The Rise and Fall of HMOs
Robert P. Nirschl MD, MS

The decade of rapid growth of the HMO embryo has now reached the turbulence of adolescence. Whether this brand of irrational medical financing will transform itself to rational adulthood, or merely self-destruct is now open to conjecture. It is important however, if not critical, to understand the likely future of HMOs as politicians, business institutions, and medical groups are currently making strategic decisions dependent on HMO maturity and permanence. Decisions made upon such a premise are very likely to be ill concieved. The unintended consequences, if such misadventures move forward (for example Medicare) will in all probability be the demise of medical research and services. in the likely possibility of total HMO collapse, a very expensive financial extrication akin to the savings and loan bailout will be the outcome.

Close analysis of the HMO phenomenon reveals its fatal flaws and why an apocalyptical end point is a real possibility. First and foremost, although privately owned, HMO patient care ideology is collectivist with the goals of societal cost control and profits to a small elite controlling bureaucracy (eg: hybrid communist oligarchy). This collectivist ideology is the antithesis of the traditional medical practice which is service to the best interests of the individual. These competing ideologies are irreconcilable and are the source of constant conflict with clear disadvantages to the individual patients. Thes patient disadvantages are now clearly visible in the almost daily reports of patient dissatisfaction, if not outright abuse, in HMO systems.

The driving force for HMOs has been a search for cost-control by an employer-based health benefits system. Although the focus of this discussion is on the deficiencies of HMOs, it might be noted that employer, rather than individual control, has created the benefits portability and pre-existant disease crisis and is irrational in its own right.

It is quite clear that most employers are unaware that HMOs are extremely expensive when compared to true insurance (eg: the spread of financial risk by providing coverage for an unanticipated event). The HMO scheme, on the other hand, is not insurance but the prepayment for the consumption of anticipated medical services and, in the process, over charges for these so-called preventative services. The HMO catastrophic coverage component also profits by the rationing or denial of services to those who are sick. The concept of rationing is, of course, a bias against timely and quality care. In the context of overpayment, an average family rarely uses more than $500 of preventative services (eg: physicals, mammograms, pap smears blood tests, immunizations, etc.) on an annual basis. All HMOs charge substantially more for these services, sometimes up to $3000. The bottom financial line is that HMOs are simply a financial bad buy and a clear threat to patient best interests.

Finally, HMOs are predicated upon presumed patient ignorance or medical illiteracy. It is widely but subtly circulated by HMO spokespersons that medical services are too complex for patient understanding. It should be noted that the more complex the issue, the greater the need for patient soveriegnty. If a direct doctor-patient relationship is complex, how much more complex is a system in which the patient must choose an employer, who chooses an HMO, which chooses a doctor or clinical lab who has a clear bias to adhere to HMO regulations. With the ignorance pretext, patient medical decision making, medical access, and financial control are unquestionably usurped by non-medical third parties (eg: HMO or government bureaucrats). This approach eliminates market competition since competition can only occur if the user of the service, namely the patient, determines its value and has a freedom to seek it. Perhaps of greater importance is the lack of freedom and choice which places the patientat tremendous medical care disadvatage as treatment options (especially the expensive kind) are either not discussed or withheld. Thus, in the HMO format, the patient must have full knowledge of all the treatment options in advance of the medical visit to protect his/her best interests. That information is withheld is clearly evident in how HMO physician bonuses are paid and the gag clauses so prevalent in HMO physician contracts.

Patients, employers, and physicians are now finally realizing that the ideological conflicts inherent in HMOs are constant and permanent and cannot be made palatable by legislative fine tuning or contract enhancement. The only true resolution of this ongoing conflict is the elimination of the offending ideology. As collectivist opprobrium is eliminated, medical value will be restored through patient education and freedom of choice.

It is axiomatic that the essence of value (eg: quality at a fair price) is based in free market competition. It is self evident that free market competition requires patient freedom to seek and determine value.

It should be understood that almost all private economic activity in the United States occurs through a fee-for-service system. It is quite clear the fee-for-service in non-medical economic transactions is th most effective approach to value oriented consumer activity, provided th euser of the product or service has a meaningful financial obligation regarding the services chosen. to this end, medical fee-for-service has been unjustly criticized as a costly failure. Quite to the contrary, medical fee-for-service has not failed and aill function just as non-medical fee-for-service provided current methods of third party entitlement financing are eliminated (eg: the perception of spending someone else's money). If anyone doubts this premise, give a stranger unrestricted use of your credit card and observe the consequences. It may come as a surprise to many, including physicians, that restored value will occur through a true fee-for-service approach for anticipated medical services and through true insurance for unanticipated medical events. To accomplish thes goals, patients must demand that insurance companies once again offer real insurance products. Dissatisfaction with the current HMO ideology will force this change.

history is replete with political and financial "wunderkinds" who crashed and burned under the scrutiny of reasoned judgement. Our compuetr based informational systems now hastens this scrutiny. Like the financial Ponzi schemes of the early twentieth century, HMOs are unsustainable and are almost certain to be an early casualty of the new millenium. Our political and business institutions are well advised to act accordingly.

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