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Health maintenance organizations: a federal protégé
Despite ample funding assistance provided by the government, health maintenance organizations do not appear to be faring well. Study results show that HM Os spend a disproportionate amount of funding to meet overhead costs. Although little information is available on the inclusion of dentistry in the HM O system, indications are that HM Os do not offer more economical or efficient delivery of dental services than the fee-for-service method used in other dental prepayment mechanisms.
Health maintenance organizations: a federal protégé
Jamie Binder Murray, MS, Chicago
Even though health maintenance or ganizations have been a force, and will be an increasing force on the health scene, they do not seem to have fared well. And the future does not seem promising. For more than 40 years, some US citizens have been receiving at least a portion of their health care through a prepaid capitation system often combined with a closed panel of practitioners. Today, some 7 million people or about three percent of the population, receive care in this fashion. From this movement—of which KaiserPermanente, headquartered in Calif ornia, is the best known model—has sprung the idea of health maintenance organizations as a prime source of health care for a large segment of Amer icans. Greater efficiency, more em phasis on preventive services, and prac titioners divorced from economic con cerns are chief characteristics to whicti HMO proponents point as justification of their support for this mode of deliv ery. Dental services were not a typical part of the prepaid capitation movement until the decade of the 1970s when, in the wake of the burgeoning dental pre payment movement, more attention
was given to incorporation of dental services. The terms and degree of den tal involvement, however, still remain a matter of conjecture. STATUS OF HMO Widespread interest in health main tenance organizations mounted swift ly after President Nixon’s health care message of 1971 praised the concept as an answer to the rising costs of health care. Publicity, focusing on the costsaving factor purportedly inherent in the HMO system of delivery, was large ly favorable and sparked support for HMO development though growing evidence now suggests that HMOs are, in fact, not especially cost-effective. Growth from 38 HMOs before 1970 to 161 at present is directly related to public funding that is now more readily available than ever before. The HMO Act of 1973 (PL 93-222) authorizes $325 million to provide loans and grants over the next five years for HMO projects. In addition, many of the major na tional health insurance proposals be fore Congress carry some form of dir ect or indirect subsidy or preference for HMOs.
As of January of this year, it was re ported that at least 52 commercial in surance companies are involved in 74 HMOs, with over $30 million invested to date. Despite this attention and ample funding, government-supported HMOs do not seem to have fared well. The Nixon Administration first began encouraging HMO development by using Public Health Service Act appro priations, an effort that produced 79 HMOs, almost all of the closed panel, variety. At last report, only 11 of these 79 HMOs have been able to success fully maintain their operations without the continuing support of the govern ment. Another seven are presently op erational but must still rely on govern ment funding to remain financially vi able. Twenty-five others could not maintain their operations even with government sums and have closed their doors. COST OF PROVIDING CARE Beyond maintaining operational status, HMOs have encountered other diffi culties. In July 1974, the federal General Accounting Office began a full-scale JADA, Vol. 89, October 1974 ■ 833
investigation into 40 of the governmentally funded HMOs. The first report, issued on the HMO of South Carolina, Inc., faulted the plan for its inadequate accounting system and uncovered a number of other irregularities. The re port, prepared at the request of Sen. Strom Thurmond (R-SC), led the De partment of Health, Education, and Welfare to terminate support after hav ing previously awarded the project four grants totaling $477,216. GAO has since reported difficulties with six other plans it has studied. In 1972, the purported cost effective ness of HMO-type operations was un dercut when HEW released a compari son study between certain kinds of closed panels and the traditional feefor-service method. The study showed that the average cost of care provided by a prepaid group panel and an OEO-supported Neighborhood Health Center was double and, in some instances, more than double the cost of care provided by a private practitioner. In all instanc es, the cost of the physicians’ services that were studied remained constant; this indicates that overhead rates are a major factor contributing to higher costs of closed panel operations. A similar situation developed under 15 other California prepaid health plans (PHPs). A California legislative audit revealed that the PHPs spent an aver age of only 48% of their public-provided funds for actual health care ser vices whereas the remaining 52% was expended for “administrative costs or resulted in net profits for these PHPs.” Open panel operations, such as the Medicaid program in California that is administered by California Den tal Service, charge as little as 6% for administration. Despite such results, the govern ment has moved ahead with HMO as sistance legislation, although the final legislation was substantially narrowed from the first proposals Congress studied. In brief, the act establishes re quirements to which HMOs must ad here to qualify for assistance, or cer tification, or both. It allows some sup port for the open panel HMO model as opposed to the more traditional closed panel type. One provision of the bill, the so-called 834 ■ JADA, Vol. 89, October 1974
"dual choice option,” requires employ ers with 25 or more employees who pro vide a health care program to offer a “certified" HMO as an alternative deliv ery source if one is available in the geo graphic area. A second provision is an override clause which nullifies to some degree state laws that restrict HMO develop ment. This override provision includes, among other matters, a stipulation that certified HMOs can advertise for sub scribers and publicize their health care services, although no claim to any su periority for the services can be made. In spite of these possible advantages of certification, the comprehensiveness of the basic benefit package that also is required may prove too great an obtacle for HMOs to overcome. The Columbia, Md, Medical Plan, once lauded as a model for the future, has incurred losses in excess of $1 mil lion as a result of financial strains placed on its operations by the scope of its ben efit package. A Los Angeles Times inves tigation of the National Prepaid Health Plan, Inc., a nonprofit HMO that filed for bankruptcy last January, reported that the plan's “spectacular failure” was due in part to its “impossible structure of low premiums and unusually gener ous benefits.” Some HMO proponents have suggest ed that existing HMOs be granted a phase-in period during which their ben efit packages can be brought gradu ally into full compliance with the law. Otherwise, they assert, immediate com pliance will increase the cost of their existing operations and place them at a competitive disadvantage to other ex isting health plans. Indeed, HEW has attempted to soften some of the bill’s requirements that strain the operational viability of ex isting plans. For example, the law re quires at least one 30-day open enroll ment period a year, during which the HMO must accept new members regard less of any adverse selection that may result. The first set of proposed regula tions stipulates, however, that HEW can waive this requirement should it be found to place the HMO in financial jeopardy. The new law also allows HMOs to levy a certain number of per visit or per ser vice charges, thus departing from the
usual and highly touted method of one annual capitation payment as full reim bursement for all changes. DENTAL CARE IN HMO Under the law, an HMO must offer a min imum dental program directed to chil dren through age 11 which mandates only oral prophylaxis and topical fluor ide application. That timid and poten tially misleading set of benefits indi cates the wary attitude HMO operators have toward dental care and contrasts with the broad, extensive coverage available to children, as part of groups, through dental prepayment mechan isms using fee-for-service, private prac tice as the source of care. In June 1974, the American Dental Association’s Council on Dental Care Programs conducted a survey of dental care under planned and existing HMOs. Of the 75 that responded, a third indi cated that they were operational HMOs providing dental care services. The ma jority of these 25 respondents had adopted a dental program after 1971. These same respondents were equally divided as to the scope of dental ser vices provided, half characterizing themselves as offering fairly compre hensive care, and the others covering only oral surgical care, usually those services provided under major medical insurance. According to responses to the Coun cil’s survey, most operational HMOs re main undecided as to whether they will seek federal certification. Still open to doubt, then, is the scope of dental ben efits that will be provided beyond those that are mandated or the patterns of de livery that dental services might take under HMOs. If an HMO provides only the minimum dental services required, it may of ne cessity move toward an open panel ap proach at least for the provision of den tal services using, for example, a dental service corporation as an intermediary. On the other hand, if comprehensive dental care is provided, then it is more likely that a closed panel HMO would employ dentists to work within the fa cility. In 1971, the Association recognized the HMO concept while opposing cer tain administrative policies frequently
used by HMOs, particularly the estab lishment of a capitation system as the sole financing mechanism and the adop tion of a closed panel as the preferred or sole practice arrangement. Specific guidelines on HMOs, ap proved by the House of Delegates in 1972, note that the HMO mechanism has not been demonstrated to be more economical or efficient in the delivery of dental services than the fee-for-service method. Since little experience has been gained from the inclusion of den tistry in HMOs, the Association has con tended that this concept—and partic ularly closed panel HMOs—should not receive preferential treatment under the law. Equally important, the Association urges that patients should be allowed a free choice on an annual basis be tween the HMO and other delivery sys tems and that equal premium dollars should be made available regardless of the mode of delivery. With regard to the dental benefits that are required at a minimum under the new law, the Association has point ed out that this is so narrowly defined as to fail to meet what is either profes sionally or commonly understood by “preventive dental care.” The Association asserted its belief that each HMO should be carefully reg ulated with respect to its advertising and should be required to give notice of the benefit restrictions inherent in its program so that potential subscribers can havesufficientinformation on which to make informed judgments. The five-year funding now flowing from the federal government, coupled with the dual option clause, makes cer tain that HMOs will be an increasing force, at least temporarily, on the health scene. The early evidence, however, does not demonstrate that, in equal competition, they offer the patient more efficient or economical care to compen sate for the obviously more depersonal ized relationship they will impose on the patient and his doctor.
Ms. Murray is staff associate, Council on Dental Care Programs.
A FO LEY FO O TN O TE
There is widely scattered evidence to show th at f o r over two centuries dentists have attem p ted to se t up insurance schem es to provide the insured with needed oral services f o r a stipulated annual fe e . U nfortu nately, there is no available evidence as to the success o f those pioneering plans. B esides the three presu m ably honest offerings o f insured service noticed here, I have encountered evidence o f other early dental in surance schem es that were proved to be intentionally fraudulent or only briefly solvent.
J. Menzies Campbell, the Scottish dental historian, reported the 1761 London publication of APractical Essayon the Human Teeth by P. E. Jullion. For an annual payment of £4.4s, Jullion was prepared to undertake “the care and treatment requisite for preserving the teeth and vigour of the teeth and gums.” As Jullion's fee for a set of human teeth with gold springs was £73.10s, it is obvious that the insurance rate would not include the rendering of prosthodontic services. John Templeman, a dentist of superior qualifications, came from Europe to Newport, Rl, in 1780. In 1781, he established a practice in Boston, with periodic professional visits to Providence, Newburyport, and Salem. As his advertise ments reflect a special interest in the dental care of children, Templeman very logically may be cited as a certified pioneer in the fields of pedodontics and orthodontics, who gave further support to his inclination by announcing a fi nancial provision limited to children. In an advertisement of 1781, he stated his insurance plan: Said Templeman proposes taking Charge of Childrens Teeth as soon as they begin to shed, which he engages to regulate, and preserve, for 1 £ 4s per Annum, and find all Necessaries. Irregular Teeth are very difficult to preserve, and are much greater Obstacles in articulating Sounds than is generally imagined. John Greenwood (1760-1819), the best known of the 18th-century American pioneers in dentistry, began practice in New York in 1785. In his advertisements in the New York Daily Advertiser (July 29 and Aug 2, 1790), Greenwood ad dressed “Parents and Guardians” on the importance of the proper care of children's teeth and offered, as Templeman had in Boston earlier, an insurance plan for child patients. As the attention that is necessary to be paid to children’s teeth at the time of shedding and after, being of so great importance to their regu larity, evenness and future preservation, needs observations—Mr. Greenwood is induced by the patronage of many families, to reduce his price for taking the sole care of children’s teeth by the year, to give every one an opportunity to be benefited by him. For four children or upwards, in one family, per year, one guinea. For one child per year, ten shillings, to be paid when the year is out from the time of entering. G ardner P. H. Foley
M urray: HMOs — FEDERAL PROTÉGÉ ■ 835
Health maintenance organizations: a federal protégé
Jamie Binder Murray, MS, Chicago
Even though health maintenance or ganizations have been a force, and will be an increasing force on the health scene, they do not seem to have fared well. And the future does not seem promising. For more than 40 years, some US citizens have been receiving at least a portion of their health care through a prepaid capitation system often combined with a closed panel of practitioners. Today, some 7 million people or about three percent of the population, receive care in this fashion. From this movement—of which KaiserPermanente, headquartered in Calif ornia, is the best known model—has sprung the idea of health maintenance organizations as a prime source of health care for a large segment of Amer icans. Greater efficiency, more em phasis on preventive services, and prac titioners divorced from economic con cerns are chief characteristics to whicti HMO proponents point as justification of their support for this mode of deliv ery. Dental services were not a typical part of the prepaid capitation movement until the decade of the 1970s when, in the wake of the burgeoning dental pre payment movement, more attention
was given to incorporation of dental services. The terms and degree of den tal involvement, however, still remain a matter of conjecture. STATUS OF HMO Widespread interest in health main tenance organizations mounted swift ly after President Nixon’s health care message of 1971 praised the concept as an answer to the rising costs of health care. Publicity, focusing on the costsaving factor purportedly inherent in the HMO system of delivery, was large ly favorable and sparked support for HMO development though growing evidence now suggests that HMOs are, in fact, not especially cost-effective. Growth from 38 HMOs before 1970 to 161 at present is directly related to public funding that is now more readily available than ever before. The HMO Act of 1973 (PL 93-222) authorizes $325 million to provide loans and grants over the next five years for HMO projects. In addition, many of the major na tional health insurance proposals be fore Congress carry some form of dir ect or indirect subsidy or preference for HMOs.
As of January of this year, it was re ported that at least 52 commercial in surance companies are involved in 74 HMOs, with over $30 million invested to date. Despite this attention and ample funding, government-supported HMOs do not seem to have fared well. The Nixon Administration first began encouraging HMO development by using Public Health Service Act appro priations, an effort that produced 79 HMOs, almost all of the closed panel, variety. At last report, only 11 of these 79 HMOs have been able to success fully maintain their operations without the continuing support of the govern ment. Another seven are presently op erational but must still rely on govern ment funding to remain financially vi able. Twenty-five others could not maintain their operations even with government sums and have closed their doors. COST OF PROVIDING CARE Beyond maintaining operational status, HMOs have encountered other diffi culties. In July 1974, the federal General Accounting Office began a full-scale JADA, Vol. 89, October 1974 ■ 833
investigation into 40 of the governmentally funded HMOs. The first report, issued on the HMO of South Carolina, Inc., faulted the plan for its inadequate accounting system and uncovered a number of other irregularities. The re port, prepared at the request of Sen. Strom Thurmond (R-SC), led the De partment of Health, Education, and Welfare to terminate support after hav ing previously awarded the project four grants totaling $477,216. GAO has since reported difficulties with six other plans it has studied. In 1972, the purported cost effective ness of HMO-type operations was un dercut when HEW released a compari son study between certain kinds of closed panels and the traditional feefor-service method. The study showed that the average cost of care provided by a prepaid group panel and an OEO-supported Neighborhood Health Center was double and, in some instances, more than double the cost of care provided by a private practitioner. In all instanc es, the cost of the physicians’ services that were studied remained constant; this indicates that overhead rates are a major factor contributing to higher costs of closed panel operations. A similar situation developed under 15 other California prepaid health plans (PHPs). A California legislative audit revealed that the PHPs spent an aver age of only 48% of their public-provided funds for actual health care ser vices whereas the remaining 52% was expended for “administrative costs or resulted in net profits for these PHPs.” Open panel operations, such as the Medicaid program in California that is administered by California Den tal Service, charge as little as 6% for administration. Despite such results, the govern ment has moved ahead with HMO as sistance legislation, although the final legislation was substantially narrowed from the first proposals Congress studied. In brief, the act establishes re quirements to which HMOs must ad here to qualify for assistance, or cer tification, or both. It allows some sup port for the open panel HMO model as opposed to the more traditional closed panel type. One provision of the bill, the so-called 834 ■ JADA, Vol. 89, October 1974
"dual choice option,” requires employ ers with 25 or more employees who pro vide a health care program to offer a “certified" HMO as an alternative deliv ery source if one is available in the geo graphic area. A second provision is an override clause which nullifies to some degree state laws that restrict HMO develop ment. This override provision includes, among other matters, a stipulation that certified HMOs can advertise for sub scribers and publicize their health care services, although no claim to any su periority for the services can be made. In spite of these possible advantages of certification, the comprehensiveness of the basic benefit package that also is required may prove too great an obtacle for HMOs to overcome. The Columbia, Md, Medical Plan, once lauded as a model for the future, has incurred losses in excess of $1 mil lion as a result of financial strains placed on its operations by the scope of its ben efit package. A Los Angeles Times inves tigation of the National Prepaid Health Plan, Inc., a nonprofit HMO that filed for bankruptcy last January, reported that the plan's “spectacular failure” was due in part to its “impossible structure of low premiums and unusually gener ous benefits.” Some HMO proponents have suggest ed that existing HMOs be granted a phase-in period during which their ben efit packages can be brought gradu ally into full compliance with the law. Otherwise, they assert, immediate com pliance will increase the cost of their existing operations and place them at a competitive disadvantage to other ex isting health plans. Indeed, HEW has attempted to soften some of the bill’s requirements that strain the operational viability of ex isting plans. For example, the law re quires at least one 30-day open enroll ment period a year, during which the HMO must accept new members regard less of any adverse selection that may result. The first set of proposed regula tions stipulates, however, that HEW can waive this requirement should it be found to place the HMO in financial jeopardy. The new law also allows HMOs to levy a certain number of per visit or per ser vice charges, thus departing from the
usual and highly touted method of one annual capitation payment as full reim bursement for all changes. DENTAL CARE IN HMO Under the law, an HMO must offer a min imum dental program directed to chil dren through age 11 which mandates only oral prophylaxis and topical fluor ide application. That timid and poten tially misleading set of benefits indi cates the wary attitude HMO operators have toward dental care and contrasts with the broad, extensive coverage available to children, as part of groups, through dental prepayment mechan isms using fee-for-service, private prac tice as the source of care. In June 1974, the American Dental Association’s Council on Dental Care Programs conducted a survey of dental care under planned and existing HMOs. Of the 75 that responded, a third indi cated that they were operational HMOs providing dental care services. The ma jority of these 25 respondents had adopted a dental program after 1971. These same respondents were equally divided as to the scope of dental ser vices provided, half characterizing themselves as offering fairly compre hensive care, and the others covering only oral surgical care, usually those services provided under major medical insurance. According to responses to the Coun cil’s survey, most operational HMOs re main undecided as to whether they will seek federal certification. Still open to doubt, then, is the scope of dental ben efits that will be provided beyond those that are mandated or the patterns of de livery that dental services might take under HMOs. If an HMO provides only the minimum dental services required, it may of ne cessity move toward an open panel ap proach at least for the provision of den tal services using, for example, a dental service corporation as an intermediary. On the other hand, if comprehensive dental care is provided, then it is more likely that a closed panel HMO would employ dentists to work within the fa cility. In 1971, the Association recognized the HMO concept while opposing cer tain administrative policies frequently
used by HMOs, particularly the estab lishment of a capitation system as the sole financing mechanism and the adop tion of a closed panel as the preferred or sole practice arrangement. Specific guidelines on HMOs, ap proved by the House of Delegates in 1972, note that the HMO mechanism has not been demonstrated to be more economical or efficient in the delivery of dental services than the fee-for-service method. Since little experience has been gained from the inclusion of den tistry in HMOs, the Association has con tended that this concept—and partic ularly closed panel HMOs—should not receive preferential treatment under the law. Equally important, the Association urges that patients should be allowed a free choice on an annual basis be tween the HMO and other delivery sys tems and that equal premium dollars should be made available regardless of the mode of delivery. With regard to the dental benefits that are required at a minimum under the new law, the Association has point ed out that this is so narrowly defined as to fail to meet what is either profes sionally or commonly understood by “preventive dental care.” The Association asserted its belief that each HMO should be carefully reg ulated with respect to its advertising and should be required to give notice of the benefit restrictions inherent in its program so that potential subscribers can havesufficientinformation on which to make informed judgments. The five-year funding now flowing from the federal government, coupled with the dual option clause, makes cer tain that HMOs will be an increasing force, at least temporarily, on the health scene. The early evidence, however, does not demonstrate that, in equal competition, they offer the patient more efficient or economical care to compen sate for the obviously more depersonal ized relationship they will impose on the patient and his doctor.
Ms. Murray is staff associate, Council on Dental Care Programs.
A FO LEY FO O TN O TE
There is widely scattered evidence to show th at f o r over two centuries dentists have attem p ted to se t up insurance schem es to provide the insured with needed oral services f o r a stipulated annual fe e . U nfortu nately, there is no available evidence as to the success o f those pioneering plans. B esides the three presu m ably honest offerings o f insured service noticed here, I have encountered evidence o f other early dental in surance schem es that were proved to be intentionally fraudulent or only briefly solvent.
J. Menzies Campbell, the Scottish dental historian, reported the 1761 London publication of APractical Essayon the Human Teeth by P. E. Jullion. For an annual payment of £4.4s, Jullion was prepared to undertake “the care and treatment requisite for preserving the teeth and vigour of the teeth and gums.” As Jullion's fee for a set of human teeth with gold springs was £73.10s, it is obvious that the insurance rate would not include the rendering of prosthodontic services. John Templeman, a dentist of superior qualifications, came from Europe to Newport, Rl, in 1780. In 1781, he established a practice in Boston, with periodic professional visits to Providence, Newburyport, and Salem. As his advertise ments reflect a special interest in the dental care of children, Templeman very logically may be cited as a certified pioneer in the fields of pedodontics and orthodontics, who gave further support to his inclination by announcing a fi nancial provision limited to children. In an advertisement of 1781, he stated his insurance plan: Said Templeman proposes taking Charge of Childrens Teeth as soon as they begin to shed, which he engages to regulate, and preserve, for 1 £ 4s per Annum, and find all Necessaries. Irregular Teeth are very difficult to preserve, and are much greater Obstacles in articulating Sounds than is generally imagined. John Greenwood (1760-1819), the best known of the 18th-century American pioneers in dentistry, began practice in New York in 1785. In his advertisements in the New York Daily Advertiser (July 29 and Aug 2, 1790), Greenwood ad dressed “Parents and Guardians” on the importance of the proper care of children's teeth and offered, as Templeman had in Boston earlier, an insurance plan for child patients. As the attention that is necessary to be paid to children’s teeth at the time of shedding and after, being of so great importance to their regu larity, evenness and future preservation, needs observations—Mr. Greenwood is induced by the patronage of many families, to reduce his price for taking the sole care of children’s teeth by the year, to give every one an opportunity to be benefited by him. For four children or upwards, in one family, per year, one guinea. For one child per year, ten shillings, to be paid when the year is out from the time of entering. G ardner P. H. Foley
M urray: HMOs — FEDERAL PROTÉGÉ ■ 835