Academic journal article Health Care Financing Review

Social Health Maintenance Organizations' Service Use and Costs, 1985-89

Academic journal article Health Care Financing Review

Social Health Maintenance Organizations' Service Use and Costs, 1985-89

Article excerpt

Presented in this article are aggregate utilization and financial data from the four social health maintenance organization (S/HMO) demonstrations that were collected and analyzed as a part of the national evaluation of the S/HMO demonstration project conducted for the Health Care Financing Administration. The S/HMOs, in offering a $6,500 to $12,000 chronic care benefit in addition to the basic HMO benefit package, had higher startup costs and financial losses over the first 5 years than expected, and controlling costs continues to be a challenge to the sites and their sponsors.


After more than a decade of research and demonstrations on long-term care programs, the need and demand for community long-term care services by those who are disabled have been well documented. In previous demonstrations, community-based long-term care services have been found to improve the quality of clients lives and to provide needed support for informal caregivers (Kemper, Applebaum, and Harrigan, 1987). The value of case-management services, which provides assessment of needs, plans of care, arrangements for services, and ongoing monitoring of clients, has also been documented (Kemper, Applebaum, and Harrigan, 1987). Even though positive outcomes have been identified, unfortunately, long-term care demonstrations have generally not been found to control costs and are likely to increase overall costs (Hamm, Kickman, and Cutler, 1982; Kemper, Applebaum, and Harrigan, 1987; Weissert, 1985; Weissert, 1988; Zawadski, 1983). Thus, the search has been for cost-effective long-term care financing and service delivery models.

The social health maintenance organization (S/HMO) model was designed as an innovative new approach to control costs while expanding long-term care services. This demonstration model, designed by Brandeis University in 1980, was sponsored by the Health Care Financing Administration (HCFA) with waivers from the Medicare and Medicaid programs (Leutz, Greenberg, and Abrahams, 1985). The S/HMO model includes the following basic organizational and financing features. First, a single organizational structure provides a full range of acute and chronic care services to Medicare beneficiaries who enroll on a voluntary basis and pay a monthly premium for services. The benefits include nursing home, home health, homemaker, transportation, drugs, and other such services beyond the basic Medicare benefits.

Second, a coordinated case-management system was established to authorize long-term care services for those members who met specified disability criteria and were within a fixed income limit of about $6,250-$12,000 per year. The case-management system was also designed to improve access to and appropriateness of services delivered. Third, S/HMOs were designed to serve a cross-section of the elderly populatioin including both the functionally impaired and the unimpaired elderly, unlike most demonstrations that have been targeted only to the impaired elderly. The goal of S/HMOs is to keep individuals healthy and perhaps to reduce or slow the rate of impairment and disability. Fourth, financing was accomplished through prepaid capitation by pooled funds from Medicare, Medicaid, and member premiums. The initial financial risks were shared by S/HMOs and by HCFA, but only S/HMOs assumed full financial risk for service costs at the end of the first 30 months of the demonstration. The design feature was developed to provide an overall financial incentive to S/HMOs to control total program costs while allowing greater flexibility in the services provided. For a full discussion of the initial goals and plans for S/HMOs, see Leutz, Greenberg, and Abrahams (1985); Harrington and Newcomer (1985); and Greenbert et al., (1988).

After a delayed start, S/HMO demonstration projects became operational in 1985. The S/HMO demonstration model was tested by four different organizations in different market environments. …

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