Medicare provider-sponsored organizations have been slow to get off the ground, and the state of North Carolina wants to move things along.
The state has become one of the first to encourage PSO formation by passing a law that allows the organizations to operate under the supervison of the state Department of Health and Human Services. The agency is seen as more lenient than the state insurance department, which oversees other types of health plans.
Traditional health insurers, including HMOs, will continue to be regulated by the insurance department.
The new state law also lessens solvency and net-worth requirements for PSOs. Hospitals and other providers can put up their own facilities and assets to meet the requirements. Health insurers, on the other hand, must meet those requirements with cash.
Starting Jan. 1, hospitals and other providers across the country can form PSOs to directly contract with Medicare for care to beneficiaries.
To date, only a handful of PSOs have been formed, largely because hospitals and others are concerned about adequate reimbursement rates from Medicare.
"We wanted to address the differences between PSOs and HMOs," said Thomas Stukes, an attorney with Smith Helms Mulliss & Moore in Greensboro, N.C., who helped draft the North Carolina legislation. "(The Department of Health and Human Services) licenses providers and manages and administers Medicaid, so we thought it was a natural choice for licensing PSOs."
The state insurance department approves health plans' design and rates. Under Medicare+Choice, the new federal program under which PSOs fall, those decisions are made by HCFA, Stukes said.
However, the insurance department will advise the Health and Human Services Department on PSOs until Jan. 1, 2000.
The law, passed late last month, requires the insurance department to review PSOs' license applications to determine compliance with fiscal requirements.
It also allows the insurance department to recommend the suspension, revocation or nonrenewal of a PSO's license for failure to meet financial reserve requirements.
The North Carolina Hospital Association supported the measure, which was intended to encourage hospitals to enter the world of Medicare managed care. There are 122 acute-care hospitals in the state.
PSO formation could also act as a springboard into Medicaid managed care, which has piqued the interest of many providers in rural areas, said Hugh Tilson, associate general counsel and state government liaison for the NCHA.
"It creates a lot of opportunities for providers," Stukes said. "PSOs are now limited to Medicare, but in the rural markets there will be interest in Medicaid PSOs. It's potentially a competitive product, competing with commercial HMOs."
Despite the positive attitude in North Carolina, the PSO movement is struggling to get off the ground.
Last month, for example, Florida Hospital Premier Care became the first PSO to announce it will cease operations (Oct. 12, p. 8). It was the first PSO to begin enrollment under the Medicare demonstration project "Medicare Choices."
The reasons for the PSO's failure include the slow growth of Medicare reimbursements and the high costs of caring for a sicker enrollee population. It will close its doors at the end of the year.