Which is responsible for reviewing health care provided by managed care organizations?

Health Maintenance Organizations

HMOs set fixed, prepaid, per-member fees with providers. Delivery of health care services is restricted through the primary care physician, who acts as a gatekeeper for referral to all other health care services. All care provided by the HMO must be approved by the primary care physician. Authorization is often required for all services. HMO plans that offer point-of-service provisions allow for out-of-network visits, although higher deductibles and co-payments are applied. Authorization for driver rehabilitation services is often denied but can still be billed to the HMO and appealed if denied on review.

9 What are health maintenance organizations [HMOs]?

HMOs are complex systems composed, in their most comprehensive form, of hospitals, doctors plus offices, and an insurance company. HMOs contract with large groups of people [potential patients] to maintain their health. Enrollees pay a monthly fee [just like health insurance] so that all hospital and physician charges are covered if the enrollees become ill. Unlike health insurance, however, in the HMO model, hospitals and physicians get paid whether or not the enrollee gets sick. So, it is better for everyone if enrollees stay healthy—and out of the hospital.

Health Maintenance Organizations

HMOs are corporations licensed under the insurance laws of the state in which they operate and which assume financial responsibility for providing a defined set of medical services to their enrollees in return for a fixed premium.

HMOs had their beginnings in the 1930s when several different employers and employee associations contracted with medical groups and hospitals to provide certain services in return for a fixed monthly fee. During the next 30 years, these “prepaid group practices” [as they were called] experienced steady growth in several markets around the country. In the late 1960s, interest in the prepaid model increased because of its potential for controlling cost and for delivering preventive services.

Responding to buyer demands for comprehensive health care covering broader geographical areas, HMOs have been merging, affiliating, and forming joint ventures in record numbers. New corporate combinations have been formed as HMOs enter into alliances with hospitals and other provider organizations. Although the HMO industry is in a state of flux, it appears to be in good financial health with growing enrollment, margins, and cash reserves.

Health Maintenance and Managed Care Organizations

HMOs are integrated health insurance and provider systems, responsible for hospital, ambulatory, and preventive care for an enrolled population. The HMO is a system of prepaid health care in which the insured person joins or becomes an enrolled member of a health plan that has received a fixed per capita payment from the insurer to provide comprehensive health care for a defined period. This approach, which was developed in the USA, creates non-profit organizations sponsored by industry, unions, and cooperative groups. Formerly called prepaid group practice, these plans were developed by Kaiser Permanente in California during World War II and later in many other parts of the country.

Since the 1973 HMO Act, the HMO has become part of the accepted mainstream of health care in the USA. Some large HMOs operate their own hospitals, utilizing 1.5 beds per 1000 population, well below US averages, even when adjusting for age and selection factors. They operate with 1.2 doctors per 1000 enrollees, compared to 4.5 per 1000 for fee-for-service health care systems. Doctors working in HMOs may be paid by salary or capitation in a staff and group HMO or on a fee-for-service basis in an independent practice association [IPA] or a preferred provider organization [PPO] [Box 11.10].

BOX 11.10

Managed Care Organization Models

Managed care plans are health insurance plans that contract with health care providers and medical facilities to provide care at reduced costs. They provide a network of services and are responsible for the quality of care and comprehensiveness of services according to the contract with the insured people.

Health maintenance organization [HMO] – a health system providing insurance and service to enrolled members. The traditional group model HMO is based on the prepaid group practice in which the HMO employs or contracts with physician groups to provide comprehensive care. Payment is on a capitation payment basis to enrolled members, usually in health centers operated by the HMO and in hospitals owned or contracted with the HMO. Group HMOs may be partnerships that share in the incentive payments. Staff model HMOs are plans which employ physicians and other providers in HMO-owned facilities. Network model HMOs contract with multiple physician groups including single or multi-specialty medical groups.

Preferred provider organization [PPO] – a formally organized entity, usually of physicians, hospitals, pharmacies, laboratories, or other providers, which contracts to provide care to HMO members on an agreed [discounted] fee schedule or capitation basis. Each provider works independently but agrees to contracted conditions, including utilization review. The beneficiary has a choice of providers within the panel.

Individual practice association [IPA] – providers may include individual practice physicians who contract to provide services to HMOs, and may also provide services to members of other health insurance plans.

Point of service [POS] plan – this type of plan allows a choice of HMO or PPO services at any time.

Accountable care organization [ACO] – a group of health care providers organized to give coordinated care and chronic disease management, and thereby improve the quality of care that patients receive. The organization’s payment is tied to achieving health care quality goals and outcomes that result in cost savings.

Health care in the USA has been influenced by the HMO experience and that of other health insurers using HMO-like cost-control measures which limit unrestricted fee-for-service practice. The HMO or managed care approach to health care organization is less costly, largely because of better management of patients in the community and lower hospital utilization patterns.

The major increase in enrollment in managed care took place in the 1990s, much of it in for-profit managed care. Managed care was successful in taking a large part of the market share of health insurance because of its advantages of lesser cost and more comprehensive coverage than traditional fee-for-service health insurance.

Managed care health plans undertake responsibility for the comprehensive care of enrolled members. Managed care systems are being promoted by private employers, by insurance companies, by states for Medicaid beneficiaries, and by the federal government PPOs.

Since the 1970s, managed care has become the predominant form of health care in most parts of the USA. More than 70 million Americans are enrolled in HMOs and almost 90 million are part of PPOs. Enrollment in HMOs peaked in 2001 and has declined substantially since, but managed care remains a dominant type of health care and coverage. Medicaid managed care grew rapidly in the 1990s. In 1991, 2.7 million beneficiaries were enrolled in some form of managed care, and by 2004, that number had grown to 27 million. Of the total Medicaid enrollment in the USA in 2005, some 63 percent receive Medicaid benefits through managed care. All states [except for Alaska, New Hampshire, and Wyoming] have all, or a portion of their Medicaid population enrolled in a MCO. States can make managed care enrollment voluntary, or require certain populations to enroll in a MCO. For 2006, the breakdown of enrollment by plan type was as follows: 20 percent HMO, 60 percent PPO, 13 percent point of service [POS] providers, 4 percent high-deductible health plan [HDHP], and 3 percent conventional indemnity plans. The US Health Care Financing Administration [HCFA] regulates HMOs and has instituted guidelines for reporting and quality assessment in an accreditation approach to quality assurance [see Chapter 15]. There has been some backlash against managed care, with negative publicity regarding restrictions in referrals and other client concerns.

Managed care, especially in the for-profit sector, is under criticism in medical and public health organizations and journal editorials, as well as in the media and state and federal legislatures. It is alleged that the system promotes denial of access to specialists and other needed care because of the economic incentives built into the capitation system, especially when administered by for-profit companies. The economic benefits are generally accepted. The controversy focuses on the incentives to underservice and on loss of choice by the consumer in for-profit managed care systems. The quality and ethical issues of managed care are discussed further in Chapter 15. Legislative efforts at state and federal levels to define patients’ rights, grievance procedures, and minimum baskets of service have been under way in Congress, with a narrow [50–47] defeat in late 1998. President Bill Clinton then actively promoted a Patient’s Bill of Rights which was strongly opposed by the health insurance lobby, but contributed to the concepts of Obamacare introduced in 2010.

Opponents of the managed care approach argue that lower HMO hospital utilization may in part be attributable to lower costs due to a bias by selection of healthy members, and that HMOs may underservice patients in order to reduce costs, or increase physician incomes or profits.

Available evidence supports HMO experience as providing high-quality medical care at lower cost than competing open-ended, fee-for-service insurance systems. The leveling off of expenditure for health in the USA during the 1990s is largely attributable to the move from fee-for-service care plans to managed care of a large percentage of the population. Managed care is also emerging in other countries, in the Sick Funds in Israel and in some European countries, in Latin America [Argentina, Brazil, Mexico, Chile, Peru, and others], as well as in the Philippines, all seeking to restrain cost increases while extending health care to a greater part of their populations.

Under the PPPACA [Obamacare], ACOs are to be established within the Medicare program encouraging primary care physicians to join together with other providers, such as hospitals, taking responsibility for the full continuum of their primary care patients’ care. They must commit to reporting comprehensive measures of the quality and outcomes of care. The ACOs receive additional payments for demonstrably improved quality of care and reduced overall costs, as a share of the savings achieved. They are expected to provide a “medical home” for registered patients, strengthening primary care and improving care coordination [Dartmouth Atlas, 2012]. An example is the Beth Israel–Deaconess Hospital initiative sponsored by the Center for Medicare and Medicaid Services [CMS] Innovation Center, which provides Medicare beneficiaries with higher quality care, while reducing growth in Medicare expenditures through enhanced care coordination. The Harvard University-affiliated Beth Israel–Deaconess Physician Organization in Boston has more than 1700 providers including over 1300 specialists and 400 primary care physicians. This organization provides integrated primary care as well as secondary and highly specialized services to its enrolled population. It is defined as an ACO with links to community hospitals in the Boston area. It provides services to managed care with incentives for efficient and high-quality services to private insured populations as well as assisting participating medical providers with administrative help.

The Golden Years for Managed Care

By the mid-1980s, HMOs [IPA and closed panel plans] had grown dramatically in number and enrollment. This growth continued from 1985 to 1995, with total HMO enrollment [including point of service [POS] HMOs, see below] increasing from 18 million to 58 million, and the number of HMOs from 381 to 571, peaking at 695 in 1987. From 1985 to 1992, 155 HMO mergers occurred, as well as 152 failures. In an attempt to better understand the changing HMO landscape, several studies examined the causes and impacts of HMO mergers. They found that profit-seeking HMOs seldom absorbed nonprofit HMOs in mergers, and premiums were relatively unaffected by mergers except in very competitive HMO markets, where they were higher, yet only for 1 year postmerger. Mergers did not generally allow HMOs to reach greater scale economies without improved efficiency levels.

Throughout this period, HMOs were offered as options by most large employers and as the only health benefit plan by many smaller employers. The early to mid-1990s marked a period of very low health insurance premium increases; some analysts saw this as the phase of a predictable insurance premium cycle, while others attributed this to the growing enrollment in HMOs and other types of MCOs, as well as their ability to control costs. This generated a significant body of new research on the factors that explained the lower cost of care in HMOs. For instance, a utilization review program instituted by a large national insurer was found to reduce spending on hospital care after 1 year by 8% and total expenditures by 4%. In a study that compared the treatment of heart disease in HMOs and traditional insurance plans from 1993 to 1995, HMOs had 30–40% lower expenditures, with little difference in treatments or health outcomes; the authors attributed the lower expenditures to the lower unit prices paid by HMOs. Trends in the use of outpatient versus inpatient care showed a decline in hospital days per thousand enrollees in HMOs from 1985 to 1995, whereas ambulatory visits per enrollee increased, suggesting that HMOs substituted less expensive for more expensive treatment settings. A review of studies of the use of diagnostic tests in HMOs found that HMO enrollees received fewer diagnostic tests during their inpatient stays than patients enrolled in traditional insurance plans, and did not receive any more tests on an outpatient basis. And, another study found that increases in market share of HMOs were associated with lower MRI availability between 1983 and 1993.

Research conducted during this period found that differences in payment arrangements and practice settings continued to be important in explaining differences in utilization in HMOs. For instance, one study estimated that patients in solo or single specialty group practices, where physicians were reimbursed on a fee-for-service basis, were 41% more likely to be hospitalized than when the group practice received a capitated payment.

A major factor in the growth in MCO enrollment overall [not just HMO enrollment] from 1985 to the mid-1990s was a decision by most large employers to offer Preferred Provider Organizations [PPOs] to their employees. Under this type of MCO, the penalty for seeing a provider outside of the limited network was much less severe than under the traditional HMO [where consumers bore 100% of the cost for services received ‘out of network’]. Typically, in the PPO model, consumers paid all costs up to a specified deductible level, then continued to pay a share of costs above that level until a specified maximum for consumer expenditures was reached. This design differed from traditional insurance in that the deductible and coinsurance rates were lower if enrollees used ‘preferred’ providers who agreed in their contracts to be paid set fees and also to participate in the plan's utilization management programs. Providers sought preferred status because they hoped to attract more patients and thereby generate more revenues. Alternatively, they viewed it as a means of protecting themselves against the loss of patients to providers who held preferred provider status. A key to the popularity of PPOs was that consumers could choose between seeing a preferred provider or some other provider at the point of service. By 1995, almost 35 million employees were enrolled in PPOs. HMOs responded to PPO development by devising a plan with similar provider and consumer incentives [the POS HMO], utilizing the HMO network as the preferred providers.

Skeptics doubted the ability of PPOs to effectively control health care costs because they typically reimbursed physicians using a fee-for-service approach, which rewarded provision of more services, and their preferred provider panels were large, presumably making the effective application of MCO utilization management techniques more difficult. However, the relatively modest premium increases of the mid-1990s, which were coincidental with growth in PPO enrollment, seemed to belie those concerns.

The rapid growth during this period in the number of MCOs, the number of national MCOs, and the enrollment in MCOs generated a large body of research addressing the competitive impacts of HMOs. Regarding the relationship between degree of HMO competition and level of HMO premiums, one study found lower premium revenue per HMO enrollee in markets that contained larger numbers of HMOs in combination with a relatively high percentage of the population enrolled in HMOs. Another study found that HMOs had a constraining effect on the premiums of other health insurers at low levels of HMO market penetration despite that premium levels for other insurers were higher at greater levels of HMO penetration. The authors speculated that this could reflect shadow-pricing strategies by HMOs as soon as they had established their market presence.

The impact of HMOs on quality of care was also an important topic of research during this period, that stimulated in part by concerns HMO utilization management policies and payment arrangements shifting risk to providers could have a negative impact on quality. In general, review articles concluded that there was little support for the concern that HMOs reduced quality. For example, although one study found a negative effect of HMO competition on quality of care indicators relating to treatment of acute myocardial infarction, others found mixed or somewhat positive relationships between measures of HMO competition and quality of care.

As HMO presence grew in some markets, so did the degree of consolidation among hospitals and physician groups, raising concerns of whether HMOs could continue to contain costs by negotiating lower prices for inpatient care for their members. Quantitative analyses found that the increased presence of MCOs in local markets was not a major factor causing hospital mergers, but qualitative evidence suggested that the threat of managed care could have encouraged mergers. Irrespective of the role managed care played in stimulating mergers, quantitative studies found that hospital prices were higher in more consolidated hospital markets. Hospitals in more competitive HMO markets had slower rates of cost growth, but this HMO effect was not significant in highly concentrated hospital markets, suggesting diminished HMO negotiating leverage in consolidated hospital markets.

Modern Health Care in the United States

An awareness of the dynamics that have shaped our current health care system will help PTs appreciate the various demands placed on the primary care provider. The first major change in the delivery of health care in the United States occurred in 1965 with the establishment of Medicare and Medicaid. Before this, health care services in the United States were delivered almost exclusively by individual health care providers on a fee-for-service basis. With the passage of the Medicare and Medicaid Acts the U.S. government for the first time guaranteed availability of health care services for the elderly and the poor.

Medicare and Medicaid were cornerstones of President Johnson's “great society.” The Johnson administration envisioned subsequently offering similar programs to the entire population as a way of providing universal health care access. Much to the chagrin of the framers of the original Medicare legislation, health care expenditures for Medicare recipients increased dramatically in the decade that followed. This rapid increase in health care costs put a halt to any plans to expand government-guaranteed health care coverage further and spawned several pieces of legislation that shaped later changes for health care delivery within the United States.16

In response to the rapid rise in health care costs in both the private sector and Medicare, Congress passed the Health Maintenance Organization Act in 1973. This provided financing and other legislative support for the development of health maintenance organizations [HMOs]. However, not until the 1980s did HMOs begin to exert a major influence on the delivery of health care in the United States. Enrollment in HMOs and preferred provider organizations [PPOs] rose from 10 million in the early 1980s to 55 million by the start of the 1990s.4 In the face of rapidly rising Medicare costs, the Tax Equity and Fiscal Responsibility Act established diagnosis-related groups [DRGs] as the method of payment for inpatient services rendered to Medicare recipients. With the passage of this legislation physician and hospital services were no longer reimbursed on the basis of charges for services rendered to the patient during the hospital stay. Hospitals were instead reimbursed a flat rate determined by the patients' diagnoses. Institutions with extensive lengths of stay or high utilization of expensive services received the same reimbursement as those with shorter lengths of stay and more conservative use of medical services. The establishment of DRGs resulted in the first reduction of utilization of Medicare services since the program's inception. Resource-based relative value scales [RBRVS] were developed in 1989 to quantify outpatient Medicare services in much the same way as DRGs were being used to define payment for inpatient services. RBRVSs were fully implemented in 1997.15

Although DRGs and RBRVSs were effective in controlling the rise in Medicare expenditures in the 1980s, health care expenditures for the remainder of the population rose at an alarming rate during this period. By the close of the 1980s health care costs made up 14% of the gross national product [GNP]. High health care costs were of particular concern to major manufacturers and industries. Health care costs for American workers were significantly higher than for workers in Western Europe. This added cost to the manufacturing industry made it difficult for American goods to be cost competitive in the world market. The rising cost of health care was a central issue in the 1992 presidential election. Bill Clinton made the National Health Care Initiative [NHCI] a major element of his campaign platform. After the elections President Clinton appointed his wife, Hillary Rodham Clinton, to head a task force charged with the reform of health care in the United States. Many health care reformers of the time believed that the United States would follow the lead of most Western European nations and establish a national health care system. Clinton's NHCI collapsed in 1994 under intense lobbying by the insurance and hospital industries as well as the sheer complexity of the task force's final recommendations.

With the demise of the NHCI, HMOs were aggressively promoted as the free market system's answer to controlling health care costs. The most common HMO model includes a physician gatekeeper. With this model all services are directly provided by the patient's primary care provider or, if specialty services are required, authorized by the primary care provider. HMO plans assumed that requiring everyone to see a primary physician first would result in significant savings. Studies have consistently shown that patients with primary care physicians consume fewer services, have lower overall health care costs, and have better health outcomes than patients without primary care providers. Primary care physicians were also given further incentives to conserve medical resources by receiving bonuses based on health care expenditures. Physicians using fewer health care resources would be paid bonuses based on the amount of money the insurance plan was able to save over expected costs.

Perspective

Numerous entities, such as hospitals, health maintenance organizations, providers, patients, or society as a whole, may derive benefits or incur costs from an intervention. Each may view costs from the perspective of its own particular “silo,” and thus interests may clash. For example, a shortened hospital length of stay of a patient benefits the hospital because payments from insurance companies are prospective [via diagnosis-related groups] and similar regardless of the length of stay. For the patient, it may be economically advantageous to stay in the hospital, because many out-of-pocket costs are thereby avoided, including the costs of any home care. Although an individual entity may find cost-effectiveness analysis very useful in making rational allocations of resources from its own perspective, the broader societal perspective is generally recommended to ensure comparability between analyses.107

IV.D. The Present Competitive Market

Managed care companies began to emerge in rapid succession alongside HMOs in the early 1980s, gained rapid momentum by 1990, and by 2000 there were 175 million Americans receiving their health care through some kind of managed care. In a little over one decade the health sector had emerged from a series of cottage industries to full industrialization. Those stunned by this unprecedented growth have asked why health care had to industrialize in the first place. Economists would point out that is not the question. Any sector of the economy that accounts for 12% of the GNP must inevitably industrialize. The real question is why it took so long, when manufacturing industrialized in the early 1900s, retail in the 1950s, and transportation in the early 1960s.

Cost Issues

Whether the combination vaccine purchaser is a government, a health maintenance organization or some other intermediary, or the practitioner and patient, it must be expected that economic factors will influence decisions. It is obvious that premium pricing of the combination or reduced provider reimbursement [as a result of administration of fewer injections] may inhibit use of the combination. Less obvious, but equally important, are the economic benefits that flow from use of a combination, which include savings resulting from simplified vaccine purchase, storage, and handling; reduced costs for labor and supplies; elimination of the need for scheduling several vaccination visits to avoid multiple injections; and, of course, increased patient satisfaction and greater compliance with vaccination recommendations.

Many of the newer vaccines, such as DTaP, conjugate Hib, and complex combinations, are substantially more expensive to produce than DTwP, OPV, and other traditional combination vaccines. Certainly, cost considerations will constrain the use of some of these vaccines in certain parts of the world. DTwP, for example, is produced locally at low cost in many countries, and its replacement with DTaP must be weighed against other healthcare expenditures. However, some other relatively expensive vaccines, such as HepB or Hib, offer such clear benefits that they are being used in many developing countries, and once a country has committed to using [for example] HepB or conjugate Hib vaccine, it is likely that combinations that also provide such antigens as DTP or IPV can be purchased for less than the cost of purchasing, storing, shipping, tracking, and injecting the separate component vaccines.