RETURN OF THE HMO
With Healthcare Costs Out of Control, HMOs Could Make Comeback
By VITA REED
Seen as a vital cog in the healthcare cost-cutting machine, health maintenance organizations held a dominant position during the 1980s and the better part of the 1990s.
Employers, primarily responsible for providing health coverage, embraced HMOs as a key way to clamp down on medical inflation.
In particular, organizations that used capitation,where providers get a set amount of money per member, per month to provide healthcare services,enjoyed heavy market acceptance.
That changed, though, when doctors, medical groups and hospitals, in particular, rebelled against what they considered harmful contracts and demanded more equitable risk-sharing, among other things.
Making matters worse, annual health insurance premiums started jumping in the double-digit range, fueled by expensive new prescription drugs and medical technologies, provider demands for higher reimbursements and labor shortages.
The price hikes,sometimes as high as 50%,drove business leaders to search for ways to stop the bleeding.
One solution: preferred provider organizations in which patients can use any doctor in the plan. Preferred provider plans are more flexible and generous than health maintenance plans, but don’t cut costs as much as some employers would like.
The Business Journal asked a smattering of hospital chief executives whether they thought health maintenance organizations could make a comeback.
RALPH CYGAN
Chief executive,
UCI Medical Center, Orange
Certainly the nature of the plans has changed in that they’re not as restrictive as they used to be. I think they allow easier access to physicians; the gatekeeper role for the primary care doctor has been diluted.
So, I think the health plans have responded to some of the concerns raised by patients. If you look at Kaiser (Permanente), which of course is kind of a different model than the other plans and has the physicians and the hospitals all under one, they’re thriving. They’re growing at a rapid pace.
I think some people have predicted the demise of HMOs, but I think that given the rising healthcare costs, they’re not going to go away. I’m not sure of the rate of growth, but they’re not going to disappear.
Capitation, in some form or another, is probably going to persist. I think there’s some desire to risk-stratify different kinds of patients, depending on their age and how sick they are, which hasn’t been well done, but I know some plans are looking at that as well.
Making the consumer more aware of the cost of healthcare is not a bad thing. Consumers certainly have played a role in demanding more healthcare, and perhaps making them more aware of the cost will help.
The people who seem to be most sensitive to cost and quality are the people who have to use a lot of healthcare. The average consumer (who) visits a doctor a few times a year and is not chronically ill, I don’t really think is all that sensitive to those issues yet.
Of course, the people who need healthcare are going to be the ones most impacted by large co-pays or deductibles, so it’s almost penalizing the ones who have to use healthcare.
I do think consumers need to be more in touch with the cost, but I’m not sure we have the right model yet, either.
PETER BASTONE
Chief executive,
Mission Hospital and Medical Center, Mission Viejo
The environment is forcing the idea of managed care back into another type of business cycle.
Managed care, which actually managed cost more directly than managing the care, did have an impact over a period of time. And then, with the aging population and advances in technology, and HMOs basically limiting access to services, there was a kind of explosion of services (from other sources).
I think that managed care will be here, but in a different kind of structure. I think the HMO will transition; it already has transitioned from the physician gatekeeper type of strategy to loosening that gatekeeper role, having point of service and being able to access your specialists.
I feel that what’s going to happen, kind of like our dental plans, is that patients are going to end up paying more premiums and paying a higher percentage of the bill.
I think there will be a couple of vehicles,there will be HMOs and employers will look to that,even as an employer of over 2,000 employees, my PPO insurance for my employees went up 50%, and my HMO went up 15%.
And you know, we’re a healthcare provider, too, so on the employer side, we struggle with that.
Employers will look at plans that shift more responsibility to the employee, where the employer will make much more of a dynamic decision where care and services will be provided.
MICHAEL STEPHENS
Chief executive,
Hoag Memorial Hospital Presbyterian, Newport Beach
HMOs represent a competitive health insurance product among a range of options available to individuals and employers.
They all compete on the basis of the benefit package, deductible and co-insurance levels, and premium cost.
As a result in the changes in the overall economy, government regulations and competitor actions, HMOs will continue to evolve as they respond to customer demands and competition from other forms of health insurance.
HMOs will return to the “traditional kind” only if the environment in which they were established could be replicated in great detail. Since the history of our competitive market economy is one of constant change and evolution, HMOs are no more likely to return to their original forum than are any other business or enterprise.
Other forms of health insurance will replace HMOs only if HMOs fail to meet the challenges inherent in a demanding marketplace.
GARY IRISH
Chief executive,
South Coast Medical Center, Laguna Beach
We are seeing a shift back to PPOs from HMOs in the Orange County market.
This phenomenon is probably the result of the baby boomer generation getting a little older and starting to consume more healthcare and wanting to have a broader selection of providers than offered by traditional HMOs.
Also, federal reimbursement in Medicare HMOs has (grown) a woeful 2% in the past two years, which is inadequate to keep up with nursing and other clinical services and pharmaceutical costs.
This low reimbursement has resulted in HMOs removing benefits such as eyeglasses, pharmaceuticals and higher co-pays, from their benefit plans to seniors.
With the HMO benefit structure looking more like PPO programs, enrollees are resisting the lack of physician choice existent in many HMO plans.
MAXINE COOPER
Chief executive,
Garden Grove Hospital and Medical Center
As a community hospital in central Orange County, we noticed there have been market changes and expansions with some HMO plans and physician groups,independent physician associations,in our area, particularly emerging from the South County area.
Garden Grove Hospital has aggressively pursued relationships with these new, larger plans and groups. Why? Because we think these expansions increase access to care for our patients.
