Perhaps the hottest buzz words in the managed care industry are “value-based care.” In some ways lead by the Centers for Medicare and Medicaid Studies (CMS), the industrywide push toward value-based care (VBC) refers to a range of efforts to align the financial incentives of health care providers (including hospitals, physician groups and ancillary service providers) and payors (including commercial insurers, self-funded employer benefit plans, managed Medicaid and Medicare Advantage plans). The core concept of VBC is to have health care payors pay providers more for successful (and hence ultimately less costly) patient outcomes, and less for unsuccessful outcomes. The goal of most VBC arrangements is to transfer some financial risk for the cost of health care from the plan sponsor to the health care provider.

While incentivizing health care providers to achieve good patient outcomes may sound like plain good business strategy, to a lawyer’s ear, the first question must be whether such arrangements engage the provider in the business of insurance. Health insurers and other managed care organizations (MCOs) are tightly regulated by state insurance departments to strict financial solvency standards. Providers, by their nature, are not subject to risk-based capital and surplus requirements, conservative limitations on investment portfolios and hands-on financial regulation. Therefore, when a provider organization agrees to take on significant financial risk for the cost of care for their own patients, state insurance regulators can and do take a keen interest in scrutinizing such arrangements under widely varying and state-specific regulatory schemes.

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