Public Health Law Map - Beta 5 - Medical and Public Health Law Site

Although most medical care practitioners are familiar with the notions of whether
MCOs are open panel or closed panel, an HMO or a PPO, these descriptions do not
convey the variability of MCO organization. This variability makes it very difficult
for physicians or the public to know with certainty what the MCO provides and how
to best deal with it. The variability also causes legal problems for MCOs and their
medical care practitioners because administrative practices that might be legal under
one organizational structure are illegal in others. For example, the rules governing
physician incentives under Medicare prohibit practices that are legal for private pay
patients. [Medicare and Medicaid Programs, Requirements for Physician Incentive
Plans in Prepaid Health Care Organizations, 61 Fed. Reg. 69,034 (Dec. 31, 1996).]
a) The Controlling Entity
The diversity of MCOs is more obvious if they are seen as multidimensional arrays,
with each dimension corresponding to a different legal or economic parameter. The
first dimension in describing MCOs is the interests of the controlling entity,
characterized in the following listing.
Insurers: An insurance company owns the MCO and uses it to provide care
for its insured lives.
Hospitals: The MCO is used to ensure that patients occupy beds and to
increase leverage with insurers who pay for the care of the patients.
Physicians: The MCO, often called a network, is formed by a group of
physicians to increase their bargaining power with insurers and hospitals.
Brokers: An MCO that is formed as a business venture by investors other
than physicians, hospitals, or insurers.
Governmental: Most governmental clinics are MCOs. The Veterans
Administration hospital system, for example, has been an MCO for years.
b) Relationships with Physicians
The second dimension is the legal relationship between the physicians and the
MCO, as characterized in the following listing.
Employees: Physicians are simple employees of the MCO, with no
intervening physician group. Except for governmental MCOs, corporate
practice of medicine bans make these MCOs less common than
independent contractor MCOs.
Physician Group: Developed in response to corporate practice of medicine
bans, physicians are either employees, partners, or shareholders in a
physician- controlled partnership or professional corporation, which in turn
contracts with one or more MCOs. This is the most common organizational
structure for the older HMOs, such as Kaiser-Permanente Health Plan in
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