In 1995, almost 90 per cent of health maintenance organisations in the US reported a year-end profit on their balance sheets. In 1999, fewer than 20 percent of them will be profitable .
Membership of HMOs continues to grow, although at a lower rate than in the past. The number of HMOs has remained relatively stable despite a great deal of consolidation among the larger plans. The 10 largest national plans now account for 83 per cent of total HMO membership. For-profit HMOs continue to grow, while not for-profit HMOs continue to lose membership. The 'for profits' now account for over two-thirds of all HMO enrolment.
HMOs were able to grow in the very particular environment of surplus acute care beds on the west coast.
Hospitals and doctors were willing to give discounts for additional business, and these, combined with cutbacks in procedures and the decreasing length of stay in hospitals, gave HMOs a price advantage over indemnity insurance.
While the movement has spread across the US, hospitals have reached breaking point in their ability to give discounts for additional business, and doctors do not believe that the extra business will be worth the amount they will be paid by the HMOs .
A recent report by the California Medical Association noted that 10 per cent of doctor groups in that state will go bankrupt by the end of the year because they receive so little reimbursement per patient from the HMOs.
Hospitals have been making similar claims.
Consequently, the stock market price for HMO companies has decreased by 5.9 per cent since the end of July. This means that the market capitalisation of HMOs has also decreased and may continue on a downward spiral. As stock prices and profits drop, investment may soon shift to other segments of the market, leaving the HMOs without capital for development.
Among the reasons given for the declining profit of HMOs has been the need for greater investment in information technology infrastructure in a bid to achieve a more stable patient base and control over the introduction of new technology and drugs.
If HMOs are to control their costs they need to know what is being spent on each patient and that each doctor will treat each patient with a similar health problem in a similar way. The only way to ensure this is through the use of IT systems, but these have met resistance from doctors and are extremely expensive to buy and to operate.
Moreover, many HMOs have found that there are great inconsistencies between the systems and that when one HMO merges with, or acquires, another, rather than saving money they end up spending large sums to make the systems compatible.
An estimated 20 per cent of an HMO's patients will leave for another insurance plan each year, either for personal reasons or because of a change of plan on the part of an employer. This frequent movement does not make preventive services cost-effective and it increases costs.
It is a basic tenet of insurance that the larger the risk pool, the lower the cost because the risk can be spread among a larger number of policy-holders. This would suggest that a strategy of concentration of HMOs would ultimately reduce costs. Yet there has been strong opposition to HMO mergers, and fears of restraint of trade lawsuits on the part of medical societies and hospitals.
A patients' bill of rights, expected this autumn, will increase costs for HMOs. The ability to sue them for denial of benefits and to have a right to demand external reviews of plan decisions will be an expensive undertaking. The backlash against denials of treatment and the limits on drug use and experimental procedures has forced HMOs to cover more services, also eating into profits.
The easiest way for HMOs to increase their profits is to raise their premiums. Because employers can pass on much of the premium increase to their workers, HMOs may get away with it. But if the economy begins to slow down, or if workers protest about the cost being shifted on to them, it may lead to the end of HMOs in the US.
In addition, the low rate of premium inflation in recent years has allowed many companies to offer more liberal plans, which do away with the most onerous features of HMOs, such as gatekeepers and restricted access to a small network of doctors. But premium increases could force companies to go back to such plans again, raising the spectre of even greater government regulation of the plans.
The not-for-profit plans have also had serious problems.
These plans do not have the benefit of access to the stock market to raise the capital to compete against the for profit plans, and they have resisted many of the marketing strategies used successfully by the for-profits to gain market share.
US healthcare delivery is still up in the air. Yet no alternative to HMOs has emerged, and if they do not succeed, there is nothing to take their place.