Colorado is designing a license so hospitals can negotiate some capitated contracts with employers, but it's struggling to define limits.
Hospitals and regulators seem to agree that hospitals and other providers should be able to accept per-capita payments for specific services without having to carry the financial reserves HMOs do.
The trouble is, Colorado isn't sure exactly where to draw the line. "We don't have a trigger to say this is a (physician-hospital organization), this is an HMO," said Patricia Foos, a credit examiner for the Colorado Department of Insurance.
The issue-determining when providers become more like HMOs in their dealings with employers and government programs-is of national importance now.
Hospitals say they should be able to contract directly with Medicare and employers to manage the care of beneficiaries without having to get an HMO license. In New York, for example, providers are pushing for legislation to let them enter partial or full capitation contracts if they meet certain financial criteria.
In Colorado, legislation was passed in 1994 to license "limited-service" provider networks to take financial risk for medical care.
Qualifying providers would be required to show they had sufficient solvency and net worth to balance the risk of their contracts, but they wouldn't be required to carry reserves. Their required net worth could range from as low as $100,000 to substantially more, depending on the risk involved in the contract.
HMOs, in comparison, are required to carry at least $1.5 million in reserves.
The legislation's intent is to allow physicians, hospitals and other providers to carve out select services, such as mental health, chiropractic care or heart transplants, Foos said. It's written to allow for the inclusion of inpatient care. But if inpatient care is defined as a broad array of services, the network is an HMO under Colorado law, she said.
Colorado originally planned to have rules in effect July 1. It now is targeting Aug. 1 so it can sort out the conflict, she said.
Larry Wall, president of the Colorado Hospital Association, said the legislation, for example, should let rural hospitals act as HMOs for primary care, although they couldn't provide a comprehensive health plan without an HMO license.
"The bottom line is as long as you're not offering comprehensive services, you could be a limited service provider," he said. "Granted, the definition of what is comprehensive is subject to discussion, and we recognize that they need to draw the line."
Wall said he didn't know how many hospitals would pursue the option but expected that most providers would end up contracting with HMOs rather than employers.