What is a Risk-Bearing Organization?
As the health care industry transitions from traditional fee-for-service reimbursement towards value-based reimbursement methodologies, providers are increasingly exploring the formation risk-bearing organizations (“RBOs”). RBOs typically involve the association of historically independent providers—whether in a single provider type (e.g., physicians) or across the spectrum of care—through which the participating providers are able to assume collective financial risk for all or a portion of the costs of health care delivery from governmental payors, commercial health maintenance organizations or employer-sponsored health plans. Although the terminology used to describe RBOs often varies—sometimes referred to as independent practice associations, physician-hospital organizations, risk-bearing entities and accountable care organizations (“ACOs”)—the business objectives are commonly defined by the participating providers seeking to be rewarded for achieving better health outcomes, lowering cost and improving patient experience.
Participation in an RBO enables providers to contract collectively with third party payors to offer a defined set of health care services to attributed beneficiaries using some risk-based payment methodology, which may include global or partial capitation payments, upside/downside shared savings against a pre-established medical-loss threshold and/or episodic or bundled payments. Regardless of the payment model chosen, the critical definitional feature of an RBO is that the participating providers are willing to share both in the financial gains when care is delivered is efficiently and in the financial losses (at least to some degree) if the cost of care exceeds pre-established targets.
How are RBOs Regulated?
By virtue of these risk-bearing arrangements with third party payors, state insurance laws may view RBOs as performing a traditional or quasi-insurance function. Alternatively, other states view the licensed insurer as the entity primarily responsible for the care of the individuals and thus impose minimal to no limitations on providers that are looking to assume downstream risk for members. Importantly, even ACOs participating in federal programs that involve the assumption of financial risk, such as the Next General ACO Model track that involves capitated population-based payments, are required to comply with all applicable state licensure requirements regarding RBOs. Adding to this regulatory diversity is the desire of some states to build on federal initiatives—such as those encouraged by the Centers for Medicare & Medicaid Innovation—or similar state initiatives that encourage providers to take more responsible for the efficient delivery of health care services. Consequently, states have been struggling in determining how to best define and regulate RBOs and, and a result, the legal treatment of RBOs varies widely from state to state—with no two states regulating RBOs and their related activities in the exact same way.
In addition to regulation of the RBO as a function of state insurance law, other functions that complement the ability of an RBO to perform its risk-bearing functions effectively may create the need for additional state licensures and approvals. For example, in addition to assuming financial risk, RBOs commonly seek delegation of traditional health plan functions, such as utilization review, provider network development and claims adjudication to providers within the RBO’s provider network. The performance of these functions may then create the need for the RBO to apply for additional licenses or seek additional approvals, whether as a utilization review agency, third party administrator or similar authority. To add an even further layer of regulation, providers or RBO conveners and facilitators may be limited in structuring an RBO based on other state regulatory limitations. These limitations may include a strong state prohibition on the corporate practice of medicine, which may limit who may own and control an RBO, or a related prohibition on professional fee-splitting, which could limit the ability of licensed providers to share in fees generated in the RBO with non-licensed parties, such as management and administrative services providers.
What Is the Best Way to Proceed?Given this disparity in state regulation of RBOs and the patchwork of applicable prohibitions and limitations that apply to provider associations, a predicate step to formation of an RBO is the need for participating providers or RBO conveners and facilitators to understand the unique regulatory framework in the applicable state(s). Navigating these state regulatory hurdles and approvals requires strong state-specific expertise to minimize costs and delays in formation and approval. Ropes & Gray has been actively involved in understanding these state-specific nuances and particularities and have advised clients pursuing RBOs across the county.
Ropes & Gray regularly examines trends, developments and issues in value-based health care to provide guidance on this rapidly evolving topic.
- Over 40 U.S. States Pursing Value-Based Payment Programs, Report Finds (November 13, 2017)
- ACOs Yield Quality Lessons for Hospitals, May Expand (November 13, 2017)