Definition/Introduction
Health maintenance organizations (HMOs) are a type of managed care health insurance plan that features a network of health care providers that treat a patient population for a prepaid cost.[1] As prepaid health plans, HMOs combine financing and care delivery and thus allegedly provide incentives to deliver cost-efficient, high-quality care.[2] The motivation for the emergence of HMOs was a desire to align financial and care-quality incentives. Such alignment of incentives contrasts with alternative health care payment structures, such as fee-for-service designs, in which care providers may have a financial incentive to provide care inefficiently.
Issues of Concern
HMOs increased in popularity following the passage of the HMO Act of 1973, which sought to expand HMO use to improve patient care, reduce health care costs, and place greater emphasis on preventive care.[3][4] In the years following the enactment of the HMO Act, HMOs became a prominent form of health insurance in the United States. For example, by 1987, over 29 million Americans (12%) received care through HMOs.[1] As such, it is useful for health care providers to understand HMOs and their features.
Clinical Significance
In the years preceding the HMO Act of 1973, rising health care costs and feelings of inferior care quality in the U.S. motivated innovation in health care delivery.[1] Preventive medicine was not a prominent idea in health care at the time. Dr. Paul Ellwood, a Minnesota physician, is credited with championing major HMO concepts, such as rewarding health care providers and organizations that emphasize maintaining patients' health.[1] The Nixon presidential administration supported Dr. Ellwood’s ideas, ultimately leading to the passage of the HMO Act in 1973.[1]
The HMO Act allocated funds to support HMO development, with the aim of improving overall U.S. health care and simultaneously reducing costs. HMOs are designed to accomplish these goals by integrating health insurance and health care delivery within the same organization, thereby aligning the incentives of the health care payer and provider.[5] This structure aims to reduce health care costs, for example, by encouraging the transition of inpatient care to outpatient care when appropriate and by reducing the use of more expensive, unnecessary medical interventions.[5][6] Following the passage of the HMO Act, HMO enrollment increased from approximately 6 million in 1976 to over 29 million in 1987.[1]
From a patient’s perspective, HMOs represent a potential option for health insurance. HMOs provide medical care for their patients for a prepaid fee. Compared to other common health insurance plans, such as preferred provider organizations (PPOs), HMOs are generally less expensive. Patients with an HMO must have a primary care provider (PCP). These patients usually need to receive referrals from their PCP to receive coverage to see a specialist. For this reason, the PCP is sometimes referred to as a “gatekeeper,” as they are the first providers to evaluate patients before referring them to specialists, if necessary.[7] Additionally, patients with an HMO generally receive coverage only for services from providers within their HMO network, referred to as “in-network” providers. There are exceptions to this, notably in emergencies.
HMOs employ a variety of payment models, but generally collect payments from their enrolled patients through premiums, copayments, and deductibles. Copays and deductibles are cost-sharing strategies in which patients may be responsible for a portion of the cost of care. By charging patients per provider visit, cost-sharing strategies seek to disincentivize the overuse of medical services that might occur if patients were not responsible for any per-visit costs.
Over the years, various types of HMOs have emerged, each with a distinct structure.[8] These different models include group model HMOs, network model HMOs, independent practice association (IPA) HMOs, and staff model HMOs. Group model HMOs enter into contracts with groups of medical providers and, in some cases, with hospitals to provide care for their members.[9] Health care providers under contract with a group model HMO generally only care for patients covered by the HMO. Network model HMOs share many similarities with group model HMOs, except that providers under contract with a network model HMO also usually treat a substantial number of patients outside of the HMO. IPA HMOs contract with providers individually or with organizations representing individual providers. These providers are typically solo practitioners and see patients both within and outside the HMO.[9] Lastly, staff-model HMOs generally employ their providers directly and own the facilities in which care is delivered.[9]
Over the years, HMOs have faced a variety of issues, leading some vendors to financial collapse. Given that HMOs operate with a prepaid model and thus must make predictions about future costs and revenue, failures generally involve the HMO underestimating its incurred claims while overestimating the funds it receives.[10] Additional reasons contributing to the financial collapse of some HMOs include underpricing of medical services, mergers, and reduced ability to cost-shift. Such factors have led to continued innovation in managed care solutions and designs to address some of the pitfalls of HMOs.
Accountable care organizations (ACOs), including the related concept of clinically integrated organizations (CIOs), represent an innovation in the managed care sector. CIOs are the commercial counterpart of ACOs, as ACOs were designed, strictly speaking, to contract with Medicare only.[11] ACOs were authorized under the 2010 Affordable Care Act (ACA) and, like HMOs, were introduced to provide high-quality, cost-efficient care.[11] A primary structural and conceptual difference between HMOs and ACOs is that HMOs are insurance organizations that contract with clinicians, whereas ACOs are clinician groups that contract with insurers.[11] ACOs often include features that promote high-quality care, such as incentives to meet specific quality benchmarks related to disease prevention and the successful management of chronically ill patients.[12] In summary, ACOs represent the ongoing evolution of managed care organizations, intended to provide high-quality, affordable care.
Despite efforts to reduce health care costs and improve care quality in the U.S. through strategies such as HMOs, the U.S. health care system remains the most expensive in the world, accounting for approximately 18% of U.S. gross domestic product (GDP).[13][14] In addition to HMOs, managed care options include PPOs, point-of-service (POS) plans, and the previously discussed ACOs, each with distinct features designed to contain health care costs while accommodating the preferences of different patient groups. Innovations in health care delivery are likely to continue as society perpetually strives to decrease costs and improve care. Given the dynamic nature of the health care system and health insurance landscape, health care providers can benefit by remaining attentive to health policy and participating in ongoing policy revisions.
Nursing, Allied Health, and Interprofessional Team Interventions
HMOs are a type of managed care designed to maintain patients' health cost-effectively. A primary method HMOs use to achieve these goals is to coordinate health services and care provided to patients.[15] Such care coordination requires collaboration among various members of the care team. Multiple strategies have sought to improve care coordination in managed care organizations, such as HMOs. For example, explicitly defining each member of the care team's responsibilities is thought to improve coordination among team members.[16] Financial risk-sharing strategies, such as bundled and capitated payments, shared among care team members, can also incentivize greater collaboration to achieve cost-efficient care.[17] Additionally, pharmacies have attempted to control costs without compromising care by using techniques such as drug formularies and prescribing protocols.[17] Ultimately, strategies that incentivize communication among care team members and align their goals can improve care coordination within an HMO.
