SO YOU WANT TO START A HEALTH PLAN?:
FEDERAL LAWS SUPPORTING AND UNDERMINING

THE CREATION OF PSHPS

MATTHEW D. REED*

INTRODUCTION

The United States spends nearly twice as much on healthcare per capita than
any other developed country,1 without providing better patient care.2 Healthcare
quality and affordability continue to be two of the biggest concerns for
Americans.3 Public and private actors in the healthcare industry have
continuously searched for ways to decrease, or at least control, the sky-rocketing
costs of healthcare in the United States, while simultaneously improving patient
outcomes. Some healthcare providers believe they have found a partial solution:
provider sponsored health plans (“PSHPs”). 

PSHPs are health insurance plans that are fully owned and operated by
healthcare providers.4 By controlling the entire healthcare experience—from
insurance payment to care given—providers with PSHPs believe they may be
able to decrease healthcare costs and improve healthcare quality.5 For a variety
of factors, some of which will be discussed within this Note, there is a PSHP
creation trend among healthcare systems: thirteen percent of healthcare systems

* J.D., 2020, Indiana University Robert H. McKinney School of Law; B.A. 2017, Olivet

Nazarene University—Bourbonnais, Illinois.

1. Bradley Sawyer & Cynthia Cox, How Does Health Spending in the U.S. Compare to

Other Countries?, THE PETERSON CENTER ON HEALTHCARE AND KAISER FAM ILY FOUNDATION

(Dec. 7, 2018), https://www.healthsystemtracker.org/chart-collection/health-spending-u-s-compare-

countries/?_sf_s=health+spending#item-start [perma.cc/3E9M-KB8M].

2. Irene Papanicolas et al., HealthCare Spending in the United States and Other High-

Income Countries, JAMA NETWORK (Mar. 13, 2018), https://jamanetwork.com/journals/jama/

article-abstract/2674671 [perma.cc/BT8H-8VJY].

3. Robert Pearl, Healthcare is the No.1 Issue for Voters; A New Poll Reveals Which

Healthcare Issue Matters Most, FORBES (Aug. 13, 2018), https://www.forbes.com/sites/robertpearl/

2018/08/13/midterms/#53583b363667 [perma.cc/FNR3-2DSS].

4. Jonathan Rickert, A Quick Guide to Provider-Sponsored Plans, GETINSURED (May 24,

20 1 6 ), h ttps://com pan y.getin su red.com /a-q u ick-gu ide-to-provider-sponsored-plans/

[perma.cc/GPV5-2TM5].

5. Erin E. Dine & MaryKathryn Hurd, Health Insurer Merger Frenzy: How the Continued

Arms Race Will Disrupt Traditional Market Roles, 25 ANN. HEALTH L. 98, 104 (2016); David

Gruber, Payment Reform Risk Management: Provider Survival Strategies in an At-Risk

Environment, 20 No. 3 J. HEALTH CARE COMPLIANCE 27, 28 (2018); Provider-Sponsored Health

Plans: the Ultimate Value-Based Healthcare Plan, VALENCEHEALTH.COM, 1 (2015), https://www.

hfma.org/downloadasset.aspx?id=46903 [perma.cc/729N-62PX]; Todd A Zigrang, The Re-

Emergence of Provider-Sponsored Plans, 9 HEALTH CAPITAL TOPICS (Jan. 2016), https://www.

healthcapital.com/hcc/newsletter/1_16/HTML/PROVIDERPLAN/9.1_hc-topics-1-16---healthcare-

providers-as-insurers.php [perma.cc/4EMA-Y46M].



400 INDIANA LAW REVIEW [Vol. 53:399

in the U.S. already offer PSHPs,6 and approximately fifty percent of health
systems have applied or intend to apply for an insurance license so they can
consider starting a PSHP in the future.7 According to a study by the Atlantic
Information Services, one hundred and sixty-three additional health plans offered
by PSHPs entered government and commercial markets from 2013 to 2015.8

Also, from 2013 to 2018, PSHPs increased by thirteen percent in the small and
medium business payers market, which makes up eighty-three percent of all
offered health plans.9 Because of the current trend, today nearly fifty-two percent
of insurance products are offered by health systems who operate PSHPs.10  

PSHPs are by no means a new invention,11 so the question becomes: What
has legally changed to spur this trend of PSHP creation, and what legal pitfalls
should healthcare providers be aware of before jumping headfirst into the health
insurance industry? This Note looks to address these questions in four separate
parts. Part I will provide a general overview of PSHPs by explaining how PSHPs
operate, the benefits they may produce, and their history. Then, Part II will look
at what laws have changed to incentivize PSHP creation. Because this PSHP
creation trend seems to be nationwide in scope, this Note will focus on recent
federal legal changes, although recent changes in various state laws may have
also incentivized PSHP creation.12 Conversely, part III will look at what federal
laws might pose substantial risks to PSHP creation and operation. Lastly, Part IV
will suggest how a PSHP might structure their legal relationships to minimize
their federal legal risks, discussed in Part III, while maximizing the benefits of
PSHPs discussed in Parts I and II. This Note hopes to uncover how PSHPs are
benefiting healthcare providers, what recent changes to federal law are
incentivizing providers to create PSHPs, and how PSHPS can be structured to
take advantage of these laws while withstanding some federal legal pitfalls which
might get in the way of PSHP success. 

I. WHAT IS A PSHP?

A. Structure and Function

A PSHP is a health insurance plan that is fully operated, funded, and created

6. Dine, supra note 5, at 133.

7. Rickert, supra note 4.

8. Id.

9. Les Masterson, Small Medium Payers Show Growing Interests in Provider-Sponsored

Plans, INDUSTRY DIVE (Aug. 8, 2018), https://www.healthcaredive.com/news/small-medium-

payers-show-growing-interest-in-provider-sponsored-plans/529459/ [https://perma.cc/N88R-

KQ8L].

10. Julia Kapchinskiy, The Duality of Provider and Payer in the Current Healthcare

Landscape and Related Antitrust Implications, 55 SAN DIEGO L. REV. 617, 641 (2018).

11. See infra section I. C. 

12. See David C. Szostack, Vertical Integration in Health Care: The Regulatory Landscape,

17 DEPAUL J. HEALTH CARE L. 65, 67 (2015). 



2020] SO YOU WANT TO START A HEALTH PLAN? 401

by a healthcare provider through a process known as vertical integration. Vertical
integration occurs when a business begins to “provide[] for itself some input that
it might otherwise have purchased on the market.”13 As businesses develop, grow
and compete for consumers within a market, vertical integration is one way
businesses can set themselves apart. The following is an example of vertical
integration: Imagine Company A buys a part from Company B. Consequently,
Company A discovers that it can produce the part at a lower cost than the amount
at which it purchases it from Company B. If Company A decides to begin
producing and selling that part on its own, it would be vertically integrating its
company into Company B’s market. There are numerous benefits which the act
of vertically integrating offers to companies, such as the possibility of increased
efficiency and cost reduction.14 Vertical integration is generally seen as a pro-
competitive activity because it often decreases the price of a business’ product,
which spurs other businesses within the market to find innovative ways to lower
their costs to stay competitive with their vertically-integrated competitor.15 In a
way, vertical integration is business common sense. If a company can create or
provide a service at a lower cost than the price it pays another individual or entity,
then the company should vertically integrate into that business to become more
efficient and create a similar quality product at a lower cost to consumers. 

In the healthcare industry, typically healthcare providers are two separate
entities who  a very close, although at time strenuous, relationship. However, a
provider will vertically integrate into the healthcare payor market and create a
PSHP when the provider believes they can financially benefit by also operating
as a healthcare payor; a typically separate entity. The following is an explanation
of these two types of entities and how they traditionally jointly operate: A
healthcare provider is any entity which “furnishes health care services, such as a
physician, hospital, clinic, or hospice.”16 In other words, healthcare providers are
the organizations that are licensed to provide healthcare services to the masses.
To get paid for its services, the provider will either charge the individual who
received the services directly, or, in most instances, the provider will submit a
claim, outlining all the care given to the individual, to the individual’s healthcare
insurer.17 The healthcare insurer will then reimburse the provider for the care
given to the individual depending on the terms of their contracts with the
individual and with the healthcare provider.18

A healthcare payor is an individual or, in most cases, an insurance company
that is required “to make payment with respect to an[y healthcare] item or

13. 3A PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW 5 (2d ed. 2000).

14. Id. at 6; Szostack, supra note 12, at 70 (stating that cost reduction is the main justification

for vertical integration). 

15. 3A AREEDA, supra note 13, at 5.

16. Provider, J.E. SCHMIDT, ATTORNEYS’ DICTIONARY OF MEDICINE (2018).

17. See The Medical Billing Process, MEDICALBILLINGANDCODING.ORG, https://www.

medicalbillingandcoding.org/billing-process/ [perma.cc/JE3Q-UUZH] (last visited Mar. 3, 2020).

18. See What is Medicaid Billing?, MEDICALBILLINGANDCODING.ORG, https://www.

medicalbillingandcoding.org/billing-training/ [perma.cc/UB3S-QV9X] (last visited Mar. 3, 2020). 



402 INDIANA LAW REVIEW [Vol. 53:399

service” which is rendered to its members.19 Healthcare payors typically take the
form of either government-funded programs20 or privately-owned insurance
companies.21 Healthcare payors offer health plans to groups of individuals for
monthly fees called premiums.22 The payor will “provide[] or pay[] for the cost
of medical care” 23 for the individuals who are covered under the payor’s health
plan, often referred to as members, in accordance with the specific terms of the
individual’s health plan. The terms of a health plan designate the amount of
healthcare coverage each member of that health plan has, what services are
covered under the health plan, what amounts of each service the health plan
covers, and at which provider facilities the health plan can be used.

Typically, healthcare payors and providers interact when they contract with
each other through a “lengthy, and tedious, ‘behind the scenes’” contractual
process to determine if the healthcare payor will cover services rendered by the
provider to the payor’s members, and at what amount the payor will reimburse
the providers for the different care provided to the payor’s members.24 Since
healthcare payors control the money which is paid to reimburse the provider for
its services and since the payors control where their members go to receive
provider services, it is easy to see why providers often view this contracting
process as favoring the healthcare payor.25 

Providers have begun to, in a way, bypass this often-one-sided contracting
process with health care insurers by creating their own health plans.26 When a
provider creates its own health plan—a PSHP—it is vertically integrating into the
healthcare payor space. By creating a PSHP, the provider can skip the
nontransparent contracting process and decide on its own which providers and
services will be covered by its health plan, the terms of the health plan, and the
reimbursement amounts received from the health plan. The provider will then
insure individuals and provide care for those same individuals under its own
health plan. In this way, PSHPs are created, and a provider reinvents the typical

19. 42 C.F.R. § 411.21 (2020).

20. Government funded healthcare insurance programs include Medicare, Medicaid, CHIP,

HIS, VHA, and Tricare. See JANET M CORRIGAN ET AL., LEADERSHIP BY EXAMPLE: COORDINATING

GOVERNMENT ROLES IN IMPROVING HEALTH CARE QUALITY 28-37 (2003).

21. Some of the most prominent healthcare insurers in the market are Anthem, Cigna, Aetna,

Humana, and United Healthcare. Amanda Baltazar, The Big Five Health Insurance Companies,

VERYWELL HEALTH (Aug. 31, 2018) [perma.cc/6GMH-RFDM].

22. How Health Insurance Works, BLUE CROSS BLUE SHIELD OF MINNESOTA,

https://www.bluecrossmn.com/healthy/public/personal/home/shopplans/shop-individual-family-

plans/shop-how-health-ins-works [perma.cc/F4MU-FCHD] (last visited Mar. 3, 2020).

23. 45 C.F.R. § 160.103 (2019).

24. Dine, supra note 5, at 129. 

25. See Roger Fontes, Negotiating Contracts with Insurance Companies, MD MAGAZINE

(Aug. 16, 2013), https://www.mdmag.com/physicians-money-digest/practice-management/

negotiating-contracts-with-insurance-companies-fontes [perma.cc/J3EW-CYPW] (Referring to the

situation as “David versus Goliath”). 

26. Kapchinskiy, supra note 8, at 639 (referring to this as cutting out the middlemen).



2020] SO YOU WANT TO START A HEALTH PLAN? 403

two entity provider-payor relationship by offering both healthcare insurance and
healthcare services, and ultimately reimbursing itself for the services it rendered
to individuals with their insurance on terms the provider created.

PSHPs operate in almost the exact same way as private health insurance
plans.27 When starting a PSHP, the provider operating the PSHP must first receive
a license to sell health insurance within its state.28 Then, the PSHP, just like any
other health insurer, outlines the terms of its various health plans which it will
offer to individuals seeking to purchase health insurance. The terms of any health
plan detail what services it will cover, at what expense, at what facilities, and
what deductible or copay the member will have to pay for the service.29 The
PSHP then dictates the premium amount the individual will have to pay each
month depending on the benefits of the specific health plan. The premium is
determined through an actuarial risk calculation to ensure that the premiums are
high enough to cover the cost of selling the policy, administering the policy, and
maintaining adequate funds to pay claims relating to the medical services
provided to the plan’s members.30 The PSHP then markets and sells its health
plans to a group of individuals, who will be covered in accordance with the health
plan’s terms. 

There are two ways in which PSHPs substantially differ from typical health
care plans. The first is in the amount of risk the PSHP takes on. Health insurance
is all about risk assessment. Healthcare payors try to properly assess the risk that
their insured members will need to use their health insurance.31 Traditionally, all
of the risk of the insured remained with the health insurer, but since the 1980s,
some of that risk transferred to the provider whose payments from the insurer
would be determined on how efficiently they provide care to the insurer’s
members.32 Today, a typical insurer only takes on a portion of their members’
healthcare risk, and the rest is passed on to the providers, as the amount which a
health insurer pays the provider ultimately depends on the quality of care they
provide to the insurer’s members.33 As an insurer’s payment to a provider focuses
more and more on quality or value, providers begin to carry a larger amount of
the risk of the health insurer’s members.34 A PSHP takes this risk-shifting from

27. Rickert, supra note 4.

28. See NAT’L ASS’N OF INSURANCE COMMISSIONERS, State Licensing Handbook 93 (2013).

29. Understanding Commercial Health Insurance, MEDICALBILLINGANDCODING.ORG,

https://www.medicalbillingandcoding.org/health-insurance-guide/commercial-health-insurance/

[perma.cc/2pzp-6NS4] (last visited Mar. 3, 2020).

30. Brenda Long, How are Health Insurance Premiums Calculated, MICH. ST. U. EXTENSION

(Sep. 27, 2013) [perma.cc/LL6G-RMMM].

31. Id. 

32. Stephen S.S. Hyde & Tobin N. Watt, Renewed Interest in Provider Sponsored Plans

(What Providers Can Do on Their Own), AHLA SEMINAR PAPERS 17 (2011).

33. Adam D. Colvin & Max Reiboldt, Evolving Physician/Hospital Alignment—Five New

Transaction Types for 2015, AHLA SEMINAR PAPERS 8, 13 (2015); see discussion of value-based

reimbursement, infra Section II. B. 

34. Colvin, supra note 31, at 13, exhibit 2.



404 INDIANA LAW REVIEW [Vol. 53:399

the insurer to the provider a step further because, as provider and insurer, the
PSHP assumes 100 percent of the risk of its members.35 That is to say that, only
if the PSHP calculates the premiums correctly and provides its members’ care
efficiently will the PSHP “profit directly from its members’ premiums. However,
if the costs of care exceed the plan’s revenue, there is no limit to the PSHP’s
financial liability.”3 6 Therefore, one major difference between a typical insurer
and a PSHP is that because a PSHP is controlled by the individual giving the
healthcare, the PSHP stands to profit from the entire premium dollar it receives
from its members,37 or the PSHP will stand to lose the entirety of the premium
due to the risk that their members’ care will cost more than the members’
premiums. 

The second way a PSHP differs from a typical insurer is its structure. PSHPs
have two minor structural qualities that differentiate them from typical health
insurers. First, PSHPs are structured to be subsidiaries of their parent provider,38

whereas typical insurers are stand-alone entities.39 To create a PSHP, the provider
company will create a subsidiary health insurance company to either create a
health insurance company from scratch, team up with an active health insurer, or
purchase a smaller health insurance company.40 Each possibility carries with it a
different amount of risk and benefit to the parent provider.41 Second, unlike other
private insurers, PSHPs typically structure themselves to have a narrow network
of providers they cover within their region aside from the provider who created
the PSHP.42 These narrow networks allow PSHPs to better control the quality of
the care they give, keep costs low, and keep patients at the PSHP’s provider’s
facilities.43 Beyond these minor differentiations, PSHPs operate in the exact same

35. Michaela Poizner, Value-Based Reimbursement: The New Norm For Health Care?, LAW

360 (Mar. 17, 2016), https://lrus.wolterskluwer.com/news/health-reform/value-based-

reimbursement-the-new-normal/32322/ [perma: https://perma.cc/QFM8-UH55].

36. Id.

37. Dine & Hurd, supra note 5, at 129. Healthcare providers see at most 80 percent of any

patient’s premium dollar as the rest is kept by the healthcare insurer to pay for marketing, overhead,

and profit. ALLAN BAUMGARTEN, ANALYSIS OF INTEGRATED DELIVERY SYSTEM S AND NEW

PROVIDER-SPONSORED HEALTH PLANS 8 (2017), https://www.rwjf.org/content/dam/farm/reports/

reports/2017/rwjf437615 [perma.cc/98J2-PT2h].

38. Michael R. Crowe & Lisa A. Hathaway, Managed Care Contracting for the Post Acute

World in 2016 and Beyond, AHLA SEMINAR PAPERS 27, 1, 24  (2016).

39. Kirstin Ives & Christopher Petelle, Presentation at the Annual American Health Lawyers

Association Meeting: Intercompany Pricing and the Movement Toward Integrated Health (June

2016) (Presentation available on the AHLA Health Law Archive).

40. Amy L. Mackin & Jean Wright Veilleux, Wearing Two Hats: Opportunities and

Challenges for Provider-Sponsored Health Plans 4-6, AHLA: INSTITUTE FOR HEALTH PLAN

COUNSEL (Nov. 2, 2018).

41. Id.

42. Terri Wagner Cammarano & Richard J. Zall, Provider/Payer Convergence: New Models

for Population Health Management, AHLA SEMINAR PAPERS 3, 1, 2 (2015).

43. Mackin & Veilleux, supra note 41, at 3.



2020] SO YOU WANT TO START A HEALTH PLAN? 405

way as typical health insurers by insuring their members under their health plans
for set premiums and reimbursing providers for the services the provider renders
to the PSHPs’ members.

When creating a PSHP, a provider typically tests the waters by first offering
its plan to its employees.44 This allows the PSHP to test and improve its risk
management and health insurance infrastructure before offering its plan to the
public.45 If the provider finds that its PSHP is able to appropriately manage the
risk and operate the employee health plan efficiently, then the PSHP may decide
to begin selling their health plans to the public.46 Providers then typically decide
whether they are going to offer a Medicare Advantage plan,47 often the entry
point into the market for most PSHPs, or a typical commercial health plan.48 In
the end, the goal of a provider who operates a PSHP on an individual employee
level or on a commercial level is to keep patients healthy and to do it as
efficiently as possible to keep consumer premiums low, provider costs low, and
profits from member premiums high.49

B. The Benefits of Operating a PSHP

Although it is risky to create and operate a health insurance plan, many
providers are looking into creating PSHPs because of the benefits PSHPs have the
potential to create. All of the benefits a PSHP has the potential to create come
from its alignment of “optimal treatment supplied by the [provider] with the cost
cutting and tight controls incentivized by the insurance . . . ”50 

PSHPs have the potential to benefit providers in three ways. First, PSHPs
may benefit providers by creating a separate stream of revenue for a provider's
business through the collection of member premiums.51 This revenue
diversification is incredibly beneficial to some providers as revenue created
through inpatient services is at an all-time low.52 PSHPs allow for providers to
have a financial safety net; when a provider's typical inpatient revenue is low due
to lack of inpatients, their premium revenue should be high because their insured

44. Alison M. Howard, Back to the Future: Provider-Employer Alliance Direct Contracting

for Health Benefits, 30 HEALTH LAW. 1, 3 (2018).

45. Id.

46. Id.

47. Medicare Advantage plans are private insurance plans that offer Medicare benefits to

Medicare-eligible individuals through a government-approved private insurer. See What’s a

Medicare Advantage Plan, CTR. FOR MEDICARE AND MEDICAID SERVS. (Apr. 2015), https://www.

medicare.gov/pubs/pdf/11474.pdf [perma.cc/VN6X-U54E]. 

48. Mackin & Veilleux, supra note 41, at 6.

49. Dine & Hurd, supra note 5, at 130.

50. Kapchinskiy, supra note 10, at 639.

51. BAUMGARTEN, supra note 38, at 8. 

52. Alex Kacik, Not-for-profit hospitals’ cost-cutting isn’t keeping up with revenue decline,

MODERN HEALT HCARE (Aug. 29, 2018), https://www.modernhealthcare.com/article/20180829/

NEWS/180829884 [perma.cc/4ZLZ-SP7U].



406 INDIANA LAW REVIEW [Vol. 53:399

members will not be using the inpatient services.53 
Second, PSHPs may benefit providers by creating a defense against the ever-

increasing bargaining strength of large insurers, as well as against the increasing
competitive strength of other providers with already existing PSHPs. Recently,
there have been multiple attempts for large healthcare insurers to merge.5 4

Providers are worried that if these large payors merge that providers may lose
substantial bargaining power during payor-provider contractual negotiations. In
anticipation of such mega-mergers, providers have begun to create their own
health plans as a form of protection.55 Also, some providers consider creating
PSHPs as a defensive competitive tactic against other providers in their area who
operate PSHPs.56 For example, two hospital systems in California created PSHPs
because they were losing patients to Kaiser Permanente’s fully integrated
healthcare system.57 In a world of lower inpatient revenue and constant mergers,
providers could easily see creating a PSHP as a way to keep their business
competitive and afloat.

Third, PSHPs may benefit providers by potentially increasing overall
efficiency and quality in their healthcare system.58 PSHPs collect valuable patient
data which can greatly facilitate and benefit a provider’s coordinated care
activities.59 Through a PSHP, providers have access to extensive claims data
regarding treated patients which was previously only held by insurers. This data
can help a provider see the areas of high utilization within their healthcare system
and the areas where they can improve the provider operation to better
accommodate their patients.60 This new stream of data from PSHPs allows
providers who operate PSHPs to view the gaps in their care management and
mend those gaps to increase their efficiency and quality to create a better provider
experience.61 PSHPs’ use of this health information data creates a unique
opportunity for the provider to completely and more accurately manage the care
of the patients’ it serves as well as find areas within its healthcare system where
it can improve to keep costs down.62

53. Jacqueline LaPointe, A Provider-Sponsored Health Plan Is A Hospital’s Natural Next

Step, REVCYCLE INTELLIGENCE (July 16, 2018), https://revcycleintelligence.com/news/a-provider-

sponsored-health-plan-is-a-hospitals-natural-next-step [perma.cc/Y3BE-VQGX].

54. See generally U.S. District Court Blocks Aetna’s Acquisition of Humana, U.S. DEP’T OF

JUSTICE (Jan. 23, 2017) https://www.justice.gov/opa/pr/us-district-court-blocks-aetna-s-acquisition-

humana [https://perma.cc/VY2W-VBEH].

55. Mackin & Veilleux, supra note 41, at 2, 4.

56. BAUMGARTEN, supra note 38, at 8.

57. Id.

58. Gary Scott Davis et. al, Presentation for the American Health Lawyers Association

Institute for Health Plan Counsel: The Changing Relationship between Providers and Payers (Dec.

8-9, 2016) (Presentation available on the AHLA Health Law Archive). 

59. Mackin & Veilleux, supra note 41, at 13.

60. BAUMGARTEN, supra note 38, at 8.

61. Id.

62. Crowe, supra note 39; Gary Scott Davis et al., Provider Sponsored Health Plans, 2017



2020] SO YOU WANT TO START A HEALTH PLAN? 407

Also, if PSHPs become more prevalent within the healthcare market, they
have the potential to generally benefit the healthcare system in the United States.
The U.S. spends almost twice what other high-income nations spend on
healthcare,63 without providing better access and quality of care to its citizens.64

Statistics indicate that PSHPs could potentially increase the U.S.'s access and
quality of care, and lower overall healthcare spending. 

Providers see PSHPs as a way to lower healthcare costs within their own
system, but if PSHPs became more prevalent, they could potentially decrease
healthcare costs throughout the U.S. PSHPs actively eliminate costs and
streamline the operations for the healthcare providers who operate them.65 PSHPs
cut healthcare costs in two major ways. First, PSHPs decrease healthcare costs by
actively improving care management through a process of sharing patient data
with their parent provider in a way that allows the provider to provide care more
efficiently.66 Second, PSHPs decrease the cost of healthcare by significantly
lowering a provider’s administration costs associated with working with typical
healthcare payors.67 PSHPs have significantly lower administrative costs than
traditional insurance plans, allowing the savings to be transferred to their
members in the form of low premiums.68 These lower administration costs likely
come from PSHPs cutting out the process of interacting with another health
insurer when submitting a claim and arguing over reimbursement costs for
services the provider rendered to an insured patient.69 Although these might seem
very minor ways in which PSHPs cut healthcare costs, in a nation where
healthcare spending is out of control,70 any savings in healthcare is viewed as a
step in the right direction and, if done on a large enough scale, could potentially
minimally decrease overall healthcare costs throughout the U.S.

Providers also recognize that PSHPs have the potential to increase access of
healthcare wherever their health plan is offered. Primarily due to the high cost of
health insurance, 27.9 million individuals remain uninsured in the U.S.71 PSHPs

HEALTH L. HANDBOOK 9, 1, 3 (2017).

63. Around 18 percent of the United States gross domestic product is spent on healthcare.

Papanicolas et. al., supra note 2.

64. The United States was the only country examined with a "sizable minority" of individuals

who lacked basic healthcare service coverage. Also, compared to all other similarly situated

countries, the U.S. had “considerably lower” rates on all clinical outcome measures. Id.

65. Brian J. Miller & George L. Wolfe, Managed Care Marketplaces: Growing Drivers of

Payer-Provider Vertical Integration, 16 APR ANTITRUST SOURCE 1, 3 (2017).

66. Colvin, supra note 34, at 20; see also supra notes 46-60 and accompanying text.

67. Mike Finnerty Kaufman & Gary Scott Davis, unpublished article for the American Health

Lawyers Associations Physicians and Hospitals Law Institute: Provider-Sponsored health Plans:

Back to the Future 3 (Feb. 2016) (Article available on the AHLA Health Law Archive).

68. Id.

69. Colvin, supra note 34, at 20.

70. Papanicolas et. al., supra note 2.

71. Key Facts about the Uninsured Population, KAISER FAM. FOUND. (Nov. 29, 2017),

h ttps://ww w .kff.org/u n in su red/fact-sh eet/key-facts-abou t-th e-u n in su red-popu lation /



408 INDIANA LAW REVIEW [Vol. 53:399

typically offer health insurance at a more affordable rate than health plans from
larger health insurers,72 and could thus offer more affordable health insurance to
some of these uninsured. PSHPs are able to reduce premiums by keeping their
network limited, and by using data they received from their member’s utilization
of healthcare to identify ways in which they could be more efficient while
maintaining a high quality of care.73 The lower premiums PSHPs typically offer
have the potential to get more individuals insured, increasing America's overall
access to care. 

PSHPs also provide providers with a way to increase the quality of the
healthcare provided in America. According to a study done by the McKinsey
Center for U.S. Health System Reform, PSHPs have historically received higher
quality ratings compared to other private insurers.74 These quality improvements
likely result from increased data utilization by PSHPs that pinpoint areas where
changes are needed within the overall healthcare system75 and the general greater
emphasis PSHPs place on preventive care services than typical large insurers.76

In an age when many providers are concerned about the quality of their
healthcare, it is easy to see why there is a trend toward PSHP creation.

There are some individuals who are wary to support PSHP creation. These
individuals often argue that PSHP creation through vertical integration will
decrease competition and consequently raise costs.77 However, as demonstrated
in the previous paragraphs of this section, PSHPs could lead to increased
healthcare access, an improvement in healthcare quality, and a reduction in health
insurance costs. Also, PSHPs are bringing competition to the healthcare insurance
market where the American Medical Association has noted that there is a lack of
competition and choice for consumers.78 Therefore, although not every provider
will be able to create and operate a PSHP, PSHPs will likely help, rather than
harm, the healthcare market.

If done on a widespread scale, it appears that PSHPs could benefit both the
individual providers and, more generally, American healthcare. Allen
Baumgarten, a research analyst who focuses on health care policies, stated that
“[t]he key to success for [PSHPs] is the ability to enunciate and then deliver on

[https://perma.cc/R3BM-GLU].

72. Howard, supra note 45, at 4.

73. BAUMGARTEN, supra note 38, at 8; Rush, supra note 63, at 3.

74. Integrated delivery networks received a quality rating of 4.45 out of 5, whereas private

insurers received an average of 3.89 out of 5. Assessing the 2017 Medicare Advantage Star Ratings

3, MCKINSEY AND COMPANY (2016).

75. LaPointe, supra note 54.

76. Dine & Hurd, supra note 5, at 133.

77. Kathleen Snow Sutton, Wait Then Reassess: Antitrust Risks of Vertical Integration in

Healthcare Remain an Open Question, 96 DENV. L. REV. 353, 359 (2019); Szostack, supra note

12, at 74; Rush, supra note 63, at 15.

78. See Kyle Murphy, AMA Study Finds Lack of Health Payer Competition Across US,

HEALTH PAYER INTELLIGENCE (Nov. 9, 2018), https://healthpayerintelligence.com/news/ama-study-

finds-lack-of-health-payer-competition-across-us [perma.cc/BC7Z-UAGK]. 



2020] SO YOU WANT TO START A HEALTH PLAN? 409

a value proposition: a provider system and its affiliated physicians and hospitals
providing high-quality medical care at a lower cost, enabling the health plan to
sell insurance at a lower price than competitors.”79 Although starting a health
insurance company still comes with many challenges, providers throughout
America are taking notice of all of the benefits operating a PSHP can provide and
have either already begun to create a PSHP or have taken steps to create a PSHP
in the future.80

C. Back to the Future: A Short History of PSHPs

The year was 1937 and Henry J. Kaiser, an industrialist, finalized a deal with
Dr. Sidney Garfield, whereby Dr. Garfield and his team of physicians would
provide health care to Kaiser’s shipyard workers in the California bay area at a
Kaiser owned hospital.81 The shipyard workers prepaid Kaiser and Dr. Garfield
to obtain the healthcare services at Kaiser and Dr. Garfield’s facilities.82 Thus, the
first PSHP was born where a hospital began to sell “health insurance” for services
provided at its own hospital.83 Kaiser Permanente,84 the PSHP created in 1937, is
still in operation and is the largest operating PSHP in the market today, insuring
more than twelve million individuals in eight states.85

Despite the success of Kaiser Permanente’s PSHP, very few PSHPs created
early on were successful.86 Those that were, such as Geisinger Health Plan and
Health Partner, found success because they could offer health insurance prices
that were competitive with national health insurers due to their maintenance of
great care coordination, conservative financial practices, comprehensive benefits,
and limited networks of providers.87 Typical characteristics of the first-generation
PSHPs that failed were that they were not able to secure enough membership

79. BAUMGARTEN, supra note 38, at 20.

80. Thirteen percent of health systems in the U.S. have created PSHPs, and fifty percent more

have applied, or are intending to apply, for a health insurance licenses so they can consider starting

their own PSHP. Rickert, supra note 4.

81. Gruber, supra note 5, at 28; History, KAISER PERMANENTE https://share.

kaiserpermanente.org/about-us/history/# [perma.cc/CD8J-H72E] (last visited Mar. 6, 2020).

82. KAISER PERMANENTE, supra note 81. For more information on the facts leading up to the

creation of the Kaiser Permanente Health Plan, see id.

83. Rickert, supra note 4. 

84. Since 1953, the name of the health plan and hospitals created from the agreement

between Henry J. Kaiser and Dr. Garfield have gone by the name Kaiser, and the medical group

providing the service has gone by the name Permanente. The Collaboration between health plan,

hospital, and medical group has become known as Kaiser Permanente. KAISER PERMANENTE, supra

note 81. 

85. Gruber, supra note 5, at 28; Kaiser Permanente at a Glance, KAISER PERMANENTE, (last

visited Feb. 2, 2019), https://ataglance.kaiserpermanente.org/kp-12-million-people/ [perma.cc/

59KE-2KPH].

86. Finnerty, supra note 59, at 7.

87. BAUMGARTEN, supra note 38, at 1.



410 INDIANA LAW REVIEW [Vol. 53:399

under their health plan and, in an attempt to increase their membership, they
decreased prices to an amount that was not financially sustainable for the
provider.88

In the 1990s, PSHPs gained popularity as national health reform took center
stage in political debates.89 The overall healthcare landscape in America was ripe
for a new wave of innovative insurers, as there was a lack of competition in the
insurance market and a continued legal push for innovative methods of payor
reimbursement.90 Many believed that vertically integrated provider and payor
systems could, for similar reasons as those noted in the previous section of this
Note, help improve the quality of healthcare and lower healthcare costs.91 Several
hundred providers started PSHPS,9 2 but the trend fizzled out and only forty-three
of the PSHPs created in the 1990s are still active.93

The PSHPs of the 1990s were often ill equipped to handle running an
insurance company due to lack of proper knowledge and inadequate information
systems on which they could assess the quality of their care and the risk of their
insured members.94 Eventually, many of these early PSHPs failed due to financial
pressures. To start a health plan, providers must have a substantial amount of
capital to receive a license to sell health insurance in the state or states in which
they wish to operate.95 Even if a provider receives a license to sell health
insurance, their PSHP will likely sustain significant losses in the first few years
of operation, which may prevent them from being successful.96 One reason
providers sustain such big losses early on is that they are unable to gain a
sufficient member base so that their premium incomes offset the cost they have
to pay in order to provide healthcare for their members.97 PSHPs have historically
struggled to gain sufficient member base to stay profitable because of the large
national insurance companies which had preexisting extensive membership pools
and established relationships with employers offering group insurance plans.98 If
PSHPs are not able to gain a sufficient number of members to offset the amount
they are paying out for healthcare services, then the PSHP will likely not last
long. Because of this economic reality, only the largest health systems within a

88. Finnerty, supra note 59, at 7.

89. BAUMGARTEN, supra note 38, at 5.

90. Kaufman, supra note 68, at 3.

91. BAUMGARTEN, supra note 38, at 5.

92. Id.

93. Id.

94. Hyde, supra note 33, at 1.

95. See generally IND. CODE §§ 27-1-6-14, 15 (2018) (mandating that in order to begin

business, health insurers must demonstrate that they have a surplus of $1,000,000 or $2,000,000

to ensure that they have enough money to pay the healthcare costs of their members for the first

year). 

96. Mackin & Veilleux, supra note 41, at 3.

97. Id. (Referring to sufficient membership base as economies of scale).

98. Howard, supra note 45, at 2-3.



2020] SO YOU WANT TO START A HEALTH PLAN? 411

region have been able to create successful PSHPs.99 
History has proven that starting a PSHP is not easy. However, the trend of

PSHP creation has been reinvigorated within the past decade. The number of
PSHPs is steadily growing—one study stated that from 2015 to 2016 the number
of PSHPs operated around the U.S increased from 256 to 268.1 0 0 Today, around
52 percent of all insurance products are through PSHPs.1 01 Although there might
be many reasons why PSHPs have found new life in the twenty-first century, this
PSHP creation trend is due in no small part to the major federal legal changes that
have affected healthcare in the past decade.

II. NOT GOING DOWN WITHOUT A FIGHT: HOW FEDERAL LAWS
HAVE INCENTIVIZED PSHP CREATION

As the healthcare legal landscape in the United States continues to change,
PSHPs have found a new environment for widespread success. Two major
legislative initiatives are the cause of this resurgence: The Patient Protection and
Affordable Care Act’s (“ACA”) individual exchange initiative, and the
Department of Health and Human Services' (“HHS”) push for value-based
reimbursement.102 These two major shifts in healthcare law have resurrected this
old trend of PSHP creation in a new way.

A. Insurance Affordability for All: PSHPs and the ACA Exchanges

Passed in 2010, the ACA’s drafters hoped their ambitious piece of legislation
would alter and improve many legal aspects of the U.S. healthcare system.103 An
unintended consequence of the ACA was that it created “a landscape that
encouraged” the creation of PSHPs.104 One of the ACA’s key goals—to increase
access to and affordability of insurance for those who were not part of a group
insurance plan offered by employers—would be a catalyst for the current PSHP
creation trend among providers.10 5 The ACA attempted to reach this goal by
mandating the creation of public insurance exchanges (“exchanges”).106 These

99. Why It’s So Hard for Provider-Sponsored Plans to Turn a Profit, ADVISORY BOARD (June

15, 2017), https://www.advisory.com/daily-briefing/2017/06/15/provider-plans-struggle

[perma.cc/Q7TD-DMPT].

100. Kim Harvey Looney & Linda Rippey-Moor, What is a Rural Health Care Provider to

Do in the New Health Care World, 2017 AHLA SEMINAR PAPERS 36, 4-5 (2017).

101. Kapchinskiy, supra note 10, at 641.

102. Mitch Morris, Provider-Sponsored Plans: The Innovation Health Care Needs, DELOITTE

(Mar. 31, 2016), https://blogs.deloitte.com/centerforhealthsolutions/provider-sponsored-plans-the-

innovation-health-care-needs/ [perma.cc/HME4-Y8XX]; see also John Chesley & Tom Bulleit,

Blurring the Line between Health Care Provider and Payor, LAW 360 (Sep. 20, 2017).

103. The Affordable Care Act, HEALTHCARE.GOV (last visited Nov. 11, 2018), https://www.

healthcare.gov/glossary/affordable-care-act/ [perma.cc/F9QZ-82LU].

104. Dine, supra note 5, at 103.

105. HealthCare.gov, supra note 103.

106. 42 U.S.C. §§ 18031(b)(1), 18041(c)(1) (2018).



412 INDIANA LAW REVIEW [Vol. 53:399

exchanges allowed individuals and small business employees looking to purchase
individual insurance plans to compare and purchase a variety of insurance plans
in one online location.107 While the ACA's legal changes did not start the renewed
trend of PSHP creation, its invention of insurance exchanges encouraged the
movement.108

The exchanges have allowed PSHPs to overcome the greatest obstacle they
previously had to finding success: competing with larger more established
insurers for substantial health plan membership.109 The exchanges gave PSHPs
a marketing platform on which PSHPs and other small insurers could compete
with the larger and more established insurers. Prior to the implementation of these
federal exchanges, it was near impossible for these smaller health insurers to gain
a foothold in the health insurance market.110 The exchanges created by the ACA
have been the fastest growing area for PSHP membership1 1 1 and are giving them
the boost necessary to contend with the large insurance companies.112 PSHPs
discovered that the 11.8 million individuals purchasing insurance through these
exchanges113 are less concerned about the PSHPs narrow network of providers,
and more interested in the lower premiums these PSHPs offer.114 “A narrow
network plan offered by a trusted area provider at the right price point might be
able to beat out the large commercial insurers."115 Since the year the ACA was
passed, thirty-seven new PSHPs have been established, many seizing the
opportunity to sell insurance on the exchanges.116 Brian J. Miller, M.D., a former
Special Advisor at the Federal Trade Commission and a Fellow at the Centers for
Medicare & Medicaid Innovation, and George Wolfe, an Antitrust Associate at
Akin Grump Strauss Hauer & Feld LLP, wrote that the ACA has "served as an
impetus for enhanced vertical integration in the healthcare industry.”117 Stated
differently, the ACA's exchanges are in large part why providers are creating
PSHPs.

107. Id.

108. See generally Miller, supra note 66, at 5.

109. Howard, supra note 45, at 2-3 (discussing how PSHPs in the 1990s could not compete

for membership with the larger established insurance companies).

110. BAUMGARTEN, supra note 38, at 5. 

111. PRWEB, Preliminary Results of AIS’s Health Plan Survey Show Continued Growth

Among Provider-Sponsored Plans (Apr. 12, 2016), http://www.prweb.com/releases/2016/04/

prweb13332414.htm [perma.cc/NM9C-G6QM]. 

112. Julie A Simer & J. Scott Schoeffel, The Wide World of Narrow Networks: How Health

Care Providers Can Adapt and Succeed, 9 No. 1 J. HEALTH & LIFE SCI. L. 9 (2015).

113. Shelby Livingston, Final 2018 ACA Exchange Enrollment Comes up Slightly Short of

2017, MODERN HEALTHCARE (Apr. 3, 2018), https://www.modernhealthcare.com/article/20180403/

NEWS/180409972 [perma.cc/NSC3-HXDP].

114. Mackin & Veilleux, supra note 41, at 7.

115. Kaufman, supra note 68, at 4.

116. BAUMGARTEN, supra note 38, at 1, 7.

117. Miller, supra note 66, at 5.



2020] SO YOU WANT TO START A HEALTH PLAN? 413

B. Quality Over Quantity: PSHPs and the Value-Based Reimbursement Model

Other than creating the exchanges, the ACA began a trend in healthcare
payment that would further incentivize the creation of PSHPs. The ACA was one
of the first laws that looked to incentivize payors to reimburse providers for their
services on a value basis118 instead of the traditional fee-for-service basis.1 1 9

Insurance plans that reimburse based on value look to pay providers for their
services to the insurer’s members “based on the quality, rather than the quantity
of care they give patients.”120 This political push started by the ACA has been
continued by HHS’s Center for Medicare and Medicaid Services (“CMS”) and
legislation like the Medicare Access and CHIP Reauthorization Act (“MACRA”)
which established additional incentives to move payment methods that reward
quality and value over volume.121 In 2015, the HHS Secretary, Sylvia M. Burwell,
announced the federal government's goal of tying eighty-five percent of all
traditional Medicare payments to value-based reimbursement models by 2016 and
ninety percent by 2019.122 Private payors have followed HHS’s lead by tying their
reimbursements to certain quality metrics, such as reductions in hospital-acquired
conditions or hospital readmission rates.123 Providers have responded to this
change by looking for ways to improve their care management to ensure quality
outcomes. From a provider's perspective, one such way to improve its value of
care is by creating a PSHP where it can better control its cost and quality of
care.124 

This shift to value-based reimbursement has been the primary reason many
hospitals have begun operating PSHPs.125 This push to value-based
reimbursement incentivizes the creation of PSHPs in two ways. First, healthcare
providers see value-based reimbursement models as a way for them to take on

118. 42 U.S.C. § 300gg-13(c) (2019).

119. Fee-for-service reimbursement is the process of reimbursing a provider for each service

performed. Fee For Service, HEALTHCARE.GOV (last visited Mar. 7, 2020), https://www.healthcare.

gov/glossary/fee-for-service/ [perma.cc/G3ST-XG85].

120. What are the Value-Based Programs?, CTR. FOR MEDICARE AND MEDICAID SERVS. (Jan.

6, 2020), https://www.cms.gov/medicare/quality-initiatives-patient-assessment-instruments/value-

based-programs/value-based-programs.html [perma.cc/F4M4-HHJT].

121. 42 U.S.C. § 1395w-4(p) (2019); Sutton, supra note 78, at 358-59.

122. Better, Smarter, Healthier: In Historic Announcement, HHS sets Clear Goals and

Timeline for Shifting Medicare Reimbursements from Volume to Value, DEP’T OF HEALTH AND

HUM. SERVS. (Jan. 26, 2015), http://wayback.archive-it.org/3926/20170127185400/https://www.

hhs.gov/about/news/2015/01/26/better-smarter-healthier-in-historic-announcement-hhs-sets-clear-

goals-an d-tim elin e-for-sh iftin g-m edicare-reim bu rsem en ts-from -volume-to-value.html

[perma.cc/75PN-VA4Q].

123. Sutton, supra note 78, at 364.

124. Gary Scott Davis & Michael J. Finnerty, Presentation at the American Health Lawyers

Association Physicians and Hospitals Law Institute: Back to the Future: Blurring the Lines Between

Payers and Providers 16 (Feb. 2016) (Presentation available on the AHLA Health Law Archive).

125. Rush, supra note 63, at 1.



414 INDIANA LAW REVIEW [Vol. 53:399

more of the financial risk of their patients.126 Under a value-based model, if a
provider’s patients do not get better or require additional care due to provider
error, the provider can potentially lose out on reimbursement. Some providers
believe that since they are being forced to take on additional financial risk by
tying their reimbursements to quality metrics, they should attempt to take on all
of the financial risks of their patients by offering them their own health plan
through a PSHP.127 In taking on the entirety of the risk, providers believe they can
more accurately ensure and improve the quality and value of care they provide
to their patients.128 PSHPs are “[p]robably the ultimate [value-based arrangement]
from the standpoint of shared risk[.]”129

Second, value-based reimbursement models require providers to ensure the
quality of care given, and some providers believe they can better ensure quality
through the additional data they could collect and have access to if they operated
a PSHP. By operating a PSHP, providers gain access to additional claims data
about their members’ healthcare utilization.130 PSHPs then share the metrics they
collect on the member utilization with the provider so that the providers may use
this data to improve on clinical measures to provide better and more efficient care
to their patients.131 This data sharing and utilization between PSHP and provider
could directly translate into a higher quality of care and higher reimbursement
through value-based reimbursement methods for the provider.132 Thus, providers
who operate PSHPs may likely receive higher value-based reimbursements since
they are able to accurately promote quality care initiatives in areas where they see
their patients need the most support and attention, as displayed through the data
received from operating their PSHP.133 Altogether, providers seem to be looking
at PSHPs as a way to take full advantage of the ACA Exchanges and the federal
government’s push toward value-based reimbursement.

126. Jacqueline LaPointe, What is Value-Based Care, What It Means for Providers?,

REVCYCLEINTELLIGENCE (June 7, 2016) https://revcycleintelligence.com/features/what-is-value-

based-care-what-it-means-for-providers [perma.cc/74TT-CPY5].

127. Ratings Direct: The Growing and Evolving Role of Provider-Sponsored Health Plans in

U.S. Healthcare, Standard & Poor's Rating Services (June 8, 2015). https://www.spratings.com/

documents/20184/908554/US_PF_Eve%20%20nt_hc1082/d6246d0c-c3e0 -4 e1 7 -b1 6 6 -

a8afdf4b91fe [https://perma.cc/6V53-8XJF].

128. Gunjan Khanna et al., Provider-Led Health Plans: The Next Frontier—Or the 1990s All

Over Again?, MCKINSEY & COMPANY (Jan. 2015), https://healthcare.mckinsey.com/provider-led-

health-plans-next-frontier%E2%80%94or-1990s-all-over-again [perma.cc/FPX4-WLPU].

129. Crowe & Hathaway supra note 39, at 24.

130. Mackin & Veilleux, supra note 41, at 13.

131. Id.; Finnerty & Senty, supra note 59, at 7.

132. Mackin & Veilleux, supra note 41, at 7, 13.

133. BAUMGARTEN, supra note 38, at 8.



2020] SO YOU WANT TO START A HEALTH PLAN? 415

III. WATCH YOUR STEP: FEDERAL LEGAL PIT-FALLS THAT
MAY DETER PSHP OPERATION

Although these changes in the healthcare legal landscape, along with the
variety of possible benefits that a provider could gain by operating a PSHP, have
many providers eager and ready to test out their ability to offer health
insurance,134 providers should be aware of the other federal laws which could
make starting a PSHP a little risky. This section assesses three major areas of
federal healthcare law—antitrust, fraud and abuse, and HIPAA—that could
negatively affect providers operating PSHPs.

A. Playing the Game of Monopoly: PSHPs and Their Antitrust Risk

Providers should be aware that operating a PSHP can bring with it a risk of
antitrust violation. Although antitrust in healthcare is a highly litigated field, most
cases typically involve cases of horizontal integration which is seen when large
providers offering the same or similar services in the same market merge
together.135 Due to the lack of case law, provider vertical integration is new and
somewhat uncharted antitrust territory.136 However, there have already been three
attempted antitrust lawsuits against providers and their vertically integrated
PSHPs within the last four years.137 These cases demonstrate a risk of violation
of which providers should be acutely aware.

The area of antitrust law that creates potential antitrust risk for PSHPs is
Section 2 of the Sherman Antitrust Act (the "Sherman Act").138 The Sherman Act
is the cornerstone of American antitrust policy, aimed at preventing illegal
activity that would harm the competitive process upon which the U.S. economic
system is based.139 The Act looks to protect consumers by outlawing corporate
practices that are harmful to the competitive process and therefore harmful to the
end consumer.140 “[T]he policy unequivocally laid down by the Act is
competition[,]”141 the idea being that competition incentivizes activities that
benefit the consumer.142 

Specifically, Section 2 of the Sherman Act prohibits any conduct which is
harmful to competition and that may result in the illegal acquisition or

134. See Rickert, supra note 4.

135. Mackin & Veilleux, supra note 41, at 11.

136. Id.

137. N.M. Oncology & Hematology Consultants v. Presbyterian Healthcare Servs., 54 F.

Supp. 3d 1189 (D.N.M. 2014); NorthBay Healthcare Grp. v. Kaiser Found. Health Plan Inc., 305

F. Supp. 3d 1065 (N.D. Cal. 2018); Omni Healthcare Inc. v. Health First, Inc., No. 6:13-cv-1509-

Orl-37DAB, 2016 WL 4272164 (M.D. Fla. Aug. 13, 2016).

138. 15 U.S.C. § 2 (2018).

139. 1 EARL W. KINTNER ET AL., FEDERAL ANTITRUST LAW § 4.1 (2017).

140. Id.

141. N. Pac. Ry. Co. v. United States, 356 U.S. 1, 4 (1958).

142. U.S. DEP’T. OF JUST., SINGLE FIRM CONDUCT REPORT: PROMOTING CONSUMER WELFARE

THROUGH CLEARER STANDARDS FOR SECTION 2 OF THE SHERMAN ACT (2017).



416 INDIANA LAW REVIEW [Vol. 53:399

maintenance of monopoly power.143 Section 2 states that “[e]very person who
shall monopolize, or attempt to monopolize, or combine or conspire with any
other person or persons, to monopolize any part of the trade or commerce among
the several States, or with foreign nations, shall be deemed guilty of a felony.”144

It should be noted that Section 2 of the Sherman Act does not outlaw monopolies
so long as the monopolies are gained through a proper means of superior business
and product.145 Rather, Section 2 of the Sherman Act looks to protect the process
of competition, which, if successful, provides a better product at lower prices to
the end consumer.146 Stated differently, Section 2 was created “not to protect
businesses from working of the market; it is to protect the public from the failure
of the market.”147

If an individual accuses an entity of violating Section 2 of the Sherman Act,
that individual has the burden of proving three things: (1) the entity has a
monopoly power in a specific market or is likely to achieve it;148 (2) the entity
accused of violating section 2 of the Sherman Act has maintained its monopoly,
or attempted to create a monopoly in an anticompetitive manner;149 and (3) the
anticompetitive effects of the entity’s conduct outweigh its procompetitive
effects.150 Proving an accusation of monopolization or attempted monopolization
is incredibly fact intensive, but if the accuser can prove that the entity has
maintained or created its monopoly in a given market through court defined
anticompetitive conduct that outweighs its procompetitive effects, then the
accused entity's conduct could be found in violation of Section 2 of the Sherman
Act.151

If a provider operating a PSHP is accused of violating Section 2 of the
Sherman Act, it will have to be able to adequately demonstrate to the court why
it does not violate the three-pronged Sherman Act Section 2 analysis. First, the
provider will have to prove that they do not have a monopoly in the market, nor
are they attempting to create a monopoly in the market.152 This prong is very fact
sensitive and will differ from case to case depending on the makeup of the
provider and payor markets in which the provider and PSHP operate. Most
providers who operate PSHPs will fail this prong of the analysis, because most
providers who have the capabilities to operate PSHPs are usually the largest
providers, and therefore already have monopoly power in the provider market in

143. Id.

144. 15 U.S.C. § 2 (2018).

145. U.S. DEP’T OF JUST., supra note 140, at 8. 

146. Id.

147. Spectrum Sport, Inc. v. McQuillan, 506 U.S. 447, 458 (1993).

148. U.S. DEP’T. OF JUST., supra note 140, at 8-9. If there is an attempted monopolization

claim, the individual accusing the business must prove that there was a specific intent by the

business to monopolize the market. See Spectrum Sports, 506 U.S. at 458.

149. U.S. DEP’T. OF JUST., supra note 140, at 8-9.

150. Mackin, supra note 38, at 11.

151. U.S. DEPT OF JUST., supra note 140, at 8-9.

152. Id.



2020] SO YOU WANT TO START A HEALTH PLAN? 417

the area in which they operate.153 To discover if they have a monopoly in the
market or are obtaining a monopoly in a market, the provider should continually
assess the provider and health insurance markets in which it operates to see how
much of the markets it insures and provide healthcare services. However, even
if a provider does find that is has a monopoly or has acquired a monopoly in a
specific market due to its PSHP, the provider is not automatically in violation of
Section 2 of the Sherman Act.154

Second, if a provider or its PSHP is found to have a monopoly in either the
insurance or provider market in their area, the provider must assess whether it has
obtained or maintained that monopoly through some judicially recognized
anticompetitive conduct. So far, there have been two judicially recognized ways
in which providers and their PSHPs have been accused of participating in
anticompetitive conduct. The first way is predatory pricing. Predatory pricing
occurs when a firm or business sacrifices immediate profits through unreasonably
low prices in order to push its competitors out of the market, knowing that it will
recoup the losses later once the competitor has been forced to leave.155 In, N.M.
Oncology & Hematology Consultants v. Presbyterian Healthcare Servs Inc., the
Federal District Court of New Mexico found an allegation that the largest
provider and insurer, the provider’s PSHP, in Albuquerque, New Mexico, had
participated in a predatory pricing scheme plausible enough to withstand a motion
to dismiss.156 In this case, the plaintiff—an oncology and hematology provider in
the Albuquerque market—alleged that the defendant—the largest provider and
insurer in Albuquerque—maintained its monopoly in the provider and insurance
markets in Albuquerque by participating in a predatory pricing scheme.157 The
plaintiffs alleged that the defendants attempted to run the plaintiffs out of the
oncology and hematology market by allowing the defendant’s PSHP to
"financially strangl[e]" the plaintiff by lowering its reimbursements to below
competitive levels.1 5 8 The defendant allegedly used its PSHP in this way so that
the defendant could create a monopoly in the oncology and hematology market.159

The district court judge found these allegations plausible enough to withstand a
motion to dismiss, and the case is currently in the discovery phase, awaiting its
court date.160

Under somewhat similar facts, a District Court in California came to the
opposite conclusion.161 In that case, Kaiser Permanente—the largest fully

153. ADVISORY BOARD, supra note 97.

154. U.S. DEP’T OF JUST., supra note 140, at 8.

155. 3A PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW 22 (3d ed. 2006).

156. N.M. Oncology & Hematology Consultants v. Presbyterian healthcare Servs., 54

F.Supp.3d 1189, 1197, 1216 (D.N.M. 2014).

157. Id. at 1214-16.

158. Id. at 1215.

159. Id. at 1214-16.

160. Id. at 1216 (D.N.M. 2014).

161. NorthBay Healthcare Grp. v. Kaiser Found. Health Plan, 305 F. Supp. 3d 1065 (N.D. Cal.

2018).



418 INDIANA LAW REVIEW [Vol. 53:399

integrated health system in the U.S. and the largest healthcare provider and
insurer in California—was sued by the plaintiff for an alleged predatory pricing
scheme in violation of Section 2 of the Sherman Act.162 The plaintiff, a provider
with a hospital in Solano County California, alleged that Kaiser Permanente was
reimbursing the plaintiff at rates less than half of what they deserved in order to
run them out of the provider market.163 Even though the plaintiff had supposedly
been under-reimbursed some $26.8 million by Kaiser Permanente's PSHP,164 the
court swiftly dismissed the complaint, stating that there was no anticompetitive
conduct and that “[the plaintiff's] allegations, at their core, [were] that the
defendants should give it more money so that it can invest more money in its
chosen projects. This does not plead an injury to competition as a whole.”165

Recently, a provider, through the use of its PSHP, has also been accused of
participating in the judicially recognized anticompetitive practice of exclusive
dealing. Exclusive dealing occurs when a firm does not allow itself, or another
business with which it has a close relationship, to sell or accept any competitor’s
version of the same product which the firm or business sells.166 This conduct
becomes anticompetitive when the firm or business acts with the intent of running
another firm or business out of the market. In the case of PSHPs, an exclusive
dealing situation would most likely occur if the provider operating the PSHP
refused to allow its health plans to be used at a competing provider’s facilities.

In the case of Omni Healthcare Inc. v. Health First, Inc., a group of small
providers (the “Plaintiffs”) sued the Health First Health System (“Health
First”)—a large vertically integrated healthcare system in Southern Brevard
County Florida—alleging that Health First implemented a scheme of
anticompetitive conduct in violation of Section 2.167 Specifically, in counts III,
IV, and VI of the Plaintiffs’ complaint, the Plaintiffs alleged that Health First was
exclusively dealing by not allowing the Medicare Advantage plan offered through
Health First’s PSHP to be accepted at any other provider’s facilities.168 Also,
Health First facilities only accepted Medicare advantage plans from Health First’s
PSHP.16 9 This meant that individuals who planned on using Health First’s
extensive facilities and wanted to use Medicare Advantage insurance had to
purchase Health First’s Medicare Advantage plan and, consequently, had to stay
within Health First’s health system. The Plaintiffs alleged that this practice was
tantamount to anticompetitive exclusive dealing as it allowed Health First to
maintain its preexisting monopoly in various provider markets by requiring
individuals with its insurance to only use its services, and was an attempt by

162. Id. at 1067-68.

163. Id.

164. Id.

165. Id. at 1074.

166. 3A AREEDA, supra note 11, at 49.

167. Omni Healthcare Inc. v. Health First, Inc., No. 6:13-cv-1509, 2016 WL 4272164, at *2

(M.D. Fla. Aug. 13, 2016). 

168. Id. at *15, *17, *19.

169. Id.



2020] SO YOU WANT TO START A HEALTH PLAN? 419

Health First to create a monopoly in the Medicare Advantage insurance market
in Southern Brevard County Florida by incentivizing individuals looking to use
Medicare Advantage health plans to purchase their Medicare Advantage plan
from Health First in order to have access to their healthcare services.170 The court
denied Health First's motion for summary judgement, noting that these claims of
exclusive dealing and refusal to deal raised triable issues of fact which could be
left for the jury to decide.171 The case settled on the second day of trial,
preventing the court from addressing the anticompetitive effects of Health First’s
operation.172

These three cases demonstrate that although PSHPs are increasing in
popularity, PSHPs may increase a provider’s antitrust risk by making it
susceptible to new forms of antitrust litigation. PSHPs can easily lead a provider
to act along the lines of the judicially recognized anticompetitive practices of
predatory pricing and exclusive dealing. Providers who operate or are looking to
operate PSHPs should be knowledgeable about the antitrust laws and aware of
any past or future antitrust litigation that involves PSHPs. However, if the
provider who operates a PSHP is aware of how its vertically integrated system is
affecting the market around it, and if the PSHP is operated correctly, a provider
should be able to mitigate its PSHP antitrust risk. 

B. Don’t Bite the Hand That Feeds You: PSHPs’ Fraud and Abuse Risk

Operating a PSHP might also increase a provider’s risk of violating one of the
healthcare fraud and abuse laws. Healthcare providers should already be familiar
with these healthcare fraud and abuse laws, as these laws are the way in which the
largest payor for healthcare in the United States, CMS,173 ensures that its
reimbursements to providers are being used correctly.174 The healthcare fraud and
abuse laws look to penalize healthcare entities that: (1) knowingly submit false
claims to a federal healthcare program in order to receive payment, (2) knowingly
pay or receive remuneration to induce referrals for services reimbursable by a
federal healthcare program, or (3) make prohibited referrals for certain designated
healthcare services ("DHS") billable to a federal healthcare program.175 

Although PSHPs are private insurers, they can still be affected by these laws
in two ways. First, most PSHPs get their start in the Medicare Advantage

170. Id. 

171. Id. at *15.

172. Miller, supra note 63, at 3.

173. CMS Roadmaps Overview, CTR. FOR MEDICARE AND MEDICAID SERVS. (last visited Mar.

4, 2020), https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/

QualityInitiativesGenInfo/Downloads/RoadmapOverview_OEA_1-16.pdf [perma.cc/US57-GCCC]. 

174. See Medicare Fraud & Abuse: Prevention, Detection, and Reporting, CTR. FOR

MEDICARE AND MEDICAID SERVS. (Sept. 2017), https://www.cms.gov/Outreach-and-Education/

Medicare-Learn in g-Netw ork -M L N / M L N P r o d u c t s / d o w n lo a d s /frau d_ an d_ abu se.pdf

[perma.cc/D64S-3C6B].

175. Id. at 3.



420 INDIANA LAW REVIEW [Vol. 53:399

insurance market,176 which is a federally funded program where private payors
provide Medicare benefits for their members.177 Since Medicare Advantage plans
are still primarily funded by the federal government and regulated by CMS, they
are still subject to the fraud and abuse laws. Second, although PSHPs are private
insurers, if a PSHP reimburses individuals differently based on the individuals’
referrals of Medicare or Medicaid patients, then the PSHP, or its parent healthcare
provider, could be found in violation of the fraud and abuse laws. Two of the
major laws in healthcare fraud and abuse are the Anti-Kickback Statute (“AKS”)
and the physician self-referral law (“Stark”), and if a PSHP is operated incorrectly
it may be at risk of violating one or both of these laws.

1. The Anti-Kickback Statute.—AKS makes it illegal for a provider to offer
a physician a kickback in return for the physician’s referral of patients to that
provider for services reimbursable in full or in part by Medicare or Medicaid.178

A kickback is a sum of money or items illegally paid to someone for creating a
lucrative contract.179 In the context of AKS, a kickback is typically made by a
provider in the form of increased compensation, or some other lucrative benefit,
to a physician or physician group for the referral of Medicare or Medicaid
patients to the provider, so that the provider may provide federally reimbursable
services to those referred patients. The statute states that whoever knowingly and
willfully solicits or receives remuneration or offers or pays any remuneration
directly or indirectly in return for referring an individual for the furnishing of any
item or service for which payment may be made in whole or in part under
Medicare and Medicaid will be guilty of a felony conviction of up to five years
and a fine of up to $25,000.180 There are a variety of statutory exceptions and
regulatory “safe harbors” that protect certain arrangements from AKS
enforcement.181 

An AKS violation can be a death sentence for any provider, because, beyond
the criminal liability and fines, if a provider is found in violation of AKS, the
government can also find the provider in violation of the False Claims Act
(“FCA”).182 If a healthcare provider violates the FCA, then the federal
government may exclude the provider from participating in and receiving
reimbursement from all federal health care programs (e.g. Medicare, Medicaid,
CHIP, Tricare, VHA, and HIS).183 Therefore, it is very important that providers
ensure that all their arrangements either fall within one of the exceptions or safe
harbors of AKS, or that the provider is not paying physicians in any way that can
be seen as a kickback for patient referrals. 

176. Mackin, supra note 38, at 6.

177. What’s a Medicare Advantage Plan?, DEP’T OF HEALTH AND HUM. SERVS. (Apr. 2015),

https://www.medicare.gov/pubs/pdf/11474.pdf [perma.cc/9XPQ-5T3R].

178. 42 U.S.C. § 1320a-7b(b) (2018).

179. Kickback, BLACK’S LAW DICTIONARY (10th ed. 2014).

180. 42 U.S.C. § 1320a-7b(b)(1)-(2) (2018).

181. 42 U.S.C. § 1320a-7b(b)(3) (2018); 42 C.F.R. § 1001.952 (2018).

182. 42 U.S.C. § 1320a-7b(g) (2019); 31 U.S.C. § 3729 (2019).

183. 42 U.S.C. § 1320a-7(b)(7) (2019).



2020] SO YOU WANT TO START A HEALTH PLAN? 421

There has yet to be an AKS enforcement action brought against a provider
because of the provider’s relationship with a PSHP; however, providers operating
a PSHP should be cautious in how they operate their PSHP and be acutely aware
of how their PSHP might create a risk of AKS violation. Providers who operate
PSHPs could violate AKS if the provider has an indirect compensation
arrangement between a physician and the PSHP that varies based on the number
of Medicare or Medicaid referrals the physician gives to the PSHP's provider.184

This would occur if the PSHP and the physician have formed a relationship where
the physician receives an increased reimbursement, or some other form of
compensation, from the PSHP which varies based on the volume or value of
Medicare or Medicaid referrals the physician makes to the PSHP’s parent
provider. The increased reimbursement or indirect compensation could be
interpreted by the federal government as being an indirect remuneration of cash
in return for a referral of patient and, therefore, in violation of AKS.185 Because
the AKS is an intent-based statute, if the government were to bring a case like this
against a PSHP, the government would have to prove that one of the parties
involved knowingly intended the compensation arrangement to be related in some
way to Medicare or Medicaid patient referrals.186 However, if the provider in any
way intended the compensation the physician received from its PSHP to be in
some way related to the physician's Medicare or Medicaid referrals, a provider
could find themselves having an AKS enforcement action brought against them
because of its relationship with its PSHP and the way the PSHP reimburses those
referring physicians.

2. The Stark Law.—Another major law in healthcare fraud and abuse that has
the potential to affect providers operating or looking to create PSHPs is the
physician self-referral law. The physician self-referral law, commonly referred
to as “Stark,” was enacted in 1989 to prohibit physicians from referring patients
under Medicare or Medicaid to clinical laboratories in which they had a financial
interest.187 This was to prevent physicians from ordering unnecessary tests and
services for Medicare patients simply because they had a financial interest in the
institution.188 After receiving multiple amendments, Stark currently prohibits
physicians form making Medicare referrals for any of twelve enumerated
designated health services (“DHS”) to an entity with which the physician has a
financial relationship.189 The statute defines a financial relationship in a healthcare

184. Mackin, supra note 41, at 10.

185. 42 U.S.C. § 1320a-7b(b)(1)-(2) (2019).

186. 42 U.S.C. § 1320a-7b(1)-(2) (2019). The intent requirement is satisfied even if only one

small purpose for the overall agreement is to induce referrals. See U.S. v. Greber, 760 F.2d 68 (3rd

Cir. 1985) (creating the one purpose standard).

187. Physician Self-Referral, CTR. FOR MEDICARE AND MEDICAID SERVS., (Dec. 5, 2015),

https://www.cms.gov/Medicare/Fraud-and-Abuse/PhysicianSelfReferral/ [perma.cc/3TSH-J8DQ].

188. Sherri Gordon, Stark Law: Everything You Need to Know, VERYWELL HEALTH (Nov. 10,

2017), https://www.verywellhealth.com/everything-you-need-to-know-about-the-stark-law-

4154006 [perma.cc/E9PC-5PUX].

189. 42 U.S.C. § 1395nn (2019).



422 INDIANA LAW REVIEW [Vol. 53:399

entity as a direct or indirect ownership interest, investment interest, or
compensation arrangement.190 Just as in AKS, Stark has a variety of exceptions
for financial relationships and compensation plans between physicians and
providers which do not constitute a violation of Stark.1 9 1 If a healthcare provider
is found in violation of Stark, the provider will not be reimbursed for the services
rendered in violation Stark, and the provider will be required to pay back any
reimbursement received in violation of Stark.192 If the provider does not repay the
government and knowingly files a claim for reimbursement that would violate
Stark, the provider will be subject to a civil money penalty of $15,000 for each
service with which an illegal claim for reimbursement was made.193 Lastly, if the
provider knowingly entered into a compensation or ownership scheme with a
physician that they knew would violate the Stark law, it will be fined $100,000
for each of such arrangements and could be excluded from participating in all
federal healthcare programs.194 

The government has yet to seek enforcement against a PSHP for an
arrangement with a physician that would violate Stark, but it is easy to see how
an arrangement between a PSHP and a physician could increase a provider’s risk
of a Stark violation. PSHPs do not themselves receive patient referrals from
physicians, so they would not qualify as a DHS entity that would typically violate
Stark.195 However, because a PSHP is owned and operated by a provider that does
qualify as a DHS entity, it is possible that the reimbursement arrangement
between a PSHP and a physician could be seen as an indirect compensation
method between the provider and the physician that could violate Stark. Under
Stark, an indirect compensation arrangement exists if: (1) there is an unbroken
financial chain between the physician and the provider; (2) the referring physician
receives compensation from an entity in that chain that considers the volume or
value of referrals generated by the physician for the provider; and (3) the provider
has actual knowledge of, or acts in reckless disregard or deliberate ignorance of,
the fact that the physician receives compensation that varies based on his
referrals.196

In the case of a PSHP, this would mean that the provider knows that its PSHP
reimburses physicians in a way that considers the amount or value of referrals it
would make to the PSHP’s provider. Therefore, even though the physician is not
directly getting paid by the provider for his referrals, it is possible that a physician
could be compensated indirectly by the provider through its PSHP for referrals
the physician makes to the provider, creating an ownership relationship between
the physician and the provider. This would ultimately violate Stark if the
physician is being paid in part by the PSHP based on how many referrals it is

190. 42 U.S.C. § 1395nn(a)(2) (2019).

191. 42 U.S.C. § 13985nn(b)-(e) (2019).

192. 42 U.S.C. § 1395nn(g)(1)-(3) (2019).

193. 42 U.S.C. § 1395nn(g)(3) (2019).

194. 42 U.S.C. §1395nn(g)(4) (2019); 42 U.S.C. § 1320a-7 (2019).

195. 42 CFR § 411.351 (2019) (listing the designated health services). 

196. 42 C.F.R. § 411.354(c)(2)(i)-(iii) (2020).



2020] SO YOU WANT TO START A HEALTH PLAN? 423

making to the provider, with which it has an indirect compensation relationship,
for DHS services.

C. Data Block: HIPAA’s Impact on PSHPs

Another major federal law that could substantially impact providers who are
operating or looking to operate a PSHP is the Health Insurance Portability and
Accountability Act (“HIPAA”).197 HIPAA was passed by Congress in 1996 as an
attempt to reform outdated healthcare policies in America.198 HIPAA had two
primary objectives: (1) to ensure that every individual would be able to maintain
their health insurance while they are between jobs, and (2) to ensure that patient
health records are kept private and secure.199 Under the second objective, HIPPA
required the Secretary of HHS to develop regulations that would protect the
privacy and security of patient information.200 To do this, HIPAA created the
Standards for Privacy of Individually Identifiable Health Information (the
“Privacy Rule”)201 to establish standards for what was designated protected health
information (“PHI”)202 and the Security Standards for the Protection of Electronic
Protected Health Information (the “Security Rule”) to set security standards for
PHI that is kept or transferred electronically.203  

These rules, created through HIPAA, apply to all “covered entities” that
transmit and keep patient data.204 Covered entities include health plans, health
care clearinghouses, and health care providers.205 Both PSHPs and their providers
are covered entities that actively look to transfer electronic PHI, so both entities
are required comply with HIPAA's Security Rule. Generally, the Security Rule
requires all covered entities to (1) “ensure the confidentiality, integrity, and
availability of electronic [PHI],” (2) to protect the PHI against any reasonably
anticipated security threat, (3) to protect the PHI against any improper uses or
disclosure, and (4) to ensure their employees follow these protection
requirements.206 These rules maintain that PHI are made available to all
individuals who should have access, but that those same records are not

197. Health Insurance Portability and Accountability Act, Pub. L.104-191, 110 Stat. 1936

(1996).

198. HIPAA Background, Off. of Corp. Compliance, U. CHI. MEDICAL CTR. (Oct. 23, 2006),

http://hipaa.bsd.uchicago.edu/background.html [perma.cc/2H7F-NJCG].

199. Id.

200. Summary of the HIPAA Security Rule, DEP’T OF HEALTH AND HUM. SERVS. (July 26,

2013), https://www.hhs.gov/hipaa/for-professionals/security/laws-regulations/index.html

[perma.cc/2HFT-A6EY]. [hereinafter Summary of the HIPAA Security Rule].

201. See 45 C.F.R. §§ 160 & 164 subparts A and E (2019). 

202. PHI is any individually identifiable health information. 45 C.F.R. § 160.103 (2019).

203. See 45 C.F.R. §§ 160 & 164 subparts A and C (2019).

204. Health Insurance Portability and Accountability Act, Pub. L.104-191, 110 Stat. 1936

(1996).

205. 45 C.F.R. § 160.103 (2019).

206. 45 C.F.R. § 164.306(a) (2019).



424 INDIANA LAW REVIEW [Vol. 53:399

improperly accessed by other individuals. The Security Rule sets out a variety of
general administrative, physical, and technical safeguards which every covered
entity’s security system must meet to ensure the proper and adequate protection
of PHI.207 Recognizing that every covered entity is different, the Security Rule
does not give specific security requirements, but instead is “designed to be
flexible and scalable so a covered entity can implement policies, procedures, and
technologies that are appropriate for the entity’s particular size, organizational
structure, and risks to consumers’ [electronic] PHI.”208 All covered entities must
regularly “review and modify” their security measures used to protect PHI to
ensure that their PHI is continually kept safe.209 If a covered entity involuntarily
allows PHI to be accessed by an individual or entity who should not have access,
then HHS may impose civil money penalties of $100 per such improper access.210

If it is discovered that the covered entity disclosed PHI intentionally, the covered
entity can face a criminal fine of up to $250,000 and ten years imprisonment if
the wrongful conduct involves the intent to sell, transfer, or use PHI for
commercial advantage, personal gain, or malicious harm.211 

Although there have yet to be any HIPAA enforcement actions against a
PSHP, there is still a risk that a provider and a PSHP could violate HIPAA
through the transferring of patient data. If a provider and its PSHP openly shared
all their data collected from their patients, then it is likely that they would find
themselves being either civilly or criminally charged by HHS for violating
HIPAA as information received by one entity might not be permissible to be
accessed by the other. For instance, if a provider allows a PSHP to access PHI of
a patient whom is not insured by the PSHP, the PSHP and the provider could both
be criminally liable. In the same way, if a member of a PSHP sees a separate
provider, then the PSHP cannot share the claims data they receive from that
patient with the PSHP's provider. This is problematic, because PSHP’s cost
savings and efficiency benefits rely on effective management and analysis of
patient data that comes both from the provider and the PSHP.212 Luckily, as will
be discussed below, there is a way a PSHP can be structured and operated that
will minimize its risk of violating HIPAA and still maintain its ability to share
data with its provider to improve the provider’s overall care. 

IV. NAVIGATING THE FEDERAL WATERS: HOW PSHPS CAN DECREASE
THEIR RISK OF FEDERAL VIOLATIONS

PSHPs are becoming increasingly popular among providers in America and
for good reason. Providers and the healthcare system have the potential to benefit

207. See 45 C.F.R. §§ 164.308, 164.310, & 164.312 (2019).

208. Summary of the HIPAA Security Rule, supra note 201; see 45 C.F.R. § 164.306(b) (2019).

209. 45 C.F.R. § 164.306(e) (2019).

210. 42 U.S.C. § 1320d-5 (2019).

211. 42 U.S.C. § 1320d-6 (2019).

212. Mackin, supra note 41, at 13.



2020] SO YOU WANT TO START A HEALTH PLAN? 425

immensely from PSHP operation.213 However, the additional federal legal risks
PSHPs could possibly create could stop providers from investing in this vertically
integrated business model. This section details how providers who are operating,
or looking to operate, PSHPs can structure their agreements with other providers,
their agreements with other physicians, and their data sharing procedures to make
their PSHPs more resilient to the aforementioned federal legal risks.

A. Help Me Help You: How PSHPs should Contract with Other Providers

Because PSHPs could potentially increase a provider’s risk of violating
Section 2 of the Sherman Antitrust Act,214 it is important for providers who are
looking to operate PSHPs to understand how they can actively reduce such risk.
In all three court cases where a provider who operated a PSHP was accused of
violating the Sherman Act, the case came about because of the PSHP’s
agreements, or lack thereof, with other providers.2 1 5 Therefore, if a PSHP
correctly negotiates and creates reimbursement agreements with other providers,
then the PSHP’s parent provider will reduce their risk of violating Section 2 of
the Sherman Act.

If a PSHP hopes to mitigate its risk of a Sherman Act Section 2 violation, it
should do the following. First, even though PSHPs typically cover a narrow
network of providers, the PSHP should make a bona fide attempt to extend its
health plan’s coverage to other healthcare providers in its parent provider’s
service market. It is not wrong for a PSHP to have a narrow network in order to
lower premium costs for its members, but if a PSHP’s network of providers were
to only include its parent provider’s healthcare facilities, then it would likely be
at a higher risk of violating Section 2 of the Sherman Act due to an exclusive
dealing arrangement. Similarly, providers operating a PSHP should never look
to exclude a provider who is the only other provider who offers a specific service
in its market. If it did, it would be at an increased risk of both a predatory pricing
and exclusive dealing claim.216 So long as a PSHP is at least willing to contract
with providers who compete with the PSHP's provider, then its antitrust risk will
be diminished.217 If a PSHP decides not to contract with a competing provider, the
PSHP should document why such a decision was made and be prepared to
explain and defend its decision to exclude such provider in a court of law. 

Second, PSHPs should actively keep track of the fair market reimbursement

213. See supra section I.B.

214. See supra section III.A. 

215. See generally N.M. Oncology & Hematology Consultants v. Presbyterian Healthcare

Servs., 54 F. Supp. 3d 1189 (D.N.M. 2014); NorthBay Healthcare Grp. v. Kaiser Found. Health

Plan, 305 F. Supp. 3d 1065 (N.D. Cal. 2018); Omni Healthcare Inc. v. Health First, Inc., No 6:13-

cv-1509, 2016 WL 4272164 (M.D. Fla. Aug. 13, 2016).

216. See N.M. Oncology & Hematology Consultants v. Presbyterian Healthcare Servs., 54 F.

Supp. 3d 1189 (D.N.M. 2014); see also Omni Healthcare Inc. v. Health First, Inc., No 6:13-cv-

1509, 2016 WL 4272164 (M.D. Fla. Aug. 13, 2016).

217. Mackin, supra note 41, at 11.



426 INDIANA LAW REVIEW [Vol. 53:399

values for different provider services in its area. The PSHP can then use that data
to decide the reimbursement values it will offer to providers in the area. PSHPs
should then be prepared to demonstrate to any provider it contracts with why
those reimbursement rates are at a fair level in its specific market. If the provider
keeps careful documentation about its reimbursement practices and why the
reimbursement values are fair to the providers, then it is less likely that the PSHP
will be accused of a predatory pricing scheme in violation of Sherman Act
Section 2. 

Third, PSHPs should consider putting language in their contracts with other
providers that state that the terms and reimbursement rates are fair and in
accordance with the market and their standard of providing care. That way, if
another entity whom the PSHP did have a contract with ever brought a claim,
such as in NorthBay Healthcare Grp. v. Kaiser Found. Health Plan,218 the
provider would have evidence that the contracting provider agreed that the
reimbursement amounts were consistent with fair market value. 

Lastly, PSHPs should keep meticulous documentation of their attempts to
contract with other providers within their market, so that if the PSHP gets sued
for violating the Sherman Act based on an accusation of exclusive dealing, it can
show they had a bona fide attempt to allow their health plan to be accepted
elsewhere. 

Although these recommendations do not guarantee that a provider operating
a PSHP will not be sued under Section 2 of the Sherman Act, if followed, these
recommendations could potentially reduce a provider's risk of a Sherman Act
Section 2 violation. If, however, a provider finds themselves at the wrong end of
an antitrust lawsuit because of their PSHP, it should not panic. If the suit is
brought under either an accusation of exclusive dealing or predatory pricing, the
plaintiff bringing the claim against the PSHP has a large burden to carry and will
likely be unable to succeed so long as the provider can demonstrate that its PSHP
did not create a monopoly in the relevant markets in an anticompetitive
manner.219

B. What’s Up Doc?: Structuring PSHP Physician Agreements to
Comply with Healthcare Fraud and Abuse

Healthcare fraud and abuse compliance is not new to healthcare providers,
but operating a health insurance company is. Therefore, providers need to be
acutely aware of how PSHP operation can increase their risk of violating the
aforementioned fraud and abuse laws and understand how they can mitigate that
risk. Although there have yet to be any fraud and abuse enforcement actions
against a provider due to the operation of its PSHP, if a fraud and abuse claim

218. See NorthBay Healthcare Grp. v. Kaiser Found. Health Plan, 305 F. Supp. 3d 1065 (N.D.

Cal. 2018).

219. 3A AREEDA, supra note 13, at 169; Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,

475 U.S. 574, 589 (1986) (stating that "predatory pricing schemes are rarely tried, and even more

rarely successful").



2020] SO YOU WANT TO START A HEALTH PLAN? 427

were brought against a PSHP and its parent provider, it would likely be because
the PSHP’s reimbursement agreements would be seen as inducing physicians to
refer patients to the PSHP’s parent provider for Medicare or Medicaid eligible
services.220 Therefore, if a PSHP correctly negotiates and creates their agreements
with physicians, the provider could mitigate its risk for healthcare fraud and
abuse violations caused by the operation of its PSHP. 

A provider and PSHP should do the following four things to mitigate its fraud
and abuse risk when creating reimbursement contracts with physicians. First, in
analyzing fraud and abuse risk, the PSHP should only concern itself with the
physicians who are not directly employed by the provider. Physicians who are
employed by the provider are statutorily exempted from violating both AKS and
Stark so long as they have a bona fide employment agreement.221 

Second, providers should be aware of all the physicians who are reimbursed
by the PSHP for services they provide to the PSHP’s members. Depending on the
reimbursement arrangement, the reimbursements can be seen as indirect
compensation from the provider to the physicians, which can be seen as a
kickback under AKS and as an ownership interest under Stark.222 The PSHP
could either spend the time creating a comprehensive provider database listing out
all of the providers the health system works with, or the PSHP could purchase a
provider directory from a health IT system vendor to keep track of all of the
different physicians and physician groups in its area whom the PSHP might
reimburse.223 Either way, it is important that the PSHP understands and tracks the
different reimbursement arrangements it has with various physicians. 

Third, once the provider is aware of all the physicians whom the provider
indirectly compensates through their PSHP, the provider should avoid “per case,
per admission and other volume based” compensation arrangements between the
physician and the PSHP that considers the volume or value of referrals the
physician makes to the provider.224 These sorts of arrangements can easily be seen
as the provider incentivizing the physician to refer more patients to the provider
through reimbursement given by the PSHP to the physician in violation of AKS
and Stark.225 If the PSHP wishes to create an incentive program for the
physicians, it should ensure that the incentives do not look to referrals, but instead
look to incentivize strictly based on quality of the care given or clinical
improvement done by the physician.226 An example of this type of arrangement

220. See supra Section III. B.

221. 42 U.S.C. § 1320a-7b(3)(B) (Current through P.L. 116-91); 42 C.F.R. 411.357(c) (2019).

222. See definition of indirect compensation supra at note 194 and accompanying text.

223. See Joseph Conn, Health IT a Key Challenge for Provider-Owned Plans, MODERN

HEALTHCARE (June 27, 2015) (noting that land of Lincoln Health spent months building its

database of providers only to buy a provider directory from a vendor), https://www.

modernhealthcare.com/article/20150627/MAGAZINE/306279980/health-it-a-key-challenge-for-

provider-owned-plans [https://perma.cc/EJ4U-WSJB].

224. Mackin, supra note 41, at 10.

225. Id.

226. Id. at 9.



428 INDIANA LAW REVIEW [Vol. 53:399

could be if a physician or physician group is reimbursed at a higher level if its
patients have lower hospital acquired conditions or hospital readmission rates
than the average of the community in which it is in.227 This would be a value-
based reimbursement that in no way takes into consideration the volume or value
of referrals the physician would make to the PSHP’s parent provider.

Lastly, PSHPs should meticulously document the physician’s responsibilities
and why they are being reimbursed by the PSHP at a commercially reasonable
fair market rate for their services.2 2 8 If this is done, the provider could accurately
demonstrate to the government how the physician is in no way being
compensated for referrals. If it looks as if the physician is being compensated at
an above-fair-market-value rate for the services the physician offers to the
PSHP’s members, the federal government might infer the above-fair-market level
of compensation is a kickback for potential referrals made to the provider and,
therefore, in violation of AKS.229 To even further solidify the appearance of fair
market value reimbursements and to even further minimize the potential fraud
and abuse risk, every PSHP reimbursement contract should contain language that
states that the reimbursement amounts are in no way a remuneration in
consideration of referrals the physician makes to the PSHP’s provider. If signed
by the reimbursed physician, the contract would be evidence that the PSHP and
physician both believed the physician was being reimbursed at fair market value.

If the PSHP is still worried that its agreement looks as if it might violate
either Stark or AKS, it can attempt to fit it into one of their numerous
exceptions.230 Under AKS, the only exception that might be applicable to the
relationship between a PSHP and a physician is the bona fide employment
exception.231 However, under Stark, there are two separate exceptions where a
provider could find that its PSHP's relationship with physicians could be excepted
form Stark enforcement. One of such Stark exceptions that could be applicable
to a PSHP’s relationship with physicians is the risk-sharing compensation
exception.232 The exceptions, as applied to a PSHP, states that if the PSHP
operates as a Managed Care Organization233 and if the PSHP compensates

227. Sutton, supra note 78, at 364; see also Vera Gruessner, How Quality Metrics Affect

Value-Based Care Reimbursements, HEALT HPAYER INTELLIGENCE (June 29, 2016),

h ttps://healthpayerintelligence.com/news/how-quality-metrics-affect-valu e-based-care-

reimbursement [perma.cc/ZJT9-GVTP].

228. Ives, supra note 40.

229. See OFF. OF INSPECTOR GEN., RECOMMENDED PRELIMINARY QUESTIONS AND

SUPPLEMENTARY INFORM AT ION FOR ADDRESSING REQUESTS FOR OIG ADVISORY OPINIONS IN

ACCORDANCE WITH SECTION 1128D OF T HE SOCIAL SECURITY ACT AND 42 CFR PART 10087,

https://oig.hhs.gov/fraud/docs/advisoryopinions/prequestions.htm [perma.cc/CXG9-ARJZ].

230. 42 U.S.C. § 1320a-7b(3) (2019); 42 C.F.R. 411.357 (2019).

231. 42 C.F.R. § 1001.952(i) (2019).

232. 42 C.F.R. 411.357(n) (2019).

233. Managed Care Organizations (“MCO”) are health plans which work to provider better

quality healthcare at lower costs by getting provider to agree to specific standards and costs and

having the health plan cover those providers. Types of Managed Care Organizations, GALLAGHER



2020] SO YOU WANT TO START A HEALTH PLAN? 429

physicians who refer to the PSHP’s provider pursuant to a risk-sharing
arrangement for the care the physician provides to the PSHP’s members, then the
indirect compensation arrangement will not violate Stark.234 A risk sharing
arrangement is when a provider offers payment—usually a bonus—that is
contingent upon a physician meeting operation goals.235 Therefore, a PSHP could
create a risk-sharing arrangement with a physician that gave a “bonus”
reimbursement if it provided measurably higher quality and more efficient care
to the PSHP’s members without violating Stark.236 

PSHPs could also qualify their reimbursement arrangements with physicians
to fit within Stark's physician incentive plan exception.237 A physician incentive
plan is “a compensation arrangement between an entity and a physician . . . that
may directly or indirectly have the effect of reducing or limiting services
furnished with respect to individuals enrolled with the entity.”238 If the PSHP
were to structure its agreements to be physician incentive plans, the Stark law
would permit the compensation arrangement to take into account the volume or
value any referrals going to the PSHPs’ parent provider so long as: (1) No
specific payment is made directly or indirectly . . . to a physician . . . as an
inducement to reduce or limit medically necessary services furnished with respect
to a specific [patient]; (2) Upon request, the PSHP agrees to provide the Secretary
of Health and Human Services with access to information that permits the
Secretary to determine whether the plan is in compliance with this exception; and 
(3) If the plan places a physician at substantial financial risk as defined at 42
C.F.R. § 422.208, the PSHP complies with the requirements concerning physician
incentive plans set forth in 42 C.F.R. § 422.208 and 422.210.239 If a provider
structures its PSHP physician reimbursement agreements in line with either of
these exceptions, it is likely that their risk of Stark enforcement will be mitigated.

Operating a PSHP could potentially increase a provider’s fraud and abuse
risk, but that should not deter a provider from joining the trend of creating its own
health plan. Although a provider can never truly eliminate their fraud and abuse
risk, if a provider operating a PSHP follows the advice of this section and creates
compliant PSHP physician reimbursement agreements that do not take into
account physician referrals, or the provider fits their PSHP arrangements with
physicians into a Stark or AKS exception, a provider can mitigate their PSHP’s
fraud and abuse risk.

HEALTHCARE (Aug. 16, 2018), https://www.gallaghermalpractice.com/blog/post/types-of-managed-

care-organizations [perma.cc/PJ52-LQLF].

234. 42 C.F.R. § 411.357(n) (2019).

235. Risk-Sharing Arrangement, ACTUARIAL STANDARDS BD. (2019), http://www.actuarial

standardsboard.org/glossary/risk-sharing-arrangement/ [perma.cc/9EM33].

236. See supra note 224 and accompanying text (discussing a quality-based payment method

that does not consider the volume or value of referrals).

237. 42 C.F.R. § 411.351 (2019).

238. 42 C.F.R. § 411.351 (2019).

239. 42 C.F.R. § 411.357(d)(2) (2019).



430 INDIANA LAW REVIEW [Vol. 53:399

C. Teamwork Makes the Dream Work: HIPPA Compliant PSHP Data Sharing

As technology continues to advance, providers and insurers must continually
assess how their electronic transferring of PHI complies with HIPAA. This
assessment is especially important regarding PHI shared between providers and
their PSHPs, because many of the benefits of PSHPs rely on data shared between
the provider and the PSHP. Luckily, a provider can share data with its PSHP
without fear of HIPAA violation so long as it is done in accordance with the
HIPAA regulation on using and disclosing PHI for treatment, payment, or
healthcare operations.240 

Under the HIPAA regulation on disclosing PHI for treatment, payment, or
healthcare operations, a PSHP and a provider may disclose PHI without fear of
violating HIPAA under three separate circumstances. First, the PSHP is able to
share PHI information it receives from its members to the provider so long as it
is for treatment activities of the provider.241 This means that if the provider is
going to be providing healthcare services to one of the PSHP’s members, then the
PSHP could disclose to the provider information the PSHP has regarding the
patient that might help the provider with that treatment. Second, the provider can
disclose PHI to the PSHP for the PSHP’s payment activities.242 This means that
if the provider sees a member of the PSHP, the PSHP would be able to receive
PHI from the provider regarding that member in order to make a reimbursement
to the provider for the provider’s services. Lastly, either the provider or the PSHP
could transmit PHI to each other for “healthcare operations activities” so long as
both entities have had a relationship with the individual with whom the PHI
concerns, the PHI pertains to that relationship, and so long as the PHI is used for
conducting quality assessment and improvement activities, population-based
activities relating to improving health or reducing healthcare costs, or evaluating
provider or health plan performance.243 This HIPAA compliant PHI sharing
exception will likely be the one that PSHPs and provider use the most, as most
often the data shared between PSHP and provider can be said to be used to
improve overall healthcare performance while attempting to decrease cost to its
members.244 Still, transferring of PHI between PSHP and provider should be done
very cautiously and only if the provider and PSHP both determine that the data
sharing fits squarely within one of these defined categories.

Although every healthcare IT system is different, providers can take multiple
steps to reduce the risk that their data sharing relationship with their PSHP might
violate HIPAA. First, the provider should house the PSHP and its staff in a
physically separated building from where the provider sees and provides services
to all patients. If the PSHP were to be operated in the exact same building as the
provider, then it is more likely that, due to human error, PHI that was not

240. 45 C.F.R. § 164.506 (2019).

241. 45 C.F.R. § 164.506 (c)(2) (2019).

242. 45 C.F.R. § 164.506(c)(3) (2019).

243. 45 C.F.R. § 164.506(c)(4)(i) (2019); 45 C.F.R. § 164.501 (2019).

244. See supra section I.B.



2020] SO YOU WANT TO START A HEALTH PLAN? 431

supposed to be transferred to the PSHP or to the provider might be inadvertently
transferred to such an entity, therefore violating HIPAA. This gives a layer of
separation between the PSHP and the provider to ensure that no PHI is
improperly or unknowingly shared between the entities. Second, the provider and
PSHP should set up a proper electronic records system for the transferring of PHI
to ensure that no PHI is transferred when it does not need to be. In such a system,
both the provider and the health plan might transmit their potential PHI to a single
platform. The system then would only allow the PSHP and the provider to have
access to any individual's PHI on that platform when there is a match between the
provider's patient record and the PSHP's member record that also corresponds
with one of the three permitted disclosing categories stated previously.2 4 5 Setting
up one of these electronic health record systems is complicated, but there are
multiple established healthcare IT vendors who are able to help establish proper
PSHP health IT systems that will comply with the laws of HIPAA and allow
providers to utilize the data from their provider and PSHP to assess areas where
they can decrease costs and improve quality.246 This would ensure quick
transferability of information between the PSHP and the provider when it was
permissible and could be used to improve the quality of care the provider
provides to its patients. Lastly, a provider should implement a zero-tolerance
program whereby any employee of the provider or PSHP who improperly
accesses PHI will be immediately terminated from the operation. A PSHP and its
parent provider could even implement an employee monitoring software that
would immediately notify the PSHP and provider if an employee viewed an
individual’s PHI which they should not have had access to.247 If a system like this
was put into place between a provider and a PSHP, it would safeguard PHI while
still allowing PSHPs and providers to share data that could improve healthcare
quality and efficiency.

Complying with HIPAA will become a continuing and evolving challenge for
providers and PSHPs. If providers and PSHPs desire to continue to use their data
to improve the care the provider offers to its patients and to lower the costs of the
PSHP, then the provider and PSHP will have to constantly work to make sure
their data transferring system is in compliance with the various rules of HIPAA.
Luckily, if the provider and PSHP are able to set up a proper electronic system
that only allows them to access patient data when it fits into the HIPAA
regulation on disclosing PHI for treatment, payment, or healthcare operations,
then it is likely the PSHP and provider can actively share data to receive the
benefits of a PSHP without fear of HIPAA.

245. See Mackin, supra note 41, at 13.

246. Conn, supra note 224.

247. Adnan Raja, How Does Employee Monitoring Software Provide HIPAA Compliance,

ATLANTIC.NET (June 25, 2018), https://www.atlantic.net/hipaa-compliant-hosting/how-does-

employee-monitoring-software-provide-hipaa-compliance/ [perma.cc/Z22Q-CU8T].



432 INDIANA LAW REVIEW [Vol. 53:399

CONCLUSION

A PSHP is an innovative insurance design that has the potential to benefit
both providers and consumers of healthcare.2 4 8 Even though the first PSHP was
invented in the early twentieth century, PSHPs are only now finding a healthcare
environment in which they can find widespread success in light of recent massive
legal changes affecting United States healthcare over the past decade. Although
various state laws might affect PSHPs and further research should be conducted
to analyze how PSHPs are affected by the various state legal landscapes, this
Note addressed how recent changes in federal law have affected PSHP creation.
For example, the ACA insurance exchanges have allowed more PSHPs to be able
to adequately compete with large insurers for insurance members within their
community.249 Also, the federal government’s push for value-based
reimbursement through the ACA, MACRA, and CMS has forced providers to
take on more patient risk and look to new programs, such as PSHPs, that can help
improve the provider’s quality of care given to patients.250 However, providers
should not haphazardly rush into creating a PSHP to take advantage of these
federal legal changes without properly understanding the opposing federal legal
risks. The Sherman Antitrust Act, the Anti-Kickback Statute, the Physician Self-
Referral law, and HIPAA are all areas of federal law which can potentially
negatively affect a provider because of their operation of a PSHP.251 That being
said, through proper planning and structuring of a PSHP’s agreements with other
providers and physicians, as well as proper structuring of a provider’s data
sharing plan with its PSHP, providers can mitigate the federal legal risks that
come with operating a PSHP while maintaining their potential benefits.252 In
conclusion, given the current federal healthcare landscape and the vast number
of providers looking to start PSHPs253 if providers operate their PSHPs correctly
to be resilient to potential federal pitfalls, in the near future health plans offered
through a provider might become the norm rather than the exception.

248. See supra section I.B.

249. Simer, supra note 113, at 9.

250. BAUMGARTEN, supra note 38, at 8.

251. See supra section III.

252. See supra section IV.

253. Thirteen percent of health systems in the U.S. have created PSHPs, and fifty percent more

have applied, or are intending to apply, for a health insurance licenses so they can consider starting

their own PSHP. Rickert, supra note 4.