UNITING PHYSICIANS & PATIENTS AS A VOICE IN HEALTH CARE
• HMO expenditures for health care for patients may have been as low as 60%. Conversely, expenditures for administration may have been as high as 40%.
• These estimations are necessarily imprecise because the Minnesota Department of Health and the HMOs have elected to use an accounting system that fails to properly separate administrative spending from spending on health care.
• Each of the three largest Minnesota HMO's (Medica, HealthPartners and Blue Plus) are embedded in complex webs of profit and non-profit companies including for-profit subsidiaries, some of which are offshore.
• Only 15% of 1996 Minnesota HMO dollars went directly to physician compensation.
• Less than 4% of HMO dollars were spent on mental health and chemical dependency services.
Figures 1 through 3 present the breakdown of expenditures for the three HMOs examined. Table 1 presents a breakdown of the expenditures of all three HMOs added together. Table 1 and the pie charts in the figures are divided into two parts -- "administration and other," and "health care services." The first category -- "administrative and other" -- accounted for up to 38.4% of expenditures by the HMOs in 1996. This is three to four times higher than the ten-to-15 percent overhead figure reported by the HMOs. The second category --"health care services" -- accounted for 61.4% of all spending. If the three HMOs examined in this study accurately reported their expenditures on health care services to the Department of Health, these data indicate that as little as 60% of the money received by these HMOs was spent directly on patients.
This conclusion must remain tentative until the HMOs provide a breakdown of expenses currently lumped under a category called "other professional services." This category shows up in Table 1 as a sub-category of "administration and other" along with "administration and taxes" and "incentive pool and withheld funds". The latter two categories clearly consist of administrative expenses. But the other professional services category, which accounted for 18.8 percent of all spending, is harder to judge. The DOH defines this category to include a remarkably broad melange of services, some of which qualify as health care and some of which do not.*
| Table
1: Distribution of total expenditures by Medica, HealthPartners and Blue Plus, 1996. |
|
| I.
Administration and Other
|
|
| HMO administration and other | |
| Administration and taxes | 10.2 |
| Incentive pool and withheld funds* | 1.8 |
| other professional** services | 18.8 |
| Subtotal (HMO) | 30.8 |
| Provider administration | |
| Physician administration | 4.6 |
| Hospital administration | 3.0 |
| Subtotal (Provider) | 7.6 |
| Total Administration | 38.4 |
| II. Health Care Services | |
| Physician compensation | 14.8 |
| Physician office costs | 12.2 |
| Hospitals | 21.0 |
| Pharmacy and other medical | 7.2 |
| Dental | 2.4 |
| Mental health/CD | 2.1 |
| Outside referrals | 1.7 |
| Total Health Care Services | 61.4 |
| Grand Total | 99.8 |
| (total not 100% due to rounding) | |