Downturn of Health Maintainance Organization - Term Paper Example

Downturn of Health Maintenance Organization Managed care was seen by most as offering a cure for all problems related to an aging American population, rising medical expenses due to improved medical technology, and a strain on taxpayers. Health maintenance organizations (HMOs) arose out of this need for a cure in the 1980’s. However, as the saying goes, “[t]he operation was a complete success, but the patient died of something else” (Chiene, n.d.). HMOs offered lower premiums, but at the cost of quality of care. Preventive care was promoted in order to decrease costs of more expensive medical procedures. However, they failed to contain costs, and customers. With a decrease in services offered, HMOs are chosen only when no alternative is available. Moreover, only non – profit and independent HMOs fare due to lower premiums they offer to employees. Saturation of markets has increased competition among HMOs. State actions failed to restrain HMOs. Despite legislations and ombudsman offices protecting customers, premiums increased in the 2000’s, while quality remained limited. Physicians as a result have been leaving HMOs as well. Solutions need to focus on quality and profits. Involvement of specialists in prevention would assist patients with disabilities better. Autonomy of physicians, even if at the cost of their salary, needs to be increased. Administrative costs need to be decreased. Introduction Rising costs due to improved medical technology, aging population and increased coverage led to a need for cost containment (Simonet, 2007, 356). The Health Maintenance Organization (HMO) Act was passed in 1973 and it granted monetary advantages to HMOs (Simonet, 2007, p. 357). Managed care has since then become a dominant form of healthcare provision in the United States. By 1996, around 100 million Americans were enrolled in managed care (Grabois & Young, 2001, p.13). In 1987, only 11 percent Americans were enrolled in HMOs (Schulz, Scheckler, Girard & Barker, 1990, p.44). Growth rates of HMO coverage in the 1990’s stood at 10 percent (Simonet, 2007, p.573). In 2007, around 87 million persons were enrolled in some kind of an HMO (Simonet, 2007, p.573). HMOs decreased a rise in healthcare costs by 44 percent, but largely due to a decrease in quality and scope of services offered (Simonet, 2007, p.359). However, decreased quality and profits have affected HMOs and patients equally by limiting services to the latter, and incentives for improvement to the former, placing the United States above the G7 countries in terms of costs, and below in terms of health outcomes such as life expectancy (Simonet, 2007, p.369). Background Managed care organizations (MCOs) have been at the forefront of cost containment in the United States (Grabois & Young, 2001, p.13). This system, unlike the traditional fee for service, uses pre - arranged fee structure and utilization review procedures (Grabois & Young, 2001, p.13). Health maintenance organizations (HMOs) are a subgroup of MCOs (Grabois & Young, 2001, p.13). They organize services, and deliver payments to physicians (Grabois & Young, 2001, p.13). Patients pay monthly premiums and small out – of - pocket amounts when they utilize these services (Grabois & Young, 2001, p.13). However, all patients must receive only the services of physicians subcontracted by their HMO, which decreases their choice (Bodenheimer & Grumbach, 2004, p.32). There are different models of HMOs, depending on whether physicians provide independent services, or are contracted by an HMO to perform the work (Grabois & Young, 2001, p.14). Preventive care is highly promoted as a method in cost reduction (Grabois & Young, 2001, p.14; Bodenheimer & Grumbach, 2004, p.63). Due to their focus on risk undertaking by the provider instead of the insurer, and additional out - of - pocket costs, overuse of the system is reduced at the cost of consumers and physicians, as shall be shown later on (Bodenheimer & Grumbach, p.34). Early 90s were a time of prosperity for HMOs. According to Schulz et al. (1997, p.321), primary care physicians were more than ever satisfied with their work for HMOs in 1993 in the Dane County, Wisconsin. Their salaries increased, while independence and control of managerial duties increased their ownership of care (Schulz et al., 1997, p.321). Moreover, though less than primary care physicians, other types of physicians too were more satisfied with HMOs than with any other system (Schulz et al., 1997, p.321). The cause of this disparity between physicians was located in income for specialists being higher in traditional health systems (Schulz et al., 1997, p.325). By early 2000’s, 88 percent physicians were contracted by HMOs, where they earned 44 of their income (Garry, Lowery & Godwin, 2007, p.461). For some, HMOs provided more independence. Unlike what the physicians in the 1980’s feared, HMOs in the Dane County turned out to provide more autonomy and income than expected, while quality remained of comparable quality to the classical systems (Schulz, Scheckler, Girard & Barker, 1990, p.44). However, the physicians in the Dane County founded their own HMO, which could explain part of independence they reported. Stoddard, Hargraves, Reed and Vratil (2001, p.675, 680) discovered that physicians in the US in the late 1990’s were satisfied with their career development, as reflected upon by autonomy and quality of care provided to patients. Income was less important. However, HMO presence decreased their autonomy and quality of care (Stoddard et al., 2001, p.682). Drawbacks Struggle for premiums According to Song, Landrum and Chernew (2012, p.550), private insurance markets in the United States are concentrated and thus follow the laws of imperfect competition. As a result, they often charge prices to employees which are above their willingness to pay. The difference then must be paid by employees out of their pockets. Private insurers base their market power on the fact that each state has a limited number of insurers (Song et al., 2012, p.551). As a result, HMOs have been facing decreasing margins. According to Hammer and Van Antwerp (1997, p.78), HMOs since 1995 started facing decreasing profit margins due to increased competition among HMOs and other healthcare providers, more aggressive premium negotiations by employers, higher medical costs and a large but expensive administrative system. Hammer and Van Antwerp (1997) argued in 1997: “Only 61 percent of HMOs surveyed nationwide reported a profit or surplus after expenses, compared with 88 percent in 1994 and 89 percent in 1993” (p.78). Medical expenses, such as administrative expenses, consumed most of premiums. They consumed 80 to 88 percent of HMO premium revenue, making it a largest cause of decreasing profit margins (Hammer & Van Antwerp, 1997, p.78). Besides medical expenses and employer demand for lower premiums, tax status and type of HMO determine the profit margins of HMOs as well (Hammer & Van Antwerp, 1997, p.80). Independent HMOs such as the Blue Cross experienced increasing profit margins as compared to national HMOs. The cause lies in saturation of markets with the latter, which have opened a way on the markets for the former (Hammer & Van Antwerp, 1997, p.80). Moreover, not – for – profit HMOs were able to set low premiums (Hammer & Van Antwerp, 1997, p.80). Individuals with disabilities Quality of services HMOs provide adversely affects many disabled persons. Persons with disabilities spend longer time in hospitals and are more susceptible to infections (Grabois & Young, 2001, p.14). However, HMOs focus on predictability and systematization of patients. As a result, patients with disabilities face challenges in such a system as they need frequent hospitalizations (Grabois & Young, 2001, p.14). Moreover, HMOs focus on prevention, which cannot be applied to patients with disabilities. As a result, problems arise in allocation of patients to wrong therapies, or prescription of medication unapproved by an HMO (Grabois & Young, 2001, pp.15 - 16). Access to specialists and high premiums create problems for many disabled persons, but this problem is most likely applicable to all patients (Grabois & Young, 2001, p.16). Moreover, because of subcontracting, communication breaks down between primary care physicians and specialists; appointments and payments are sometimes delayed, resulting in prolonged lack of access to treatment for patients (Grabois & Young, 2001, p.17). In short, low cost of HMOs is at times substituted with low quality, which in case of disabled persons is a significant disadvantage. Since 20 percent of the American population has some kind of a disability, they are a large population that is in need of high quality medical services (Grabois & Young, 2001, p.13). Overall HMO quality and coverage. Though HMOs decrease costs, they also decrease quality offered. According to Simonet, HMOs in California decreased a rise in costs by 44 percent (Simonet, 2007, p.359). However, 28 percent of a decrease in costs was because of a decrease in services offered and 16 because of a decrease in available beds and service intensity (Simonet, 2007, p.359). As a result, the United States fared below or at the same level as other G7 countries in terms of life expectancy and infant mortality, while health expenditure as percent of GNP was the highest, standing at 16.3 percent (Simonet, 2007, p.359). As a result, more patients are excluded from services they would have been entitled to a few decades ago (Simonet, 2007, p.367). Physicians, according to Simonet (2007, p.367), have turned into businessmen, disregarding their primary role as indiscriminate medical care givers. Previous research has found quality of care to affect physician satisfaction. Thus, as shown in case of disabled persons and a decrease in costs being attributed to a decrease in quality, it is safe to assume that recent developments have decreased the latter (Stoddard, et al., 2001, p.675). Dissatisfaction and lower payments led to lower numbers of physicians remaining with HMOs in the 2000’s (Bodenheimer & Grumbach, 2004, p.199). As a result, patients in the 2000’s prefer non – HMO plans. According to Polsky, Stein, Nicholson and Bundorf (2005, p.1268), married couples prefer non – HMO plans. For married couples relative premiums matter in decision making, thus making HMOs less attractive (Polsky et al., 2005, p.1276). However, singles and individuals with no previous insurance are more likely to accept HMO plans (Polsky et al., 2005, p.1268). In short, when alternatives are present, HMO coverage will be substituted for an alternative plan, further decreasing profits of HMOs. State Reactions States and consumers came to see HMOs as out of control by the late 1990’s as a result of a decrease in quality of care (Garry et al., 2007, p.458). By 1996, over 400 laws were passed to regulate managed care (Garry et al., 2007, p.461). Physicians are seen as starters of this wave (Garry et al., 2007, p.461). Laws such as “any willing provider” aiming to grant access to all adequate providers, liability laws, as well as ombudsman offices assisting customer complaints, were set up by states (Garry et al., 2007, p.461). HMOs responded by attempting to reduce risks related to consumer backlash and legal conflicts (Garry et al., 2007, p.463). Ombudsman offices were set up and applicable to all types of coverage (Garry et al., 2007, p.463). Considering that so far HMOs have not changed their structure significantly, it is safe to assume that they have not been forced against the wall by state legislations. Customer complaints continued despite some of the legislations. Though premium growth rates due to external pressure decreased from 13 percent in 1995 to 3 percent in 1996, they rebounded in 2003 and stood at 15 percent (Bodenheimer & Grumbach, 2004, p.197, 199). Moreover, coverage has not increased (Bodenheimer & Grumbach, 2004, p.199). Recommendations As discussed, quality and profitability have decreased for HMOs. Administrative costs related to a fragmented structure of HMOs need to be eliminated, while allowing for flexible treatments. Moreover, since physician satisfaction is most affected by quality of care and autonomy, the latter needs to be increased, while salaries can remain capped. Also, prevention needs to include specialists, who can better treat disabled persons, which would increase quality of care (Grabois & Young, 2001, p.18). Conclusion The 21st century has witnessed a demise of HMOs. Though HMOs provided lower cost care and thus alleviated the cost hysteria in the United States, they have commercialized healthcare. Services are limited, while coverage is limited to those able to pay. As a result, HMO profit margins have been decreasing as well. Despite the rise in optimism in the 1990’s, it seems that fears of physicians from the 1980’s have been confirmed. As Starr (2004) put it, medicine too is a “world of power” (p.576). In such a world, the medical profession has risen to be one of the dominant powers which has asserted its power through success in imposing itself as an authority in health of every individual (Starr, 2004, p.576). Despite state legislations and customer concerns, medical profession will remain the dominant force in determining who gets access to healthcare, at what cost and of what quality. However, HMOs own a decreasing share of that pie. References Bodenheimer, T.S. and Grunbach, K. (2004). Understanding Health Policy. USA: McGraw – Hill. Chiene, J. (n.d.). Just – one – liners.com. Retrieved from http://www.just-one-liners.com/health/57439 Grabois, E. and Young, M.E. (2001). Managed care experience of persons with disabilities. Journal of Rehabilitation 67 (3), 13 – 19. Gray, V., Lowery, D. and Godwin, E.R. (2007). 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