Pioneer of HMOs Paul M. Ellwood Jr., 95

Paul M. Ellwood Jr., a former physician who spent decades trying to overhaul the American health-care system, notably by developing and naming the health maintenance organization, an insurance model that he championed in a bid to offer better care at a lower price, died June 20 at an assisted-living center in Bellingham, Wash. He was 95.

The cause was organ failure, said his wife, Barbara Ellwood.

Trained in pediatric neurology as well as physical medicine and rehabilitation, Ellwood ran a clinic in Minneapolis before he began working on national health policy in the late 1960s. He became known as “the father of the HMO,” although the term was somewhat misleading: Large medical groups like Kaiser Permanente had effectively operated as HMOs for years, offering comprehensive health care for patients who had access to network doctors and other services in exchange for fixed annual premiums.

Yet while the fundamentals of the model had long been in place, it was Ellwood who gave the “prepaid health plan” an appealing new name and offered a sweeping vision for national reform. He coined the term HMO in a 1970 Fortune magazine article and proposed a health-care system that was guided by market forces, with groups of providers competing for patients by trying to offer better care at lower prices. Unlike in traditional health plans, the physicians would be paid based on the number of patients they treated, rather than for each procedure they performed.

Ellwood hoped that the system would create a financial incentive for doctors to keep patients out of the hospital, with a focus on their long-term health. He started pitching the idea to the White House in 1970, after being seated next to a Nixon administration official on a flight, and found a receptive audience that was eager to offer up an alternative to a national health insurance plan proposed by one of the president’s rivals, Sen. Edward M. Kennedy, D-Mass.

Many of Ellwood’s ideas ended up in the Health Maintenance Organization Act of 1973, which required companies with 25 or more employees to offer an HMO option with their traditional insurance plans, and which provided financing to help launch new HMOs. Over the next decade or so, the rise of HMOs helped spur the development of other managed-care options, including preferred provider organizations, which have come to dominate the market.

Ellwood “took the long-standing Kaiser model and gave it a recasting that had an enormous impact,” said Michael Sparer, a health policy and management scholar at Columbia University’s Mailman School of Public Health. “He did not ‘invent’ the model,” Sparer added in an email, “but his work catalyzed an expansion of the model.”

More than 70 million Americans have enrolled in HMOs, but the plans have also sparked a backlash from critics who question whether they actually lower costs and lead to better care. While Ellwood had once envisioned a network of large nonprofit organizations, many HMOs are run for profit, fueling criticism that the groups are more interested in their investors than their patients. Complaints about a lack of “in-network” doctors have been commonplace since the 1990s, and detractors have said that the plans lead doctors to cut corners because they are paid upfront.

Savings from the plans have proved limited, according to Paul Starr, a Princeton University sociologist who served as a senior health policy adviser to the Clinton White House. “Here you had an idea that certainly had a lot of promise. There were high hopes invested in it — I shared some of those hopes,” he said in a phone interview. “It didn’t work out.”

Ellwood defended the HMO model but was also critical of the way his vision was implemented. Policymakers and consumers focused too much on the cost of coverage rather than the quality of care, he said, and the care itself was often inadequate. To promote accountability, he called for more reporting from health organizations as well as a national database on health outcomes.

“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.”

The first of two children, Paul Murdock Ellwood Jr. was born in San Francisco on July 16, 1926, and grew up in Oakland, Calif. His mother was a nurse, and his father was a family physician — “a medical missionary type,” as Ellwood later put it — who made house calls into his 80s.