United States: IREG Update - May 15, 2015


Models of health care delivery are evolving on many fronts, driven by the overriding goals of lowering the cost of health care and increasing its quality. Traditional private insurance models provide incentives for providers to over-prescribe care, and they pit providers and insurers against one another during rate negotiation. The Accountable Care Organization (ACO) model, by contrast, promises to bring providers and carriers together to negotiate a shared savings strategy with benefits to both parties for increased quality of care and decreased costs. A lack of centralized ACO regulation has allowed innovators to create a number of different ACO models. What the future of ACO contracting may hold is an open question.

What is an ACO?

In the context of Medicare, the Centers for Medicare and Medicaid Services (CMS) define ACOs as groups of doctors, hospitals and other health care providers who come together voluntarily to give coordinated high quality care to the patients they serve. CMS, like many providers and commercial insurers, believes that coordinated care will help patients get the right care at the right time, with the goal of avoiding unnecessary duplication of services and preventing medical errors.

The CMS definition is also general enough to apply to the commercial setting, although commercial ACOs vary widely in terms of organizational, legal, and other considerations. In simplified terms, commercial ACOs are created via contract whereby the carrier and the providers agree to an anticipated annual budget and agree to share in the upside and downside risk to the extent that the actual medical cost for the member population differs from the agreed-upon budget.

Why is there no standard commercial ACO?

While the Affordable Care Act (ACA) and regulations promulgated pursuant thereto govern Medicare ACOs, commercial ACOs are not federally regulated and are not regulated comprehensively at the state level. Generally applicable state laws also differ widely on key aspects of ACOs, including, for example, the essential ability of health care providers to bear risk. Some state laws are silent or permit providers to take on the type of downside financial risk contemplated in commercial ACOs, while others prohibit providers from taking such risk, at least without first obtaining some form of insurance or risk-bearing license. Provider organizations are also different from state to state. States that tend to have more naturally integrated organizations, such as physician hospital organizations (PHOs) (or even physician organizations (POs) to some extent) will be more hospitable to ACOs than those with more independent, non-integrated, organizations such as independent practice associations (IPAs). As a final example, even ACO models used by the same carrier can differ. Some carriers use different contracting vehicles for health maintenance organization (HMO) agreements and preferred provider organization (PPO) agreements.

What will the commercial ACO of the future look like?

ACOs are being created by diverse carriers in jurisdictions with different regulatory schemes and different provider landscapes. Therefore, ACO models will likely continue to diverge but probably only to a point, as industry standards and best practices emerge. We believe that integrated care will continue to be the centerpiece of ACOs and indeed health care in general. In the traditional ACO model where there is a particular member population under the care of the ACA, the path to clinical integration of care is more obvious. The greater challenges to integrated care are posed by the venues where individuals may choose to obtain one-off care for reasons of convenience cost, or lack of other options—for example, urgent care centers, emergency rooms and even concierge medical clinics that offer same-day treatment for a fee. Pulling these types of providers into ACO models and finding new ways of granting ACOs access to data for such treatment will be crucial to truly integrated care of the future.

How are ACOs treated under California's health care service plan law?

An ACO in California is considered a risk bearing organization (RBO), defined as a group of physicians that contracts with a health care service plan (an HMO) to provide health care services to the plans enrollees, is paid on a capitated or fixed payment basis and is responsible for processing and paying claims made by physicians for covered services. An HMO may delegate its responsibilities to the RBO, subject to certain requirements, including a requirement that the RBO provide regular financial information to the HMO, the HMO be authorized to assume responsibly for claims if the RBO fails to do so, and the HMO provide the RBO with information necessary to inform the RBO regarding the financial risk assumed. The RBO must provide financial information to the Department of Managed Health Care (DMHC) and maintain positive tangible net equity (and can take into account any guarantees by a sponsoring organization that meet specified requirements). DMHC conducts audits and reviews corrective action plans agreed to by the RBO and the HMO as appropriate.

What is the HMO's liability when the RBO is financially unable to pay?

The financial arrangements between an HMO and an RBO were addressed in the recent case of Centinella Freeman Emergency Medical Associates v. Health Net. The case is currently under review by the California Supreme Court, and the decision should resolve a conflict among the courts of appeal.

Centinella Freeman was an IPA registered as an RBO. It suffered financial problems that were allegedly reflected in financials provided to DMHC and the HMOs it contracted with. As financial problems progressed, Centinella Freeman failed to reimburse physicians, including non-contracting emergency physicians who provided emergency services to enrollees, and they sued. The court held that the HMO must bear the loss and reimburse the physicians despite delegation of the claims function to the RBO where:

  • the physician is required by law to provide emergency care to patients,
  • the physician is not a contracting provider with the HMO,
  • the physician provides emergency services to the patient, and
  • the HMO delegated its statutory duty to reimburse the physician for the emergency services to an RBO that the HMO knew or should have known was unable to fulfill the obligation.

The court stressed three additional factors:

  • the plan's knowledge of the RBO's financial problems,
  • the physicians' status as noncontracting providers, and
  • the provision of statutorily required emergency services.

The case is interesting because the court confirmed the HMO's right to delegate to an RBO and the principle that absent these three critical factors, the HMO would not be required to step in and pay claims that should have been paid by the RBO.

In later issues of the IREG Update, we will explore the complexities of maintaining the confidentiality of data while allowing enough data-sharing to foster truly integrated care through an ACO.

Contact the authors of this article: Theresa Fitzgerald and Kate Morgan.


Noteworthy links from the past two weeks


  • Senate Banking Chair Richard Shelby unveiled a discussion draft of a financial regulation bill that would revamp Dodd-Frank [Insurance Journal]
  • Prudential argued to a Senate subcommittee that there should be a clear path for escaping SIFI-hood [Law360]
  • Florida Commissioner McCarty warned the Senate Banking Committee about the dangers of federal encroachment in insurance regulation [Insurance Journal]
  • The federal government moved to dismiss MetLife's lawsuit against its SIFI designation [Bloomberg]
  • New York Superintendent Lawsky said NYDFS will issue new cyber security regulations by year-end [Reuters]

Property & Casualty

  • Assurant and PNC were hit with a force-placed insurance class action [Law360]
  • Georgia's Governor signed a law regulating the ride-sharing business including insurance coverage requirements [Athens Banner-Herald]

Life & Health

  • S&P issued a report on captive reinsurance criticizing the lack of transparency but supporting life insurer contention that statutory reserves are too high [The Wall Street Journal]
  • States passed new rules on long term care insurance [USA Today]
  • A study found significant gains in health insurance coverage after Obamacare [Los Angeles Times]
  • California Commissioner Jones continued his push for greater oversight power over health insurance rates [State of Reform]
  • Senator Warren's inquiry on annuity sales incentives sparked a debate [Investment News]


  • German insurers worried that Solvency II capital requirements will cause some insurers to fail [The Wall Street Journal]

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
30 Jan 2019, Other, Chicago, United States

Please join us on January 30, 2019, for the Fifth Annual Courageous Counsel Leadership Institute. This year's theme is "Risk and reward: Creating a culture that promotes innovation, change and growth.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions