What You Should Know About HMOs

The idea behind HMOs is to keep a lid on rising healthcare costs, while still providing some form of health insurance to people who need it. However, as greater numbers of people are joining HMOs, problems with the way they are operated are being reported more and more. Many patients believe that the way HMOs save money is by denying necessary treatments and by unreasonably limiting access to doctors and specialists. Lawsuits by health care consumers against HMOs are largely preempted by a federal statute known as ERISA, with the result that patients who are wrongfully denied necessary treatments are not compensated for their damages. If you are a member of an HMO, you may find yourself in a position of having to advocate the treatments that you (and your doctor) believe you need.

One of the ways some HMOs keep costs down is by a compensation system known as "capitation". Under a capitated system, a doctor is given a set amount of money for each patient. The doctor will then have to pay for each patient's tests, treatments and referrals to specialists out of that pool of money. The doctor gets to keep what is left. In this type of a system, a doctor will make more money if he or she orders fewer treatments and referrals. Many patients and patient advocates feel that this type of arrangement rewards doctors for refusing to order necessary tests or treatments or to make appropriate referrals.

If you have a choice of what HMO to enroll in, you should ask whether or not each HMO pays its doctors in this way. Many times you do not have a choice of what HMO to enroll in because your employer chooses for you. If you are stuck with an HMO that compensates doctors this way, then it comes down to an issue of trust between the doctor and patient. If you feel that your doctor is putting or will put your life and health at risk in order to earn more money, you may have chosen the wrong doctor. You should discuss your concerns about capitation with your doctor before any problems develop. Another option is to lobby your employer to give you a choice in your health coverage.

One other point to consider regarding capitation is that your doctor has a legal and ethical obligation to provide you with appropriate medical treatment no matter what his or her arrangement with the HMO. Your doctor could still be sued for malpractice if he or she fails to diagnose or treat your injuries or illness appropriately. This offers an incentive for your doctor to provide you with necessary treatments and referrals.

Another method used by HMOs to cut costs is called "utilization review". This is the method by which your HMO is supposed to determine whether or not a requested treatment is covered. Under this type of arrangement your doctor recommends a certain treatment, test or referral to a specialist, but your HMO must approve it first. The HMO is supposed to determine whether or not the requested test, treatment, or referral is a covered benefit. Usually your contract with the HMO will state that treatments are only covered if they are "medically necessary". So basically what the HMO does in its utilization review is determine whether or not the treatment your doctor recommends for you is medically necessary. You may be appalled to think that some person at your HMO, who may not even have a medical license and who has never examined you will decide whether or not the treatment your doctor proposes is medically necessary, but that is exactly what happens.

Even more shocking is the fact that there is no real penalty for your HMO to deny your request, even if the treatment is medically necessary. Initially denying claims can save HMOs a lot of money. This is because some people will accept the judgment of the HMO and won't appeal the denial. For example, suppose a young woman is diagnosed with cancer of the cervix and her doctor recommends that she have a hysterectomy to reduce the risk of the cancer returning. The HMO might deny the request for a hysterectomy and recommend a less expensive treatment instead. Basically the HMO substitutes its judgment about what treatment is required for the doctor's judgment. Every time a patient accepts this kind of a denial by the HMO, it saves the HMO money. There may be a human cost however, because the patient does not have the peace of mind of knowing that the more effective procedure was done, or if the cancer comes back and the patient has to go through further treatment or does not survive.

You don't have to simply accept a denial by your HMO, though. Every HMO must have a grievance procedure and an appeals procedure. The HMO counts on some people not having the patience, or persistence to appeal its decisions, but you should go through the appeals process. If you are not in good enough health to do battle with your insurance company over a denial, try to enlist the support of your family, friends, and doctor. You can also contact your state's insurance regulatory agency if you think the HMO is not meeting minimum standards.

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