25 April 2013

Are HMOs back?

As the ramifications of the Affordable Care Act comes more into focus, I can’t help but wonder if the days of the HMOs are back.  As I wrote in a recent piece on the rise of ACO's, closed medical network systems are expanding at rapid rates.  What is different this time around is that the payors aren't the only ones leading the charge -  hospital systems, universities, and provider networks are all scrambling to acquire assets, build paywalls around services, and capture consumer lives.  And they are doing so at a very local level.  It was bad enough that we had few insurance companies attempt to rationalize medicine during the HMO days; are we now hoping that hundreds of localized efforts will be successful this time around?
A physician employed by a regional medical hospital system recently told me that their employee benefits changed such that visit to any provider or facility outside their controlled system would now be charged out-of network rates.  It took me by surprise not only because of the overtly limited directive, but also the fact that this system doesn't administer an insurance plan per se.  To be sure, this system has been heavily acquisitive and expansive lately (surgical facilities, urgent care, providers), but the reach is still limited.  Certainly they are testing this option with their employees first, but no doubt they plan to roll this out through the health exchanges.  I'm no expert, but this seems to be one of the smallest network footprints I have ever seen.  At least in HMO world, you couldn’t see every doctor, but had many more choices. 
The argument for closed networks is that it facilitates better outcomes and lower costs.  In other words, if a medical system keeps care within their system, they can leverage knowledge, IT, and service offerings to maximize quality and minimize cost. A patient can be guided more efficiently and effectively, focus more on prevention, and limit extraneous testing and procedures.  This theory is great on paper, but the premise relies on inefficient, for-profit entities to lead the transformation.  Remember – some of these hospital systems, for example, are the same ones that operate under the guise of a “non-profit” banner have played a leading role in our current state of out of control health care costs.
Also, how much influence can an individual ACO have? Kaiser might be the perfect model, but how scalable is it?  It has been around for years and has had little reach outside California.  And where is the optimal tradeoff between choice and cost?  These local systems may provide an option for many specialties, but how can that be enough to adequately serve individual needs of all patients?  Wouldn’t we almost be better off with a national led system with a larger reach and ability to protect choice?  These microcosms of local ACOs all seem to come at it differently with different capabilities -  there is no focus on common efficiencies or even offerings to impact the system at large.  
It’s certainly too early to tell where we're headed as implementation doesn’t really hit until 2014.  However, I don't think ownership of small health care systems are the way to cut costs and improve outcomes, rather it might merely shift market share to bigger hands at a local level.  I would rather see better use of technology and new approaches such as telemed, EMR based efforts, and home health that actually expands coverage and availability of health care.   Almost all experts agree that optimal reform would find the right balance between costs, profit, and choice that can be scaled on a national basis.  I worry, however, whether the consolidation trend at a local level is leading us astray out of the gates.  Perhaps out of this local competition will emerge better models that can be used on a more national basis.  But let's hope that the result won't leave us longing for the days of the Aetna HMO plan. 


  1. Interesting discussion. Clayton Christensen floated an interesting hypothesis in his book - innovators prescription. While there are many Problems (and strongpoints) with the current mechanism for hc delivery one main issue is that the general hospital model of treating all diseases with one solution is outdated (even the kaiser and gessingers and mays of the world). He proposed specialization by business model - procedure shops thhat concentrate on optimizing well understood therapies (MIs, orthopedic s), serives for chronic disease, and comllex disease state solution shops (eg asthma and allergies and mental health)

  2. What is different this time around is that all health care players see potential cuts in revenue and are trying to position themselves to prevent that from happening to them. The thought is that if they can band together into ACOs or similar type organizations, they can have better leverage with the HMOs and other payor sources (including the government). They will argue that they effectively care for a certain number of patients and will try and prove they do so with the best quality at the lowest cost. It makes sense why this is happening - after all, Obama's plan makes it pretty clear that pay for performance is coming. Unfortunately, for every winner, there will likely be a loser, and the groups that don't perform as well in the payors' eyes will still end up realizing a revenue squeeze. And, as usual, the patient ends up with less choices and more headaches.
    In my mind, the ACO type strategy is here to stay unless the merger model proves not to bring in the big dollars as expected - otherwise, hold on tight - it is about to get interesting.
    Urmesh Shah

  3. Interesting comments. Point is very valid - the merger model doesn't create winners in itself. They will have to prove their outcomes and costs are worthy enough of better reimbursements