Federal Law

Title 42-Chapter IV-Subchapter B-Part 422-Subpart H. Provider-Sponsored Organizations

08/30/2023 Sections 42 CFR 422.352, 422.354, 422.356 and 422.378

Basic requirements; Requirements for affiliated providers; Determining substantial financial risk and majority financial interest; Relationship to State law.

Preemption-Medicare Advantage, Risk-Physicians Taking-Med. Adv.

All of the regulations below fall under the category “Risk-Physicians Taking.”  See the bold text to find the specific section that falls under the category “Preemption-Medicare Advantage.”

42 CFR 422.352   Basic requirements.

(a) General rule. An organization is considered a PSO for purposes of a MA contract if the organization—

(1) Has obtained a waiver of State licensure as provided for under §422.370;

(2) Meets the definition of a PSO set forth in §422.350 and other applicable requirements of this subpart; and

(3) Is effectively controlled by the provider or, in the case of a group, by one or more of the affiliated providers that established and operate the PSO.

(b) Provision of services. A PSO must demonstrate to CMS’s satisfaction that it is capable of delivering to Medicare enrollees the range of services required under a contract with CMS. Each PSO must deliver a substantial proportion of those services directly through the provider or the affiliated providers responsible for operating the PSO. Substantial proportion means—

(1) For a non-rural PSO, not less than 70% of Medicare services covered under the contract.

(2) For a rural PSO, not less than 60% of Medicare services covered under the contract.

(c) Rural PSO. To qualify as a rural PSO, a PSO must—

(1) Demonstrate to CMS that—

(i) It has available in the rural area, as defined in §412.62(f) of this chapter, routine services including but not limited to primary care, routine specialty care, and emergency services; and

(ii) The level of use of providers outside the rural area is consistent with general referral patterns for the area; and

(2) Enroll Medicare beneficiaries, the majority of which reside in the rural area the PSO serves.

See https://www.ecfr.gov/cgi-bin/text-idx?SID=a1c5e7bdd69183765b66f39e2833578d&mc=true&node=pt42.3.422&rgn=div5

42 CFR 422.354 Requirements for affiliated providers

A PSO that consists of two or more providers must demonstrate to CMS’S satisfaction that it meets the following requirements:

(a) The providers are affiliated. For purposes of this subpart, providers are affiliated if, through contract, ownership, or otherwise—

(1) One provider, directly or indirectly, controls, is controlled by, or is under common control with another;

(2) Each provider is part of a lawful combination under which each shares substantial financial risk in connection with the PSO’s operations;

(3) Both, or all, providers are part of a controlled group of corporations under section 1563 of the Internal Revenue Code of 1986; or

(4) Both, or all, providers are part of an affiliated service group under section 414 of that Code.

(b) Each affiliated provider of the PSO shares, directly or indirectly, substantial financial risk for the furnishing of services the PSO is obligated to provide under the contract.

(c) Affiliated providers, as a whole or in part, have at least a majority financial interest in the PSO.

(d) For purposes of paragraph(a)(1) of this section, control is presumed to exist if one party, directly or indirectly, owns, controls, or holds the power to vote, or proxies for, not less than 51 percent of the voting rights or governance right of another.

See https://www.ecfr.gov/cgi-bin/text-idx?SID=a1c5e7bdd69183765b66f39e2833578d&mc=true&node=pt42.3.422&rgn=div5

42 CFR 422.356 Determining substantial financial risk and majority financial interest

(a) Determining substantial financial risk. The PSO must demonstrate to CMS’s satisfaction that it apportions a significant part of the financial risk of the PSO enterprise under the MA contract to each affiliated provider. The PSO must demonstrate that the financial arrangements among its affiliated providers constitute “substantial” risk in the PSO for each affiliated provider. The following mechanisms may constitute risk-sharing arrangements, and may have to be used in combination to demonstrate substantial financial risk in the PSO enterprise.

(1) Agreement by a provider to accept capitation payment for each Medicare enrollee.

(2) Agreement by a provider to accept as payment a predetermined percentage of the PSO premium or the PSO’s revenue.

(3) The PSO’s use of significant financial incentives for its affiliated providers, with the aim of achieving utilization management and cost containment goals. Permissible methods include the following:

(i) Affiliated providers agree to a withholding of a significant amount of the compensation due them, to be used for any of the following:

(A) To cover losses of the PSO.

(B) To cover losses of other affiliated providers.

(C) To be returned to the affiliated provider if the PSO meets its utilization management or cost containment goals for the specified time period.

(D) To be distributed among affiliated providers if the PSO meets its utilization management or cost-containment goals for the specified time period.

(ii) Affiliated providers agree to preestablished cost or utilization targets for the PSO and to subsequent significant financial rewards and penalties (which may include a reduction in payments to the provider) based on the PSO’s performance in meeting the targets.

(4) Other mechanisms that demonstrate significant shared financial risk.

(b) Determining majority financial interest. Majority financial interest means maintaining effective control of the PSO.

See https://www.ecfr.gov/cgi-bin/text-idx?SID=a1c5e7bdd69183765b66f39e2833578d&mc=true&node=pt42.3.422&rgn=div5

Preemption-Medicare Advantage

42 CFR 422.378  Relationship to State law

(a) Preemption of State law. Any provisions of State law that relate to the licensing of the organization and that prohibit the organization from providing coverage under a contract as specified in this subpart, are superseded.

(b) Consumer protection and quality standards. (1) A waiver of State licensure granted under this subpart is conditioned upon the organization’s compliance with all State consumer protection and quality standards that—

(i) Would apply to the organization if it were licensed under State law;

(ii) Generally apply to other MA organizations and plans in the State; and

(iii) Are consistent with the standards established under this part.

(2) The standards specified in paragraph (b)(1) of this section do not include any standard preempted under section 1856(b)(3)(B) of the Act.

(c) Incorporation into contract. In contracting with an organization that has a waiver of State licensure, CMS incorporates into the contract the requirements specified in paragraph (b) of this section.

(d) Enforcement. CMS may enter into an agreement with a State for the State to monitor and enforce compliance with the requirements specified in paragraph (b) of this section by an organization that has obtained a waiver under this subpart.

See https://www.ecfr.gov/cgi-bin/text-idx?SID=a1c5e7bdd69183765b66f39e2833578d&mc=true&node=pt42.3.422&rgn=div5