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Beyond the Text: Restricted Knox-Keene License

564x550_FIN_MG_1202 By Christine M. Collins

Health care service plans licensed under the Knox-Keene Health Care Service Plan Act of 1975, as amended, (the “Knox-Keene Act”) are categorized as either full-service or specialized health care service plans. A full-service license is issued to an entity that provides, at minimum, six basic health care services (e.g., physician services, inpatient hospital services, home health services, etc.). Examples of full-service health care service plans include Kaiser and HealthNet. A specialized license is issued to an entity that provides health care services in a single area such as dental, vision, or mental health. One such example is Vision Service Plan (VSP)

Although, it isn’t clear from the Knox-Keene Act or the regulations issued by the Department of Managed Health Care (the “DMHC”), a subcategory exists: a restricted (full-service or specialized) Knox-Keene license. A restricted licensee is “restricted” to provider contracting, and is not permitted to contract directly with employer groups and individuals. This means that the licensee does not create its own products nor does it participate in marketing. Instead, the entity subcontracts with other health care service plans or contracts directly with government payors, such as Centers for Medicare & Medicaid Services or CMS, in which products have already been developed.

Naturally, certain supplemental information to the application (called an “exhibit”) does not apply to the restricted licensee and is not required in the licensee’s filing. This includes exhibits related to marketing and group and individual contracts. The exhibit requirements further deviate depending on the type of product offered: Medicare, Medi-Cal (Medicaid), or commercial.

Generally, the application process for a restricted license still requires a fairly thorough review of network adequacy, quality of care processes, grievance procedures, and so forth. This is the case for both Medi-Cal and commercial offerings because the regulation of Medi-Cal (Medicaid) and commercial products is widely left to the states. Since the regulation of Medicare is a function of the federal government (CMS), the DMHC is limited in its review of Medicare products. As a result, the DMHC will spend most of its time reviewing the applicant’s financial viability as opposed to a more encompassing review that would include network adequacy and quality of care processes.

Of course, to some degree, the exhibits that the DMHC would require in any given filing may change based on the current state of the law. To the extent that you may have any questions, feel free to contact myself or my colleague, Michael G. Polis.