HCFA released "interim final" rules last week defining provider-sponsored organizations, and providers hailed the rules as flexible enough to allow a wide variety of PSO structures as they had urged.
The regulations answers questions about relationships between members of a PSO, financial arrangements between the partners and who is eligible to own a PSO.
The rules are effective May 14. Comments will be considered through June 15 for possible modifications of the rules.
PSOs, created under last year's balanced-budget law, are provider-owned health plans that will be able to contract directly with HCFA to enroll Medicare beneficiaries beginning in 1999.
Provider groups had argued to HCFA that the rapidly changing world of healthcare meant that no two PSOs would look alike. They said the rules are good news.
"We didn't want providers boxed in," said Ellen Pryga, director of policy development for the American Hospital Association. "These rules have the flexibility to handle the scads of different types of organizational structures that will exist."
Under the rules, a PSO's affiliated providers must provide all the services the Medicare program requires.
The providers that make up the PSO must control at least 51% of the equity of a for-profit PSO or of the board of a not-for-profit PSO. There is no stipulation for how the 51% equity is reached, meaning one provider could have a controlling interest.
A PSO will be required to demonstrate at least 70% of all its services are offered by affiliated providers. The remaining services may be offered through contracts with other providers. For PSOs in rural areas, the threshold will be 60%.
According to HCFA, the 70% requirement means doctors and hospitals will have to work together to form a PSO.
The effect of the rules "will be to require some combination of physician and hospital affiliation in most if not all PSOs," HCFA wrote in the rules.
HCFA acknowledged that the new rules "may be closing off market opportunities for physician groups by in effect precluding them from establishing PSOs without hospital participation." But HCFA added it believes competitive forces will drive hospitals to enter partnerships.
The rules also will address which types of financial arrangements will be acceptable between providers. HCFA said that simply paying a provider a capitated rate does not mean it is an "affiliated provider." All PSO members, in order to be consider an "affiliated provider," must share in the overall profits and losses of the PSO.
In a related matter, HCFA sources said last week that the rules outlining financial solvency standards for PSOs might be published as early as this week. The solvency rules were due April 1.
It was developed by a 15-member committee of provider, insurer, managed-care and beneficiary groups. The solvency rules, once published, are expected to be final or interim final.