California’s Department of Managed Health Care, which licenses and regulates HMOs and certain PPOs in California, is promulgating a new regulation that will require healthcare providers that enter into certain types of risk arrangements to either seek a license from the DMHC, or obtain an exemption from licensure. The DMHC has billed the new regulation as a measure to protect consumers and ensure stability of the health care delivery system. The regulation’s requirement to seek licensure or an exemption will apply to all providers that enter into “global risk” arrangements, which are defined in the regulation as arrangements where a provider accepts a prepaid or periodic charge in return for the assumption of both professional and institutional risk.

Although many providers encouraged the DMHC during the rulemaking process to limit the scope of the new regulation to capitation agreements, the DMHC declined, and will apply the regulation to a broad range of risk arrangements, including shared savings arrangements (including upside-only arrangements), ACO arrangements, and traditional global capitation arrangements where providers accept financial risk for services outside the scope of the providers’ licenses. The DMHC recently advised the provider community that, although they technically fit within new regulation’s definition of “global risk,” bundled payment arrangements would not require licensure or exemption.

The new regulation will apply to arrangements that are entered into, amended, or renewed on or after July 1, 2019. Arrangements entered into prior to that effective date will be grandfathered in, so many providers are trying to finalize negotiations of global risk arrangements now to take advantage of the grandfathering opportunity. Further, for the first six months after the effective date, the DMHC is using a “phase-in” exemption process, under which providers who submit basic information about a global risk arrangement to the DMHC can receive an expedited exemption. After that phase-in process, providers will be subject to a more rigorous exemption process in which providers will be required to submit market share information and other data to the DMHC in order to obtain an exemption.