(FORTUNE Magazine) – HEALTH maintenance organizations take a startlingly sensible approach to cutting health care costs: Keep people well. Yet the very idea of joining one makes a lot of people sick. Why? HMOs provide health services to members for fixed, prepaid premiums and earn profits only when the costs of treating patients add up to less than those prepaid fees. Therein lies the worry. Many people conjure low-rent, impersonal clinics, interminable delays for appointments, and fatally flawed diagnoses. Yearning for the days of Marcus Welby, they fear HMOs dispense cheap, Doc-in-the-Box medicine that causes more harm than healing. But it's dawning on millions of Americans that HMOs loom large in their immediate futures. Hillary Clinton's health care prescription depends on discount providers. Companies across the country are adopting managed-care plans that reduce costs through contracts with organized provider networks, notably HMOs. Most employees will be forced to use those doctors or pay substantially more out of pocket.

So what's it really like to be in an HMO? Is day-to-day care any good? What do HMO waiting and examining rooms feel like? Do you have easy access to specialists? Should you need open-heart surgery, how trustworthy is the surgeon? The answer to all of the above: HMOs are better than you think. An in-depth investigation by FORTUNE of HMOs around the country, including visits to participating hospitals and medical centers, reviews of clinical outcome studies, and interviews with scores of patients, doctors, and health care experts, yields a surprisingly impressive picture. Most HMO services emphasize primary-care physicians rather than expensive specialists and diagnostic tests. The majority stress prevention and ambulatory care instead of costly hospital stays. Many HMOs not only cut costs but are also medical pioneers. Kaiser Permanente, for instance, has leveraged its huge patient base into a formidable research lab. Such practices put HMOs at the forefront of trends shaping the health care industry. One of the oldest HMOs, Kaiser was founded a half-century ago by industrialist Henry J. Kaiser. During World War II, he offered a prepaid health plan to his 200,000 workers and their families at Kaiser's plants and shipyards on the West Coast. When the war ended, at the behest of local unions Kaiser began accepting members from the entire community. Today in California, where Kaiser is headquartered, some 41% of the insured population are HMO members. Kaiser remains a model HMO, with 12 affiliated groups around the country employing 9,000 doctors who look after 6.6 million patients. While less popular in the East than on the West Coast, the HMO concept is spreading. At the end of 1992, 41 million Americans -- 19% of the insured population -- belonged to one of America's 550 HMOs, up from six million in 1976. Several studies, including a survey of 90,000 consumers by the private National Research Corp., show that satisfaction with HMOs is actually higher than patient approval in other health insurance programs. Says Lee Kamenow, 73, a member of FHP in Beverly Hills, who was diagnosed with a brain tumor just after joining: ''The doctor there saved my life.'' Managed care, of course, is a catchall term for a range of health care plans. The key difference among them is how much freedom of choice patients have. Point-of-service (POS) plans, for instance, are a fast-growing type of HMO that permit members to receive treatment from both participating and nonparticipating doctors. But they must pay extra if they go outside the network. Classic HMOs are the most restrictive of the lot, tightly controlling costs by limiting access to doctors, specialists, and hospitals. To encourage membership, HMOs generally require no deductible and no insurance claim forms and charge members only a small ''co-payment'' -- usually $3 to $10 -- for drugs and office visits. Kaiser's plain-vanilla package, with $5 co-payments, includes doctor visits, hospitalization, lab tests, and other basics for about $430 a month for a family in the Mid- Atlantic region with any number of children (rates vary by location). Preventive care such as mammograms, children's immunizations, and cholesterol screenings are free. On average, employers pick up 88% of the premium for an individual employee and about 75% of family coverage. The balance is paid by the employee. By contrast, employees with fee-for-service insurance are seeing their annual deductibles rise to as much as $1,000 and are required to pay more of the medical bills than before. Concludes Helen Darling, manager of health care programs at Xerox, where 63% of employees are now in HMOs: ''An employee contributes $6.33 per month after the company-paid premium for individual coverage and gets comprehensive benefits, typically with prescription drugs. That's an incredible bargain.'' Doctors will need to get with the HMO program too. Those who refuse will likely find themselves losing patients and watching afternoon reruns of St. Elsewhere. Today, 79% of all HMOs employ practitioners who see HMO as well as private patients in the doctors' own offices. Says Dr. Anthony Hedley, a renowned orthopedic surgeon at the Institute for Bone and Joint Disorders in Phoenix: ''HMOs should never cease recruiting better doctors, because they'll join. Personally, I want to remain active and have always participated.'' Of course, HMO horror stories do exist. One irate Manhattan member, Jeffrey Richter, 30, a musician, says that shortly after joining U.S. Healthcare he got a severe flu and was running a temperature. He called 13 doctors on the approved ''provider'' list, couldn't get one to see him, and ended up driving with a 103-degree fever to the suburbs to see his mother's doctor. Explains a busy physician who treats only private patients: ''I'm in at 7:30 A.M. and I stay here until ten at night. You think I'd do that on a salary? You've gotta be kidding. If my income was capped, I'd come in at nine and leave at five.'' Then there's the tale of the wealthy businessman with a knee problem. After waiting three hours past the appointed time to finally see an orthopedic surgeon, the businessman learned the doctor had lost all his files. He walked out. The punch line: This doctor worked for the prestigious Mayo Clinic. Notes Dr. Jesse Jampol, medical director of Health Insurance Plan (HIP) of Greater New York, a large HMO: ''If you're in Blue Cross/Blue Shield and have a problem with a doctor, you blame the doctor. If you're in HIP, you blame the system.'' To set the record straight, most HMO waiting rooms are not filled with characters who wandered off the set of Les Miserables. HMOs run the same gamut as do private-doctor offices with patients who look like you and me. HIP, for example, operates plush Manhattan medical centers filled with commercial- banker types as well as nondescript Long Island clinics where equipment crowds the narrow corridors. Kaiser has the feel of good, old-fashioned, slightly chaotic medicine, where salaried doctors care more about outcomes than incomes. Says Dr. John Miles, area director of the Southern California Permanente Medical Group, who joined Kaiser as a ''temporary job'' in 1955: ''This is an idealistic way to practice medicine, without worrying about running an office or charging patients.'' Family-practice doctors on HMO staffs do pretty well, typically earning $100,000 or so annually. CHECKING into FHP's hospital in Fountain Valley, California, on the other ) hand, feels like being initiated into a corporate headquarters operation. In a sleek, marble-floored lobby, men and women in business suits hurry everywhere, and the place hums with efficient operations. FHP's landscaped, 16-acre ''campus'' is a gleaming center for one-stop medical shopping: You need a dermatologist? Glasses? Chemotherapy? Drugs? Step right up. A ''mixed model'' HMO, FHP employs 1,000 staff doctors who work full-time for the HMO and contracts with an additional 7,000 private practitioners in five states and Guam who treat both HMO and private patients. Income levels of HMO members are similar to those of people in traditional indemnity plans; 33% of HMO members and 37% of fee-for-service users earn more than $50,000 a year. In both HMOs and fee-for-service programs, the numbers of white- and blue-collar workers as well as those of unemployed people are virtually equal. HMO members, however, are young: 35% are under 35, compared with 29% of indemnity plan users. At the other end, only 14% of HMO members are age 55 to 64, vs. 20% of fee-for-service members. This so-called adverse selection means healthier people join HMOs, leaving the sicker ones who require more expensive services in traditional plans. That's one reason some companies are finding that HMOs don't cut their health care costs as much as they'd hoped. Says Honeywell's vice president for health management, John Burns, who found that company employees who joined HMOs in Minneapolis were typically low utilizers of health care: ''The concept of HMOs is fine, if everyone is at risk. But adverse selection diminishes its potential.'' Several reports prove that HMOs enroll a high proportion of women of child- bearing age. Maternity and well-baby care tend to be expensive. ''So,'' says Susan Palsbo at the Group Health Association of America, ''HMOs may have a healthy population, but they still cost money.'' Private doctors who work for HMOs usually receive a fixed monthly ''capitation'' payment for each HMO patient under their care. Often, if the physician can provide care for less, he keeps part of the difference. This financial arrangement, which rewards doctors for cutting costs, raises all the questions about quality of care. In their zeal to spend less than they earn, charge critics, HMO doctors are bound to scrimp on care by refusing to send patients for expensive diagnostic tests or other special treatment. Says one disgruntled FHP Medicare patient who quit the plan after less than a year: ''I'd pick them up for false advertising. They give you a long list of specialists. Then when you try to see them, it's another story.'' HMO doctors do wait to see results of their treatment when problems are ''nonurgent'' -- to the benefit of all concerned. Whether you have lower back pain or a headache, they point out, a two-week wait for an X-ray or magnetic resonance imaging (MRI) scan usually won't hurt. It could, however, help by saving you from unnecessary procedures. Says Dr. Thomas Reardan, a trustee of the American Medical Association who has started supplementing his private practice with HMO patients: ''You start thinking, 'If I do this test, will it change the way I'm going to treat a patient?' If not, I don't use the test. In the end, it's the morals and ethics of physicians that will make the system work.'' Research backs him up. Clinical studies done at UCLA, Harvard, the University of Texas, Brigham and Women's Hospital, and other research centers compared diagnoses, treatment, results, and mortality rates for people with illnesses such as cancer, hypertension, diabetes, and heart disease. Results show that the care received by HMO patients is at least as good as that received by other patients. The strength of HMOs -- as well as their greatest weakness -- lies in their numbers: At Kaiser, for instance, there are only 1.4 doctors per 1,000 patients. That compares with a national average of about 2.5 per 1,000 patients. And it explains why it may take three months to get an appointment for an ordinary physical. But visit Kaiser's neurological center in Redwood City, California, and you find an X-ray lab teeming with patients waiting for mammograms, ultrasounds, and MRI tests. Says Brenda Wiley, who has worked as a Kaiser X-ray technician for almost seven years: ''You do 30 mammographies a day and you get pretty good at it. Doctors who don't deal with enough patients get dull. They may never see a brain stem tumor. We see ten a year. And if they don't grasp what it is, because they haven't been exposed to it, that could be fatal.'' Doctors with poor performance records are fired. Says Dr. Gary Goldstein, FHP's chief medical executive: ''We are regulated by 80 local, state, and federal agencies. In the fee-for-service world, you don't know your doctor's malpractice history or even if he has a degree. Nobody oversees that guy.'' To provide companies and consumers with an additional quality check, the National Committee for Quality Assurance, a nonprofit, national accreditation organization for managed-care plans, has approved rigorous accreditation standards for HMOs. So far, 53 companies, including PacifiCare of Southern California, Prudential, and U.S. Healthcare, have received accreditation. Reviews are pending for 127 more. Fine, you say, but what happens when something goes seriously wrong? What if I want treatment at the Mayo Clinic or Sloan-Kettering? In most cases, the answer is: You can choose only medical facilities affiliated with the HMO unless you're in a point-of-service plan. Generally, upon joining an HMO, you choose or are assigned a primary-care physician who acts as a ''gatekeeper,'' deciding when you need a specialist and who that specialist should be. If you insist on seeing a specialist outside the system, you'll pay the full price of the visit. While certainly a drawback, such a system is not as onerous as it sounds. A good general practitioner is capable of handling most patient problems for a lot less than a specialist will charge. To expand the nation's paltry pool of generalists, Kaiser and FHP have started postgraduate residency programs to train more primary-care physicians, not just in hospitals but also in doctors' offices, where most patients receive care. Critical care is another issue. If you need open-heart surgery or a bone marrow transplant, do you want it done in a hospital used by the HMO? That depends on the HMO. The key is to know the reputation of the hospitals and specialists an HMO uses before joining (see box). Most HIP hospitals, for instance, are not well known. On the other hand, some FHP patients are treated at Cedars-Sinai, a top teaching hospital near Beverly Hills. And Kaiser's Sunset Hospital, which provides critical care to Kaiser patients from eight medical centers in Southern California, boasts one of the finest cardiac surgery units in the country. Says FHP Chief Executive Westcott Price: ''Choice and quality are not synonymous by any means.'' Complaints from new HMO members have common themes, mostly the frustration of dealing with bureaucratic systems. That's especially a problem for low- income patients and those over 65 -- a fast-growing market that HMOs are going after with gusto. Says Price: ''If you're not in the Medicare business, you're not in the medical business.'' SENIOR BUYERS, beware. The biggest HMO flaw may be their sometimes questionable treatment of the elderly. A 1991 study of California HMOs by the Medicare Advocacy Project concluded that ''Medicare beneficiaries are extremely vulnerable to misleading marketing by HMOs'' and that ''Medicare enrollees have few meaningful appeal rights.'' Translation: A patient who disagrees with a doctor about seeing a specialist may be stuck or forced to pay full fee. Both federal and state governments are supposed to ensure that HMO Medicare enrollees receive quality care. Unfortunately, the federal Health Care Financing Administration (HCFA), which monitors quality at HMOs with Medicare patients, encourages seniors to join them, in part because it saves Medicare money. Florida's Humana HMO, for example, has had a long history of complaints from seniors, as have some HMOs in Southern California. Yet, says HCFA's regional administrator in Atlanta, Dewey Price, who favors stronger agency action, ''how many sanctions have been taken against hospitals, HMOs, and doctors in any states where problems have been identified? None.'' Ultimately, the best way to remain healthy as an HMO member is to ask the right questions up-front. Should problems arise, says Glenn Meister, an employee benefits consultant with Foster Higgins, ''the company human resources department can help.'' Better yet, pick a physician you trust. In the efficient new world of managed care, your family doctor must be your best advocate.

BOX: THE HMO HOME QUIZ

By canvassing HMO doctors and administrators before joining, you'll avoid surprises. Common sense prompts queries such as which hospitals, emergency rooms, primary-care doctors, and specialists are available to members. These questions are equally important:

-- How many doctors are board certified? Medical certification boards administer oral and written exams to doctors after specialty training and after some years of practice. At least 85% of HMO specialists and a majority of primary-care physicians ought to be board certified.

-- What is the physician turnover rate? Dropout rates should be no more than 3% a year. High turnover, say 20%, indicates big operational problems.

-- Do most doctors accept new patients? Some HMOs recruit well-known doctors for the prestige value but allow them to refuse new patients.

-- Will the coverage travel? Many HMOs have reciprocity agreements with HMOs in other states. Are ! dependents who travel also covered?

-- How are the satisfaction ratings? Membership satisfaction surveys are conducted every year or two. If any problems are noted, ask about how they're being corrected.