1 42 U.S.C.A. §§ 300e to 300e-14a (1974).

2 Havighurst, , Health Maintenance Organizations and the Market for Health Services, 35 Law & Contemp. Prob. 716, 718 (1970)CrossRefGoogle Scholar. See P. Ellwood, The Health Maintenance Strategy (Institute for Interdisciplinary Studies, 1970).

3 This latter term derives from the so-called “foundations for medical care,” or associations for claims-review and utilization-review established by medical societies in various areas around the country, most notably in California. Foundations have, in large part, been developed by communities of physicians who are opposed to the tighter organization which a move to group practice would entail. Most existing foundations are not truly HMOs, in that they are tied in with a traditional insurance program and thus the participating physicians accept no significant financial risk. There are, however, a few foundations which have changed over time to put their participating physicians “at risk.” This format, as evolved, shows great promise for future development. See generally Note, The Role of Prepaid Group Practice in Relieving the Medical Care Crisis, 84 Harv. L. Rev. 887, 919-21 (1971)CrossRefGoogle Scholar [hereinafter cited as Harv. L. Rev.].

4 J. Prussin, Health Maintenance Organization Legislation in 1973-74, at 7 (1974). The HMO option mentioned by Secretary Finch was included in P.L. 92-603, the Social Security Amendments of 1972, 42 U.S.C.A. § 1395mm (1974).

5 H.R. Doc. No. 49, 92d Cong., 1st Sess. (1971).

6 The prepaid health plan opened to the public by the Kaiser Foundation in 1945 has been extremely successful and is regarded by many as the “grand-daddy of HMOs.” Significant new plans on the scene in 1970 included the Harvard Community Health Plan in Boston and two plans in New Haven growing out of the Yale University medical complex. As to HMO expansion around this period, see Harv. L. Rev., supra note 3, at 916.

7 Division of Medical Practice, American Medical Association, Hmo's As Seen By The Ama—An Analysis 6 (1971).

8 Harv. L. Rev., supra note 3, at 960.

9 H.R. 5615, 92(1 Cong., 1st Sess. (1971).

10 S. 1182, 92d Cong., 1st Sess. (1971).

11 S. 837, 92d Cong., 1st Sess. (1971).

12 H.R. 11728, 92d Cong., 1st Sess. (1971).

13 S. 3327, 92d Cong., 2d Sess. (1972).

14 H.R. 16782, 92d Cong., 2d Sess. (1972).

15 I.e., through the experiences of the Kaiser plans and other, older HMOs such as the Group Health Cooperative of Puget Sound, the Health Insurance Plan of Greater New York (“HIP“), and the Group Health Association (“GHA“) in Washington, D.C.

16 See note 7 supra.

17 Iglehart, , Intense Lobbying Drive by Medical Group Dims Prospects for HMO Legislation, 1972 Nat'l J. 1404, 1405Google Scholar. It is interesting to note that Dr. Malcolm C. Todd, leader of the AMA's opposition to the HMO legislation and Chairman of the Physicians’ Committee to Reelect the President, was the personal physician to Richard Nixon when he was Vice President. Todd is now President of the AMA.

18 DHEW, Towards a Comprehensive Health Policy for the 1970's: A White Paper, at 37 (1971).

19 Health Lawyers News Report, Oct., 1973, at 1. See also Nat'l Health Lawyers Ass'n Newsletter, Aug., 1973, at 6.

20 S. 972, 93d Cong., 1st Sess. (1973).

21 H.R. 4871, 93d Cong., 1st Sess. (1973).

22 E.g., the minimum benefits package, the mandate to employers to offer “dual choice,” override of state law restrictions, and quality evaluation and control measures.

23 42 U.S.C.A. §§ 300e to 300e-14a (1974).

24 J. Prussin, supra note 4, at 94.

25 Mr. Thomas Pyle, administrator of the Harvard Community Health Plan, in addressing the National Health Lawyers Ass'n, Boston, Mass., Apr. 26, 1974.

26 It should be understood that, at least for the present, compliance with the federal requirements is at the HMO's option. The various benefits of the Act are extended, however, only to those HMOs which have applied to DHEW and are certified as meeting the federal qualifications.

27 42 U.S.C.A. § 300e(b)(3) (1974) provides:

Structurally, the provision of services through professionals employed directly by the HMO would be much like the medical group format. Hence we may speak of two, rather than three, approved HMO structures.

28 42 U.S.C.A. § 300e-14(c) (1974).

29 Id.; 42 C.F.R. § 110.101(i)(3)(i), 39 Fed. Reg. 37312 (Oct. 18, 1974). This limitation is frequently referred to, with slight sacrifice of accuracy, as the “51 per cent requirement.“

30 It is generally believed that the “principal professional activity” requirement was placed in the Act because some of its drafters feared physicians who were not substantially committed to the HMO might slight its enrollees in favor of their own fee-for-service patients. It is rumored that this problem was experienced by subscribers to New York's HIP program where participating medical groups treated patients on both a prepaid and fee-for-service basis concurrently. See Faltermayer, , Better Care at Less Cost Without Miracles, Fortune, Jan., 1970, 80, 127-28Google Scholar. There is no reliable documentation, however, that such a situation ever existed.

31 Ottensmyer, Lessons from an HMO, Group Practice, Oct., 1973, at 16.

32 Interview with Dr. Frank Seubold, Director, H.M.O.S., reported in Health Services Information (Interstudy's health topics newsletter, hereinafter cited as Interstudy), July 29, 1974, at 5-6. Interstudy, formerly the Institute for Interdisciplinary Studies, is the non-profit health services research and consulting organization headed by Dr. Paul Ellwood [see note 2 supra and accompanying text]. It is the source of some of the best material available on HMOs. Interstudy, 123 E. Grant St., Minneapolis, Minn. 55403.

33 James Doherty, legislative counsel and lobbyist for the Group Health Association of America (“GHAA” herein, but recently renamed the Group Health Foundation), has stated his opinion that such an interpretation would be directly contrary to Congressional intent in devising the two categories and would trigger a rectifying amendment almost immediately if implemented. Address to The Training Program for HMO Managers, Leonard Davis Institute of Health Economics, University of Pennsylvania, Feb. 14, 1975.

34 42 C.F.R. § 110.101(i)(3)(i), 39 Fed. Reg. 37312 (Oct. 18, 1974).

35 Interstudy, July 15, 1974, at 3.

36 Id., at 4. At the time this letter was written, AGPA still went tay its former name, the American Association of Medical Clinics.

37 H.R. 15739, 93d Cong., 2d Sess. (1974).

38 Id. I.e., as amended, the definition of a medical group would require only that the group's members “as their principal professional activity and as a group responsibility engage in the coordinated practice of their profession.“

39 Some “major medical” or “catastrophic” health insurance policies do cover all services, but only after a substantial deductible has been met. These policies generally are bought to supplement more conventional and limited coverages. In that their range of benefits is extensive, such plans bear a slight resemblance to HMOs, but to the degree they cover only acute, episodic care, they are the very antithesis of the HMO concept.

40 The “deductible” is a base amount, say $50, which the insured must pay out-of-pocket in a given period before his insurance begins to pick up the cost. Above the deductible, the insured may be required to pay a certain percentage, say 20%, of the charge for certain covered services. This latter cost-sharing provision is known as “coinsurance.“

41 R. Burke, Guidelines for HMO Marketing 16 (Interstudy booklet, 1973).

42 “Basic health services” include:

43 “Supplemental health services” include:

44 DHEW, in speaking of changes it would like to see made in the Act, has suggested allowing HMOs to phase-in benefits over time according to the capabilities of the individual plans. Interstudy, May 5, 1975, at 2. It would seem that even under the existing law, the Secretary might have discretionary authority to use a time-phased implementation, as was done with the medical group “51 per cent requirement.” See note 34 supra, and accompanying text.

45 H.R. 7847 (also S. 1926), 94th Cong., 1st Sess., §§ 5(a)(1), (4) (1975). It is revealing to note that there has been some discussion of changing the amendment proposals to retain preventive dental care for children as a basic health service, presumably to avoid opposition from the dental lobby. By the same sort of process, it was decided that the amendment proposals would not attempt to change the mental health benefits called for under the Act.

46 Id. § 5(a)(4).

47 Id. §§ 5(b)(1), (2). Eye examinations for children through age seventeen would remain a basic health service.

48 42 U.S.C.A. § 300e(b)(2) (1974); 42 C.F.R. § 110.103(a)(1), 39 Fed. Reg. 37313 (Oct. 18, 1974).

49 42 U.S.C.A. § 300e(b)(2) (1974); 42 C.F.R. § 110.106(b), 39 Fed. Reg. 37314 (Oct. 18,1974).

50 H.R. 7847 (also S. 1926), 94th Cong., 1st Sess., §§ 5(a)(5), (b)(4) (1975).

51 42 U.S.C.A. § 300e(b)(1)(D) (1974).

52 42 C.F.R. § 110.105(a)(4)(i), 39 Fed. Reg. 37314 (Oct. 18, 1974).

53 H.R. Rep. No. 714, 93d Cong., 1st Sess. 6 (1973).

54 Id.

55 42 C.F.R. § 110.105(a)(4)(ii), 39 Fed. Reg. 37314 (Oct. 18, 1974).

56 Letter from Jeffrey Cohelan, Executive Director, Group Health Association of America to DHEW, Bureau of Community Health Services, June 5, 1974, at 4.

57 Letter from Robert J. Erickson, Senior Vice President and Counsel, Kaiser Foundation Health Plan, to DHEW, Bureau of Community Health Services, June 7, 1974, at 18.

58 42 C.F.R. § 110.105(a)(4)(ii), 39 Fed. Reg. 37314 (Oct. 18, 1974).

59 42 U.S.C.A. § 300e(b)(1)(C) (1974).

60 Theoretically, the “health maintenance” aspects of the HMO should, over time at least, mitigate the effects of adverse selection. Unfortunately, the benefits of preventive care, by their very nature, do not make themselves felt over the short run. Adverse selection, on the other hand, has an almost immediate impact upon the plan's utilization and, thus, upon its premium structure.

61 Somers, A., The Kaiser-Permanente Medical Care Program: A Symposium 34–42 (1971)Google Scholar.

62 See Havighurst, supra note 2, at 723. But see Roemer, and Shonick, , HMO Performance: the Recent Evidence, Milbank Memorial Fund Q., Summer 1973, at 281-85CrossRefGoogle Scholar.

63 42 U.S.C.A. § 300e(c)(4) (1974).

64 42 C.F.R. § 110.108(d), 39 Fed. Reg. 37315 (Oct. 18, 1974). DHEW presumably feels that the quoted language furthers Congress’ basic intent in mandating open enrollment. However, the Act itself makes no prohibition of underwriting standards for initial enrollment; it requires only that the HMO not “expel or refuse to re-enroll any member because of his health status or his requirements for health services.” (Emphasis supplied.) 42 U.S.C.A. § 300e(c)(5) (1974).

65 42 U.S.C.A. § 300e(c)(4)(A) (1974); 42 C.F.R. § 110.108(d)(1), 39 Fed. Reg. 37315 (Oct. 18, 1974).

66 A recent survey (April, 1975) conducted by Interstudy revealed that only 37 per cent of currently existing HMOs have decided to seek federal qualification in the near future. Interstudy, April 7, 1975, at 2. Note that this is a decline of 14 per cent from the figures revealed by a similar study published in October of 1974.

67 Harv. L. Rev., supra note 3, at 909-10. Since employed people tend to be healthier than the unemployed, most employer groups would have a lower premium to pay under an experience-rated plan than under community-rating.

68 Id.; R. Eilers, Regulation of Blue Cross and Blue Shield Plans 89 (1963). It is generally acknowledged that community rating was part of the quid pro quo for the “Blues” being exempted from the premium taxes and other state taxes which, commercial insurers have to pay.

69 A. Somers, State Regulation of Hospitals and Health Care: The New Jersey Story 4, July 1973 (Blue Cross Reports Series, No. 11).

70 42 U.S.C.A. § 300e-1(8) (1974).

71 Id. § 300e-1(8)(A). The regulations draw the line between large and small groups at 100 subscribers. 42 C.F.R. § 110.101(1)(1), 39 Fed. Reg. 37312 (Oct. 18, 1974).

72 “Differentials … may be established for members enrolled … pursuant to a contract with a governmental authority under Section 1079 or 1086 of Title 10, United States Code, or under any other governmental program (other than the health benefits program authorized by chapter 89 of Title 5, United States Code) or any health benefits program for employees of States, political subdivisions of States, and other public entities.” 42 U.S.C.A. § 300e-1(8)(B) (1974).

73 The term “fair market test” has been a popular catch-phrase since the current HMO initiative began, evidencing a belief on the part of HMO advocates that the concept should prove itself, or fail, in the marketplace. Obviously, such a test will be meaningful only if the inherent impediments working against a newcomer in an established system can be effectively countered. It is doubtful whether the HMO Act as it presently stands has provided the right environment for a fair test. See National Academy of Sciences, Institute of Medicine, HMOs: Toward a Fair Market Test (May 1974).

74 42 U.S.C.A. § 300e-9(a) (1974). More specifically, the Act imposes the requirement upon employers which are required to pay the minimum wage specified by § 6 of FLSA or are exempted under § 13(a) of that act.

75 Id. § 300e-9(b).

76 In cases where an employer's employees reside over a broad area covered by more than two qualified HMOs the service areas of which are not coterminous, the options would exceed three. As the proposed regulations now provide, the employer is bound to offer the coverage of a qualified HMO even if only one of his eligible employees resides in that HMO's service area. 42 C.F.R. (proposed) § 110.802(a)(4), 40 Fed. Reg. 6603 (Feb. 12, 1975). Representatives of corporate management have pointed out that this imposes an unreasonable burden on employers. Accepting this point, the proposed amendments would require an employer to offer HMO coverage only if a minimum of twenty-five of its employees resided in the service area of the qualified HMO involved. H.R. 7847 (also S. 1926), 94th Cong., 1st Sess., § 10(1) (1975).

77 42 U.S.C.A. § 300e-9(c) (1974).

78 40 Fed. Reg. 6602-05 (Feb. 12, 1975).

79 Address by James Doherty, supra note 33.

80 A similar conflict would exist with regard to the Railway Labor Act, 45 U.S.C. §§ 158-63 (1958).

81 The language of the Act is ambiguous as to who shall make the choice, requiring only that the employer “shall, in accordance with regulations which the Secretary shall prescribe, include in any health benefits plan offered to its employees … the option of membership in qualified health maintenance organizations.…” 42 U.S.C.A. § 300e-9(a) (1974).

82 National Labor Relations Act §§ 8(a)(5), 9(a), 29 U.S.C. §§ 158(a)(5), 159(a) (1959), formerly ch. 372, §§ 8(5), 9(a), 49 Stat. 452 (1935).

83 The Fair Labor Standards Act of 1938, as originally enacted, defined the term “employer” to exclude “the United States or any State or political subdivision of a State. …” Amendment in 1974 removed the exemption of governmental employers and made them subject to the FLSA. Fair Labor Standards Act § 3(d), ch. 376 § 3(d), 52 Stat. 1060 (1938), as amended, 29 U.S.C.A. § 203(d) (1974). The Commission's argument is that since the 1973 HMO Act does not use the phrase “as amended” in referring to the FLSA it cannot be interpreted to reflect amendments passed subsequently. DHEW's position; strongly supported by Congressman Rogers (see note 90, infra) is that the omission of the words “as amended” was a mere technical oversight and that the intent of Congress was clearly to extend the benefit of an HMO choice to all employees who were then, or would subsequently become, subject to FLSA coverage. DHEW's proposed § 1310 regulations use the words “as amended” in describing the FLSA, thus clearly indicating how the Secretary has chosen to interpret the law. 42 C.F.R. (proposed) § 110.801(a), 40 Fed. Reg. 6603 (Feb. 12, 1975).

The proposed amendments take a different, and interesting, approach. They would change § 1310 to cover employers “now or hereafter” subject to the FLSA's minimum wage requirements, thus achieving the same result as the proposed regulations. H.R. 7847 (also S. 1926), 94th Cong., 1st Sess. § 10(1) (1975). However, the same amendments concede to the Civil Service Commission by expressly exempting the federal government from the § 1310 mandate. Id. § 10(3). This may reflect the amenders’ belief that the federal government's handling of dual choice has been satisfactory (a view held by many) or simply their fear of encountering opposition within the federal bureaucracy which would jeopardize passage of the amendments.

84 42 C.F.R. (proposed) § 110.802(a)(4), 40 Fed. Reg. 6603 (Feb. 12, 1975).

85 Note that where there is a collective bargaining agreement which so requires, the employees’ designated representative, rather than the employer, may make the selection, if more than one qualified HMO properly approaches the employer seeking inclusion in the employer's health benefits plan. Id. (proposed) § 110.802(f)(2), 40 Fed. Reg. 6604.

86 Id. (proposed) § 110.803(b)(1).

87 Id. Furthermore, where an employee is exercising for the first time his option to enroll in a qualified HMO, this exercise must be by affirmative written selection, thus emphasizing the individual and.personal nature of the option. Id. (proposed) § 110.804(a).

88 Id. § 110.807, 40 Fed. Reg. 6605. The “good faith impasse” language does not appear in the regulation itself, but is found in the introductory, comments which state that:

Labor argues that there can be no “good faith” impasse when the employer is legally obligated to offer the plan no matter what the course of the negotiations.

89 40 Fed. Reg. 6602 (Feb. 12, 1975).

90 Congressman Rogers has argued forcibly that it was very definitely the intent of Congress to leave the choice of coverage to the sole discretion of the individual employees, with no intervention or veto power possible on the part of either the employer or the union. Address by Congressman Rogers, Group Health Foundation “Dual Choice” Conference, Washington, D.C., Mar. 11, 1975.

91 Despite the oft-repeated threat that “immediate amendments” would be passed to clear up various questions in the Act, it is doubtful—as later sections of this article will point out—that amendment can be so easily achieved. See Washington Report on Medicine and Health, June 2, 1975, at 2.

92 Interstudy, May 5, 1975, at 4. This prediction discounts DHEW's frequent claim that these regulations would be published by mid-summer of 1975. [Editor's Note: As of early October, 1975, final dual-choice regulations have not been issued].

93 While it is quite true that the major issue is skirted, the amendments do make significant changes to § 1310 of the Act. One of these is to take the enforcement of § 1310 obligations away from the Department of Labor and lodge it with the DHEW Secretary, setting specific civil penalties and procedures for exercising this jurisdiction. H.R. 7847 (also S. 1926), 94th Cong., 1st Sess., §§ 10(2), (3) (1975). See note 83, supra, for other changes.

94 42 U.S.C.A. § 300e(c)(6) (1974); 42 C.F.R. § 110.108(h)(1), 39 Fed. Reg. 37315 (Oct. 18, 1974).

95 See Lublin, , Unhealthy Start: Difficulties Beset Programs for Prepaid Medical Care, Wall Street J., Feb. 11, 1975, at 31Google Scholar, col. 2. While these figures are in line with those usually quoted for HMO start-up, they represent a very rough estimate subject to many qualifications and exceptions.

96 See note 66, supra. Another index of this problem is that in hearings this past April before the House Subcommittee on Labor and DHEW Appropriations, the head of the Health Services Administration requested only $18 million of HMO funding for fiscal 1976. Interstudy, May 5, 1975, at 2. Contrast this with the $85 million authorized in the Act for the same period. 42 U.S.C.A. § 300e-8(a) (1974). To counter the delay in spending the funds authorized for HMO development, the proposed amendments would extend all of the Act's funding periods by two years. H.R. 7847 (also S. 1926), 94th Cong., 1stSess., § 13 (1975).

97 They are: Florida Healthcare Plan, Daytona Beach, Fla.; North Community Health Plan, Evanston, Ill.; and Sound Health Association, Tacoma, Wash. Interstudy, June 16, 1975, at 6.

98 Recently released results of a survey of 300 of the country's major corporations indicated that 73 per cent of the respondents will take no action on HMOs until the final dual choice regulations are published. The study also revealed that only 19 per cent of the respondents currently offer an HMO option and only 3 per cent are working on it. Interstudy, May 19,1975, at 4.

99 E.g., the Healthcare program in Brooklyn, New York, now being discontinued by its sponsor, the Connecticut General Life Insurance Co. See Lublin, supra note 95, at 1; Interstudy, May 19, 1975, at 2.

100 It includes: the American Group Practice Association, Blue Cross Association, Connecticut General Life Insurance Company, Equitable Life Assurance Society of the U.S., Group Health Association of America, the Health Insurance Plan of Greater New York, Interstudy, Kaiser Foundation Health Plan, and Prudential Insurance Company of America. Interstudy, May 5, 1975, at 1.

101 Iglehart, , Coalition Pushes for Changes in Faltering HMO Program, 1975 Nat'l J. 875, 877Google Scholar.

102 Interstudy, May 5, 1975, at 1.

103 Iglehart, supra note 101, at 876.

104 Id., at 877.

105 Id.

106 Reintroduced into the current Congress under its old bill number, S. 3, 94th Cong., 1st Sess.

107 S. 3286 (also H.R. 13870), 93d Cong., 2d Sess. (1974).

108 But see notes 83, 93, supra.

109 See Iglehart, supra note 101, at 880; Washington Report on Medicine and Health, supra note 91. F. David Matthews recently replaced Casper Weinberger as Secretary of DHEW.

110 Interstudy, May 5, 1975, at 1.

111 Iglehart, supra note 101, at 876, 881.

112 It should be noted, however, that the foregoing discussion does not cover all aspects of the proposed amendments. There are additional provisions, including some technical items and some important extensions of financial support (such as increased funding possibilities for non-profit HMOs), which have not been treated herein.

113 Such changes as F. David Matthews's recent replacement of Casper Weinberger as DHEW Secretary, Wilbur Mills's fall from power, developments in presidential, and even vice-presidential, politics—many of which are seemingly unconnected with the health field—all play their part in determining federal health policy, at both the legislative and administrative agency levels.