Challenges in managing HMOs

Challenges in managing HMOs







Health maintenance organizations (HMOs) play an important role in ensuring health and safety for individuals. However, managing of such HMOs is faced with a lot of challenges. It is therefore important to understand the challenges that these organizations face in the process of service delivery. This paper aims to discuss these challenges and offer a recommendation on what needs to be done to avoid or reduce the impact of these challenges (Boland, 2009).

This paper will start by giving an overview of the HMOs and the challenges seen in the system. A literature review will then be explored and solutions for the stated challenges discussed together with how to implement them. The paper is therefore important to all stakeholders including healthcare staff, patients and the various agencies of the government since it will provide a clear outline of the challenges faced as well as recommendations on what need to be done to reduce the challenges experienced in management of HMOs (Boland, 2009).


Health maintenance organizations (HMOs) was a creation of the Health Maintenance Organization of 1973 as a managed healthcare system (Boland, 2009). Its aim was to reduce healthcare costs on consumers. HMO members receive care from primary care physicians, clinics, hospitals and clinics. The primary care physician is responsible for referring patients to various specialists. HMO members are required to receive medical care at only at specified facilities or those that are under contract with the parent facilities and adhere to HMO rules. This is however not the case when there is an emergency or medical attention need to be attended out-of-area (Boland, 2009).

According to Falkson (2009) the mode of payment in HMOs capitation model. Here, the organizations receive a fixed amount in a period from each patient. Mostly, these payments are made on a monthly basis. This is a replacement to the traditional fee-for-service mode of payment which was much criticized because some doctors and specialists tended to prescribe more to a patient in order for the payment to increase (Falkson, 2009).

Challenges in management of HMOs

HMOs have a challenge due to capitation (Falkson, 2009). Here, doctors are provided with a set amount of money to cover such costs as tests, referrals and procedures needed by each patient in a given period, say a calendar year. The problem arises here because doctors can keep any residual amount of money at the end of that period. If a doctor want the residual amount to increase, he/she will make sure that the patient for instance skips some tests for instance by not referring them to tests even when deemed necessary. In this way, the costs will remain low while profits keep on increasing (Falkson, 2009).

HMOs are faced with a big problem of utilization review (Falkson, 2009). Here, the administrators of the insurance company have the power to determine whether the medical prescription by the doctor is necessary or not. Remember that this is a board which in many cases is not even medically qualified to determine whether a patient is to get treatment or not. What they have to do is to just vote and deny you the chance to get treatment. Through this, the insurance company will have been saved of costs and the patient denied the treatment they require (Falkson, 2009).

HMOs are faced with the problem of quitting of doctors from delivering services to the organizations (Markovich, 2003). This has been coupled by the increasingly growing influence of doctors associations which help doctors to have a contracting influence on HMOs. This has in numerous cases created a crossfire between these HMOs and doctors unions which has in several occasions led to quitting of doctors. This has deprived the patients the opportunity to be attended by their original doctors and this has not gone well with many customers. This is especially a problem when the patient had developed a special kind of rapport with a particular doctor. The patient may be forced to look for an alternative coverage which may be more expensive (Markovich, 2003).

The comparative lower cost of healthcare in HMOs is largely as a result inadequate coverage of services offered by the organizations (Markovich, 2003). Customers tend to believe that HMOs are meant for those people who are less likely to need expensive care or hospitalization. This implies that those people suffering from serious and chronic diseases are not well attended by HMOs. This is evidently true since admission of inpatients in HMOs is comparatively lower than in other insurance programs. HMOs argue that their lower costs of health care is as a result of such measures as improving on disease prevention and having a system of care that is organized and efficient. This consumer belief has led to those needing serious and intensive medical attention to seek medication elsewhere away from HMOs (Markovich, 2003).

HMOs are still faced with accessibility and quality issues (Markovich, 2003). These issues must be addressed well since it might affect the image of HMOs. HMOs are forced to commit to maximum waiting times for appointments. This makes many patients to be dissatisfied with the waiting time for appointment of a physician as well as the waiting time to see the physician once in the facility. They must also allocate enough resources to ensure that all these appointments are attended to (Markovich, 2003).

HMOs are also be faced with the challenge of consumers who are unwilling for health personnel who are not allied to the HMO to take a significant part in management of their health. This is owing to believe that the quality is best served by those personnel in the HMO facility and therefore are unwilling to substitute with those which are not allied to the facility (Markovich, 2003).

The limited choice in the facilities and staff that can serve a patient is a problem when the patient suffers from a disease that can only be served well by specialists outside the chosen HMO. This will force the patient to meet the treatment costs out of his/her pocket this is despite the patient having paid for medical cover in a particular HMO. (Markovich, 2003).

HMOs are still new in business. Like in any new business venture, HMOs face financial constraints. Some HMOs have been declared bankrupt as a result of failure to meet their financial obligations. This is even made worse by laws which limit loans offered to development of HMOs. On top of this, some federal requirements are needed for these organizations to access support from the federal government. These requirements include use of community rating instead of individual health status ratings in premium rating (Coombs, 2010).

Review of literature

The concept of managed healthcare

According to Ameiung (2004) managed healthcare is a concept in which financing of healthcare and a system of delivery are put under the direction and control of a system provider. This system provider acts as a managing unit. This system was designed to ensure that healthcare costs which were escalating were controlled. Out of control costs are contributed by such factors as increase in an aging population, excess hospital capacities, care of uninsured patients and recommendation by physicians to perform unnecessary services to help hospitals get extra money (Ameiung, 2004).

The HMO has developed into the most dominant of all managed care delivery forms. It has however been accused in recent times of sacrificing the quality of healthcare services they offer in the name cost reduction but instead they do so due to their desire to boost profits. They have also faced the accusation of leaving the power to decide care to be received by the patient to HMO administrators instead of qualified physicians (Ameiung, 2004).

Employers are in a battle regarding increases in premium rates paid by their employees under HMO cover. On the other hand, consumers are increasingly being politicized regarding potential abuses by HMOs and other managed care organizations. State agencies are putting tighter restrictions on how HMOs can operate. Every wrong decision made by HMOs is under scrutiny from the various stakeholders and this poses numerous challenges to the HMOs (Boland, 2009).

Harold S. Luft summarized nearly 50 studies comparing the costs of HMOs with those of conventional health insurance policies (Fein, 2000). He established that the total cost of health for HMO subscribers is less than that of group insurance plans by 10-40 percent (Fein, 2000). This finding is based on a research that was conducted in California, a region where Kaiser HMO system is the most common (Fein, 2000). He established that these lower costs are attributed to lower hospitalization rates since the inpatient enrollments in HBO systems are lower than those in conventional insurance schemes (Fein, 2000).

Solutions to address the problems faced

To ensure smooth continuity in operations of HMOs, solutions must be sought to the discussed problems. To ensure a solution is reached, all the parts of the problem have to be considered. The solution should not be solely focusing on the cost but also quality, choice and accessibility issues extensively addressed (Fein, 2000).

Currently, the insurance company is the one that determines the kind of care received by the consumers, which in this case is the patient (Strickler, 2005). However, the consumers should be the ones who determine their doctor and play a role in the kind of treatment they are going to get instead of being forced into accepting what the HMO can offer. This can be achieved by having a high-deductible health insurance together with use of a Medical Savings Account (MSA) (Strickler, 2005).

High deductible plans are characterized by payment of premiums which are lower and deductibles which are higher than in a traditional healthcare plan. To have a Medical Savings Account, one must be covered by a high deductible health plan. To ensure that quality is maintained, doctors should be the ones who have the power to decide on whether the patient is to get treatment or not. The board of the HMOs should be scrapped of the power to determine if a patient gets treatment or not since they are not qualified to do so and may make skewed decisions aimed at ensuring their organizations make good profits (Strickler, 2005).

Control of medical costs should not be done in a way that compromises the quality. For instance, the wasteful treatment incurred in the daily care of minor health problems should be reduced. Cost control should not be done through rationing of important treatments and avoidance of necessary tests as it is the case in the current Health Maintenance Organizations (Coombs, 2010).

To ensure accessibility of doctors and other medical staff by patients, a lot has to be done to broaden access to the HMOs. For instance, the HMOs could hire more staff so as to ensure that the patient to doctor ratio is within manageable limits. Through this, the medical staff will not have to attend to a number of patients within their reach and thus there will be no much waiting which is currently being experienced in the present HMOs (Coombs, 2010).

Summary and conclusion

Current Health Maintenance Organizations have not done enough to ensure that at an affordable cost, quality, accessibility and choice of the healthcare consumer is guaranteed. It is evident that most of them, just like any other businesses are geared towards profit making at expense service delivery. It is therefore highly recommended that changes geared towards guarantee of quality, choice and accessibility of healthcare by patients at affordable costs are achieved. It is especially the role of the government and the related agencies to ensure that all the above solutions to the challenges faced by HMOs are implemented to the later.


Amelung, V. (2004). Healthcare Management: Managed Care Organizations and Instruments.

Boland, P. (2009). Making managed healthcare work: A practical guide to strategies and solutions. Gaithersburg, Md.: Aspen.

Coombs, J. (2010). The rise and fall of HMOs: An American health care revolution. Madison, Wis.: University of Wisconsin Press.

Falkson, J. (2005). HMOs and the politics of health system reform. Chicago: American Hospital Association.

Fein, R. (2000). Medical care, medical costs: The search for a health insurance policy. Cambridge, Mass.: Harvard University Press.

Markovich, M. (2003). The rise of HMOs. Santa Monica, CA: Rand.

Strickler, C. (2005). The applicability of Singapore’s medical savings account scheme to America’s healthcare market.

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