New Rules Allow "Health Care Collaboratives" 

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Medical Economics Feature – June 2013 

Tex Med. 2013;109(6):25-28.

 By Amy Lynn Sorrel 
Associate Editor 

A web of burdensome federal regulations and antitrust rules and hefty overhead costs are oft-cited stumbling blocks to physician involvement in accountable care organizations (ACOs). So perhaps it came as little surprise when the Texas Legislature, less than enamored with the federal health reform legislation that authorized the coordinated care models, came up with its own rendition.

In 2011, state lawmakers passed Senate Bill 7. It created a Texas-style ACO, known as a health care collaborative (HCC), to encourage physicians, hospitals, and payers to collaborate on more coordinated, cost-effective health care delivery.

Now that the Texas Department of Insurance (TDI) has adopted rules laying out a path to licensure as a collaborative, Texas physicians have a more flexible option that overcomes many of the barriers preventing doctors from stepping into integrated care models, says Asa C. Lockhart, MD, chair of the Texas Medical Association's Ad Hoc Committee on ACOs.

"The state-based collaboratives, by far, offer Texans the best chance for successful and meaningful heath system reform because they can be simple and local, allowing for innovation in smaller communities," he said.

While not without some checks and balances, the rules relieve qualifying HCCs from antitrust pressures that tend to discourage collaboration among physicians and others for fear of being accused of collusion.

As a collaborative, players in the current fragmented health care system can more easily "work together to develop new products for health care delivery that increase efficiencies in medicine and root out inefficiencies that don't add value," said Dr. Lockhart, an anesthesiologist in Tyler. Equally significant, the rules preserve TMA-won protections "that recognize the sweat equity physicians bring to these organizations, and that can't be shouted loudly enough. The important thing is these [collaboratives] are physician-led."

TDI's Jeff Hunt says the statute and regulatory framework allow room for creativity in how the entities and payments are structured, so physicians, hospitals, and other participants "can share costs, share information, and basically provide a better, more well-rounded health product." He handles company licensing and registration at TDI and oversees the HCC application process.

But officials also caution that the rules set certain standards that apply across the board to prevent abuse and protect patients.

Those include an antitrust review by TDI in conjunction with the state attorney general's office. "And we are not really flexible when it comes to our expectations on quality improvement," said Matthew Tarpley, TDI health plan licensing administrator.

 A State Solution 

TDI adopted the new regulations in March to implement the HCC provisions authorized by Senate Bill 7. The legislation won support from TMA, the Texas Association of Health Plans, consumer advocacy groups, and others. The Texas Hospital Association was neutral.

The rules took effect April 1.

State law and the rules define an HCC as an entity that: 

  • Contracts directly with and arranges medical and health care services for insurers, HMOs, and other payers;
  • Accepts and distributes payments for medical and health care services;
  • Consists of physicians only; or a combination of physicians, hospitals, other health care providers, HMOs, or insurers; and
  • Has an HCC license from TDI.           

If done right, "these collaboratives can be quite innovative organizations," said TMA Vice President for Medical Economics Lee Spangler, JD.

For example, unlike the federal "shared savings" ACO models, payers can participate directly in state collaboratives, which can sell all of their services in one fell swoop to offer patients a one-stop shop for health care.

State regulations also provide flexibility on how payments can flow within an HCC, whether on a fee-for-service basis or by using alternative mechanisms such as bundled or global payments or capitation models. Because physicians' pay may be based on performance, an exemption from state antikickback laws permits doctors to refer within an HCC so they can ensure proper care, Mr. Spangler added.

The rules also ensure the physicians, with their expertise, have a material voice in governing the collaboratives' clinical and financial matters, Dr. Lockhart noted.

If nonphysicians participate in an HCC, the governing board must have an equal number of physicians and nonphysicians, plus a tie-breaking member from the community. Physician board members also have a say in appointing separate compensation and quality committees responsible for the payment methodologies and quality measures used by an HCC.

Under federal ACO regulations, on the other hand, board representation is in proportion to the amount of capital a member invests, Dr. Lockhart says. Those rules tend to encourage bigger players with the financial wherewithal and infrastructure – often in urban areas – to join together, but Texas collaboratives provide an avenue for local control, allowing participants to tailor an HCC to a community's needs.

A state collaborative can be big or small, broad or narrow in scope, Dr. Lockhart says. "It doesn't have to be all things to all people, and physician involvement in the governance will allow for that in determining the priorities of the organization, how it's going to serve the community, and how it's going to spend resources."

To avoid disruptions in patient-physician relationships, TMA lobbied successfully to prohibit an HCC from using noncompete contracts to bar doctors from participating in more than one collaborative or from working in the area if they choose to leave the organization.

 The Path to Licensure 

The new TDI rules spell out the documentation and fees required to apply for and maintain an HCC license, depending on the size and scope of the organization, officials say.  

Mr. Hunt said the insurance department will evaluate:  

  • How the collaborative is structured;
  • How payments are arranged and distributed among participants;
  • An HCC's ability to deliver the health care it promises and to pay its members;
  • The organization's financial wherewithal to operate; and
  • Any impact on competition.  

When it comes to payment arrangements, for example, a collaborative can contract directly with insurers for physician and hospital payments and distribute that money among its members. Insurers also may delegate managed care or risk to an HCC, but an HCC license does not mean a collaborative may operate as an insurer, Mr. Hunt explained.

To guard against insolvency, TDI rules require HCCs to maintain a certain level of reserves, based on their size and payment structures, to maintain operations and pay their physicians and other providers. On top of that, any payers in an HCC must set aside at least three months of payments, separate from other required operating reserves. Those cushions are meant to make sure that if a collaborative encounters financial trouble, "providers are timely paid, and members get their services," Mr. Hunt said.

HCCs also must establish a quality assurance plan demonstrating adequate networks; increased collaboration; promotion of improved patient outcomes, safety, and care coordination; and cost-containment without compromising care quality.

Health plans, for example, must follow existing credentialing and network adequacy requirements meant to ensure patients have access to the kind of care a collaborative promises to offer.

"Where it varies will depend on the type of collaborative. It could be a full-service plan, or it could be restricted to cardiac cases, for example, in which case we would be looking at the type of providers utilized in that realm of care versus the whole scope of medical practice," said Debra Diaz-Lara, director of TDI's Managed Care Quality Assurance Office. "We will look at [network adequacy] based on where [a collaborative] is located, what type of services it plans to provide, and how many [patient] members it will have."

TDI borrowed some quality improvement program components from federal ACO guidelines, such as requiring state collaboratives to demonstrate patient buy-in, establish measures for quality and cost, and set up defined processes for monitoring and reaching their goals.

The rules do not, however, dictate which quality measures HCCs must use. "We wanted to have some framework. But we also wanted to be flexible because the market may have some even better quality measures than what we could have come up with, and we would like to see what [collaboratives] have to offer," Ms. Diaz-Lara said.

If an HCC's quality improvement program proves ineffective, the licensure rules give the collaborative and TDI the ability to adjust.

Also included in the quality assurance standards are safeguards giving physicians the right to file complaints with due process protections, so they can advocate on their patients' behalf without fear of reprisal, Dr. Lockhart noted.

 Checks and Balances 

Quality, innovation, and market influence likely will top the list of things the attorney general will evaluate to determine what an HCC brings to the table to merit antitrust exemptions.

"Those types of initiatives will weigh heavily because that's how society will benefit. The goal would be to produce a better clinical product at a lower cost," Dr. Lockhart said.

TDI will conduct an initial antitrust evaluation of the size and relative market power of the HCC. If warranted, however, a more in-depth review of that impact and a final determination rest with the attorney general.

The Attorney General's Office said in a statement that the purpose of its review is "to ensure to the extent possible that anti-competitive problems don't occur after the license is issued." That includes an analysis of "whether the proposed HCC will have market power or reduce competition, and whether any reduction in competition will be outweighed by the benefits that flow from the ability to provide better care through coordination."

If an HCC clears the antitrust review and other hurdles in the licensure process, it receives immunity from state antitrust laws and has a defense against federal antitrust enforcement.

The exemption drew some pushback from the Federal Trade Commission (FTC) when legislators debated SB 7. In response to a May 2011 request from Rep. Elliott Naishtat (D-Austin), the commission raised concerns that the antitrust exemptions "are likely to lead to dramatically increased costs and decreased access to health care for Texas consumers. The review provisions in the bill appear unlikely to prevent these harmful effects."

In defense of the legislation, key sponsor Sen. Jane Nelson (R-Flower Mound) called the "FTC's interference in our legislative process" an "inflammatory and inaccurate attack."

She added that a "one-size-fits-all approach to health care is suffocating the states."

Lt. Gov. David Dewhurst, also a supporter of the legislation, said at the time that "Texas' innovative new health care initiatives will allow doctors and hospitals to work together, improving medical outcomes and reducing health care costs for both patients and taxpayers."

Ultimately, the legislature found that licensed collaboratives "will increase pro-competitive effects as the ability to compete on the basis of quality of care will overcome any anti-competitive effects." However, lawmakers added that they do not sanction violations of federal antitrust laws.

Ultimately, Texas authorized the antitrust exemption, taking shelter under the "state action doctrine." Created by a U.S. Supreme Court decision, the legal standard essentially immunizes states and private participants from federal antitrust liability when they choose to regulate conduct that could be considered anti-competitive under federal standards, so long as states actively monitor the activity.

Indeed, TDI officials say HCCs must demonstrate compliance on an ongoing basis or face sanctions, including losing their license. Renewals occur annually, "and the law is explicit that the annual review has to have as much input and oversight as the initial review, so compliance monitoring will be fairly consistent year-round," Mr. Hunt said.

Dr. Lockhart acknowledges that the bar may appear high, but not unreasonably so.

Compared with the federal ACO option, active state oversight not only gives physicians peace of mind that any collaborative they join will not run afoul of antitrust law, he says, but also assures patients that their best interests are priority and the exemptions are not abused for other gains.

Mr. Spangler added that the reserve requirements are a "lesson learned" from the earlier failures of many independent practice associations in the 1990s. Those collaborative-type organizations went bankrupt without a safety net, leaving patients without care and physicians without pay.

If new health care collaboratives "are going to take on performance risk, we want to be sure they can sustain any potential losses and that they are well managed. If they don't take on risk, and they are looking to gain savings from other efficiencies, the financial requirements are lower. But this was the legislative compromise that was struck for the state to give HCCs protection from antitrust laws and other exceptions to marketplace conduct rules," Mr. Spangler said.

TDI officials stressed that pursuing HCC licensure is an option, not a mandate. For those that do, officials scale the review process to the size and complexity of the organization. And those that win licensure will benefit from significant protections.

In all, the rules provide what officials say is a middle ground that holds all players accountable, while leaving the door open for innovation.

"All of it is geared towards making sure [patient] members in these collaboratives have the opportunity to get the care they need, and to get quality care," Ms. Diaz-Lara said. "And if we can improve quality and get patients care faster and better, we may not need as much of it."  

Amy Lynn Sorrel can be reached by telephone at (800) 880-1300, ext. 1392, or (512) 370-1392; by fax at (512) 370-1629; or by email. 


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