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Insurance Regulation of Providers That Bear Risk

Published online by Cambridge University Press:  24 February 2021

Allison Overbay  and
Mark Hall
Allison Overbay
Affiliation:
Wake Forest University School of Law; 1996-1997, Honorable N. Carlton Tilley, Jr., United States District Court for the Middle District of North Carolina; 1997-1998, Honorable Susan H. Black, United States Court of Appeals for the Eleventh Circuit
Mark Hall
Affiliation:
Wake Forest University School of Law and Bowman Gray School of Medicine
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Extract

The emerging king of the new health care order is capitation. “Whoever controls the capitated revenue stream will be poised to dominate the emerging health care delivery system— and to reap an enormous windfall that could total hundreds of billions of dollars.” Accordingly, we are witnessing a tremendous struggle over the locus of capitation. Once firmly ensconced in the insurance and HMO industry, capitation is now spreading to organizations controlled by doctors and hospitals.

In a world littered with countless acronyms and organizational types—HMO, IDS, MCO, EPO, PHO, IPA, PSN, OWA—we are most reluctant to introduce yet another. But we must. None of the existing terms describes an important aspect common to all of them that is the subject of this article—providers bearing financial risk for medical expenses. We call these Risk-Bearing Provider Groups (RBPGs). The most prominent example of an RBPG is a physician-hospital organization (PHO), which consists of at least one hospital and one physician practice group that accepts partial or full capitation for at least some of its patients. Accepting capitation risk is not essential to being a PHO, but is a common characteristic. PHOs seek to maintain the financial center of gravity in a provider organization as insurers and employers increasingly come to dominate health care delivery. PHOs can do this by contracting directly with employers on a fully or partially capitated basis, thereby by-passing insurance companies. They can also subcontract with insurance companies or HMOs—so-called “downstream” capitation. Accepting treatment obligations under financial risk helps providers maintain their professional and institutional autonomy and offers the prospect of capturing some of the financial rewards created by the market restructuring that is presently sweeping the country.

Type
Articles
Information
American Journal of Law & Medicine , Volume 22 , Issue 2-3: Health Care Capitated Payment Systems , 1996 , pp. 361 - 387
Copyright
Copyright © American Society of Law, Medicine and Ethics and Boston University 1996

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References

1 Johnsson, Julie & Mitka, Mike, Showdown at Capitation Corral, Am. Med. News, Aug. 15, 1994, at 1Google Scholar [hereinafter Showdown at Capitation Corral].

2 These stand, respectively, for health maintenance organization, integrated delivery system, managed care organization, exclusive provider organization, physician hospital organization, independent practice association, provider-sponsored network, and other weird arrangements. The last one is a joke, stolen from Jason B. Adkins, president of the Center for Insurance Research in Cambridge, Massachusetts.

3 Other examples might, but do not necessarily, include physician organizations (POs), IPAs, IDSs, and HMOs—depending on how they are structured and how they do business.

4 Physician Hospital Organizations: State Regulators Play Catch-Up 1 (1994) (unpublished report available from Ernst & Young LLP by calling Sondra Klimacek at 212-773-5164) [hereinafter State Regulators Play Catch-Up]. PHOs and other provider groups can also accept treatment risk under fee-for-service (FFS) payment by agreeing to stay within a budget and sharing the costs that exceed the budget by a certain percentage, or by establishing a “withhold pool” as a percentage of FFS payments that is awarded as a bonus or lost as a penalty depending on whether spending targets are met or exceeded. For a general review of the formation and purpose of PHOs, see Physician Payment Review Commission, Annual Report to Congress 245-46, 249-51 (1995) [hereinafter Pprc Annual Rep.]; Burns, Lawton & Thorpe, Darrell, Trends and Models in Physician-Hospital Organization, Health Care Mgt. Rev., Fall 1993, at 7.CrossRefGoogle Scholar

5 Kertesz, Louise, The Game of Risk: Providers Are Fighting Back, Mod. Healthcare, Feb. 5, 1996, at 24, 24;Google Scholar see also Robinson, James C. & Casalino, Lawrence P., The Growth of Medical Groups Paid Through Capitation in California, 333 New Eng. J. Med. 1684 (1995).CrossRefGoogle ScholarPubMed

6 Showdown at Capitation Corral, supra note 1, at 1.

7 See Cerne, Frank, The Fading Stand-Alone Hospital, Hosps. & Health Networks, June 20, 1994, at 28, 32.Google Scholar Cerne discusses hospitals’ belief that they need to integrate with other health care facilities in order to survive. According to one survey, “[a] majority (81 percent) of the survey respondents [1143 hospitals and 41 hospital systems] think that their hospitals will not be operating as stand-alone facilities in five years.” Id.

8 Although only six percent of the U.S. population is currently fully capitated for all services, momentum for this payment system is rapidly building. Capitation is already the leading form of physician reimbursement by HMOs, according to a recent InterStudy survey showing that more than 44% use the method. And payers nationwide are beginning to push this risk-sharing mechanism, even in small and medium-sized urban markets.

In fact, more than 50% of the nation’s population will be capitated by the year 2005— creating short-term annual savings of $263 billion, predicts the Advisory Board Co., a leading hospital industry think-tank.

Showdown at Capitation Corral, supra note 1, at 24 (citation omitted).

9 Greely, Henry, The Regulation of Private Health Insurance, in Health Care Corporate Law: Formation and Regulation § 8.14.2 (Hall, Mark ed., 1994).Google Scholar

10 PHOs and the Assumption of Insurance Risk: A 50-State Survey of Regulators’ Attitudes Toward Licensure 1 (July 10, 1995) (unpublished report available from Group Health Association of America by calling Susan Pisano at 202-778-3245 or Paula Darte at 202-778-8477) [hereinafter State Survey].

11 Kaufman, Laura & Webster, Susan, GHAA Survey Finds States Are Erratic in Oversight and Regulation of PHOs, 4 Health L. Rep. (BNA) No. 28, at 1063, 1063 (July 13, 1995).Google Scholar

12 This is a trade association of HMOs, which have a vested interest in extending existing regulatory oversight to new competitors in the form of provider groups. Nevertheless, the survey’s basic methodology appears to be acceptable, and the findings plausible.

13 State Survey, supra note 10, at 3.

14 Id. at 4.

15 Id. at 5.

16 Kaufman & Webster, supra note 11, at 1064; see also Mjoseth, Jeannine, State Regulation of Risk-Bearing Networks “All Over the Board,” 5 Health L. Rep. (BNA) No. 7, at 235 (Feb. 15, 1996).Google Scholar

17 Kaufman & Webster, supra note 11, at 1064.

18 See generally Babbitt, Bruce & Rose, Jonathan, Building a Better Mousetrap: Health Care Reform and the Arizona Program, 3 Yale J. on Reg. 243 (1986Google Scholar); Chavkin, David F. & Treseder, Anne, California’s Prepaid Health Plan Program: Can the Patient be Saved?, 28 Hastings L.J. 685 (1977).Google Scholar

19 See Harrison, Eric & Stanley, Edith, Alternative to Medicaid Leaves Many Dissatisfied, L.A. Times, Nov. 20, 1995, at 1Google Scholar (reporting that many of the TennCare managed care organizations suffered large losses in the first year of operation).

20 See Krane, Daniel W., Uniform Approach to Risk-Assuming Entities Could Avoid Insolvencies, Federal Regulation, 4 Health L. Rep. (BNA) No. 42, at 1635, 1636 (Oct. 26, 1995).Google Scholar

21 Health Care Daily (BNA) (Nov. 8, 1995), available in LEXIS, Health Library, BNAHCD file.

22 According to one source, capitated systems would produce the following annual savings:

Showdown at Capitation Corral, supra note 1, at 1 (citations omitted). On the other hand, not all these savings would accrue to consumers (either employers or subscribers). Instead, some significant portion would be kept by providers. In the short run, providers will keep from 50% to 100% of the savings, according to the type of risk the provider is willing to bear. Id. (citations omitted).

23 Johnsson, Julie, Integrated Networks Are Expensive, Am. Med. News, June 13, 1994, at 1Google Scholar (citing estimates from the Advisory Board Co., a Washington, D.C.-based health care think-tank) [hereinafter Integrated Networks Are Expensive].

24 Id.

25 Id. (quoting Deborah Neveleff, senior consultant with the Advisory Board Co., which specializes in integration strategies).

26 This argument is developed at great length in Mark A. Hall, Making Medical Spending Decisions (forthcoming 1996).

27 On the conflicting signals that disparate bodies of law create for new forms of health care financing and delivery, see generally Woodhall, Amy L., Integrated Delivery Systems: Reforming the Conflicts Among Federal Referral, Tax Exemption, and Antitrust Laws, 5 Health Matrix 181 (1995)Google ScholarPubMed (examining federal restrictions on the formation of integrated delivery systems and their inconsistent application). Discouraging providers from bearing risk may also be in conflict with referral fee laws. The complex details of these laws are beyond the scope of this discussion, but generally they tend to treat financial incentives within groups more leniently than those between groups. Frankford, David M., Creating and Dividing the Fruits of Collective Economic Activity: Referrals Among Health Care Providers, 89 Colum. L. Rev. 1861, 1872 (1989).CrossRefGoogle Scholar Also, there is increasing pressure to create broad protections from these laws when providers are subject to capitation. See Blumstein, James F., The Fraud and Abuse Statute in an Evolving Health Care Marketplace: Life in the Health Care Speakeasy, 22 Am. J.L. & Med. 205 (1996)Google Scholar for detailed discussion and analysis.

Imposing regulatory burdens on risk-bearing providers also makes it difficult to comply with IRS rulings concerning who is an independent contractor versus an employee. The IRS is currently evaluating a number of physician contracting arrangements with a view toward reclassifying independent contractors as employees. Bearing risk is one of the key factors needed to maintain independent contractor status. Johnsson, Julie, IRS Classifies More Doctors as Employees, Am. Med. News, Nov. 27, 1995, at 1.Google Scholar

28 See generally Arizona v. Maricopa County Medical Soc’y, 457 U.S. 332 (1982) (holding that physicians’ agreement to accept fees set by plan was per se illegal); Meyer, David L. & Rule, Charles F., Antitrust Liability, in Health Care Corporate Law: Financing and Liability §10.10.1.2 (Hall, Mark ed., 1994).Google Scholar

29 Meyer & Rule, supra note 28, at 85 (Supp. 1995).

30 Inability to Share Financial Risk Would Subject IPA to Attack, FTC Says, 4 Health L. Rep. (BNA) No. 29, at 1110-11 (July 20, 1995).Google Scholar

31 Says one commentator,

[t]hey will need more contingency reserves because a greater proportion of the business will be on an at-risk basis. In addition, they will need more contingency reserves to cover the higher risks of bidding for contracts in a health care environment that is disrupted so that the past trends are poor indicators of the future. Finally, they will need capital from contingency reserves to invest in forming integrated health plans that manage care more aggressively.

Jones, Stanley et al., The Risks of Ignoring Insurance Risk Management, Health Aff., Spring (II) 1994, at 108, 114-15.Google ScholarPubMed

32 Showdown at Capitation Corral, supra note 1, at 24 (quoting Lynn Schramm, senior consultant with the Advisory Board Co.). See generally Light, Donald W., Life, Death, and the Insurance Companies, 330 New Eng. J. Med. 498, 499 (1994).CrossRefGoogle ScholarPubMed

33 McCormick, Brian, House Opens Door to Doctor Networks: AMA Pushes Senate, Am. Med. News, Oct. 9, 1995, at 1, 31.Google Scholar

34 This metaphor is drawn from Kertesz, Louise & Wojcik, Joanne, Risky PHO’s Winning Bet, Mod. Healthcare, July 25, 1994, at 44.Google Scholara

35 Id.

36 Overwhelming Opinion of NAIC Group that Provider Networks Be Licensed, 4 Health L. Rep. (BNA) No. 33, at 1264, 1264 (Aug. 17, 1995)Google Scholar [hereinafter Opinion of NAIC].

37 Johnsson, Julie & Mitka, Mike, How Much You’ll Need to Set Up Global Capitation, Am. Med. News, Aug. 15, 1994, at 25.Google Scholar

38 Jones et al., supra note 31, at 110-12; see also Krane, supra note 20, at 1636.

39 Kertesz & Wojcik, supra note 34, at 46.

40 See supra text accompanying notes 18-21.

41 See generally Hitchner, Carl H. et al., Integrated Delivery Systems: A Survey of Organizational Models, 29 Wake Forest L. Rev. 273, 302-03 (1994)Google Scholar; Kertesz & Wojcik, supra note 34, at 44-45.

42 N.C. Gen. Stat. § 58-1-10 (1995).

43 See, e.g., Ala. Code § 27-1-2 (1994); Ark. Code Ann. § 23-60-102 (Michie 1994); Ga. Code Ann. § 33-1-2 (1994); Mont. Code Ann. § 33-1-201 (1994).

44 Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 211 (1979).

45 SEC v. Variable Annuity Co., 359 U.S. 65, 73 (1959).

46 Id.

47 15 U.S.C. §§ 1011-1015(1994).

48 Id. § 1012.

49 H.R. REP. no. 873, 78th Cong., 1st Sess., 8-9 (1943).

50 Griffin Systems, Inc. v. Ohio Dep’t of Ins., 575 N.E.2d 803, 808 (Ohio 1991); Kimball, Spencer L. Jr., The Purpose of Insurance Regulation: A Preliminary Inquiry in the Theory of Insurance Law, 45 Minn. L. Rev. 471 (1961).Google Scholar

51 107 F.2d 239 (D.C. App. 1939).

52 Id. at 248.

53 Id.

54 Greely, supra note 9, § 8.3.2.

55 See Mjoseth, supra note 16, at 236; Opinion of NAIC, supra note 36, at 1264.

56 Opinion of NAIC, supra note 36, at 1264.

57 Id.

58 State Survey, supra note 10, at 8.

59 Texas originally did not allow PHOs to accept capitation from an HMO without being licensed as an insurer. This ruling was changed by statute in 1995, but in a confusing manner that still precludes some forms of downstream contracting. Conflicting Rules on Global Capitation Adopted by Legislature, 4 Health L. Rep. (BNA) No. 33, at 1265 (Aug. 17, 1995)CrossRefGoogle Scholar. Similarly, regulators in California originally ruled that health plans could not transfer full risk to provider groups. States Test Regulatory Waters, Hosps. & Health Networks, July 20, 1994, at 46.Google Scholar Subsequently, however, they ruled that providers could enter into such contracts for health services that they provide directly themselves. Id.; see also Md. Health Gen. Code Ann. § 19-713.2 (Michie Supp. 1995); 90 Op. Md. Att’y Gen. 030 (June 30, 1990); 84 Tenn. Op. Att’y Gen. 299 (Nov. 8, 1984).

60 A growing sentiment among state regulators is that HMOs need to play a greater role in monitoring and ensuring that their contracting providers, including PHOs, are performing delegated authorities in compliance with state regulations. In the future, HMOs that delegate functions to contracting providers will be required to implement oversight tools such as monthly reporting requirements, periodic audits, and corrective action plans. State Regulators Play Catch-Up, supra note 4, at 9. This approach is taken, for instance, in Pennsylvania and Maryland. See Krane, supra note 20, at 1635-36.

61 440 U.S. 205(1979).

62 Id. at 206.

63 15 U.S.C. § 1 (1994). The complaint originated because

Blue Shield offered to enter into a Pharmacy Agreement with each licensed pharmacy in Texas. Under the Agreement, a participating pharmacy agrees to furnish prescription drugs to Blue Shield’s policyholders at $2 for each prescription, and Blue Shield agrees to reimburse the pharmacy for the pharmacy’s cost of acquiring the amount of the drug prescribed. Thus, only pharmacies that can afford to distribute prescription drugs for less than this $2 markup can profitably participate in the plan.

Royal Drug Co., 440 U.S. at 209.

64 Royal Drug Co., 440 U.S. at 206.

65 Id. at 213-14.

66 Id. at 214. The Court continued:

By agreeing with pharmacies on the maximum prices it will pay for drugs, Blue Shield effectively reduces the total amount it must pay to its policyholders. The Agreement thus enables Blue Shield to minimize costs and maximize profits. Such cost-savings arrangements may well be sound business practice, and may well inure ultimately to the benefit of the policyholders in the form of lower premiums, but they are not the “business of insurance.”

Id.

67 Krane, supra note 20, at 1636.

68 This example is taken from N.C. Gen. Stat. § 58-67-5(0 (1995). Other states define HMOs similarly. See, e.g., Alaska Stat. § 21.86.900 (1994); Ark. Code Ann. § 23-76-102 (1994); Colo. Rev. Stat. Ann. § 10-16-102 (West 1994); Ind. Code Ann. § 27-8-7-1 (West 1994); Md. Health-Gen. Code Ann. § 19-701 (1994).

69 Pub. L. No. 93-222, § 2, 87 Stat. 914 (1973) (codified as amended in 42 U.S.C § 300e (1988)). The purpose of the Act was “[t]o stimulate the development and expansion of prepaid comprehensive health care delivery systems through the provision of Federal assistance to entities which meet the law’s definitional and organizational requirements for HMOs.” Lewis, Stephen I., Discussion of the HMO Concept, in Legal and Business Problems of Health Maintenance Organizations 7, 16 (1974).Google Scholar

70 State Regulators Play Catch-Up, supra note 4, at 1.

71 Garvin, Michele, Health Maintenance Organizations, in 4 Health Care Corporate Law: Managed Care ch. 1, § 1.5 (Hall, Mark A. & Brewbaker, William S. eds., forthcoming 1996)Google Scholar [hereinafter Managed Care].

72 State Regulators Play Catch-Up, supra note 4, at 2.

73 Id. at l.

74 See id.

75 N.C. Gen. Stat. § 58-67-20(a)(4) (1995).

76 Id.

77 Id. § 58-67-25(a).

78 Id. This accumulation occurs at a downward graduated rate according to the following formula:

First $200,000 of premiums 4%

Next $200,000 2%

All above $400,000 1%

Id. § 58-67-40.

“Uncovered” expenditures are those that the HMO itself does not directly provide, such as hospitalization expenses, specialist referrals, and out-of-area services, if the HMO has not made other arrangements to guarantee their provision in the event of insolvency and to protect its subscribers from financial liability. Thus, if these external providers have agreed to continue service despite not being paid by the HMO and have agreed to hold the subscribers harmless, then these services are not “uncovered” and do not require the maintenance of capital reserves. See NA1C 1988 Model HMO Act § 2.X, reprinted in Managed Care, supra note 71, at app. A; see also N.C. GEN. STAT. § 58-67-25(a).

79 N.C. Gen. Stat. § 58-67-60 (1995). The statute provides that “the investable funds of a health maintenance organization shall be invested only in securities or other investments permitted by the laws of this State for the investment of assets constituting the legal reserves of life insurance companies or such other securities or investments as the Commissioner may permit.” Id.

80 Kertesz & Wojcik, supra note 34, at 44.

81 State Regulators Play Catch-Up, supra note 4, at 4.

82 Jordan v. Group Health Ass’n, 107 F.2d 239, 248 (D.C. Cir. 1939).

83 See id. at 246-48.

84 See id.

85 Id. at 246.

86 Id. at 248.

87 PPRC Annual Rep., supra note 4, at 246.

88 See Barnett, William T. Jr., Formation and Licensing of HMOs in North Carolina, 11 Prognosis, Oct. 1994, at 3 (published by the North Carolina Bar Health Law SectionGoogle Scholar and by the North Carolina Society of Health Care Attorneys).

89 Kertesz, supra note 5, at 24.

90 At present, because most PHOs are very new, well over half their business is FFS. PPRC Annual Rep., supra note 4, at 251.

91 State Survey, supra note 10, at 4.

92 Blankenau, Renee, The Rules of the Game: New Solvency Standards Will Govern Health Plans, Capitation Agreements, Hosps. & Health Networks, July 20, 1994, at 44, 44.Google Scholar

93 See, e.g., NAIC Bulletin to Address Application of Insurance Laws to Provider Groups, 4 Health L. Rep. (BNA) No. 31, at 1177 (Aug. 3, 1995)Google Scholar (discussing Ohio advisory ruling which states that “[t]here is no degree of risk assumption that a provider may assume that would be acceptable to the Department [of Insurance]. It is like being a little bit pregnant.”).

94 For instance, one PHO in Georgia was forced to renegotiate a contract with a public hospital by switching from capitation to FFS because the insurance commissioner declared that the first arrangement constituted insurance. PHO to Change Health Contract Clarifying that It Is Not Insurer, 4 Health L. Rep. (BNA) No. 27, at 1042 (July 6, 1995). A spokesperson for the PHO explained that it was not marketing this capitation arrangement generally but had adopted it only in response to this one contractor’s request. Id. The regulators ruled, however, that even a single risk-sharing arrangement would subject the group to full- scale insurance regulation, noting that “‘The argument of how much risk they assumed is just flotsam and jetsam as far as we’re concerned.’” Id. at 1042-43.

95 29 U.S.C. §§ 1001-1461 (1994).

96 Hsia, David C., Benefits Determination Under Health Care Reform, 15 J. Legal Med. 533, 535 (1994).CrossRefGoogle ScholarPubMed

97 Considerable confusion was observed when states were surveyed about the potential preemptive effect of ERISA as applied to RBPGs that contract with a self-funded employer plan:

Twenty-five states replied that only licensed risk-bearing entities can directly assume risk, even if the party to the risk-bearing contract is an employer exempted from state regulation under ERISA. Two states replied that the ERISA exemption clearly supersedes its involvement. Two states said the ERISA exemption applies if the PHO contracts with only one employer at full financial risk. If the PHO contracts with multiple employers at full-financial risk, then the PHO is an HMO or insurer and must be licensed. Twenty-three states do not have a defined policy and before PHOs enter in to a risk-bearing contract the state department of insurance requests notification for review of the proposal.

State Regulators Play Catch-Up, supra note 4, at 4.

98 The preemption clause of ERISA provides that ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan .. ..” 29 U.S.C. § 1144(a) (1994).

99 The insurance saving clause provides that “[e]xcept as provided in subparagraph (B), nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.” Id. § 1144(b)(2)(A).

100 The deemer clause provides that

[n]either an employee benefit plan ... nor any trust established under such a plan, shall be deemed to be an insurance company or . . . bank ... or to be engaged in the business of insurance or banking for purposes of any law of any State purporting to regulate insurance companies, insurance contracts [or] banks ....

Id.§ 1144(b)(2)(B).

101 The insurance saving clause was added, in part, because the broad interpretation of the scope of ERISA preemption conflicted with the traditional recognition of state primacy in the field of insurance regulation. Archetto, John D., The Duality of ERISA, R.I. B.J., Jan. 1995, at 17.Google Scholar

102 This is not to say that the full scope of state authority is without controversy or confusion. When state regulation of HMOs and insurers departs from these core, traditional concerns, one must consult the three-factor test in Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 743 (1985) to determine whether the state law is directed to the business of insurance, or only to the insurer as a business. These somewhat metaphysical distinctions are beyond the scope of this paper, because the anticipated regulation of RBPGs is clearly at the core of traditional state authority over insurance.

103 In addition, the scope of state authority is unclear when employers share the insurance risk with providers, insurers, or HMOs through partial capitation, stop-loss, and other risk-sharing arrangements. Although these arrangements are increasingly common, we lack sufficient precedential guidance to offer any meaningful analysis within the limited scope of this Article.

104 Health Care Cooperatives May Contract Directly with Self-Insured Firms, 4 Health L. Rep. (BNA) No. 33, at 1260, 1260 (Aug. 17, 1995).Google Scholar However, a PHO that becomes insolvent would be required to continue providing care for thirty days. Before the bill was passed, a PHO faced a dilemma in trying to contract with employer plans.

“[B]y accepting risk, the cooperative would qualify as an insurance company .... While the co-op did not want to be an insurance company, the Minnesota Department of Health indicated it had to bear risk if it wanted to contract with employers.” Id.

105 29 U.S.C. § 1144(a) (1994). Although this contractual arrangement is with a self-funded employer, the deemer clause does not appear to be implicated because the supposed state regulation is addressed to providers, not to employers. In FMC Corp. v. Holliday, the Court explained:

An insurance company that [contracts with a self-funded] plan remains an insurer for purposes of state laws “purporting to regulate insurance” after application of the deemer clause. The insurance company is therefore not relieved from state insurance regulation. The ERISA plan is consequently bound by state insurance regulations insofar as they apply to the plan’s insurer.

498 U.S. 52, 61 (1990).

106 463 U.S. 85(1983).

107 Id. at 96-97.

108 115 S. Ct. 1671 (1995).

109 Id. at 1677.

110 Id. (citations omitted). The opinion further explained that to extend “relate to” to the furthest point imaginable “would be to read Congress’ words of limitation as mere sham, and to read the presumption against pre-emption out of the law whenever Congress speaks to the matter with generality.” Id.

111 “The basic thrust of the pre-emption clause, then, was to avoid a multiplicity of regulation in order to permit the nationally uniform administration of employee benefit plans.” Id. at 1677-78.

112 Id. at 1679. The Court discussed the fact that recognizing preemption of laws for every indirect im pact on ERISA plans would effectively ignore congressional language.

Indeed, to read the pre-emption provisions as displacing all state laws affecting costs and charges on the theory that they indirectly relate to ERISA plans that purchase insurance policies or HMO memberships that would cover such services, would effectively read the limiting language in § [1144(a)] out of the statute, a conclusion that would violate basic principles of statutory interpretation and could not be squared without prior pronouncement that ‘[p]reemption does not occur . . . if the state law has only a tenuous, remote, or peripheral connection with covered plans, as is the case with many laws of general applicability.’ While Congress’s extension of pre-emption to all “state laws relating to benefit plans” was meant to sweep more broadly than “state laws dealing with the subject matters covered by ERISA” . . . nothing in the language of the Act or the context of its passage indicates that Congress chose to displace general health care regulation, which historically has been a matter of local concern.

Id. at 1679-80 (citations omitted).

113 Id. at 1683.

114 See Holloway, James E., ERISA, Preemption and Comprehensive Federal Health Care: A Call for “Cooperative Federalism” to Preserve the States’ Role in Formulating Health Care Policy, 16 Campbell L. Rev. 405, 416 (1994).Google Scholar

115 Id.

116 See supra part III.B (discussing the importance of the creation of HMO-specific regulations and the differences between HMOs and RBPGs that may justify RBPG specific regulations now).

117 For instance, “Utah plans to recast their insurance laws to link licensing and reserve requirements to the type of risk assumed, rather than to what an organization is called,” and other states are reportedly following the same path. Kertesz & Wojcik, supra note 34, at 46.

The California Department of Corporations, the entity responsible for HMO regulation, is trying to determine what solvency standards should govern new health care organizations. The California Association of Hospitals and Health Systems wants standards that are high enough to prevent drastically undercapitalized groups from entering the market but not so high that financially sound groups will be barred as well. States Test Regulatory Waters, supra note 59, at 46.

In Virginia, the General Assembly’s joint commission on health care was well on the way to adopting a structure for the development of community health networks. After much of the work had been done, the state’s insurance commissioner determined that the networks so closely resembled HMOs that they should be regulated as such. The joint commission is studying the issue for another year. The Virginia Hospital Association hopes for “capitalization and solvency requirements tailored to the type and degree of risk incurred by provider networks in prepaid arrangements . . . .” Id.

118 See State Regulators Play Catch-Up, supra note 4, at 7-9.

119 Id. at 7; see Minn. Stat. Ann. § 62N.02(8) (West Supp. 1996).

120 State Regulators Play Catch-Up, supra note 4, at 7; see Minn. Stat. Ann. § 62N.03 (West Supp. 1996).

121 State Regulators Play Catch-Up, supra note 4, at 9; see Minn. Stat. Ann. § 62N.02(4a) (West Supp. 1996).

122 State Regulators Play Catch-Up, supra note 4, at 9; see Minn. Stat. Ann. § 62N.25(2) (West Supp. 1996).

123 State Regulators Play Catch-Up, supra note 4, at 9.

124 Id.; see Minn. Stat. Ann. §§ 62N.02(2), 62N.27(6) (West Supp. 1996).

125 State Regulators Play Catch-Up, supra note 4, at 9.

126 Id.; see Iowa Code Ann. § 514F.3 (West Supp. 1995).

127 State Regulators Play Catch-Up, supra note 4, at 9.

128 Id.

129 Id. “ODSs must meet a minimum unencumbered fund balance of at least $1 million or 3 times the average monthly claims for third-party providers.” Id.

130 See NAIC Creates Body of Regulation to Address Managed Care Entities, 4 Health L. Rep. (BNA) No. 39, at 1481, 1481 (Oct. 5, 1995)Google Scholar [hereinafter NAIC Creates Body of Regulation]; see also PHOs Assume Financial Risk, State Regulators Consider PHO-Specific Rules, 3 Health L. Rep. (BNA) No. 44, at 1605, 1606 (Nov. 10, 1994)Google Scholar [hereinafter PHOs Assume Financial Risk].

131 NAIC Creates Body of Regulation, supra note 130, at 1481. This act is being called the Consolidated Licensure of Entities Accepting Risk Model Act (CLEAR).

132 Bobbin, Julian D., Insurance Regulations of IDS, in Integrated Delivery Systems: The Devil is in The Details § 6, at 23 (1994)Google Scholar (collection of papers presented at the 1994 annual meeting of the North Carolina Society of Health Care Attorneys).

133 Id.

134 Blankenau, supra note 92, at 44. Although a uniform structure is administratively appealing, it may prove troublesome because of all of the variations present in health care organizations. It is vitally important for these variations to be addressed when determinations as to the capital reserve requirements are made.

135 PHOs Assume Financial Risk, supra note 130, at 1606.

136 Id.

137 Id.

138 State Regulators Play Catch-Up, supra note 4, at 2.

139 Blankenau, supra note 92, at 46. “The factor that would be applied to the costs of total claims or incurred services is probably too high and would trigger capital requirements that some existing, financially sound plans may have trouble meeting . . . .” Id. (citing Philip Berretta, vice president of Kaiser Permanente, a large Oakland, California-based HMO).