Medical groups need to carefully think through their strategies before they rush to create managed care ventures that could make the backlash against HMOs appear as pleasant as a four-day weekend.
At first blush, the development of a provider-sponsored organization seems to be a financially savvy choice for a physician-led organization trying to position itself for future success. The idea behind PSOs is that, when successful, they will sweep aside managed care companies by allowing buyers and sellers of healthcare services to contract directly for Medicare services based on quality and value.
In Minnesota, the Buyers Health Care Action group is undertaking a tantalizing experiment to eliminate the middleman through direct contracting. But other recent experiences show that caution is in order for organizations seeking to take on more insurance risk.
Even giant managed care companies like Oxford Health Plans and Kaiser Permanente have been struggling to resolve the conflict over providing consumers with choice while keeping costs under control. The task can be more difficult for medical organizations that traditionally place more focus on revenues than on costs.
For example, in 1997 hospital-owned HMOs in Kansas City and New Orleans lost $14.1 million and $30 million respectively, despite growing revenues. Unified Physicians of Federal Way, Wash., a 44,000-enrollee managed care started by the state medical association, fell under state supervision last year after tumbling more than $435,000 into the red.
Yes, medical organizations can take on risk, but they need to develop strong brand awareness and brand credibility in the market. Plus, they need access to capital ($2 million or more) and expertise in medical management, marketing and claims payment. And they must be willing to take the heat that will come with the inevitable decisions to restrict costly care.
Accepting risk has long-term implications. Without the proper preparation, PSO could end up standing for a lot of things: How about Prematurely Stymied Operation?