¹ For purposes of this Article, the term health plan or plan is broadly defined to include traditional indemnity health insurance plans, managed indemnity plans which are traditional indemnity plans that apply utilization review techniques, preferred provider organizations (PPOs), health maintenance organizations (HMOs), and other organizations that are licensed to underwrite the risk that patients will need health care.

² The bills include The Balanced Budget Act of 1995, H.R. 2491, 104th Cong., 1st Sess. (1995) [hereinafter Republican bill] which was passed by Congress in November 1995 and vetoed by President Clinton on December 7, 1995, the Common Sense Balance Budget Act of 1995, H.R. 2530, 104th Cong., 1st Sess. (1995) [hereinafter Blue Dog bill] which was introduced to the House of Representatives on October 25, 1995, and two bills drafted by President Clinton that have not been submitted to Congress. One of President Clinton’s bills is 1996 budget reconciliation legislation, and the other is budget reconciliation legislation for fiscal year 1997. The provisions for provider sponsored organizations (PSOs) in both bills are similar, but there are some significant differences. This Article assumes that President Clinton’s 1997 budget bill, which is later in time, is a more accurate reflection of his current views about PSOs, and therefore describes only the 1997 bill [hereinafter Clinton bill]. The version of Clinton’s 1997 budget bill described is the first one to be publicly circulated, which was done in March 1996. New versions of President Clinton’s bill may be in circulation at the time of publication of this Article.

³ The term provider sponsored organization is used in all of the bills as a name for a health plan owned and operated by providers that would underwrite the Medicare benefits package for Medicare eligible patients. The relevant subsections of the three bills are organized by the new Social Security Act sections, and the subsections are not denominated with bill subsection numbers. Therefore, this Article will refer to the bill section and then the relevant Social Security Act section that would be added. For the above referenced text, the relevant sections are Republican bill, supra note 2, § 8001(a)/Soc. Sec. § 1853(e); Blue Dog bill, supra note 2, § 8001(a)/Soc. Sec. § 1854(a); Clinton bill, supra note 2, § 11202(a)(2)/Soc. Sec. § 1851A(e).

⁴ The term provider service network is used in H.R. 2530 to refer to a health care delivery network owned and operated by providers. Blue Dog bill, supra note 2, § 8021(b)(6). The version of H.R. 2491 that was released from the joint conference committee also referred to PSNs, but those provisions were not passed in the final version. Clinton’s bill does not have any provisions referring to PSNs.

⁵ This Article also follows up on an earlier article on this subject. See Hirshfeld, Edward B., The Case for Physician Direction in Health Plans, 3 Annals Health L. 81 (1994)Google ScholarPubMed.

⁶ President Clinton has circulated two budget reconciliation bills with PSO provisions, one for 1996 and one for 1997. See discussion supra note 2. This Article refers only to the 1997 bill.

⁷ Republican bill, supra note 2, § 8001; Blue Dog bill, supra note 2, § 8002; Clinton bill, supra note 2, § 11201.

⁸ 42 U.S.C. § 1395d(1994).

⁹ Id. § 1395k.

¹⁰ Id. § 1395mm(b), (d) (West Supp. 1995).

¹¹ Id. § 1395mm(g) (West 1992).

¹² Section 8001/Soc. Sec. § 1851(a) of the Republican bill, § 8001/Soc. Sec. § 1805(a). of the Blue Dog bill, and § 11202 of the Clinton bill would implement the new Part C by adding new sections to Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395-1395ccc.

¹³ Republican bill, supra note 2, § 8001(a)/Soc. Sec. § 1855(a); Blue Dog bill, supra note 2, § 8002(a)/Soc. Sec. § 1852(d).

¹⁴ 5 U.S.C. §§ 8901-8914 (1994).

¹⁵ Clinton bill, supra note 2, § 11202(a)/Soc. Sec. § 1851A(a)(3)-(5).

¹⁶ Id. Soc. Sec. § 1851F(f).

¹⁷ Republican bill, supra note 2, § 8001(a)/Soc. Sec. § 1853(a); Blue Dog bill, supra note 2, § 8002(a)/Soc. Sec. § 1851(b); Clinton bill, supra note 2, § 11202/Soc. Sec. § 1851 A.

¹⁸ Republican bill, supra note 2, § 8001(a)/Soc. Sec. §§ 1853(a)(2)-(6), 1856(c); Blue Dog bill, supra note 2, § 8002(a)/Soc. Sec. §§ 1854(b), 1856(e).

¹⁹ Clinton bill, supra note 2, § 11202(a)/Soc. Sec. § 1851 A(e)(3).

²⁰ These requirements are set forth throughout the bills. For sections concerned primarily with Medicare beneficiary protection, see Republican bill, supra note 2, § 8001(a)/Soc. Sec. § 1852; Blue Dog bill, supra note 2, § 8002(a)/Soc. Sec. § 1852; Clinton bill, supra note 2, § 11202/Soc. Sec. § 1851E.

²¹ Republican bill, supra note 2, § 8001/Soc. Sec. § 1856(1)(D); Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1856(a); Clinton bill, supra note 2, §§ 11202/Soc. Sec. § 18511(0(1), 11203(a).

²² Republican bill, supra note 2, § 8001/Soc. Sec. § 1856(a)(1)(A), (b)(2); Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1856(b)(2); Clinton bill, supra note 2, § 11203(b).

²³ Republican bill, supra note 2, § 8001/Soc. Sec. § 1856(a)(1)(A), (b)(2); Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1856(b)(2); Clinton bill, supra note 2, § 11203(b).

²⁴ Republican bill, supra note 2, § 8001/Soc. Sec. § 1856(a)(1)(B), (b). The latter section provides a negotiated rulemaking procedure for solvency standards for PSOs. The sponsoring agency has discretion whether to accept the results of a negotiated rulemaking procedure, as the negotiating committee has the status of an advisory committee under the Federal Advisory Committee Act. 5 U.S.C. § 562(7) (1994). The Federal Advisory Committee Act is at 5 U.S.C. app. §§ 1-15. Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1856(b); Clinton bill, supra note 2, §§ 11202/Soc. Sec. § 18511(f)(2), 11203. The Administrative Procedure Act is at 5 U.S.C.A. §§ 551-596 (West 1996).

²⁵ Clinton bill, supra note 2, § 11202/Soc. Sec. § 18511(0(1).

²⁶ Republican bill, supra note 2, § 8001/Soc. Sec. § 1851(a)(2)(C); Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1851(b)(3); Clinton bill, supra note 2, § 11202/Soc. Sec. § 1851A(a)(4).

²⁷ Republican bill, supra note 2, § 8001/Soc. Sec. § 1853(e); Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1854(a); Clinton bill, supra note 2, § 11202/Soc. Sec. § 1851A(e)(1)(A).

²⁸ Republican bill, supra note 2, § 8001/Soc. Sec. § 1853(e); Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1854(a); Clinton bill, supra note 2, § 11202/Soc. Sec. § 1851A(e)(1)(A).

²⁹ Republican bill, supra note 2, § 8001/Soc. Sec. § 1853(e)(1)(B); Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1854(a)(1)-(2); Clinton bill, supra note 2, § 11202/Soc. Sec. § 1851A(e)(1)(C).

³⁰ An important issue is the business form that providers may use to organize a PSO. One way is to create a new corporation owned by the providers. However, this business form may leave the health care delivery assets of the providers outside of the control of the PSO corporation. Then questions may arise as to whether sufficient assets are available to meet solvency standards, and whether the PSO is any different from other financial intermediaries that organize health plans. One way to solve this problem is for a provider to include PSO activities as part of the business form under which it is delivering health care. However, this form is feasible only for large, integrated health care delivery systems that hold enough providers to deliver most of the health care required of a PSO (it could contract with other providers to deliver those services that it could not directly supply). It would not be possible for small providers to organize a PSO in this way—they would need to combine their activities in order to have enough providers to deliver the services required of a PSO and would need to form a new kind of business entity to hold the PSO. Small providers can solve this problem by purchasing shares in a new corporation to hold the PSO, and to guarantee or pledge assets for use in delivering services to PSO beneficiaries.

³¹ Republican bill, supra note 2, § 8001/Soc. Sec. §§ 1853(d)(2), 1856(b); Blue Dog bill, supra note 2, § 8002/Soc. Sec. §§ 1854(b), 1856(c); Clinton bill, supra note 2, §§ 11202/Soc. Sec. § 1851A(e)(1)(E), 11203(a)(2).

³² Liquid financial resources are cash or other assets that are easily turned into cash, such as government bonds and other securities. Illiquid assets are those that might not be convertible to cash quickly, such as real estate or equipment. The value of liquid securities at any given time are also easy to determine, such as by market quotations, while it may be difficult to value illiquid assets.

³³ The Republican bill would require the Secretary of HHS to consider the following factors in developing solvency standards: the delivery system assets of the PSO and its ability to provide services directly to beneficiaries through affiliated providers; and alternative means of protecting against insolvency, including reinsurance, unrestricted surplus, letters of credit, guarantees, organizational insurance coverage, partnerships with other licensed entities, and valuation attributable to the ability of a PSO to meet its service obligations through direct delivery of care. Republican bill, supra note 2, § 8001/Soc. Sec. § 1856(b)(1)(B)(i)- (ii). Factors required by the Blue Dog bill include: reinsurance, including reinsurance purchased through a captive company owned directly or indirectly by three or more PSOs, unrestricted surplus, guarantees, and letters of credit. Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1856(c). Clinton bill does not specify factors to consider.

³⁴ 42 U.S.C.A. § 1395mm(f) (West Supp. 1995).

³⁵ Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1857(b)(2)(A); Clinton bill, supra note 2, § 11202/Soc. Sec. § 1851E(g)(1).

³⁶ Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1857(b)(2)(B)(ii). This bill also exempts any Part C health plan that meets performance standards established by HHS for at least two years. Id.

³⁷ Clinton bill, supra note 2, §§ 11202/Soc. Sec. § 1851E(g), 11205. ³⁸ ld. § 11202/Soc. Sec. § 1851E(g)(2).

³⁹ 42 U.S.C.A. § 1395mm(g) (West Supp. 1995).

⁴⁰ Republican bill, supra note 2, § 8001/Soc. Sec. § 1857(b)(1); Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1857(b)(1)(A).

⁴¹ Republican bill, supra note 2, § 8001/Soc. Sec. § 1857(b)(3); Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1857(b)(1)(B).

⁴² Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1858(b)(1)(C).

⁴³ Clinton bill, supra note 2, § 11202/Soc. Sec. § 1851F(e)(1)(B)(i).

⁴⁴ Id, Soc. Sec. § 185IF(f)(1)(B)(i).

⁴⁵ Republican bill, supra note 2, § 8001/Soc. Sec. §§ 1852(a)(3), 1855(f)(1)(F); Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1852(e)(1)(E). Medicare would pay for the portion of the premium attributable to the provision of the Medicare benefits package, and the beneficiary would pay for any premiums attributable to supplemental benefits. However, to the extent that a health plan is able to provide the Medicare benefits package plus a reasonable profit for less than the premium amount paid by Medicare, it would be required to return that amount to beneficiaries in the form of additional benefits or a rebate. This requirement is distinct from the ability of Part C plans to offer benefits for which an additional premium could be charged to the beneficiary. Republican bill, supra note 2, § 8001/Soc. Sec. § 1855(f)(1)(A)-(D); Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1852(e)(1)(A)-(C).

⁴⁶ Republican bill, supra note 2, § 8001/Soc. Sec. § 1855(a)(3).

⁴⁷ Id. Soc. Sec. § 1855(f)(5)(A). Section 1308 of the Public Health Service Act is codified at 42 U.S.C. § 300e-l(8) (1994). This section describes a method for developing community rates for federally qualified HMOs.

⁴⁸ Republican bill, supra note 2, § 8001/Soc. Sec. § 1855(f)(5)(A)(ii).

⁴⁹ Id.

⁵⁰ Id. Soc. Sec. § 1855(f)(5)(B).

⁵¹ Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1852(d)(2).

⁵² 42 U.S.C.A. § 1395mm(a)(1)(C) (West Supp. 1995).

⁵³ Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1855(b)(2)(A).

⁵⁴ Id. Soc. Sec. § 1852(e)(5)(A)(i).

⁵⁵ Id. Soc. Sec. § 1852(e)(5)(B).

⁵⁶ Republican bill, supra note 2, § 8031.

⁵⁷ 42 U.S.C. § 1320a-7b(b)(2) (1994). The federal antifraud and abuse laws, which apply only in the context of Medicare and Medicaid, are intended to prevent the physician from being corrupted by financial considerations and to safeguard the physician-patient relationship by discouraging over treatment or inappropriate care. 42 U.S.C. § 1320a-7b (1994 & Supp. 1995). Violation may result in criminal penalties (fines reaching $25,000, imprisonment of up to five years, or both). Id. In addition, the provider may be suspended from the Medicare and Medicaid programs. Id. § 1320a-7b(b). The law also bars providers from compensating other persons in return for the referral of patients. Id.

⁵⁸ Republican bill, supra note 2, § 8116.

⁵⁹ Id.

⁶⁰ The anti-self-referral law prohibits physicians from referring their Medicare and Medicaid patients requiring lab tests and certain other services to clinical labs or other organizations in which the physicians have a financial interest. 42 U.S.C. § 1395nn(a) (1994).

⁶¹ Republican bill, supra note 2, § 8201; Blue Dog bill, supra note 2, § 8101.

⁶² Republican bill, supra note 2, § 8204(c)(6)(F).

⁶³ Blue Dog bill, supra note 2, § 8041.

⁶⁴ Id. § 8042.

⁶⁵ Id. § 8021(b)(6).

⁶⁶ Id.

⁶⁷ Id. § 8021(a).

⁶⁸ Id. §8112.

⁶⁹ Clinton bill, supra note 2, § 11210.

⁷⁰ HARRIS, GAIL & HIRSHFELD, EDWARD B., Managed Care and The Market, A Summary of National Trends Affecting Physicians 12-13 (2d ed. 1995)Google Scholar.

⁷¹ Leape, Lucian L., Practice Guidelines and Standards: An Overview, 16 Quality Rev. Bull. 42 (1990)(analyzing the use of practice guidelines as a tool to reduce inappropriate care and to help control costs)CrossRefGoogle ScholarPubMed; Roper, William L. et al., Effectiveness in Health Care: An Initiative to Evaluate and Improve Medical Practice, 319 New Eng. J. Med. 1197, 1200 (1986) (reviewing patient outcome studies and the line to practice patterns)CrossRefGoogle Scholar. But see Chassin, Mark R. et al., Does Inappropriate Use Explain Geographic Variations in the Use of Health Care Services?, 258 Jama 2533, 2535-37 (1987) (summarizing a study conducted of the appropriateness of various treatments, and the geographic variation of the use of these treatments)CrossRefGoogle ScholarPubMed; Graboys, Thomas B. et al., Results of a Second-Opinion Program for Coronary Artery Bypass Graft Surgery, 258 Jama 1611, 1613 (1987) (exploring the option of second opinions for surgical procedures to reduce medical costs)CrossRefGoogle ScholarPubMed; Kelly, John T. & Kellie, Shirley E., Appropriateness of Medical Care: Findings, Strategies, 114 Archives Pathology & Laboratory Med. 1119, 1119-20 (1990) (summarizing current literature concerning inappropriate medical services that questions whether a significant proportion (up to 20%) of medical care is actually unnecessary, even though only two percent of claims reviewed by Medicare Peer Review Organizations were found unnecessary)Google ScholarPubMed; Winslow, Constance M. et al., The Appropriateness of Performing Coronary Artery Bypass Surgery, 260 Jama 505, 508-09 (1988) (summarizing a study conducted on the appropriate use of coronary artery bypass surgery and concluding that the percentage of appropriate procedures varies depending on the hospital)Google ScholarPubMed.

⁷² Shortell, Stephen M. et al., New World of Managed Care: Creating Organized Delivery Systems, 13 Health Aff. 46, 52-53 (1994)CrossRefGoogle ScholarPubMed.

⁷³ Shortell refers to health care delivery systems as “organized delivery systems.” Id. at 46.

⁷⁴ Id. at 52.

⁷⁵ Id. at 53.

⁷⁶ Id. at 52.

⁷⁷ Id. at 53.

⁷⁸ Shortell notes that the results of the study should be interpreted cautiously, because the findings represent cross-sectional data and did not include every possible factor that could have influenced the results. Id. The study did not attempt to measure the quality of care produced by the health care delivery systems reviewed. Id.

⁷⁹ Id.

⁸⁰ Id.

⁸¹ Id.

⁸² Robinson, James C. & Casalino, Lawrence P., The Growth of Medical Groups Paid Through Capitation in California, 333 New Eng. J. Med. 1684 (1995)CrossRefGoogle ScholarPubMed.

⁸³ Id. at 1684.

⁸⁴ Id.

⁸⁵ Id.

⁸⁶ Greenlick, Merwyn R., The Impact of Prepaid Group Practice on American Medical Care: A Critical Evaluation, 399 Annals Am. Acad. Pol. & Soc. Sci. 100, 101-02 (1972)CrossRefGoogle Scholar; Greenberg, Ira G. & Rodberg, Michael L., The Role of Prepaid Group Practice in Relieving the Medical Care Crisis, 84 Harv. L. Rev. 887, 921-33 (1971)Google Scholar.

⁸⁷ Kissam, Philip C. & Johnson, Ronald M., Health Maintenance Organizations and Federal Law: Toward a Theory of Limited Reformmongering, 29 Vand. L. Rev. 1163, 1165 n. 10 (1976)Google Scholar.

⁸⁸ 42 U.S.C. §§ 300e to 300e-17 (1994).

⁸⁹ Center For Health Policy Research, American Medical Ass'n, Health System Conversion to Managed Care: Workforce Implications Policy Research Perspectives 1 (1994)Google Scholar.

⁹⁰ Id. at 2.

⁹¹ Governance Comm., to The Greater Good, Recovering The American Physician Enterprise 83 (1995)Google Scholar. In making this statement, the Governance Committee reversed its previous position that loose physician affiliations did not have the structure and discipline to yield serious cost reduction and utilization control, and could not successfully compete with more completely integrated group practices and provider networks. According to the Committee:

Id. at 83.

As of this writing (1995), the expert argument is wrong. At least as to current competitive success, IPAs are proving the equal of other physician models in managing costs and attracting lives. Nor can the Governance Committee distance itself from the error. Our earlier research reported, at that time correctly, on the relative failure of loose physician affiliations. What we neither had sensed nor foreseen was the sudden market discipline displayed by some IPAs and their member physicians. Across a three-year period, these IPAs have instituted strong central governance by fiat, reduced hospital utilization by 40%, decreased specialist utilization by 60%, and trebled their enrolled lives.

According to the report:

Id.

⁹² Gold, Marsha R. et al., A National Survey of the Arrangements Managed-Care Plans Make with Physicians, 333 New Eng. J. Med. 1678, 1681-82 (1995)CrossRefGoogle ScholarPubMed.

⁹³ Id. at 1682.

⁹⁴ See Congressional Budget Office, The Effects of Managed Care and Managed Competition (1995)Google Scholar.

⁹⁵ STAPLETON, DAVID C., New Evidence on Savings From Network Models of Managed Care 128 (1994)Google Scholar.

⁹⁶ Anders, George, In Age of the HMO, Pioneer of the Species Has Hit a Rough Patch: Kaiser Permanente Can't Cut Costs as Much as Rivals, Wall St. J., Dec. 1, 1994, at Al, A12.Google Scholar

⁹⁷ See, e.g., Larson, Erik, The Soul of an HMO, Time, Jan. 22, 1996, at 44.Google ScholarPubMed

⁹⁸ Per se rules against price fixing make it difficult for providers to organize discounted FFS plans such as PPOs, and size limits make it difficult for provider organizations to have a competitive network. See Havighurst, Clark C., Are the Antitrust Agencies Overregulating Physician Networks? 9 (Oct. 3, 1995) (draft, on file with author)Google Scholar; Hirshfeld, Edward B., Antitrust Reform and Physician Groups, in Health Care Antitrust: A Manual for Changing Provider Organizations 63, 65 (Campbell, Thomas & McDevitt, Daniel D. eds., 1994)Google Scholar.

⁹⁹ See supra note 57. For a discussion of problems caused by antifraud and abuse laws, see Blumstein, James F., Health Care Reform and Competing Visions of Medical Care, Antitrust and State Provider Cooperation Legislation, 79 Cornell L. Rev. 1459, 1472-74 (1994)Google ScholarPubMed.

¹⁰⁰ See supra note 60.

¹⁰¹ Under § 414(m) of the I.R.C., where two professional service organizations combine, or where one is a shareholder or partner of the other, employees of both organizations are considered to be members of the same affiliated service group, and are viewed as having one common employer for employee benefit plan purposes. 26 U.S.C. § 414(m) (1994). The employees in the affiliated service group are protected by nondiscrimination rules and all must have access to the same employee benefits. Id. These rules discourage formation of provider organizations, as participants must change or terminate existing qualified retirement plans and establish a new retirement plan. This basic change is time consuming and costly, and does nothing to enhance the provision of health care services.

¹⁰² Insurance licensing laws and regulations include capital reserve requirements (that can run over one million dollars) and intensive filing requirements. Securities laws mandate filing of registration statements and compliance with very particular disclosure rules; accordingly, stock offerings that are open only to physicians located in one state (thus bypassing federal securities filings and additional disclosures) can run in the hundreds of thousands of dollars.

¹⁰³ Under corporate law, the charter and activities of a nonprofit corporation are restricted to certain purposes, including charitable or educational purposes. Section 501(c)(3) of the I.R.C. states that no part of the net income of a tax-exempt organization may inure to the benefit of a private shareholder or individual. 26 U.S.C. § 501(c)(3) (1994). This prohibition excludes all reasonable payments for services received by the organization. This law allows physicians to provide services to nonprofit organizations, such as hospitals, but prohibits many joint venture opportunities between physicians and nonprofits, where the physicians could be viewed as benefiting from the nonprofit’s investment.

¹⁰⁴ AMCRA Found., 1994-95 Managed Health Care Overview 14 (1995)Google Scholar. See Harris & Hirshfeld, supra note 70, at 6 for a summary of these statistics.

¹⁰⁵ Id.

¹⁰⁶ For a conceptual description of the Medicare reform proposal drafted by the Republican leadership in the House of Representatives, see The Medicare Preservation Act, “A Better Medicare, “ at 10.

¹⁰⁷ Id.

¹⁰⁸ See ANDERSON, ODIN W., Blue Cross Since 1929: Accountability and The Public Trust 16-19 (1975)Google Scholar.

¹⁰⁹ Id. at 40, 44.

¹¹⁰ Id. at 29-44.

¹¹¹ Id. at 45.

¹¹² Id. at 41.

¹¹³ Id.

¹¹⁴ See Holley, Robert T. & Carlson, Rick J., The Legal Context for the Development of Health Maintenance Organizations, 24 Stan. L. Rev. 644, 646-47 (1972)CrossRefGoogle Scholar.

¹¹⁵ See id. at 648; see also Kissam & Johnson, supra note 87, at 1167-80.

¹¹⁶ See Holley & Carlson, supra note 114, at 653-66 for a discussion of legal barriers facing HMOs prior to passage of the HMO Act of 1973.

¹¹⁷ Kissam & Johnson, supra note 87, at 1185.

¹¹⁸ Id.

¹¹⁹ 29 U.S.C. §§ 1001-1461 (1994). The requirement of an employer mandate was in Part C of the Medicare statute.

¹²⁰ BERNSTEIN, AMY ET AL., 1994 HMO Performance Report 8 (1994)Google Scholar.

¹²¹ For example, the recent success of IPAs in reducing costs and controlling utilization surprised many experts. See Governance Comm., supra note 91, at 83; Gold et al., supra note 92, at 1682.

¹²² Republican bill, supra note 2, § 8001/Soc. Sec. § 1853(e)(1)(A); Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1854(a)(1); Clinton bill, supra note 2, § 11202/Soc. Sec. § 1851A(e)(1)(A).

¹²³ Clinton bill, supra note 2, § 11202/Soc. Sec. § 1851A(e)(1)(A).

¹²⁴ Republican bill, supra note 2, § 8001/Soc. Sec. § 1853(e)(5).

¹²⁵ Clinton bill, supra note 2, § 11202/Soc. Sec. § 1851 A(e)(1)(A).

¹²⁶ VOGEL, DAVID, American Medical Ass'n, The Physician and Managed Care 60-61 (1993)Google Scholar.

¹²⁷ Robinson & Casalino, supra note 82, at 1684.

¹²⁸ GOREY, THOMAS M., Indiana State Medical Ass'n, American Medical Association Case Study Analysis of Physician Organizations 68-69 (1995)Google Scholar.

¹²⁹ Republican bill, supra note 2, § 8001/Soc. Sec. § 1853(e)(1)(B); Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1854(a)(1); Clinton bill, supra note 2, § 11202/Soc. Sec. § 1851A(e)(1)(C).

¹³⁰ The Republican bill comes closest to defining the term substantial proportion. It does have a provision that purports to define it, but it simply delegates the job to HHS with a requirement that HHS consider certain factors in developing the definition, including the need for an organization to assume responsibility for a substantial proportion of services to assure financial stability, the practical difficulties in integrating a very wide range of providers in an organization, and relevant differences between organizations such as location in an urban or rural setting. Republican bill, supra note 2, § 8001/Soc. Sec. § 1853(e)(2).

¹³¹ Id. Soc. Sec. § 1853(e)(1)(C).

¹³² The reason why this provision seems to require capitation by PSO owners is that providers who own a PSO will have already assumed investment risk, meaning the risk of losing the funds invested by the providers in the PSO. Investment risk is inherent in the ownership of a PSO or any other kind of business. It is not necessary for a statute to require that owners of a PSO assume investment risk. The provision requires the owners to share risk with respect to the delivery of health care services, therefore it appears to require that the PSO owners assume an additional kind of risk. Given that the risk referred to involves sharing risk with respect to the provision of health care services, it appears to require that the PSO owners engage in capitation or fee withhold arrangements.

¹³³ See supra note 122.

¹³⁴ Republican bill, supra note 2, § 8001/Soc. Sec. § 1853(e)(3).

¹³⁵ Id. Soc.Sec. § 1853(e)(4).

¹³⁶ 26 U.S.C. § 1563(a) (1994).

¹³⁷ In other words, if the owners have more than 50% but less than 80% of all classes of the voting stock in each corporation, then they must own at least 80% of the total value of all of the stock in each corporation. If the owners have more than 50% but less than 80% of the total value of all of the stock in each corporation, then they must own at least 80% of all classes of the voting stock in each of the corporations.

¹³⁸ For examples, see CODDINGTON, DEAN C. ET AL., Integrated Health Care: Reorganizing The Physician, Hospital and Health Plan Relationship (1994)Google Scholar; CODDINGTON, DEAN C. & BENDRICK, BARBARA, Integration Health Care: Case Studies (1994)Google Scholar; KORENCHUK, KEITH M., Transforming The Delivery of Health Care: The Integration Process (1994)Google Scholar; Integration Issues in Physician/Hospital Affiliations (Bette A. Wadding ed., 1993).

¹³⁹ 26 U.S.C. § 414(m)(2) (1994).

¹⁴⁰ See supra notes 91-96 and accompanying text.

¹⁴¹ Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1854(a)(3).

¹⁴² Id. Soc. Sec. § 1854(a)(3)(B).

¹⁴³ This kind of risk is the only kind recognized as the sharing of substantial financial risk by the members of a physician-sponsored delivery network for antitrust purposes by DOJ and the Federal Trade Commission. See Department of Justice & Federal Trade Comm'n, Statements of Enforcement Policy and Analytical Principles Relating to Health Care and Antitrust 66-88 (Sept. 27, 1994) [hereinafter statements]Google Scholar.

¹⁴⁴ Republican bill, supra note 2, § 8001/Soc. Sec. § 1856(b); Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1856(a)-(c); Clinton bill, supra note 2, § 11203(a)(2).

¹⁴⁵ Republican bill, supra note 2, § 8001/Soc. Sec. § 1853(a)(4); Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1854(b); Clinton bill, supra note 2, § 11202/Soc. Sec. § 1851A(e)(3).

¹⁴⁶ See supra note 144.

¹⁴⁷ See supra note 144.

¹⁴⁸ See supra note 145.

¹⁴⁹ Republican bill, supra note 2, § 8001/Soc. Sec. § 1856(b)(2); Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1856(b)(2); Clinton bill, supra note 2, § 11203(b).

¹⁵⁰ Procedures for a negotiated rulemaking process are set forth at 5 U.S.C. § 564. Pursuant to that process, a federal agency, here HHS, convenes parties representative of interest groups that would be affected by a proposed regulation. The agency then leads a negotiations process pursuant to which a proposed regulation is developed. There must be unanimous agreement about the language of the proposed regulation among the participating representatives. The proposed regulation is then submitted for public notice and comment pursuant to the federal Administrative Procedure Act. 5 U.S.C. §§ 551-559 (1994). The agency then finalizes the rule after receiving comments. The statute encourages the agency to accept the proposed regulation negotiated by the interest groups, but the agency is not required to accept it and expressly need not accept any proposed regulation that would contradict its mandate.

¹⁵¹ Republican bill, supra note 2, § 8001/Soc. Sec. § 1856(b)(2).

¹⁵² See supra note 149. HHS has discretion to use a negotiated rulemaking process whenever it feels that it would be appropriate and that the standards of the statute for the procedures could be met. 5 U.S.C. § 564 (1994). Therefore, the Blue Dog bill would not preclude the use of negotiated rulemaking.

¹⁵³ See supra note 149. Clinton bill does not preclude the use of negotiated rulemaking.

¹⁵⁴ It is possible for interested parties to present their views to NAIC and AAA. In fact, NAIC allows interested persons to attend meetings of its working groups and generally allows attendees to make comments or ask questions. However, these processes do not match the notice and comment procedures of the federal Administrative Procedure Act. 5 U.S.C. §§ 551-559 (1994).

¹⁵⁵ Republican bill, supra note 2, § 8001/Soc. Sec. § 1856(b)(1)(B); Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1856(c).

¹⁵⁶ Admitted assets are assets that may be counted in establishing the minimum net worth of a health plan. State insurance regulations generally bar nonliquid assets, such as land, buildings, and equipment, from being included in establishing minimum net worth.

¹⁵⁷ National Ass'n Of Ins. Comm'rs, Health Maintenance Organization Model Act, NAIC Model Laws, Regulations & Guidelines (1990) [hereinafter HMO model act]Google Scholar.

¹⁵⁸ This working group is called the National Association of Insurance Commissioners Health Organizations Risk Based Capital Working Group.

¹⁵⁹ Health Orgs. Risk Based Capital Task Force, American Academy of Actuaries, Report to The National Association of Insurance Commissioners Health Organizations Risk Based Capital Working Group (1994) [hereinafter AAA 1994 Report]; see Health Orgs. Risk-Based Capital Simplification Task Force, American Academy of Actuaries, Preliminary Report to The National Association of Insurance Commissioners Health Organizations Risk-Based Capital Working Group (1996) [hereinafter AAA 1996 Preliminary Report].

¹⁶⁰ HMO Model Act, supra note 157, § 13(A)(1). Net worth is calculated by adding admitted assets and then subtracting liabilities. Id. § 2(R). Admitted assets are those assets of the health plan that the insurance commissioner deems sufficiently liquid and capable of being valued accurately. Assets which meet this description are bonds and other securities that are regularly traded in a market, so they are easy to sell in the short term and their value can always be estimated with a high degree of precision based on market quotations.

¹⁶¹ Id. § 13(A)(2)(a)-(c). ‘“Uncovered expenditures’ means the costs to the [HMO] for health care services that are the obligation of the [HMO] for which an enrollee may also be liable in the event [that] the [HMO becomes insolvent] and for which no alternative arrangements have been made that are acceptable to the [state insurance] commissioner.” Id. § 2(X).

¹⁶² Id. §13(A)(2)(d)(i)-(ii).

¹⁶³ Id. § 13(B)(1).

¹⁶⁴ Id. § 13(B)(3).

¹⁶⁵ Id. § 13(D)(1)-(2).

¹⁶⁶ Id. § 13(D)(3).

¹⁶⁷ Id. § 13(F).

¹⁶⁸ Id. § 13(E).

¹⁶⁹ Id. § 13(E)(1)-(5).

¹⁷⁰ Id. § 14(A).

¹⁷¹ Id.

¹⁷² See id. §§ 9(A), 14(A), 16(A).

¹⁷³ Id. §15(A)(1)-(2).

¹⁷⁴ MOONEY, SEAN ET AL., Basic Concepts of Accounting and Taxation of Property/Casualty Insurance Companies 92 (4th ed. 1995)Google Scholar.

¹⁷⁵ Id. at 93.

¹⁷⁶ The AAA report uses the NA1C life-based risk-based capital formula, which applies to life insurance companies, and modifies it for use with health organizations. AAA 1996 Preliminary Report, supra note 159, at 23-24. For a description of the categories in the life based formula, see National Ass'n Of Ins. Comm'rs, NAIC Life Risk-Based Capital Report 1-2 (1993)Google Scholar.

¹⁷⁷ AAA 1996 Preliminary Report, supra note 159, at 4,9.

¹⁷⁸ AAA 1994 Report, supra note 159, at 16.

¹⁷⁹ AAA 1996 Preliminary Report, supra note 159, at 24-26.

¹⁸⁰ Robinson & Casalino, supra note 82, at 1684.

¹⁸¹ See supra note 20.

¹⁸² See supra note 17.

¹⁸³ There are exceptions for Part C health plans sponsored by qualified associations, unions, and Taft Hartley organizations in all three bills. For the sake of brevity, and because they are not directly relevant to the regulation of PSOs, the exceptions for these health plans will not be discussed in this Article.

¹⁸⁴ Republican bill, supra note 2, § 8001/Soc. Sec. § 1856(a)(1)(D).

¹⁸⁵ Id. Soc. Sec. § 1856(a)(1)(A)-(B).

¹⁸⁶ Id. Soc. Sec. § 1856(c).

¹⁸⁷ Id. Soc. Sec. § 1856(c)(1)(E).

¹⁸⁸ Id. Soc. Sec. § 1853(a)(6)(A)-(B).

¹⁸⁹ Id. Soc. Sec. § 1856(a)(6)(C).

¹⁹⁰ Id. Soc. Sec. § 1856(a)(6)(A).

¹⁹¹ See supra note 150 and accompanying text.

¹⁹² Republican bill, supra note 2, § 8001/Soc. Sec. § 1853(a)(4)(C)(iii).

¹⁹³ Id. Soc. Sec. § 1853(d)(2)(A)(ii).

¹⁹⁴ Id. Soc. Sec. § 1853(a)(4)(B).

¹⁹⁵ Blue Dog bill, supra note 2, § 8002/Soc. Sec. § 1856(a)(1).

¹⁹⁶ Id. Soc. Sec. § 1856(a)(2).

¹⁹⁷ Id. Soc. Sec. § 1856(b).

¹⁹⁸ Id. Soc. Sec. § 1856(e).

¹⁹⁹ Id. Soc. Sec. § 1851(b)(5).

²⁰⁰ Id. Soc. Sec. § 1854(b).

²⁰¹ Id.

²⁰² Id. Soc. Sec. § 1851(b)(5).

²⁰³ Clinton bill, supra note 2, § 11202/Soc. Sec. § 1851A(e)(3).

²⁰⁴ Id.

²⁰⁵ Id. Soc. Sec. § 1851H(b)(1).

²⁰⁶ The AMA has developed a model bill which addresses these needs, called the Physician Health Plans and Networks Act of 1994. American Medical Ass'n, Physician Health Plans and Networks Act of 1994 (1994) (on file with the AMA)Google Scholar.

²⁰⁷ Blue Dog bill, supra note 2, § 8021.

²⁰⁸ Rule of reason analysis for physician networks is explained in Statement Eight of the Statements of Enforcement Policy and Analytical Principles Relating to Health Care and Antitrust, issued by DOJ and FTC on September 27, 1994, and rule of reason treatment for multi-provider networks is explained in Statement Nine of the same publication. See Statements, supra note 143, at 68-88, 89-105.

²⁰⁹ Blue Dog bill, supra note 2, § 8021(a).

²¹⁰ Id. § 8021(b)(6).

²¹¹ Id.

²¹² Id.

²¹³ Id. § 8021(c).

²¹⁴ see Statements, supra note 143, at 71-74.

²¹⁵ Blue Dog bill, supra note 2, § 8112(d).

²¹⁶ Id. § 8112(a).

²¹⁷ See Statements, supra note 143, at 10-11.

²¹⁸ See generally Vance, Sarah S., Immunity for Stale-Sanctioned Provider Collaboration After Ticor, 62 Antitrust L.J. 409 (1994) (describing the state exemption from federal antitrust laws and many of the state certificate of public advantage processes)Google Scholar.

²¹⁹ Id. at 420.

²²⁰ Clinton bill, supra note 2, § 11210.

²²¹ See supra notes 58-62 and accompanying text.