The New Capitated System: How Do Physicians Respond?

Doctor with female patient

Editor’s Note: This article was originally published in the 2015 Winter Issue of Alabama Medicine magazine

On May 17, 2013, Gov. Robert Bentley signed into law Act 2013-261, Ala. Code Sections 22-6-150 et seq., which changes the Alabama Medicaid System from a fee-for-service to a managed care program (the “Act”). This will dramatically change the way nearly 1 million Alabama Medicaid beneficiaries receive their care, and change the way providers are paid. The Alabama Medicaid Agency will allocate a fixed, capitated per-member per-month payment to newly formed regional care organizations (“RCOs”) in return for the RCOs providing health care services to the Medicaid beneficiaries assigned to the RCO. The RCOs will provide the health care services through physicians and other health care providers who enter into provider agreements with the RCOs.

Each RCO is required to establish a network of health care providers in order to deliver care to its enrollees. The network can include physicians, hospitals, pharmacies, podiatrists, chiropractors, psychologists, dentists, therapists, social workers, rural health clinics and other health care providers. RCOs do not have to directly contract with providers, but can also contract with a managed care organization that will contract with providers. Under the law, RCOs are required to contract with any willing physician, hospital or other provider to offer services to beneficiaries in the RCO region if the provider is willing to accept the same payment and contract terms offered by the RCO to other comparable providers.

RCOs can pay providers either on a fee-for-service basis or on a capitated basis. In addition, RCOs can implement value, performance and other payment methodologies. If a RCO decides to not credential a provider in its network, the RCO must give the provider written notice of the reason for its decision, and follow credentialing requirements set out in federal regulations.

There are now 11 organizations across the State of Alabama that have been granted probationary certification as Medicaid Regional Care Organizations or “RCO”s. Physicians have begun receiving notices from some of these RCOs asking them to return a letter of intent to participate in the RCO network of providers. RCOs must be able to demonstrate to the Medicaid Agency that they have an adequate provider network in place by April 1, 2015. The RCOs are now on a fast track to put together the Primary Care Networks, and will be sending provider contracts out later this year. This will be the time physicians and other providers will be negotiating with the RCOs for the best agreement they can get.

The letters of intent being sent out are non-binding on physicians, and merely acknowledge the physician is willing to negotiate with the RCO. However, the issuance of the letters of intent by the RCOs may trigger discussions among physicians that may have antitrust implications. While a physician who simply sends in a letter of intent is acting individually, and without antitrust issues, if that physician begins discussing with other physicians whether or not the physicians should send letters of intent, the physicians involved in the discussions may be deemed to be acting collectively, and antitrust issues arise.

Under antitrust laws, physicians are considered horizontal competitors who compete with each other for patients just as car dealers are horizontal competitors who compete for customers. Any distinction in the law for professions has long been abandoned. Violations of the antitrust laws carry very severe penalties including potential criminal prosecution, trebled damages and an award of the plaintiff’s attorney fees. The enormous legal fees involved in defending an antitrust investigation by the Department of Justice or the Federal Trade Commission alone can be devastating to a physician practice.

To protect physicians who negotiate with RCOs, the Act provides immunity from liability under the antitrust laws by putting these negotiations under an exemption to antitrust known as the “State Action Doctrine.” This doctrine is set forth by the U.S. Supreme Court and exempts actions of a state from application of the antitrust laws. To qualify for the exemption, the state must clearly articulate and express a state policy to exempt the anticompetitive conduct and then actively supervise the anticompetitive conduct. The most difficult prong of the two-part test to meet is the requirement of active state supervision. The Medical Association of the State of Alabama has worked with the officials and attorneys for the Medicaid Agency to give physicians the maximum protection possible from the potential violation of the antitrust laws. It will be up to individual physicians and other providers, however, to assure they understand and follow to the letter the Medicaid Regulations designed to allow the Medicaid Agency to supervise the collective negotiations. Failure to do so can remove the antitrust immunity provided by the Act and leave the physicians and other providers vulnerable to the sanctions of the antitrust laws.

If carefully followed, the Act and the Medicaid Regulations provide the necessary elements to exempt collective negotiations from antitrust liability. Before talking with other physicians about the pros and cons of contracting with a Medicaid RCO, physicians should apply through an online process to the Medicaid Agency for a Certificate to Collaborate (the “Certificate”). The electronic application is available at Once the application is approved, a Certificate will be issued which will allow for collective negotiation, bargaining, and cooperation regarding payment and health care delivery. Careful attention must be paid to the Medicaid Regulations to assure the Certificate to Collaborate continues in force. To satisfy the State Action Doctrine, it is required the active state supervision be continuous, so just getting the Certificate alone is not sufficient. The Medicaid Regulations provide for continual monitoring and supervision of the negotiation process. Physicians and other providers must have someone in their offices knowledgeable of the requirements, and carefully assuring that they are followed.

In addition, the State Action Doctrine immunity only applies to collective negotiations with regard to Medicaid. It does not immunize any collective actions regarding private insurance companies or health maintenance organizations. Care must be taken to assure that the negotiations are limited to Medicaid beneficiaries.

The Certificate is not necessary for physicians to attend informational sessions on the new system, but is necessary for physicians to discuss among themselves whether or not to participate or on what terms to participate.Now is the time for physicians to get their Certificates, as the provider contracts will be next on the agenda for the RCOs. In all likelihood, physicians in the different regions who jointly negotiate with the RCOs either solely as physicians or in collaboration with one or more hospitals will be in

Now is the time for physicians to get their Certificates, as the provider contracts will be next on the agenda for the RCOs. In all likelihood, physicians in the different regions who jointly negotiate with the RCOs either solely as physicians or in collaboration with one or more hospitals will be in position to get better contracts than those who individually negotiate. The antitrust immunities in the Act give physicians and other providers greater ability to join together in new organizations to negotiate with RCOs and provide care to their enrollees.

Independent Practice Associations (“IPAs”), Preferred Provider Organizations (“PPOs”) and Physician Hospital Organizations (“PHOs”) are examples of the types of entities that will regain popularity in the development of the new provider networks. With the antitrust immunities furnished by the Act IPAs, PPOs and PHOs, as well as other entities, will be effective means for physicians and other providers to join together collectively and negotiate with RCOs. IPAs are entities in which physicians can integrate either partially or fully their practices into a separate entity that will negotiate with the RCOs and actually provide the care to enrollees of the RCO. PPOs are entities physicians can form to negotiate with RCOs for fees to be paid to the physicians but do not provide the care to enrollees. Care is provided through the individual medical practices. PHOs separate entities formed by hospitals and members of their medical staffs to negotiate and provide both hospital and physician services to enrollees.

The Act is changing the landscape for the provision of health care services for Medicaid beneficiaries. Other articles will deal with topics to help physicians negotiate the changes, including terms to carefully consider in signing provider contracts. Needless to say, as the time grows closer, physicians and other providers will be discussing options and strategies for responding to the changes.

bronzemvpArticle contributed by John T. Mooresmith, Esq., Burr Forman, LLP. Burr Forman, LLP, is an official Bronze Partner of the Medical Association.


Posted in: Legal Watch

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