ACO Bootcamp Webinar Series, Part 6: Commercial Contracting Opportunities for ACOs

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1 ACO Bootcamp Webinar Series, Part 6: Commercial Contracting Opportunities for ACOs Sponsored by American Health Lawyers Association May 2,, :00 2:30 p.m. Eastern Presenters: J. Peter Rich, McDermott Will & Emery, LLP, Los Angeles, California, David Lewis, LifePoint Hospitals, Brentwood, Tennessee, Moderator: Paul Van Den Heuvel, Marshfield Clinic, Marshfield, Wisconsin, 1

2 Topics Covered An overview of commercial accountable care arrangements currently in place; An overview of various approaches that payors and providers have taken relative to commercial accountable care arrangements; Discussion of unique Anti Kickback Statute and Stark law as well as state law issues potentially applicable to commercial accountable care arrangements; 2

3 Topics Covered Discussion of the key differences and similarities between commercial accountable care arrangements and Medicare Shared Savings Program ACOs; and Discussion of opportunities for ACOs beyond traditional shared savings arrangements, including a discussion of where the market is likely to go relative to accountable care arrangements. 3

4 Health Reform and Accountable Care The current culture of medicine which has been built into our health care systems for decades is experiencing a transformational change This transformational change will require strong partnerships between payors and providers to meet the new demands of the marketplace 4

5 Accountable Care Trends In 2012 and through the first three months of 2013, the number of Medicare ACOs has nearly tripled from 2011 levels. As of March 12, 2013, there are 428 Medicare ACOs: 2011: 32 New Pioneer ACOs 150+ New Private Sector ACOs (really Accountable Care Arrangements ) 2012: 114 New Medicare Shared Savings Program ACOs 2013: 106 New Medicare Shared Savings Program ACOs The ACO Surprise Oliver Wyman Report (Nov. 2012) 2.4 million in Medicare Shared Savings Program ACOs 15 million in non Medicare patients of Medicare Shared Savings Program ACOs 8 14 million in non Medicare Accountable Care Arrangements Feb. 19, 2013 Press Release: million now covered by accountable care arrangements 14% of the population and growing fast... 5

6 Various Accountable Care Perspectives Hospitals Need to get in the game to avoid being locked out of market opportunities Bearing significant costs but already bearing much of EHR/HIT Physician integration strategy Physicians: Do not want to be locked out of a particular network Some see more upside in Medical Home models Many unable/unwilling to finance Unlike Medicare ACOs, can channel utilization with financial incentives Payors: Must bend cost curve Better aligned financial incentives Better quality outcomes Who controls the product? Post Acute Providers Skilled Nursing Facilities LTCHs Home Health Providers 6

7 Provider Concerns vs. Payor Concerns Provider Concerns: Being pushed towards assuming unmanageable risks Insufficient payor support for care management Lack of transparency Just another payor product Do not trust quality/cost measurements by payors Concerned about free rides Costly to implement Payor Concerns: Adequacy of provider care management Accuracy and validation of actual savings and quality improvement Providers may game the system by exploiting contract terms to avoid shared losses or by using payor subsidies to compete with payor in the future Could backfire by spurring concentration of provider market and thus higher costs Long term marginalization of payor role 7

8 May be: Commercial Accountable Care Arrangements Stand alone accountable care arrangement negotiated with commercial payors, or A CMS contracted ACO also enters into accountable care type arrangement with commercial payors (may include Medicare Advantage Plans) 1 1 Patient Protection and Affordable Care Act, Pub. L. No , 124 Stat. 119 (2010); and the Health Care and Education Reconciliation Act of 2010, Pub. L. No , 124 Stat (2010) (Health Care Reform, The Affordable Care Act or ACA ). The most likely CMS approved entity would be a Medicare Shared Savings Program Accountable Care Organization ( MSSP ACO ) created under Section 3022 of the ACA (42 U.S.C. 1395jjj) and whose governing regulations are at 76 Fed. Reg. 67,802 67,990 (Nov. 2, 2011). See, 42 C.F.R for the definition of MSSP ACO. 8

9 If You ve Seen One ACO, You ve Seen One ACO 9

10 Evolving Physician Compensation 10

11 Commercial Accountable Care Arrangement: What is it? May be payor initiated Likely to be exclusive network between payor and provider network or group of providers Financial rewards penalties for improving quality, cost efficiency, patient experience and ensuring that care is delivered in the right setting 11

12 Commercial Accountable Care Arrangement: What is it? No other widely recognized structure or specific definition 2 Common themes of reduction of cost increases, financial incentives to improve quality and patient experience for defined group 2 See, National Committee for Quality Assurance, Accountable Care Organizations (ACO) Draft 2011 Criteria, Public Comment Overview (http://www.ncqa.org/portals/0/publiccomment/aco/aco_%20overview.pdf). 12

13 A Pioneering Successful Commercial Virtual ACO Collaborative Model Blue Shield of California, Catholic Healthcare West, Hill Physicians ( ) Initially created virtual ACO to manage the care of 40,000 CalPERS members; no new contracts. Uses payor provider committees. Goal: Keep plan health care costs flat in 2010 Utilized existing benefit product Blue Shield HMO benefit product Members with existing primary care physicians affiliated with Hill Physicians Parties said biggest challenge centered around data creation, sharing, and access Results: First year resulted in better care and millions of dollars in savings Zero percent premium increase for 2011 Going statewide now 13

14 California ACO Market 41 ACOs covering approximately 623,700 lives 16 MSSP ACOs 6 Pioneer ACOs 2 Medicare Advanced Payment ACOs 17 Commercial ACOs 14

15 California ACO Market MSSP NAME COUNTY SERVED LIVES Accountable Care Clinical Services/Preferred ACO Los Angeles 2,500 Accountable Care Clinical Services Orange Orange 500 Affiliated Physicians Medical Group Los Angeles, Orange 10,000 Akira Health Santa Clara 5,000 APCN ACO Los Angeles 9,800 ApolloMed ACO Los Angeles 10,000 AppleCare Medical ACO Los Angeles Orange 8,000 Cedars Sinai Accountable Care Los Angeles 8,000 John Muir Physician Network Alameda, Contra Costa, Solano 7,000 Meridian Holdings Los Angeles, Riverside 5,000 Meritage ACO Marin, Sonoma 8,000 North Coast Medical ACO San Diego 6,800 Premier ACO Physician Network Los Angeles, Orange 8,500 San Diego Independent ACO San Diego 5,000 Torrance Memorial Integrated Physicians Los Angeles 15,000 UCLA ACO Los Angeles 19,000 15

16 California ACO Market Pioneer Program NAME COUNTIES SERVED LIVES Brown & Toland Physicians Multiple 17,000 HealthCare Partners ACO Los Angeles, Orange 45,000 Heritage California ACO Multiple 68,000 Monarch Health Care Orange 17,300 Premier Choice ACO Riverside, San Bernardino 13,500 Sharp HealthCare ACO San Diego 32,000 16

17 California ACO Market Medicare Advanced Payment NAME COUNTIES SERVED LIVES Golden Life Healthcare Multiple 6,000 National ACO Los Angeles, Orange 5,600 17

18 California ACO Market Commercial Aetna 4,200 lives Blue Cross 92,000 lives Blue Shield 157,500 lives CIGNA 27,000 lives Health Net 10,500 lives 18

19 California ACO Market AETNA NAME COUNTY SERVED LIVES PrimeCare Medical Network Riverside, 2,000 San Bernardino Sharp HealthCare San Diego 2,200 19

20 California ACO Market Blue Cross NAME COUNTY SERVED LIVES Health Care Partners Los Angeles, Orange 44,000 Santa Clara County IPA Santa Clara 26,000 Sharp Health Care San Diego 22,000 20

21 California ACO Market Blue Shield NAME COUNTY SERVED LIVES Access Medical Group/St. John s Los Angeles 7,000 AllCare IPA/Doctors Medical Center Merced, Stanislaus 8,000 Brown & Toland Physicians San Francisco 23,000 Greater Newport Physicians/Hoag Orange 11,000 Hill Physicians/Dignity Health/UCSF San Francisco 5,000 Hill Physicians/Dignity Health El Dorado, Placer, Sacramento 41,000 John Muir Health Alameda, Contra Costa, Solano 17,500 Physicians Medical Group of Santa Cruz Santa Cruz 8,000 St. Joseph Health Los Angeles, Orange 37,000 21

22 California ACO Market CIGNA NAME COUNTY SERVED LIVES Brown & Toland Physicians San Francisco 6,000 Palo Alto Medical Foundation Multiple 21,000 Starting April 2013, Los Angeles & 10,000 HealthCare Partners Orange 22

23 California ACO Market Health Net NAME COUNTY SERVED LIVES Hill Physicians/Dignity Health/UCSF San Francisco 10,500 23

24 Recent Wisconsin ACO Developments Early movement to form ACO organizations no significant commercial traction yet but activity is beginning to pick up Aurora has announced ACO and narrow network collaborations with both Aetna and Anthem Blue Cross. Aetna has very limited presence in the Milwaukee/Southeast Wisconsin market; Anthem has signed a major employer group (note May 20, 2013 ACO Roundtable Webinar) 24

25 Recent Wisconsin ACO Developments (cont d) Quality Health Solutions ACO, comprising a number of Aurora competitors, recently lost 2 large out state system participants but intends to continue plans to clinically integrate the remaining 6 health system participants Marshfield Clinic has progressed from its successful participation in CMS s Physician Group Practice Demonstration Program to a single participant ACO Significant merger activity is occurring 25

26 Not Just for Medicare Private Market ACOs are Developing Nationwide HMSA (BCBS Hawaii) HPH: Performance on shared savings/losses also affects future payment increases BCBS Minnesota: Shared savings contract with five Providence Health & providers Services: $30 M, two-year contract with public employee benefits board BCBS Illinois: Shared savings contract with Advocate Health Care Blue Shield California: Two ACOs in Northern California Humana: ACO pilot with Norton Healthcare CIGNA: Medical home Anthem Blue Cross: contract with Piedmont ACO pilot with Sharp Physicians Group HealthCare medical groups UnitedHealth Care: ACO with Tucson Medical Center Maine Health Management Coalition: Multi-stakeholder group supporting ACO pilots BCBS Massachusetts s Alternative Quality Contract: Annual global budget, quality incentives for participating providers Aetna: ACO pilot with Carilion Clinic 26

27 Aetna Other Commercial Accountable Care Activity Partnership with Baylor ACO (TX) Partnership with Hunterdon Healthcare Partners (NJ) Cigna Collaborative Accountable Care Initiative Goal: 100 Accountable Care initiatives by 2014 Arizona, California, Texas, Tennessee, Maine, New York, Virginia, North Carolina, New Hampshire, Colorado 27

28 The Blues Other Commercial Accountable Care Activity (cont d) Optimus Healthcare Partners & Horizon BCBS Trinity Health & Michigan Blue Cross BCBS North Carolina University of North Carolina Medical Home Collaborative Innovative New Hawaii Accountable Care Arrangement: Pacific Health and Hawaii Medical Services Association (largest health system and health insurer in state) ties 50% of future payment rate increases to cost and quality performance United Launches Accountable Care Arrangement with WESTMED Medical Group & Optum (NY) Launches Accountable Care Arrangement with Tucson Medical Center (AZ) 28

29 Trends in Commercial Accountable Care Arrangements Payor Offers ACO Product Cigna s Accountable Care Collaborative BCBSMA Alternative Quality Contract Provider Forms ACO and Reaches Out to Payor Advocate Health BCBSI BCBST MissionPoint New Healthcare Partners CIGNA (SoCal) ACO Payor Joint Endeavor Norton Humana BCBSCal CHW Hill Physicians Blue Shield and St. Joseph Health System (SoCal) or Tenet (Central CA) Provider owned ACO & Payor Summa Medical Payor Health System Agree to Tie Future Growth in Reimbursement to Cost and Quality Performance HMSA (BCBS Hawaii) HPH 29

30 Spectrum of Possible Commercial Payor ACO Payment Arrangements Risk Light : simple shared savings based on medical claims expense with withhold upside Risk Light Plus: in addition to shared savings based on medical claims expense, include quality improvement initiatives e.g., readmission rate for members assigned to ACO physicians Shared risk: sharing of gains and losses based on either medical expense target or split overall performance Full risk: provider organization assumes full risk for members assigned to ACO affiliated based PCPs; ACO assumes all administrative functions 30

31 An Ideal ACO Physician Payment Model? Primary Care: Capitation (Risk Adjusted) Emergency/Urgent Care: FFS with higher copayment, patient education Specialist Care: Bundled Payments (Risk/Severity Adjusted) Source: Goldsmith, J., Accountable Care Organizations: The Case for Flexible Partnerships Between Health Plans and Providers Health Affairs (January 2011) 31

32 ACO Financial Model - Projected Total Cost of Medical Care Actual Cost of Care for the Defined Population Based on Actuarial Analysis of Historical Data Paid to Providers on a FFS Basis Surplus (or Deficit) Provider Bonus Available ONLY if Surplus Exists at Year End Outpatient Ancillary Outpatient Diagnostics Other Outpatient Hospital, SNF, Inpatient Rehab Outpatient Retail Pharmacy Different Provider Types May Participate in Pools On Different Basis 32

33 Preliminary Decision Points on Distributions Will start up costs be recovered and, if so, over what time period? Will all participants in the same category be treated the same? How much shared savings should be reinvested in the ACO? What incentives can we build into truly integrated participants compensation packages to drive behavior? Initially, what behaviors do we need to drive for particular participant categories? 33

34 New Compensation Paradigms Can we move away from rewarding more procedures? Reward participants for reducing total health care costs Reward PCP participants for size of patient network Reward participants for adopting/using certain technology Reward participants for dedicating staff to ACO activities Reward participants for population health changes Be cognizant of difficulty involved in transitions Participant success is critical to long term survival of ACO 34

35 COMMERCIAL ACO Limited Liability Company, corporation, or other legal entity Capital Basic Legal Structure ACO ability to repay losses; financial security/guarantee Require attribution of patients methodology for tracking of patients and financial calculations Additional MSSP ACO requirements include: legal status; shared governance; leadership and management; size of network; evidence based medicine; beneficiary engagement; internal reporting on quality and cost; care coordination; patient centeredness criteria; and compliance 35

36 ACO Payor Provider Contract Terms 1. Employer Opt Out Rights The insurer will need to consider whether to provide any employer groups an opt out right. We have seen this dealt with differently by different insurers. 36

37 ACO Payor Provider Contract Terms 2. Benefit Products Included The agreement will need to describe which benefit products are included in the calculation of shared savings/shared losses. To the extent Medicare Advantage or Medicaid managed care products are included, the use of federal funds may raise unique legal issues that could affect the structure of the arrangement (e.g., antikickback statute). 37

38 ACO Payor Provider Contract Terms 3. Member Attribution Will need to have a detailed process for determining which members are in and which are out of the arrangement. Below is sample language: Attribution Model. Members enrolled in Accountable Benefit Products will be attributed to Provider based on the member attribution procedure that Insurer utilizes across its entire network as described in Schedule [ ] (the Attribution Model ). Except as otherwise provided in this Agreement, for any month Members are enrolled in an Accountable Benefit Product and attributed to Provider, such members are referred to herein as Attributed Members. For any month Members are enrolled in an Accountable Benefit Product and attributed to Network Providers, such Members are referred to herein as Network Members. Insurer may from time to time modify the Attribution Model, provided that Insurer shall provide Provider with no fewer than thirty (30) days prior written notice of such changes. 38

39 ACO Payor Provider Contract Terms 4. Compensation Arrangement The agreement will need to contain a detailed description of how shared savings/shared losses are determined. There are a number of issues that the parties will need to consider: Will the agreement be upside risk only or upside/downside risk or will it vary by product (e.g., HMO upside/downside and PPO upside only)? What will the benchmark be for determining whether shared savings or losses exist? Some possible benchmarks are (i) the medical cost trend for the rest of the insurer s network or (ii) a predetermined percentage increase in the contracted provider s medical costs. 39

40 ACO Payor Provider Contract Terms 4. Compensation Arrangement (con t) How will quality performance affect the shared savings/shared losses calculation? Need to have quality as a factor in the compensation calculation to avoid creating the impression that the agreement is designed purely as a cost control measure. This is a liability issue for the insurer and must be included in any arrangement. There are, a number of possible ways to calculate quality performance; parties will need to agree on which measures are going to be included and how they will be calculated (e.g., will objective performance benchmarks be set or will provider only need to improve on previous years performance). 40

41 ACO Payor Provider Contract Terms 4. Compensation Arrangement (con t) The relationship between quality performance and the calculation of shared savings/shared losses is important. There are a number of possible ways and quality could affect compensation: (1) as a gatekeeper function where provider must meet minimum quality score to be eligible for shared savings; (2) a higher quality score could mean an increased % of shared savings and lower % of shared losses that the provider is responsible for; or (3) a combination of the two approaches described above where a minimum quality score must be met to be eligible for any shared savings but then a higher quality score will increase provider s share of shared savings or decrease its share of shared losses. 41

42 ACO Payor Provider Contract Terms 4. Compensation Arrangement (con t) Will shared savings and shared losses be measured from the first dollar or will there be a threshold applied to the cost target (1% up or down from target) to account for statistical noise to increase the odds that any shared savings or losses are due to provider s efforts and not random statistical variation. Will there be a cap on the total amount of shared savings or shared losses that can be earned in a particular year? Will there be a risk adjustment methodology to account for the disease burden of a provider s members? This could be particularly important if the provider s performance is going to be measured against the rest of the insurer s network. 42

43 ACO Payor Provider Contract Terms 5. Patient Management Fees The parties will need to determine whether the provider will be separately compensated for providing care coordination and patient management services. If an insurer chooses to make these payments, some considerations include: Make sure the payments are described in a way that enables the issuer receive positive Medical Loss Ratio (MLR) treatment (45 CFR Part 158) for the payments to either be considered an incurred claims expense or a quality improvement activity expense. 43

44 ACO Payor Provider Contract Terms 5. Patient Management Fees (cont d) The parties will need to determine whether the patient management fees will need to be paid back in the event the provider is found to have failed to provide the required services. 44

45 ACO Payor Provider Contract Terms 6. Term and Termination The parties may want to make it difficult for either party to unilaterally terminate the agreement. From the insurer s perspective, this would prevent a provider from simply terminating the agreement if it becomes clear that the provider won t be able to meet the cost trend benchmarks. Providers are likely to want to create easier pathways for early termination (e.g., triggered by changes to a plan s benefit products). One option would be to create an escrow account whereby a party terminating the agreement prior to the end of the term would forfeit the amounts in the escrow account. 45

46 ACO Payor Provider Contract Terms 7. Post termination The Parties also need to address what effect of early termination will be on shared savings/shared losses for inprogress plan years. One option would be to not calculate any shared savings or shared losses for the in progress portion of a plan year. Another option would be to calculate the shared savings/shared losses based on the experience during the in progress plan year, but this could raise complications (e.g., applying quality data from a partial year that were designed to be based on a year of data). 46

47 ACO Payor Provider Contract Terms 8. Information Technology Provisions ACO products and software; payor interface and system requirements Provider system requirements and associated costs 3 ACO and/or provider network eligibility to access and use payor or ACO IT applications Provider use for non ACO patients 3 See, 42 C.F.R (u) and (v) for Physician Self-Referral ( Stark ) Law exceptions for community-wide health information systems and electronic prescribing items and services. 47

48 ACO Payor Provider Contract Terms 9. Competition The commercial payor may request protections against the provider network or ACO competing against the payor. The scope of the competition restriction is important for ACO or providers to consider in relation to other commercial or governmental payor or ACO applications. The ACO may seek protection against the payor competing with the ACO or excluding the ACO provider network from other products 4 Potential for illegal restraints of trade, tying arrangements, group boycotts, and market divisions exists. 4 See generally, 42 U.S.C (c)(3)(B) concerning ACA Section 1322 Consumer Operated and Oriented Plans ( CO-OPs ) and the governance requirements in relation to insurance industry involvement and interference. 48

49 ACO Payor Provider Contract Terms 10. HIPAA privacy and security standards/confidentiality Reasonable efforts to limit the requested information to the minimum necessary to accomplish the purpose of the intended use, disclosure or request Tracing the PHI, analyzing its uses and assuring appropriate for treatment, payment or health care operations State law provisions more restrictive in re mental health, genetic testing and HIV/AIDs information; see also federal substance abuse treatment program requirements, 42 C.F.R. Part 2. 49

50 Lead time issues Exclusivity Miscellaneous Contract Provisions Data Access & Collection Funding of care management Lock In Period Independent medical judgment vs. care coordination and practice standards Address any state corporate practice of medicine/fee splitting issues 50

51 Miscellaneous Contract Provisions (cont d.) MSSP look alike provisions: MSSP compliance; 5 number of members; quality assurance and improvement; promote evidence based medicine; patient engagement; member access to information; coordination of care; member choice; cost shifting; 6 required referrals; compliance plan; dispute resolution; change in law. 7 5 See, 42 C.F.R et seq. for MSSP ACO requirements. 6 See, 42 C.F.R for MSSP ACO prohibitions on illegal inducements, certain required referrals and cost-shifting prohibitions. 7 See, 42 C.F.R

52 Key Legal Issues Faced By Non MSSP ACOs Stark Law EHR Subsidy Exception Indirect Compensation Exception Risk Sharing Exception (42 CFR (n)) Anti Kickback Statute Managed care exceptions may not be available Pull through Federal health care program beneficiaries If legitimate ACO, intent may be hard to establish Recapture costs prior to distribution (conservative position) CMP Law and Gainsharing Only applies to Medicare/Medicaid fee for service beneficiaries 52

53 COMMERCIAL ACO DEVELOPMENT Regulatory Analysis: Documentation of reasonably related purposes What are the reasonably related to the purposes of the ACO look alikes for commercial ACOs? How do you document consistencies with the ACA triple aim (better care for individuals; better health for populations; lower growth of health care expenditures)? 53

54 COMMERCIAL ACO DEVELOPMENT Regulatory Analysis: Scope of providers to whom shared savings can be distributed MSSP rules may restrict to only those ACO participants or providers/suppliers with whom ACO has a written agreement Relevant to scope of waiver protection Shared Savings Distribution Waiver language: or (b) used for activities that are reasonably related to the purposes of the Shared Savings Program. (76 Fed. Reg. 68,001 (Nov. 2, 2011). 54

55 COMMERCIAL ACO DEVELOPMENT Regulatory Analysis: If No MSSP /ACO Is Involved Physician Self Referral (Stark) Law compliance considerations Is a provider involved who bills for designated health services that are paid under a government health care program (Medicare or Medicaid)? Will arrangement meet the risk sharing exception? Is arrangement consistent with Affordable Care Act triple aim? Might the Waivers apply? Do Stark Anti Kickback Laws apply? 55

56 IRS Guidance Regarding Commercial ACO Activities IRS tied charitable purpose to lessening the burdens of government i.e., MSSP participation necessary Implication: Commercial ACO contracting is not a charitable activity Result: (1) Non charitable activities must be no more than an insubstantial amount of the ACO s total activities or could jeopardize tax exempt status of participants (if attributed); (2) Non charitable activity income could generate Unrelated Business Income for tax exempt owners; and (3) May impact ability of ACO to qualify for tax exempt status. 56

57 KEY STATE LAW COMPLIANCE ISSUES Corporate Practice of Medicine HMO/Insurance/Managed Care Contracting Laws 57

58 Representative State Law Issues: Corporate Practice of Medicine Most states still have laws that prohibit, to varying degrees, the corporate practice of medicine ( CPOM ), which generally prevent unlicensed lay entities from employing physicians or otherwise contracting with physicians to furnish medical care CPOM laws may limit the flexibility of physicians and nonphysicians to structure ownership and employment arrangements of an ACO unless licensed as a managed care organization or hospital may employ physicians under state CPOM law. 58

59 Representative State Law Issues: Corporate Practice of Medicine (cont d) Some states with strong CPOM laws (e.g., California, Nevada, and Texas) even prohibit hospitals from employing physicians, but have laws permitting nonprofit medical foundations to engage physicians (e.g., in medical group) indirectly to provide medical care Friendly Physician or Management models in CPOM states will require careful regulatory analysis to minimize regulatory risk 59

60 HMO/Insurance/Managed Care Licensing Laws National Association of Insurance Commissioners ( NAIC ) determined in 1990s that a health care provider receiving capitated type payments assumes insurance type financial risk In most states, capitation is permissible under state insurance/hmo law for state licensed HMO s downstream providers, within the scope of their medical/health licensure, for services provided to that HMO s members 60

61 HMO/Insurance/Managed Care Licensing Laws Capitated or Other Downside Risk Payments? In a number of states (e.g., California, Colorado, Illinois, New Jersey, New York, Ohio and Pennsylvania) an ACO may be prohibited from assuming capitated or other substantial financial risk, unless the ACO is licensed by the state to assume such financial risk or falls within an exception. ACO that direct contracts with self funded ERISA plan is not shielded from state insurance/hmo licensure and regulation by ERISA preemption, which applies only to plan itself. [See Hewlett Packard Co. v. Barnes, 571 F. 2d 502 (9th Cir 1978)] Congress could preempt state insurance/hmo laws for Medicare capitation, but PPACA does not appear to do so. 61

62 HMO/Insurance/Managed Care Licensing Laws (cont d) Examples of representative state insurance/managed care laws that may apply to ACOs and other risk bearing organizations include: California Knox Keene Act: ACO requires Limited Knox Keene Plan license to assume global downside risk for physician and hospital services Florida s Fiscal Intermediary Service Organization Law: Fla Stat (unless owned and controlled by a hospital and/or physicians) Massachusetts recent positions on risk bearing ACOs taken by Department of Insurance New Jersey s HMO laws: N.J. Stat. 26L2J et seq., 17:48H 1 et. Seq. and HMO Regulations: N.J. AC 11:24 et seq. Ohio Rev. Stat. chapter 1751 Pennsylvania s HMO Act: 40 P.S and Risk Assuming PPO Regulations: 31 Pa Code et seq, and (c); Licensed Organized and Delivery System: 28 Pa Code 9.602,

63 HMO/Insurance/Managed Care Licensing Laws (cont d) Applicability of state insurance/hmo/managed care laws may depend on precise payment structure Global capitation/percentage of premium Capitation only for services that capitating provider is licensed to provide (e.g., California) Risk corridors (10 15% or 50%?) FFS combined with withholds (10 15% or 50%+) FFS with upside shared savings bonus (not regulated) ACO contracts with private payor or Medicare Advantage Plan vs. selffunded employer 63

64 HMO/Insurance/Managed Care Licensing Laws (cont d) In some states (such as California, Ohio, and New Jersey), providers that lack state health plan license generally may not capitate or assume substantial financial risk other than under contract with a licensed HMO, and then only for services within scope of provider s licensure. In those states, ACO may still engage in direct employer fee forservice contracting as permitted by CPOM (including case rates and other bundled pricing) but prohibited from being paid on a capitated basis or otherwise assuming downside financial risk unless ACO holds the required state HMO, PPO or insurance license or subcontracts for its own licensed health care with an HMO services with an HMO. 64

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