Minnesota deflated providers' hopes for cheap entry into the insurance business in a draft report calling for HMO-like regulation of risk-bearing hospital and physician networks.
Although it's not final nor its recommendations law, the report from a bellwether healthcare state like Minnesota could serve as a model for other states faced with providers wanting to act like insurers.
Minnesota's health and commerce departments prepared the report at the request of the state Legislature. After considering public and industry comments on the report, the departments intend to issue a final version later this month. When-and if-the Legislature will consider the recommendations is unclear.
The report proposes two options for risk-bearing provider service organizations. PSOs are defined as provider cooperatives that market their services directly to employers, instead of insurers. Risk-bearing contracts would make providers financially responsible for the costs of unanticipated healthcare utilization.
The report's first regulatory option would require PSOs to have a minimum net worth of $500,000, half the minimum financial reserves required of HMOs under the state's insurance regulations. In exchange, PSOs would be subject to heavier regulatory oversight. Within five years, their net worth would have to rise to $1 million. HMOs that do business in Minnesota generally must have at least $1.5 million in financial reserves to start operations, but that can drop to the minimum of $1 million.
The second proposal would require PSOs to have an initial net worth of $1 million, but they would face less stringent regulatory oversight.
The Minnesota Hospital and Healthcare Partnership, which represents hospitals and health systems, said it was concerned the proposals wouldn't allow enough flexibility.
Most states don't have regulations set up to let providers contract directly with employers, although several are considering the matter. Generally, they've said that if providers are going to put themselves at risk for the cost of healthcare services, they must take similar precautions against insolvency as insurers and HMOs.
Providers argue they shouldn't need to bank as much money because they have the capacity to provide care.
The National Association of Insurance Commissioners has suggested holding capitated provider networks to state insurance regulations unless they work under a contract with a licensed health insurer. But the group is working on a formula to base required capital on the amount of risk. The formula, expected to be available late this year, is intended to apply to any organization.
The Minnesota report proposes less rigorous rules for organizations marketing only one type of service, such as dental. Those groups, called limited service organizations, would need initial capital of $200,000 plus six months of revenues.