The Rise of MCOs
MCOs, in the broad sense of organizations that employ or contract with physicians to deliver care to defined groups of individuals as an alternative to private fee-for- service medicine, are as old as modern medical practice. The earliest cases establishing the ban on the corporate practice of the professions carved out exceptions for benevolent organizations that hired physicians or attorneys to look after their own members or those in need. These MCOs predated indemnity health insurance. Some were organized to ensure access to medical care for workers in isolated locations. Kaiser-Permanente Health Plan began as a method of providing medical care to the workers building Grand Coulee Dam. Others were integrated, member-owned mutual insurance plans that employed physicians to care for the members. Organized medicine opposed these early MCOs as unethical, and were sued by the government for antitrust for trying to restrict the competition in medical care. [ American Med. Ass’n v. United States, 317 U.S. 519 (1943).] Although the courts supported MCOs, the concerted opposition of organized medicine kept them from making any substantial progress in the market until the 1970s.
In 1971, President Nixon addressed the rising cost of medical care and predicted that it would cripple U.S. productivity. This prompted Congress to pass the Health Maintenance Organization Act of 1973 (HMO Act of 1973). [42 U.S.C. § 300e-10 (1973).] This act banned most state law impediments to the establishment of MCOs; it did not, however, preempt state laws on regulation of medical practice or state criminal laws dealing with bribing fiduciaries. With the legal framework in place, the rising cost of medical care through the 1970s and 1980s fueled the growth of MCOs. By 1997, MCOs had become the predominant form of medical practice. Most physicians must participate in some form of MCO because it is estimated that less than 5% of individuals not under a government program have a traditional indemnification insurance plan.