Health Maintenance Organizations:

Federal Financing Is Adequate but HEW Must Continue Improving Program Management

HRD-79-72: Published: May 1, 1979. Publicly Released: May 1, 1979.

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Federal grants and loans are adequate to help develop new health maintenance organizations (HMO) and expand existing ones. Viable, well-managed HMO should need no more than $4 million to cover operating losses and should be able to achieve financial independence within 5 years after becoming qualified.

In order to minimize the government's risk on loans to HMO, the Department of Health, Education, Welfare (HEW) needs to develop a strategy to assess the financial soundness of an HMO. The key to financial success by an HMO is its ability to charge competitive rates which generate sufficient revenues per member to cover the costs of operation and provide sufficient additional funds. As of April 1979, HEW had not issued formal policies for administering the HMO loan program.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary, HEW, should: (1) establish a development strategy which guides new HMO to plan for only enough staff and facilities to enroll and serve enough members during their initial stages of operation; (2) assign enough staff to complete work on policies for the deficit loan program and regulations and policies for the ambulatory health care facility loan program; (3) assess the impact of the ambulatory health care facility loan program on the work load of the Office of Health Maintenance Organization's Loan Branch to ensure that the branch is adequately staffed when the new loan program begins; (4) take action needed to ensure that required reports from qualified HMO are submitted more promptly; (5) assess the impact of an increasing number of qualified HMO on the Office's ability to monitor their compliance so that additional staff can be assigned promptly; (6) give priority to validating HMO report data; (7) develop improved grant program guidance for regional offices as soon as possible; and (8) publish guidelines defining the requirements for qualified HMO as soon as possible.

    Agency Affected:


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