Managed Care and HMOs

Traditionally, most Pennsylvanians received their health care benefits as an employee benefit or from a government sponsored health program, such as Medicare or Medicaid. These health plans made arrangements that paid independent physicians and hospitals a fee for each service provided to the plan participants. These fee-for-service arrangements were among the contributing factors to duplication of services, unnecessary services, and to escalating health care costs. One response to this problem was the formation of health maintenance organizations (HMOs).

What is an HMO?

An HMO (health maintenance organization) is an organized system which combines the delivery and financing of health care and which offers basic health services to voluntarily enrolled members. An HMO can be viewed as a system which combines some of the features of a health insurer and a health care delivery system. Unlike traditional insurers, HMOs are actively involved in the care their members receive. HMO enrollees are required to select a primary care physician who has the responsibility to coordinate preventive and primary care services and refer patients to specialty care when necessary. The HMO manages the delivery of health care services and shares financial responsibility with providers to deliver care for a fixed price.

Some of the principles behind an HMO are:

Types of Managed Care Plans

The success of HMOs in managing and slowing health care cost increases has led traditional insurers and other organizations to incorporate some of the cost and quality management features of HMOs without some of the restrictive features. Many of these "hybrids" are described as managed care. The terms "managed care" and "HMO" are sometimes used interchangeably. Managed care, however, is a broader concept.

Some types of managed care plans include:

This booklet focuses on HMOs. However, the issues discussed can also apply to other managed care organizations.

Why Consider an HMO or a Managed Care Organization?

Health maintenance organizations (HMOs) and other managed care organizations (MCOs) have demonstrated an ability to deliver quality health care services while at the same time managing the cost to employers. In concept, they are able to do this by:

Why Regulate HMOs?

Research into the traditional health care delivery system with its fee-for-service features has documented significant amounts of unnecessary or inappropriate use of medical services. There are wide variations across the country, even in neighboring communities, in the way physicians practice medicine. Many HMOs have used medical practice protocols and utilization review guidelines to improve quality and efficiency in the delivery of health care and to reduce the utilization of inappropriate health care services.

Concerns that HMOs might, in some cases, limit access to necessary services has led most states to impose some regulations on HMOs. In Pennsylvania, HMOs and gatekeeper PPOs are jointly regulated by the Departments of Health and Insurance. These regulations are designed to ensure that consumers are adequately protected. Government, both federal and state, as well as private agencies each have different roles in the regulation and oversight of managed care organizations.

Who Regulates HMOs and Managed Care Organizations?

Federal Government

The Federal Government helped to encourage the growth of HMOs with the passage of the HMO act in 1973. The Act established standards and incentives for "federal qualification" of HMOs that marked a first step toward uniform standards for the industry. The role of the Federal Government today is focused more on monitoring the quality and cost effectiveness of Medicare HMOs through the Health Care Financing Administration (HCFA) and KePRO, an organization in Pennsylvania that contracts with HCFA to monitor quality of care.

Federal law (ERISA) also permits private sector employers to offer self-insured benefit plans that are exempt from state government regulations and mandates. These self-insured benefit plans may include features of HMOs but without the government oversight.

State Government

The HMO Act of Pennsylvania divides regulatory responsibility between the Departments of Health and Insurance. A certificate of authority, jointly issued by the two Departments, is required for operation of an HMO in Pennsylvania.

The Department of Health reviews quality and access standards and monitors grievances and grievance procedures for HMO patients. It sets guidelines for benefits, provider networks, reporting, and quality assurance. The Department of Health also requires HMOs in Pennsylvania to undergo an external quality review. Questions about the Department of Health's role in the licensure process can be directed to the Bureau of Health Care Financing at the Department of Health at (717) 787-5193.

The Insurance Department monitors the financial strength of HMOs to ensure that the organization has sufficient resources to deliver promised health care services. It also approves rates, rating structures, marketing practices, and some contractual agreements. Questions about the Insurance Department's role in licensure can be directed to the Department at (717) 787-5173.

Who Accredits Managed Care Organizations?

Accreditation is a voluntary process which HMOs and other organizations seek as a way of demonstrating their commitment to quality improvement. In Pennsylvania, the Department of Health requires HMOs to submit to an external quality review process to ensure progress in quality assurance and to identify quality improvement opportunities. Accreditation is one way of satisfying this requirement, therefore, most HMOs in Pennsylvania seek accreditation.

The National Committee for Quality Assurance (NCQA) has two primary functions in the oversight of managed care organizations.

  1. Accreditation. NCQA reviewers evaluate how well a plan manages its quality improvement process as well as other aspects of service delivery. HMOs as well as other managed care organizations can seek accreditation. There are four levels of accreditation, including full, one year, provisional, and denial. Information about accreditation status is available from the HMO or from NCQA at (202) 955-3500.
  2. "Report Card." NCQA has developed a report card called Healthplan Employer Data and Information Set (HEDIS), which measures and profiles the performance of the organizations in specific areas.

The Accreditation Association for Ambulatory Health Care accredits ambulatory health care organizations, such as outpatient surgical centers and clinics, as well as HMOs. It is one of the organizations approved by the Pennsylvania Department of Health for external quality review of HMOs.

The Joint Commission for the Accreditation of Healthcare Organizations (JCAHO) reviews and accredits hospitals and other health care organizations. They accredit managed care organizations, as part of their network accreditation program.

The Utilization Review Accreditation Committee (URAC) accredits utilization review firms. HMOs normally have an internal process to review service utilization. Other managed care organizations may subcontract this function to utilization review firms. These firms may request accreditation from URAC in order to demonstrate conformance to recognized standards.