May 27, 2020

May 26, 2020

Subscribe to Latest Legal News and Analysis

California Department of Managed Health Care Opposes AB 1249

On Monday, August 8th, the Deputy Director of Legislative Affairs of the Department of Managed Health Care (the “Department”) released a letter of opposition (the “Letter”) to Assembly Bill 1249 (“AB 1249”). The Letter was addressed to Brian Maienschein of the California State Assembly, who is the lead author of AB 1249.

AB 1249 would authorize the Department to create two (2) five-year pilot programs (one in Northern California and one in Southern California) in which Department-approved providers may undertake risk-bearing arrangements with:

  1. A voluntary employees’ beneficiary association (“VEBA”) with more than 100,000 lives, or
  2. A trust fund that is a welfare plan and a multiemployer plan with more than 25,000 lives.

Under this program, VEBAs and trusts would be exempt from Knox-Keene licensure requirements, but each risk-bearing provider group would be required to hold or obtain a limited or restricted Knox-Keene license. The arrangements would be subject to Department oversight for financial solvency, and participating entities would also be required to report certain information back to the Department. More specifically, the participating entities would be required to report to the Department data concerning cost savings and clinical patient outcomes compared to a fee-for-service payment model. Proposed arrangements would have to be authorized by May 1, 2020 in order to participate.

The Letter expressed the Department’s apprehension that AB 1249 would negatively impact consumers by circumventing certain financial and consumer protections that are currently in place under the Knox-Keene Act. This concern stems from AB 1249 allowing a restricted or limited license plan to engage in a risk bearing arrangement without the involvement of a fully licensed plan. The current regulatory scheme requires restricted health care service plans to contract with fully licensed plans in order to enter into risk bearing arrangements so that all requirements of the Knox-Keene Act are met, either by the restricted plan or by the upstream fully licensed plan. Under the AB 1249 framework, such safeguards would not be present, though we note that provider groups would still need to be approved by the Department to participate in a pilot program.

We will continue to monitor the progress of AB 1249, which is pending through the legislature, but has not yet been approved.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.


About this Author

Lynsey Mitchel Corporate Attorney Sheppard Mullin Century City, CA

Lynsey Mitchel is a partner in the Corporate Practice Group in the firm's Century City office, a leader of the Health Plan Practice and a member of the firm's Healthcare team.

Areas of Practice

Lynsey represents health maintenance organizations, managed care organizations, medical groups, hospitals, home health providers, medical device retailers and other healthcare entities and providers.

Lynsey has deep expertise in managed care, including HMO regulatory matters and has assisted numerous clients to obtain HMO licensure as healthcare service plans under California’...

Matthew Goldman, Corporate Attorney, Sheppard Mullin Law Firm

Matthew Goldman is an associate in the Corporate Practice Group in the firm's Century City office and is a member of the firm's healthcare practice team.

Areas of Practice

Matthew’s practice blends the regulatory and transactional components of healthcare law, and includes representation of hospitals, managed care organizations, medical groups, and other healthcare entities and providers. On the regulatory side, Matthew’s practice is focused on licensing, regulatory compliance, and managed care arrangements. Matthew has extensive experience preparing Knox-Keene HMO license applications and assisting clients with structuring shared-risk arrangements, developing and utilizing innovative payment methodologies, and ensuring compliance with applicable federal and state law. Matthew’s transactional practice is focused on mergers and acquisitions, joint ventures, and strategic alliances in the healthcare sector. 

John Tilton Corporate Attorney

John M. Tilton is an associate in the Corporate Practice group in the firm's Century City office.


  • J.D., University of California, Los Angeles, 2018

  • B.A., Hillsdale College, 2014


  • California