Medicare Laws Divide Providers, Insurers
Larry Lipman Cox News Service, THE JOURNAL RECORD
WASHINGTON -- One of the biggest fights over Medicare's future isn't between President Clinton and Congress, but between doctors and 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 range 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 marketing advantage. One reason for that advantage pertains to how PSOs would show they are solvent. 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. …