Minnesota commissioners discourage legislature from creating new regulations for provider networks
Minnesota New Regulations
March 31, 1997
One of the most prominent experiments in direct-contracting between payers and providers is taking place in Minnesota.
But, in a report to the legislature last month, Minnesota’s commissioners of health and commerce discouraged the legislature from adopting regulations for provider-sponsored organizations (PSOs). Several states are seriously looking at regulating PSOs in an effort to protect consumers who obtain health care under direct-contracting arrangements.
"We feel strongly that we are capable of regulating those entities right now," says Kathy Vanderwall, supervisor of the data/forecasting unit for Minnesota’s Department of Health and one of the authors of the report, "Direct Contracting for Health Care Services." The state agencies believe the only good reason for specific regulations for PSOs now is if the Minnesota legislature wants to stimulate the creation and growth of these entities, Ms. Vanderwall says.
The state not only has regulations for insurance and HMOs, but also has developed special regulations for Community Integrated Service Networks (CISNs), local provider networks with under 50,000 members. Those regulations have more lenient solvency requirements to accommodate the smaller networks. If a PSO was determined to be sufficiently risk-bearing to warrant regulation, it would be up to the entity to decide which regulations to become licensed under, according to Ms. Vanderwall.
The Buyers Health Care Action Group (BHCAG), a Twin Cities-based buying coalition of 24 of the state’s largest self-insured employers, has not been subject to regulation, the report states, because of "how the risk is actually apportioned." BHCAG uses a sophisticated payment system for its groups of providers or care systems. The groups are paid on a modified fee-for-service basis, allowing BHCAG employers to remain self-insured.
"Although BHCAG’s plan clearly involves the transfer of some risk, it is difficult to determine exactly how much," says the report by the departments of health and commerce. "The state would not hesitate to define BHCAG’s program as insurance if it was felt necessary."
Not only do BHCAG employers have the financial resources to maintain their commitment to their employees in the event of an insolvent care system, but the coalition also uses a health-based risk-adjustment mechanism that helps buffer the provider groups from undue risk. For now, the commissioners plan to "continue to monitor and evaluate this direct contracting model," the report says.
Steve Wetzell, of BHCAG, called the reimbursement method being used by BHCAG "virtual capitation." Previous medical experience is used to develop a per member per month claim target for the care systems. That is then converted into a fee schedule. Care systems are paid on a fee-for-service basis, but, each quarter, payment is risk-adjusted against incurred claims.
"This [risk adjustment] addresses the concern about high-risk people and spreading risk across health plans," says Lynn Blewett, director of the health economics program for the Department of Health.
About 112,000 employees of the 22 BHCAG employers began enrolling in 15 provider systems in January and February. The care systems vary in size from 50 to 400 providers, according to Mr. Wetzell.
A risk-based capital formula still being developed by the National Association of Insurance Commissioners (NAIC) could help address the issue of what constitutes sufficient risk-bearing by such organizations to justify consumer protections. However, in the meantime, the state already has regulations on insurance and HMOs that could be applied to PSOs if a determination was made that regulation was needed. Officials believe they can monitor these organizations on a case-by-case basis.
"A lot of people fling around words like provider-sponsored organizations as if it’s something you can look up in the dictionary," says Julia Phillips, life and health actuary for the Department of Insurance. "How you regulate PSOs is an impossible question to answer. You need a definitional framework before you can address that."
Victor Thorstenson, of the House Health and Human Services Finance Division says the legislature is now busy getting the state in compliance with the federal welfare reform law, so there are currently no proposals to regulate PSOs. He believes there will be proposals later in the session, however. He adds that the recommendation for no regulations from the commissioners is "what we would expect."
Minnesota officials also may be loath to regulate an evolving marketplace development. A major criticism of the Minnesota managed care market in recent years is that it is too consolidated and that a few major players dominate health care delivery. Direct-contracting by provider groups promises to "break up" the market in the future. If there is a concern that standards are too high for PSOs, Ms. Vanderwall says, the state should ask itself if changes shouldn’t be made across the board so that there is "one level of protection that is necessary for everyone."
The commissioners noted that "other attempts to allow new forms of service delivery in the state," such as legislation on CISNs and Health Care Provider Cooperatives "have not proven useful." None of the cooperatives formed under the law is direct-contracting with employers, the report says. "The legislature could choose to attempt to determine what have been the barriers to provider acceptance of these models, before embarking on new legislation."
Contact Ms. Vanderwall at 612-282-6362; Mr. Wetzell at 612-896-5190; and Mr. Thorstenson at 612-296-2317. For a copy of the report, Direct Contracting for Health Care Services, Final Report to the Legislature, call 612-282-6349.
"They call this new model of health care purchasing a farmers’ market," says Allan Baumgarten, a Minnesota-based consultant, about the move by Buyers Health Care Action Group (BHCAG) and others to direct-contract with providers for employees’ health care needs.
BHCAG, which began enrolling employees in 15 care systems early this year, is creating a ripple effect in Minnesota with its model.
Counties are now positioning themselves to direct-contract to provide for Medicaid services. This move would help counties safeguard local provider networks, particularly in rural areas.
Health Partners announced late last year that it planned to offer a similar product to small employer groups, and Blue Cross BlueShield of Minnesota signed a five-year agreement with a large physician practice, which is the first of what it hopes will be at least four "care systems" in its Blue Care plan.
BlueCross hopes to offer these provider networks to groups of 50 and above to boost its market share with these customers.
Jan Lysen, vice-president of network management for the metro region for BlueCross, says the insurer will use cost targets and health-based risk-adjustment like BHCAG does, but the care systems will not be price-tiered. She says this will only further encourage consumer freedom to move across the systems.
Consumer freedom and choice is one of the guiding principles of BHCAG’s direct-contracting initiative, says Steve Wetzell, executive director. Consumers move to a different care system whenever they want, as long as they move to a system that is priced the same or priced lower than the originally selected care system. The systems are classed as low, medium or high-priced.
While BHCAG employees can choose from among 15 systems now, one question is whether all these care systems will get enough market share to meet the demands of BHCAG’s "unique agenda." No information was available from BHCAG on the market share of the care systems.
However, Mr. Wetzell freely admits that getting more covered lives into the system is key to making it work.He is encouraged by "me-too" developments in the market. BHCAG recently recruited a few more companies and continues to look for partners who are philosophically aligned with its approach.
One potential source for more insured lives is Minnesota’s Department of Employee Relations (DOER). The DOER is still considering the BHCAG model for state employees. Kathleen Burek, assistant commissioner of employee insurance for DOER, says any decision to use the model will be contingent on collective bargaining with the unions later this spring. DOER continues to evaluate this model for budget neutrality and other factors.
One concern for the state employee system, Ms. Burek says, is having statewide access and coverage. Most of BHCAG’s care systems are in the metropolitan areas. Ms. Burek says there may be local provider networks outside the Minneapolis-St. Paul area that could direct-contract with the state if there also was the potential for other insured lives through BHCAG.
Minnesota commissioners discourage legislature from creating new regulations for provider networks
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