Physicians frustrated with bureaucratic HMOs now have a chance to run their own Medicare managed-care plans. Even those in small group practices can get in on the Medicare action, but they have their work cut out for them.
The Balanced Budget Act of 1997, approved by Congress last August, greatly expanded beneficiaries' choice of plans and providers under the 33-year-old federal health insurance program for seniors. The new Medicare+Choice initiative also allows provider-owned health plans known as provider-sponsored organizations to contract directly with Medicare, eliminating the traditional insurance middleman.
Physicians and hospitals say their proximity to patients will allow them to practice managed care in its purest-and most effective-form. Critics in the insurance industry argue that providers, with greater access to patients, will cherry-pick low-risk seniors and pocket any profits.
Regardless of who's right, what may be most attractive to providers about PSOs is the sense that they will put physicians back in the healthcare driver's seat.
"The physicians and the hospitals are the ones managing care, but someone else is reaping the profits. If we're going to manage care, we need to keep some profits in the healthcare system," says Nelson Gwaltney, M.D., president of Highlands Physicians IPA in Bristol, Tenn.
Like Gwaltney, many providers are interested in Medicare risk contracting, but, analysts say, few are ready to do anything about it. Hospitals and large groups, with their sturdy infrastructures and deep pockets, are well-positioned to lead the PSO movement. If smaller physician groups don't want to be left out of the PSO picture, they should be thinking about strategic partnerships now.
"You can't just say, 'I'd like to own one.' You have to somehow reach out and create an organization that has structure," Gwaltney says. "The most important thing is to go out and develop relationships with all the essential pieces to enable you to function as a PSO."
There are currently 38 million Medicare beneficiaries, and as the baby boom generation ages, that number is expected to nearly double. Experts estimate that lower premiums and extended benefits will lure 20% to 50% of beneficiaries away from traditional fee-for-service plans.
"If it moves even 25% of the Medicare population, that's enough of a patient base that (physicians) have got to be concerned about it," says Philip Beard, president of ProSTAT Resource Group, an Overland Park, Kan.-based consulting firm.
Before, strict licensure and solvency requirements made it difficult for providers to operate their own health plans. Not so under the PSO law. For example, PSOs can receive a federal waiver from state HMO licensure, and minimum PSO enrollment is 1,500, 500 in rural areas. PSOs also are exempt from the 50-50 rule, which requires Medicare HMOs to have an equal mix of commercial and Medicare enrollees. Final rules and solvency standards for PSOs will be issued by HCFA this spring.
Capitated payments will be a blend of adjusted national and area-specific rates, but the program establishes a floor payment of $367 per enrollee per month, to be adjusted annually. That floor payment may be higher than the current payment in some rural and suburban areas.
According to HCFA, a PSO must be able to provide a substantial proportion, defined as 75%, of all healthcare services. Large group practices "are already integrated one-stop shopping, so it's just a matter of them setting up a mechanism to be a PSO. Especially some of those that own or manage or operate hospitals out of their group practice," Beard says.
Similarly, hospitals enjoy name recognition that smaller groups don't--and that would give them a boost when launching a new plan. Organizations that "are better positioned are the ones that are institutions in their own right, and already have the common elements of a political campaign: name recognition, community recognition, a place that people can visualize and see," says Brent Miller, vice president of government relations at the Alexandria, Va.-based American Medical Group Association.
Physicians' inherent independence and reluctance to partner also could slow their PSO bid, Beard says. "The physician community is still very fragmented and still very old world-(practicing) in mostly four to five doctor single-specialty practices. There's a huge amount for them to do to be viable as a PSO."
Nonetheless, because the organizations must be able to provide 75% of care, physicians hold the PSO trump card. "The bottom line is we've got to do this together, and any lone-wolf strategies--whether advanced by hospitals or physicians or long-term-care networks or anyone--are ultimately not going to be successful," says Ellen Pryga, director of policy development at the Chicago-based American Hospital Association.
Although by law PSOs can't begin contracting until January 1999, physician groups should be identifying the best providers in the community and trying to affiliate with them "as quickly as they can," Miller says.
Small groups should look for partners that have comparable missions and objectives, starting with their peers, says Bruce Johnson, a consultant with the Englewood, Colo.-based Medical Group Management Association.
"If I was an administrator or leader of a 10-physician cardiology group, I'd call the leader of the 11-physician orthopedic group, the six-physician radiology group and the 40-physician primary-care group," Johnson says.
"Figure out how those physicians can work out a common game plan of what they want to do. Once that's defined, then ask, 'What do we need to make that happen?' "
Operational issues and the need for money are the key reasons for bringing in a partner. That's when physicians may need to turn to local hospitals and health plans, which bring both cash and contracting and billing expertise to the table.
"The thing that is most important for the physician community is to overcome their resistance to partnering," Pryga says. "I know that within the hospital community, there's more and more discussion all the time over how to partner with physicians, and that doesn't mean putting them on the payroll."
Tenet Choices 65 is a Kenner, La.-based PSO that is built on an equal partnership between area IPAs and healthcare facilities, according to Executive Director Roger Friend. The PSO is one of 16 participants in a HCFA Medicare Choices demonstration project.
The PSO began marketing its Medicare product in August and so far has 1,150 enrollees. Six IPAs comprising 800 physicians and seven New Orleans-area Tenetz hospitals first came together in 1994 to form the New Orleans Regional Physician Hospital Organization to contract with area employers. Now, physicians control 50% of the 12-member PSO board of directors.
IPA leader Gwaltney hopes his PSO will have similar 50-50 governance. There is just one hospital in his community, and a collaborative PSO would benefit all, he says. "Most doctors practice in one hospital, so this is just another way for us to not only help the physicians and the patients, but help the hospital, which ultimately impacts our community."
The MGMA's Johnson suggests physicians also consider partnering with established health plans, which have marketing and commercial experience. Referring to concerns that such moves represent "jumping in bed with the devil," he says it "makes more sense to jump in bed with a devil that knows what they're doing than somebody else."
Edward Hirshfeld, vice president of health law at the American Medical Association, suggests insurance partners as another source of capital. Physician-led PSOs could offer equity to an insurance partner that would bring management capabilities and capital to the group.
Even physicians who attempt to go it alone, Hirshfeld says, should begin interviewing third-party administrators, to whom they could outsource claims processing.
Even the most amicable partnership will face obstacles. Friend estimates his PSO has invested more than $3 million so far in the Medicare plan. "This is not an endeavor that you're going to get done for $500,000, or even a million dollars. If you want to be a long-term player, the reporting and system requirements are very onerous and you have to be very well-capitalized."
In addition to marketing and launching costs, PSOs will have to meet financial solvency standards. Although HCFA has yet to release the requirements, they are expected to be considerably lower than traditional HMO capitalization requirements. IPA leader Gwaltney says HMOs in Tennessee set aside between $1 million and $2 million to meet solvency requirements, but PSO levels should be much lower.
High-cost programs indicate the need to give up control to investment bankers, hospitals or insurance company partners, he says. "If you can keep the level low, then the physicians and other providers will be willing to accept the risk."
Gwaltney says his IPA members are willing to raise the money themselves but would prefer not to. "Whatever it takes within reason, we'll probably do it," he says. "I think we can come up with the money, even if it's $2 million, but that defeats to a certain extent the ability of the providers to really have control."
Perhaps the greatest commitment, Friend warns, is the time needed to create processes to make things work smoothly. "Somebody on the IPA board is going to have to give up three or four hours a day to perform these functions," he says.
That level of commitment may be too much for some physicians, and they may sit back and wait to contract with hospital-led PSOs, Johnson says. But all physicians need to think about access to the Medicare population. "Some will stay as is (in traditional fee-for-service), and some will try to contract with other PSOs," he says. "But PSOs are an opportunity for physicians who really want to take advantage of it and can get their act together to do it."