After months of often quarrelsome negotiations, the committee developing financial solvency standards for provider-sponsored organizations reached an agreement last week, which panel members say will allow financially strong PSOs to operate while keeping weaker organizations out of the market.
The process now moves to HCFA and the states.
Under last year's balanced-budget law, HCFA has until April 1 to flesh out the skeletal accord reached by the committee (See chart, p. 6).
States must decide whether to adopt the federal PSO solvency standards when they are completed. Under last year's balanced-budget law that created PSOs, an organization can apply to the federal government for a waiver of its state license only under certain conditions. The two most likely are if the PSO can prove the state solvency requirements are stricter than the federal standards or if a state fails to act on the PSO's application within 90 days.
PSOs are networks of hospitals and physicians that can contract directly with Medicare to care for beneficiaries. The prospect of doing business with the country's largest public payer has many providers lining up their PSO strategies, with Kaiser Permanente's physicians being the latest (See story, p. 6).
Last week's agreement surprised many of the committee members.
"I never thought we could reach consensus," said one committee member, who requested anonymity. "Everyone seemed so entrenched in their positions."
One effect of the consensus is that the 15 members of the committee, including the American Hospital Association, the Federation of American Health Systems, the American Medical Association, the Blue Cross and Blue Shield Association and the American Medical Group Association, cannot make negative comments about the compromise. In joining the committee, the groups signed a letter saying that if a consensus was reached, they couldn't criticize it publicly.
But even without that stipulation, most of the groups involved seemed genuinely happy with the measure.
"While it is not utopia, it is clearly a workable standard," said Ellen Pryga, the AHA's representative on the committee.
Susan Nestor, the Blues' representative on the committee agreed. "These standards are sufficient to protect the consumer and have adequate financial standards, so we aren't creating a message to PSOs that they can enter the market with minimal standards. They will have to meet some serious financial standards."
James Scott, president of the Premier Institute in Washington, said the new standards "are appropriate for the kinds of organizations we want to form," Scott said. "They are rigorous, some would say too rigorous, but you don't want (just anyone) starting a PSO. Nobody is served by a PSO bankruptcy."
There remains one outstanding issue. The compromise includes a provision that requires HCFA to consider lowering the financial solvency requirements for PSOs in rural areas and allows the committee members to offer their comments.