The Council’s value was as a regular public forum for discussion of issues pertinent to the PSRO program. The public meetings were extremely well attended, fostered both formal and informal interaction among the Council, public attendees, and staff, and permitted timely information to be published in the lay press concerning program direction. The Council provided, albeit imperfectly, for some accountability of the program, and it gave some opportunity for early review and consideration of program plans and advice to HCFA by a well-disposed, but external, group of experts.

Sanctions and Regulatory Orientation

PSROs were perceived as essentially regulatory mechanisms for controlling medical practice. HCFA (1980), for instance, characterized PSROs as “formalized externally authorized and mandated local physician organizations expected to function as a regulatory system exercising control via performance evaluations tied to financial and professional sanctions” (p. 141).

The PSRO program was hampered by its relatively limited ability to act on this presumed regulatory power and to bring or recommend sanctions against providers. Aggressive PSROs initiated sanctions generally the way PROs do now, except that sanctions were pursued internally at HCFA, not by the Office of Inspector General (OIG), and with similar results (e.g., very high costs and reversals at the level of administrative law judges). Furthermore, hospitals and other providers were assumed to have a favorable “waiver of liability” status. PSROs could only recommend to the relevant FI that the waiver be revoked, but the decision to do so resided with the FI.4 In principle, the PROs have a considerably stronger hand in sanctioning physicians and hospitals than did the PSROs, in part because sanctions are now pursued through the OIG and in part because the waiver of liability issue has been muted. In practice (as will be seen), their regulatory power has not been demonstrably enhanced.

To gain the acceptance of the provider community in the early years, some congressional supporters and some executive branch directors of the program emphasized the quality-of-care (rather than the cost-control) thrust of the program (Blumstein, 1976). In quality assurance terms, this translated into an “educational” rather than a “regulatory” program. The ambiguity inherent in an “educational-regulatory” stance was never successfully resolved.

More importantly, a considerable ambiguity arose in the conflicting emphases on containing costs while maintaining quality. The framers of the PSRO legislation and program intended primarily that it lower the inappropriate or unnecessary use of services, as the alarming increase in the cost of medical care at that time was assumed to arise largely from overuse of services. Evaluations at the time were focused mainly on PSRO impacts on costs; for instance, from the General Accounting Office (GAO) in 1979



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