Health Policy Advisory HEALTH PAC Center No. 55 November 1973 taiLta. mi THE KAISER PLAN on a variety of government policies, en­ ial: HMO's dorses HMO's in its April, 1973 report. When Forbes and Fortune magazines run Westinghouse is studying the possibility successive articles contending that health of starting one in Florida. Texas Instru­ maintenance organizations (HMO's) are ments is already involved in setting up "sensible surgery for swelling medical one, and Litton Industries wants to give costs," we know that big business is in­ "seed money" for a number of HMO's. terested. When the supermarket magazine Connecticut General Life Insurance Com­ Family Circle publishes a story entitled pany and the Equitable Life Assurance "Is There An HMO In Your Future?" we Society have made significant commit­ realize that the official word is spreading ments to HMO's. Connecticut General's to the American people. new subsidiary operates them in New Yet most Americans don't understand York, Arizona and Maryland and Equit­ the HMO concept. An HMO is a health able organized and recruited subscribers care organization which is intended to for the Lovelace-Bataan HMO in Albu­ provide comprehensive services to a vol­ querque. untarily enrolled membership at a pre­ One of the most successful HMO's is paid fixed fee. Usually an HMO is affili­ the Kaiser-Permanente medical care pro­ ated with one or several hospitals. It may gram, a prepaid group practice which has be funded privately, publicly or by a been operating in California for over 30 combination of both; it may be for-profit years. Kaiser's membership in California, or "non-profit." Doctors can practice full- Portland, Hawaii, Denver and Cleveland time or part-time within the HMO, and exceeds two and a half million. can be salaried or paid fee-for-service. Other HMO models have emerged that Only three years ago there were 30 are different from Kaiser. Most notable HMO's. Today there are over 60 with are the foundations for medical care, cre­ eight million subscribers. At least 46 in­ ated by private doctors (See BULLETIN, surance companies are participating in or February, 1973). A foundation, unlike have "exploratory interest" in operating Kaiser, is not a visible institution but 63 HMO's. Blue Cross hopes to open 280 simply a mechanism through which paper by the mid 1980's. and money flow. Care is provided in pri­ Big business is also joining the band­ vate doctors' offices and hospitals where wagon: the elite policy-forming organiza­ the doctors have admitting privileges. Pa­ tion, the Committee for Economic Devel­ tients pay insurance companies, insur­ opment representing most American busi­ ance companies pay the foundation, and ness leaders and with considerable clout the foundation pays the doctor or hospital CONTENTS services. The reason for this is the work­ ings of the profit motive. Whether for- profit or technically "non-profit," private 4 Kaiser corporations have always committed themselves to maximizing their income, reducing their expenditures, and using the surplus for expansion. The profit incentive leads private HMO's to limit services by hiring an inadequate number of physi­ cians and other personnel so that patients will be discouraged from seeking care. on a fee-for-service basis. In this way, expenses go down and sur­ Prepaid health plans (PHP's), particu­ plus goes up. larly growing out of California's Medicaid HMO's, then, take the profit incentive program, are another HMO innovation. of fee-for-service medicine and turn it on The state pays the PHP a fee for each its head. Whereas fee-for-service doctors Medicaid patient enrolled and the PHP and hospitals make more money by see­ provides care at its own clinics or at ing more patients, performing more op­ separate doctors' offices and hospitals erations and hospitalizing people longer, through contracts. HMO's increase their net income by doing The main success that HMO's can claim less. Either way the situation can be dele­ is cost reduction. Kaiser can provide a terious to people's health. package of services at lower cost than Besides the conflict between cost reduc­ identical services would cost in "main­ tion and availability of services, private stream" medicine. The way in which an HMO's oriented primarily toward their HMO reduces cost is by lowering the use surplus income are actually unable to cut of services by its members. Kaiser mem­ costs significantly over the long run. For bers, for example, spend half as many equivalent services, Kaiser costs less than days in the hospital as a similar popula­ Blue Cross/Blue Shield, but Kaiser's rate tion of Blue Cross /Blue Shield subscribers. of cost increase is just as great as, or And the amount of surgery performed by greater, than the national rate of increase. Kaiser compared to fee-for-service practice Thus HMO cost reduction is a one-shot af­ is distinctly lower. fair; if the entire health system switched In the case of hospitalization and sur­ next year from fee-for-service financing to gery, which most Americans are sub­ HMO financing, the costs of care might dip jected to in dangerous and costly excess, down, but would then inflate as rapidly as HMO's can perform a positive service. ever. Within a few years any cost reduc­ But HMO's will also tend to lower the tion would be virtually cancelled out. availability of services that are not pres­ Again the reason is profit. Each pro­ ently performed in excess. At Kaiser, am­ vider and supplier of service—whether the bulatory care is not easily accessible- construction company, the manufacturer large numbers of patients complain of of the EKG machine, or the doctor—will several week waits for appointments, of raise prices as fast as possible in order rushed impersonal treatment, and of be­ to make more money. ing unable to find and keep a personal If HMO's are no long-term answer to physician. cost rises, do they solve the other com­ Thus HMO cost reduction goes hand in ponents of our health crisis? Here the an­ hand with a general inaccessibility of swer is even simpler—they do not. Even Published by the Health Policy Advisory Center, 17 Murray Street. New York, N. Y. 10007. Telephone (212) 267- 8890. The Health-PAC BULLETIN is published 8 times per year; January, February, March, April, May, Sept- tember, October and November. 3 special reports are issued during the year. Yearly subscriptions: $5 stu­ dents, $7 other individuals. $15 institutions. Second-class postage paid at New York, N.Y. Subscriptions, changes of address and other correspondence should be mailed to the above address. New York staff: Oliver Fein. Nancy Jervis, David Kotelchuck. Ronda Kotelchuck, Louise Lander and Howard Levy. San Francisco staff: Elinor Blake. Thomas Bodenheimer. Judy Carnoy. San Francisco office: 558 Capp Street. San Francisco, Cali­ fornia. 94110. Telephone (415) 282-3896- Associates: Robb Burlage. Susan Reverby, Morgantown. West Virginia; Constance Bloomfield, Desmond Callan, Kenneth Kimmerling. Marsha Love, New York City; Vicki Cooper. Chicago; Barbara Ehrenreich. John Ehrenreich. Long Island. © 1973. 2 within HMO's, care will be fragmented as "mainstream" medicine, acute illness will long as specialists so heavily outweigh always take precedence over preventive the number of general providers of care. care. HMO's can do nothing to attract doctors People who believe that HMO's should and other health personnel to rural and be publicly-controlled and service-ori­ ghetto areas. HMO's will not open their ented rather than privately-run and profit- doors to people unable to pay. And evi­ oriented have two courses of action. They dence suggests that even when lower in­ can try to set up local health plans pub­ come people are insured, they have a far licly controlled by the users and em­ harder time getting care from the HMO ployees. Community groups across the than does the middle class. country are planning or even actually es­ Finally comes the myth of health main­ tablishing their own HMO's or PHP's. But tenance—that it's cheaper for an HMO to the capital requirements needed to start, prevent disease than to cure it. In the and the enormous time and energy spent short run, that's just not true. Annual Pap on technical proposals, plans and con­ smears, breast exams, blood pressure tracts are almost prohibitive. It is the rare checks, glaucoma screening and other community that will put together a plan valuable early diagnostic procedures cost that it really controls without being in­ money and require more medical person­ debted to a lending institution or a group nel. The savings—in reduced numbers of of doctors. The alternative is a struggle seriously ill patients—come only many for areas of power in private HMO's—for years later (if then), far beyond the pro­ community positions on the board, for em­ jections of corporate accountants and ployee meetings in specific clinics and planners. Only with large federal grants hospital wards, and for public airing of has Kaiser offered multiphasic screening planning documents and financial trans­ exams to many of its subscribers, and actions. In either case, HMO's will in­ with cutbacks in the grants, Kaiser is re­ creasingly be foci of community and ducing the screening. In HMO's as within health worker action in the health system. STATEMENT REQUIRED BY THE ACT OF AUGUST tion 4359 of this title shall mail such matter at the rates 12, 1970: SECTION 3685, TITLE 39, UNITED STATES provided under this subsection unless he files annually with CODE, SHOWING THE OWNERSHIP, MANAGE the Postal Service a written request for permission to mail MENT AND CIRCULATION OF THE HEALTH PAC matter at such rates." In accordance with the provisions BULLETIN.