Once viewed as an evolutionary vehicle to contain rising health-care costs, the health maintenance organization may be on the road to extinction.
Setbacks this week from Wall Street, the Illinois Supreme Court, plaintiffs lawyers and legislators could write the obituary of the HMO in its current form.
For the most part, all of these legislative and judicial forces would force HMOs to treat patients more generously by expanding patient rights.
But industry analysts said an expansion of such liberties would dismantle restrictive features HMOs use to control costs. In effect, HMOs wouldn’t be HMOs anymore, but would look like other less restrictive health insurance plans.
“It’s all singling out HMOs and it’s taking apart the foundation that has been built to deal with coordinating care and holding down costs,” said Larry Boress, executive director of the Chicago Business Group on Health, whose members spend more than $1.5 billion on health care annually.
HMOs hold costs down by negotiating fixed monthly fees with doctors and hospitals, and limit clients to those providers of medical care. By curbing services, the HMO can offer added benefits at lower prices than other forms of health insurance.
An estimated 66 percent of more than 260 companies in the Chicago area offer HMOs to their employees, according to Hewitt Associates.
Those cost controls, however, have unleashed a legal and legislative backlash, especially this past week. Recent actions include:
– An Illinois Supreme Court ruling Thursday that allows patients to sue health maintenance organizations over alleged malpractice, affirming a right consumer advocates failed to win from lawmakers.
– A group of nationally prominent plaintiff attorneys who successfully took on the tobacco industry said they would file class-action suits against major HMOs across the country.
– California Gov. Gray Davis signed a health reform bill into law that lets patients sue HMOs–a right enjoyed in Texas and a handful of other states.
– The U.S. Supreme Court agreed to take up an Illinois case that could decide whether patients have an unlimited right to sue HMOs. Current federal law limits lawsuits against health plans.
To be sure, the possibility exists that many of these efforts could be moot if courts rule in the favor of the HMO industry, and if Congress opts not to change current laws.
But signs from Wall Street and industry experts indicate HMOs will certainly be transformed if lawsuits and legislation lead to changes.
When word of possible class action lawsuits hit Wall Street, stocks of most major managed-care companies took a pounding. The stock price of the nation’s largest managed-care plan, Aetna Inc., dropped nearly 30 percent over the course of its last six trading sessions to close Friday at $51.25.
Analysts said financial burdens on HMOs could increase substantially from new mandates–like providing access to out-of-network specialist doctors–and vulnerability to multimillion-dollar class action judgments.
“HMOs could see themselves losing distinctive marketing advantages over other product lines,” said managed-care industry consultant Allan Baumgarten of Minneapolis. “If you can’t keep patients within a network you have selected, or you can’t exert a certain amount of control over the appropriateness of care that should be provided, you are sending a message to HMO customers that . . . you can’t do much more than a PPO or give discounts to providers of medical care.”
Without HMOs, consumers would simply be moved into other forms of managed care they would have to pay more for. For example, a less restrictive point-of-service plan acts much like an HMO, but allows patients to go outside the network for a specialist.
“Point-of-service plans allow people to still make choices (of doctors) out of network, but they have to pay more for that option,” said Dave Fortosis, a benefits consult with Lincolnshire-based Hewitt Associates.
What’s more, HMOs’ ability to offer lower co-payments for drugs could be diminished. A $70 prescription for 30 tiny Claritin allergy pills costs $5 with many HMOs, but is discounted or has a higher co-pay with most PPOs.
“HMOs are an integral part of health-care offerings by employers and they have done a wonderful job in helping employers control costs,” Fortosis said.
Analysts said employers are going to have to step up to the defense of HMOs if they want costs to be controlled.
“It’s employers who should be a little nervous right now,” said managed-care consultant Baumgarten. “When all of this is said and done, the HMO is doing the bidding of the employer.”
Indeed, companies already are struggling to find ways to deal with the largest premium increases in years. Health-care costs are rising this year by more than 8 percent and are projected to go up another 10 percent or more next year, Hewitt estimated.
“Employers will say, this is all not worth it and they will go to a defined-benefit contribution,” said Chicago Business Group on Health’s Boress. “Employers are going to say, here’s $4,000 and God be with you. Go buy your health care somewhere else and good luck.” .
In an effort to blunt potential criticism of doctors who want additional regulation of HMOs, the American Medical Association sent letters Friday to three dozen major self-insured employers explaining its position on patient rights legislation.
“It has never been the intention of the AMA and its physician members to hold employers who provide health-care benefits to their employees liable for health-care decisions made by managed-care plans,” AMA executive vice president Dr. E. Ratcliffe Anderson Jr. said.
The Illinois Association of HMOs acknowledged problems, but said a large majority of HMO customers are satisfied. The group pointed to industry data that indicate only 3 percent of HMO enrollees are denied when questions of medical necessity arise.
“The charter of the HMO is to help our customers receive the right care, in the right setting and at an affordable rate,” said Christopher Hamrick, communications director for the Illinois Association of HMOs. “The goal is to make sure patients are not overtreated or undertreated. And when it comes to issues of whether to overtreat or undertreat, we have to ask questions.”
