Provider-sponsored health plans came on like a gold rush but never quite panned out. The concept of provider-owned HMOs emerged in the '80s, largely in reaction to the tightening grip of managed care. By offering their own insurance products, doctors and hospitals figured they could escape insurers' onerous cost-cutting tacticsâsuch as pre-approval requirements and provider profilingâwhile preserving control over their medical decisionmaking, patient volumes and premium dollars.
In 1989, the National Health Policy Council recommended that provider-run plans be allowed to carry the full risk for medical claims and contract directly with employers. The Clinton administration advanced the concept during the healthcare-reform debate of the early '90s, and in 1995 included "provider-sponsored networks" in the federal budget for the first time. Congress endorsed the concept and took it a step further, redefining the health plans as "provider-sponsored organizations" and allowing them to contract directly with Medicare under the Balanced Budget Act of 1997. Reasoning that PSOs would attract more seniors into managed care, Congress offered them regulatory relief in the form of lower minimum enrollment requirements than other Medicare+Choice plans and temporary waivers of state licensing requirementsâmuch to the chagrin of large insurers.
Those incentives prompted droves of doctors and hospitals to try their hand at the insurance business, with many targeting largely untapped rural areas. By 1996, nearly 3,300 provider-owned health plans were in operation nationwide, according to the American Hospital Association.
But it wasn't long before many providers began to realize they lacked the insurance savvy needed to make the business work. Short on capital and lacking experience in underwriting, claims processing and marketing, many provider-owned plans never broke even.