Only a handful of providers met HCFA's Aug. 1 deadline for submitting waiver requests to become provider-sponsored organizations, but providers and consultants believe interest in forming PSOs remains high.
"We still see a tremendous amount of activity," says Sandy Wolff, practice leader for health plans and provider consulting at Buck Consultants in Los Angeles. "I don't think there's been any loss of interest." Last month, for example, hundreds of people attended a HCFA informational meeting in Los Angeles for providers, Wolff says.
The numbers seem to suggest otherwise. Only three providers had requested federal waivers as of July 31, according to Shawn Hanson, a HCFA spokeswoman. And the only one to be approved so far is St. Joseph Healthcare, Albuquerque, N.M. HCFA would not disclose the names of the other two providers but says it will make a decision on their applications by first-quarter 1999.
Providers that want to be operational by Jan. 1, 1999, were required to submit waiver requests by Aug. 1. The Balanced Budget Act of 1997 requires risk-bearing organizations to hold a state license in order to participate in Medicare+Choice. As its name implies, the program aims to provide new Medicare managed-care options to beneficiaries. But the law carved out an exception for PSOs, which can seek a waiver from the federal government if they are denied state licensure. Earlier in the year, consultants predicted a glut of applications.
Wolff ascribes the seeming lack of interest in PSOs to the fact that HCFA's final rules were delayed until late June, leaving providers little time to study them. In addition, she says, the time involved in the application process may mask pent-up provider interest. Before providers can request federal waivers they must apply to state regulators, wait until their applications are deemed complete and then wait again until their applications are rejected.
Reece Hirsch, a partner at law firm Davis Wright Tremaine in San Francisco, agrees. "As more information comes out and physicians consider the hoops, we'll be seeing a lot more PSO applications over the next year," Hirsch says. "The original (HCFA) time frame was extremely aggressive."
Another reason for the lack of federal waiver requests is many providers fear they will alienate the state regulators who ultimately will oversee them, says Jacque Sokolov, M.D., chief executive officer of PSO Development Corp., a Los Angeles-based consulting firm.
"All these PSOs have to be regulated anyway after three years (by the states)," Sokolov says. "There was a real concern that you didn't want to irritate the people you have to play ball with" by going to HCFA. Sokolov's firm helped St. Joseph get its waiver.
States, for their part, have been acting more quickly to approve PSO applications out of fear that -- at least temporarily -- they were going to lose regulatory oversight. Their speed eliminated the need to apply for the federal waiver, Sokolov says.
Some providers are delaying going forward with PSOs and instead are choosing to become HMOs, he says.
In a regulatory sense, the differences between PSOs and HMOs aren't that great, according to Hirsch. Both groups are required to meet strict solvency standards.
However, the record of health plans in the Medicare market is decidedly mixed.
For example, United HealthCare Corp. in early August announced that it would take a $900 million charge, in part to reflect losses in its Medicare businesses, and PacifiCare Health Systems has pulled out of certain Medicare markets in Oregon and Utah. Still, the number of plans participating in Medicare has grown to 346 in June from 218 in 1996, according to HCFA.
Some providers are considering both the PSO and HMO track. Others may choose neither route because they're already in this business through the capitation they get from HMOs and other Medicare risk payers, says Tom Dingledy, a spokesman for MedPartners in Birmingham, Ala.
Wolff agrees: "The public companies already have a significant piece of the (medical) capitation market. There's not too much interest in (garnering) the administrative portion."
Another potential problem is some providers "fear . . . that they'll be boycotted by the plans," Wolff says.
That's not a problem for St. Joseph, says Janice Torrez, president of its PSO.
"We want to have partnerships with FHP" Health Plan, a unit of PacifiCare, Torrez says. When St. Joseph told FHP it was setting up a PSO, it "didn't have a problem with it," she says.
St. Joseph is, however, taking advantage of uncertainty among some competing providers. "There's still a lot of ambiguity," Torrez says. "It's a benefit for us because it gives us an opportunity" to set the terms of the local playing field, she says.
Torrez adds that St. Joseph enjoys a large share of the Medicare market in the region and has signed up 350 doctors to participate in the PSO -- a clear sign of physician interest. Doctors will be offered equity stakes in the venture, which plans to see its first patient Jan. 1. For some of them, however, control over how they practice is even more important.
"We'll be involved to a high degree in administrative governance as well as medical management," says Jeffrey Ross, M.D., an independent practitioner and infectious disease specialist who joined the PSO. "To me, the important thing is that doctors gripe a lot about HMOs. . . . This is a chance for practicing physicians to be involved from day one." Ross, however, admits that not all his colleagues share his optimism.
Torrez says St. Joseph recognizes the importance of doctors being in control of PSO development. Area physicians serve on a variety of committees, including setting up health management guidelines. St. Joseph hopes to expand the PSO statewide after it executes its four-county business strategy.
Sokolov says providers must plan their Medicare+Choice strategy in detail, with projected revenue streams at the forefront of their thinking. Reimbursement rates for Medicare+Choice plans, including PSOs, are 10% to 15% higher than DRG rates, he says. That increase and specific market conditions will drive the decision about whether providers should create PSOs, PPOs, HMOs, medical savings accounts or other combinations.