North Med HMO
Authors: Christianson Jon , Krein Sarah 
Published: April 2008

NorthMed HMO is viewed by its owners as an important vehicle for integrating rural providers in northern Michigan. Through the HMO, rural providers hope to be able to contract with government programs, while retaining private‐sector patients through employer contracts.

For most rural providers, NorthMed HMO does not yet represent a major source of revenues. However, the HMO is about to embark on an expansion that, if successful, will increase its importance to providers and its visibility within the service area. This planned expansion is likely to place severe demands on the financial and managerial resources of the organization.

Physicians. NorthMed HMO offers a model of a rural‐based HMO in which physicians play a dominant role. Rural physicians in northern Michigan own Northern Physician Organization, a physician organization which, in turn, is the major stockholder in NorthMed HMO. The geographic expansion of the HMO is tied, in large part, to the geographic expansion of the membership of Northern Physician Organization. NorthMed HMO enters new communities when a significant number of physicians in those communities joins Northern Physician Organization. When physicians purchase ownership shares in the physician organization, they indirectly become part owners of the HMO.

Participation in NorthMed HMOs network has offered limited benefits to rural physicians at a minimal cost. By being a participating provider in NorthMed HMO, physicians can remain available to their patients who choose the HMO as a health insurance option. NorthMed HMO has not been aggressive in attempts to influence physician practices, and physicians bear no financial risk as a result of their participation. Participating physicians are paid under a fee‐for‐service arrangement with no risk sharing related to hospital use. Indirectly, through Northern Physician Organization's ownership role in the HMO, physicians have the potential to gain financially from NorthMed HMOs growth if the HMO were to be sold, but this diffuse incentive is unlikely to have an impact on physicians' day‐to‐day behavior.

The relationship between NorthMed HMO and its physicians is likely to change soon. The number of HMO patients seen by physicians will increase if the HMO succeeds in securing Medicare and Medicaid contracts, and if its new point‐of‐service option attracts additional private‐sector enrollees. NorthMed HMO plans to contract with Northern Physician

Organization on a capitated basis to serve the HMOs enrollees, an arrangement that would place financial responsibility for managing care delivery more directly on participating physicians. This is likely to result in more aggressive utilization review and quality assurance measures. In effect, rural physicians will be faced with a difficult trade‐off that they have, to this point, largely avoided: They will be asked to accept financial risk and oversight of their practices in return for the assurance that their HMO can successfully compete for local patients (and their insurance dollars) against health plans that are owned and managed by entities located outside of their rural area.