Provider sponsored organizations and provider service networks--rationale and regulation

When a provider accepts capitation from a health plan for a pool of patients, it assumes risk from the plan. The risk is that the cost of furnishing health care needed by the patients may exceed the funds paid to the provider by the health plan. There are several levels of risk. The first level is capitation arrangements for services rendered by the provider. The next level is capitation arrangements where the provider assumes risk not only for its own services, but also the services of other providers. As the number of services of other providers for which risk is assumed increases, the risk-taking provider comes closer and closer to assuming risk for the entire benefits package. At some point, it makes sense for the risk-taking provider to become a licensed health plan. As providers become more capable in managing large amounts of risk, they become more interested in organizing health plans.