HCFA late last week previewed its soon-to-be-released rules defining a provider-sponsored organization, and provider groups liked what they saw.
Under last year's federal balanced-budget law, a PSO will be able to directly contract with Medicare for care to beneficiaries in 1999. The definition of a PSO is considered critical to the program's success.
Providers say a restrictive definition would keep many providers out of the PSO market, but insurers say a broad definition could lead to fly-by-night operators.
HCFA's thoughts on the PSO definition came out at last week's meeting in Washington of the committee charged with drafting solvency standards for PSOs. A HCFA official said the final definition would be released in February.
As expected, HCFA said a PSO's providers must control at least 51% of the equity of a for-profit PSO or must have a controlling interest on the board of a not-for-profit PSO. In a surprise move, however, HCFA said the controlling interest may be held by only one provider.
Until last week, it was thought that HCFA would require all of a PSO's providers to have an ownership interest in the PSO. But HCFA changed its mind and decided that any subset, or even a single provider, can have the controlling interest and a PSO still will qualify for federal certification.
A PSO will be required to demonstrate that at least 70% of its services are offered by affiliated providers. The remaining services can be offered through contracts with other providers. For PSOs in rural areas, the threshold will be 60%.
HCFA said the new rules will be loose enough to allow many types of provider arrangements, as long as the providers share "substantial financial risk." While HCFA did not completely define substantial risk, it said several types of scenarios would qualify, including capitation and withholding arrangements.
HCFA's definition generally is good news for providers because it allows a variety of provider combinations, an important factor in healthcare's rapidly changing world.
On a related front, the 14 members of the solvency committee have reached a general agreement that PSOs must have at least $1.5 million in reserve to satifsy PSO solvency requirements. The panel is scheduled to present HCFA with a consensus report by March 1.