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You are here: Home / Uncategorized / Finding Their Niche: The State of HMOs in Nevada

Finding Their Niche: The State of HMOs in Nevada

October 1, 2000 By Nevada Business Magazine Leave a Comment

HMOs (Health Maintenance Organizations) have been around for decades. During the 1920s, physicians worked with the railroads and with farmers’ cooperatives. Over time, more HMO-type organizations cropped up, usually organized by businesses and community groups trying to make health care available to their workers and members at lower costs. In 1954, Individual Practice Associations were begun by fee-for-service physicians seeking to compete with group plans. In the 1960s, health care costs were rising so rapidly, the issue became a political one as pressure mounted for government intervention. By 1973, new legislation – the Health Maintenance Organization Act -recognized the promise of HMOs and encouraged nationwide growth through simplifying the legal process for HMO development. By the end of 1978, there were more than 200 HMOs spread over 37 states. As health care costs continued to spiral nearly out of control, the 1980s saw staggering growth in the industry as the number of HMOs more than doubled and enrollment increased fourfold. The idea of lower costs and preventative care was here to stay.

The 1990s continued the growth trend, peaking at a 16% HMO enrollment rate increase in 1996. Growth has now slowed to an average rate of 5% that is expected to continue over the next few years, according to the InterStudy HMO Forecasting Report. The slowdown is considered to be caused by increases in HMO premiums (often tied to increased pharmaceutical costs) and saturation of some geographical markets.

Donald Giancursio, vice president in charge of sales for Health Plan of Nevada (Sierra Health Services’s HMO) said the company was created in Las Vegas in 1981 as one of the first, and probably the only, HMO established in the early 1980s still in existence. In 1983, Health Plan of Nevada became the first federally qualified approved HMO in the state. Since that time, the company has continued to grow as the Las Vegas valley grows, says Giancursio. “We were there before the million-plus population,” he says. Now they are the largest HMO in Nevada in terms of membership (over 200,000), with 50% of the fully insured market share.

There are now nine HMOs in the state compared with 13 two years ago, according to Guy Perkins, chief insurance examiner for the Life and Health Section of the Nevada Division of Insurance. While the market is more stable now than before, the entire health care industry is in a state of flux, due to revisions to laws and health care reforms being contemplated by Congress and many states. As Mary Hoover, chief operating officer for Universal Health Network (not an HMO) points out, there has been a constant decrease in new HMOs over the last few years, but the strong ones are still around. New HMOs in the market are limited and older ones are revamping their services.

Jim Barone, vice president of marketing and sales for Colorado and Nevada for Anthem Blue Cross and Blue Shield, sees the HMO industry transitioning to more PPO benefit designs in order to offer employers more choice and more access for employees. PPOs (preferred provider organizations) don’t carry the requirements of choosing a doctor from a preset list like HMOs do, nor do they carry the same requirements for referrals to specialists. With a PPO, the patient goes to the physician (even a specialist) of his or her choice. The tradeoff is in price. HMOs have traditionally smaller co-pays and deductibles. Choice or price – that is often the question. Anthem’s business is seeking out companies who can benefit from the higher number of enrollees and benefits that come with consolidation. In 1999, Anthem purchased the Colorado and Nevada Blue Cross and Blue Shield companies and has increased enrollment to about 6.9 million, with 106,000 being in Nevada. Consolidation can offer the kind of size and scale needed to succeed in the changing marketplace – a change that has them rolling out a PPO benefit line next month. “Any companies listening to the marketplace,” says Barone, “are trying to find ways to transition. If they don’t, we will. We’re listening very carefully to employers and brokers and what companies want.”

John Rush, MD, Medical Director for PacifiCare of Nevada, feels the transition to PPOs is due to economics, not medical practices, and the trend will swing back toward HMOs when the economy slows. He says PPOs can’t do preventative care as well and entail higher out-of-pocket costs. People are going to those programs now because the economy is so strong, but once the economy slows again, the cost benefits of HMOs will re-emerge as a deciding factor in choosing a health care plan, according to Rush.

The HMO industry faces new threats with the new decade. The popularity of PPOs is just one of them. The rising cost of pharmaceuticals has everyone scrambling for answers, but few are forthcoming. Troy Smith, Vice President of Insurance Services for Hometown Health Plan (the largest and oldest HMO in Northern Nevada) says there are two factors driving the increase in drug costs. The first is the tremendous increase in direct consumer advertising, which cost approximately 1.8 billion dollars in 1999. The second is the dramatic increase in new drugs in the marketplace. “The FDA has compressed the time frame that a drug is reviewed,” says Smith, “and they are hitting the market more quickly.” Perkins says that prescription drugs, on a national basis, are driving the medical component of the Consumer Price Index more than anything else. HMOS increase premiums to cover those costs.

Another threat to HMOs is the media. Good news is seldom newsworthy, so most of what we read in the news or see on the television is bad news, often sensationalized bad news from the old “if-it-bleeds-it-leads” school of journalism. We’ve all seen reports of people dying due to HMO decisions, people being refused care, people screaming for reform and tighter regulations. Yet, according to an ABCNEWS/Washington Post poll, 80% of people enrolled in HMOs are “satisfied” with the quality of their health care, though only 45% say they have a favorable opinion of managed care plans like HMOs. Sixty-six percent say they’ve never been denied coverage they felt they deserved, and 66% think managed care programs like HMOs “treat most people fairly.” There are still 30% who do not feel HMOs treat most people fairly, and the number of enrollees “satisfied” with their care is down 8 points from last year, with those “very satisfied” down 12 points. In addition, the number who say they’ve been denied benefits they think they deserve is up 11 points.

The poll also showed that those most skeptical of HMOs are those who are not in them, those who presumably are basing judgment on reputation, not experience. While 66% of those in HMOs think the plans treat most fairly, only 27% of people in traditional coverage plans agree. As for those governmental reforms we keep hearing about, 63% of Americans say “protecting patient’s rights in the health care system” will be a very important issue in their vote in congressional elections, but only 25% say it could be a deciding factor.

Nevada’s HMOs are making a go of it. As an industry, it is staying strong, but one component of that industry has not done so well, reflecting national trends – Medicare. There are currently only two HMO companies who still offer Medicare Plus: PacifiCare of Nevada and Health Plan of Nevada (Sierra Health Services). Notice these are the number one and two largest HMOs in the state. Rush says 1.4 million seniors are being displaced from their Medicare Plus providers at the end of this year. But PacifiCare is in ten states with a million members, making them the largest Medicare provider in the country, says Kayla Arnesen, PacifiCare’s public affairs director. It is that strength of numbers that allows the company to stay in the Medicare field. Other companies can’t do it because costs are increasing at about 8 to 10% while reimbursements are increasing at only 2 to 3%. Only the most efficient, cost-effective companies will be able to stay in this game. Even Rush says that big a differential in income and expenses is not sustainable over the long run. But he is hopeful that Congress will recognize that fact and reconsider the value of the benefits offered. Right now, this is the only option for seniors who want a pharmacy benefit in their health care package.

Despite bumps in the road, it is widely felt that HMOs are here to stay. “They fill a niche,” says Hoover. “We won’t see the kind of growth we saw in the past, but they will be maintained.” She says the market seems to have stabilized from the original introduction of HMOs, and managed care will stay very close to what we see now. Perkins agrees, noting that the market share will continue to improve, just not at the formerly high rates.

“I see the industry actually growing,” says Giancursio. “Managed care evolved for a reason – to provide a solution to otherwise spiraling costs. We’re still seeing that.” Giancursio enjoys the competition he’s seeing right now. “If others find they can’t survive competitively, those opportunities will be passed on to efficient market players. I’m sure we will be one of them.”

For more information on HMOs or insurance in general, call the Nevada Division of Insurance (in Carson City or Las Vegas) or the Governor’s Office of Health Care Assistance. Both have staff on hand to answer your questions.

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