MEDICINE : HMOs Expanding to Streamline Operations and Bolster Quality

After decades of struggling for widespread recognition, health maintenance organizations, or HMOs, are entering a phase of expansion in which they hope to blanket the nation with networks of medical services and facilities.

The burgeoning trend is sparked by large companies that subscribe to HMO plans and need simplified ways to coordinate health insurance for employees in more than one part of the country. Unlike plans that charge for each medical service performed, HMOs charge a flat monthly fee for each employee regardless of the amount of care delivered, and are generally less costly than other systems for both employer and employee.

Individual HMOs in cities from coast to coast are attempting to satisfy employers by forming networks with HMOs in other locales. The goal is to provide a nationwide, uniform system of bookkeeping and administration that relieves employers of having to deal with dozens of different organizations. Another goal is to standardize quality assurance.

BACKGROUND: Health maintenance organizations were proposed as a way to contain rising costs during the Richard M. Nixon Administration, but the idea got off to a slow start. Employers then were far less concerned about costs than today and lacked the motivation to push HMOs, although it had been shown that such systems could cut hospital bills significantly--by up to 20%. HMO growth was slowed also because many physicians opposed the concept and patients felt they no longer chose their own doctor.

By the 1980s, concern over costs had risen and studies conducted by the RAND Corp. and others helped to generate confidence that HMOs could deliver quality care economically.

HMO membership in recent years has been increasing at a rate of 15% to 17% annually. By early 1991, 34 million people were enrolled in 556 HMOs nationwide.

A nationwide survey last summer found that HMO premiums averaged $2,683 for each member employee in 1990, or 16.5% less than the $3,214 average cost of indemnity insurance coverage and 9.1% less than the $2,952 cost of indemnity plans with preferred provider provisions.

Before HMO networks, when large employers had to contract with each HMO individually, some had scores of contracts--sometimes with half a dozen HMOs within one city.

Networking got its big start in 1989, when Xerox Corp. asked five well established HMOs to find a way to consolidate the more than 200 HMOs that were among the options being offered 100,000 Xerox employees. The number of HMOs has since been narrowed to about 50.

“We wrap them all in one package and make things a lot simpler by presenting the employer with a single bill,” said Judy Wilson of HMO USA, a Chicago-based Blue Cross-Blue Shield network.

Although the employer receives a single bill, HMOs serving that employer’s work force charge various amounts based on regional practices.

Quality of care, which varies considerably among HMOs, is still a concern. “Many employers assume that federal approval assures quality, but this is not necessarily so,” said Terry Hartshorn, president of PacifiCare Health Services of Cypress, Calif., another network. To get federal approval an HMO must meet certain minimum standards, but networkers say they are meeting employers’ demands by going beyond those standards. Meeting federal standards is not mandatory for an HMO to do business, however.

Networkers say they screen doctors and hospital affiliates not only for technical qualifications, but also for patient relations and bedside manner. “This means we must be accountable for the cost and the quality of health care delivery,” Hartshorn said.

IMPACT: Some employers still want to select their own facilities. But Robert Crane, a senior vice president of Kaiser-Permanente who took part in the Xerox program (the first time Kaiser established relationships with other HMOs), predicts others eventually will see the advantages of dealing with a network.

Patient satisfaction with HMOs has grown, although not consistently in all parts of the nation. In California, it is not uncommon for 50% to 80% of a firm’s employees to be HMO members, but the percentage is far less in many other states.

Claudia Bradbury, an employee benefits official at the AFL-CIO in Washington, D.C., said HMO networking is still too new for her to have formed an impression.

Speaking hypothetically, she added: “I would like assurance that doctors are not being picked by somebody 2,000 miles away (just) on the basis of cost.”