Father Figures: HMO creator sees need for new model

Modern Healthcare: At what point did you realize that you had 'fathered' a 'child' that could change the healthcare industry?

Paul Ellwood

: First let me deny fathering the HMO child. My ideas for the HMO policies came from direct observations and admiration of the performance of the Mayo Clinic, Dr. Sidney Garfield's Kaiser Permanente health plan and the approaches to management and accountability of (the late) Peter Drucker (author of The Practice of Management, published in 1954).

The staff of InterStudy and I coined the term 'health maintenance organization' as part of the effort to persuade the Nixon administration to embrace the changes in the healthcare industry's structure and incentives that ultimately stimulated the HMO and managed-care movements. In 1970, after several years of trying to sell incentive-based health reform ideas to the healthcare industry, state and federal governments, Lew Butler and Jack Veneman -- the brilliant and powerful leaders of (the Health, Education and Welfare Department, which became HHS in 1980) -- quickly and unexpectedly agreed the HMO concepts could reform healthcare. The health policy proposal, entitled The Health Maintenance Strategy, was delivered to the White House a week after our first meeting with Butler and Veneman. But three years elapsed before the HMO legislation passed and was signed by President Nixon.

MH: At what point did you realize that you had become the 'father' of that 'child?'

Ellwood

: Arnold 'Bud' Relman, editor of the New England Journal of Medicine, persuaded me that the health maintenance idea was what the media call a 'slow burner.' He was right. I suppose the evidence of fame came many years after the articulation of the policy when I started appearing on magazine covers, culminating in a Sunday New York Times Magazine cover story entitled 'What have the Ellwoods done to America?' The other Ellwood in the story was my son, David, who was called the 'father of welfare reform.' Abe Rosenthal, the revered former New York Times editor, ran the piece because of the role I played in the development of the Clinton healthcare reform proposal in addition to HMOs and managed care.

MH: Did your 'child' grow up the way you expected?

Ellwood

: The HMO policy implementation took much longer to significantly impact the American health enterprise than any of us expected. Twenty years passed from the birth of the HMO strategy until it measurably blunted medical inflation beginning in 1990. During the ensuing 10 years, U.S. health expenditures fell $1 trillion below the Office of Management and Budget's projections. Since 2000, healthcare costs have again been growing at unacceptable rates far in excess of the general economy. Coincidentally, the national HMO movement, as we envisioned it, is dead.

MH: What factors had a positive or negative influence on how your 'child' grew up?

Ellwood

: The health maintenance strategy worked as long as the new structures and incentives were in play. They continue to work well at places like Kaiser Permanente. They were not sustained in the larger healthcare sector because of three deficiencies in the original HMO policies.

The most serious policy weakness was the law's failure to compel HMOs to be accountable for their impact on patients' lives or health outcomes.

This policy alone could have accelerated the application of healthcare IT and have negated the criticism that HMO skimping hurt quality.

The second defect was the failure to create an unassailable public oversight mechanism for the healthcare system's performance. It needed something akin to the Federal Reserve System with powerful tools to put things back on course. The industry is too large and technologically driven for a one-punch strategy, or for any administration to guide required restructuring. HHS is too political for the job.

Medicare is an insurance company lacking the insights and orientation of physicians and patients. The third problem with the policy was the inclusion of the independent practice association and later the preferred-provider approach. Both lacked the coordination and collaboration necessary to manage health outcomes. The IPAs and PPOs have simply morphed into insurance carrier tools.

All three of these deficiencies were identified and discussed during the earliest phases of the development and application of the HMO movement. Each has a long and colorful political history. Unfortunately, a serious attempt to fill any of these three voids in the '70s and '80s would have produced a stillborn.

MH: What do you see as your 'child's' future?

Ellwood

: The next president's most compelling domestic problem will be unaffordable, unaccountable and inconsistent healthcare. The problem cannot be solved unless the parents of the next health policy give birth to a healthcare system made up of fully integrated groups that can be held accountable for their patients' health.

One of the key missing elements remains the assurance that the medical care we're buying actually works. The closest thing to that right now are the plans that pay providers something extra for doing the right thing, but that kind of tool is not sufficiently powerful. My feeling is, if they're not doing the right thing, they shouldn't be paid.

The government agencies that buy healthcare such as Medicare and Medicaid need to get out of the business of attempting to manage healthcare. Instead, we learned from HMOs that the U.S. needs a permanent entity that can follow and subtly gauge and influence the ability of a less-fragmented healthcare system to cost-effectively produce health.