Health Maintenance Organizations (HMOs) are risk-bearing entities that collect premiums (a fixed prepaid amount) to finance and arrange health benefits through a specific network of providers. HMOs are governed by state enabling statutes, many of which were adopted in the early 1970s. HMOs offer comprehensive health care benefits on a prepaid basis through a contracted network of providers. Generally HMO members pay a fixed monthly premium fee, often with no deductible and flat dollar co-payments when they receive services. In some HMOs, a Primary Care Provider (PCP) must be selected to manage each member’s care. In such a "closed-panel" system, to receive payment for services from a provider other than the member’s PCP, the PCP must make a referral.
HMOs expanded benefits to include preventive services, no deductibles, and fixed dollar co-payments versus co-insurance. HMOs traditionally shifted financial risk for delivery of health services to providers through risk-based arrangements (capitation payments, risk adjusted fees) although current trends have moved away from capitation. Contracts with providers generally prohibit their balance billing members. (this is often mandated by state law).
There are various HMO models: i. Staff model: HMO directly employs physicians providing coverage. ii. Group model: HMO contracts with medical groups for services by group affiliated physicians iii. IPA model: HMO contracts with Independent Practice Associations (IPA) that in turn contract with physicians for services. iv. Mixed model: Currently the most common trend; HMO networks include contracts with all of the above models.
National Committee for Quality Assurance (NCQA) (see http://www.ncqa.org (last visited September 27, 2011) monitors and reports on the quality of HMOs; rates health plans; and provides consumers a health plan Report Card. American Accreditation HealthCare Commission, Inc. (known as URAC) (see http://www.urac.org (last visited September 27, 2011) promotes increased health care management efficiency and quality through its accreditation and education programs.
Excerpt from Lois Dehls Cornell, Managed Care Nuts and Bolts, Fundamentals of Health Law (American Health Lawyers Association Nov. 2011).