WASHINGTON -- One of the biggest fights over Medicare's future
isn't between President Clinton and Congress, but between doctors
hospitals on one hand and insurance companies and health maintenance
organizations on the other.
At issue are proposed laws that would allow Medicare to contract
with networks of doctors and hospitals doing business as provider
sponsored organizations (PSOs) under different rules from those
governing health maintenance organizations (HMOs).
More than 13 percent of the 38 million Medicare beneficiaries are
in HMOs. Congress and the administration want to increase Medicare
participation in managed care and offer beneficiaries a broader
of systems to choose from. One such system is PSOs.
HMOs and PSOs both provide medical care to their members for a
flat fee regardless of how much care a member uses. To make a
profit, they bet that high costs incurred by one member will be
offset by the low costs of other members. They risk losing money if
their costs exceed their income.
The difference between HMOs and PSOs is ownership. HMOs are
usually owned by insurance companies, while PSOs are owned directly
by doctors and hospitals. About 14 percent of the nation's more than
600 licensed HMOs are actually PSOs, according to the Blue Cross and
Blue Shield Association.
The congressional battle is over creating a new form of Medicare-
only PSOs. They would differ from Medicare HMOs in two important
ways: they would be exempt from state certification requirements
until 2002, and exempt from the federal rule that at least half of
their members be non-Medicare enrollees.
Insurance companies argue that since HMOs and Medicare PSOs both
assume a risk in covering patients for a flat fee, they should be
treated equally. They say exempting PSOs from state HMO regulations
could jeopardize consumer protections and give the PSOs an unfair
One reason for that advantage pertains to how PSOs would show they
Typically, HMOs must have $1.5 million in cash assets to receive
state certification. Under legislation introduced by Sens. Bill
Frist, R-Tenn., and Jay Rockefeller, D-W.Va., PSOs could count
buildings and equipment to meet the solvency requirement.
Although those requirements were suggested by the National
Association of Insurance Commissioners (NAIC), insurance companies
fighting the PSO battle don't think that's a good idea.
"If they're running into financial trouble, they're not going to
be able to go out and sell an X-ray machine to pay claims," said
Melody Harned, federal affairs counsel for the Health Insurance
Association of America.
Without adequate cash reserves, a PSO -- particularly in a rural
area -- could run into financial difficulty if too many of its
enrollees needed to go outside the organization for high-cost
treatment, such as a heart transplant, said Susan Nestor, executive
director of policy for the Blue Cross and Blue Shield Association.
PSO supporters argue that their organizations are different from
HMOs because PSOs are health providers engaged in treating patients,
while HMOs are insurance companies that invest in stocks, bonds and
other liquid assets.
A federal exemption from state solvency regulations is needed
because "state regulations do not fit the operations of health care
providers," Dr. Donald T. Lewers, an American Medical Association
trustee, told the Senate Finance Committee this month. …