Editor’s Note: There is considerable overlap in the nature and goals of the “alphabet soup” of network structures—Accountable Care Organizations (ACOs), Independent Practice Associations (IPAs), Clinically Integrated Networks (CINs) and Physician Hospital Organizations (PHOs). Often, there is little difference among the network types, regardless of the latest popular acronym chosen as the label. They all present similar legal challenges to establishing, structuring and operating a successful provider network. In a recent webinar, Manatt decoded the acronyms—and explained, for both lawyers and nonlawyers, how to navigate the legal issues involved in launching and maintaining a provider network.
In part 1 of our article summarizing the webinar, below, we explain key terminology and entity formation issues. Watch for part 2 of our summary in the March “Health Update,” which will focus on antitrust issues and risk management. Click here to view the webinar free, on demand, and earn CLE. Click here to download a free copy of the webinar presentation.
Understanding the Terminology
Much of the terminology around provider networks is confusing and overlapping. Part of the confusion stems from different terminology being used in different pieces of legislation and regulations. Part stems from regional variations in how terms are used in different states. The most common terms include:
- Independent Practice Association (IPA), which can consist of physicians only or physicians plus hospitals and other providers
- Physician Hospital Organization (PHO), which includes both hospitals and physicians—and possibly other types of providers
- Clinically Integrated Network (CIN), which is similar to a PHO
- Accountable Care Organization (ACO), which is a popular term in the context of the Medicare A and B programs
The key point is that all of these terms are very similar. There are only minor variations in their meanings. They all share the same basic purpose:
- Create an entity that assembles a network of healthcare providers.
- Enhance quality for the benefit of patients.
- Attempt to increase efficiency and reduce costs.
- Act as a “middleman” between payers and providers.
Avoiding Confusion Between the Entity and the New Payment Terms
Adding to the confusion can sometimes be the blurring of the definitions between the entity, such as an ACO, and value-based payment (VBP). VBP is a set of payment terms that moves away from purely fee-for-service claims payment and adds features related to quality metrics, shared savings and losses, capitation, etc. An ACO is a group of providers that pursues the Triple Aim and gets paid on a VBP basis.
In other contexts, the term ACO really means the nature of the contractual arrangement between the providers and the Centers for Medicare & Medicaid Services (CMS), the state Medicaid agency or a health plan. (The same holds true whether the provider entity entering into the contractual arrangement is legally formed as an ACO or as an IPA, CIN or PHO.)
Basically, the network entity—whichever acronym it goes by—brings together all the participating providers who signed an agreement and then enters into a master contract on behalf of the provider network with a payer, such as CMS or a health plan. In short, the network entity is typically the intermediary contracting entity between the participating providers and the payers.
Entity Formation Issues
Entity formation is usually handled at the state level, even when there are contracts with CMS. Most states allow for a variety of corporate forms—such as not-for-profit arrangements, business corporations or limited liability companies—though some states may have limits based on corporate practice of medicine or other regulations. Certain states will require a regulatory review or approval of a network entity’s formation. For example, Massachusetts requires risk-bearing provider organizations to apply for either risk certificates or waivers and supply actuarial certifications, while New York limits IPAs to contracting only with a defined set of payers (Art. 44 health plans) and requires prior state approval of formation documents.
State Law Considerations
State laws vary significantly in the network issues they address. State laws could relate to entity formation, the relationship of the entity to the state Medicaid program, the level of financial risk that the provider group is permitted to assume, and a host of other issues.
To evaluate state laws more precisely, it helps to distinguish between “direct” and “indirect” ACOs. A direct ACO or other network entity contracts directly with CMS or the state Medicaid program. There is no health plan involved as the “middleman.” An indirect ACO or other network entity contracts with health plans that serve as intermediaries between the entity and CMS, the state Medicaid agency and/or employers. State laws might address either direct or indirect ACOs—or both.
Whether direct or indirect, ACOs and other network entities have the same goals and operational methods. The regulatory context, however, may be very different in certain states.
NOTE: In the March issue of “Health Update,” we’ll discuss the antitrust issues that provider networks raise—and strategies for managing and mitigating antitrust risks, including integration, single entity models and messenger models.