The Office of General Counsel issued the following informal opinion on April 4, 2000, representing the position of the New York State Insurance Department.
Re: Health Provider, Assumption of Risk
May a health care provider assume risk from a Health Maintenance Organization?
Yes, if the health care provider is in compliance with applicable statutes and regulations.
The inquirer wants to know whether a health care provider may assume risk through a capitation arrangement with either a commercial HMO or one providing Medicare coverage. If so, are there any applicable solvency requirements.
New York Insurance Law §1101(a) (McKinney 2001) defines doing an insurance business:
(a) In this article: (1) Insurance contract means any agreement or other transaction whereby one party, the insurer, is obligated to confer benefit of pecuniary value upon another party, the insured or "beneficiary", dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event. (2) Fortuitous event means any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.
New York Insurance Law §1102 (McKinney 2000) proscribes the doing of an insurance business without a license from this Department.
The rendering of all necessary health care services to an individual in exchange for receipt of a specified monthly amount, a capitation payment, has the elements of both fortuity and value, and thus meets the definition of an insurance contract. In addition to the specific exemptions from the requirement that one who does an insurance business must be licensed, other statutes may permit assumption of risk. The New York Public Health Law §4403 (McKinney 2001), which authorizes the Commissioner of Health to issue Certificates of Authority to HMOs, provides, in pertinent part:
The commissioner shall not issue a certificate of authority to an applicant therefor unless the applicant demonstrates that: (c) it is financially responsible and may be expected to meet its obligations to its enrolled members. For the purpose of this paragraph, "financially responsible" means that the applicant shall assume full financial risk on a prospective basis for the provision of comprehensive health services, including hospital care and emergency medical services within the area served by the plan, except that it may require providers to share financial risk under the terms of their contract, it may have financial incentive arrangements with providers or it may obtain insurance or make other arrangements for the cost of providing comprehensive health services to enrollees; any insurance or other arrangement required by this paragraph shall be approved as to adequacy by the superintendent as a prerequisite to the issuance of any certificate of authority by the commissioner; . New York Public Health Law §4403(1)(c).
New York Public Health Law §4403(1)(c) thus constitutes an exception to the general rule.
The regulation of HMOs is split between this Department and the Department of Health. New York Public Health Law §4406(1) (McKinney 20001) provides that subscriber contracts of an HMO are to be regulated by this Department as if they were subscriber contracts of Health Service Corporations licensed pursuant to New York Insurance Law Article 43 (McKinney 20001). New York Insurance Law §4325 (McKinney 2001) provides, in pertinent part:
(d) No contract or agreement between a corporation organized under this article and a health care provider shall contain any clause purporting to transfer to the health care provider by indemnification or otherwise any liability relating to activities, actions or omissions of the corporation as opposed to the health care provider. New York Public Health Law §4325(d).
(f) No contract entered into between an insurer and a health care provider shall be enforceable if it includes terms which transfer financial risk to providers, in a manner inconsistent with the provisions of paragraph (c) of subdivision one of section forty-four hundred three of the public health law, or penalize providers for unfavorable case mix so as to jeopardize the quality of or insureds" appropriate access to medically necessary services; provided, however, that payment at less than prevailing fee for service rates or capitation shall not be deemed or presumed prima facie to jeopardize quality or access. New York Public Health Law §4325(f).
This Department has proposed a regulation, N.Y. Comp. R. & Regs. tit. 11, Part 101 (Regulation 164), that would provide standards for financial risk transfer between insurers and health care providers. The proposed regulation may be viewed on this Departments website: http://www.ins.state.ny.us.
The Health Care Finance Administration of the United States Department of Health & Human Services has promulgated comprehensive regulations governing the relationship between HMOs and their subscribers and health care providers. Among these are requirements for physician incentive plans, 42 C.F.R. §417.479 (2000), and disclosure of physician incentive plans, 42 C.F.R. §422.210 (2000). The indication of these regulations merely illustrative and does not purport to be an exhaustive list of applicable Federal regulations.
For further information you may contact Principal Attorney, Alan Rachlin at the New York City Office.