Risk Bearing Entity Requirements: New Jersey and New York

This blog reviews the regulatory requirements that apply to risk bearing entities (RBE) in New Jersey and New York. New Jersey and New York demonstrate distinct approaches to the registration and regulation of RBEs and provider network activities. This blog is part of Foley & Lardner’s RBE Series (see our Introduction posted November 18, 2024).   

A variety of RBE reimbursement models that incorporate financial risk can trigger a requirement for Organized Delivery System (ODS) licensure in New Jersey and/or Independent Practice Association approval requirements in New York. Specifically, as generally noted in our Introduction, these models could include traditional or global capitation structures (e.g., financial responsibility for health care services delivered), bundles and episodic structures or other alternative payment models (e.g., financial responsibility for health care services for health conditions or treatments), shared savings, gain sharing, and other upside or downside risk structures (e.g., financial responsibility for total cost of care or achievement of medical loss ratios).  

New Jersey

New Jersey classifies an organization that contracts with a carrier to provide, or arrange to provide, health care services or benefits under the carrier’s benefits plans as an ODS.[1] A “carrier” includes insurers, hospital service corporations, medical service corporations, health service corporations, and health maintenance organizations. An ODS often convenes licensed health care providers into a provider network to support its contracts with carriers. An ODS is either certified or licensed depending on whether it assumes financial risk from a carrier. An ODS that assumes financial risk must be licensed. Otherwise, an ODS that will not be compensated on the assumption of financial risk (such as a provider network of licensed health care providers utilizing fee-for-service reimbursement), or is determined to assume de minimus risk, must be certified.[2]  

An ODS may include preferred provider organizations, physician hospital organizations, or independent practice associations.[3] However, organizations that only contract to provide pharmaceutical services, case management services, or employee assistance plan services may not require a license or certification. In addition, ODSs are defined to exclude licensed health care facilities and providers.[4] 

To apply for ODS licensure or certification, an organization must submit an application to the New Jersey Department of Banking and Insurance on prescribed forms together with copies of organizational documents, standard contract forms, and with respect to licensure applications only, financial information.[5] Unlike a certified ODS, a licensed ODS must comply with risk-based capital, liquidity, minimum net worth, and minimum statutory deposit requirements; and meet other financial standards and ongoing reporting and disclosure obligations commonly applicable to state-licensed insurance companies.[6]  

Whether certified or licensed, an ODS must meet minimum standards to perform functions under contracts with carriers.[7] The standards are similar to those carriers would have to comply with if performing such function themselves.

New York (en anglais)

New York classifies an organization that convenes licensed health care providers into a provider network for the provision of health care services through contracts with “managed care organizations” (MCO) and/or workers compensation preferred provider organizations or their participants as an Independent Practice Association (IPA).[8] MCOs include a health maintenance organization or other person or entity arranging, providing, or offering comprehensive health service plans to individuals or groups.   

Prior to corporate formation or operation, IPAs must receive approval from the New York State Department of Health (Department of Health). The Department of Health requires the submission of certain information, such as contact, organizational, and operational information of the proposed IPA. A checklist of the IPA formation requirements is found here.[9] Notably, the certificate of incorporation or articles of organizations of the IPA must include “Independent Practice Association” or “IPA” in its name, contain express powers and purposes permitting provider network activities, and include prescribed authorizing language and prohibited activities, and related sign-offs from the New York State Departments of Education and Financial Services.[10] Further, some IPA requirements that are specific to MCO engagements are shouldered by MCOs.[11]  

An IPA that intends to engage in risk-sharing in New York must demonstrate to the Department of Health and the Department of Financial Services (which houses the Superintendent of Insurance) that the IPA is financially responsible and capable to assume risk. The review of whether the IPA is financially responsible and capable includes an evaluation of proposed risk sharing and insurance, stoploss, reserves, or other arrangements to satisfy obligations to MCOs, participating provider, and enrollees.[12] Risk-sharing means “the contractual assumption of liability by the health care provider or IPA by means of a capitation arrangement or other mechanism whereby the provider or IPA assumes financial risk from the MCO for the delivery of specified health care services to enrollees of the MCO”.   

Conclusion

New Jersey ODS licensure or certification and New York IPA approval requirements have become increasingly important as RBEs have moved beyond their early beginnings as a means for independent physician practices to band together to negotiate access to payor contracts. They have now become major players in network development and supporting delegated payor functions.

The regulatory frameworks for RBE operations differ from state to state, and their applicability can vary based on specific offerings, services, and relationships of RBEs. We recommend careful review of RBE operations and relationships against applicable requirements of operating states.

Awareness of these requirements is crucial for RBEs, as well as downstream and upstream contracting entities that may be indirectly subject to regulations. For example, the terms of provider agreements of an ODS must meet specific requirements in New Jersey,[13] and MCOs in New York are not permitted to contract with an IPA that has not been approved by the New York State Departments of Health, Education, and Financial Services.[14] 

Foley & Lardner, LLP is here to help you address the short- and long-term impacts in the wake of regulatory requirements and changes. We have the resources to help you navigate these and other important legal considerations related to business operations and industry-specific issues. Please reach out to the author, your Foley & Lardner relationship partner, our Payor-Provider Convergence Area of Focus, or to our Health Care Practice Group with any questions.

[1] N.J. Stat. § 17:48H-1.

[2] N.J. Stat. § 17:48H-1; N.J. Admin. Code § 11:22-4.3(c).

[3] See N.J. Stat. § 17:48H-1.

[4] See N.J. Admin. Code § 11:22-4.2.

[5] N.J. Stat. §§ 17:48H-2, 17:48H-3, 17:48H-11, 17:48H-12; N.J. Admin. Code §§ 11:22-4.4, 11:22-4.5.

[6] See, e.g.,N.J. Admin. Code §§ 11:22-4.8, 11:22-4.9.

[7] N.J. § 17:48H-33 (certified and licensed ODS are subject to carrier standards in N.J. Stat. § 26:2S-1 et seq.)

[8] 10 NYCRR § 98-1.2.

[9] https://www.health.ny.gov/health_care/managed_care/hmoipa/ipa_formation_requirements.htm (last accessed Jan. 12, 2025).

[10] 10 NYCRR § 98-1.5(b)(6)(vii).

[11] See, e.g., 10 NYCRR § 98-1.18.

[12] 10 NYCRR ss. 98.1-2, 98.1-4.

[13] See N.J. Admin. Code §§ 11:24B-5.1-11:24B-5.7.

[14] See 10 NYCRR § 98-1.5(b)(6)(vii).