Health Law Advisories

Hospital Transition Plan Filings Triggered by Contract Termination/Non-Renewal

December 10, 2009

Dear Clients and Friends:

In the process of assisting our hospital clients, we are seeing a growing trend in problems with the transition plans filed by health plans in advance of upcoming contract termination/non-renewal dates, and want to alert you to a number of the key issues.

Under California law, Knox-Keene licensed health plans are required to file transition plans with the Department of Managed Health Care (“DMHC”) when a contract termination/non-renewal will affect more than 2,000 health plan members. The deadline for these filings is at least 75 days prior to the contract’s termination/non-renewal date, so that the DMHC will have time to evaluate its impact on the health plan’s network. These transition plans must be filed even if the health plan believes that the parties will ultimately reach a new agreement with the hospital. Furthermore, these filings typically require approval from the DMHC, since the transition is considered a material modification to the health plan’s license. The health plan is not allowed to tell members that the hospital is out-of-network absent DMHC approval of the transition filing, and the DMHC can elect to approve some, all or none of the filing.

Since the DMHC’s decision on these filings can have a significant effect on contract negotiations and member volumes, we strongly recommend that hospitals obtain these filings from the DMHC, and be prepared to provide comments to the DMHC about any inaccuracies or other concerns for patient access. In helping many hospitals on these matters, some of the more common issues that we have seen regarding the proposed alternative facilities include:

Inaccurate lists of the services available at the alternative facilities in the area
Erroneous times/distances, both on the map and in real world driving conditions
Unreliable census levels/beds available, especially at different times of the year
Overstated medical staff privileges, and understated difficulty to obtain privileges
Identifying alternative hospitals that also have pending terminations/non-renewal

The DMHC has expressed to us its strong interest in getting input from hospitals about these transition plans, as far in advance of the anticipated termination date as possible. We have learned from DMHC staff that they have to review approximately 400 transition filings per year, that comments from hospitals provide insight which often is difficult for the DMHC to gather otherwise, and that such comments impact the DMHC’s decisions on whether to approve or disapprove part or all of these transition plans. For example, the DMHC may disapprove transition of particular services, and require the health plan to continue to permit members to access the terminated/non-renewed hospital for those services, whether or not the hospital reaches a new contract with the health plan. We are told that this is part of the DMHC’s mission to ensure appropriate patient network access.

While the DMHC does not automatically forward copies of transition filings to the hospitals facing termination/non-renewal, it has informed us that the DMHC gladly will provide copies upon request, and it encourages hospitals who are the targets of these filings to pursue and comment on them early in the process.

For any questions or assistance with these matters, please contact Glenn Solomon at 310.551.8179 (gsolomon@health-law.com) or Daron Tooch at 310.551.8192 (dtooch@health-law.com).

Very truly yours,

Hooper, Lundy & Bookman, Inc.

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