Be careful what you ask for, you just might get it. Congress, in the passage of the Balanced Budget Act of 1997 (BBA), gave providers exactly what they wanted — a federal “license” to enroll Medicare eligibles and assume risk for their total care, pocketing the entire Medicare premium. Now, many hospitals and medical groups are considering whether they should become licensed provider-sponsored organizations (PSOs) in the next three years and compete with local health plans, the usual source of most of their customers. The BBA created a new Part C program of Title XVIII of the Social Security Act called the Medicare + Choice (M + C) program (often referred to as the PSO legislation).
Backlashing against managed care, providers lobbied long and hard to regain some of the clout they had in the past. The intent of the legislation was to offer Medicare beneficiaries a plethora of managed health plan options to complement the original Medicare option and, by doing so, move more Medicare beneficiaries into managed care.
PSOs are a direct contracting opportu-nity for providers targeting the senior population. The Health Care Financing Administration (HCFA) has completed interim final regulations for the M + C program and began accepting PSO applications August 1, 1998, with the first PSOs authorized to enter the Medicare-risk market on January 1, 1999. How can providers pass this up?
The PSO Quandary
The dilemma for providers posed by PSOs, however, is more complicated than whether or not the PSO will be profitable. According to Russell C. Coile, writing in the Healthcare Strategist, the question is: If providers build managed care plans for the Medicare-risk market, will they be different than the commercial HMOs that doctors and hospitals have so often criticized? Or, as he said, “Is becoming an insurance company part of your strategic plan?” The PSO establishes a direct contractual link with purchasers, in this case HCFA, and eliminates the HMO or insurance company. PSOs enable providers to go directly to their market and sign up seniors just as if the PSO were a certified Medicare HMO.
It must be understood, up front, that PSOs will be heavily regulated. Any organization attempting to form a PSO must be ready to endure regulation. The major provisions of a PSO are: Eligibility, licensure, solvency, operational and quality standards, payment, enrollment, certification, and compliance. Many integrated systems have been developing the above competencies in order to manage global capitation. However, as reported in Integrated Healthcare Report, it is a giant step from managing global capitation to running a PSO, which, in reality, is the same as operating an HMO.
HCFA will focus on compliance in the following areas of the M + C programs: Fiscal solvency; information systems; network adequacy; access to care; appeals and grievances; governance; management; and accountability.
Benefits of PSOs
The advantages, according to Coile, for providers to form PSOs include: 1) receive 100 percent of the federal Medicare premium; 2) make all decisions about patient care with no third party authorization; 3) control the range of services, settings and alternatives; 4) measure their own performance; 5) manage their own administrative expenses; 6) determine the “medical loss ratio”; 7) be patient friendly; 8) manage and monitor their own clinical outcomes; 9) create their own risk pools and incentive arrangements; and 10) keep the savings that result from achieving clinical or administrative efficiencies.
Coile further points out that most hospitals and health systems have been pursuing strategies to become integrated delivery systems (IDS) for several years. More than 70 percent of all hospitals are now part of geographically dispersed networks. They’re building physician organizations and they have established infrastructures for managing risk. Coile raises the question: If providers are not going to assume risk and try to control the premium, why are they investing in IDS development?
PSOs should be a dream come true. However, many hospitals, health systems and large medical groups are reluctant to form PSOs, waiting to see how other PSOs evolve. Providers have a limited history of assuming risk and some provider-sponsored HMO organizations have experienced major losses.
Financial losses are only one of the potential hazards for providers directly engaging in Medicare-risk arrangements. Others, according to Coile, include: 1) retaliation against providers from competing Medicare-risk health plans; 2) consumer backlash that providers are operating care-denying plans; 3) community concern that hospitals may risk their financial reserves in PSO ventures; 4) regulatory compliance with state insurance/ HMO regulations; 5) legal and malpractice risk of becoming a care-authorizing entity; 6) information systems’ capital investments may be substantially higher for a PSO; 7) provider backlash if provider-sponsored organization denies treatment requests; and 8) physician relations could deteriorate if PSOs are inaccurate with medical claim payments.
PSOs and Patient-Friendly Services
When Congress created PSOs, it offered the provider community an opportunity to level the playing field with insurers and HMOs. It also gave provider-sponsored organizations an opportunity to reinvent managed care. After years of complaining by doctors and hospitals about HMO practices, the PSO model may offer a more patient-friendly process. However, PSOs might disappoint some consumers by not differentiating themselves from competitive health plans.
PSOs must demonstrate that they value health care consumers and manage risk, not avoid it. Moreover, they must promote health care and demonstrate a new level of ommunity responsibility by addressing unmet health needs. A tall order, indeed.