Wednesday, December 19, 2012

What, Me Worry (about a mere statute)?

Much was made of the recent health care cost control legislation in Massachusetts, Chapter 224 of the Acts of 2012.  And, after all, who can be against "An Act Improving the Quality of Health Care and Reducing Costs Through Increased Transparency, Efficiency and Innovation?"  Well, apparently the state's own Division of Insurance can be, having decided that the Legislature didn't really mean an important part of the act.

There is a provision of the law ("Chapter 176T, Risk-bearing Provider Organizations") that was written to provide some assurance that provider organizations--physician organizations, physician-hospital organizations, independent practice associations, provider networks, accountable care organizations and any other organization that contracts with carriers for payment for health care services--would be financially capable of bearing the risk of alternative payment contracts.  In particular, a provider organization that accepts downside risk in a payment contract is required to file an application for a risk certificate with the Division of Insurance.  It has to include:

(1) the filing materials submitted to be registered as a provider organization, pursuant to chapter 6D;
(2) a list of all carriers and public health payers with which the provider organization has entered into alternative payment contracts with downside risk;
(3) financial statements showing the risk-bearing provider organization’s assets, liabilities, reserves and sources of working capital and other sources of financial support and projections of the results of operations for the succeeding 3 years;
(4) a financial plan, including a statement indicating the anticipated timing for receipt of income from alternative payment contracts with downside risk versus the incurrence of expenses, a statement of the applicant’s plan to establish and maintain sufficient reserves or other resources that will protect the risk-bearing provider organization from the potential losses from downside risk, copies of insurance or other agreements which protect the risk-bearing provider organization from potential losses from downside risk, and a detailed description of mechanisms to monitor the financial solvency of any provider organization subcontracting with the applicant that assumes downside risk in its alternative payment arrangement with the risk-bearing provider organization;
(5) a utilization plan describing the methods by which the risk-bearing provider organization will monitor inpatient and outpatient utilization under the alternative payment contracts with downside risk;
(6) an actuarial certification that, after examining the terms of all the risk-bearing provider organization’s alternative payment contracts with downside risk that the alternate payment contracts are not expected to threaten the financial solvency of the risk-bearing provider organization; and
(7) such other information as the division may specify through regulation.

Sorry about all this detail, but you can see the purpose.  The Legislature wanted to protect provider organizations--and the patients served by them--from the untoward results that might emerge from a failure to meet the spending limits of alternative contracts.  In the language of the law, the insurance commissioner is supposed to:

ensure that a risk-bearing provider organization is not subject to adverse conditions which in the commissioner’s determination have at least a moderate potential to impact a risk-bearing entity’s ability to meet its risk-bearing responsibilities under any alternative payment contracts.

So how did the Division of Insurance interpret this mandate?  In a bulletin dated November 20, 2012, it said:

Although Chapter 176T became effective on November 4, 2012, the Division considers the period from November 4, 2012 through December 31, 2013 to be a transition period (“Transition Period”) with respect to the issuance of Risk Certificates or Risk Certificate Waivers.  During the Transition Period, provider organizations and Carriers may enter into and continue to participate in alternative payment contracts with Downside Risk if the provider organization applies for and receives a transition period waiver from the Division.

And what are the requirements for the "transition period waiver?" A highly watered down version of those included in the statute.  Indeed, the required documentation is a virtual nullity when it comes to providing an ability to determine if a provider organization is financially capable of handling downside risk.  Here's the list:
  1. The name of the provider organization;
  2. The name and contact information for the person within the provider organization designated to be the Division’s primary contact;
  3. The official names of all health care payers and employers, as defined in Chapter 176T (if any), with which the provider organization currently has alternative payment contracts with Downside Risk;
  4. Net patient service revenue earned by the provider organization in 2011;
  5. Whether the provider organization has any alternative payment contracts with Downside Risk directly with individuals;
  6. For provider organizations that do not yet have any alternative payment contracts with Downside Risk, the names of all health care payers and employers with which the provider organization is proposing to enter such contracts; and
  7. Any additional information deemed necessary by the Division.
Requirements for insurance carriers are also corresponding diluted.

Chapter 224 of the Acts of 2012 also amends Chapter 176O to prohibit Carriers from entering into or continuing an alternate payment contract with Downside Risk with a Risk-Bearing Provider Organization, unless the organization has obtained either a Risk Certificate or a Risk Certificate Waiver, as described in Chapter 176T.  During the Transition Period, any Carrier that is either entering into or continuing an alternate payment contract with Downside Risk with a provider organization that has obtained a Transitional Period Waiver shall be deemed to be in compliance with the relevant provision of Chapter 176O.
When I was a commissioner in the state government, I considered an enacted statute to be the law.  Oh wait, it is the law!  Here we have a regulatory agency that has unilaterally postponed the effective date of a law by over a year.  This action was not the result of a rule-making, during which the agency received comments from the public and interested parties.  It came out in the form of a bulletin.  No statutory support is offered for this determination, just the Division's "consideration."

The Legislature's determination on this issue was not an academic exercise.  The law envisions and encourages a dramatic increase in the use of risk-bearing contracts.  Those contracts are quite different from the fee-for-service arrangements that have existed in the past.  At least some provider groups may not have the sophistication to perform a proper analysis of these contracts.  Others may feel forced into them by heavy pressure from the major insurers.  Or by competitive pressures.

Insurance companies are created to bear risk and have corresponding capital reserves.  Provider organizations were not created to bear risk, have little experience with it, and are unlikely to have accumulated capital reserves for the purpose of covering such risk.

The Division of Insurance is supposed to safeguard the public interest in this matter.  Now, not after December 2013.


Mitch said...

As always, good stuff. I have spent a number of years in the insurance industry, and the advent of ACO's and other arrangements that allow providers to accept risk is a classic trap. The phrase "profit-sharing" is what they envision, whereas the proper term is risk sharing. Great on the upside, the downside can be devastating both financially and culturally.

e-Patient Dave said...

Isn't it possible to go to court for an injunction or something??

Paul Levy said...

I don't think there is a process for an ordinary citizen to do that. I also don't think an injunction can be used to compel an agency to act.

Anonymous said...

In fairness, I think DOI was sensitive to the somewhat unrealistic "ambitions" of the legistive language which imposes a very costly admin burden on smaller, established and sound practices with successful experience in managing global payments. It helps move things forward without forcing "foding" of some the more progessive and successful innovators in primary care practice. The legislature deals with "words" not front line realities. It lives in a "policy" haze" not real world facts...DOI at least is trying to factor in reality.

Paul Levy said...

Sorry, but you are not allowed to pick and choose like that when you are in the Executive branch. Otherwise, your premise leads down the slippery slope of transferring legislative power to the Executive. Yes, it is all right if the authorization language gives you flexibility, but that was not the case here.

The DOI had ample opportunity to comment on this bill as it worked its way through the Legislature. If it was not persuasive, it suggests that the Legislature actually had the intent sent forth.

But, even if we accepted your premise that an Executive agency is free to change things, there should be a clear and public explanation as to the reasons and the basis for the decision. There was not here.

local lawyer said...


The courts are usually loathe to disturb the exercise of expert agency discretion. I've been on both sides of such disputes. But I have to say (without reading the bulletin) that this seems extreme, and I was on the losing end of one such battle when I was in state government. My agency took a principled stand, but the courts ultimately decided that we were misinterpreting the statute.

To get an injunction you have to show irreparable harm if an injunction does not issue, and reasonable likelihood of success on the merits. The agency would counter by saying we know what we're doing and we're transitioning in; no risk of irreparable harm. Usually regulators trip over themselves to regulate, so I bet the court would say that if they're not it’s not that big a deal.

I agree that they *should* regulate here; I just don't think a court would order it.