Bernadine S. Ballance, Commissioner
Thomas J. Bolch, Commissioner
Laura K. Mavretic, Commissioner
Dianne C. Sellers, Commissioner

James B. Hunt Jr., Governor
J. Howard Bunn Jr., Chairman
Coy M. Vance, Commissioner
J. Randolph Ward, Commissioner

North Carolina
Industrial Commission

June 25, 1996



The Industrial Commission today finds that contracts with managed care organizations for "pure PPOs", "discount networks", or "employer networks" are not governed by the Industrial Commission’s Managed Care Rules (effective 1/1/96) promulgated pursuant to N.C.G.S. 97-25.2, because such contracts do not fit the definition in that section which was enacted as a part of the Workers Compensation Reform Act of 1994 (SB906).

"Pure PPOs", "discount networks", and "employer networks" are terms used for arrangements that simply give employers access to a group of medical providers charging discounted fees and do not choose a panel of medical care providers from which the employee must choose. These firms typically give the employer or claims handler a list of providers from which to choose.

The Commission finds that such "discount networks" may continue to operate as they did under pre-1994 Law, and that they must be distinguished from the managed care contracts anticipated by G.S. 97-25.2 under which the employer or insurer can satisfy its medical care obligation by giving an MCO its authority to select providers, and the qualified MCO is authorized to manage the provision and access to medical services through a variety of techniques recognized by their primary regulator, the N.C. Department of Insurance.

The Commission finds that contracts enabling employers to choose from among a group of preferred medical providers, at discounted rates, to provide services to their injured employees, and which do not transfer to a Managed Care Organization control over the selection of physicians or other providers, or control over a panel of physicians from which the patient must select, are not subject to the statutes and rules governing Managed Care contracts made by employers to satisfy their obligation to provide medical compensation pursuant to N.C. Gen. Stat. 97-25.

Such discount networks (referred to as "employer networks" in Industrial Commission MCO Rules I and II (6)) were authorized by law prior to the enactment of S.B. 906, and do not satisfy the employer’s or insurer’s obligation to provide medical compensation pursuant to N.C. Gen. Stat. 97-25. Rather, the employer or insurer remains directly responsible for providing those services under the laws and rules generally applicable. Medical bills must be calculated under the Commission’s Fee Schedule (although payment may be discounted, according to contract, as was done prior to S.B. 906). An employee is not required to exhaust the dispute resolution procedures, if any, associated with the discount network or the MCO that created it before applying to the Commission concerning any issue related to medical services. It is not required that the employee be offered a panel of physicians from among whom to choose and change treating physicians, and the employer or insurer may refer the employee to a specific provider, subject to the employee’s rights under N.C. Gen. Stat. 97-25, 97-27, 97-2(19), etc. An insurer (including a self-insured employer) may require preauthorization only for inpatient admissions to a hospital or treatment center and inpatient and outpatient surgery, subject to the general provisions of N.C. Gen. Statute 97-25.3, unless preauthorization services are provided by an MCO certified by the N.C. Department of Insurance (i.e., a "Utilization Review Organization" or "URO") pursuant to N.C. Gen. 97-25.3(e)).

The Commission also finds that all MCOs and PPOs that may deal with workers’ compensation patients are subject to its regulation, whether they contract solely with insurance companies, self-insured employers or third party administrators or any combination thereof.

Rationale and legislative history. The subject question arises from the fact that all organizations contracting with health care providers and reselling their services are by definition, "preferred provider organizations" (sometimes referred to as "pure PPOs") within the meaning of Chapter 58 of the General Statutes (58-50-50), and thus the Workers’ Compensation Act as well (see N.C. Gen. Stat. 97-2(21)), and are required to comply with regulations of, and obtain a certificate from, the N.C. Department of Insurance to do business in this State, whether or not they actually "manage care". However, neither law requires that all contracts with these organizations give them the authority to select physicians and otherwise manage the patients’ care in the manner that would satisfy the requirements of N.C. Gen, Stat. 97-25, as anticipated by the compensation Managed Care statute. 97-25.2.

It is also noted that some confusion over which organizations and/or contracts are covered by the Workers’ Compensation statutes and rules has arisen from the fact that the N.C. Department of Insurance does not review contracts between Managed Care Organizations and employers or groups of employers who self-insure their compensation liabilities. The Workers’ Compensation Act defines "Managed Care Organizations" as those organizations regulated under Chapter 58, Insurance -- e.g., organizations required to obtain a certificate from the N.C. Department of Insurance. N.C. Gen. Stat. 97-2(21). The employer’s Managed Care contract for workers’ compensation patients must be with such an organization. N.C. Gen. Stat. 97-25.2. Thus all MCOs dealing with workers’ compensation patients are subject to orders of the Commission, and those providing "managed care" in lieu of employer or insurer selection of physicians, etc., are subject to the rights and duties specified for such arrangements.

J. Howard Bunn Jr.

J. Randolph Ward

Bernadine S. Ballance

Dianne C. Sellers

Thomas J. Bolch

Coy M. Vance

Laura Kranifeld Mavretic

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