PSOs: Starting one is easy, if you have $$

If you're interested in learning about the requirements for providers who want to get involved in provider sponsored organizations (PSO) for Medicare+Choice, check out the Web site of the Health Care Finance Administration (HCFA) at (See related story, p. 97.)

But a look at the requirements may convince you to have your accountant or lawyer explain them. Use this rundown of PSO essentials as a starting point:

1. Minimum net worth. To start, you need $1.5 million in net worth. But if you have an established infrastructure and experience with global risk contracting, that may be lowered to $1 million.

After start-up, you must maintain a minimum net worth of the greater of the following amounts: $1 million; 2% of annual premium revenues up to $150 million and 1% above that; three months of expenses; or the sum of 8% of annual health care expenditures paid on a noncapitated basis to nonaffiliated providers, 4% of annual capitated payments to nonaffiliated providers, and 4% of annual noncapitated payments to affiliated providers.

2. High liquidity. At least half of the initial $1.5 million must be in cash or cash equivalents, and your business plan must show you have enough cash flow to meet your obligations.

3. Detailed financial plan. You'll have to submit a plan for the first 12 months of operation that includes details on marketing, statements of revenue and expense on an accrual basis, a cash flow statement, balance sheets, assumptions in support of the financial plan, and if applicable, how you will meet any projected losses.

4. Care requirements. The PSO will have to be able to provide a "substantial proportion" of the care your patient base will need within the PSO. In metropolitan areas, that is 70%, in rural areas, 60%. In rural areas, you must be able to provide primary, emergency, and routine specialty care.

5. Risk requirements. Providers involved will have to demonstrate that they share, directly or indirectly, "substantial financial risk" for the provision of services under the contract. HCFA has outlined several sample models of what it considers satisfactory risk-sharing arrangements. These include:

· acceptance of fixed capitation or percentage of premium payments for providing services to Medicare PSO enrollees;

· financial incentives that encourage affiliated providers to achieve utilization management and cost-containment goals;

· significant ownership in a for-profit PSO;

· significant investments by affiliated providers in the PSO;

· affiliated providers' personal guarantee to cover the PSO's future operating expenses or debt.