Where is the new PSO revolution headed?
Profiles of two state efforts offer a glimpse
Fresh from a ringing endorsement contained in the Balanced Budget Act of 1997, the provider-sponsored organization (PSO) concept has generated a lot of enthusiasm, along with an equal amount of confusion about how to make it work. Physician’s Payment Update spoke with Medimetrix, a Cleveland-based consultancy that recently released a white paper on PSOs, to shed some light on this developing health care phenomenon.
"PSOs are effectively HMO look-alikes," says Sharon Connor of Medimetrix. PSOs give providers a mechanism to contract directly with Medicare for members on a risk basis without having to become licensed as an HMO. PSO critics from within the HMO industry have argued that this gives physician groups an unfair advantage because they will be subject to fewer regulations than HMOs.
Medimetrix’s PSO white paper notes that some state regulators have imposed aggressive PSO licensing rules and regulations, believing them necessary for consumer protection, while others have not developed any specific regulations. This has raised a great deal of speculation about what kind of requirements, such as solvency criteria, will be placed on PSOs.
As required by the budget bill, the Health Care Financing Administration is developing a formal set of rules and guidelines governing operation and licensing of PSOs, which must be published by June 1, 1998. These rules will set standards for benefits, networks, and all other aspects of operations.
In general, a PSO must be organized and licensed as a risk-bearing entity eligible to offer health benefits coverage under the laws of each state in which it seeks to operate.
However, if a state fails to take action on a licensing application by a PSO within 90 days of the submission of a substantially complete application, denies licensing on the basis of discriminatory requirements, or imposes solvency standards different from those established by the Department of Health and Human Services (HHS), the PSO can seek a federal waiver allowing it to contract directly with HHS for Medicare enrollment on a risk basis.
Because the industry has evolved so quickly, a consensus on what PSO standards should look like has not been developed. Here are details on efforts in two states as a barometer of things to come:
• Ohio. A newly enacted managed care licensing law in Ohio is the first in the country to encompass preferred provider organizations (PPOs) and PSOs, as well as HMOs.
The law defines standards for the establishment and operation of health insurance entities based on both the functions they perform and the level of risk they accept. "The Ohio law received broad-based support, passing unanimously in the state Assembly and in the state Senate," notes senior Medimetrix consultant Jim Burnosky.
"The state medical society wanted to reduce the solvency requirements for start-up PSOs far below HMOs, based on the reasoning that because providers in risk-sharing PSOs are the providers as well as the payers, there was less danger of a financial shortfall harming members of those organizations," says Burnosky.
The end result: HMOs seeking basic licensure will need to meet solvency requirements of roughly $1.2 million, while qualifying PSOs face a solvency standard of only $1 million.
• New Mexico. New Mexico’s provider service networks are exempted from Medicare and Medicaid managed care license requirements under a new law that took effect in early July.
The intent of the state’s Provider Service Network Act is to allow nonprofit organizations to provide services that might not otherwise be made available, particularly in many rural areas, says Medimetrix.
Under the New Mexico law, PSOs no longer must obtain a certificate of authority from the state to contract with government agencies to provide Medicaid coverage. However, licensing in the form of certificates of authority will continue to be required for PSOs that solicit private commercial business.
One provision sets up a "provider service network guaranty association," an independent public nonprofit corporation. This organization would ensure that patients continue to receive care if a PSO runs into financial trouble.
Each provider service network is assessed $5,000 for each provider in the PSO. The association also has the authority to assess up to 5 % of whatever Medicare or Medicaid contracts a PSO receives.
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