CHA News

Hospitals Should Consult With Counsel on Expanded DMHC Licensure Requirements

CHA sponsoring bill to address member concerns

The California Department of Managed Health Care (DMHC) has promulgated a new general licensure regulation, effective July 1, that greatly expands the types of health care service plans requiring a license. CHA encourages members to consult with their counsel to determine how the new regulation will impact their organization.

The regulation was approved by the California Office of Administrative Law on March 5.

CHA previously submitted comments on this proposal, cautioning DMHC that the proposed process would subject a number of providers to burdensome licensure requirements. Along with a coalition of impacted providers and other organizations, CHA is sponsoring legislation — Senate Bill 714 (Umberg, D-Orange County) — that would give providers greater certainty around the exemption process. The bill would presumably exempt from licensure a provider that participates in particularly low-risk payment arrangements that fall below quantitative risk thresholds.

The regulation formalizes current DMHC policy with respect to plan-provider arrangements that trigger licensure, such as providers paid on a global capitation basis. While the regulation, in many ways, adopts current licensing practices, it also makes certain definitional changes that greatly expand the number of entities that will need obtain a license. This applies to provider entities needing a restricted license because they take global risk from an unrestricted plan, as well as provider entities taking global risk (under an expanded definition of risk) from self-insured employers. 

As such, the regulation would subject a number of providers to licensure — or the requirement to obtain an exemption from licensure — based on the adoption of innovative, yet low-risk, payment models that were not the intended subject of regulation under the Knox-Keene Act. These models include bundled payment arrangements, institutional risk pools, and accountable care organizations, including direct-to-employer arrangements.

Contracts already in effect on July 1 will be grandfathered in and will not be subject to the rule until they are amended or renewed. All new agreements entered into after July 1 will be subject to the rule. Some organizations are eligible for an exemption; DMHC will review requests for exemption within 30 days of receiving the request. 

When reviewing the exemption request, DMHC is required to consider:

  • The entity’s global risk business compared to its overall business
  • In the geographical region, the entity’s market share for global risk compared to the competition and the potential for market disruption if the entity becomes insolvent
  • The entity’s ability to assume global risk without jeopardizing enrollee access in the region
  • The impact on the market in the geographic region if the entity does not maintain solvency
  • Whether the issuance of an exemption will negatively impact public interest or protection of the public, subscribers, or enrollees of entities subject to the Knox-Keene Act

Exactly how DMHC will apply the regulation to the information submitted by the entity requesting the exemption remains unclear. Presumably, the smaller the share of global risk business an entity has compared to its overall business, the higher the chances of DMHC issuing an exemption.