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The Who, Where, Why and What You Should Do Next with the California DMHC’s Expanded Licensing and Exemption Requirements

By Cindy Ehnes, Esq.
Principal, COPE Health Solutions
By Allen Miller
Principal & CEO, COPE Health Solutions

See all this Month's Articles

Original Publish Date: July 9, 2019

Effective July 1, 2019, the California Department of Managed Health Care (“Department” or “DMHC”) is requiring organizations under certain conditions to file their risk contracts with DMHC.1 California managed care organizations, medical groups, risk bearing organizations (RBOs), clinically integrated networks (CINs) and any entities looking to enter into upside or downside financial risk agreements will need to understand who needs to file (and who does not), what to file and when to file. Also important is the consideration of the longer-term strategy to address new opportunities and potential pitfalls amid increased oversight.

This article provides guidance on the above and consideration on where this action may be headed and the next steps and strategies providers should consider, such as the leveraging or alignment with a Restricted Knox-Keene (RKK) health plan to mitigate future risks. We will also discuss the Department’s new regulation imposing reporting SB2602 requirements on RBOs.3

I. Introduction: A number of California health systems, physician groups, hospitals, RKKs and RBOs have registered questions and concerns regarding the expanded DMHC licensure requirements for risk contracts. Health care organizations operating in California and entering into alternative payment models need to prioritize understanding the implications of the new licensing regulation and develop a strategy for compliance. One of the goals of the licensure regulation appears to be to expand the definition of global risk to include shared savings models. The purpose of the shared savings model inclusion may be to regulate such advanced direct payment models in the self-funded employer plan market.

The sweeping language of the regulation is circumscribed by its June 14, 2019 “All Plan Letter”4 (APL). To minimize adverse impacts on both the industry and Department staff, the DMHC has prioritized the contracts required to be filed as “Expedited Exemptions” and will grant these contracts approximately two years of protection from licensure requirements.

The APL exempts certain risk contracts and relationships from licensure at this time and provides for a filing process to gain short-term protections, also termed “exemption.” During the phase-in period, the DMHC will automatically grant an exemption to contracts submitted to the DMHC. The receipt of an exemption from the application of the general licensure regulation does not mean the DMHC “approves” the terms of the contract for other purposes.

The phase-in period is July 1, 2019, to June 30, 2020. During the phase-in period, entities that assume global risk must file with the DMHC their global risk contracts within 30 days of execution of the contract by all parties. It is important to note that exemption from the DMHC does not need to be received prior to finalizing or beginning performance under the contract.

Sub-capitated RBOs and their contracting partners must also understand new SB260 reporting and solvency requirements. The RBO SB260 reporting requirements will capture smaller RBOs previously not subjected to such requirements and subject them to routine solvency and timely claims payment reporting. The assumed objective is to ensure all delegated RBOs have capable infrastructure to manage increasingly complex capitation contracts, provide high-quality care and access to specialists and pay the claims of contracted providers.

II. Longer term strategy is essential: The significant takeaway is that the licensing emphasis combined with the RBO regulation, as applicable, should be prompting larger conversations around a three to five year strategy:

III. Who Must File, When and What? Determining who must file is complex and confusing. However, the determination is less of a legal analysis and primarily involves a complex analysis of relationships and exemptions.

Here are a few of the questions medical groups, RBOs, IPAs, commercial ACOs, hospitals and health systems should keep in mind:

Sorting through this maze, here are the known and possible impacted parties:

IV. Conclusion: By defining “global risk” very broadly, while providing extended but temporary exemptions, the Department is providing a sentinel warning regarding what will be required in order to take risk outside the lanes of the provider’s direct competencies. This will funnel more risk arrangements into licensed entities subject to greater regulatory requirements. Ideally, the Department will create a database of IPA risk contracts and metrics, (although filing entities will not submit through an e-filing system, and how they will be tracked is unclear).

Taken together with increased expectations regarding health plan compliance monitoring of providers taking or managing risk, including RBOs and MSOs, and the new financial filing requirements for RBOs, the Department expects that it can better police the entire industry. However, the added cost and administrative burdens of participating in advanced payment models that incorporate risk arrangements will most certainly increase health care costs.

For more information on how the California DMHC’s Expanded Licensing and Exemption Requirements impact your organization, please contact Allen Miller or Cindy Ehnes at,, or 213-259-0245.

2 A risk bearing organization (RBO) is either a professional medical corporation, other form of corporation controlled by physicians and surgeons, a medical partnership, a medical foundation exempt from licensure pursuant to subdivision (l) of Section 1206 of the Health and Safety Code, or another lawfully organized group of physicians that delivers, furnishes, or otherwise arranges for or provides health care services. An RBO does not include an individual or a health care service plan. An RBO contracts directly with a health care service plan or arranges for health care services for the health care service plan's enrollees; receives compensation for those services on any capitated or fixed periodic payment basis; and is responsible for the processing and payment of claims made by providers for services.