As HCFA nears the completion of its PSO final regulation, which will let provider-sponsored organizations get down to business at last, its group of test cases is enduring growing pains.
MODERN HEALTHCARE interviewed six of the eight PSOs operating under HCFA's Medicare Choices demonstration project; representatives of two could not be reached. All six PSOs interviewed said they are pleased with the experience, but their PSO education hasn't come cheaply or easily.
The oldest of the PSOs is Florida Hospital Healthcare System in Orlando, which has been enrolling Medicare beneficiaries since March 1997. The baby of the family is St. Joseph's Health System in Atlanta, which was formally approved in April and shortly after began enrollment.
The Medicare Choices program was publicized beginning in 1996 as a way to give beneficiaries more health plan options. HCFA received nearly 400 applicants, which were whittled to 25 finalists. Of those, the eight PSOs and five managed-care plans (HMOs, PPOs or hybrids) have become operational. The remainder opted out of the program for a variety of reasons, the most common being the costs of collecting data required by HCFA.
The demonstrations test a wide variety of healthcare delivery and financing systems. And they are an opportunity for HCFA to experiment with new forms of payment. For example, the St. Joseph's Health System PSO is among the PSOs and other plans that are using a new risk-adjustment method. Basically a formula that takes into account several factors to more closely match payment to membership health status, the risk-adjustment method may be extended to other plans in the future.
In addition, HCFA requires the plans participating in its Medicare Choices demonstration to provide more information than now is required of Medicare-certified plans. Many of the data requirements, however, eventually are likely to be expanded to all Medicare providers.
From HCFA's standpoint, it's too early to tell if the demonstrations are a success. According to a HCFA spokeswoman, the data are beginning to trickle in, and so far "it has generally been a pretty good experience."
Tough job. For the PSOs, the adventure has taught some important lessons.
"This is a little harder to do than we expected; it is not a piece of cake," says Roger Burke, vice president of managed-care business development at Tenet Healthcare Corp., Santa Barbara, Calif., which runs a PSO called the People's Health Network/Tenet Choices 65 in New Orleans. The PSO is jointly owned by Tenet and six local physician groups.
Some of the PSOs contacted by MODERN HEALTHCARE said the start-up costs were more than anticipated. Tenet spent more than $5 million getting a state license and developing a product, according to Roger Friend, Tenet's director of PSO development. Friend spoke about Tenet's experiences earlier this month at the National Congress on Medicare+Choice held in Washington. Medicare+Choice will be the full national rollout of the Medicare Choices experiment.
Tenet expects to recoup its investment costs within the first 22 months of operations, Burke says. The plan, which began operating in May 1997, has 2,100 enrollees so far.
Other PSOs say it will take longer to recoup their investments. St. Joseph's spent nearly $3 million, according to Thomas Flora, chief executive officer of St. Joseph's Care Management, which runs the PSO. The system expects to lose $7 million to $8 million over the next three years. It will take St. Joseph's as long as five years to recoup its investment "under good circumstances," Flora says.
For those PSOs up and running, the operating results were positive. For example, Mount Carmel Health Plan in Columbus, Ohio, operated by 929-bed Mount Carmel Health System, has average monthly medical expenses of about $388 per enrollee, about $10 less than budgeted. Administrative expenses, projected to be more than $100 per enrollee per month, have run about $66, said CEO Mark Richardson, also speaking at the Medicare+Choice congress. The plan, which began enrollment in April 1997, has about 6,300 members.
Enrollment riches. Nearly all the PSOs say finding beneficiaries willing to enroll has not been a problem.
Florida Hospital Healthcare System has about 14,000 enrollees and has been adding about 400 new enrollees a month, says Leslie Aldrich, director of sales and marketing. At the same time, the plan loses between 100 and 150 enrollees a month, a disenrollment rate of about 5%. Studies have shown the average disenrollment rate for Medicare HMOs is 8% to 10%.
The Tenet PSO in New Orleans has had trouble reaching its goal of adding 500 new enrollees a month but has seen an increase after it switched advertising firms from a national firm to a local one earlier this year, Burke says. The PSO now is near its monthly enrollment goals, Burke says, but he declined to provide specifics.
Health Partners, a PSO in Philadelphia run by a consortium of seven area hospitals, began enrollment in May 1997 and now has about 2,500 enrollees. Its new enrollment has leveled off at about 300 a month, according to Jonathon Aistrop, vice president of medicine. Disenrollment is less than 3%.
One dark cloud on the enrollment horizon reported by several PSOs is that they are enrolling a disproportionately high number of low-income beneficiaries.
"We're not sure what to make of it, but (the PSOs) seem to be getting adversely selected against," says Kathleen Buto, deputy director of HCFA's Center for Health Plans and Providers.
Other problems. There have been other areas of concern for the fledgling PSOs. Most report difficulties modifying their information systems to capture the new data required by HCFA.
Some, like Tenet, have had advertising missteps. Others have found the paperwork associated with the venture to be overwhelming. St. Joseph's devoted four people full time to preparing its application, which topped 14,000 pages.
There have been positives as well. Asked about the benefits of PSOs, plans said they have developed better working relationships with their physicians because of the PSO structure. "We have really learned a lot about having the doctor involved in the ownership," Burke says. "The cooperation is just terrific compared to other structures."