FLORIDA MEDICARE RISK PSO FORCED TO CLOSE DUE TO LOSSES

The first Medicare provider-sponsored organization is calling it quits.

Florida Hospital Healthcare System, which began operating Florida Hospital Premier Care Jan. 1, 1997, notified the Health Care Financing Administration earlier this month that it will shut the PSO's doors Dec. 31, after less than two years of operation.

Florida Hospital Premier Care, which had 14,000 enrollees, is one of eight PSOs operating as part of the 13-plan "Medicare Choices" demonstration project. It was the first PSO to begin enrollment under the program.

Last year's balanced-budget law opened the PSO program to providers nationwide as one option available to seniors under the new Medicare + Choice program. It allows providers to contract directly with Medicare for care to beneficiaries.

Premier Care suffered "insurmountable financial losses," said FHHS President Richard Reiner, who declined to disclose exactly how much the plan lost. "We were spending more than we were bringing in, and you can't sustain that for very long."

Thomas Nickels, vp and deputy director of federal relations at the American Hospital Assn., said FHHS' decision is evidence that changes are needed in the new Medicare + Choice program.

"I don't think this means anything for PSOs. It is just another plan pulling out (of Medicare) for the same reasons," Mr. Nickels said. "This shows there are problems in the Medicare + Choice program across the board."

Only four PSOs have applied to HCFA for a federal waiver to begin enrolling beneficiaries next year.

The Florida plan's losses occurred partly because the PSO enrolled a population that is sicker, and as much as 10% more expensive, than expected, Mr. Reiner said.

Another factor was the slow growth of Medicare reimbursements over the past two years. Mr. Reiner said FHHS had expected Medicare reimbursements to increase 6% to 8% per year. The actual rate of increase was less than 2%, however. Meanwhile, medical costs, especially the cost of pharmaceuticals, were rising faster than expected.

Ironically, FHHS' complaints mirror those of traditional HMOs that have recently pulled out of the Medicare program.

A second Medicare Choices plan, partially owned by Ohio State University Medical Center in Columbus, also will pull the plug on its plan at year end, a HCFA spokeswoman said. None of the other seven PSOs in the demonstration project has contacted HCFA, and therefore will remain in the program, a HCFA spokesman said.

Kathy Buto, deputy director of HCFA's Center For Health Plans and Providers, said it was premature to conclude that changes need to be made to the Medicare + Choice system to make PSOs a more viable option.

"It's still too early to say what is happening with PSOs," she said. She added that because the rules for the Medicare + Choice program weren't released until June, "we didn't think there would be any (PSOs) in the pipeline at this time."

Eric Weissenstein is a reporter with Modern Healthcare, a sister publication of Business Insurance.