Will integration lead to regulation? - integrated healthcare delivery networks - special edition: The State of Health Care in America 1995

Business & Health, Annual, 1995 by Lisa Lopez

Absent any uniform standards of regulation, state and federal regulators are questioning whether and how to regulate innovative provider arrangements typical of integrated networks, says Garry Carneal, legal affairs director at the Group Health Association of America, the national HMO trade group in Washington.

Should an integrated system that is run by an HMO or other health plan be regulated as an insurer? If the system is operated by a physician group that capitates health care services, should it be licensed as an HMO or as a PPO? Insurance and health plans are regulated at the state level. The problem for regulators is determining the most efficient way to regulate complex health plan structures such as integrated delivery networks that offer different product lines.

Currently, integrated delivery systems established by physician groups and hospitals are not regulated as integrated networks, says Gregory B. Stites, senior counsel of the National Association of Insurance Commissioners (NAIC), in Kansas City, Mo. Rather, state regulators license a health plan based on what entity in the health care organization assumes the financial risk as an insurer of health care services. "States look at plans based on what's being represented to consumers and what type of insurance risk is being accepted by the entity," Does it act like it's an insurance company or like it's an HMO?" says Stites.

For example, if the provider group limits its enrollees to a closed panel or network of providers, contracts with an employer group, and assumes financial risk for the care provided, the state may regulate it as an HMO. "If the provider group operates like a PPO, or pays its physicians on a fee schedule," however, many states may license it as traditional indemnity plan, Carneal adds.

Regulators face a daunting task as they try to determine the structure of an integrated system involving doctors, hospitals, and managed care organizations where more than one of those entities share the risk. For instance, notes Carneal, some states allow HMOs to operate as such if they offer a stand-alone point-of-service product, while other states would regulate the same entity as a PPO.

Stites notes that an NAIC committee is currently studying how to create essentially a seamless regulatory process, or model, whereby all health-insuring organizations will go through the same initial licensure application process. This model would replace the flurry of existing multiple licensure application procedures for various entities and activities, such as HMOs, PPOs, utilization review, and fee-for-service arrangements, says Stites.

The current process becomes even more burdensome for organizations that want to expand into new out-of-state markets. Utilization review laws, for example, vary among the 38 states that have some form of these regulations.

"It doesn't make sense to create a new licensing scheme every time someone comes up with a new idea," says Stites. "The concept of the new model is to assist the marketplace." NAIC will also study for the first time how to apply additional criteria, such as provider credentialing, confidentiality, complaint procedures, quality assurance protocols, and data reporting requirements to this process.

The NAIC expects these studies and models to be complete by year-end. "We have no interest in stifling innovation, but we also have no interest in allowing any type of entity to engage in unauthorized insurance activities," says Stites.