The final round of drafting financial solvency standards for provider-sponsored organizations has exposed a little-noticed industry rift between large hospitals and smaller providers such as rural hospitals and physician groups.
Until now, the spotlight has been on the conflict between healthcare providers that want to get into the health coverage business and the insurance industry, which would prefer to keep that action to itself. But as a Washington advisory committee on solvency standards meets for the last time this week, it has become clear that what's good for large hospitals and hospital chains isn't necessarily good for their smaller cousins.
The split became apparent as HCFA officials presented the agency's latest proposal to the committee. HCFA's plan would require PSOs to have a net worth of $1.5 million at the outset. Of that, at least $750 million would have to be in cash. In addition, the PSO would have to have enough cash to cover the first six months of projected losses (Feb. 23, p. 4). Add to that the $100,00 to $300,000 all Medicare plans must put up for "administrative deposits," and the final tally is more than $1 million in upfront money for each PSO.
PSOs would be able to count "healthcare delivery assets," meaning buildings and machines, for half of the $1.5 million. However, HCFA would allow only about 10% of other intangible assets, such as goodwill or physician networks, into the equation.
By law, HCFA must publish new solvency standards by April 1.
Most provider group representatives on the 14-member panel, including those from the American Hospital Association and the Federation of American Health Systems, have been largely positive about the potential compromise. But rural hospitals and some physician groups see the plan as barring their entry in the PSO game.
Bruce Amunson, representing the National Rural Health Association, said the HCFA proposal would require so much cash that rural hospitals probably would not be able to create a PSO on their own.
Yvonne Sonnenberg, representing two independent practice association groups, and Edward Hirshfeld, of the American Medical Association, said that unless physicians can count intangible assets toward the net worth requirement, they will be effectively barred from the market.
The split has exposed something that has been just below the surface since the committee's deliberations began. Privately, hospital group representatives acknowledge that they have some incentive to make the solvency rules tough enough that only they are able to play. Generally speaking, the large hospitals have enough cash and hard assets to meet virtually any financial requirement. It is the physician groups and the small rural hospitals that need more favorable solvency standards.
"It is far easier for a hospital to meet the solvency standards, particularly if you allow credit for bricks and mortar," said James Jorling, a healthcare attorney with Gardner, Carton and Douglas in Washington. "This would put physicians in a disadvantaged position."