Health Law Ticker : California Lawyers & Attorneys for Regulatory, Transactional & Litigation Representation for Healthcare Professionals in the US

The contents and the pricing structures of health care coverage products for individuals and for persons with “small group” coverage will undergo very big changes come January 2014.    More mandates from the federal “Patient Protection and Affordable Care Act” (“PPACA”) are on the way.   But who knows of this near future?!

Not only will most adults have to get coverage, through their work or on their own, or pay a penalty – the SCOTUS-blessed “individual mandate” -- but for individuals and small group members (50 or 100 employees, depending on the state), the benefits in that coverage will be mandated, and how they are to be labeled and offered are also mandated: in “actuarial value” bands or tiers with the metal monikers of “Platinum,” “Gold,” “Silver” and “Bronze.

The PPACA mandates that the coverage for such folks contain a core of “Essential Health Benefits” (“EHB”), that actually are rather comprehensive.   These EHBs include:

        --   ambulatory patient services

        --   emergency services

        --   hospitalization

        --   maternity and newborn care

        --   mental health and substance use disorder services, including behavioral health  

        --   prescription drugs treatment

        --   rehabilitative and habilitative services and devices

        --   laboratory services

        --   preventive and wellness services and chronic disease management

        --   pediatric services, including oral and vision care

Obviously this EHB package is not a “bare bones” set.    Plans and carriers can offer additional benefits to these, and individual states can also mandate others, but the Congress wanted to ensure that all individuals and small group employees/members would receive a solid core of benefits, whether they wanted or needed them or not.   Not everyone needs maternal care or pediatric dental, for examples, but the thought is that if everyone is covered for them, then the general health of the population will be advanced and the cost will be more bearable for those who do need them.

But if the Essential Health Benefit base is set, the pricing of it is not.  The plans and carriers must offer the EHB in four different pricing bands, distinguished by their “actuarial values.” This is fancy talk for a combination of the actual benefits offered, how much the plan or carrier will pay, and the percentage of the cost the individual must bear, through copayments, shared payments, deductibles and the like.   This “AV” is calculated on the total costs for the EHB that a standard population is expected to incur.

The Metal Bands thus require the enrollee/insured to pick up on average 10% of the cost in the Platinum Band, 20% in the Gold Band, 30% in the Silver Band, and 40% in the Bronze Band.   The purpose of structuring the pricing of the EHB this way is to help the consumer, whether that be an individual or a small employer, to understand the zone of cost they would be getting into and also to compare products across multiple issuers.   The bands are intended to provide an indicator of what a given EHB product is worth to the consumer.  It is intended also to foster competition amongst plans and carriers.

Each metal band corresponds to an Actuarial Value, based on the cost-sharing features of the given products and their specific benefits.   The Actuarial Value of a given EHB product is determined by using (reader cautioned to brace firmly) a federal “Actuarial Value Calculator,” which of course has yet to be released by the government.

The plans and carriers are getting anxious as they prepare for the brave-new-world of  PPACA-mandated constructs that will go into effect January 1, 2014.   Many months of internal product re-design and pricing, of operational re-tooling and ramp-up, and of subscriber and enrollee communications are required.  

Some observers anticipate that the cost clarity of this metal band construct will usher in a new Bronze Age, as beleaguered small employers seek out coverage products least costly to them, with maximum cost-sharing by their employees, which would be 40% in the Bronze Band.

But the Metals Are Coming and the Essential Health Benefits too – for help, speak with your employer, contact your HMO or insurance carrier, or surf the Internet!

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For 28 years the public-policy-making machine of The Great State of California has struggled and sputtered to decide how to regulate discount fee health plans.  These are basically arrangements wherein persons for a fee are granted access to networks of healthcare providers who have agreed to grant discounts off their fees.  (This saga is of particular interest to this blogger both because he represented clients in various phases of it, and because he negotiated and prepared the application for the first licensure of a discount fee plan in California.)

Through a stream of Commissioner’s Opinions from the Department of Corporations and the Department of Managed Health Care, informal administrative actions, two AG Opinions, some tangential statutory language, much failed legislation, a burst of celebrated enforcement actions, a few Knox-Keene licensures, formal administrative law adjudications, and proposed regulations, attempts have been made to subject the discount plans to some form of public regulation (see article, “The Birth of a Reg”). While some discount plans have operated honorably, shady others have abused the trust of their members, too often from the more vulnerable categories of society.

In early 2008 the Legislature, weary of years of  bills that died, punted the task of getting the discount plans into the administrative state to the Department of Managed Health Care.  The Department at the time had already for months been working on a regulation, and after a protracted process of iterative drafts, “stakeholder” consultations, hearings, and engaging the formal procedures of adopting a regulation, in November it brought forth a final text and duly submitted it to the Office of Administrative Law (OAL) for review and approval.

The proposed regimen would comprehensively subject discount plans to licensure and many elements of the Knox-Keene Health Care Service Plan Act of 1975 (H&S section 1340 et seq.), the charter for regulation of HMO’s in California (final reg text).  None of the industry “stakeholders” were very happy with the proposed regulation.

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In a previous musing we wondered whether California medical foundations would “hold”, given cited turbulence and possible over-reaches with the form. They seem to be hanging on just fine at mid-summer. Some developments:

1. A proposed piece of legislation (SB 364) would have required an intense investigation by the Attorney General’s Office and the preparation of a “patient impact report” or a “negative declaration” whenever a non-profit hospital proposed to establish a medical foundation.  The review regimen would have required public notices, hearings, comment periods, opportunities for challenges and the like. The measure was sponsored by the medical group that is locked in bitter litigation with the City of Hope Medical Center over the Center’s plans to establish a medical foundation, as referenced in the previous musing. A classical collateral assault maneuver to be sure: sue the ba*tards, regulate ‘em too.

But at a recent legislative hearing the bill was drastically reduced to a “study” bill on, inter alia, the governance structures of medical foundations – but the Task Force that would be set up must find the funds to carry out the study. The California Hospital Association suggests that the focus of the Task Force be shifted to studying options for clinical integration of care delivery, in light of the recent federal reforms.  Seasoned legislative veterans caution that counter-attack gambits by the City of Hope Medical Group may crop up in the waning days of the session.

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Nearly two decades ago, the plucky Palo Alto Medical Clinic won legislation in California that enabled it to align more closely its interests and those of its practicing doctors.   It midwived the creation of  “medical foundations”, through the passage of what became Health & Safety Code Section 1206(l).    It is a terse, tightly packed one-sentence provision that exempts from state licensure as a “clinic”:

A clinic operated by a nonprofit corporation exempt from federal income taxation under paragraph (3) of subsection (c) of Section 501 of the Internal Revenue Code of 1954 ……that conducts medical research and health education and provides health care to its patients through a group of 40 or more physicians and surgeons, who are independent contractors representing not less than 10 board-certified specialties, and not less than two-thirds of whom practice on a full-time basis at the clinic.

Pretty pithy stuff, but it has been the font of that distinctly California phenomenon, the medical foundation.  Foundations have gradually emerged over the ensuing years as a robust alternative for some hospitals, health systems and medical groups seeking a closer and more interdependent modus vivendi in the environment of California’s prohibition on the “corporate practice of medicine” (Business & Professions Code Sections 2052, 2400).  Simplistically put, in a typical structure a hospital or medical center is the sole corporate “member” of the foundation, which in turn contracts with one or more medical groups to provide services at the hospital, sometimes even acquiring the assets of the medical group(s).   Operationalizing this construct is of course enormously challenging, but it can be an effective mechanism for the delivery of quality, cost-contained care.

Such prestigious non-profit entities as the Sutter Health System, Cedars Sinai Medical Center, Catholic Healthcare West, Children’s Hospital Oakland, Scripps Health and others have established or collaborated with foundations as their approach to the integrated “delivery” of healthcare.  The foundation movement has generally been institution-specific or geographically limited.   

The California Medical Association (CMA), focused on individual doctors, has long groused from the sidelines that foundations are merely a gimmick to evade the California prohibition on the corporate practice of medicine, a charge it has leveled for years also against HMO’s.   The California Association of Practice Groups (CAPG), representing doctors in groups, has been more benign towards foundations.

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Even the most casual observer of the healthcare scene knows that “exchanges” are going to be an important element of the coverage system that is transforming because of the recent federal reform legislation.  There will presumably be a public exchange in each state -- an administered and serviced electronic marketplace through which groups, families and individuals will be able to sign up for healthcare coverage.  In certain instances this will be subsidized, including through tax credits. The state exchange will likely be the exclusive portal for subsidized programs.  It could over time become the dominant venue for purveyors and purchasers of healthcare coverage to interact and transact. If structured properly it could have a positive impact on the quality, cost, accessibility, effectiveness and creativity of healthcare.

An exchange will have multiple and operationally complex responsibilities. It will be linking people together with huge HMO’s, carriers and other kinds of delivery systems.  By as-yet undetermined mechanisms it must ensure that the on-going relationships are enrollee-friendly and productive. It must be the central “trusted information source” to help everyone, on all sides of the care equation, to understand and engage in the very new world of care coverage and delivery that is emerging.  There are already major, competing bills in the California Legislature to structure a State Exchange, even though the federal law sets January 2014 as the start-up date for state exchanges.

Critical up-front roles of a state exchange will be promoting its coverage opportunities and services to the public and facilitating participation in the exchange marketplace.  A state exchange will need all the help it can get with this. A public bureaucracy will not be able to do the job by itself. It must enlist the intimate collaboration of the private sector, of professionals who know and meet the challenges of explaining and enrolling the laity in healthcare coverage.  The skill and expertise of brokers need to be enlisted, so-called “navigators” who can get the word out and people in must be signed up.  Other entities that today serve as portals to coverage or as private exchanges need to be structured into the processes of the state exchanges as private sector partners in what will be a gargantuan undertaking.

A tattered page should be taken from California’s last experiment with a similar mechanism, the public small-group HIPC of the ‘90’s.  Such was the ideology of the day, brokers were banned from participating in its processes, even though the small group market is heavily dependent on their services. The result of so scorning the potential of the private sector was that the HIPC never realized its potential and eventually folded.  By contrast, a parallel undertaking of the same timeframe in the private sector, the California Choice Exchange, relied heavily on brokers to recruit and educate small groups and survives to this day.  Notably, 44% of the groups who receive their coverage through this exchange had not previously offered coverage to their employees. The private sector made it work then, it must be involved this time.

Much is at stake with the anticipated state exchange, and it better be set up right. A pivotal condition of success will be deploying the expertise of the private sector. 

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