The Health Maintenance Organization Act of 1973 required employers with 25 or more employees to offer federally certified HMO options if the employer offers traditional healthcare options.19
An HMO covers care rendered by those doctors and other professionals who have agreed by contract to treat patients in accordance with the HMO's guidelines and restrictions in exchange for a steady stream of customers. HMOs cover emergency care regardless of the health care provider's contracted status.
The HMO is a type of medical insurance group that provides health services for a fixed annual fee. It is an organization that provides or arranges managed care for health insurance, self-funded health care benefit plans, individuals, and other entities, acting as a liaison with health care providers on a prepaid basis.19
HMOs often require members to select a primary care physician (PCP), a doctor who acts as a "gatekeeper" to direct access to medical services but this is not always the case. PCPs are usually internists, pediatricians, family doctors, geriatricians, or general practitioners (GPs). Except in medical emergency situations, patients need a referral from the PCP to see a specialist or other doctor, and the gatekeeper cannot authorize that referral unless the HMO guidelines deem it necessary.
Some HMOs pay gatekeeper PCPs set fees for each defined medical procedure they provide to insured patients (fee-for-service) and then capitate specialists. This means that the HMO pays a set fee for each insured person's care, irrespective of which medical procedures the specialists perform to achieve that care. While others use the reverse arrangement. HMOs tend to have lower monthly premiums and lower costs-sharing.17
Prepaid group practice is considered the precursor to HMOs. The prepaid group practice type of health care plan was pioneered by the Ross-Loos Medical Group in California, U.S., in the 1920's and the Kaiser Permanente, in the 1930's and are the models for pre-paid group practice.20
In this model, physicians are organized into a group practice, and there is one insuring agency. Insurers, employers, or others contract with the physician group to provide a predetermined range of benefits to a specific population for a fixed and agreed upon price. Providers in this group are at risk in that they were required to provide the full range of agreed-on services, regardless of whether the cost of benefits exceeded the established pre-arranged rate of payment.20
In Medicaid terminology, a Pre-Paid Health Plan (PHP) is not the same as an HMO even though the terms are often used interchangeably in commercial managed care business. PHPs can contract on a capitated basis for a non-comprehensive set of services, which is often called partial capitation, or on a cost basis. Federally qualified health centers can also be designated as PHPs if they meet certain conditions.20
Today there are several HMO Models which still exist. Some insurers are exiting HMO market and some excellent programs are becoming insolvent due to financial crisis.2
Independent or individual practice association (IPA) is an Open-panel system in which individual physicians or the practice association contract to provide care to enrolled members. In this system physicians retain their right to treat fee-for-service patients, however many IPAs have had to cease existence due to financial problems.2
Staff Model is when most of the physicians are on the staff of and derive their salary from the HMO. These physicians are the sole source of care for enrollees.2
Group Model is when a single, large multispecialty group is the sole or major source of care for enrollees and the contract is exclusive with one HMO. This is very similar to the staff model and often is labeled staff/group model.2
Network Model consists of two or more group practices which contract to care for most of those patients enrolled in the HMO plan. Usually, the physicians can care for fee-for-service patients as well as those patients from the HMO.2
Care from non-HMO providers generally is not covered except for emergencies occurring outside the HMO’s treatment area. HMO members are required to obtain all treatment from HMO physicians. The HMO will not pay for non-emergency care provided by a non-HMO physician. Additionally, there may be a strict definition of what constitutes an emergency. Those who choose to use non-HMO providers must pay out of pocket for those services since their own HMO often has the same services. When a consult is requested the Primary Physician must contact the consultant if it does not go against the HMO policies.2
Market Share for HMOs tends to be geographical and usually is in the metropolitan regions where there is a larger clientele which will utilize the HMO’s services. Initially, it was thought that HMOs would prevail over time except now many respected programs have collapsed due to the growing pessimism within the medical community and constant reimbursement conflicts under various managed care contracts.2