Health Care Risk Sharing, Integration & Accountable Care – Part 6


Continuing with our posting regarding mechanisms for provider risk sharing and integration, there are several forms and contracting models that facilitate integration.

  • Integrated Delivery Networks (“IDN”): An IDN is a single group, linked through contract or incorporated within one entity, which assumes responsibility for delivery to a defined population through offering a coordinated continuum of care.
  • Independent Practice Association (“IPA”): An IPA is a gap-bearer between an independent provider or providers and payer. Linked through contract or otherwise, the IPA accepted capitated payments in consideration for delivery to pre-defined population of enrollees.
  • Managed services organizations (“MSO”): An MSO is an entity, or series of entities, the providers the spectrum of services required by a physician group.  This spectrum may include the facilities, equipment, personnel and supplies required for delivery.  Importantly, as part of these services, and MSO may be given agency authority to negotiate with payers on behalf of physicians.
  • Physician-Hospital Organization (“PHO”): A PHO is a legal entity, separate from either physician or hospital, that permits both parties to enter into contracts jointly with payers and to collectively create managed care products to market to these payers.   Through a PHO, a physician or physician group maintains a distinct practice, however, the physician or physician group agrees, to the extent of their contract with the centralized organization (see below), to abide by the terms struck through their centralized negotiator.
  • Hospital Assisted Preferred Provider Organization (“H-PPO” and “PPO”): A PPO is an entity which contracts with providers to deliver a turn-key, integrated continuum of care to payers. The PPO may focus on a carve-out, specialty population, or may seek to focus on comprehensive care in a certain geographic location.  The PPO, generally a non-profit, contracts directly with physicians through participation agreements, and conversely markets the continuum and collectively negotiates on behalf of participating physicians.  The level at which a PPO may bind a physician is dictated through the PPO-physician participation agreement (see below). An H-PPO is a PPO in which a hospital is not only a participating provider, by takes an assertive and active role in entity formation and direction.
  • Managed Services Organizations (“MSO”): An MSO is a proprietary management corporation which provides participants with certain management services such as billing, collection, personnel management, purchasing, and utilization reviews−all of which are controls, neatly packaged, that are necessary for managed care contracting.

Joint ventures with non-profit entities, generally hospitals, should be scrutinized for the venture’s implication to the non-profit’s exempt §501(c)(3) status.  Accordingly, PHOs and H-PPs are better suited to non-profit incorporation.  Considerations such as private inurement and unrelated business income must be factored into the § 501(c)(3) analysis of any participating organization.  See IRS § 501(c)(3)-1(c)(1) (exempt purpose will be assumed if the entity engaged primarily in activities that accomplish an exempt purpose), but see in re Better Business Bureau of Washington, D.C. v. United States, 326 U.S. 279, 283 (1945)(non-exempt purpose will be destroyed if participation in non-exempt endeavor is substantial in nature); § 511 (normal corporate rate is imposed on income of exempt organization that is not substantially related to furtherance of exempt purpose); Rev. Rul. 98-15, 1998-1 C.B. 718 (activities of partners to the partnership or LLC for § 501(c)(3) determination of such partnership are controlling−charitable purpose and partnership agreement controls); Redlands Surgical Services, 113 T.C. 47, 92-93 (1999), aff’d 242 F.3d 904 (9th Cir. 2001)(non-profit partnerships, with profit seeking entities, for the furtherance of a charitable purpose, are permitted so long as the non-profit entity does not therein impermissibly serve a private interest); St. David’s Health Care System v. United States, 349 F.3d 232, 236-237 (5th Cir. 2003) (the non-profit/profit partnership, for purpose of the §501(c)(3) status of one partner, will turn upon whether the partnership provides some charitable service…a non-profit will lose it’s tax exempt status is control is ceded to the for-profit entity).

This article is part of a series of articles on risk sharing, integration and accountable care