Health Plans and Provider Participation (2024)

The Connecticut General Assembly

OFFICE OF LEGISLATIVE RESEARCH

February 25, 1994 94-R-0376

TO:

FROM: John Kasprak, Senior Attorney

You asked for information on alternative approaches to "any willing provider laws" for the participation of health care providers and facilities in health plans.

SUMMARY

While "any willing provider" laws can take a variety of forms, most commonly they forbid a managed-care network from discriminating against any doctor, pharmacist, hospital, or other provider that is willing to meet the network's criteria. Those opposed to such laws, for example the managed care industry, argue that networks should have the right to contract with the providers, vendors, and contractors of their choice Those health care providers excluded from networks are filling antitrust suits against the networks and are also seeking passage of state "any willing provider" laws so these networks are opened to them. Managed care networks have argued that the federal Employer Retirement Income Security Act (ERISA) preempts state "any willing provider laws."

In the most significant case to date on this issue, the U.S. Court of Appeals for the Fourth Circuit ruled on June 2, 1993 that Virginia's preferred provider organization (PPO) statute, which included an "any willing provider" provision, was not preempted by ERISA. In so doing, the appeals court overturned the decision of the federal trial court which found that ERISA preempted the PPO law because the state's law related to federally regulated employee benefit plans (Stuart Circle Hospital Corp v. Aetna Health Management, CA 4, No. 92-1964 (1993)).

In November 1993, the U.S. Supreme Court declined to review that decision and let stand the decision by the Fourth Circuit that ERISA did not preempt Virginia's PPO statute (Aetna Life Insurance Co. v. Stuart Circle Hospital Corp, U.S. Sup. Ct. No. 93-510, cert. denied, Nov. 29, 1993).

Fifteen states have enacted "any willing provider laws," which prohibit an HMO or insurance company from denying any provider willing to meet the terms and conditions from contracting with the HMO as a network provider. Another 13 states have enacted some type of "freedom of choice" law that grant plan enrollees the freedom to choose non-network providers. At least 20 states have enacted miscellaneous open-panel requirements, which in some other fashion, restrict an HMO's ability to enter into exclusive contracts with providers. Lastly, 11 states have enacted prohibitions against mail order exclusively laws, which prohibit plans from requiring enrollees to obtain pharmaceutical services exclusively from a mail-order pharmacy.

Most major health care reform bills pending in Congress, including President Clinton's plan, would preempt state any willing provider laws and related statutes that restrict the ability of health maintenance organizations and insurers to contract selectively with providers and maintain exclusive networks.

Some different approaches to preserving access to health plans for providers, short of passage of any willing provider laws, are emerging. Connecticut's PA 93-358 requires those forming preferred provider networks to meet filing and notice requirements so that providers seeking to participate are aware of the network's existence and can apply for inclusion on a timely basis.

"Provider-driven" organizations are emerging whereby health providers are forming partnerships directly to deliver care in certain areas. For example, Physician-Hospital Organizations (PHOs) have begun to operate in the country. PHOs are contractual arrangements between physicians and hospitals which come about as the groups seek out managed care contracts.

The "next generation" of health care organization beyond the HMO, PPO and PHO is considered to be the "integrated health care delivery system." Such a system (and there are many models emerging) is again provider-driven but more expansive than current arrangements. Integrated delivery systems are basically networks of health care providers and facilities designed to provide a variety of health care services ranging from primary to specialty care. Services are ideally provided in a "seamless" continuum. Such networks can be formed by providers, community organizations, purchasers of services, health plans, insurers, or a combination. Some states are actively encouraging such approaches. For example, Vermont and Minnesota have made the integrated delivery system approach central to their respective reform efforts. The Connecticut Hospital Association has also submitted a reform proposal that calls for the creation of integrated delivery networks.

The development of any new and innovative reforms calling for collaborative efforts among providers may involve antitrust challenges. Some states have responded by passing legislation attempting to provide antitrust protection to providers engaging in collaborative agreements.

BACKGROUND

"Any Willing Provider Laws"-The Debate

At the outset, it should be understood that the term "any willing provider" has a variety of meanings depending on who is using the phrase and in what context it is presented. Generally, the "any willing provider" concept has evolved as the number and type of managed care organizations (e.g. health maintenance organizations (HMO), preferred provider organizations (PPOs)) have increased in recent times. Physicians, other individual health providers, hospitals, and pharmacies are concerned that managed care networks are excluding them from participation. As a result, some states have passed any willing provider laws that most commonly, forbid a managed-care network from discriminating against any hospital, physician or pharmacist that is willing to meet the network's criteria.

Those opposed to such laws, such as the managed-care industry, argue that managed-care networks should have the right to contract with the providers, suppliers, vendors, and contractors of their choice. They also believe that taking away that ability, through the passage of any willing provider laws for example, will drive up the costs of managed care.

Those in support of any willing provider laws argued they are necessary to prevent managed-care networks from arbitrarily excluding providers from networks. These providers argue that by excluding them from these networks, the managed care organizations have prevented them from effectively competing in the marketplace. Lawsuits are emerging nationwide by various providers who are suing HMO and other managed care organizations for antitrust violations.

Recent Supreme Court Decision

A Virginia statute allows insurers to establish a preferred provider organization (PPO) health benefit program that limits the number or type of health care service providers. But, they must establish terms and conditions for PPO participation that do not unreasonably discriminate among providers and may not exclude health care providers willing to meet the terms and conditions offered to them.

On November 29, 1993, the United State Supreme Court declined to review a federal appeals court ruling that the federal Employee Retirement Income Security Act (ERISA) did not preempt a state statute regulating the way managed health care systems choose participating service providers (Aetna Life Insurance Co. v. Stuart Circle Hospital Corp., U.S. Sup. Ct., No. 93-510, cert. denied November 29, 1993).

Without comment, the Supreme Court let stand the decision by the U.S. Court of Appeals for the Fourth Circuit that ERISA does not preempt Virginia's preferred provider (PPO) statute, which included an "any willing provider" provision. The appeals court found that Virginia's PPO statute was a state insurance regulation and thus not preempted by ERISA. The Fourth Circuit overturned the decision of a federal trial court that had held that ERISA preempted the Virginia law because it related to federally regulated benefit plans.

Any Willing Provider Laws Under the Clinton Plan

Generally, under the Clinton plan, network health plans will be able to contract with those providers, vendors, and others of their choice. Under the "American Health Security Act of 1993" (the "Clinton Plan") state laws that regulate health network restrictions on provider participation (including any-willing provider laws) will be preempted. The preemption provision (Title I, Subtitle E, Sec. 1407) is broad, but it specifically applies only to state laws restricting plans that are not fee-for-service plans.

The Clinton plan (Sec. 1407(a)) preempts state laws concerning services provided under network-type health plans that prohibit or restrict such plans from: (1) limiting the number and type of providers, (2) requiring enrollees to obtain non-emergency services from providers authorized by the plan; (3) requiring enrollees to obtain a referral for specialized treatment; (4) establishing different payment rates for participating providers and providers outside the plan; (5) creating incentives to use participating providers; and (5) requiring the use of single-source suppliers for health products and services, including pharmacy and medical equipment.

ALTERNATIVE APPROACHES

Following is an explanation and discussion of some possible alternatives to the "any willing provider" approach concerning the participation of providers in health plans.

Connecticut PA 93-358

Last year, the General Assembly passed a law (PA 93-358, "An Act Concerning Managed Care") that has relevance to this issue. While initially crafted as an "any willing provider" type of bill, the final version stops short of requiring provider inclusion in managed care networks. Instead, the legislation requires that preferred provider networks meet filing and notice requirements if they wish which to operate in the state. Any person developing such a network must put a notice of intent in at least one major newspaper in the service area of operation. The notice must include the medical specialties included in the network and name and address of the person to whom applications can be made for participation.

The legislation is intended to at least put potential network participants on notice of the network's formation and give them an opportunity to apply for inclusion.

Alternative Arrangements For Hospitals

HMOs. A hospital could not "function" as a health maintenance organization (HMO) and still maintain its legally licensed standing as a hospital under state law. Similarly, a hospital seeking to "convert" to an HMO would cease to be a hospital and instead would have to be licensed as an HMO and then be subject to regulation by the Department of Insurance (CGS Sec. 38a-175 et seq.). Under the law, a health care institution known as a "hospital" must be licensed by the Department of Health Service (CGS § 19a-490, 491; State Regs. § 19-13-D1 et. seq.). By becoming licensed as a hospital, that facility in effect agrees to comply with other provisions of law concerning hospitals, particularly CHHC's budget review system (CGS §§ 19a-167 et. seq.). A hospital could not hold itself out as an acute care facility and escape CHHC regulation by calling itself something else, an HMO for example.

It should also be noted that any "conversion" of a hospital to some other entity could jeopardize its tax exempt status as a charitable organization.

Hospitals are currently able to become part of HMO networks by agreeing to provide care to HMO members for a negotiated fee. Hospitals can now discount the rates paid by HMOs. HMOs are the only payers under the law that are not subject to any statutory discount caps and thus can negotiate unlimited discounts. All other payers are limited to a maximum 3.5% discount from state-approved hospital charges (Sec. 19a-166).

Nothing in current law prohibits a hospital from establishing, owning, and operating an HMO. A hospital (or the legal entity) seeking such a venture would have to apply for and receive certificate of need (CON) approval from the CHHC (see 19a-154 to 155). Under the CON program, CHHC must review, and approve as needed, proposed capital expenditures of most health care facilities costing over $1 million, acquisition of major medical equipment costing over $400,000, institution of new services or functions, termination of services, transfer of ownership, increases in staff, decreases in bed capacity, and reductions in services to Medicaid patients. The CON process also applies to a person seeking to acquire or leave imaging equipment costing over $400,000. The hospital-owned HMO could negotiate discounted rates with that hospital.

PPOs. A hospital could become part of a preferred provider organization (PPO). A PPO is simply a formalized arrangement in which a group of physicians or hospitals agrees to discount its services in exchange for a guaranteed supply of patients. For example, an insurance company might agree to waive copayments and deductible charges to its patients if they choose to receive treatment from a list of "preferred providers," who in turn have agreed to discount their charges to the insurer by a certain amount and subject themselves to ongoing utilization review.

PPOs are sometimes initiated by insurance companies or employers, who contact health care providers individually and negotiate discounts one-by-one. More commonly, PPOs are started by hospitals or physicians who approach consumer groups and offer them discounted terms in a united manner. These "provider-based" PPOs are organized as groups of physicians because no one doctor could provide the bulk of services required by a large insurance group. But provider-based PPOs raise the possibility of illegal price-fixing because all of the physicians or hospitals must first agree among themselves about what price to charge or discount to seek (see Mark Hall and Ira Ellman, Health Care Law and Ethics, "Nutshell Series," p. 211).

In the case of Arizona v. Maricopa County Medical Society (457 U.S. 332 (1982)), the U.S. Supreme Court ruled that the medical society's plan whereby all participating physicians agreed to abide by a maximum fee schedule if insurers agreed to pay 100% of those fees constituted per se illegal price fixing. While the society's health delivery plan was not a PPO by name, it was structurally the same as a PPO.

But the U.S. Department of Justice's Antitrust Division uses less onerous guidelines when deciding whether to exercise its authority to challenge provider-based PPOs. Basically, the Justice Department judges PPOs under a rule of reason rather than a "per se" basis-that is, it is concerned only if the arrangement involves a large percentage of the area's providers or there is an overt indication of anticompetitive intent (see Hall and Ellman, pp. 212-213).

Hospital, as opposed to physician-based, PPOs can raise more serious antitrust concerns because hospitals are more capable of individually providing the large bulk of required services. Thus, there is less competitive justification for cooperative ventures among hospitals. Also, there are fewer hospitals then doctors in a given market making the dangers of collaboration greater (see Hall and Ellman, p. 215).

PHOs. Generally, Physician-Hospital Organizations (PHOs) are entities resulting from contractual arrangements between physicians and hospitals which come about as the two groups vie for managed care contracts. Some see PHOs as a transitional step on the road that eventually will lead to integrated health care delivery systems (see next section of report). PHOs are governed by contractual relationships, not by complete sharing of risk. As a result, PHOs and other forms of hospital-physician relationships have a substantial potential for violating federal and state antitrust laws. Antitrust issues of how to set prices and what agreements might constitute boycotts can arise. For example, physicians in PHOs often remain self-employed, only contracting with other physicians in the group and with the hospital. But that means that they are still in competition with other physicians in the group and may run into antitrust problems if they attempt to negotiate prices with their competitors (see BNA's Health Law Reporter, January 27, 1994, p. 1093).

The U.S. Justice Department plans to issue an antitrust enforcement policy statement on PHOs that addresses foreclosures, leveraging or typing of goods and services, and horizontal market power.

(We have attached other OLR reports addressing antitrust issues in health care reform.)

Integrated Delivery Networks (IDNs), Integrated Service Networks (ISNs), Integrated Systems of Care (ISC)

IDNs, ISNs, and ISCs are all variations on a theme. Basically, they focus on health care delivery system reform (the way people receive their care) and support the creation of provider-(as opposed to insurer) driven networks. These formations are basically networks of health care providers and facilities that would provide a "seamless" continuum of services within fixed resources. For example, such a system would provide a required range of services to enrolled members for a fixed (annual) fee. Under some models, a member would choose a primary care provider within the integrated system to manage the individual's care and refer the person to facilities or other providers when needed.

Some states are actively pursuing health care reform based on their integrated network approach. These initiatives are discussed below.

Vermont. The Vermont Health Care Authority, charged with recommending a universal access plan to its General Assembly, has made the development and care of integrated systems of care (ISC) a central part of its recommendations. An ISC, under the Vermont approach, is a network of health care providers and facilities capable of providing the health care services required under a uniform benefit plan. Each ISC would emphasize primary care and be required to coordinate referrals with specialty providers. Each ISC would assume management responsibility for the services provided within its network, including reimbursem*nt of providers, expenditures, and quality improvement. Each ISC would have an organized clinical staff or methods to provide clinical direction, and procedures to ensure that staff members or participating providers have the appropriate credentials. Provider participation in an ISC would be based on criteria defined by the ISC itself.

In arguing for the ISC approach, the Vermont Health Care Authority stated, "today's health maintenance organizations range from small networks of providers linked only by contractual arrangements to full-fledged systems that integrate all aspects of health care services, including providers, hospitals, home care services, and administrative support services. ISCs in Vermont will be expected to develop into such full-fledged systems, from which a number of benefits could result. . . "("Universal Access Plans," Vermont Health Care Authority Report to the General Assembly, November 1 1993, p. 11).

Minnesota. Minnesota's recent health care reform initiatives seek to encourage the creation of " integrated service networks" (ISNs), described as the "next generation" of HMOs. An ISN is a new kind of health plan responsible for arranging or delivering a full array of health care services, from routine primary and preventive care through acute impatient care, to a defined population for a fixed price from a purchaser. ISNs can take many forms and may be sponsored or initiated by providers, HMOs, insurance companies, employers or other organizations. The Minnesota ISN concept is similar to an HMO, but there will be significantly more flexibility in the types of organizations that may form or participate in an ISN, and the structural and contractual relationships between providers, health plans and other participants in a network.

There are many possible models for an ISN. Some common examples are:

CHA Proposal. The Connecticut Hospital Association (CHA) has also called for delivery system reform, utilizing "integrate delivery networks" (IDNs). Health care consultants Lewin-VHI, Inc. has prepared a health care reform plan for the CHA calling for the creation of provider-driven IDNs. Under this proposal, IDNs would be created by providers who would collaborate to improve the health status of a community. IDNs would provide a seamless continuum of services. IDNs would receive fixed risk-adjusted capitate payments. Competition among IDNs would be based on service and quality.

In arguing for its model, Levin-VHI and the CHA note, "massive change in the health delivery system is already being engineered by purchasers of care. The increasing purchaser aggressiveness is having profound effects on health care delivery systems. It threatens to shift the locus of control of the delivery system from providers to payers and their purchasing agents. The models being promoted do not correspond to conventional provider views of how delivery systems should be restructured." ("Health Care Reform in Connecticut, Prevented to CHA, Levin-VHI, Inc. January 21, 1994, p. 2).

JK:tjo