Diagnosing the health care industry.

Ask your friends about their health care plans and you will be barraged with insurance industry abbreviations and buzzwords: "Our group health insurance is Kaiser HMO," or "Our insurance is the Blue Cross 24-Hour Plan." Others might mention the Conservco PPO, IPAs like Mullikin, or MCOs like the Intercommunity Medical Group. What do these terms actually mean? What factors should one consider when reviewing health care options? What are the features of HCOs, the newest development in managed care? Widespread confusion may easily intimidate buyers of health care contracts and consumers of medical services. The are two types of health care insurance: General and Occupational. There are also two types of delivery for this health care: Managed or Not managed.

Types of Health Care Coverage

Occupational health care coverage is generally known as workers' compensation and is legally mandated. Adopted in California in 1913, it is essentially a social contract between employers and employees that provides a no-fault remedy for injuries and illness caused by employment. Workers' compensation is a compulsory program that requires the employer to secure the payments of medical and indemnity benefits by purchasing an insurance policy. If financially qualified, the employer may establish a self-insured plan regulated by the state.

On the other hand, employer-provided health care insurance coverage for workers is voluntary (unless covered by collective bargaining agreement). It originated during the World War II era of wage controls, when employers began to offer fringe benefits, including medical care, as a means to attract and retain an experienced work force. With general health care coverage, the employer may purchase an insurance policy or pay benefits directly without regard to financial ability. Employers have the option of purchasing coverage as a traditional indemnity contract from a commercial insurer or through a multiple employer trust, a prepaid plan such as Blue Cross or Blue Shield, an HMO, or any combination of these.

Managed Care

Managed care, defined as a "coordinated, systematic approach to the delivery of medicine" by William Kelly of the Center for Health Policy Studies, is an attempt to deliver the right type of quality care at the right price. Consumer choices include the following three models: HMO, 24-Hour Coverage, and HCO.

The HMO Model

The Health Maintenance Organization (HMO) is perhaps the most familiar to the public. Whether privately or publicly owned, HMOs consist of a single organization offering comprehensive health care services at a fixed pre-negotiated price.

Through the enactment of the Knox-Keene Health Care Service Plan Act of 1975, the California government promoted HMOs for three reasons: to control health care costs by discouraging physicians from performing unnecessary and costly procedures, to meet the increasingly popular demand for health care services, and to provide health care where it had been previously inadequate or in some cases absent.

The 24-Hour Coverage Model

A recent effort to curb costs and availability of health care has produced the merger of health care insurance and workers' compensation benefits into a "24-hour" health care delivery system. Here providers of general health care are also providers of occupational medicine, extending managed care techniques -- provider contracting, employer-directed medical treatment, utilization management, and capitation -- to work related illness and injuries.

The HCO Model: A New Idea in Managed Care

Health Care Organizations (HCOs) are indeed a new idea in managed care; this innovation may mark the beginning of an era of industrial health care delivery in California, responsive to the needs of injured workers, efficient in its administration, and competitive with other states in respect to its costs to employers.

Specifically designed to provide occupational medicine to injured workers, the HCO seeks to ensure that physicians (as opposed to personnel with no formal medical training) determine patient health care needs, to provide the best possible health care at the lowest possible price, and to maintain a financially stable system. Thus, the system mandates that injured workers have adequate access and continuity of care.

The conditions for forming an HCO are rigorous. In compliance with the Workers' Compensation Health Care Provider Act of 1993, HCOs must be licensed by the Department of Corporations and certified by the Administrative Director of the Division of Workers' Compensation.

"The organization applying to become an HCO must have the administrative capacity to provide services to employers and to be able to prove consistently to the regulatory agencies that health care decisions are rendered by [medical] providers approved through a stringent credentialing process," explains Landon Feazell of the Center for Medical Quality Value Analysis. These providers must also be unhindered by the demands of financial and administrative management decisions and meet the strict performance standards measured by return-to-work outcomes resulting in sizable cost savings to employers and satisfaction of care delivered to injured workers.

Vince O'Hara of Healthdemographics notes: "The implementation of return-to-work figures mandates that physicians [deliver] the most efficient and effective care possible."

Other Medical Care Options

Buyers of health care contracts and consumers of medical services may also opt for other (both general and occupational) coverage alternatives that are generally less structured in nature and do not adhere to managed care techniques. These alternatives have no standards of measurement for accountability.

IPAs

Individual Physicians Associations (IPAs) are loose networks of individual physicians, practicing with no common clinical guidelines and paid on a discounted fee-for-service basis. IPAs reimburse physicians from prepaid fees of subscribers and usually involve several insurance companies.

PPOs

While HMOs place constraints on the consumer by restricting the list of medical providers and using the primary care physicians to monitor treatment, Preferred Provider Organizations (PPOs) offer the greatest freedom to consumers in their choice of providers and financial incentives in the form of reduced co-payments for members seeking treatment within the network.

MCOs

The Managed Care Organization (MCO) is a health care provider or group of health care providers without a formally managed clinical delivery system rendering usual and customary medical services to injured workers. Despite its name, the MCO is not a managed care model like the HMO, 24-Hour Coverage, and HCO.

What do these options mean to consumers and investors?

Cost pressures have proven to be a catalyst for a health care revolution, particularly in regard to the physician's function in primary care and occupational medicine. New models feature primary care physicians in multi-specialty groups, as opposed to non-medical personnel, as the "case manager." HCOs feature the primary treating physician in a new role, one of determining indemnity benefits for work-related injuries.

Independent investor-owned companies, hospitals, and HMOs will compete to own groups of primary treating physicians and HCOs. Hospitals, which are already expected to experience declining revenues due to shorter lengths of stay and aggressive use of outpatient free-standing surgical centers, must address the concerns of physicians reluctant to ally themselves with facilities that have such uncertain futures. HMOs are in danger of being reduced to the role of third party administrators (TPAs) if they do not affiliate themselves with HCOs. Thus, it would appear that managed care is here to stay.

This emerging health care system offers benefits to all participants -- employers with cost savings and accountability from doctors, physicians with more patients and prompt payments, and patients with optimal attention responsive to their specific medical needs. It should reward investors for many years. Employers with the foresight to take advantage of these new opportunities will maintain a competitive edge over their less flexible peers. Physicians who adopt the typical "wait and see" attitude during the formative years of this industry may later find themselves on the waiting list or locked out of selective HCO provider networks and subsequently out of the system.

Jorge Rivera Bernal, Ph.D. is chief executive officer and director of Los Angeles-based Cabot Harper & Rivera Bernal Corp., a group of health care economists.