would only pay for doctors included in the network. This meant that physicians who did not join the network would lose the union customers that they had. We told the eager candidates that the new fee schedule would be 15 percent less than the prevailing Medicare rates (already below market rates), and they still signed up in droves. For most surgical procedures, this was a large reduction. For example, in 1996 we paid an average of $2,300 for an arthroscopy of the knee. The orthopedic surgeons in the New York City area were charging approximately $6,200 in 1994 for the same operation.
Furthermore, as part of the cost containment scheme, we set up precertification. The provider contract required that all the physicians and suppliers were to request prior approval for all elective procedures, therapy, durable medical equipment, and disposable supplies. We had a computer program to assist a group of nurses in making all first-level decisions. We entered the diagnosis code, and the computer program would tell us whether the requested service or item fit the preset criteria. We also created a practice profile of each of the requesting physicians. The directive from the fund managers was to identify those providers whose profile showed the highest medical costs and eventually expel them from the network if they would not alter their methods. Somehow, the physicians knew that they would face a loss of business if they racked up too many prescriptions for high-cost items. Moreover, other companies were structuring their reimbursement schedules to pay primary care physicians a bonus for reducing the number of specialist referrals while penalizing those who increased it.
Regarding the famous rhetoric about maintaining quality, in my own experience my professional staff and I tried to honor our obligation to keep the medical services consistent with our advertised "standard of excellence." Unfortunately, this was self-delusional. We had no way of knowing the clinical performance history of the individual practitioners whom we accepted into the group. We only knew that each of the specialists was board certified and had admitting privileges in at least one of the area hospitals. If any of those doctors had perpetrated a recent string of botched surgeries or had been defendants in malpractice lawsuits, we could not know about it because no one would publicize such data. We only knew that the care would be no worse than what the members were already getting, because most of our customers never had to change doctors or hospitals when we converted their conventional health plans to managed care.
Generally, in spite of the reduced fees and utilization, the cost of the premiums skyrocketed. The monthly membership fee for two adults buying individual plans (not part of a group) aged fifty-four in Florida in the Blue Choice© PPO (preferred provider organization) is $475 if you are willing to risk paying $6,000 out of pocket. The fee is $735 with a $3,000 out-of-pocket risk. This is more than a 300 percent increase in premiums since the managed-care companies took over the health-care industry. Every plan available has some level of deductible or copay, so the original HMO concept of prepaid total health care, with a few exceptions, seems to have vanished.
Although it appears that companies are paying less and charging more, the increase in the cost of premiums results from an increase in total payouts. We called this experience rating. This is a continuing trend because our population is getting older and sicker each year and requires more care. The insurance customers as a whole are paying for those who became ill last year because the law allows insurance companies to pass their losses on to their customers. |
by T.Sharon
