HMO Emergence: Effect on Physician Workforce

HMO Emergence: Effects on Physician Workforce

In the 60's, before the advent of HMO's, the indemnity or fee-for-service was the dominant method of health insurance. In this method, insurance covered much of the cost of each treatment. The patient had complete freedom in choosing the provider, i.e., the physician, hospital, or pharmacy. The insurance company did not restrict referrals to specialist length of hospital stays, or brand of medication. The insured were happy, the providers made money, and insurance companies passed on the cost into escalating premiums. Although, corporate employers paid the premium for most of the population, they were largely indifferent to cost increases in the 60’s since health care benefits constituted a minor part of their total costs. However, these high costs prevented the elderly, poor, and unemployed from receiving adequate health care.

In July of 1966, the U.S. government, in conjunction with states, passed a major bill, the Medicare, by which the government paid the premium for uninsured elderly and needy children. This resulted in a significant and sudden increase in the patient population and thus a shortage of providers. This was remedied as government supported subsidization of the building of hospitals and expanding medical schools and increasing capacity of residency training programs known as Graduate Medical Education (GME). In return, universities affiliated hospitals provided medical services to Medicare patients at a substantially discounted rate.

As health care cost continued to escalate, employer became increasingly conscious of the costs. By the early 80's, the health care costs became a significant part of the national budget. This caused the emergence HMOs that would provide reasonable health care at a significantly lower cost.

HMOs quickly identified the major cost factors. First the uncontrolled access to specialists who generally have a propensity to overuse expensive hospitalization and diagnostic testing. The second factor was cost shifting. Hospitals are required to provide emergency care for all patients, irrespective of their insurance or financial status. The cost of such treatment was passed on to paying and insured patients. The third factor was the high overhead at most hospitals which are equipped to treat rare illnesses.

To reduce the cost, HMOs setup a "gatekeeper" system which stops direct access to specialists by the insured. The patients are required to see a generalist contracted or employed by the insuring HMO. Treatment by a specialist must be recommended by "gatekeeper" generalists. Also, approval by the HMO is necessary for a generalist to prescribe costly items such as referrals, non-generic prescriptions, testing, and hospitalization. Generalist using expensive procedures are in danger of losing contracts or employment. Capitation was introduced as a new method of reimbursing the providers, physicians and hospitals. By capitation the providers are paid a fixed annual amount per insured rather than per service provided. Part of the fixed amount is saved in a "risk pool" to be used for patients needing unusually expensive care. The unused part of the risk pool is returned to providers. In effect, providers became risk bearers motivated to avoid using expensive alternative treatment. All of this resulted in HMOs offering a significantly low cost health care.

HMOs low cost alternative became very popular. Employers rushed in to sign contracts with HMOs. Between 1976 and 1994, the HMO participation increased more than 8 times[1] (see figure 1). In choosing HMOs, although insured lost some freedom in choosing physicians who would provide a quality care, the lower cost became the determining factor for most people insured through corporate employers.

Understandably, a major consequence of emergence of HMOs is a drastic change in demand of the type of physicians. The demand for generalists is expected to increase while the demand for specialists is expected to decrease significantly. However, the trends in supply run counter to demands. This discrepancy means that if HMOs were to become more prevalent, there will be an excess supply of physicians, especially the specialists. (See figures 2 and 3[2])

Medical schools have taken steps to balance the generalist - specialist output of future medical graduates. Currently, the medical schools are training 30% generalists1. They have a goal of making this 50% generalists. In response to the changing ratios of generalists to specialists most medical schools have taken steps to training more generalists. A new approach to medical education called “problem based learning” has been adopted by most medical schools in the early 90’s. This approach, aimed at future generalists, involves serving the patient as a person rather than an organ. Also, many medical schools have introduced special training programs similar to UCLA’s “Doctoring” and Harvard’s “New Pathway” program that are aimed at extensive training for generalist. Additionally, many schools have introduced courses such as “Physician and Society” throughout medical school curriculum. Regarding the training of specialists, hospitals are actively recruiting generalists such as family medicine and pediatrics while positions for specialists are very few. In conclusion, both medical schools and internship training hospitals are taking steps to make the generalist- specialist ratio meeting of future demands.

In addition to discrepancies in generalist - specialist distribution, there is expected to be an overall excess of physicians. Estimates of this excess vary significantly between studies. As Cooper reports[3]:

"Supply initially will increase ... surplus of 3100 physicians(5%) in 2000 and 62000 physicians (8%) in 2010 ... previous studies that had projected surpluses of 73 000 to 165 000 physicians (15 to 30%) in the 2000. "

Medical schools have responded to this impounding excess by starting to cut down training of foreign medical graduates (IMGs). The number of IMGs in the first year of training have risen from 3500 (20% of U.S. graduates) in 1988 to 7500 (44% of U.S. graduate) in 1994.

While HMOs serve an important and beneficial social service by making the health care costs reasonable, such benefits are not without social penalty. Of particular interest are the physician distribution in under-served areas, closing or reducing of hospitals or their capacities, segregation of less healthy people into expensive and unaffordable health care, slow down of progress in medical technology and science as training of specialist and research activity at medical institution becomes stranded for funds. Each of these is discussed below.

Although there is an overall excess of physicians, there is another distribution problem: a shortage of physicians in underserved rural and inner city areas. Since HMOs subscribers are primarily corporate employees located in suburban areas, generalists tend to concentrate in suburban areas. This exacerbates the shortage of generalists in underserved areas. For example, Wyoming, Montana, and Idaho have approximately 133 physicians per 100 000 population; while Boston - Washington corridor has 270 to 290 physicians per 100, 000 population.

HMO’s preference for generalists and outpatient care has a deleterious impact on nation hospitals. This causes a reduce in the number of beds and size of hospitals, and an increase in out - patient care facilities. Recently this has lead to many hospitals merging or closing down. Excess capacity of the hospitals serves an important role in the community by making available treatment for rare emergencies such as stroke.

HMOs discourage use of specialists. Most people who are usually in good health and do not need specialist treatment are attracted by the lower cost of HMOs. The few people who need specialist care and hospitalization are likely to segregate into non HMO plans. This market-driven polarization magnifies the cost difference between HMOs and non - HMOs. This makes health care less affordable for those who really need it. Also, since there is a decreasing number of specialists, specialists are not accessible to most of those who can afford them.

Most of the funding for universities comes from practice plans where medical university teaching staff also practicing as physicians, becomes a source of revenue for the university. Additionally, the staff also trains the residents and interns. Universities are stranded for funds as hospitals become competitive. Reduced practice plan funds forces universities to cut fund which reflects into low quality training of medical students. Since 1993, there have been 8 university mergers. New trends in clinical education show medical students receiving less inpatient training, and more in physicians' offices and outpatient care.

Specialists, by virtue of their training, participate in research and advancement of medical knowledge in addition to their practice as physicians. Also, they become the doctors that train residents and interns. With HMOs causing a reduced number of specialists, medical research and training for students would be abridged.

Providing for health care has been very expensive, but HMOs also provide a useful solution to the cost problem. However, the penalties associated with this solution are serious and can be debilitating to the society in a long run. The full negative impact of HMOs may take years to become visible. Health care is not purely a market undertaking, and physician supply and demand should not be guided solely by market forces.