1975 to 1977: A Community’s Vision Takes Hold
The year 2020 marks the 40th anniversary of Independent Health’s existence as a health plan. But the first steps toward the company’s conception began in 1975, not from a conference room of corporate strategists, but surprisingly through a neighborhood organization. Spurred on by a federal grant opportunity, the group is credited with planting the early seeds of what has grown into one of Western New York’s major companies.
HMO Act Provides Federal Funding
In January 1975, at a time when health care costs were skyrocketing, the Health Maintenance Organization (HMO) concept was just beginning to emerge as a way to manage health care costs. To assist with the development of HMOs, the federal government was providing grants to communities around the country to research the feasibility of starting HMOs in those communities. The HMO Act, signed by President Richard Nixon in 1973, provided funding to HMO start-ups. The new law was based on a progressive health care reform movement that influenced the U. S. Congress to pass the HMO legislation.
Audubon Community Lays the Groundwork
The Audubon Development Community (ADC) was a New York State government-sponsored and funded organization created to plan the development of the Audubon Housing Community, near the newly built University at Buffalo campus for people with a broad range of incomes. The ADC had a vision to start an HMO that could serve the developing community. It formed a local citizens’ advisory board, headed by Lucille Kinney, an ADC resident, to look into applying for a federal HMO feasibility grant. From this citizens’ advisory board, and with the support of the ADC, the initial Western New York Health Planning Corporation (WNYHPC) was established. The ADC also provided initial support in the form of office space and other in-kind types of support to the WNYHPC.
1975: First Feasibility Study and Federal Grant Approved
The first step was to apply for a $50,000 federal grant to demonstrate feasibility, assist in hiring staff, and conduct research over the course of a 12-month time period. In 1975, the WNYHPC submitted an application to obtain funding for a new HMO in Amherst. It was to be a staff model HMO in which doctors and other providers work for the health plan and operate out of one or more central buildings.
The application was approved by the federal government, enabling WNYHPC to evaluate the feasibility of establishing an HMO to serve the citizens of Erie County.
Building the Organization
Obtaining approval for the feasibility grant generated a high level of enthusiasm in the ADC, but there was still much work to do. In addition to effectively promoting the idea and garnering support, the project’s success hinged on effective administration as well, including an ability to pore through government documents and perform other bureaucratic and administrative tasks, such as providing detailed progress reports. The process also involved a great deal of interaction with, and supervision by, Helena Mullens, a federal grant administrator from the U.S. Department of Health, Education and Welfare (HEW).
“HMOs, an alternative to existing fee-for-service medical care, bring together a comprehensive range of medical or health care services in a single organization.”
– Social Security Bulletin, March 1974
With the help of the federal grant administration, WNYHPC hired David Serwer as executive director. Serwer, a consultant with experience in operational planning for HMOs, then hired Jean Donaldson as executive secretary. Serwer also hired a part-time medical director, John Pifer, to help garner support from the local medical community and area hospitals.
He then reached out to the University at Buffalo to find volunteer faculty for assistance in the planning activities. In early 1975, he contacted Dr. Carl Pegels, a management professor at the University at Buffalo. Pegels headed an MBA level program in health management and had extensive knowledge about health care systems, especially the financial aspects.
WNY Health Planning Grant Corporation’s Planning Grant Process
Throughout 1975, the main task during the feasibility grant process was to show the feasibility of establishing an HMO. But it also involved fulfilling the requirements for continuation of the planning activities, in the form of a 12-month planning grant, which would provide $125,000 of additional support. The supervision of a federal grant involves an enormous amount of paperwork that must be completed on time and with accuracy.
During this time, WNYHPC put together solid plans for implementation. Pifer was focused on trying to establish a relationship with providers and hospitals; Pegels was focused on financial planning. However, Pegels also had to perform his UB faculty duties, so he looked to his MBA students for assistance. One day during class, he asked who would like to volunteer to assist with a special project. Two students raised their hands: Frank Colantuono and Bill McHugh. Both were eager to help with the project and gain valuable work experience in the health care planning field.
In 1976, the planning grant application was approved. Serwer went to work for an HMO in Duluth, Minnesota, and Pegels replaced Serwer on a temporary basis until a full-time replacement was found.
Prospective candidates from across the country were interviewed for the executive director position, but a local executive, Mary Lundberg, was selected. Lundberg was working for Health Care Plan (now Univera), which was competing with WNYHPC for the grant.
In July 1976, Lundberg started her new role as executive director of WNYHPC. She began to lead the HMO planning, while Pegels returned to his initial role as part-time financial director. In 1977, Lundberg hired Colantuono and McHugh as part-time employees, though they were still in school. Colantuono was focused on financials, McHugh on marketing.
Initial Development Grant Denied – WNYHPC Forced to Withdraw
In 1977, the federal government had two operational plans to accept or reject in the same region, WNYHPC and a company named Health Care Plan, which were both being developed as staff model HMOs. The two plans were at the same point in the approval process. Because the two health plans would be competing against each other, the federal government decided to fund only one of the plans. It chose Health Care Plan, a plan that had undergone a much longer planning process.
Lundberg and her team at WNYHPC were undeterred but would have to consider and plan the organization’s new approach. Their next strategy would set the course for a new type of health plan the region had never seen before.
