OGC Opinion No. 09-06-12
The Office of General Counsel issued the following opinion on June 26, 2009, representing the position of the New York State Insurance Department.
RE: Regulation 164
Questions Presented:
1) To whom does New York Compilation of Codes Rules & Regulations, title 11, Part 101 (hereinafter, “Regulation 164”) apply?
2) Is Regulation 164 a state law relating to plan solvency within the meaning of 42 U.S.C. § 1395w-26(b)(3) and 42 C.F.R. § 422.402?
3) Is a Medicare Advantage (“MA”) organization that enters into a physician incentive plan1 pursuant to 42 C.F.R. § 422.208 subject to Regulation 164 requirements?
Conclusions:
1) Pursuant to 11 N.Y.C.R.R. § 101.2, Regulation 164 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 agreement with health care providers.”
2) Yes. Regulation 164 is a state law relating to plan solvency within the meaning of 42 U.S.C. § 1395w-26(b)(3) and 42 C.F.R. § 422.402.
3) Yes. An MA organization that enters into a physician incentive plan pursuant to 42 C.F.R. § 422.208 is subject to Regulation 164 requirements. However, because federal laws and rules provide financial solvency protections, the New York Insurance Department (“Department”) is apt to treat an MA organization that conforms to applicable federal financial solvency requirements as compliant with Regulation 164.
Facts:
The inquiry is of a general nature, without reference to particular facts.
Analysis:
A. The Applicability of Regulation 164
The first question inquires about the applicability of Regulation 164. In enacting Chapter 586 of the Laws of 1998, the New York Legislature authorized certain insurers, in a limited manner, to enter into financial risk sharing arrangements with health care providers. Codified in duplicate as Insurance Law §§ 3217-b(f) (which applies to accident and health insurers) and 4325(f) (which applies to non-profit medical indemnity, and health and hospital service corporations), the legislation reads in relevant part as follows:
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[.]
In turn, Public Health Law § 4403(1)(c), which applies to health maintenance organizations (“HMOs”), states:
The commissioner shall not issue a certificate of authority to an applicant therefor unless the applicant demonstrates that:
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(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;
The Department promulgated Regulation 164 to ensure the financial stability of health care providers that contract with insurers and HMOs pursuant to Insurance Law §§ 3217-b(f) and 4325(f), and to ensure the security of coverage purchased by enrollees against unforeseeable health care provider losses. Among other things, Regulation 164 requires a health care provider to demonstrate financial responsibility by promoting the use of stop-loss insurance.
Those entities subject to Regulation 164 include “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 agreement with health care providers.” See 11 N.Y.C.R.R. § 101.2.
B. State Law Relating to Plan Solvency
The second question asks whether Regulation 164 is a state law relating to plan solvency. Entities that contract with the United States Department of Health & Human Services’ Center for Medicare and Medicaid Services (CMS) to provide services covered by the federal Medicare Advantage (“MA”) plan2 are subject to federal law and regulation. With respect to MA plans offered by MA organizations3 , state laws are generally preempted by federal legislation (with the exception of state licensing laws and state laws relating to plan solvency) pursuant to 42 U.S.C. § 1395w-26(b)(3) and 42 C.F.R. § 422.402, which are nearly identical provisions. 42 U.S.C. § 1395w-26(b)(3) reads:
Relation to State laws. The standards established under this part [i.e., 42 U.S.C. §§ 1395w-21, et seq.] shall supersede any State law or regulation (other than State licensing laws or State laws relating to plan solvency) with respect to MA plans which are offered by MA organizations under this part [42 U.S.C.S. §§ 1395w-21 et seq.].
The Department promulgated Regulation 164 to stave off the kind of financial crisis experienced by a health insurance plan provider (the “Plan”) in 1998. The Plan had contracted with an intermediate medical management company (“Mgt. Co.”) to supply the Plan with health care providers. The Plan paid Mgt. Co. the healthcare provider fees for rendering services to the Plan’s enrollees, but Mgt. Co. misused the funds. The health care providers thus sought payment directly from the Plan, which lacked sufficient funding to meet those expenses. Consequently, the Plan went into liquidation.
Put differently, Regulation 164 is a solvency provision, as its opening section makes clear. Indeed, 11 N.Y.C.R.R. §101.1 reads as follows:
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.
C. MA Organizations and Physician Incentive Plans
The third question relates to MA organizations and physician incentive plans. 42 C.F.R. § 422.208 authorizes an MA organization to enter into a physician incentive plan, provided that the MA organization does not pay a physician or physician group to reduce or limit medically necessary services. See 42 C.F.R. § 422.208(c)(1). Additionally, an MA organization must meet the following additional basic requirements set forth in 42 C.F.R. § 422.208(c):
(2) If the physician incentive plan places a physician or physician group at substantial financial risk (as determined under paragraph (d) of this section) for services that the physician or physician group does not furnish itself, the MA organization must assure that all physicians and physician groups at substantial financial risk have either aggregate or per-patient stop-loss protection in accordance with paragraph (f) of this section.
(3) For all physician incentive plans, the MA organization provides to CMS the information specified in § 422.210.4
Paragraph (d) of 42 C.F.R. § 422.208, in turn, describes “substantial risk” as follows:
(1) Basis. Substantial financial risk occurs when risk is based on the use or costs of referral services, and that risk exceeds the risk threshold. Payments based on other factors, such as quality of care furnished, are not considered in this determination.
(2) Risk threshold. The risk threshold is 25 percent of potential payments.
(3) Arrangements that cause substantial financial risk. The following incentive arrangements cause substantial financial risk within the meaning of this section, if the physician's or physician group's patient panel size is not greater than 25,000 patients, as shown in the table at paragraph (f)(2)(iii) of this section:
(i) Withholds greater than 25 percent of potential payments.
(ii) Withholds less than 25 percent of potential payments if the physician or physician group is potentially liable for amounts exceeding 25 percent of potential payments.
(iii) Bonuses that are greater than 33 percent of potential payments minus the bonus.
(iv) Withholds plus bonuses if the withholds plus bonuses equal more than 25 percent of potential payments. The threshold bonus percentage for a particular withhold percentage may be calculated using the formula -- Withhold % = -0.75 (Bonus %) +25%.
(v) Capitation arrangements, if –
(A) The difference between the maximum potential payments and the minimum potential payments is more than 25 percent of the maximum potential payments;
(B) The maximum and minimum potential payments are not clearly explained in the contract with the physician or physician group.
(vi) Any other incentive arrangements that have the potential to hold a physician or physician group liable for more than 25 percent of potential payments.
Further, 42 C.F.R. § 422.208(f) requires MA organizations that enter into physician incentive plans to “assure that all physicians and physician groups at substantial financial risk have either aggregate or per-patient stop-loss protection.” 42 C.F.R. § 422.208(f) specifies the amount of stop-loss protection that must be maintained. An MA organization that fails to comply with 42 C.F.R. § 422.208 requirements is subject to sanctions pursuant to 42 C.F.R. § 422.208(h).
The Department considers the financial solvency requirements contained in 42 C.F.R. § 422.208 to provide substantial protection against insolvency. Thus, although an MA organization that enters into a physician incentive plan pursuant to 42 C.F.R. § 422.208 is subject to the requirements set forth in Regulation 164, because Regulation 164 is a state law relating to plan solvency within the meaning of 42 U.S.C. § 1395w-26(b)(3) and 42 C.F.R. § 422.402, the Department is apt to treat an MA organization that conforms to 42 C.F.R. § 422.208 as also compliant with Regulation 164.
For further information you may contact Associate Attorney Sally Geisel at the New York City Office.
1 “Physician incentive plan means any compensation arrangement to pay a physician or physician group that may directly or indirectly have the effect of reducing or limiting the services provided to any plan enrollee.” 42 C.F.R. § 422.208(a).
2 42 C.F.R. § 422.2 defines an “MA plan” to mean “health benefits coverage offered under a policy or contract by an MA organization that includes a specific set of health benefits offered at a uniform premium and uniform level of cost-sharing to all Medicare beneficiaries residing in the service area of the MA plan (or in individual segments of a service area, under § 422.304(b)(2)).”
3 42 C.F.R. § 422.2 defines an “MA organization” to mean “a public or private entity organized and licensed by a State as a risk-bearing entity (with the exception of provider-sponsored organizations receiving waivers) that is certified by CMS as meeting the MA contract requirements.
4 42 C.F.R. § 422.210 reads as follows: “Assurances to CMS. (a) Assurances to CMS. Each organization will provide assurance satisfactory to the Secretary that the requirements of § 422.208 are met. (b) Disclosure to Medicare Beneficiaries. Each MA organization must provide the following information to any Medicare beneficiary who requests it: (1) Whether the MA organization uses a physician incentive plan that affects the use of referral services. (2) The type of incentive arrangement. (3) Whether stop-loss protection is provided.”