The New York City.HIP Contract Canute C. Bernard, MD New York, New York
With the signing of a contract not to exceed $25 million, the Health Insurance Plan of New York (HIP) and the City of New York applied the concept of the Health Maintenance Organization (HMO) on a scale never before attempted. Beginning in January 1978, as many as 100,000 Medicaid eligible individuals and families were enrolled in a prepaid group medical plan as participants in an experiment whose success or failure depended largely upon the City health system's ability to adapt to change. It also depended upon the support of the major health interests in this unique effort at rational, systemwide health planning. Faced with a Medicaid population of almost 600,000 in December 1977, New York City paid as much as $136 million for health care to the needy each month. This included misuse and abuse of funds which have been well documented but remain uncontrolled. The over 300 "Medicaid mills" throughout the City, notorious for their "pingponging" of patients from one group member to another, give little assurance that the patient is receiving even minimum quality health care, but frequently serve as the only sources of medical care in poor and minority
communities. In contrast, the HIP HMO offers an acceptable alternative to these facilities, providing neighborhood accessibility, a full range of services, with no out-of-pocket expenses. In addition, the HMO extends hospitalization benefits under centralized auspices, thus lessening the traditionally fragmentary nature of inner-city health services. In New York City, Medicaid expenditures had been increasing every year. Recent Medicaid cuts, stateimposed ceilings on hospital rates, and the newly proposed "caps" on hospital revenue are arbitrary cost-containment measures which do not have an impact Presented to the Annual Convention and Scientific Assembly of Region I of the National Medical Association, Cherry Hill, New Jersey, May 26-29, 1978. Requests for reprints should be addressed to Dr. Canute C. Bernard, Health Systems Agency of New York City, 111 Broadway, New York, NY 10006. 1140
on the source of inflation, although they prohibit expansion and limit the flexibility of planning health services. By contracting at a prenegotiated capitation fee, the City can anticipate the approximate cost of providing health care to a given population. Furthermore, an initial step has been taken toward the redesign and revitalization of the costly and inefficient New York City health system.
Background The Health Insurance Plan of New York Originally established in 1947 as a prepaid group practice for a largely middle class population, the Health Insurance Plan of New York's major source of enrollment remains the municipal unions (55 percent) and other government work forces. Total enrollment is now close to 750,000, making it the second largest group practice in the country (after California's Kaiser Permanente). In 1966, HIP took the unprecedented step of accepting Medicaid eligibles and Medicare beneficiaries into its plan, thus significantly altering the nature of its enrollment and offering comprehensive medical coverage to a population traditionally without access to adequate ambulatory services. Thus, in 1970, about eight percent of enrollees
were Medicare recipients and 11 percent Medicaid eligibles. Under HIP, health care coverage includes preventative and diagnostic services as well as therapy for specific illnesses. A basic premium provides the bearer and family with a full range of services in the office, home, or hospital, with nominal, out-of-pocket expenses. There are 48 medical groups throughout the City utilizing the services of 1,010 (mostly part-time) physicians. Hospitalization is provided under separate contract with Blue
Cross-Blue Shield. Over the last 20 years, HIP has been recognized as an innovative force in the cost-effective provision of health care, as demonstrated by the relatively low rates of hospital admission among subscribers. These low rates often have been attributed to its improved economic and physical accessibility of care as well as the nature of its clientele. Today, HIP provides approximately ten percent of all amb,ulatory care services in the City and has sought to enlarge its rolls by contracting with the City as a Health Maintenance Organization (HMO).
Health Maintenance Organizations Health Maintenance Organization (HMO) is a generic term for health care delivery systems which provide a full range of services to a voluntary, en-
JOURNAL OF THE NATIONAL MEDICAL ASSOCIATION, VOL. 71, NO. 11, 1979
rolled population on a prepaid, per capita (or per family) basis. The most prevalent form of HMO is the prepaid group practice, which is usually a multispecialty cooperative unit, in which the physicians are salaried and patients exempt from out-of-pocket fees. Inpatient services may be provided through hospitalization insurance plans or in HMO-controlled facilities. The underlying principles of the HMO include the following: 1. Centralized responsibility for comprehensive continuous care. 2. Emphasis on prevention and early diagnosis rather than hospital inpatient treatment. 3. Delivery of unlimited services for a predetermined cost to patient. 4. Savings brought about by rates of lower hospitalization. 5. Savings produced by the elimination of third-party paperwork. In theory, HMOs provide the necessary incentives for a physician to keep a patient healthy and thereby contain costs, while at the same time assuring quality of care through peer pressure. Critical economists, however, have produced both empirical and theoretical evidence that diseconomies of scale exist in HMOs. That is, shared revenue tends to reduce work incentive, which accounts for the apparent low productivity of HMO physicians. Secondly, the factors which often contribute to an HMO's success can also work against it. While a substantial enrollment is required to survive, it is critical that the capacity of the program keep up with the patient load. HIP, which for many years depended on City employees, has suffered from a progressive outflow of subscribers. This may be explained in part by the finding that many people prefer partial reimbursement to an HMO if they perceive that their medical plan has compromised their freedom of choice and economic independence. It should be possible, however, to plan an HMO which serves a wide range of enrollees, yet meets their various needs, provided adequate attention is paid to assisting the poor and elderly who are unfamiliar with the HMO concept. New York City's earlier experiences with Medicaid enrollment have been less than successful, with many patients having difficulty with appointment schedules, or habitually using hospital outpatient and emergency care in lieu of HIP services. The need for training in HMO utilization is
clear. Programs which include outreach services (ie, transportation, child care, and health education) have demonstrated the effectiveness of an HMO for all populations.
Caveats To date, experience with HMOs has been limited primarily to employed and middle income groups. HIP's own experience would no doubt prove the economic advantages of providing services to such stable and relatively healthy populations. Yet, in recent years, the precarious fiscal position of the City has made it necessary for HIP to look beyond its union contracts. It is with this in mind that HIP requested and received a 15 percent increase in its rates, with the stated intentions of expanding its clinic hours and extending its pediatric services plus, through a new HMO option, offering unlimited hospitalization and dental and psychiatric care currently included only in riders. As mentioned before, there are questions being raised about claims of cost efficiency for HMOs which suggest that self-selection can explain most of the differences in hospitalization rates. Similarly, caution can be advised for any cost-saving expectations for the City's venture into involvement with Health Maintenance Organizations. Although contingency costs are figured into the budget, the size and the health status of the population, the intricacies of New York City government and health care delivery system, and the experimental nature of the plan could feasibly have unexpected results. It might also be noted that HIP has an uneven record of consumer satisfaction, although sincere attempts to solve these problems have usually been offered.
Role of the Health Systems Agency The Health Systems Agency of New York City has taken a favorable and positive stand on the New York City/HIP contract. Such a plan requires the full support of consumers, providers, and government agencies alike in seeing that this preliminary attempt
JOURNAL OF THE NATIONAL MEDICAL ASSOCIATION, VOL. 71, NO. 11, 1979
at linking reimbursement to planning is a success. By planning for populationbased services, by ensuring that certain standards of quality care are upheld for traditionally neglected groups, and by forging reliable linkages among the various components of the health care delivery system, this HMO should serve as a model for all patients, regardless of source of payment. It is hoped that the economic advantages to both the City and HIP will not overshadow the significance of what the HMO is trying to achieve. This concept hopes to address several priorities identified in the Health Systems Agency of New York's Health Systems Plan, such as: 1. Development of health maintenance organizations. 2. Redistribution of medical resources: The establishment of HMOs in medically underserved areas should attract physicians who would otherwise be unable to sustain solo practices. 3. Accessibility: Enrolling in an HMO eliminates financial barriers to care and removes the Medicaid patient's reliance on voluntary participation of providers (eg, pharmacy boycott). 4. Continuity of care: Enrollment in an HMO guarantees a stable doctorpatient relationship, and provides a continuous link between hospitalization and ambulatory follow-up care. 5. Shift from hospitalization to ambulatory care. 6. Quality assurance. 7. Use of physician extenders and
shared services. 8. Consumer accountability. 9. Health education and prevention.
Conclusions The HIP HMO has great potential not only for reshaping the health behavior patterns of the City's most needy
residents, but also for offering the City's health system a chance to demonstrate that it can provide services in an organized, efficient, and effective way. The New York City Health Systems Agency applauds both the City and HIP for their efforts at controlling rising Medicaid costs, and their choice of the Health Maintenance strategy to accomplish this task. The outcomes of this experiment will be carefully watched by everyone concerned for the future of health systems. 1141
With the signing of a contract not to exceed $25 million, the Health Insurance Plan of New York (HIP) and the City of New York applied the concept of the Health Maintenance Organization (HMO) on a scale never before attempted. Beginning in January 1978, as many as 100,000 Medicaid eligible individuals and families were enrolled in a prepaid group medical plan as participants in an experiment whose success or failure depended largely upon the City health system's ability to adapt to change. It also depended upon the support of the major health interests in this unique effort at rational, systemwide health planning. Faced with a Medicaid population of almost 600,000 in December 1977, New York City paid as much as $136 million for health care to the needy each month. This included misuse and abuse of funds which have been well documented but remain uncontrolled. The over 300 "Medicaid mills" throughout the City, notorious for their "pingponging" of patients from one group member to another, give little assurance that the patient is receiving even minimum quality health care, but frequently serve as the only sources of medical care in poor and minority
communities. In contrast, the HIP HMO offers an acceptable alternative to these facilities, providing neighborhood accessibility, a full range of services, with no out-of-pocket expenses. In addition, the HMO extends hospitalization benefits under centralized auspices, thus lessening the traditionally fragmentary nature of inner-city health services. In New York City, Medicaid expenditures had been increasing every year. Recent Medicaid cuts, stateimposed ceilings on hospital rates, and the newly proposed "caps" on hospital revenue are arbitrary cost-containment measures which do not have an impact Presented to the Annual Convention and Scientific Assembly of Region I of the National Medical Association, Cherry Hill, New Jersey, May 26-29, 1978. Requests for reprints should be addressed to Dr. Canute C. Bernard, Health Systems Agency of New York City, 111 Broadway, New York, NY 10006. 1140
on the source of inflation, although they prohibit expansion and limit the flexibility of planning health services. By contracting at a prenegotiated capitation fee, the City can anticipate the approximate cost of providing health care to a given population. Furthermore, an initial step has been taken toward the redesign and revitalization of the costly and inefficient New York City health system.
Background The Health Insurance Plan of New York Originally established in 1947 as a prepaid group practice for a largely middle class population, the Health Insurance Plan of New York's major source of enrollment remains the municipal unions (55 percent) and other government work forces. Total enrollment is now close to 750,000, making it the second largest group practice in the country (after California's Kaiser Permanente). In 1966, HIP took the unprecedented step of accepting Medicaid eligibles and Medicare beneficiaries into its plan, thus significantly altering the nature of its enrollment and offering comprehensive medical coverage to a population traditionally without access to adequate ambulatory services. Thus, in 1970, about eight percent of enrollees
were Medicare recipients and 11 percent Medicaid eligibles. Under HIP, health care coverage includes preventative and diagnostic services as well as therapy for specific illnesses. A basic premium provides the bearer and family with a full range of services in the office, home, or hospital, with nominal, out-of-pocket expenses. There are 48 medical groups throughout the City utilizing the services of 1,010 (mostly part-time) physicians. Hospitalization is provided under separate contract with Blue
Cross-Blue Shield. Over the last 20 years, HIP has been recognized as an innovative force in the cost-effective provision of health care, as demonstrated by the relatively low rates of hospital admission among subscribers. These low rates often have been attributed to its improved economic and physical accessibility of care as well as the nature of its clientele. Today, HIP provides approximately ten percent of all amb,ulatory care services in the City and has sought to enlarge its rolls by contracting with the City as a Health Maintenance Organization (HMO).
Health Maintenance Organizations Health Maintenance Organization (HMO) is a generic term for health care delivery systems which provide a full range of services to a voluntary, en-
JOURNAL OF THE NATIONAL MEDICAL ASSOCIATION, VOL. 71, NO. 11, 1979
rolled population on a prepaid, per capita (or per family) basis. The most prevalent form of HMO is the prepaid group practice, which is usually a multispecialty cooperative unit, in which the physicians are salaried and patients exempt from out-of-pocket fees. Inpatient services may be provided through hospitalization insurance plans or in HMO-controlled facilities. The underlying principles of the HMO include the following: 1. Centralized responsibility for comprehensive continuous care. 2. Emphasis on prevention and early diagnosis rather than hospital inpatient treatment. 3. Delivery of unlimited services for a predetermined cost to patient. 4. Savings brought about by rates of lower hospitalization. 5. Savings produced by the elimination of third-party paperwork. In theory, HMOs provide the necessary incentives for a physician to keep a patient healthy and thereby contain costs, while at the same time assuring quality of care through peer pressure. Critical economists, however, have produced both empirical and theoretical evidence that diseconomies of scale exist in HMOs. That is, shared revenue tends to reduce work incentive, which accounts for the apparent low productivity of HMO physicians. Secondly, the factors which often contribute to an HMO's success can also work against it. While a substantial enrollment is required to survive, it is critical that the capacity of the program keep up with the patient load. HIP, which for many years depended on City employees, has suffered from a progressive outflow of subscribers. This may be explained in part by the finding that many people prefer partial reimbursement to an HMO if they perceive that their medical plan has compromised their freedom of choice and economic independence. It should be possible, however, to plan an HMO which serves a wide range of enrollees, yet meets their various needs, provided adequate attention is paid to assisting the poor and elderly who are unfamiliar with the HMO concept. New York City's earlier experiences with Medicaid enrollment have been less than successful, with many patients having difficulty with appointment schedules, or habitually using hospital outpatient and emergency care in lieu of HIP services. The need for training in HMO utilization is
clear. Programs which include outreach services (ie, transportation, child care, and health education) have demonstrated the effectiveness of an HMO for all populations.
Caveats To date, experience with HMOs has been limited primarily to employed and middle income groups. HIP's own experience would no doubt prove the economic advantages of providing services to such stable and relatively healthy populations. Yet, in recent years, the precarious fiscal position of the City has made it necessary for HIP to look beyond its union contracts. It is with this in mind that HIP requested and received a 15 percent increase in its rates, with the stated intentions of expanding its clinic hours and extending its pediatric services plus, through a new HMO option, offering unlimited hospitalization and dental and psychiatric care currently included only in riders. As mentioned before, there are questions being raised about claims of cost efficiency for HMOs which suggest that self-selection can explain most of the differences in hospitalization rates. Similarly, caution can be advised for any cost-saving expectations for the City's venture into involvement with Health Maintenance Organizations. Although contingency costs are figured into the budget, the size and the health status of the population, the intricacies of New York City government and health care delivery system, and the experimental nature of the plan could feasibly have unexpected results. It might also be noted that HIP has an uneven record of consumer satisfaction, although sincere attempts to solve these problems have usually been offered.
Role of the Health Systems Agency The Health Systems Agency of New York City has taken a favorable and positive stand on the New York City/HIP contract. Such a plan requires the full support of consumers, providers, and government agencies alike in seeing that this preliminary attempt
JOURNAL OF THE NATIONAL MEDICAL ASSOCIATION, VOL. 71, NO. 11, 1979
at linking reimbursement to planning is a success. By planning for populationbased services, by ensuring that certain standards of quality care are upheld for traditionally neglected groups, and by forging reliable linkages among the various components of the health care delivery system, this HMO should serve as a model for all patients, regardless of source of payment. It is hoped that the economic advantages to both the City and HIP will not overshadow the significance of what the HMO is trying to achieve. This concept hopes to address several priorities identified in the Health Systems Agency of New York's Health Systems Plan, such as: 1. Development of health maintenance organizations. 2. Redistribution of medical resources: The establishment of HMOs in medically underserved areas should attract physicians who would otherwise be unable to sustain solo practices. 3. Accessibility: Enrolling in an HMO eliminates financial barriers to care and removes the Medicaid patient's reliance on voluntary participation of providers (eg, pharmacy boycott). 4. Continuity of care: Enrollment in an HMO guarantees a stable doctorpatient relationship, and provides a continuous link between hospitalization and ambulatory follow-up care. 5. Shift from hospitalization to ambulatory care. 6. Quality assurance. 7. Use of physician extenders and
shared services. 8. Consumer accountability. 9. Health education and prevention.
Conclusions The HIP HMO has great potential not only for reshaping the health behavior patterns of the City's most needy
residents, but also for offering the City's health system a chance to demonstrate that it can provide services in an organized, efficient, and effective way. The New York City Health Systems Agency applauds both the City and HIP for their efforts at controlling rising Medicaid costs, and their choice of the Health Maintenance strategy to accomplish this task. The outcomes of this experiment will be carefully watched by everyone concerned for the future of health systems. 1141
