Mid-Atlantic Health Law TOPICS

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Flexibility for Value-Based Care Compensation

During its 2022 Session, the Maryland General Assembly passed new legislation that creates greater flexibility for the ways Maryland health care providers can be paid to achieve higher quality or lower cost care for their patients. Specifically, this new value-based care legislation:

  1. Amends the Maryland Self-Referral Law to align with federal law permitting providers to be paid under certain value-based arrangements;
  2. Amends the law governing health care practitioner compensation arrangements with insurers and health maintenance organizations to permit voluntary two-sided incentive arrangements with certain health care practitioners; and
  3. Clarifies that health care practitioners accepting capitated payments from insurers, health maintenance organization and certain self-funded employer health plans are not themselves required to be licensed as insurers.

The new law, effective October 1, 2022, sets parameters around these value-based care arrangements and requires the inclusion of certain contractual elements for the arrangements to comply with the law.

Furthermore, these value-based care arrangements are all voluntary, and no provider may be required to enter into them to remain part of an insurer or health maintenance organization’s network.

A. Maryland Self-Referral Act

The new law adds an additional exception to the Maryland Self-Referral Act; aligning the State law with the federal Stark law.

In December 2020, the federal Stark law adopted new exceptions to the general prohibition on compensating physicians based on the volume or value of their referrals to allow for certain value-based care arrangements between entities and physicians that meet specific requirements. Those same exceptions will now be part of Maryland’s self-referral law, which applies broadly to all health care practitioners and health care services.

This means that, starting October 1, 2022, there will be additional ways that practitioners may contract and be compensated without violating Maryland’s self-referral law, including benefiting from referring patients to higher quality or lower cost providers.

B. Compensation Arrangements with Carriers

Maryland insurance law governs the types of compensation arrangements a health care practitioner may enter into with an insurer, nonprofit health service plan, health maintenance organization, dental plan organization or any other person that provides health benefits plans subject to regulation by the State. More specifically, Maryland law permits arrangements between such carriers and providers to include certain bonus “or other incentive arrangements.”

Previously, the Maryland Insurance Administration had taken the position that “other incentive arrangements” may only include “up-side” arrangements where the provider may earn additional compensation for meeting certain quality goals but the provider is not required to return any compensation if those goals are missed.

The new law permits certain health care practitioners, called “eligible providers”, voluntarily to enter two-sided incentive arrangements with a State regulated carrier if the two-sided incentive arrangement meets certain contractual requirements.

The law defines two-sided incentive arrangements as “an arrangement between an eligible provider and a carrier in which the eligible provider may earn an incentive and a carrier may recoup funds from the eligible provider in accordance with the terms of a contract entered into with the eligible provider that meets the requirements of this Section.”

The law limits the amount of compensation that is potentially at risk to be returned if the eligible provider does not meet the agreed upon quality goals, and requires the availability of an audit and dispute resolution by an independent third party.

Further, the law requires carriers, at least quarterly, to disclose to the eligible provider certain data on the cost of care for the patients in the population or episode of care that the eligible provider is responsible for, including amounts paid to another health care provider and any cost sharing amount that is included in the total cost of the patient’s care.

Importantly, the new law aligns compensation arrangements in the commercial insurance market with those already permitted in federal programs and employer self-funded health plans.

This means that, starting October 1, 2022, eligible providers may have the option to enter compensation arrangements with carriers where the eligible provider has an opportunity to earn a bonus if certain quality measures are met for a population of members, and an obligation to refund reimbursement to the carrier if those quality measures are not achieved. Typically, carriers offer an opportunity for larger bonuses under two-sided incentive arrangements rather than under upside only incentive arrangements.

C. Capitated Payments

The new law also addresses when capitated payment arrangements will not be considered the business of insurance requiring one party to be a licensed insurance carrier.

Capitated payments are payments that are calculated as a fixed amount per member or participant assigned or attributed to the health care practitioner or set of health care practitioners, to cover the provision of a set of services rendered by the practitioner and paid periodically regardless of the utilization of the services by the members or participant.

In June 1990, the Maryland Attorney General issued the Healthnet opinion, concluding that health care practitioners accepting capitated payments from a self-funded employer health plan were conducting the business of insurance and were, therefore, required to hold a license as an insurer.

In the view of the Attorney General, the health care practitioner in the Healthnet arrangement was accepting insurance risk because the health care practitioner remained obligated to provide services to a member of the health plan for a fixed amount of money, even if the member required care that far exceeds the capitated payment the health care practitioner received.

Further, in 2008, the Maryland Insurance Administration issued a bulletin reminding carriers that when a carrier acts as an administrator for a self-funded employer health plan and arranges for the health plan to receive services from a health care practitioner accepting a capitated payment, that provider is accepting insurance risk and must be licensed as an insurer.

On the other hand, capitated payments to health care practitioners from carriers for services the health care practitioner provides under commercial health insurance plans have historically been permitted in Maryland. This was not previously explicitly sanctioned under Maryland law, and the new law blesses and codifies this understanding of capitated payments in the commercial market.

The new law further states that a health care practitioner or set of health care practitioners will not be required to be licensed as an insurer when accepting capitated payments from an administrator on behalf of a self-funded employer health plan if the provider’s compensation agreement is with the administrator, and the administrator is a licensed carrier that provides a network of providers to the self-funded employer health plan. Additionally, the self-funded employer health plan must retain the obligation to provide access to covered health care benefits to its participants.

This means that, starting October 1, 2022, carriers may enter into capitated payment arrangements with health care practitioners who participate in the carrier’s network to provide services to members of self-funded employer health plans for which the carrier acts as the administrator and provides the health plan with a network of practitioners.

Darci M. Smith
410-576-4153 • dsmith@gfrlaw.com

A version of this article was published in The Daily Record on October 19, 2022.


June 15, 2022




Rosen, Barry F.
Smith, Darci M.


Health Care