On Monday, August 8th, the Deputy Director of Legislative Affairs of the Department of Managed Health Care (the “Department”) released a letter of opposition (the “Letter”) to Assembly Bill 1249 (“AB 1249”). The Letter was addressed to Brian Maienschein of the California State Assembly, who is the lead author of AB 1249.

AB 1249 would authorize the Department to create two (2) five-year pilot programs (one in Northern California and one in Southern California) in which Department-approved providers may undertake risk-bearing arrangements with:

  1. A voluntary employees’ beneficiary association (“VEBA”) with more than 100,000 lives, or
  2. A trust fund that is a welfare plan and a multiemployer plan with more than 25,000 lives.

Under this program, VEBAs and trusts would be exempt from Knox-Keene licensure requirements, but each risk-bearing provider group would be required to hold or obtain a limited or restricted Knox-Keene license. The arrangements would be subject to Department oversight for financial solvency, and participating entities would also be required to report certain information back to the Department. More specifically, the participating entities would be required to report to the Department data concerning cost savings and clinical patient outcomes compared to a fee-for-service payment model. Proposed arrangements would have to be authorized by May 1, 2020 in order to participate.

The Letter expressed the Department’s apprehension that AB 1249 would negatively impact consumers by circumventing certain financial and consumer protections that are currently in place under the Knox-Keene Act. This concern stems from AB 1249 allowing a restricted or limited license plan to engage in a risk bearing arrangement without the involvement of a fully licensed plan. The current regulatory scheme requires restricted health care service plans to contract with fully licensed plans in order to enter into risk bearing arrangements so that all requirements of the Knox-Keene Act are met, either by the restricted plan or by the upstream fully licensed plan. Under the AB 1249 framework, such safeguards would not be present, though we note that provider groups would still need to be approved by the Department to participate in a pilot program.