New regulatory trend: Group solvency standards
New regulatory trend: Group solvency standards
Failing IPAs spark new legislation
Scared by a recent jump in medical practices going belly-up, states such as California, Colorado, and New York are on the forefront of a move to install solvency and other financial standards for independent practice associations and other physician organizations accepting insurance-like risk contracts.
Under the present guidelines scheduled to be phased in over the next year in California, nearly one-third of all medical groups would fail to meet the standards. The rules will apply to all capitated groups with claims-processing responsibilities, says the California Association of Physician Organizations (CAPO). California doctors, fearing that a poor solvency rating would make it harder to win future HMO contracts, are lobbying to have the state postpone the final implementation of its plan for at least three years to allow groups to build up their financial reserves.
Under the proposed new standards, California groups must ensure that their assets exceed liabilities by at least $1 at all times; they must pay subcontracted physicians on time; and they must keep track of what they will owe on bills that haven’t been submitted.
California’s Solvency Scorecard |
||
Under California’s proposed solvency standards, medical groups must need the following criteria: | ||
• | Tangible net equity. | Assets such as cash, securities, and long-term receivables must be greater than liabilities. |
• | Working capital. | Assets such as cash, marketable securities, and short-term receivables must exceed liabilities. |
• | IBNR. | Track "incurred but not reported" claims — money owed for bills that have not yet been submitted. |
• | Prompt payment. | Pay 95% of clean claims within 30 to 45 days. |
New York, in contrast, wants to require large groups to place 12.5% of their total revenues into reserves to cover potential liabilities. Some 20 states are now considering regulations affecting the "downstream risk" for which medical groups can contract, reports the National Conference of State Legislatures. As with previous managed care issues, California seems to be the state to watch when it comes to the future of government-imposed solvency standards.
According to the California Medical Association, 125 California groups have closed their doors over the past five years. Meanwhile, 85% of the remaining medical groups are estimated to be at or near insolvency. Most physicians point to low capitation rates, which run as much as 40% lower than those in other parts of the country, as the main reason for their money problems. On the HMO side, up to 60% of plans could be in financial trouble, according to studies.
While providers complain about many of the specifics of the California plan, many say these types of standards may be needed. "I wouldn’t say the new rules are a good or a bad thing. But they do seem be to a necessary thing," given the insurance risk being assumed and associated responsibility for paying physicians the group subcontracts with under the capitation arrangements, notes Ira Davidoff, MD, chairman and medical director of Oakland’s Bay Valley Medical Group. This, in turn, means practices must start to act more like insurers in their financial dealings by "accumulating reserves to weather the bad times," says Davidoff.
Subscribe Now for Access
You have reached your article limit for the month. We hope you found our articles both enjoyable and insightful. For information on new subscriptions, product trials, alternative billing arrangements or group and site discounts please call 800-688-2421. We look forward to having you as a long-term member of the Relias Media community.