Choosing an HMO – health maintenance organization – includes glossary and a list of resources

Choosing an HMO – health maintenance organization – includes glossary and a list of resources – Special Supplement

Daphna W. Gregg

Some headline writers have portrayed managed care as a monster from a B-grade horror movie: “Americans Are Doomed: No Choice of Doctors, Poor Quality Care.” Others have embraced it like the promise of eternal youth: “Everyone Guaranteed Coverage: Better Care and Cheaper, Too.” Most Americans are somewhere in between: they aren’t very familiar with managed care, they don’t know what to believe, and they are unnerved by the prospect of having to choose one of these newfangled plans.

The noisy, often vituperative national debate over health care reform has obscured the fact that the system has already been transformed without a scrap of legislative help. Like it or not, health maintenance organizations (HMOs) are everywhere — and they’re here to stay.

Time marches on

Change was inevitable because traditional indemnity coverage caused a tug-of-war between doctors and insurance companies and put consumers in the middle. Under the familiar fee-for-service system, physicians had a financial incentive to overtreat because they were compensated for every office visit, test, or procedure. Insurance companies, on the other hand, wanted to minimize their financial risk by paying as few claims as possible.

Insurers seek to control their expenditures in many ways: denying coverage for certain conditions, shortening the list of what is covered, raising premiums, or “cherry picking,” which means insuring mostly young, healthy people who use fewer and cheaper services.

As a result, many who are older, less healthy, or afflicted with hard-to-treat diseases have been left out in the cold. Some have settled for catastrophic coverage (which kicks in only after a deductible of $1,000 to $5,000 has been paid); about 37.4 million people have ended up with no health coverage at all.

Although managed care is an unfamiliar concept for many Americans, this approach has actually been around since 1929, when doctors first contracted with businesses to care for their workers in exchange for a monthly fee. The idea spread, research showed that it did no harm to people, and since 1973, companies with 25 or more employees have been required to offer a choice between traditional insurance coverage and HMO membership.

HMO enrollment has soared from 6 million people in 1976 to more than 50 million in 1995. This boom has been driven primarily by large corporations, which saw their insurance costs skyrocket during the 1970s and 1980s, when indemnity plans dominated the marketplace. They see managed care as a way of clamping down on those costs, and the federal government has followed suit by encouraging Medicare beneficiaries to sign up for HMOs instead of purchasing Medigap insurance. (For more about Medigap see the Harvard Health Letter, October 1995.) Insurance companies have responded by gradually phasing out indemnity plans in favor of managed care.

The dilemma for consumers

Now that nearly 600 HMOs are vying for business in the United States, one might expect consumers to be big winners. But it ain’t necessarily so. Continuity of care, for example, can be a problem for employees who find themselves switching HMOs every two or three years, as they’re forced to select one of the two or three lowest bidders picked by their company. In some cases, they’re stuck with only one option.

And anyone, regardless of age or employment, can be overwhelmed by the task of choosing the right health plan. It would be easier if high-priced plans were always best and if low cost always correlated with poor quality or service. In fact, price differences are usually determined by what benefits are covered, with a deluxe plan generally costing more than a basic model. Marketing brochures provide general information about a plan’s benefits, but these are advertising tools and shouldn’t be relied on for an unbiased assessment.

Although there’s no magic formula for selecting the right HMO, this special supplement outlines basic steps for doing research and making an informed decision.

Managed care is defined as a system that encompasses both the delivery of health care and payment for those services. Instead of simply paying claims submitted by independent physicians and hospitals, HMOs and other managed care organizations enter into formal contractual arrangements with these providers, set policies for what doctors and hospitals can and can’t do, and keep a close watch over them.

One feature that sets HMOs apart from traditional fee-for-service care is an institutional emphasis on prevention and on the early detection of disease. In theory, an HMO that is paid a set amount for each member will be motivated to keep people well because a healthy person consumes fewer resources (office visits, medications, etc.) than a sick one.

Some HMOs do little except hand out brochures about quitting smoking, starting an exercise program, or eating a low-fat diet. But top-notch organizations take a more active role, reminding members when it’s time for a mammogram or cholesterol measurement and providing these key screening tests without the copayment required for other visits. Some plans offer free or low-cost classes or have discounts with exercise studios, diet centers, and the like.

Managed care organizations have elaborate systems for monitoring both the quality and costs of care. For example, they use a formal authorization process to control referrals to specialists, cut down on what they regard as unnecessary procedures, and reduce expenditures for prescription drugs. In fee-for-service health plans, a patient could consult a specialist, arrange for a hospital stay, or have a procedure done at will — even if his or her primary care doctor advised against it. In an HMO, members have unrestricted access only to their primary care doctor; everything else must be authorized in advance.

In some HMOs the primary care doctor acts as the gatekeeper to referrals; in others a utilization review nurse or even a committee, usually made up of medical specialists and administrators, gets involved. Patients and their doctors are sometimes surprised when their request is denied because the utilization committee views the procedure they wanted as experimental or unnecessary or believes that a less expensive treatment would be just as good.

HMOs also rely on a process called utilization management to determine whether members are receiving care that is consistent with practice guidelines adopted by the organization. These are standardized diagnostic and treatment protocols designed to eliminate unnecessary procedures, uninformative tests, and costly treatments that may work no better than less expensive or less invasive ones. However, critics of HMOs charge that by emphasizing cost, patients may miss out on useful tests and procedures.

First, know thyself

People who must choose a managed care plan should consider how their needs might change in the future. Although this is often the last thing that occurs to prospective HMO members, in fact it is the best way to avoid dissatisfaction later. Answering these questions can help: Do you have a chronic ailment? Do you see a specialist? Are you overweight? Are you physically active? Do you smoke? Do you want to change your lifestyle? Do you need dental coverage? Mental health services? Do you want a plan that covers chiropractors, acupuncturists, or other providers of complementary therapy?

The best HMOs make a concerted effort to promote healthy habits among their members and to provide good preventive care. Before signing up with an HMO, you may want to make sure that it offers: * Wellness programs such as exercise, nutrition counseling, stress and weight management, and smoking cessation. * Routine screening for hypertension, high cholesterol, and common cancers such as those of the breast, prostate, and colon. * Chronic disease management aimed at preventing or reducing complications due to conditions such as asthma or diabetes. * Psychotherapy services and self-help groups. * Rehabilitation programs designed to minimize disability following heart attack, stroke, or another major event.

The HMO physician

A common misconception is that HMOs assign newcomers to a doctor, giving them no say in the matter. That was the case years ago, leading some people to shun managed care altogether. Today, HMOs routinely let people choose their own primary care doctor from among those who are on staff or who participate in its network.

Recognizing that some people are uncomfortable about having their choice limited in any way, many HMOs now offer a point-of-service (POS) plan that allows members to go outside the network when they wish, although usually they must pay a deductible as well as coinsurance — a percentage of the cost of the visit or procedure.

Although some HMOs may be willing to add a doctor to the provider list at a member’s request, most expect people to pick one already in the network. The choice of a primary care physician has always been a weighty decision, even under the fee-for-service system. Solid research and a face-to-face interview are good starting points. (See “Between Doctor and Patient,” Harvard Health Letter, April 1994.) Even then, the match may not be a good one. It’s prudent to find out in advance whether members can switch doctors at will or only at certain designated times of the year.

Although many people focus on the selection of a primary care doctor, access to a wide range of specialists may be even more important. Although provider directories list hundreds of specialists, each primary care doctor may be hooked into a network that funnels all his or her referrals to one cardiologist, gastroenterologist, or rheumatologist. To find out if consultation is restricted to specialists in the primary care doctor’s group, ask for a written description of the HMO’s referral arrangements.

It’s also wise to inquire in advance about the organization’s policy on second opinions. Some managed care organizations require a second opinion when something costly, such as surgery or hospitalization, is recommended by a physician. It’s equally important to find out whether the plan will pay for one when treatment is denied or the patient disagrees with a doctor’s judgment. HMOs do not ordinarily pay for second opinions from doctors outside of the plan.

A touchy subject

One of the most controversial aspects of managed care is how physicians are paid. Although traditional fee-for-service medicine may reward overtreatment, it enables doctors to act on what they believe is best for patients. Critics now worry that HMO capitation plans may have flipped the coin, giving doctors an incentive to withhold needed services. Doctors receive a monthly stipend or each patient and can pocket what isn’t spent on their care.

Some HMOs have special funds and bonus systems in addition to their basic arrangement with doctors. For example, a percentage of a primary care doctor’s compensation may be set aside to pay specialists and hospitals. Whatever is left at the end of the year is distributed to the primary care doctors, forcing them to make a tough choice between being an advocate for patients or looking out for themselves.

Recent articles in publications ranging from the New England Journal of Medicine to the New York Times concern so-called “gag clauses” in HMO contracts that ban doctors from discussing their compensation arrangements with patients. Activists in several states are pushing for disclosure laws that would break this silence.

Some patients feel more comfortable with staff model HMOs, which pay their physicians a straight salary. This eliminates monetary incentives to deliver too much or too little care, but may also give the doctor little reason to run a practice that is efficient or friendly.

Assessing quality

Measuring the outcomes of care — and thus its quality — is not a simple task. Many HMOs have come up with their own methods, but inconsistencies among them make it difficult for consumers to make meaningful comparisons. This is changing, however, as the National Committee for Quality Assurance (NCQA) refines its system for assessing, measuring, and reporting on the outcomes of care provided by HMOs. Of course the real test of an HMO will be how well, and how consistently, it performs over the years. In the meantime, several indicators of quality are available.

Accreditation. The NCQA is responsible for accrediting the nation’s HMOs, and so far has reviewed about half of them. Because this program is so new, lack of accreditation is not necessarily a black mark. After a thorough review of the HMO’s procedures and performance, the NCQA awards one of four ratings: full accreditation is granted for three years and indicates excellent performance; one-year accreditation is given to HMOs that are well-equipped to implement recommended improvements within the coming year; provisional accreditation for one year is given to HMOs that have the potential for improving; denial of accreditation indicates the HMO does not meet NCQA standards.

So far about one-third of the reviewed HMOs have been awarded full accreditation. A relatively young plan that earns a one-year or provisional rating on the first pass, however, may be comparable to a well-established HMO with full accreditation. On the other hand, denial should raise a red flag.

Consumers can obtain a list of all the health plans that NCQA has assessed so far and the accreditation status for each one, plus a roster of those awaiting review. In July 1996, NCQA will begin offering reports that summarize their findings for individual plans. (See “For More Information.”)

Report cards. Some HMOs are using data gathered by NCQA to prepare report cards on their own performance. Eventually, these will give corporations and individual consumers an objective way for evaluating competing plans. So far, the NCQA has generated local report cards for HMOs in Pittsburgh, Denver, and Dallas.

However, report cards may not tell the whole story. For example, an HMO may look good because it routinely screens diabetic members for eye damage. But if the plan fails to follow up with patient education and appropriate treatment, the quality of its care is not as good as the report card suggests. An HMO that serves a young, healthy workforce will also look better than one serving Medicare beneficiaries.

Member surveys. Prospective members should not put much stock in a member satisfaction survey conducted by an HMO and ballyhooed in advertisements. Independent studies conducted by organizations such as the NCQA and the Center for the Study of Services are more reliable. While some of the nation’s largest HMOs have cooperated with studies of member satisfaction, others have not. An important caveat about patient satisfaction information is that HMOs, like traditional indemnity plans, also “cherry pick” — so a high level of satisfaction may in fact mean that many members haven’t sought services.

Other views

As anyone who keeps up with the news is aware, some HMOs have been sued for malpractice or for refusing to authorize expensive but potentially lifesaving treatments. Formal complaints about medical care are registered with state health or insurance departments, and resourceful consumers can sometimes obtain this information for HMOs, hospitals, and doctors.

Finally, people might do well to remember the adage that the best advertising is a satisfied customer. Ask about the experiences and opinions of friends, neighbors, coworkers, local health care professionals, and other trusted people before signing on the dotted line.

RELATED ARTICLE : The ABCs of Managed Care

Capitation: Doctors automatically receive a certain payment per person per month rather than being compensated for each procedure.

Copayment: A set fee paid by the patient for an office visit or other covered service (generally $5 to $15).

Deductible: In traditional health insurance, the amount a patient must pay out of his own pocket before coverage kicks in.

Fee-for-Service: The traditional form of payment, in which the patient or insurer pays for each doctor visit or service provided.

Group Model HMO: Care is provided by a network of physician group practices that have agreed to accept a certain level of payment.

Health Maintenance Organization (HMO): An organization that finances, organizes, and provides health care using the principles of managed care.

Independent Practice Association (IPA) model HMO: A type of HMO in which doctors in private practice are paid to care for health plan members.

Managed Care Organization: An umbrella term for any organization that sets policies and procedures for controlling the cost and delivery of health care.

Mixed Model HMO: A plan that includes more than one model; for example a staff model HMO might also contract with some group practices or individual physicians to provide care in certain geographic areas.

Network: Doctors, hospitals, and other providers that have contracted with an HMO to care for its members.

Point-of-Service (POS) plan: Coverage that allows members to use out-of-network services, so long as they pay a deductible and part of the cost.

Preferred Provider Organization (PPO): A network of physicians and hospitals that contract with an insurance company to care for its policyholders at discounted fees.

Staff model HMO: All care is delivered at HMO-run facilities by salaried staff doctors; also called a “closed panel” plan.

For More Information

How to Find the Best Doctors, Hospitals, and HMOs for You and Your Family: Pocket Guide, (Castle Connolly Medical Ltd., 1995, 435 pages, $9.95).

Managed Care & You: The Consumer Guide to Managing Your Health Care, by Michael E. Cafferky (McGraw Hill, 1995, 199 pages, $14.95).

Consumers’ Guide to Health Plans (Center for the Study of Services/Consumers’ Check-book, 1995, 96 pages, $12). Mail a $12 check made out to Consumers’ Guide to Health Plans, 733 15th St., N.W., Suite 820, Washington, D.C. 20005.

For a free copy of the NCQA Accreditation Status List, call (202) 955-3515 or contact them on the World Wide Web at

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