The Office of General Counsel issued the following opinion on July 29, 2005, representing the position of the New York State Insurance Department.

Re: N.Y. Comp. Codes R. & Regs. tit. 11, Part 101, (Regulation 164) (2002), Applicability


Does Regulation 164 apply to entities which have contracted with the Center for Medicare and Medicaid Services (CMS) of the United States Department of Health & Human Services to provide coverage under Medicare?


Where application of the Regulation has not been preempted by applicable Federal preemption standards, Regulation 164 applies to entities licensed by the New York State Insurance Department in accordance with the New York Insurance Law (McKinney 2000 and 2005 Supplement) or with a Certificate of Authority from the New York State Department of Health in accordance with New York Public Health Law Article 44 (McKinney 2002 and 2005 Supplement.


Since this was a general inquiry, no facts were furnished.



Managed care under the Medicare program is regulated by 42 U.S.C.A. § 1395w-21 et seq. (West 1992 and 2003 Supplement) and is referred to as Medicare+Choice or Medicare Part C. In accordance with the Medicare Prescription Drug, Improvement and Modernization Act, Public Law No. 108-173 (2003), effective January 1, 2006, the managed care program will be known as Medicare Advantage.

In accordance with 42 U.S.C.A. § 1395w-25(a)(1) (West 1992 and 2003 Supplement), a Medicare+Choice, and after January 1, 2006 designated as a Medicare Advantage Organization, must be a state licensed risk bearing entity, except that, in accordance with 42 U.S.C.A. § 1396w-25(a)(2), the Secretary of Health & Human Services (Secretary) could have granted a waiver of the state licensing requirement to a Provider Sponsored Organization (PSO) that had applied by November 1, 2002. In accordance with 42 U.S.C.A. § 1395w-25(a)(2)(E)(ii) such a waiver may be effective for a maximum of 36

months and, in accordance with 42 U.S.C.A. § 1395w-25(a)(2)(E)(iv), any state law preventing the functioning of such an organization is preempted.

42 U.S.C.A. § 1395w-26 (West 1992 and 2003 Supplement) required the Secretary to establish solvency standards for PSOs. In accordance with that directive, the Secretary promulgated 42 C.F.R. 422.350 et seq. (1998). The regulation, 42 C.F.R. § 422.378 (1998), reiterates the preemption of 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. . . .

In addition, 42 U.S.C.A. § 1395mm (West 1992 and 2003 Supplement), regulating physician’s services under a non-managed care fee for service practice, commonly known as Medicare Part B, recognizes a Competitive Medical Plan (CMP) as an authorized entity. A CMP is defined in 42 U.S.C.A. § 1395mm(b)(2):

(A) The entity provides to enrolled members at least the following health care services: (i) Physicians" services performed by physicians . . . (ii) Inpatient hospital services. (iii) Laboratory, X-ray, emergency, and preventive services. (iv) Out-of-area coverage.

(B) The entity is compensated (except for deductibles, coinsurance, and copayments) for the provision of health care services to enrolled members by a payment which is paid on a periodic basis without regard to the date the health care services are provided and which is fixed without regard to the frequency, extent, or kind of health care service actually provided to a member.

(C) The entity provides physicians" services primarily (i) directly through physicians who are either employees or partners of such organization, or (ii) through contracts with individual physicians or one or more groups of physicians (organized on a group practice or individual practice basis).

(D) The entity assumes full financial risk on a prospective basis for the provision of the health care services listed in subparagraph (A) . . . .

(E) The entity has made adequate provision against the risk of insolvency, which provision is satisfactory to the Secretary.

In accordance with a regulation promulgated by the Secretary, 42 C.F.R. § 417.479 (2003), an HMO or CMP may operate another type of entity, a Physician Incentive Plan. Such an entity is defined in 42 C.F.R. § 417.479(c):

Physician incentive plan means any compensation arrangement between an HMO or CMP and a physician or physician group that may directly indirectly have the effect of reducing or limiting services furnished to Medicare beneficiaries or Medicaid recipients enrolled in the HMO or CMP.

Regulation 164

N.Y. Comp. Codes R. & Regs tit. 11, § 101.1 (2002) provides:

This Part implements, interprets and clarifies portions of Chapter 586 of the Laws of 1998, which, inter alia, amended Insurance Law sections 3217-b and 4325 to permit certain insurers, effective July 1, 1999, to enter into financial risk sharing agreements with health care providers. With respect to an insurer's contractual obligations to its subscribers and required solvency, this Part addresses an insurer's obligation to assess the financial responsibility and capability of providers to perform their obligations under certain financial risk transfer agreements, and sets forth standards pursuant to which health care providers may adequately demonstrate such responsibility and capability to insurers.

N.Y. Comp. Codes R. & Regs. tit 11, § 101.2 (2002) provides:

Except as otherwise provided, this Part applies to entities certified under article 44 of the Public Health Law, insurance companies authorized to do accident and health insurance in the State of New York and corporations licensed pursuant to article 43 of the Insurance Law which enter into agreements to share financial risk through a capitation arrangement with health care providers. This regulation does not apply to risk sharing agreements among entities defined as insurers herein.

With respect to entities encompassed within N.Y. Comp. Codes R. & Regs. tit. 11, § 101.2 and which have contracted with CMS to provide services to Medicare enrollees, a determination as to whether Regulation 164 is applicable depends upon whether the Regulation is preempted under the preemption standards established by the United States Supreme Court. In Aetna Health, Inc. et al v. Davila, 542 U.S. 200 (2004), the Court adhered to its longstanding rule that state law can be specifically preempted, in that case the Employee Retirement Income Security Act, 29 U.S.C.A. § 1132 (West 1999 and 2003 Supplement). In Sprietsma etc v. Mercury Marine etc, 537 U.S. 51 (2002), the Court adhered to its long standing rule that a state law can be preempted where the Federal government has completely occupied the field.

The only instance involving Medicare contractors where the Federal government has specifically preempted the States is in the case of PSOs, in 42 U.S.C.A. § 1395w(a)(2)(E)(iv). In support of the inquirer’s belief that there may be preemption because of complete occupation by the Federal government, the inquirer cites 42 C.F.R. § 417.479, Requirements for Physician Incentive Plans, and 42 C.F.R. § 422.208 (2005), Physician Incentive Plans, Requirements and Limitations. While the first cited regulation appears to be intended to restrict Physicians Incentive Plans from improperly reducing or limiting covered medical services, a subscriber protection measurement, that regulation, along with the second cited regulation, impose financial requirements on such plans that, for the most part, parallel those in Regulation 164.

Accordingly, in addition to PSOs, those entities subject to the two cited or similar regulations, are not, because CMS has completely occupied the field, subject to Regulation 164. All other entities that meet the applicability requirement of N.Y. Comp. Codes R. & Regs. tit. 11, § 101.2 and have contracted with CMS to cover Medicare beneficiaries are, because there is neither specific nor field preemption, subject to Regulation 164.

For further information one may contact Principal Attorney Alan Rachlin at the New York City Office.