SD22 - Study of Organized Health Services Delivery Systems Pursuant to SJR 126 of 1994

Executive Summary:

Senate Joint Resolution (SJR) 126 of the 1994 Session requested the Joint Commission on Health Care, in cooperation with the Commissioner of Health and the Commissioner of Insurance, to continue its study of organized health care delivery systems. The study is a continuation of earlier work conducted by the Commission in 1993 under the authority of SJR 316 from the 1993 Session.

This report examines the "community health network" model of an organized delivery system. The idea of the community health network arose in response to dissatisfaction with the traditional health care delivery system in which purchasers pay ever-increasing prices for health services without real evidence that the services are cost-effective. A community health network would involve a group of health care providers joining together to offer comprehensive health care services for a fixed fee per person or "capitated" fee. The network would develop evaluation systems which would allow purchasers to obtain comprehensive information on the cost and quality of the services they receive. Furthermore, the community health network would assume insurance risk - and strong incentives for cost effectiveness - by contracting directly with purchasers rather than with a health insurance company.

The essential policy issue addressed in this report is how to regulate the insurance function of a community health network. Under current law, the primary option available to a group of providers wishing to form a community health network is to be licensed and regulated as a health maintenance organization. However, advocates of the community health network model believe that the financial requirements for HMOs, including net worth, solvency standards, and other requirements, are too stringent to allow the development of viable small-to-medium sized community health networks (particularly in rural areas). They further believe that there are substantive differences between community health networks and HMOs which should be reflected in regulatory requirements.

The report includes three policy options for the consideration of the General Assembly. The first option is the status quo, which would mean that providers wishing to form a community health network would have to be licensed under existing HMO requirements. A second option would be to develop a separate set of requirements for community health networks. A third option would be to amend the existing HMO requirements on a provisional basis to accommodate the development of new community health networks. A detailed explanation of each option is included in the report.

Our review process on this topic included an initial staff briefing which you will find in the body of this report followed by a public comment period during which time interested parties forwarded written comments to us on the report. In many cases, the public comments, which are provided at the end of this report, provided additional insight into the various topics covered in this study.