Attention, HEALTH-CARE SHOPPERS!

Rick and Mary Culpepper wouldn’t hesitate to say that their little dark-haired son is worth all the money in the world; but the truth of it is, he didn’t cost them nearly that much. When Marshall was born a year and a half ago at Medical City Dallas, the only hospital bill his parents received was for $8.25-for the long-distance telephone charges they logged spreading the good news. The Cul-peppers, like more than 75,000 other Dallasites and almost 12 million Americans, are members of an HMO- a Health Maintenance Organization, a private-sector organization that provides comprehensive health care services to enrolled members for a fixed monthly fee. Rick joined INA Healthplan of Texas, now CIGNA Healthplan of Texas, when he was an employee of Texas Instruments, then transferred his membership when he accepted a job with Northern Telecom. His employer pays all but $14 of his HMO fees per month.



It sounds too good to be true that HMO members, for a monthly fee that is sometimes equal or even less than premiums for indemnity insurance, are entitled to a veritable smorgasbord of medical care. There are no deduc-tibles under HMO plans-no 20 percent due when the cardiologist decides that you need a triple bypass or the internist orders another round of tests. Charges for doctors’ office visits, examinations, hospital care, surgery and intensive care, as well as ambulance service, maternity care and up to 100 days per year in a nursing facility are among the services provided at no charge when such care is deemed necessary by HMO physicians.

The city of Dallas, the Dallas Independent School District, Xerox, The Dallas Morning News and The University of Texas System are among at least 600 employers in Dallas who offer HMO plans in addition to their traditional insurance coverage. Kaiser Foundation Health Plan of Texas is the city’s largest HMO, with 42,000 members in Dallas among its four and a half million members nationwide. CIGNA and several other HMOs are also available here, including (if it opens as scheduled in January) Sanus Texas Health Plan Inc.

All these HMOs apparently offer more for less, with costs averaging 10 to 40 percent less than medical bills for health insurance subscribers. But those savings are not accomplished with mirrors. HMOs represent a $5 billion industry and offer a type of health care that is dramatically different from what the traditional fee-for-service physician provides, a system of care that the president of a health-policy research group has called “an industrial revolution 200 years late.” HMOs are choice-limiting. Members trade decision-making powers for financial and convenience benefits; they agree to use a primary care physician who is a member of the HMO. That doctor is responsible for overseeing their care and, if necessary, for authorizing referrals to HMO-approved specialists outside the group. Self-referrals are not covered, and self-diagnosis is generally ignored.

Another way that HMOs control cost is by limiting hospital use. In 1981, the average number of days spent in a hospital per 1,000 Blue Cross/Blue Shield subscribers was 728. That same year, the average number of hospital days per 1,000 HMO members was 467 nationwide and has since dipped to 350 in Dallas, says HMO consultant Brent Casey. Those hospitalization savings are the key to the puzzle, he says; they enable the organizations to pay for routine ambulatory medical services not usually covered by traditional health insurance and still remain competitive. Dr. Carlton Shmock, chief of internal medicine for Kaiser-Permanente and physician-in-charge at Medical City Dallas, says that these cost-saving measures are the best method because “it’s dangerous to let the patient make his own diagnosis. The HMO patient has to realize that he isn’t well-educated enough to make his own decisions on his own health care.”



Phyllis Dandridge, an employee of Sun Exploration Production Co. and a member of the Kaiser Foundation, had felt unusually tired for some time, but she had no idea that when her HMO doctor tested her enzyme level he would discover that cancer had already advanced into her liver. Today, after two years of “trying everything but coffee enemas,” the cancer is in total remission. Dandridge has nothing but praise for her HMO; she says she “could not possibly have gotten better care.” Without the savings that the HMO offered, she says, “I would have been destroyed. There’s no way I could have paid even 20 percent of the charges for all the transfusions, chemotherapy, sonograms, chest X-rays and everything else they did.”



Considering that HMOs came to town only four years ago when the Kaiser Foundation teamed with Prudential Insurance Co., it’s safe to say that prepaid medicine is firmly and successfully established in Dallas. The city’s first HMO (which is no longer associated with Prudential) is again surpassing its own monthly forecasts on its way to an annual goal of 10,000 new members. Dallas’ second HMO, CIGNA, has grown to 33,000 members since its founding in 1980. But these figures don’t mean that HMOs have won all the popularity contests. It can’t be assumed that Dallas will rival Minneapolis within a few years as the nation’s HMO capital or that prepaid health plans will account for 20 percent of the health insurance market here by the end of the decade, as some enthusiasts predict.

In the traditional medical community, HMOs are neither widely accepted nor well-understood. Fee-for-service physicians are watching the surge of prepaid medicine closely and critically as an increasing number of their patients and young doctors elect to join HMOs. Kaiser Foundation’s physicians are members of Permanente Medical Association, a group that is hiring 4 percent of all graduating medical residents annually, according to Schmock. Dr. Bill Ross, chairman of the family practice and community medicine department at Southwestern Medical School, echoes the sentiments of many Dallas physicians. “I’m neither warm nor hot nor frothing at the mouth about HMOs… but I wouldn’t practice in one; I don’t care what they paid me.”

Dr. Milton V. Davis, president of the Texas Medical Association (TMA), says that “the TMA officially favors a pluralistic system of health-care delivery, which means we don’t have any policy that says one way is right and one way is wrong.” But, Davis says, it’s important to understand the fine print involved in any health-care system. “We are a patient-oriented organization, and from that perspective, we look at the specific design of HMOs.

“If [an HMO] has a rigid limited-fee schedule, like many do, the health-care economists and the vice presidents who handle [the HMO’s] book work say, “Look at all the money we’re saving these people.” But they’re saving them money by limiting their access to care. . . .If the fee is fixed, you are limited in what you can even try to purchase. A patient ought to insist on a contract that will allow him, on a private basis, to augment care in any way he chooses. For a plan to say that it’s going to have unlimited availability and unlimited dollars is patently absurd.”



A couple who has since switched from Kaiser-Permanente to traditional indemnity coverage with AETNA says that the care they received at the HMO was impersonal: “It was so entirely different from what we were accustomed to; the doctors were so matter-of-fact, and they ran us through there like a bunch of puppies. After we’d been in the program two weeks, I asked, ’How fast can we get out?’ But we were obligated for a full year. In five or six visits, my husband never saw the same doctor twice, even when he’d made an appointment, and every different doctor had his own ideas about what kind of medication to prescribe.”



Recognizing exactly what the fine print in an HMO contract specifies begins with knowing that there are many different ways of organizing and presenting prepaid health care. One reason for the variety is the existence of some rarely enforced federal legislation that is full of loopholes. Any employer of 25 or more full- or part-time employees who is required to pay minimum wage and who already offers traditional benefits must offer an HMO if one exists in the area. The employer must also offer a choice between HMO models if more than one is available and if a representative of the alternate model approaches that employer. Because of this legal catch, some prepaid health-care models have sprung up expressly to provide competition against existing models.

In light of this, legal labels mean little, but they’re unavoidable in conversations about HMOs. When examining the prepaid health plans available in this area, it’s enough to be familiar with two different model types: the group practice plan and the Individual Practice Association (IPA). A pamphlet published by the U.S. Department of Health and Human Services defines the group-model HMOs as those that provide their services to those who enroll in one or more central facilities. Under a typical group model, the pamphlet states, a physician group contracts with an HMO to provide health services. Usually (although this is not the case in Dallas) an IPA model provides care to HMO members from physicians’ private offices. IPA physicians are most often paid on a fee-for-service basis with an additional risk mechanism built into their contracts.

Kaiser-Permanente is technically a group model; CIGNA, which is headquartered in Dallas, is an IPA. With the opening of Sanus early next year, Dallas will have its first look at a more typical IPA-model HMO. Sanus’ doctors will practice only part time for the HMO and will practice in their private offices instead of in centralized clinics. Herbert A. Fritch, president and chief executive officer, says his plan is to put together a network of eight to 10 hospitals with 100 to 200 primary physicians and specialists. Physicians will be paid per member per month on a fee-at-risk schedule based on the organization’s budget.

The differences between Dallas’ existing HMOs are not great except that Kaiser-Perma-nente’s facilities are more centrally located than CIGNA’s. Kaiser-Permanente has three small office locations in various parts of Dallas staffed by primary-care physicians. Most of their diagnostic equipment and subspecialists are based at Medical City Dallas but are available on a scheduled basis at other facilities. Gary Gannaway, vice president and general manager of CIGNA, says that CIGNA, with five primary health-care centers, strives to offer a greater number of clinics for family practice, pediatrics, internal medicine and ob-stetrics-gynecology. Kaiser-Permanente has 35 full-time physicians on staff, including nine different specialists and subspecialists. CIGNA’s 34 physicians and five optometrists are employed by the North Central Texas Individual Practice Association. They have training in nine specialties and subspecialties. All physicians at both HMOs are either board-eligible or board-certified.

The offices of the two HMOs are not austere or coldly automated. There is little stainless steel. To the left and right on the third floor of Kaiser’s offices at Medical City are examining rooms and cubicle-sized doctors’ offices. To one side is a library lined from the floor to the ceiling with color-coded patient files. Around a corner is a pharmacy, an X-ray lab and a large waiting room full of children, patients on crutches and piles of magazines. Administrators at both HMOs say that members are encouraged to specify their preferences about a physician. Patients may specify whether they want a male or female doctor and can choose a physician from a description of credentials listed in a résumé portfolio if they request it. At either HMO, if a patient isn’t satisfied with a doctor, he or she can choose another physician on the next visit. Both Kaiser and CIGNA officials say they prefer that members see the same doctor every time they require a physician’s care and that their organizations are working to provide more consistency.



Jim Hawkins, director of personnel services with the Richardson Independent School District, remembers calling Kaiser-Permanente’s medical advice line one evening in a panic while his wife, a registered nurse, held their little boy by his feet and thumped him on the back. Hawkins had signed up for the HMO “because it was affordable and budgetable.” That night, the nurse on duty at Medical City told the Hawkinses to bring their son to the emergency room; it didn’t sound as though the carrots caught in his throat were going to budge. When the family arrived at the hospital, the boy was in respiratory distress. The physicians on duty said they needed to transfer him to Childrens’ Medical Center for a pediatric bronchotomy, which they couldn’t perform at Medical City. The boy was transferred by ambulance, but by the time they arrived at Childrens’, surgery wasn’t necessary. The boy had cleared his windpipe and was no longer in danger. The HMO paid all the bills for emergency care at both hospitals. “Sometimes, when the phone lines are tied up and she can’t get through for non-emergency advice, my wife gets so mad she can’t see straight. But with all the care we require-both children have had constant ear infections and have had tubes inserted in their ears-it’s worth it. We’ve seen the same pediatrician every time, except in emergencies.”



Both Kaiser and CIGNA have done much to improve the situation, but the loudest complaint concerning HMOs still is that patients never see the same physician twice. Max Brown Jr., vice president and regional manager of Kaiser, says that sometimes patients aren’t able to see their regular doctors because they don’t make an appointment. Care is available on a walk-in basis, but, of course, every doctor can’t possibly be available at all times. “Never in our 40-year history have we assigned people to physicians or told them they couldn’t see the same doctor twice,” Brown says.

Gannaway, whose training is in competitive economics, says he believes that many patients don’t pay enough attention to the continuity of their care. “We hand out cards to identify the physician that particular patients are seeing, just so they’ll remember to come back to that doctor. We’re striving to emphasize that when people sign up with us, they will first identify with a primary-care center and then a primary-care managing physician. Some people like clinic medicine, but we don’t want to practice clinic medicine. We have grown rapidly, and frankly, we didn’t serve as well or in as coordinated a fashion as we should have when we first opened. But based on our rapidly growing staff, we are looking to improve and already have improved the continuity in the care we offer.”

Other HMO members complain not that they aren’t allowed to see the same doctor twice, but that often they don’t see a doctor at all. This is a step forward, according to many health-care economists who believe that the American public is spoiled, having grown used to a physician attending their every bee sting and stuffy nose. Much of such care could be handled just as well by a lower-level health professional at a much lower cost, they say.

Paul Tobolowsky, now an internist in private practice in Dallas, practiced with Kaiser-Per-manente for eight months during 1979 and 1980. At that time, the patient/doctor ratio and the use of lower-level professionals was not satisfactory. He says he repeatedly complained to the administrators: “My patients were assigned 15-minute appointment slots. Before I began an exam, I’d ask, ’What is the one problem you want me to deal with today?’ In private practice I now average about 10 to 12 patients a day, and I’m able to spend an hour or an hour and a half with new patients; in the HMO, I saw 20 to 25 patients a day and wrote up all their charts by hand.”

But Tobolowsky doesn’t condemn prepaid medicine or Kaiser, saying that “the costliness of medical care warrants different approaches.” He says, and Max Brown at Kaiser-Permanente confirms, that the patient/doctor ratio has improved. Now 35 physicians average about 18 patients a day. At CIGNA, 34 IPA physicians average 16 to 20 patients a day. Brown emphasizes that in order for an HMO to provide members with unlimited medical advice for a set monthly fee, some guidelines must be set for the best use of physicians’ time.

One way to do this is to make the best use of time spent working by every physician, registered nurse and physician’s assistant. “Insurance companies use financial barriers,” Brown says. “They say if you want to come see a doctor, you have to pay a 20 percent deductible. They use money to discourage people from seeking care. We don’t use financial barriers, but you come in and tell us what your problem is and why you want to see a physician. We try to be as responsive as possible; if a patient has a bona fide clinical problem, then they can see a physician; but if they just want to come in and visit every few days, we obviously have to find another way to handle them.”

In many HMOs, including Kaiser-Perma-nente, the question of whether or not a complaint warrants a physician’s review is up to a nurse practitioner. Dr. Ellen Koerber, who practiced with Kaiser-Permanente physicians in a Harvard teaching hospital, says she witnessed “a class operation” but that “the Northern mentality” made HMOs easier for the population there to accept. “Attitudes are different here; one of the biggest problems with Dallas HMOs is that members are not willing to accept care from non-physicians.”

Physician compensation is another controversial issue concerning HMOs. At CIGNA, physicians either sign a contract and are paid per patient; or, as employees of the medical group, they receive a set salary. No individual cost containment rewards are given, but physicians are evaluated on their use of phar-maceuticals, tests and visits as well as their productivity. Among the appealing factors that an HMO practice can offer a physician are regular hours (usually no more than 50 a week), no office overhead and no hiring or firing of an office staff, with benefits and malpractice premiums included. HMOs are understandably becoming increasingly attractive to young doctors as the market tightens and lucrative private practice positions become more scarce. This fall, the ratio of physicians to population, according to the Texas Medical Association, was 1 physician per 541 population. The optimum physician to population ratio is between l-to-850 and 1-to-1,100. The average starting salaries for HMO physicians are comparable to, and sometimes better than, those that a young doctor fresh out of residency can expect from private practice. The average starting salary for an internal medicine doctor with Kai-ser-Permanente is $60,000. A beginning pediatrician with the group averages $55,000, and a beginning obstetrician/gynecologist can expect to make about $65,000 with Kaiser-Permanente.

Dr. Mary Palmore, an obstetrician/gynecologist with Kaiser-Permanente, says she considers her work in the HMO “a stepping stone to private practice.” Working with the Kaiser health plan gives her the professional polish and confidence she says she’ll need later and it has “allowed me an opportunity for income and a chance to look at the city before laying out lots of money and committing to a private practice.” Palmore says that as in fee-for-service medicine, “there is an opportunity to be mediocre.” But, she says, “Kaiser and CIGNA have worked hard to see that mediocre doctors don’t stay. I know I’m giving my patients 110 percent.”

The 35 physicians in the Permanente Medical Group working for Kaiser have a financial incentive to worry about the cost of the medical care they give their patients because the contract provides that they receive a total amount of money at the end of each year and divide it among themselves. This amount can be adjusted up or down depending on the overall financial results of the program, but it is not ad-justed according to the individual physician’s performance. “Physicians are never docked for going over budget,” Brown says.

“People presume that this [financial interest] means physicians will deny people necessary medical care, but we’re certainly still subject to the same standards of practice, professionalism, malpractice and negligence as every other physician,” Brown says. “There’s no way we could operate according to the naive philosophy some people charge us with-that if it’s December and I need to go to the hospital I won’t be allowed to because it’s the end of the year and the HMO is out of money. There’s no way the physician is going to take a chance with the patients, not only because of the immediate exposure of negligence, but because our physicians are in this thing for the long term. They know that the only way for HMOs to be successful is for them to be successful in the care they provide.”

Still, fee-for-service physicians criticize this sort of compensation because, according to one Dallas obstetrician/gynecologist who formerly practiced with Kaiser-Permanente, “Other Than professional satisfaction, there’s no incen-tive. In the beginning, people have the desire to excel, but they see others around them doing the bare minimum. In private practice, if you do well you receive referrals, but at Kaiser you make the same regardless of whether you satisfy patients.

“Most doctors want to do well and don’t have cash registers for brains, but over the years, when those around you are working less and getting by, it has to have a subconscious effect on you. I would never practice in an HMO again because I’d be afraid of what it would do to me subconsciously.”



A principal in the Richardson Independent School District and her husband signed up for Kaiser’s health plan a year ago. They went in together for their Health Appraisal Program, a checkup that is meant to provide, according to a Kaiser brochure, “a complete evaluation of your physical condition, an extensive self-administered questionnaire on your medical and family history and an interview with a trained health-care professional.” When the husband and wife sat down for their interview, a physician looked at the man’s chart and said he noticed that the electrocardiogram showed that the man had suffered a severe heart attack within the past six months. The principal recalls that she and her husband were flabbergasted at the report. They told the physician that there had been no heart attack or any other coronary problems, but the doctor insisted, they remember, saying that maybe they had mistaken the pain for serious indigestion. “The evidence is here,” he told the husband, “that you ’ve had a serious heart attack.” Later, the couple paid for an appointment with their family physician of 17 years. He told them-and the HMO later confirmed-that the Kaiser-Perma-nente physician had simply misread the test results.



Most complaints about HMOs stem from the system design; the success of that design often depends most on the management of the organization. Managing HMOs is a complex business because the balance between marketing, financing and care-giving is so perilous. Highly organized profit-making and personalized patient-pleasing do not mesh easily. Some critics maintain that this problem is inherent in the concept of HMOs and, therefore, is unavoidable. With this criticism often comes the most popular and least understood argument against HMOs: A popular phrase for HMOs, “socialized medicine,” has become a sort of cocktail-party buzzword.

Max Brown bristles at the thought: “The idea of socialized medicine in comparison to HMOs is one of the sharpest ironies of our whole existence. You couldn’t find an organization more private; it was born on the idea of private enterprise. We have continued in that tradition, and we have less involvement with the federal government than most health-care providers.

“Our whole theme is that maybe the only way to prevent socialized medicine is for the private sector, on its own initiative and with its own ingenuity, to come up with a better and less expensive solution to health care than fee-for-service. If we don’t, then, of course, you may soon be looking at some federal plan.”

It’s true that the government has very little to do with HMOs. In 1973, when the original HMO legislation was enacted, the federal government apportioned $375 million in loans and grants to be distributed over a five-year period, intending to cut health-care costs by helping to put HMOs on a competitive footing with established medical-care programs. But since that time, funding has dwindled to almost nothing, and federal involvement with HMOs has been limited to the monitoring of their operation, just as the government monitors indemnity insurance programs.

But this laissez faire policy may be ending. The government has already begun to steer Medicare and Medicaid patients away from private practitioners and into prepaid plans in several states, using increased benefits and lower out-of-pocket costs as incentives. The government will pay HMOs 5 percent less than what it normally would pay. This is a boon for the HMOs because the premiums for Medicare patients are more than three times those of non-Medicare patients.

The pros and cons of HMOs do not tally definitively. HMOs are not all good or all bad. Each organization should be considered individually. Milton Davis says that prospective HMO subscribers should keep in mind exactly what they want from a health-care contract. Patients should look at what an HMO has to offer them in terms of convenience, communication, compassion and availability.

Max Brown explains the need for the kind of care that Kaiser-Permanente and other HMOs offer: “One of the reasons medical care is so expensive and is accounting for an increasingly larger share of people’s expenses is because the traditional medical world is essentially open-ended. People can go anywhere they want at any time they want and get any care they want, and some insurance company will pay for it. All you have to do is wake up in the morning and say, “Gee, I think I’d like to see an allergist today.. .or a dermatologist.. .or an emergency room physician.. .and some insurance company will pay for almost all of it. It’s an open-ended system with no structure and very little rationale.

“More medical care can always be provid-ed under the umbrella of quality, and that appeals to everyone. The patient leaves thinking ’Isn’t that marvelous, that guy cares about me.’ Clearly, the more care traditional physicians provide, the better off they are and everything seems fine. Except medical care is eating up an increasingly large share of our budgets. People are realizing that maybe there is a way medical care can be structured so that people will still get the care they need and will still get comprehensive benefits, but that will leave some money for food, mortgage and clothes.

“It could be that the long-term solution is an XYZ, not an HMO, but I think that what we’vedone so far has proved that medical care needsto be organized and sensible and that physicians should be taking a share in financialaccountability.”