The HMO Story

Emmanuelle MirsakovPharm.D. Candidate 2007

USC School of Pharmacy

12-1-06

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What is an HMO?

Health Maintenance Organization (a type of managed care organization)

An organization that provides comprehensive health care to a voluntarily enrolled population at a predetermined price.

Contract directly with physicians, hospitals, and other health care providers

Providers offer their services at a discounted rate, in exchange, HMOs offer referrals

HMOs emphasize preventative care

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General Overview of How It Functions

Members pay fixed, periodic (usually monthly) fees directly to the HMO and in return receive health care service from the HMO’s network of providers.

Out-of-pocket expenses are typically limited, as long as the member uses providers in the HMO’s network.

Most HMOs use Primary Care Physicians (PCP’s) as gatekeepers

Most HMOs cover basic health services such as physician services, inpatient/outpatient hospital services, emergency visits, referral services, laboratory services, and more.

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Why and When Were HMOs Developed?

Informal HMO structures existed as far back as 100 years ago

HMO Act of 1973 passed by Congress. The governments attempt to move toward more

disciplined control of health care spending and utilization of service

It set requirements for federal qualification and provided for grants and loan guarantees for planning, development, and initial operating costs for those HMOs that met the qualifying standards.

Encouraged enrollment among the public by establishing criteria for HMOs seeking federal qualification

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HMO Act of 1973

4 primary attributes: Feasibility grants and low-interest loan

programs made available to encourage interested parties to develop and build HMOs

The establishment of procedures through which health plans would become “federally qualified HMOs”

Inclusion of preventative as well as curative health care benefits

Requirements that employers offer federally qualified HMOs to their employees under certain circumstances

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Who Develops HMOs

Employers Labor unions Medical schools Hospitals Medical clinics Insurance companies

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What Are The Different Types of HMOs?

HMOs are organized on a physician basis

5 types: Group model Staff model Network model Independent practice association (IPA)

model Mixed model

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What Are The Different Types of HMOs?

Group model: Contracts with one independent group practice of

multispecialty physicians to provide health services, with care usually billed to the HMO on a fee-for-service basis (e.g. Kaiser Permanente)

Physicians are employees of the group practice and are generally limited to providing care for the HMO enrollees

Staff model: Delivers health services through a physician group that is

controlled by the HMO. The physicians are basically employed and paid by the HMO (e.g. Group Health Cooperative of Puget Sound)

The physicians practice in HMO owned facilities and primarily only see the HMO enrollees

Pharmacy services are through in house facilities or through network pharmacy mail order

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What Are The Different Types of HMOs?

Network model: Contracts with two or more independent group practices (no

solo practices) to provide health services (e.g. Health Insurance Plan of Greater New York)

Pharmacy services are provided through in-house pharmacies, a contracted community network of pharmacies, and mail order.

IPA model: Contracts with physicians from various settings (individual

physicians or a mixture of solo and group practices) to provide health services; contracts with community hospitals, laboratories, diagnostic centers.

It is a loosely affiliated group of physicians organized to contract with HMOs and other managed care organizations

The HMO has no medical facilities of their own Mixed model:

Combines elements of the other models

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What is the Payment Structure?Providers

Fee-for-service For each unit of service provided, an associated fee is

billed Capitation

Health care providers are paid a fixed amount per member per month regardless of which services (if any) are provided [ adjusted for age and gender]

Pre-paid health plans Employers pre-pay for expenses their employees will

incur by paying a fixed monthly premium to an insurer. Physicians are then paid on a fee-for-service bases

* Take home message: with HMOs it is the health care provider that assumes the risk

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What is the Payment Structure?Patients

Premiums Deductibles

A cost management tool Requires patients pay up to a certain amount

out of pocket before the insurance pays Co-payments

A small fee charged for services or medications

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Legal Aspects of an HMO

To be federally qualified, an HMO must be organized and operated and provide health services as prescribed by the law Please see handout on standards

The HMO Act also mandated that employer contribution must be reasonable and assure employees a fair choice among health benefit plans HCFA (Health Care Financing Administration) has a

final rule for employer contributions to HMOs Many states have laws meant to promote HMO

development while ensuring the quality of care delivered by HMOs

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State and Federal Laws

State laws: Health plans are covered under the Department of

Insurance (DOI) Some Federal laws:

Employee Retirement Income Security Act of 1997 (ERISA)

Health Insurance Portability Act of 1996 (HIPPA) Consolidated Omnibus Budget Reconciliation Act of

1985 (COBRA) Omnibus Budget Reconciliation Act of 1993 (OBRA

’93)

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HMO vs. PPO

PPO: Preferred Provider Organization An organization that arranges contracts

between a select group of health care providers and purchasers of health care, but is itself neither a provider nor a purchaser

Payment is on a fee-for-service rather than a capitated basis

Strict utilization controls are combined with flexibility in benefit design and freedom of choice with respect to providers

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HMO vs. PPOHMO PPO

Enrollee must stay in plan and use only the participating physicians/providers in order to have services covered

Enrollee may select an out of network provider and still receive some reimbursement

An alternative to a traditional health plan Exists within a traditional health plan

Requires services be rendered by participating providers in order to be covered

Reimburse services by nonpreferred providers at a lower rate; cover most medically necessary services

Enrollee must choose a PCP; Referral to specialists

Do not use gatekeepers; patients can visit any specialist (out-of-network specialist fees are reimbursed at a lower benefit percentage)

HMO assumes risk that the cost of services required by members> revenues generated by capitation

Assume no risk and reimburse on a fee-for-service basis; the risk continues to be assumed by the employer, trust fund, or insurance carrier

Strictly regulated by federal HMO and various state laws

Largely unregulated

Delivers health care Facilitates the delivery of cost-effective health care, but itself is not a provider (manager or broker)

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HMO Advantages and Disadvantages

Advantages DisadvantagesThrough capitated pre-payment, HMOs

transfer risk from employers directly to suppliers, who are in the best position to control spending

The choice of physicians may be limited, which means that employees joining an HMO may have existing doctor-patient relationships disturbed, or may be faced with additional costs to keep those relationships intact

Budgeting is simplified Centralized HMO facilities may not be as convenient as a local physician’s office

Offer incentives to suppliers to reduce costs

HMO financial incentives might restrict needed care

Through emphasis on prevention and routine care, HMOs forestall major, more costly ailments

In the past, some HMOs have had a reputation for bad management, poor service, and financial problems

HMOs may not be as effective in controlling employer costs as expected

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Medicaid and Medicare HMOs

In 1982 the Tax Equity and Fiscal Responsibility Act (TEFRA) was passed Led to Medicare risk contracts, a way for

government to introduce HMOs to control the health care costs for Medicare

Medicaid also offers HMO options Most state managed care Medicaid programs

have concentrated on moving only those recipients who qualify under the TANF regulation (young, healthy, female patients with small children)

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Pro Pharma

Survey of Pro Pharma employees: What is an HMO? What happens to a patient who has an

inadequate primary care physician? Will an HMO cover emergency services? Why do some HMOs we deal with here limit

the pharmacy you can go to, while other HMO plans do not?

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The Moral of The Story

HMO plans have very strict guidelines, and restrictive coverage

A well-designed HMO model could be a large cost saver for employers

It is important to understand the big picture of HMOs because Pro-Pharma acts as a consultant for many HMO plans (e.g. BCBSRI; Blue Cross Blue Shield Rhode Island)

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'In sickness and in health? I'll need to run that by my HMO...'

Don’t Let HMOs Make You Cry!

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"I'm referring you to a specialist who knows how to deal with HMO's."

                                                              'Do you have one saying 'Good luck getting your HMO to pay your

claim'?

I’m referring you to a specialist in how to deal with HMOs

Do you have one saying ‘good luck getting your HMO to pay your claim?’

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Go USC !!!!! Teach the Bruins a Lesson!!!!

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