Growth of HMOs challenges traditional health care

Health maintenance organizations (HMOs)--a method of prepaid health care delivery guaranteeing all medical care for a fixed monthly payment--are growing rapidly and presenting traditional medical institutions with increased competition. Hospital must respond with their own HMOs or insurance plans or risk a loss of profits. The basic types of HMOs are structured in three ways: the staff model, in which the HMO owns or leases its facilities and directly employs health care professionals; the independent practice association in which the HMO retains private physicians who maintain their private practices and care for subscribers at their own offices; and the prepaid group health organization, in which the HMO contracts with the physicians to provide services to its subscribers. Although it may be difficult for a hospital to form an HMO because of the capital and expertise required, national hospital alliances can provide developmental assistance in terms of marketing sales, and management experience. For consumers, the major advantage of HMOs is a more reasonable cost, but some have expressed dissatisfaction with access to care and are reluctant to give up their own physician. Physicians benefit from HMOs because they are relieved of some administrative tasks and have better access to ancillary personnel and services. On the other hand, physicians' income may be limited, and HMO participation may adversely affect their relationships with patients and their practice patterns. Financers of HMOs benefit from lower administrative and health insurance costs and the opening of new markets, but this may pose new problems such as a need for expertise in a new area and loss of the insured person's confidence if the venture does not work.