Health care options have changed considerably over the last decade. HMOs have become a common health care choice. If youíre thinking of switching to an HMO from a fee-for-service type of plan or switching to a different HMO, here are some of the things you should know about HMOs.

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What should you look for when choosing an HMO? There are many differences among various HMOs, and you should know the features of each in order to make an informed decision.

Weíre all familiar with the possible negative aspects of HMOsóthe pre-approval requirement, the necessity of going through a gatekeeper physician, and the forms and bureaucracy you may encounter. On the positive side, HMOs can be very convenient, since you can go a long time without filling out a claim form; and you will probably pay a lot less for your health care than you would under a traditional fee-for-service plan.

This Financial Guide gives you an overview of the possible problems with this type of managed care planóthings you wonít find listed in the HMOís own literature. Weíll tell you how to look for these possible problems and how, if at all, you can counteract them.


Many HMOs now pay member physicians by capitation, a payment method in which the doctor receives a monthly payment "per capita"ói.e., by a patient head count. In other words, for every patient that is signed up with a certain doctor as a primary care physician, the physician receives a monthly payment. The physician receives this payment for as long as the patient is signed up, without regard to how frequently the patient visits the doctor. In contrast, doctors who are paid under a fee-for-service system submit bills to the plan and receive payments based on the rendering of services.

What does this mean to the patient? Because the doctor is being paid a level amount that does not increase when more services are provided, the payment method can create a monetary incentive to provide fewer services.

Further, many HMOs and other types of managed-care plans have additional monetary incentives and/or pressures for physicians to keep the levels of referrals and special services down. Two of these incentives are "withholds" and risk pools.

  • With a withhold system, part of the doctorís monthly payment is withheld for a year. If the doctor meets the financial incentives for the year, then the withheld amounts are paid to him. For instance, if the doctorís rate of referrals to specialists meets the HMOís guidelines, then the withholds are given to the doctor at the end of the year.

  • With a risk pool, primary care physicians get a sum in addition to the withhold with which to pay for specialists and other out-of-the-ordinary care. Whatever part of the risk pools is not used for patient referrals and care goes to the physician.

Some HMOs give doctors a bonus if they meet guidelines for keeping referrals low.

These incentives can create an atmosphere of financial incentive, and often financial pressure, for doctors to keep referrals to specialists low.

Tip Tip: Ask the plan representative how doctors are paid. Find out whether there are withholds, risk pools, or other financial incentives or pressures to which doctors may be subject, and find out what the terms of these provisions are.

Tip Tip: If you join an HMO, be prepared to become more knowledgeable about the services you are receiving, and more willing to ask health care providers questions about your treatment. Patients who know when they need to ask their gatekeeper to refer them to a specialist, or whether they might fare better with a program of treatment other than the one referred in the guidelines followed by the HMO, will often fare better.

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Lack Of Coverage For Certain Procedures

HMO guidelines do not usually allow for approval of payment for procedures that are not approved by the Food and Drug Administration (FDA). Therefore, if there is a procedure that is being used for treatment but has not yet gotten FDA approval, you will probably not be able to get approval for such a treatment. Note that this would not just apply to experimental procedures, but also to those for which FDA approval is pending.

Tip Tip: Look at your HMO papers to find out what the rules are relating to procedures that are not FDA-approved.

If your HMO contract says that only "medically necessary" procedures will be covered, you could run into trouble somewhere down the road. For instance, if a procedure that is usually cosmetic (e.g., a breast reduction) is recommended by a physician for a medical purpose, there may be a problem with coverage for that procedure because of the HMOís guidelines.

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Lack Of Coordination

A complaint frequently cited by HMO patients is that information given out by HMO representatives is not always reliable. For instance, a patient may call the HMO to inquire whether a certain procedure is covered, or how soon you must notify the HMO after an emergency room visit, and the answer may not be correctóa nuisance for the patient, who must end up paying out of pocket or spending time and energy appealing the HMOís denial.

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Need For Pre-Approvals

HMOs often require pre-approval for various types of care outside of the care given by your primary care doctor. Any time you want to see a specialist, youíll have to go through your gatekeeper. Any time you go to the emergency room, youíll have to call your primary care doctor (or another HMO number) within a certain amount of time, usually 24 hours.

Tip Tip: Carefully investigate how the HMO defines emergency. Patients who have gone to the emergency room have later been denied coverage for the emergency services because the illness did not meet the HMOís definition of emergencyóeven though the situation, according to the patientís judgment, required emergency room care. If you donít want to spend time second-guessing your judgment about whether something is an emergency, make sure the HMOís definition is liberal enough.

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Lack Of Full Disclosure

Here are some of the questions you should ask an HMO:

  • Have patients been dropping out a faster rate lately?
  • Are doctors paid on a capitation basis?
  • How are the doctors rated?
  • How many doctors are board certified?
  • What is the definition of an emergency?
  • How to get pre-approval, and in which instances is it required?
  • Are survival and/or recovery rates for certain types of illness better or worse than a national average?

But donít expect to get answer easily. Much of the information we discuss in this Financial Guide is not easily available to patients, if at all. Thus, itís difficult to comparison shop.

Planning Aid Planning Aid: For information on HMOs you are considering, please see National Committee for Quality Assurance.

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Need To Go Through A Gatekeeper

Itís important to have a primary care doctor whom you trust. You will rely on this physician not only for care for you and your family, but also for referrals to specialists. Carefully investigate the doctors you are considering choosing as your gatekeeper.

One problem encountered by HMO patients is that primary care doctors, who may be under pressure to keep referrals low, perform procedures that would be better done by specialists. Although there may be nothing wrong with this, it may mean you are not getting the best care you can possibly get.

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Difficulty In Obtaining Redress

If you are treated badly or negligently by an HMO, it may be difficult to sue and difficult to claim damages other than actual costs.

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Artificial Formulas May Dictate Your Treatment

HMOs have guidelines, based on historical data and actuarial studies, for various procedures and treatments. For instance, the birth guidelines for most HMOs now state that a normal delivery requires no more than a 24-hour hospital stay, and a Caesarean section requires no more than 48 hours. Be aware that these guidelines are not regarded as discretionary guidelines to be overridden if a physician feels they are not in the patientís interest but are actually strictly applied.

Tip Tip: Ask the HMO about its treatment guidelines for various types of proceduresóe.g., strokes, heart attacks, and whatever illnesses come to mind.

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Second-Rate Devices

HMO patients have had problems with implants and joint replacements being of merely standard quality. If you join an HMO and need such a device (e.g., for a hip replacement or prosthesis), be sure to ask whether the device being recommended is the best alternative. Do your own research.

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Inadequate Mental Health

As with all managed-care plans, if you need counseling or therapy, you will probably end up paying for most of it yourself. However, there are differences among plans, so investigate whether and how much the HMO will pay for. The number of therapy visits an HMO will pay for is often woefully inadequate.

Planning Aid Planning Aid: To find out if your HMO treats patients improperly, please see Consumers For Quality Care.

Planning Aid Planning Aid: For "report cards" on HMOs nationwide, please see The National Committee for Quality Assurance.

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Recommended Books

Recommended Books

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