Georgia has become the first state to make it easier for hospitals in rural or underserved areas to contract directly for healthcare services with employers or individuals by lowering the capitalization requirements for HMOs in those areas to $1 million from $3 million.
The new regulations, approved by the Georgia Insurance Department last week, were opposed by HMOs, insurance companies and the state's only hospital-based HMO, FamilyPlus Health Plans of Georgia. The rules allow hospitals to bypass payers in managed-care contracting and form what are called "provider-sponsored healthcare corporations."
Under the new rules, HMOs linked to a provider group would be allowed to apply for an HMO license by reserving only $1 million in capital. A spokesman for the Georgia Association of HMOs said the relaxed capitalization rules should be extended to all HMOs.
Initially, the rules only will extend to provider-sponsored HMOs located in nonmetropolitan areas, said John Oxendine, state insurance commissioner. Eventually, all areas of the state, including Atlanta, would become eligible, he said.
The Georgia Hospital Association and the Medical Association of Georgia lobbied hard to immediately extend eligibility to the entire state, association officials said.
A GHA spokeswoman said the provider-sponsored HMOs will increase quality and access to healthcare services while decreasing costs.
But FamilyPlus officials said lowering the capital requirements could lead to defaults by provider-sponsored HMOs and increase consumer risks. FamilyPlus is owned by Egleston Children's Health Care System, Atlanta.
As physician-hospital organizations began proliferating last year, the American Association of Health Plans challenged state insurance commissioners to enforce existing laws that regulate PHOs and their ability to form HMOs and contract directly with employers.
The Georgia Insurance Department began cracking down on hospitals seeking to contract directly with employers. Last year, Promina Health System, Atlanta, was forced to eliminate monthly capitated payments from its direct managed-care contract with Cobb County. In addition, the provision that Promina and Cobb County share 10% of contract savings was eliminated. The county pays for claims in a fee-for-service arrangement.
Rebecca McQueen, Promina's senior vice president for managed care, said the state's new regulations don't affect Promina. In April, Promina applied for an HMO license and will pay $3 million to the state when its application is approved later this summer, she said.
"We don't have any concerns (about the new state HMO regulations) as long as the insurance commissioner regulates the (provider-sponsored HMOs)," McQueen said. "We believe the underserved areas need access to managed care. There are very few hospitals or physicians there."