HMO Incentives May Peril Patient Care, Report Says

Some of the rewards and penalties used by health maintenance organizations to hold down costs may encourage doctors to sacrifice good care for high pay, a report warns.

The study by Dr. Alan L. Hillman of the University of Pennsylvania found that HMOs rely on a variety of financial incentives to persuade doctors to practice medicine as stingily as possible. It said some of these may make it difficult for physicians to always work in their patients’ best interests.

“Certain financial incentives, especially when used in combination, suggest conflicts of interest that may influence physicians’ behavior and adversely affect the quality of care,” Hillman concluded.

Reviewed 302 Groups

His study, based on a survey of 302 of the 595 HMOs that were operating in 1986, was published in the New England Journal of Medicine. It listed financial pressures on HMO physicians but did not attempt to determine whether patients are actually shortchanged because of them.

In an interview, however, Hillman said the incentives are likely to play a role in the way doctors handle only a small share of their cases. When patients’ medical needs are obvious, there’s little risk that financial motives will keep doctors from offering the right kind of care.

“The question is how they are operating for patients where it’s not 100% clear what to do,” he said. “Sometimes that comes into play with the very old or the very sick, where applying technologies might not make a big difference.”

The rewards and penalties vary greatly, depending in part on how HMOs are organized. Some hire physicians full time and pay them salaries. Others send patients to doctors who have private practices. These doctors might be reimbursed for each patient visit, or they might receive a flat fee for each patient in their care.

Among the incentives that Hillman discusses are requiring doctors to pay for laboratory tests out of their own fees and putting doctors in competition with each other for bonuses.

Caution on Lab Tests

Dr. Donald Berwick of the Harvard Community Health Plan, New England’s largest HMO, cautioned that overuse of medical tests and procedures can be as hazardous as under-use.

“The problem is that we need a lot deeper understanding of the implications of these financial arrangements,” he said. “The article was very speculative about the implications for patient welfare and physician behavior. I would be far more cautious in saying that they are damaging to patient care.”

People who join HMOs pay flat fees. In return, virtually all their medical costs are covered, but they must accept doctors who are on their HMO’s payroll. Generally, HMOs cost less than traditional health insurance.

Nearly 28 million Americans are enrolled in HMOs, compared with 11 million five years ago.

In his survey, Hillman found that two-thirds of HMOs withhold part of their payments to primary-care physicians. Typically, between 11% and 20% is retained. Whether the doctors get this money at the end of the year depends on how profitable they and their HMOs have been.

Concern About Compromise

Such withholding is not necessarily bad, he said, and may encourage doctors to work efficiently. However, Hillman listed several other rewards and punishments, including some that he said might induce doctors to compromise patient care. Among them:

-- Forty percent of primary-care doctors must pay for lab tests out of their own fees.

-- Eighteen percent of HMOs hold doctors at financial risk for deficits on the basis of their individual performance. In the rest, groups of doctors share the risk.

-- Many HMOs share any surpluses at the end of the year with their doctors. Some put the physicians in competition with each other. Their bonuses are based on how they have performed over the year in comparison with the group average.