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A health maintenance organization (HMO) is an organization that provides managed care for health insurance contracts in the United States as a liaison with health care providers (hospitals, doctors, etc.). The Health Maintenance Organization Act of 1973 required employers with 25 or more employees to offer federally certified HMO options if the employer offers traditional healthcare options.[1] Unlike traditional indemnity insurance, an HMO covers only care rendered by those doctors and other professionals who have agreed to treat patients in accordance with the HMO's guidelines and restrictions in exchange for a steady stream of customers.
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Most HMOs require members to select a primary care physician (PCP), a doctor who acts as a "gatekeeper" to direct access to medical services. PCPs are usually internists, pediatricians, family doctors, or general practitioners (GPs). Excepting medical emergency, patients need a referral from the PCP in order to see a specialist or other doctor, and the gatekeeper cannot authorize that referral unless the HMO guidelines deem it necessary.
"Open access" HMOs do not use gatekeepers - there is no requirement to obtain a referral before seeing a specialist. The beneficiary cost sharing (e.g., co-payment or coinsurance) may be higher for specialist care, however.[2]
HMOs also manage care through utilization review. That means they monitor doctors to see if they are performing more services for their patients than other doctors, or fewer. 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 limited, 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 plastic surgery) are almost never covered.
Other choices 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.
Although businesses pursued the HMO model for its alleged cost containment benefits, some research indicates that private HMO plans don't achieve any significant cost savings over non-HMO plans. Although out-of-pocket costs are reduced for consumers, controlling for other factors, the plans don't affect total expenditures and payments by insurers. A possible reason for this failure is that consumers might increase utilization in response to less cost sharing under HMOs.[3]
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 considered by some to be the first example of an HMO. However, Ross-Loos Medical Group, established in 1929, is considered to be the first HMO in the United States; it was headquartered in Los Angeles and initially provided services for Los Angeles Department of Water and Power (DWP) and Los Angeles County employees. Approximately 500 DWP employees enrolled at a cost of $1.50 each per month. Within a year, the Los Angeles Fire Department signed up, then the Los Angeles Police Department, then the Southern California Telephone Company, (now AT&T) and more. By 1951, enrollment stood at 35,000 and included teachers, county and city employees. In 1982 through the merger of the Insurance Company of North America (INA) founded in 1792 and Connecticut General (CG) founded in 1865 came together to become CIGNA. Ross-Loos Medical Group, became now known as CIGNA HealthCare. Also in 1929 Dr. Michael Shadid created a health plan in Elk City, Oklahoma in which farmers bought 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 Maintenance Organization Act of 1973. This act had three main provisions:
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.
In 1971, Gordon K. MacLeod MD developed and became the director of the United States' first federal Health Maintenance Organization (HMO) program. He was recruited by Elliot Richardson, former secretary of the U.S. Department of Health, Education and Welfare.
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. There is only one type of HMO and it is currently inactive. In the group model, the HMO does not employ the physicians directly, but contracts with a multi-specialty physician group practice. Individual physicians are employed by the group practice, rather than by the HMO. The group practice may be established by the HMO and only serve HMO members ("captive group model"). Kaiser Permanente is an example of a captive group model HMO rather than a staff model HMO, as is commonly believed. An HMO may also contract with an existing, independent group practice ("independent group model"), which will generally continue to treat non-HMO patients. Group model HMOs are also considered closed-panel, because doctors must be part of the group practice to participate in the HMO - the HMO panel is closed to other physicians in the community.[4]
If not already part of a group medical practice, 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 their own office and may see non-HMO members.
In the network model, an HMO will contract with any combination of groups, IPAs (Independent Practice Associations), and individual physicians. Since 1990, most HMOs run by managed care organizations with other lines of business (such as PPO, POS and indemnity) use the network model.
HMOs are regulated at both the state and federal levels. They are licensed by the states, under a license that is known as a certificate of authority (COA) rather than under an insurance license.[5] State and federal regulators also issue mandates, requirements for health maintenance organizations to provide particular products. In 1972 the National Association of Insurance Commissioners adopted the HMO Model Act, which was intended to provide a model regulatory structure for states to use in authorizing the establishment of HMOs and in monitoring their operation.
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. However, an HMO is often insulated from malpractice 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.