Check your wallet before starting a PSO
Check your wallet before starting a PSO
Many physicians, hospitals, and other provi ders are joyful about last summer's congressional legislation allowing development and operation of provider-sponsored organizations (also known as PSOs or provider-sponsored networks). A PSO will allow provider groups to bypass local or national HMOs by contracting directly with HCFA for Medicare patients.
The most important thing for all parties to understand when it comes to PSOs, even beyond the myriad requirements to become one, is that PSOs involve contracting to care for a risky population. Risk doesn't just mean there is potential for a substantial upside if all goes correctly. Risk also means there is a substantial chance for a downside. So when you are evaluating your desire or ability to form a PSO, at the same time evaluate your desire and ability to manage substantial risk.
The major determining factor regarding your comfort level with managing risk is, unfortunately, the infrastructure to which an IPA, a PHO, or ultimately a PSO has access. To appropriately manage risk requires assiduous attention to detailed utilization and quality management reports.
In effect, the PSO has to generate, understand, and apply behavior modification based on the same type of utilization data that historically have been in the province of HMOs. These data include bed days per thousand, lengths of stay, number and type of referrals to specialists, number and types of outpatient procedures, tests, and pharmacy costs. The data need to be evaluated for trends on a monthly basis. If a trend is apparent, then it is up to the physicians in the PSO to advise and educate their colleagues regarding changing behavior. For some physicians and groups, this advice is welcome, but that isn't necessarily the case in others, even if the advice is coming from inside your practice's walls. Know your physicians and be prepared to withstand criticism if necessary.
In addition to the information system requirements that it takes to generate the kinds of data mentioned above, a successful PSO needs its own case management capabilities. This means it is now your responsibility and expense - not the HMO's - to hire and monitor nurses and other case management employees.
Another important factor determining how much risk your PSO might be subjected to is how much money your PSO will receive from HCFA to cover the care needed by your patients. In some areas of the country, notably New York and South Florida, the amount of money a PSO receives from HCFA (known as the Adjusted Average Per Capita Cost, AAPCC) is very high - to the tune of over $500 per beneficiary per month. In other areas of the country, especially in the more rural areas, the AAPCC is very low.
Capital and solvency requirements
One of the most controversial areas of the development and implementation of the PSO legislation is in the area of capital and solvency requirements. Estimates regarding the amount of capital needed to start a PSO range from a low of $1 million to a high of $5 million. Add to this the estimated $200,000 to $300,000 necessary to complete the application and licensing process required by HCFA.
An even larger amount of money may be needed for reserves and solvency requirements. The HMOs and insurance companies are currently lobbying the rule-making body that is determining PSO solvency requirements to make PSOs meet the same solvency requirements as existing Medicare HMOs. The American Medical Association and other physician organizations are lobbying equally hard for the solvency requirements to be less burdensome.
The rationale of these physician organizations is that the legislation was designed to increase the senior population's choices for Medicare managed care. The lower the solvency requirements for PSOs, the more PSOs can be formed and the higher the number of options for consumers.
PSOs represent strong opportunities for both physicians and seniors. Is your practice ready for the headaches and potential rewards that come with assuming administrative functions traditionally handled by HMOs?
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