Transcript The role of HMOs in the Health Insurance Sector in Nigeria

By
M.A. Arogundade
 Introduction
to Managed Care
 Types of Managed Care
 Brief History of HMO
 Characteristics of a HMO
 HMO in Nigeria
-Entry-Registration
-Operations/Functions/Role
-Exit
‘Managed
care’
conjures
different
interpretations among different people. This
lack of clarity is particularly acute in
developing countries, where many think of
managed care as a panacea for all their
health sector problems—including issues of
access, costs or financing.
 The
term "managed care" is used to describe
a variety of techniques intended to reduce
the cost of providing health benefits and
improve the quality of care ("managed care
techniques"), organizations that use those
techniques or provide them as services to
other organizations ("managed care
organizations"), or systems of financing and
delivering health care to enrollees organized
around managed care techniques and
concepts ("managed care delivery systems").
 “Managed
Care is a system of health care
delivery that tries to manage the cost of
healthcare, the quality of that health care,
and access to that care.”
 Managed
care systems typically combine
the financing and delivery of health
services. They do this by covering some
or all of the costs of health care services
(financing), while encouraging members to
obtain services from the organization’s
network of providers (delivery system).
Managed Care is the enrolment of patients into a
plan that makes capitated payments to health care
providers on behalf of its members, thus shifting the
financial risk for health care from patients and payers
to providers. The intent of this shift is to provide
incentives to health care professionals to reduce their
utilization of resources, ideally through measures
such as health promotion and disease prevention
among the group's members.
…Encyclopedia of Public Health


The past: A provider-driven system dominates
The USA does not have a single healthcare system, such as the
National Health Service in the UK or Canada’s Medicare. It has a
system that can be characterized as a set of interlocking
subsystems that serve distinct populations. For approximately twothirds of all Americans, health insurance is a benefit obtained as
part of their compensation package; the employer pays a part or
the full amount of the health insurance premium. About 13%
receive healthcare through the Medicare programme, which
covers the elderly population (>65 years) and younger people with
disabilities; it is paid for by earmarked taxes, premiums and
general revenues. Certain categories of the poor (primarily women,
children and the elderly) receive healthcare through the Medicaid
programme, paid for from general government revenues; leaving
approximately 14% of the US population uninsured.
The key stakeholders in the system are the
patients, providers, health plans/insurance
companies, payers (employers) and the
government. We discuss the interactions
between
these
stakeholders,
focusing
primarily on the employer-based insurance
system, for it is this system that covers most
Americans and is where managed care
originated and has had the greatest impact.
 In the US system, once a person accepts
employment with a company or firm, the
employee enrolls with one of the health
insurance plans the company has contracted
with



The mode of payment to providers was a fee-forservice basis, which meant that providers charged
a fee for every service rendered to the patient. At
the end of the year, the health plans used the sum
of these various provider payments as a basis for
calculating the premiums they would charge
employers for the coming year. Employers would
either pay these increased premiums themselves
or share the cost in a predetermined fashion with
their employees.
An important characteristic of this system is that it
is essentially patient driven—the patient initiates
the cascade of events that lead to a visit to the
provider, payment of the provider by the health
insurer, and the health insurance company being
paid by the annual premiums.

The second important characteristic of this system
is that although it is patient initiated, it is provider
controlled. Providers have complete freedom over
how they treat the patients and what treatment
choices they can prescribe. Physicians are paid on
what is called a ‘usual and customary’ basis, giving
them no incentive to rein in their fees or the
services they provide. Hospitals are paid on a cost
plus basis, leading them to provide more care and
invest more in technology and facilities. In the
absence of any controls, such a system is
inherently inflationary, as there is every incentive
for a provider (physician or hospital) to perform
more services/procedures and charge for them. In
addition, providers are paid after the service is
rendered, in contrast to the pre-payment
mechanism utilized under managed care


The present: An employer-driven system dominates
The absence of central control in the healthcare
system caused costs to be passed around the chain:
providers billed health insurers, and the health
insurance companies in turn increased premiums
for employers and employees. As long as the
economy was booming and employers were able to
handle the premium increases, the system worked
fine. In other words, this inflationary system
worked well until such time as the ultimate
payers—the employers—were willing to put up with
the yearly increases in health insurance premiums
they paid for their employees, and the premium
increases did not adversely impact their profits.
This situation existed in the USA until the late
1970s/early 1980s.
During the early 1970s, the earliest managed care models
were being developed and the concept of a ‘Health
Maintenance Organization’ (or HMO) was put forth by Dr
Paul Ellwood. President Nixon signed the HMO Act in 1973,
aiming to enroll 50% of all Americans in HMOs by the end of
the decade. Enrolment in HMOs remained low till the early
1980s, when the first strains began to appear in the feefor-service system. Premium increases reached a stage
where they began to erode company profits. The debate
over rising premium costs was structured in terms of the
diminishing competitiveness of American companies,
especially on their ability to grow and innovate. While large
employers could bear the cost increases, many small
employers simply made a business decision to stop paying
for health insurance for their employees, leaving many
employees uninsured.
By the early 1980s, healthcare costs reached
a point where a majority of the payers,
including both employers and the federal
government, felt they had to take action. In
August 1983, the federal government
changed the way it paid hospitals and
physicians to a prepaid system based on
diagnosis. It was during this ferment of
experimentation that the concept of
managed care began its decade-long boom.
 Instead
of having an open chequebook,
employers decided that they would
henceforth pay a fixed amount per employee
or, in other words, capitate their healthcare
expenditures to a set, pre-determined
amount. Employers began to offer managed
care plans as well as indemnity health
insurance, and capped the amount they
would pay for premiums. Employees who
wanted traditional indemnity insurance had
to pay more for premiums.
The health plans assumed responsibility for
providing the contractually agreed-upon
services to employees from within that
capitated amount(now called ‘pmpm’ or per
member per month). For example, an
employer with 100 employees would agree to
pay a health insurance plan a pmpm rate of
US$ 50 for every covered employee.
 Every month, the employer would thus pay
US$ 5000 (US$ 50 for each of the 100 covered
employees) to the health plan, which would
have to provide all agreed-upon healthcare to
these 100 employees from this US$ 5000.


The most important consequence of this paradigm was
that the risk was now shifted from the employer to the
health plan. In the previous fee-for-service era, the
employer potentially had unlimited risk for employees’
healthcare expenditures. Under managed care,
employers had capped their financial liability at the
negotiated pmpm rate. The health plan assumes
responsibility under the managed care arrangement. For
example, the health plan in the example mentioned
above will make a profit if it provides care to the
enrolled population for less than US$ 5000 per month.
On the other hand, if a few patients require very
expensive care (for example, a heart transplant) the
plan will lose money, as the cost of providing this care
will easily exceed US$ 5000.

Health services in the USA are predominantly
provided by private sector hospitals, physicians and
community-based organizations.
 Financing of healthcare is divided approximately
evenly between the government and private
sector.
 The government pays for healthcare through two
large programmes which are focused on specific
populations: Medicare and Medicaid.

 Preferred
Provider Organizations
(PPOs)
 Health Maintenance Organizations
(HMOs)
 Point of Service (POS)
MANAGED CARE PLAN
DIFFERENCES
Health Maintenance Organizations
(HMO)
These have exclusive networks of
providers. If you are in an HMO it will
not usually pay any part of your bill if
you choose a provider outside of the
HMO’s
network
without
prior
authorization.
HMOs do not require their members
to pay a deductible although there
may be a Co-payment each time you
receive services.
Point of Service Plans (POS)
These permit members to see
providers outside the network.
The insurance company will help
pay part of the bill but will not
pay as much as it would if you go
to a provider within the network.
For example, if you see a
physician inside the network, the
insurance company will pay all of
the costs except any required copayment. If you choose to see a
physician outside the network,
then the insurance company may
only pay 70-80% of the costs. You
would be responsible for paying
the physician the remaining 2030% of the costs.
Preferred Provider Organizations
(PPOs)
These are more like traditional
insurance companies. Once you meet
the
deductible,
the
insurance
company
will
pay
a
certain
percentage of the health care bill.
However, you must go to one of the
network providers to get the highest
level of coverage. A PPO will pay a
smaller
percentage of the bill if you go to a
provider outside of the network. For
example, the insurance company may
pay 80% of the costs if you seek care
from an in-network provider, but
only 50-60% of the costs if you seek
care from a non-network provider.
Health Maintenance
Organization as a
terminology
was
coined by Dr. Paul
Elwood (USA) in the
early 1970’s as an
advancement in the
development
of
Private
Provider
Group Practice then
prevalent
in
California, USA.

HMOs are designed to deliver quality health
care to a designated population in a cost
effective manner, through health care
providers paid either a fixed budget or
discounted fees. They use a value-driven
system of managed care to provide
affordable health services
 The
financial burden of risks of over-using
health services are borne by the HMO, its
service providers or a combination. There
are various explicit and implicit rules that
govern the risk-sharing. The member must
receive health care from HMO - approved
provider.
HMOs have exclusive provider networks. They may also
use primary care providers (PCP) as gatekeepers.
Gatekeepers are responsible for arranging a patient’s
referral to a specialist or admission to a hospital.
While most HMOs use gatekeepers, some HMOs have open
access plans. These plans allow the patient to choose any
PCP or specialist in the network without a referral.
Many HMOs also use reimbursement systems to encourage
providers to be more cost conscious. HMOs may contract
directly with physicians in the community, or may contract
with networks of physicians. This arrangement is called a
network or IPA model HMO
HMOs may have their own physicians on salary or in an
exclusive contractual arrangement. This is called a groupor staff-model HMO.
HMOs sometimes give physicians or other
health care providers’ financial incentives to
be more efficient managers of care.
While these payment mechanisms provide an
incentive to reduce unnecessary care, some
people
worry
that
these
payment
mechanisms also may provide incentives to
withhold necessary care. In contrast, some
people were concerned that traditional feefor-service gave physicians incentives to
providing unnecessary care

They assume contractual responsibility for assuring the
delivery of a stated range of health care services
including at least in-patient hospitalization and
ambulatory care services.

They serve a voluntarily enrolled population. Health
care is delivered through a proper referral system.

The premium is fixed, regardless of utilization.

There may be a fixed co-payment (direct or indirect) for
use of certain services.

The HMO assumes some of the financial risk or gain.
The National Health insurance Scheme in
Nigeria is designed to be driven through the
operation
of
Health
Maintenance
Organizations (HMOs). These may be Private
or Public Companies; for-profit and not-forprofit registered entities with the aim of
ensuring the provision of qualitative and cost
effective health care services to contributors
under the Scheme.
REGISTRATION OF HMOS (contd)
ENTRY
The Council shall approve and
register for the Scheme private
and public Health Maintenance
Organizations
Act 35 of 1999 Section 19 (1)
The registration of an organization under the scheme shall
be in such form and manner as may be determined from
time to time, by the Council, using guidelines, which shall
include provisions requiring the organization to:(a)
Be financially viable before and after registration;
(b)
Make complete disclosure of the ownership
structure and composition of the organization;
(c)
Have an account with one or more banks approved
by the council
(d)
Be insured with an insurance company acceptable
to the Council; and
(e)
Give an undertaking that the organization shall
manage and invest the funds accruing to it from
contributions received in pursuant to this decree in
accordance with guidelines to be issued, from time to
time, by the Council
The registration of HMOs will go through the following
sequence:

The Scheme shall upon receipt of an application, carry out
through its staff or through its authorized agent a survey of
and inspection of the facilities of the HMOs and ascertain
the following:
i. The Board of Directors of the HMOs to ascertain
whether or not they are fit and proper persons to run
or manage HMOs
ii.
The policy documents and manuals of the
HMOs.
iii
The organizational structure of the HMO with
a view to ascertaining how the structure
could enhance the efficiency and ability of
the HMO.
iv
The management team of the HMO.
v
The provider network of the HMO including
development and management networks.
vi
Health management procedures
vii
Marketing management procedures.
viii
Information management process that
shall include computer based technology
ix
Evidence of registration with Corporate
Affairs commission and minimum paid-up
capital
x
Certificate of mandatory deposit of
25% of paid-up capital with Central Bank of
Nigeria.
xi
Evidence of tax payment and returns, and
adherence to legal obligations under the NHIS
xii
Minutes books with a view to ascertaining
attendance of Directors and adherence to these
rules and regulations by the Board of Directors
and Management team.
 The
Scheme shall register or reject the
application.
 The
Scheme shall issue a certificate of
registration to every successful HMO,
which is subject to review every four
years.
Consequences Of Registration on HMO
Any HMO registered under the Scheme shall:

Be a corporate body capable of suing or being
sued and of doing or causing to be done all such
things as may be necessary for or incidental to the
exercise of its powers or the performance of its
functions in terms of its rules.

Carry on business
registration.

Assume liability for and guarantee the benefits
offered to its contributors and their dependents.
as
an
HMO
after
due



Establish a bank account in a bank appointed by
NHIS into which shall be paid every contribution
by or on behalf of a contributor.
No person shall have any claim on the assets or rights or be
responsible for any liabilities or obligations of an HMO
except in so far as the claim has arisen or the responsibility
has been incurred in connection with transaction relating to
the business of the HMO.
The assets, rights, liabilities and obligations of an HMO
existing immediately prior to its registration, shall vest in
the HMO without any formal transfer or cession.
•
All moneys and assets belonging to an HMO
shall be kept by that HMO and every HMO
shall maintain such books of accounts and
other records as may be necessary for the
purposes of such HMO
•
Every HMO shall have its registered office(s)
in Nigeria
HMO shall carry on any business other than the
business of health care management as provided by
the Decree.
The funds management of the HMO should be in
accordance
with
specific
guidelines
that
prevent fraud on solvency problems.
HMOs shall be prohibited from directly engaging in
any business that is not related to health.
HMO's may not be directly affiliated to banks
HMOs shall observe prescribed standards of
reporting fund holdings for verification purposes.
ROLES OF HMOS












Register employers/employees.
Collect contributions of above
Register providers, after ensuring they meet minimum
NHIS standards
Ensure qualitative and cost effective health care services
to contributors through Health Care Providers (HCPs).
Ensure proper adherence to referral procedures
Pay capitation fees and fee-for-service to HCPs
Render returns to NHIS
Maintain ethical marketing strategies
Put in place effective quality assurance systems
Ensure smooth change of provider (if requested by the
contributor) within the stipulated period
Organize risk management enlightenment for contributors
and providers
Provide health promotion and education
a)
The HMOs shall develop Operational Manuals in
line with the Operational guidelines made by
the Scheme.
b)
The HMOs shall provide relevant data for
planning and improvement of health delivery
system.
c)
The HMOs shall develop efficient and functional
health services marketing and financial
management programmes for overall benefit of
the Scheme.
d)
The HMO shall develop Disease Management
Guidelines, which shall make providers to
achieve both high quality and cost effective
care.
e)The HMOs shall engage in contributor
education services, provider education
services, and all such services shall be
documented and made available to
contributors and the interested public.
f) HMOs shall have primary and specialist
contracted providers in the geographical
areas covered by their operation.
g) The HMO shall show evidence of
minimum information and data collection
and storage facilities. Standardised
reporting would be required by the NHIS
and this shall determine the minimum
information systems capability of the
HMO.
Role of HMO in Operation of Health Care
delivery System:
The HMOs shall develop a health care
organizational structure that will ensure that:
 There is a well-developed and utilized
Primary Care Provider (PCP) network system.
 The PCP shall be the first port of call for
every contributor.
 The PCP can where necessary, utilize or
engage ancillary services.
 HMOs shall be free to contract ancillary
service providers to offer services that cannot
be given in-house by components in its
mainline provider network.

Academic Health Centres shall be free to register with HMOs
for ambulatory, hospital, specialist ancillary and rehabilitative
care.

Government hospitals, clinics and other facilities shall be
used as components in HMO provider network provided that
these facilities shall meet all registration requirements set for
providers.

Referrals and or hospitalization may require pre-notification
by providers to HMOs.

Emergencies may be dealt with as best possible without prior
notification to HMOs provided that PCPs notify the
relevant HMOs within 48 hours of the handling or referral of
such emergency cases.

HMO may use a case manager system to reduce cost without
compromising quality.

In chronic or high cost – problems, the referrals specialist
may function as PCP for that specific case
Role of HMO in Drug Benefits Administration

HMOs shall ensure that providers adhere to the
generic drug policy of NHIS in order to control cost.

The Scheme shall negotiate Average Wholesale Price
discounts (for generic drugs)

The Scheme, HMOs and pharmacy providers shall cooperate to rebuild acceptable channels of
distribution of drugs and materials to eliminate fake
products.

NHIS shall develop drug formularies.

NHIS may adopt drug utilization review programs in
order to streamline management of pharmaceutical
services.
Contracts between HMO and Providers
a)
Every contract between an HMO and a
provider shall include the following

The operating hours at which the provider shall
be ready to receive contributors and such hours
shall not be less than six hours a day: Monday to
Friday and three hours on weekends.

The acceptance by the provider of responsibility
for providing care in emergencies 24 hours a day,
and 365 days in the year. The agreement shall
include the arrangement for securing this and the
system of notifying contributors of these
arrangements.

A maximum number of contributors and their
dependants based on the facilities of the provider

Agreement to accept contributors applying to them up to the maximum
number without discrimination. A provider cannot reject a patient
except on appeal stating the exceptional circumstances. If the Scheme
is satisfied with these reasons it would have power to require another
provider to accept that patient.

Agreement to stock drugs on the list approved for the Scheme and to
obtain them only from approved suppliers (in the case of Pharmacy
Providers).

Agreement that all contributors shall be given adequate treatment.

A provider shall not see a contributor as a private patient.

Agreement to send patients only to approved specialists or facility.

agreement to use only registered ancillary services

Agreement to register all births on certificates supplied by the
government.

Agreement to be insured against malpractice for claims for the stipulated
amount.
The HMO shall provide every registered Primary
Provider with a list of approved or registered:
b)
i
Blood banks
ii
Hospitals
iii
Pharmacies
iv
X-ray and Medical laboratories
v
Specialists in areas of medicine
and medical care
c) Providers shall be inspected periodically. HMO
representatives shall be allowed reasonable and
meaningful access to the provider's premises, all records
relevant to the operations of the scheme.
EXIT
Allowing HMO's to haphazardly enter and leave the
market contributes in no small way to market
instability and erodes consumer confidence. For this
reason the HMOs shall be required to observe the
following:
 HMO's shall give a reasonable notice of at least 6
months to providers
 HMO's shall provide a plan demonstrating how
claims and obligations will be settled.
 A processing fee shall be paid to the NHIS
regulatory agency to cover the cost of overseeing
an orderly exit.
 HMO's shall submit yearly actuarial opinion of
adequacy of resources reserves, and premiums to
provider claims.
CONCLUSION
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