In New Jersey, any entity which contracts with a health insurance carrier or other type of health plan for the provision of healthcare services, but which is not itself a licensed provider such as a hospital or physician group, or an actual insurer or plan, is subject to regulation by the New Jersey Department of Banking and Insurance (DOBI) as an Organized Delivery System (ODS). An entity which bears financial risk for the provision of services to health plan members is required to be a licensed as an ODS, while one which otherwise meets the definition but does not bear risk, can seek an exemption from licensure and instead secure “certified” ODS status. New Jersey law is unique in this regard.

As a result of recent developments, licensed ODSs, which generally do not consider themselves to be insurers, have become subject to significant new reporting requirements designed to monitor and control risks traditionally borne only by insurers. A prime example is the recently-enacted statute requiring licensed ODSs to participate in “Enterprise Risk Reporting” – a concept developed within the National Association of Insurance Commissioners (NAIC) to aid state regulators in their efforts to gather information on systemic risks within the large insurance holding company systems they regulate. Under recent amendments to the NAIC’s Model Insurance Holding Company System Regulatory Act, which amendments were incorporated into New Jersey law by P.L. 2014, c. 81 (Solvency Modernization Act), parent companies of insurers are required to complete an Enterprise Risk Report, otherwise known as a “Form F.” The Enterprise Risk Report requires parents of insurers to produce a substantive analysis of risks – in the form of activities, circumstances or events – which could impact the financial condition of insurers within the parent’s holding company system. Under New Jersey-specific law, licensed ODSs are treated as insurers for the purposes of applying the Holding Company Act. Licensed ODSs, therefore, are now required to produce Enterprise Risk Reports, as with other diversified financial services companies.

As a result of the Solvency Modernization Act, and in order to reduce regulatory overlap among the states, the parent of a licensed ODS is directed to file its Enterprise Risk Report only with the holding company system’s lead state regulator. Designation as an insurance holding company system’s lead state regulator is determined based on a number of factors listed in the NAIC’s 2015 Financial Examiner’s Handbook, and such designations have already been made for the majority of insurers nationwide. In many instances, however, national healthcare companies’ operations, many of which do not include the business of insurance, require ODS licensure in New Jersey, which in turn triggers the requirement to file reports with a lead state regulator. Where New Jersey does not qualify as a “lead state” regulator of a company which owns a licensed ODS, but not insurers, the holding company is required to file an Enterprise Risk Report with a state insurance department with which the filing parent company has little or no relationship, and which department has little or no familiarity with the filing company and unique New Jersey law governing ODSs. Thus, application of Enterprise Risk Reporting using NAIC standards and concepts (such as designation of a lead state regulator) to a licensed ODS may not accomplish the important regulatory goal underlying New Jersey’s recent statutory amendments, i.e. financial reporting and risk identification at the enterprise level to the state where the regulated entity takes risk.

Enterprise risk reporting is only the most recent in the long list of regulatory filings required of licensed ODSs in New Jersey, which already includes: Form B insurer registration statements; Form C annual summary statements of changes to the Form B registration statement; statutory accounting-based quarterly audited financial statements; and Form D prior notices of significant transactions with affiliates for review and approval, among others. These insurance-focused regulatory requirements are often challenging to navigate for healthcare entities not generally engaged in the business of insurance in New Jersey or elsewhere. Nevertheless, application of insurance regulatory tools to licensed ODSs (which are often structured as independent practice associations, or “IPAs,” in other states) shows no signs of slowing.

Earlier this year, the Commissioner signed Order A15-102, directing application of increased risk-based capital (RBC) standards to all holding company systems which include health entities (which includes licensed ODSs). While many licensed ODSs will be exempted from new RBC standards, as more fully addressed in the Commissioner’s Order, many others, which are affiliated with direct writing, premium-collecting entities, will not. As such, some licensed ODSs will need to demonstrate compliance with new capital and surplus requirements derived from the NAIC’s quickly-evolving RBC instructions.