Definitions; Safe harbor and waiver; Requirements for downstream risk arrangements; Substantial insurance risk; substantial enrollment risk; Contractual provisions; Disclosure requirements for organizations with downstream risk arrangements; Requirements related to subcontracting arrangements; Downstream risk arrangements that exceed risk threshold described in section 4334; Contractual provisions to demonstrate financial viability; Financial viability; Limitations on premium transfer; Related provisions; Rules
This entire statute is categorized under the category “Risk-Physicians Taking.” See bold text below for additional, applicable categories.
Section 4331. Definitions
As used in this subchapter, unless the context otherwise indicates, the following terms have the following meanings.
1. Bonus. “Bonus” means a payment a carrier makes to a downstream entity beyond any salary, fee-for-service payment, capitation or returned withhold.
2. Capitation. “Capitation” means a set dollar payment per patient per unit of time, usually per month, that a carrier pays a health care practitioner, institutional provider or downstream entity to cover a specified set of services and administrative costs without regard to the actual number or nature of services provided. The services covered may include the downstream entity’s own services, referral services or all medical services.
3. Downstream entity. “Downstream entity” means a person other than a carrier that has assumed all or part of the insurance risk of one or more health plans under a contractual relationship with a carrier or another downstream entity. An employer exempt from the applicability of this chapter under the federal Employee Retirement Income Security Act of 1974, 29 United States Code, Sections 1001 to 1461 (1988) is not considered a downstream entity.
4. Downstream risk arrangement. “Downstream risk arrangement” means an arrangement that transfers insurance risk from a carrier to a downstream entity.
5. Payments. “Payments” means any amounts the carrier pays the downstream entity for services the downstream entity furnishes directly, plus amounts paid for administration and amounts paid in whole or in part based on use and costs of referral services such as withhold amounts, bonuses based on referral levels and any other compensation to the downstream entity to influence the use of referral services. Bonuses and other compensation that are not based on referral levels, such as bonuses based solely on quality of care furnished, patient satisfaction and participation on committees, are not considered payments for purposes of this subchapter.
6. Physician group. “Physician group” means a partnership, association, corporation, individual practice association or other group of physicians that distributes income from the practice among members. An individual practice association is a physician group only if the association is composed of individual physicians and has no subcontracts with physician groups.
7. Potential payments. “Potential payments” means the maximum anticipated total amount, based on the most recent year’s utilization and experience and any current or anticipated factors that may affect costs, to be paid for a defined set of referral services for the carrier’s subscribers and for which the downstream entity assumes by contract financial risk, to some extent, for the costs of such services. The methodology for determining potential payments must be filed by the carrier with the bureau.
8. Referral services. “Referral services” means any specialty, inpatient, outpatient or laboratory services that a downstream entity orders or arranges, but does not furnish directly.
9. Risk-sharing arrangement. “Risk-sharing arrangement” means an arrangement between a carrier and a downstream entity in which the carrier continues to pay providers for a defined set of services subject to an annual reconciliation process in which costs incurred by the carrier are compared with budgeted or targeted amounts for such services and that may, if payments are different than the budgeted amount, create financial liability of the downstream entity to the carrier or the carrier to the downstream entity provided the carrier holds or retains control of any funds in excess of those required to satisfy current claims obligations or direct payment to providers for services rendered pending reconciliation.
10. Risk threshold. “Risk threshold” means the maximum risk, if the risk is based on referral services, to which a downstream entity may be exposed under a downstream risk arrangement without being at substantial financial risk.
11. Withhold. “Withhold” means a percentage of payments or set dollar amounts that a carrier deducts from a downstream entity’s service fee, capitation or salary payment and that may or may not be returned to the downstream entity, depending on specific predetermined factors.
Section 4332. Safe harbor and waiver
1. Authority for safe harbor. Notwithstanding any other provisions of this Title or Title 24, including, without limitation, sections 4341 and 4342, an arrangement between a carrier and a downstream entity with which the carrier has contracted to provide or arrange for the provision of services that allows the downstream entity to accept a limited degree of insurance risk is permitted and such a risk arrangement is deemed not to be engaging in the business of insurance by the downstream entity if:
A. The arrangement does not involve substantial insurance risk or substantial enrollment risk as described in section 4334; and
B. The arrangement meets the requirements of sections 4335 and 4336.
2. Waiver for downstream risk arrangements that exceed risk threshold described in section 4334. Carriers and downstream entities that wish to develop downstream risk arrangements that exceed the risk threshold described in section 4334 may jointly request that the superintendent grant a waiver that allows the downstream entity to accept a limited degree of insurance risk without being licensed as an insurer, a health maintenance organization or an insurance administrator. The joint request for a waiver must include a plan for managing financial exposure, based upon reasonable enrollment and utilization projections and upon the contracts, parties and features proposed, sufficient to quantify in dollars per quarter and per annum all elements of downstream risk to be assumed by the downstream entity. All other risk arrangements are prohibited unless the arrangements meet the appropriate licensing standards or are expressly permitted by the superintendent.
3. Continuing obligation to subscribers. A carrier contracting with a downstream entity remains obligated to its subscribers for the delivery of health care benefits consistent with existing state law. The carrier remains responsible for compliance with all applicable laws.
Prohibited Financial Incentives
4. Certain incentives prohibited. A downstream risk arrangement may not contain incentives for the downstream entity or participating provider to limit or deny medically necessary care to enrollees.
5. Requirements still applicable. The application of the safe harbor provisions in subsection 1 or a waiver of licensing requirements granted pursuant to this section does not exempt the downstream entity from any other licensure or prior approval requirements applicable to activities conducted by the downstream entity, including, but not limited to, utilization review licensure, insurance administrator licensure or preferred provider arrangement registration.
Section 4333. Requirements for downstream risk arrangements
1. Permissible downstream risk arrangements. Downstream entities that do not exceed the risk threshold described in section 4334 may enter into downstream risk arrangements only if:
A. The requirements of section 4332, subsection 1 and sections 4335 and 4336 are met; and
Prohibited Financial Incentives
B. No specific payment is made directly or indirectly under the plan to a provider as an inducement to reduce or limit medically necessary services furnished to an enrollee.
2. Prohibited downstream risk payments. A specific payment of any kind may not be made directly or indirectly under the incentive plan to a downstream entity as an inducement to reduce or limit covered medically necessary services under the carrier’s contract furnished to an enrollee. Indirect payments include offerings of monetary value such as stock options or waivers of debt measured in the present or future.
3. Applicability. This section applies to risk arrangements between carriers and downstream entities with which they contract to provide medical services to enrollees. This section also applies to subcontracting arrangements.
Section 4334. Substantial insurance risk; substantial enrollment risk
1. Substantial insurance risk. Substantial insurance risk is risk based on the use or costs of referral services only, when the downstream entity is at risk for more than 25% of potential payments by the carrier to the downstream entity.
2. Substantial enrollment risk. Substantial enrollment risk exists when a carrier enters into a risk arrangement with a downstream entity involving more than 25% of the enrollees served by the carrier in the State unless the risk arrangement is a risk-sharing arrangement.
Section 4335. Contractual provisions
Full copies of contracts and summary descriptions of contracts must be provided to the superintendent. The following provisions must be included in contracts between a carrier and a downstream entity:
1. Enrollee not liable. A provision in all relevant contracts between a carrier and a downstream entity or between a downstream entity and a participating provider of health care services stating that if the carrier fails to pay for health care services as set forth in the contract, the enrollee may not be liable to the provider for any sums owed by the carrier;
2. Maintenance of books, accounts and records. A provision for the maintenance of books, accounts and records by the downstream entity and the carrier to verify that transactions, including the risk transfer, are clearly, accurately and completely recorded, in accordance with generally accepted accounting principles and disclosed in writing;
3. Prohibition on assignment of rights or obligations. A provision prohibiting the assignment of any rights or obligations under the contract in the absence of the consent of the carrier;
4. Right to object to subcontractor. A provision granting the carrier the right to be advised of and the right to object to any subcontractor with whom the downstream entity proposes to contract with respect to services required to be performed by the downstream entity under its contract with the carrier;
5. Termination of contract. A provision for the termination of the contract, including the right to immediately terminate the contract upon a valid order issued by the superintendent or another lawful authority;
6. Compliance with utilization review laws, rules and licensing requirements. A provision requiring the downstream entity to comply with utilization review laws, rules and licensing requirements appropriate to the functions the downstream entity has contracted to undertake on behalf of the carrier;
7. Ability to perform. A provision requiring the downstream entity to advise the carrier in a timely manner of relevant matters that may have a material effect on the downstream entity’s ability to perform under the contract, including, but not limited to:
A. Whether the downstream entity or participating provider is subject to an administrative order, a cease and desist order, a fine or a license suspension; and
B. Whether legal action has been taken that may have a material effect on the downstream entity’s financial condition or the downstream entity’s ability to perform under the contract; and
8. Incorporation by reference. A provision requiring the contract between a carrier and a downstream entity to be attached to all contracts between the downstream entity and those of the entity’s participating providers contractually obligated to provide services to the carrier’s enrollees under the contract between the carrier and the downstream entity.
Section 4336. Disclosure requirements for organizations with downstream risk arrangements
1. Disclosure to superintendent. Each carrier shall provide information concerning the carrier’s downstream risk arrangements as required or requested by the superintendent. The disclosure must contain the following information in sufficient detail to enable the superintendent to determine whether the risk arrangement complies with the following requirements:
A. Whether services not furnished by the downstream entity are covered by the risk arrangement. If the services furnished by the downstream entity are covered by the risk arrangement, disclosure of other aspects of the plan need not be made;
B. The type of risk arrangement; for example, withhold, bonus, capitation;
C. If the risk arrangement involves a withhold or bonus, the percent of the withhold or bonus;
D. The panel size, the number of enrollees covered by the downstream entity and the total number of enrollees covered by the carrier in the State; and
E. In the case of capitated downstream entities, capitation payments paid to primary care providers for the most recent year broken down by percent for primary care services, referral services to specialists, hospital services and other types of provider services, including, but not limited to, nursing home and home health agency services.
2. Annual disclosure. A carrier shall provide this information to the superintendent at least annually. A carrier shall provide the capitation data required under subsection 1 for the previous calendar year to the superintendent by April 1st of each year.
3. Disclosure to enrollees. A carrier shall provide the following information to any enrollee upon request:
A. Whether the prepaid plan uses a downstream risk arrangement that affects the use of referral services; and
B. The type of risk arrangement.
Section 4337. Requirements related to subcontracting arrangements
1. Physician groups. A carrier that contracts with a downstream entity that places the individual physician members at substantial financial risk for services they do not furnish shall disclose to the superintendent any incentive plan between the downstream entity and the entity’s individual physicians that bases compensation to the physician on the use or cost of services furnished to enrollees. The disclosure must include the information specified in section 4336, subsection 1.
2. Intermediate entities. A carrier that contracts with a downstream entity, other than a physician group, for the provision of services to enrollees shall disclose to the superintendent any risk arrangement between the entity and a physician or physician group that bases compensation to the physician or physician group on the use or cost of services furnished to enrollees. The disclosure must include the information required to be disclosed under section 4336, subsection 1.
3. Sanctions against the carrier. The superintendent may apply intermediate sanctions if the superintendent determines that a carrier fails to comply with the requirements of this section.
Section 4338. Downstream risk arrangements that exceed risk threshold described in section 4334
The superintendent may waive downstream risk arrangements from licensure requirements that exceed the risk threshold described in section 4334 if the downstream risk arrangement meets the contractual and disclosure requirements established under section 4332 and the criteria set forth in sections 4339 to 4342 and is determined by the superintendent not to prejudice enrollee interests.
Section 4339. Contractual provisions to demonstrate financial viability
If a carrier applies for a waiver under section 4332, subsection 2, the carrier may demonstrate the financial viability and condition of the downstream entity through the terms of the contract, including one or more of the following:
1. Books, accounts and records. A contractual provision authorizing the carrier to access the downstream entity’s books, accounts and records according to terms and conditions on which the carrier and the downstream entity agree;
2. Financial statements. A contractual provision requiring the downstream entity to provide to the carrier interim unaudited financial statements on a regular and ongoing basis as well as an annual financial statement, accompanied by a certified public accountant’s opinion, appropriate to the magnitude of risk involved;
3. Reserves. A contractual provision authorizing the carrier to receive information regarding the downstream entity’s reserves;
4. Letter of credit. A contractual provision requiring the downstream entity to post a letter of credit or other acceptable financial security;
5. Fees. A contractual provision under which the carrier withholds fees payable to the downstream entity or to the providers for which it acts;
6. General liability insurance. A contractual provision requiring the downstream entity to carry general liability insurance and requiring participating providers to carry professional liability insurance in an amount and from an insurer mutually acceptable to the carrier and the downstream entity;
7. Surety bond. A contractual provision requiring the downstream entity to secure a surety bond to cover the downstream entity’s performance under the contract; or
8. Excess of loss insurance. A contractual provision requiring the downstream entity to secure excess of loss insurance or reinsurance in an amount and from an insurer mutually acceptable to the carrier and the downstream entity.
Section 4340. Financial viability
Each carrier and downstream entity requesting a waiver shall file with the superintendent a plan for managing financial exposure under those downstream risk arrangement contracts and thereafter operate in substantial conformance with the terms of that plan and of the corresponding waiver. At least 60 days before any material change in a filed and approved exposure management plan, the carrier and downstream entity shall file for the superintendent’s review and approval a modified plan, along with any changes in related contracts.
Section 4341. Limitations on premium transfer
The superintendent may deny a request for waiver based on any of the following characteristics:
1. Transfer of 30% of annual aggregate premium. A contract by which 30% or more of the carrier’s annual aggregate premium with respect to a contract, plan or product is transferred to a single downstream entity. This transfer is the sum of capitated payments plus the sum of amounts returnable to the carrier through incentive payments or other risk adjustments; or
2. Transfer of 75% of annual aggregate premium. Multiple contracts by which 75% or more of the carrier’s annual aggregate premium with respect to a contract, plan or product is transferred to one or more downstream entities. This transfer is the sum of capitated payments plus the sum of amounts returnable to the carrier through incentive payments or other risk adjustments.
Section 4342. Related provisions
The superintendent may deny a request for waiver based on any of the following characteristics:
1. Carrier controlled. An arrangement with a downstream entity that has control of the carrier. “Control” has the same meaning as defined in section 222, subsection 2, paragraph B;
2. Transfer of claims processing, payment or adjudication. An arrangement by which the claims processing, claims payment or claims adjudication functions are transferred to the downstream entity from the carrier. This section may not be construed to authorize the superintendent to deny a request based on the transfer of utilization review functions from the carrier to the downstream entity;
3. Transfer of managerial control. An arrangement by which managerial control of the carrier’s information system is transferred to the downstream entity;
4. Overlap between officers or directors. An arrangement in which there is overlap between the officers or directors of the downstream entity and the carrier; or
5. Transfer of more than 1/12 of annual capitated payments. An arrangement that transfers more than 1/12 of the annual capitated payments at one time to the downstream entity.
Section 4343. Rules
The superintendent may adopt rules establishing application procedures and specific standards for meeting the requirements pursuant to this subchapter. Rules adopted pursuant to this subchapter are routine technical rules pursuant to Title 5, chapter 375, subchapter II-A.