Hoping to catch the first wave of opportunity under the new provider-sponsored organization legislation, Tenet Healthcare Corp. is readying a national PSO strategy.
The Santa Barbara, Calif.-based healthcare company is studying about 18 markets and talking to insurers and HMOs about possible joint ventures, company officials told MODERN HEALTHCARE.
Tenet should have one to three PSO applications ready by July, said Roger Burke, vice president for managed-care business development.
HCFA has told all potential PSOs that they must have their applications in by summer if they want to be up and running by Jan. 1, 1999, the start date for the new PSO program. PSOs are provider-owned networks that contract directly with Medicare to enroll beneficiaries.
It appears Tenet is comfortable with the financial solvency standards for PSOs being created by a cross-industry committee in Washington.
While some provider groups, including independent practice associations and small rural hospitals, say the solvency standards are too strict, Tenet seems undaunted.
Barry Schochet, executive vice president of operations for Tenet, represents the Federation of American Health Systems on the PSO solvency committee. After the committee's most recent meeting last month, Schochet said the committee was "headed in the right direction."
The panel will meet for the last time this week.
Tenet already has some experience in the PSO market. Under a HCFA pilot project, Tenet has been running a PSO in New Orleans for more than a year. Roger Friend, who supervised that pilot project, will be moving to the company's Dallas office to work with Burke to explore PSOs. According to Tenet, the experiment in New Orleans has been a success it wants to duplicate in other markets.
The 124-hospital chain had 1997 revenues of $8.7 billion. It has one HMO, which serves a limited area in Northern California.
Working from a demographics study done for Tenet by Towers Perrin, the nation's second-largest for-profit healthcare corporation made an initial cut on about 24 potential PSO markets and then reduced the list to 18, Burke says.
Tenet will be looking at the number of Medicare beneficiaries and penetration and reimbursement levels in each market. The optimal market will probably be in a largely rural area that has about two to three hospitals, a solid integrated delivery system and some experience with managed care, Burke said.
"We don't want to be in the payer business; we want to position ourselves better in the marketplace," Burke said.
Tenet would be interested in partnering with physicians, other hospitals and other contractors like providers of home health services if a potential market is missing some piece that Tenet can't deliver itself, he said.
Meanwhile, talks started about three months ago with insurance companies and large HMOs to explore joint ventures or purchasing services from these providers on an a la carte basis, Burke said.
Creating PSO markets won't be cheap. Burke estimated each one would cost $3 million to $4 million just to be operational -- not including a minimum of $1 million more each organization will have to set aside to satisfy government solvency standards. Each PSO will need 20 to 24 months just to break even, Burke added.
The initial evaluations of the 18 markets should be complete within the next two to three months, Burke said, adding that while it may be a little optimistic, he hopes Tenet will submit one to three applications by the time HCFA issues its final rules in July. State applications should be ready at the same time.
Under the PSO law, which was created as part of last year's balanced-budget law, a PSO must first apply for a state license. If the state doesn't grant the license within 90 days or if the state's solvency standards are tougher than federal standards, the PSO can apply to HCFA for a three-year waiver.
The Congressional Budget Office estimates that by the year 2002, about 1 million seniors will be enrolled in PSOs.