Types of HMOs

Types of HMOs
Objectives After completing this module, you will be able to: differentiate between closed and open panels and closed and open access, describe the structure of the four main HMO models, compare provider compensation under the four main HMO models, and give some advantages and disadvantages of each of the four main HMO models. This module describes the most common ways of structuring an HMO. First we discuss the difference between closed and open provider panels and closed and open access to providers. Then we examine the four main HMO models: the independent practice association (IPA) model HMO, the staff model HMO, the group model HMO, and the network model HMO. We look at how they are structured, how they compensate providers, and their advantages and disadvantages.

Concepts and Terms

Before we begin our discussion of HMO models, lets introduce some concepts and terms and review some others. Closed and Open Panels The term panel is used to refer collectively to the physicians who serve a health plans members. An HMOs panel may be either closed or open. In a closed-panel HMO, the physicians providing care to members are either employees of the HMO or members of a group of physicians that contracts with it. Other physicians are not allowed to join the HMOs network. In an open-panel HMO, any physician who meets the HMOs standards is eligible to join the HMOs network by contracting independently with it. It should be understood that while a physician who meets the criteria of an open-panel HMO is eligible to join it, the HMO has no obligation to contract with anyone. An openpanel plan may stop accepting new doctors if it already has enough to meet its members needs, and it may start accepting them again if a need develops. In a closed-panel plan, HMO physicians most commonly see only members of the HMO; in an open-panel plan, they typically see other patients as well. In the past most HMOs had closed panels, but this is no longer true.

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Closed and Open Access The terms closed access and open access are sometimes used along with closed and open panel, but they do not mean the same thing. Closed access means that, to receive benefits, an HMO member must obtain care from network providers, not out-of-network providers. Also, to receive care from a specialist, even in-network, a member must obtain a referral from her primary care physician (PCP). Open access (also called direct access or self-referral) means that a member may go to a specialist, either in-network or out-of-network, without a referral from her PCP (that is, she can self-refer). She will receive benefits, although benefits for non-network care may be lower than for network care. Traditionally, closed access was one of the main features that distinguished an HMO from other health plan types. But open access has become more common and closed access less so. Many consumers do not like having to go to their PCP (and paying a copayment for the office visit) in order to see, for instance, a dermatologist or allergist, and many HMOs have discontinued this requirement in an effort to meet consumer preferences and remain competitive. Also, although the PCP referral system was designed to help contain costs by managing utilization of specialty care, it is unclear if it achieves that goal. In some cases a referral requirement may even lead to a delay in treatment and higher costs. To sum up: closed or open panel refers to whether a physician can join an HMOs panel (network); closed or open access refers to whether members can access nonnetwork care and whether they can access specialty care without a PCP referral. Provider Compensation In Module 4 we learned about some of the ways health plans compensate providers. Lets review three of the most common: Fee-for-service (FFS). A health plan pays a healthcare provider a fee for each service rendered to plan members, and the amount paid is the providers normal fee for that service. For instance, a doctor examines a plan member and has some tests done; she bills the plan her normal charges for these services, and the plan pays these amounts. Under FFS the more services a provider delivers, the more she earns. The risk is borne by the planif members use more services than expected, the plan pays the cost. Discounted fee-for-service. A plan pays a provider a fee for each service rendered to plan members, but the amount is based on a discount off the normal charge. A set percentage may be subtracted from the providers regular fee or from the usual and customary fee for the service in the locality, or the amount paid may depend on a fee schedule (a listing of amounts to be paid for different services). Although the provider earns less than under regular FFS, as in regular FFS the more services she delivers, the more she earns. A provider is willing to accept discounted payment because affiliation with the plan brings her more

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patients, so that although she receives less per service she may have greater total earnings. As under regular FFS, the risk is borne by the plan. Capitation. A healthcare provider is responsible for providing the healthcare services needed by certain members of a health plan; in return, for each time period the plan pays the provider a fixed amount per capita (per plan member served). For instance, a doctor agrees to provide primary care to members of an HMO, and the HMO pays the doctor a set dollar amount per member per month. Under capitation, the provider is paid the same amount regardless of the number or costs of the services she provides to plan members. The provider assumes riskif members need many services and the cost of caring for them is higher than expected, the provider must bear the cost. The student may also want to refer to Module 4 for explanations of other compensation methods, such as the Resource-Based Relative Value Scale (RBRVS) and withholds.

HMO Models
There are models (basic types) of HMOs, distinguished largely by the contractual relationship between the HMO and its providers, including reimbursement arrangements. There are four main models: the independent practice association (IPA) HMO, the staff model HMO, the group model HMO, and the network model HMO. In addition, there is the mixed model HMO, which combines characteristics of two or more of these models. For instance, an HMO might use a staff model for primary care and a network model for specialty care. Most early HMOs were staff model or group model, but the current trend is toward the mixed model. Mixed model HMOs have evolved in response to employer and consumer demand for a flexible delivery system that combines the best features of different models. And as HMOs adopt various features from different models, distinctions among models become blurred, and it can be hard to classify a particular plan as belonging to one model or another. As mentioned in the last module, under healthcare reform (the Affordable Care Act) HMO-like organizations called accountable care organizations (ACOs) are expected to play a role, as are entities known as medical homes. We will discuss these in our module on provider organizations.

IPA Model
The most common HMO model today is the IPA model. An independent practice association (or individual practice association) is an association of physicians in independent practice. It is established primarily to give its members a vehicle for negotiating contracts with health plans. IPAs often include a variety of providers, including individual primary care physicians, individual specialist physicians, group
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practices, and multi-specialty group practices (for instance, including internists, family practitioners, pediatricians, orthopedists, and others). We discuss IPAs in more detail in a later module. In an IPA model HMO, each participating physician contracts with the IPA, and the IPA contracts with the HMO. The HMO pays the IPA, and the IPA pays its members. The IPA agrees to provide healthcare services to HMO members, and the IPAs physicians become part of the HMOs network, agreeing to adhere to the terms of the IPA-HMO contract. But IPA physicians remain independent practitioners who manage their own offices and medical records; they usually see other patients besides HMO members and may contract with other health plans. An HMO may contract with more than one IPA, and an IPA may contract with more than one health plan. An IPA model HMO may be established in different ways. Sometimes physicians in an area form an IPA, which contracts with one or more HMOs or other health plans. Sometimes the HMO and community physicians work together to create an IPA and recruit other physicians. In this case, the HMO and IPA typically have an exclusive contractthat is, the IPA cannot contract with other HMOs or health plans. Sometimes a hospital establishes an IPA, which contracts with an HMO. Some IPAs have an open panelall physicians who meet the IPAs standards are eligible to join. But some have a closed panelfor instance, physicians may not join a hospital-based IPA unless they are affiliated with the hospital. Compensation In an IPA model HMO, compensation is normally by fee-for-service or capitation; most commonly plans use capitation for PCPs and discounted FFS or the Resource-Based Relative Value Scale (RBRVS) for specialists. HMO members make copayments to physicians for office visits, but they account for only a small portion of physician compensation. An IPA may use techniques such as withholds to share financial risk with member physicians and give them financial incentives to manage utilization. As you recall from Module 4, a withhold is a percentage of provider compensation that is retained by a health plan during a year. If care costs are higher than expected, this money is used to cover them; if they are not and funds remain, the money is distributed to providers at the end of the year. An IPA may also establish compensation systems that depend on quality and preventive care measures. Advantages and Disadvantages The open-panel IPA model appeals to HMOs and their members because members can usually choose from a large number of physicians practicing in their own offices throughout the HMOs service area. This has given this model a competitive edge over staff model and group model HMOs.

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In addition, the IPA model is in some ways cost-effective. Since physicians have their own offices, the HMO does not have the expenses of facilities. And compensation by capitation and withholds gives physicians incentives to manage utilization and costs. But on the other hand, because there are many independent physician offices an IPA model HMO cannot realize the economies of scale of staff and group model HMOs, and it can be difficult to achieve consistency in care management and quality management. Many physicians appreciate that the IPA model HMO allows them to see members of other health plans and contract with multiple plans, giving them access to large numbers of patients and a variety of income sources. Direct Contract Model A less common variation of the IPA model is the direct contract model HMO (or direct model HMO). In this model the HMO contracts directly with individual physicians; there is no IPA or other legal entity that represents and negotiates contracts for groups of physicians. The HMO has full responsibility for functions that an IPA might participate inthe HMO must recruit physicians and handle care management and quality management. A direct contract model HMO usually includes PCPs and a wide range of specialists. It has an open panel and nonexclusive contracts (physicians may see other patients and contract with other health plans). It typically compensates PCPs through capitation and specialists through discounted FFS.

Staff Model
In a staff model HMO, the physicians who care for members are employees of the HMO, and usually the facilities in which they work are owned and operated by the HMO. Generally, a staff model HMO employs all the PCPs and specialists required to meet members needs, but some plans contract with some outside specialists, who provide services to members referred to them by the plans PCPs. The HMO also owns or contracts with hospitals, pharmacies, and other entities to provide non-physician healthcare services. A staff model HMO has a closed panel, since (with the possible exception of a few specialists, as mentioned above) a physician cannot provide services to the HMO unless she is an employee of it. Also, because physicians are employees, they may see only HMO members and may not contract with other health plans. In a staff model HMO, most physicians practice in centers owned and operated by the HMO, called ambulatory care facilities (ACFs). An ACF provides outpatient care medical treatment that does not require an overnight stay. In a single facility members can access a wide range of physician services, including preventive care, acute care, and outpatient surgery, and there are also non-physician providers, nurses, laboratory and other diagnostic services and technicians, and professional support staff. In this way ACFs offer members one-stop shopping for healthcare. A staff model HMO may have several ACFs in its service area. Compensation

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Compensation in a staff model HMO is generally simple and straightforwardphysicians are employees and are paid a salary. This means that all risk is borne by the HMO, not the physicians. If many or few services are provided, the physician still receives her salary, and if utilization of services is greater than expected, the HMO bears the cost. Advantages and Disadvantages The staff model offers several advantages. Care is centralized in ACFs, making possible economies of scale and facilitating the coordination of patients care, the management and monitoring of utilization and quality standards, and the evaluation of physician performance. And many consumers like being able to access a wide range of medical services in one place. On the other hand, a staff model HMO is usually more time-consuming and expensive to establish because of the capital costs of building facilities, and it is also costly to maintain because of the large fixed expense of physician salaries and building maintenance. Adding medical services or expanding geographically is also capital intensive, thus limiting a staff model HMOs competitive ability in a changing market. For consumers, a staff model HMO offers a relatively narrow choice of providers, and to address this, many staff model HMOs have added an IPA delivery system or a point-ofservice option (discussed in the next module).

Group Model
In a group model HMO (also called the group practice model), the HMO contracts with a multi-specialty group practice of physicians. This group practice may be formed as a corporation, partnership, professional association, or other legal entity. The physicians in the group practice are employees of the group practice, and they may also have an ownership interest in it. They generally share office space, support staff, medical records, and medical equipment at a common medical center or clinic. While a multispecialty group practice includes PCPs and a variety of specialists, it may not have specialists in every area, in which case it may subcontract with outside specialists to provide some services to HMO members. A group model HMO may be either captive or independent. In a captive group model HMO, the group practice serves only (or primarily) the HMOs members and may not contract with other health plans. The panel is closeda physician cannot join the HMOs network without being a member of the group practice. Typically the HMO performs management and administrative functions for the group practice, and it may also own the facilities or equipment used by it. In an independent group model HMO, the group practice provides services both to the HMOs members and to other patients, and it may contract with other health plans. The HMO has an open panela physician can join without belonging to the group practice. Compensation

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A group model HMO usually compensates the group practice by capitation, and the group practice compensates its physicians (including any subcontracted specialists). Physician compensation is by salaries and incentive payments, based on a physicians performance, area of expertise, and administrative work. Physician compensation often includes incentives for care management. In this arrangement, the group practice bears the risk, and to the extent physicians have an ownership in the practice they share in profits and losses. Advantages and Disadvantages Unlike a staff model HMO, a group model HMOs does not have to pay for facilities, since these are most often owned and maintained by the group practice. And it does not have the fixed expense of physician salaries, since it pays the group by capitation. On the other hand, a group model HMO may be limited by the location of the group practice, and in the case of a captive group with its closed panel, members access to and choice of physicians may be limited. Also, a group model HMO has less control of care management and quality of care than a staff model HMO.

Network Model
A network model HMO is like a group model HMO, except that the HMO contracts with more than one group practice. This allows the HMO to provide a wide range of physician services in a geographic area. A network model HMOs may have either an open or closed panel. For instance, suppose an HMO contracts with six or seven group practices. It might not allow physicians not belonging to these groups to join (closed panel), or it might accept into its network any physicians who meet certain criteria. Group practices can usually see nonHMO patients and contract with other health plans. Compensation As in the group model, in the network model the HMO compensates the group practice, and the group practice compensates its physicians. Network model HMOs are increasingly moving toward a mix of capitation and discounted fee-for-service in compensating group practices. To the extent a group is compensated by capitation, it bears risk. Advantages and Disadvantages An advantage of network model HMOs, particularly open-panel plans, is that members have access to a broader range of physician services and locations than under the staff and group models. As with the group model, there are no facility costs and no fixed salary expense, but there is limited control of care management and quality of care.

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