Nation’s Only Medicare PSO Under Rubble of M+C Pullout

There was a time when provider-sponsored organizations were the government's great hope for the spread of managed Medicare. But less than three years later, the nation's only Medicare PSO is cashing it in.

And no PSO applications are pending with the Health Care Financing Administration.

Albuquerque, N.M.-based St. Joseph Healthcare sponsored the only PSO to earn a HCFA waiver of state licensure requirements. Now, St. Joseph's PSO is among the Medicare+ Choice plans that will cease operations Dec. 31. And the refrain is familiar: Blaming low capitation rates, St. Joseph officials say they can't afford to lose any more than the $6 million already gone since the program went live last year.

PSOs are a risk-sharing venture involving physicians and hospitals. Comfortable with risk at the time it began operations and no stranger to low Medicare capitation rates, St. Joseph officials told Managed Care in November 1998 they expected the PSO to break even “a few years down the road.”

As for the lack of PSO applications, health care observers say providers are holding back for many reasons, capitation rates aside. By some estimates, PSOs should be prepared to run a medical-loss ratio of over 100 percent the first year. Add high capitalization costs, and you get a sense that only those with deep pockets — a rarity among providers these days — need apply.