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Understanding the Alphabet Soup of Managed Care Integrated Delivery Systems

The New Kids on the Block

Medicare Provider-sponsored Organizations (PSOs) and Medicaid Managed Care Organizations (MCOs)


Robert F. Atlas, Senior Vice President, The Lewin Group, Fairfax, VA.

Joseph M. Millstone, Director Medical Care Policy Administration, Maryland Department of Health and Mental Hygiene.

This session examined several provisions of the Federal Balanced Budget Act that affect the ability of integrated delivery systems (IDSs to contract with publicly-sponsored health care financing programs.

Robert Atlas of The Lewin Group described the provisions of the Act that enable provider-sponsored organizations (PSOs) to enter into risk contracts to cover Medicare beneficiaries as part of the new Medicare+Choice program. He described the objective of the Medicare+Choice program as opening up new coverage alternatives for Medicare beneficiaries, including managed care options and a limited medical savings account option. He then described the rules allowing integrated delivery systems that qualify as "provider-sponsored organizations" (PSOs) to provide care to Medicare beneficiaries on a risk basis, including provisions concerning State licensure requirements for these entities. Mr. Atlas discussed the pros and cons of entering into Medicare risk contracts from a PSO perspective, emphasizing the sensitivity of Medicare managed care penetration and plan participation to capitated payment levels.

The session also explored other provisions of the Balanced Budget Act that provide greater flexibility for States to contract with managed care entities, including integrated delivery systems, that serve only Medicaid recipients. A number of the IDS-related issues that States might encounter were highlighted through a discussion of the experiences of Maryland, one of the few States that currently contracts with IDS on a risk basis to cover its Medicaid population.

Joe Millstone from the Maryland Medicaid program explained that this contracting effort took place as part of the State's managed care program authorized under a federal research and demonstration waiver (a Section 1115 waiver). When that program was first developed, several integrated delivery systems in the State—which included a number of providers that had historically provided a significant amount of care to Medicaid recipients—expressed an interest in participating in the managed care initiative and contracting with the State on a capitated basis.

While Maryland Medicaid did provide these entities with some financial assistance in meeting the State's financial solvency requirements for health maintenance organizations (HMOs), the State in general pursued a "level playing field" approach, requiring these entities to meet the same standards for participation in the Medicaid managed care program that traditional HMOs would have to meet. These standards were often more stringent that the State's HMO licensure requirements and established requirements in such areas as:

  • Network composition.
  • Case management.
  • Provider credentialing.
  • Quality reviews.
  • Data and reporting requirements.

Mr. Millstone noted that Maryland Medicaid is pleased with the outcome of its policies with respect to contracting with IDSs, noting that it has promoted new competition, which ultimately should benefit program recipients.


Atlas RF, Costanza PK. Much Ado About PSOs. Journal of Compensation and Benefits July/August 1998:41-4.

Atlas RF, Costanza PK. Provider-Sponsored Organization: Yes or No? American Journal of Integrated Healthcare 1(2), Winter 1998.

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