Return of the HMO – and that’s Not Necessarily Bad

January 13, 2016

Nancy Brown - OAK HC/FT

HMOs are back. The old formula of narrow networks and process control is growing increasingly popular under the Affordable Care Act as health insurers and the federal government try to rein in medical costs. And that’s not a bad thing in today’s costly and confusing healthcare environment — although the jury is still out whether the quality of medical care will improve.

A quarter-century ago, health maintenance organizations were de rigueur. They defined an insurance organization for people who agreed to use the doctors, specialists and hospitals that belonged to it in exchange for lower healthcare costs. But a consumer backlash developed against the restrictive plans and sparked the rise and popularity of preferred-provider, or PPO, plans that gave consumers a broader choice of healthcare professionals and hospitals. While HMOs became “dreaded,” PPOs also ushered in an era of rapid and inflated medical spending and soaring healthcare costs.

National healthcare reform and the ACA sought to shrink the rise in medical costs, and it has brought back the HMO “formula,” which again restricts consumer choice as physicians’ groups, hospitals and health insurers increasingly band together to serve consumers while trying to rein in costs through tighter process control.

Concentrating on Process

These partnerships focus on standardizing processes and developing exacting delivery systems that keep members and patients within a controlled environment where outcomes can be managed. This comparison may sound crass, but think of a manufacturing assembly line: fewer components means more standardized processes and ultimately a product that is predictable with respect to quality and cost to delivery. That’s todays accountable care organization and they’re not that different from those Staff Model HMOs in the 1980–90s.

While the term “HMO” continues to be anathema to many, the concept fits today’s medical care realities. Simply look at what’s happening in a growing number of states participating in the federal marketplace for health insurance.

Consider Arizona: In early October, four major health insurers — Aetna, Blue Cross Blue Shield, Cigna and Meritus — announced they will discontinue offering PPO plans for tens of thousands of Arizonans in 2016. They will only offer HMO plans that limit the doctors and hospitals consumers can visit at lower, in-network rates. (Two other insurers there want to sell PPO plans next year, pending federal approval.)

Not to belabor the comparison to manufacturing, but we can even take it a step further to liken ancillary medical services to vertical integration. As a manufacturer would control the supply chain, accountable care organizations are now including a greater spectrum of medical services along the care continuum outside of care delivery to further reduce costs and improve quality. (The federal requirements and paperwork are another story, of course, but electronic recordkeeping today is helping to manage that burden, and certainly doing a better job than it was a quarter-century ago.)

I know the HMO concept well, having begun in the healthcare field three decades ago when HMOs were fast emerging. And we did manage those processes for each patient within a 16th of an inch. Many patients received exemplary care under that system, often even better than from the doctor they knew, trusted and preferred but who didn’t have the latest technology or medical knowledge available.

More Tools to Drive Success

So what’s changed? This time around we have technology to support our goals. New and innovative platforms combine best practices, technology and skilled teams to enable consistent quality and cost outcomes. Moreover, we now have the benefit of sophisticated tools to analyze the mountain of information accessible to healthcare professionals to iterate best practices in care delivery, as well as support ongoing patient engagement and compliance.

These new resources empower medical professionals to identify patients of interest, evaluate patterns of care, and predict those who are heading for trouble and will likely benefit from a medical intervention. The ability to provide proactive care, such as scheduling at-home visits to check members’ health, not only improves perceived level of service (albeit in an environment of limited provider choice), but also prevents future health-care costs. These seemingly small patterns can add up to significant cost savings, and more importantly, better patient care.

At Oak HC/FT we have a strong interest in companies that combine all of these principles to consistently improve clinical and financial outcomes for patients. For example, companies like VillageMD that empower primary care doctors to better serve patients through centralized back-office management and clinical process standardization, and companies like Aspire that reduce unnecessary spending and improve quality of life through access to palliative care.

The more experience people have, the more they will learn that healthcare will be fixed not by the next consumer gadget, but by improving one process at a time. It will be fixed by directing care to providers who have proven ability — through the use of knowledge, technology and service — to deliver consistently high-value care. HMOs are embracing this approach and are on a path toward success.

Unless Congress or some other force changes the direction of the nation’s healthcare-delivery system, HMOs will prevail. And with further technology and analytical advances, this reality may prove beneficial — and not dreaded — as the medical profession learns much more about treating each individual patient and delivering quality care at an acceptable cost.