For those participating in corporate development in the health plan space in Florida, the question may arise: “What is a provider service network?” This Article provides the definitional traits of a provider service network (“PSN”) under Florida law along with some key regulatory and transactional considerations related to PSNs.
A PSN is defined under Fla. Stat. § 409.962.1 The key definitional trait of a PSN is its ownership by a health care provider. There is a further categorical distinction between “prepaid” and “fee-for-service” PSNs, as described in Fla. Stat. § 409.968,2 with “prepaid plans” defined as “a managed care plan that is licensed or certified as a risk-bearing entity, or qualified pursuant to s. 409.912(1), in the state [of Florida] and is paid a prospective per-member, per-month payment by the agency.” Section 409.912(1)3 provides further context, stating in relevant part that “a provider service network which is reimbursed by the [Agency for Health Care Administration] on a prepaid basis shall be exempt from parts I and III of chapter 541 [which are those portions of Florida’s Insurance Code that apply to Health Care Service Organizations].”
Under Florida’s Insurance Code, certified, prepaid, PSNs are within the scope of Fla. Stat. § 641.2019, which states that a “prepaid provider service network that applies for and obtains a health care provider certificate pursuant to part III of this chapter, meets the surplus requirements of s. 641.225, and meets all other applicable requirements of this part may obtain a certificate of authority under s. 641.21 [which is the statute requiring an HMO to obtain a certificate of authority from the Florida Office of Insurance Regulation].” Section 641.2019 goes on to state that a “certified provider service network has the same rights and responsibilities as a health maintenance organization certified under this part.” If a PSN has not obtained a certificate of authority from the Florida Office of Insurance Regulation (“OIR”), Fla. Stat. § 409.912(1)(a)4 can be interpreted to eliminate OIR’s oversight of the PSN.
PSNs are subject to the regulatory oversight of the Florida Agency for Health Care Administration (“AHCA”), and, indirectly through AHCA, the federal Centers for Medicare & Medicaid Services (“CMS”). For the purposes of regulatory oversight, Florida law treats “prepaid” Provider Service Networks that have obtained a certificate of authority from OIR as Health Maintenance Organizations (“HMOs”). As a result, prepaid, certified PSNs are subject to OIR oversight, and are regulated as specialty insurers under the Florida Insurance Code. If a PSN does not possess such certification as a provider service network under Florida Stat. § 641.2019 or § 641.21 the PSN is subject to AHCA oversight, but likely not subject to OIR oversight.
As a general matter, the following regulatory initiatives are required in association with the acquisition of a PSN:
Great care should be taken in assessing which legal form a PSN acquisition should take. Acquisition of the controlling interest in the PSN entity raises many sensitive considerations in diligence along with possible inheritance of legacy regulatory, financial, administrative, and personnel issues. Further, a change in the controlling interest of a PSN could impact its regulatory categorization as a PSN if a controlling interest is no longer held by a healthcare provider or another of the enumerated categories of permitted owners for a PSN. In contrast, acquisition of the key assets of a PSN dictates in-depth analysis of the regulatory nexuses attaching to those assets (whether they be the PSN’s contract with AHCA, provider contracts, and/or other key assets), and the attendant liabilities associated with those assets.
Of course, these are only a few of the many issues one should address in the course of analyzing PSNs, and legal and corporate development departments should consult extensively with M&A and regulatory counsel to discern all relevant considerations in the formation, diligencing, and/or acquisition of a PSN.
1 Fla. Stat. § 409.962(14) states: “’Provider service network’ means an entity qualified pursuant to s. 409.912(1) of which a controlling interest is owned by a health care provider, or group of affiliated providers, or a public agency or entity that delivers health services. Health care providers include Florida-licensed health care professionals or licensed health care facilities, federally qualified health care centers, and home health care agencies.”
2 Fla. Stat. § 409.968(2) states: “Provider service networks may be prepaid plans and receive per-member, per-month payments negotiated pursuant to the procurement process described in s. 409.966. Provider service networks that choose not to be prepaid plans shall receive fee-for-service rates with a shared savings settlement. The fee-for-service option shall be available to a provider service network only for the first 2 years of its operation.”
3 Fla. Stat. 409.912(1) states as shown below (emphasis added):
(1) The agency may contract with a provider service network, which may be reimbursed on a fee-for-service or prepaid basis. Prepaid provider service networks shall receive per-member, per-month payments. A provider service network that does not choose to be a prepaid plan shall receive fee-for-service rates with a shared savings settlement. The fee-for-service option shall be available to a provider service network only for the first 2 years of the plan’s operation or until the contract year beginning September 1, 2014, whichever is later. The agency shall annually conduct cost reconciliations to determine the amount of cost savings achieved by fee-for-service provider service networks for the dates of service in the period being reconciled. Only payments for covered services for dates of service within the reconciliation period and paid within 6 months after the last date of service in the reconciliation period shall be included. The agency shall perform the necessary adjustments for the inclusion of claims incurred but not reported within the reconciliation for claims that could be received and paid by the agency after the 6-month claims processing time lag. The agency shall provide the results of the reconciliations to the fee-for-service provider service networks within 45 days after the end of the reconciliation period. The fee-for-service provider service networks shall review and provide written comments or a letter of concurrence to the agency within 45 days after receipt of the reconciliation results. This reconciliation shall be considered final.
(a) A provider service network which is reimbursed by the agency on a prepaid basis shall be exempt from parts I and III of chapter 641, but must comply with the solvency requirements in s. 641.2261(2) and meet appropriate financial reserve, quality assurance, and patient rights requirements as established by the agency.
(b) A provider service network is a network established or organized and operated by a health care provider, or group of affiliated health care providers, which provides a substantial proportion of the health care items and services under a contract directly through the provider or affiliated group of providers and may make arrangements with physicians or other health care professionals, health care institutions, or any combination of such individuals or institutions to assume all or part of the financial risk on a prospective basis for the provision of basic health services by the physicians, by other health professionals, or through the institutions. The health care providers must have a controlling interest in the governing body of the provider service network organization.
4 As more fully excerpted above, that provision states, in relevant part: “A provider service network which is reimbursed by the agency on a prepaid basis shall be exempt from parts I and III of chapter 641 [which are the portions of the insurance code that apply to Health Care Service Organizations], but must comply with the solvency requirements in s. 641.2261(2) . . .”