Dr. Paul M. Ellwood Jr., who changed the way millions of Americans receive private medical services by developing — and naming — the model for managed care known as the health maintenance organization, died on Monday in Bellingham, Wash. He was 95.
His wife, Barbara, said his death, at a care center, was caused by organ failure.
Dr. Ellwood, who gave up practicing pediatric neurology in the late 1960s to devote himself to national health reform, was often called the father of the HMO, although many others made important contributions to the concept and some localized prepaid health plans had existed for decades.
But it was Dr. Ellwood who conceived of — and in 1970 coined the term HMO to describe — a partnership in which doctors are paid for the number of patients they see, not for each service given, and whose enrolled members are guaranteed access to network doctors and comprehensive care for fixed annual premiums.
Dr. Ellwood envisioned large nonprofit organizations that would compete for patients by providing the best care at the lowest price and that would contain costs by keeping patients healthy to begin with, through an emphasis on preventive medicine, including regular physical exams, well-baby checkups, mammograms, and immunizations.
The elements of a system based on market forces were not new, but the integrated concept was.
His plan got a fateful hearing in a chance meeting on an airplane with a Nixon administration official, and after extensive consultations with the White House, it became a cornerstone of national policy, with the aim of giving consumers a wider choice of health plans, stimulating cost-saving competition, and raising the quality of care.
Many of Dr. Ellwood’s ideas were incorporated into the Health Maintenance Organization Act of 1973. It required employers with 25 or more workers to offer HMO options with their health insurance plans and provided for incentives to start or expand HMOs. Businesses, workers, and unions were attracted by the cost-containment features in the law, and after a slow start, millions of Americans signed up.
More than 70 million people in the United States are enrolled in HMOs, which take many forms under an array of federal and state regulations. In a nation where medical expenditures exceed $3.6 trillion annually — 18 percent of the gross domestic product — HMOs are among the most dominant and least expensive providers of medical care, although their effect on overall costs is still debated.
HMOs say they provide high-quality services while cutting overlapping medical consultations and unnecessary treatments and hospitalizations. But for decades critics have argued that prepaid plans invite cursory examinations and skimpy care. Studies have shown that elderly and poor patients fare worse in HMOs, and some patients complain that the rules unfairly limit their choice of doctors and their access to specialists and costlier treatments.
Dr. Ellwood, too, worried about the effects of cost controls on quality of care, especially after federal and state policy changes encouraged the growth of for-profit HMOs. As HMOs grew, merged, and became enormously profitable, he repeatedly voiced disappointment with the way his original ideas had worked out in practice.
“Only a portion of the dream that I had for the American health care system has been realized,” he told The New York Times in 1996. “There’s a huge piece of unfinished business.”
Paul Murdock Ellwood Jr. was born on July 16, 1926, in San Francisco, one of two children of his namesake and Mary (Logan) Ellwood. He grew up in Oakland, where his mother was a nurse and his father was a family doctor who cared for impoverished patients and made house calls well into his 80s.
After graduating from Oakland High School, he joined the wartime Navy and was a pharmacist’s mate in the Philippines from 1944 to 1946. At Stanford University, he earned a bachelor’s degree in 1949 and a medical degree in 1953.
He began his internship in pediatric neurology at the University of Minnesota but was soon posted to the Sister Kenny Institute in Minneapolis, where he took charge of a polio clinic. He eventually became director of the institute and a professor at the university. After the development of polio vaccines, the clinic became a rehabilitation hospital, the American Rehabilitation Foundation, and began filling its beds by admitting children with learning disabilities.
One night on his rounds, Dr. Ellwood found weeping children pleading to go home. “I realized these children didn’t really need to be in the hospital,” he recalled. “The only reason they were there was because that’s how their bills were being paid” — insurance companies would pay for care only if the children were hospitalized. “There’s something crazy about incentive here,” he thought.
Pondering incentives, he recognized that doctors made more money if they performed more services, whether needed or not; that most doctors and hospitals benefited from the illness of patients, not their health; and that they were organized to react to illness, not prevent it.
In the 1960s, while still working for the American Rehabilitation Foundation, Dr. Ellwood formed a health policy research group called Interstudy, which explored ways to apply business management techniques to improve health care and cut costs. It set up an HMO that years later became United Health Group, now one of the nation’s largest health companies.
In the early 1970s, Dr. Ellwood, having given up his medical career, moved to Wyoming, got into real estate, and founded the Jackson Hole Group — a cohort of doctors, economists, academics, and policymakers who met at his home periodically for decades to talk about new health care strategies.
The group produced many reports, but its most notable was used by Bill Clinton in his 1992 presidential campaign, when he pledged to reform a health care system of runaway costs and uninsured millions. After Clinton’s election, Dr. Ellwood, the economist Alain C. Enthoven, and others devised the blueprint for the administration’s “managed competition” health reform proposal.
It would have banded businesses and individuals into cooperatives to buy insurance from partnerships of doctors, hospitals, and insurers competing for the business, and it would have covered almost all uninsured Americans. The plan, shepherded by Hillary Rodham Clinton, failed in 1994, but by then Dr. Ellwood and his colleagues had distanced themselves from the plan over conflicts about the levels of regulation it would have imposed.
Dr. Ellwood, who lived in Bellingham, north of Seattle, retired as president of the Jackson Hole Group in 2002. He and his first wife, Elizabeth Ann (Schwenk) Ellwood, had three children, Deborah, Cynthia, and David. They divorced in 1990 and Elizabeth Ann later died. In 2000, he married Barbara Winch. In addition to his wife, Ellwood leaves his three children and five grandchildren.
In later years he championed what he called “outcomes management” — a national database to show how the treatment of patients actually works out. Without such measures, he argued, health care providers and policy makers had no way of knowing whether care was being compromised to cut costs, and no way to evaluate proposals for reforms.
Dr. Ellwood generally favored President Obama’s Affordable Care Act, although he worried that it included some of the “fatal weaknesses” of HMOs, as he put it in a 2010 interview with Dr. Anthony R. Kovner, and that its implementation would face “formidable barriers — too many options and loopholes, and a vastly more savvy and aggressive medical-industrial complex.”
In that interview, Dr. Ellwood proposed a national health institution modeled on the Federal Reserve, which tracks and regulates the economy.
“We have to create an agency to collect health outcomes data, isolate it from the rest of the government and the rest of the health system, and then use its findings to determine what it is that’s worth spending public or private money on for health care,” he said.