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Some physician groups may be required to obtain a Knox Keene license

May 13, 2019
Area(s) of Interest: Practice Management Payor Issues and Reimbursement 


The Department of Managed Health Care (DMHC) recently adopted a regulation that requires entities that assume any amount of global risk to either obtain a license under the Knox-Keene Act or receive an exemption from DMHC for the contract(s) under which the entity assumes global risk.

Global risk under the regulation is defined as, “the acceptance of a prepaid or periodic charge from or on behalf of enrollees in return for the assumption of both professional and institutional risk.” Prepaid or periodic charge means, “any amount of compensation, either at the start or end of a predetermined period, for assuming the risk, or arranging for others to assume the risk, of delivering or arranging for the delivery of the contracted-for health care services for subscribers or enrollees that may be fixed either in amount or percentage of savings or losses in which the entity shares.”

The regulation applies to any contract entered into, amended or renewed on or after July 1, 2019.  Due to the short time frame before the regulation goes into effect and the many outstanding questions on the regulation, DMHC issued draft guidance on the contracts or arrangements that do not need to be filed with DMHC at this time and on a phasing-in of the regulation to give entities time to comply and to ensure an orderly implementation of the regulation.

Contracts or arrangements that do not need to be filed with DMHC at this time include:

  1. Bundled payments, case rates, diagnosis-related group payments, and pier diem arrangements;
  2. The Centers for Medicare and Medicaid Services (CMS) Accountable Care Organizations; and
  3. Arrangements where the payor is a California Department of Insurance licensed insurer. 

For all other contracts that involve the assumption of global risk, including those contracts that involve only “upside” risk, prior DMHC approval will not be required for contracts entered into, amended, or renewed during the phase-in period of July 1, 2019 to December 31, 2019.  However, these entities must submit a copy of the executed contract, a Request for Expedited Exemption or a cover letter to DMHC no later than 30 days after all parties have executed the contract or 30 days after performance under the contract has started, which ever earlier.

Upon receipt of the Request for Expedited Exemption, DMHC will deem the contract to be exempt from the requirements of the regulation and will issue an Order of Exemption. The duration of the exemption will be either the term of the contract (if a DMHC-licensed health plan is a party to the contract); or one year from the date DMHC grants the exemption (if a DMHC-licensed health plan is not a party to the contract).  DMHC considers an “evergreen” renewal to be a renewal, requiring the entity to obtain a new exemption for the contract. The Request for Expedited Exemption shall include a copy of the executed contract and the request for expedited exemption form or a cover letter that includes all of the information requested in the form.

Entities that would like to request that the DMHC treat the contract or any portion of the contract as confidential must submit a justification that includes the basis for the request along with the Request for Confidentiality form.  

The expedited exemption and confidentiality request forms are included in the draft guidance document.

CMA will be submitting comments on the draft guidance. Practices  are encouraged to submit any feedback on the guidance to Catrina Reyes at creyes@cmadocs.org or (916) 551-2543 by close of business on Thursday, May 16.

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