most often does not benefit the consumers but
the private health care sector.
Roemer, Milton I.The Countries.Vol.1inNational
Health Systems of the World. Oxford, England: Ox-
ford University Press, 1991. One of the best avail-
able comparative approaches to world health sys-
tems.
U.S. Bureau of the Census.Statistical Abstract of the
United States. 112th ed. Washington, D.C.: Gov-
ernment Printing Office, 1992. Official statistics
from the federal government.
Mario J. Azevedo
See also Alternative medicine; Baby Fae heart
transplantation; Fetal medicine; Health care in Can-
ada; Health maintenance organizations (HMOs);
Medicine; Plastic surgery; Transplantation.
Health maintenance
organizations (HMOs)
Definition Organizations that coordinate and
provide group prepaid medical services
HMOs represented an attempt by the U.S. government to
use free-market, private-enterprise principles to control sky-
rocketing health care costs. During the 1980’s, this experi-
ment failed, as costs kept skyrocketing, largely because
HMOs needed to realize profits, and they focused more at-
tention on doing so than on providing accessible quality
health care to their patients.
Health maintenance organizations (HMOs) were of-
ficially introduced by a 1973 act of Congress and
emerged during the late 1970’s, making their greatest
impact in the following decade. The resulting pre-
paid health plans sought to replace the predominant
model of fee for service, in which patients paid their
health care providers for the services they received.
Prior to the 1973 legislation, there were a few HMOs
in the country, such as Kaiser Permanente, a non-
profit organization founded in the 1930’s. Up until
the 1970’s, however, they had virtually no impact on
the U.S. health care system, and they struggled con-
stantly against opposition by organized medical
groups, public skepticism, and court challenges.
Competition and the For-Profit Motivation The rise
of HMOs during the 1970’s and 1980’s was prompted
by soaring costs related to health care. Experts and
politicians speculated that HMOs would provide the
government with a means to contain the upward
spiral of medical costs while still maintaining a com-
petitive, liberalized, market-driven system. A business-
imposed system, managed care is a “variety of reim-
bursement plans in which third party payers [the
government, for example] attempt to control costs by
limiting the utilization of medical services,” rather
than the fee-for-service payments. Starting from the
premise that competition and deregulation by gov-
ernment lower the cost of doing business, the propo-
nents of HMOs argued that the cost of medical care
would fall dramatically once they were implemented.
They asserted that doctors and hospitals for the first
time would be compelled to think about cost when
determining fees; that patients would have the rights
of consumers; and that health care would benefit
from modern information echnologies and business
practices that could limit costs. Moreover, the unnec-
essary use of other, more expensive medical technol-
ogies, such as magnetic resonance imaging (MRI),
would be limited, and HMOs would force doctors
to move expensive treatments and procedures from
hospitals to private practices or ambulatory clinics,
thereby lowering the burden on health care insurers
and reducing premiums.
The general goals of HMOs were certainly noble.
It was alleged that they not only would be less costly
but also would provide a higher quality of health care
and make it more affordable to millions of Ameri-
cans. However, by the early 1980’s, it became clear
that these goals could not be obtained simulta-
neously, as long as profit was the driving motive be-
hind the system. In general, HMO owners began de-
voting about 5 percent of their investors’ capital to
health care while pocketing and sharing with stock-
holders the remaining 95 percent. It was claimed
that, as high administrative costs and unnecessarily
costly tests were reduced or eliminated, more funds
would be freed to develop new drugs and new thera-
pies. Unfortunately, that is not what happened. The
cost of health care continued to rise. Furthermore,
doctors who cooperated with the HMOs were viewed
with suspicion by the public as “double agents,” as the
new plans precluded patients from choosing their
preferred doctor or hospital. HMOs also restricted
the length of patients’ time in the hospital and re-
quired pre-authorization to check in at a health care
facility. In addition, physicians could prescribe drugs
only from a pre-approved list or “formulary.”The Eighties in America Health maintenance organizations (HMOs) 451