PSO, HMO-What's the difference?

Provider-sponsored organizations (PSOs) were essentially the brainchild of the federal government and were conceived as an effort to find better ways to control the rising cost of Medicare risk plans. The concept was tested in various demonstration projects in the early 1990s, called Medicare Choice projects, and the program was expanded by the Health Care Financing Administration in Baltimore largely through provisions of the Balanced Budget Act of 1997.

There are as many as 20 state-licensed PSOs currently in start-up phase or in actual business either in Medicare, Medicaid, or commercial risk-bearing contracts. Organizationally, they function much like a health maintenance organization (HMO) that is affiliated by common ownership with a network of hospitals and physicians groups.

Each member of the PSO contracts with each other to service the PSO's own enrollees. But they are also permitted to contract with outside HMOs, PPOs, and providers and serve an unlimited range of other health plan enrollees. The fiscal and licensure requirements of a PSO are rigid. Most must meet minimum state HMO licensing requirements and must maintain large financial reserves to guard against insolvency. They also must have sophisticated patient information systems and certain minimum patient enrollment requirements set by the federal government.