The Office of General Counsel issued the following opinion on August 26, 2003 representing the position of the New York State Insurance Department.
Re: Regulation 164 Licensing Requirements for Intermediary Entities that Enter into Financial Risks Transfer Arrangements with Insurers
QUESTIONS PRESENTED:
1. Must an intermediary entity that enters into a financial risk sharing arrangement with an insurer, pursuant to the provisions of N.Y. Comp. Codes R. & Regs. tit. 11, Part 101 (2002) (Regulation 164), obtain a license as an insurer?
2. If an intermediary entity is allowed to enter into such arrangement, would such entity be engaged in the corporate practice of medicine?
Conclusions:
1. An intermediary entity that enters into such financial risk sharing arrangement is not required to obtain a license as an insurer so long as the arrangement is in compliance with the provisions in N.Y. Comp. Codes R. & Regs. tit. 11, Part 101 (2002) (Regulation 164) and N.Y. Pub. Health Law § 4403(1)(c) (2002).
2. This question is outside the jurisdiction of this Department.
Facts:
The inquiry is general in nature. No specific facts were given.
Analysis:
N.Y. Ins. Law § 1101(a)(1) & (2) (McKinney Supp. 2003) defines an insurance contract and provides, in pertinent part:
(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.
N.Y. Ins. Law § 1102(a) (McKinney 2000) prohibits the doing of an insurance business without a license, unless the person or entity is exempt from the licensing requirements.
At issue is whether an intermediary entity that enters into a financial risk sharing arrangement with an insurer, pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, Part 101 (2002) (Regulation 164), is engaging in an insurance business and, if so, requires a license to do such business in New York.
Financial risk transfer is defined in Section 101.3(c) of Regulation 164:
(c) The term financial risk transfer shall mean the contractual assumption of liability by the health care provider by means of a capitation arrangement for the delivery of specified health care services to subscribers of the insurer.(emphasis in original).
The term capitation arrangement is defined in Section 101.3(a) of Regulation 164 which provides, in pertinent part, that:
(a) The term capitation or capitation arrangement shall mean contractually based prepayments (any payments made prior to the last day of the month shall be deemed a prepayment of the entire months capitation) made to a health care provider, on a per member per month or a percentage of premium basis, in exchange for one or more covered health care services to be rendered, referred or otherwise arranged by such provider and by its participating providers; . (emphasis in original).
Under a financial risk transfer arrangement, one party, such as a health care provider, will confer a benefit of pecuniary value upon another party, the insurer, by fulfilling the insurers obligations to the insureds based on the happening of a fortuitous event (sickness) which is, to a substantial extent, beyond the control of either party. Financial risk transfer arrangements have the elements of fortuity and value, thereby falling within the definition of an insurance contract.
Here, Chapter 586 of the Laws of 1998 (hereinafter "Chapter 586") amended both the Public Health Law and the Insurance Law and, among other things, imposed requirements regarding provider contracts. With regard to the Insurance Law, Sections 41-d and 41-e of Chapter 586 amended Sections 3217-b and 4325 and added a new paragraph (f) to each of those sections which states, in pertinent part:
(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 of access.
N.Y. Pub. Health Law § 4403(1)(c) (2002) is referred to in paragraph (f) above. Section 4403(1)(c) entitled: Health Maintenance Organizations; Issuance of Certificate of Authority provides, in pertinent part, that:
(1) 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; .
There is no express licensing exemption in the Insurance Law for health care providers who enter into these financial risk transfer arrangements with insurers. The Department has, however, construed Sections 3217-b(f) & 4325(f) of the Insurance Law (and Section 4403(1)(c) of the Public Health Law for HMOs) as implied, but limited, exemptions to the licensing requirements contained in Article 11 of the Insurance Law. As a result, with regard to financial risk transfer arrangements between insurers and providers, insurers are authorized to enter into such arrangements with and to compensate providers on a capitated basis (under the statutorily specified circumstances) without the providers having to obtain a license from the Insurance Department.
In addition, Chapter 586 expressly authorized the Superintendent of Insurance and the Commissioner of Health to promulgate regulations relating to financial risk transfer arrangements between insurers and providers. As a result, Regulation 164 was promulgated and aims at ensuring that, among other things, contractual arrangements between an insurer and a health care provider are consistent with the requirements in Section 4403(1)(c) of the Public Health Law. Regulation 164 also implemented a legislative policy for reviewing the adequacy of these financial risk transfer contracts between insurers and providers.
Specifically, N.Y. Comp. Codes R. & Regs. tit. 11, § 101.1 (2002) provides in relevant part:
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 .
The inquirer specifically asks whether an intermediary entity must obtain a license to enter into financial risk transfer arrangements with insurers. An intermediary entity is recognized and defined in N.Y. Comp. Codes R. & Regs. tit. 11, § 101.3(i) (2002) (Regulation 164) as "a person or entity which enters into a financial risk transfer agreement with one or more insurers and who contracts with one or more participating providers to perform the services which are set forth in the financial risk transfer agreement." Section 101.3(g) of Regulation 164 states that a health care provider shall include, among other things, an intermediary entity.
As discussed above, although financial risk transfer arrangements fall within the definition of an insurance contract, the Department has construed Sections 3217-b(f) and 4325(f) of the Insurance Law to be a limited exemption to the licensing requirements for providers who enter into financial risk transfer arrangements with insurers. Such arrangements must be in accordance with the provisions in Regulation 164 and Section 4403(1)(c) of the Public Health Law. Notwithstanding any prior Department opinions to the contrary, in the HMO context, the Department has applied the limited licensing exemption, afforded to providers, to Independent Practice Associations (IPAs) that enter into similar arrangements with HMOs and providers.
Given that an IPA is similar in nature and function to an intermediary entity, the Department has not required licensing for intermediary entities that enter into similar financial risk sharing arrangements with insurers by contracting with providers to perform the services set forth in the financial risk transfer agreement so long as the arrangement complies with all the requirements in Regulation 164 and Section 4403(1)(c) of the Public Health Law. Any arrangement that falls outside of or violates these requirements requires licensing on the part of the provider and/or intermediary entity. Please note also that Section 101.4(b) of Regulation 164 provides, in relevant part, that "[n]otwithstanding any agreement to the contrary, the insurer retains full financial risk on a prospective basis for the provision of health care services pursuant to any applicable policy or contract." In addition, Section 101.4(c) of Regulation 164 provides, in pertinent part, that insurers that use "a capitation arrangement to transfer all or part of its financial risk to a health care provider must do so by means of a contract approved by the Superintendent."(emphasis added).
1
Section 45 of Chapter 586 provides, in pertinent part, that this act shall take effect immediately, provided:"1. Sections one through forty-one-e of this act shall take effect July 1, 1999; provided that:
"(a) the commissioner of health and the superintendent of insurance may promulgate regulations prior to such date."
2See e.g., OGC Opinions dated December 18, 2000 and February 21, 1998, authored by Alan Rachlin.
3
See, N.Y. Comp. Code R. & Regs., tit. 10, § 98-1.5(b)(6)(iv)(a) (2000) which defines an IPA as one that:arranging by contract for the delivery or provision of health services by individuals, entities, facilities license or certified to practice medicine and other health professions, and, as appropriate, ancillary medical services and equipment, by which arrangements such health care providers and suppliers will provide their services in accordance with and for such compensation as may be established by a contract between the corporation and one or more health maintenance organizations which have been granted a certificate of authority pursuant to the provisions of article 44 of the Public Health Law of the State of New York as amended; .