Can an Arkansas insurer set up a subsidiary that owns part of a Medicaid risk-based provider organization, even if the insurer plus subsidiary together own more than 51%?

Plain-English summary

Senator Kim Hammer asked AG Leslie Rutledge a structural question about Arkansas's Medicaid Provider-Led Organized Care Act, codified at Ark. Code Ann. §§ 20-77-2701 to -2708. The Act lets the Insurance Commissioner license risk-based provider organizations (RBPOs) to coordinate care and payments for Medicaid populations. Under § 20-77-2706(a)(3), an RBPO must have "an ownership interest of not less than fifty-one percent (51%) by participating providers." A "participating provider" under § 20-77-2703(11) is "an organization or individual that is a member of or has an ownership interest in a risk-based provider organization and delivers healthcare services to enrollable Medicaid beneficiary populations."

The structural question: can an insurer create a subsidiary that operates as a participating provider, then have the parent insurer plus subsidiary collectively own more than 51% of the RBPO?

The AG said yes.

The 51% requirement runs in only one direction. The Act requires that 51% or more of the RBPO be owned by "participating providers." It does not put a corresponding 49% cap on insurers. It does not limit who may own a participating provider. So an insurer can own a subsidiary, and that subsidiary, as long as it actually delivers healthcare services to Medicaid populations, can be a participating provider that owns 51% or more of the RBPO. The combined ownership interest of insurer-plus-subsidiary doesn't matter for compliance purposes.

The AG was careful to note one corollary: an insurer that does not itself deliver healthcare services to Medicaid populations cannot directly own more than 49% of an RBPO, because the participating-provider ownership requirement would not be met. The insurer can only get to a higher ownership interest through a subsidiary that does deliver such services and qualifies as a participating provider.

Statutory interpretation rules controlled. Citing City of North Little Rock v. Pfeifer, 2017 Ark. 113, 515 S.W.3d 593, the AG read the statute "just as it reads, giving the words their ordinary and accepted meaning in common language." Section 20-77-2706(a)(3) limits ownership of RBPOs only, not ownership of participating providers. Reading a participating-provider ownership cap into the statute would require the AG to imply a provision that the legislature did not enact.

The second question (whether the Insurance Commissioner could take action against an insurer's licensure for combined ownership in excess of 51%) was rendered moot by the answer to the first.

The opinion is short but commercially significant. It clears a structural pathway for insurer participation in Arkansas's Medicaid managed-care system through subsidiary participating providers, with no statutory cap on the insurer-plus-subsidiary combined ownership share.

Currency note

This opinion was issued in 2020. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

What is a 'participating provider' for purposes of the Act?
"An organization or individual that is a member of or has an ownership interest in a risk-based provider organization and delivers healthcare services to enrollable Medicaid beneficiary populations." Two prongs: ownership in the RBPO and actual healthcare delivery. The AG read these as a definitional combination, not as a limit on who can own the participating provider.

Why does the 51% rule exist?
To ensure that risk-based provider organizations remain provider-led, with healthcare professionals (rather than pure insurers) holding majority ownership. The legislative goal was to align RBPO governance with clinical decision-making, not to prevent insurer involvement entirely.

What's the practical effect of the AG's reading?
An insurer can structure participation in an RBPO through a subsidiary participating provider. If that subsidiary itself qualifies as a participating provider (because it delivers healthcare services), the subsidiary can own 51%+ of the RBPO directly. The fact that the insurer parent also has an indirect economic interest (through its 100% ownership of the subsidiary) does not violate the Act.

Could an insurer be a participating provider on its own?
Yes, if the insurer itself "delivers healthcare services to enrollable Medicaid beneficiary populations" within the meaning of § 20-77-2703(11). A pure insurance company that does not deliver healthcare cannot meet that definition and therefore cannot directly own more than 49% of an RBPO.

Did the AG address whether the insurer-subsidiary structure raises other regulatory concerns?
No. The opinion addressed only the Provider-Led Organized Care Act. Other regulatory frameworks (state insurance solvency rules, federal Medicaid managed-care requirements, antitrust concerns) operate independently and were outside the scope.

What does this mean for the Insurance Commissioner's enforcement role?
Under the AG's reading, the Commissioner cannot take licensure action against an insurer for combined ownership exceeding 51%, because no statutory rule is being violated. The Commissioner's licensure authority remains for actual statutory or regulatory violations.

Background and statutory framework

The Medicaid Provider-Led Organized Care Act, Ark. Code Ann. §§ 20-77-2701 to -2708 (Repl. 2018), authorizes the Arkansas Insurance Commissioner to license risk-based provider organizations to participate in the Medicaid provider-led organized care system. The system's design is to put providers (rather than pure insurers) in control of risk-bearing entities that coordinate Medicaid care delivery and payment.

Section 20-77-2704(a) gives the Commissioner authority to license one or more RBPOs that "satisfactorily meet licensure requirements and are capable of coordinating the delivery and payment of healthcare services." Section 20-77-2706(a) sets out characteristics and duties for an RBPO, including subsection (a)(3)'s 51% participating-provider ownership requirement.

Section 20-77-2703(11) defines "participating provider" with the two-prong test: ownership in an RBPO plus actual healthcare delivery to Medicaid populations. The definition leaves open the question of who may own a participating provider. The AG read that silence as legislatively intended.

The statutory-interpretation rule from City of North Little Rock v. Pfeifer ("[w]hen a statute is clear, it is given its plain meaning, and this court will not search for legislative intent; rather, that intent must be gathered from the plain meaning of the language used") is the AG's analytical anchor. Cave City Nursing Home v. Arkansas Department of Human Services, 351 Ark. 13, 89 S.W.3d 884 (2002), is the source of the underlying canon.

Citations

Statutes:

• Ark. Code Ann. § 20-77-2701 et seq. (Repl. 2018) (Medicaid Provider-Led Organized Care Act)
• Ark. Code Ann. § 20-77-2703(11) (definition of participating provider)
• Ark. Code Ann. § 20-77-2704(a) (Insurance Commissioner's licensing authority)
• Ark. Code Ann. § 20-77-2706(a)(3) (51% participating-provider ownership requirement)

Cases:

• City of North Little Rock v. Pfeifer, 2017 Ark. 113, 515 S.W.3d 593 (plain-meaning rule)
• Cave City Nursing Home, Inc. v. Arkansas Department of Human Services, 351 Ark. 13, 89 S.W.3d 884 (2002) (foundational plain-meaning case)

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Original opinion text

Opinion No. 2019-069
June 12, 2020
STATE OF ARKANSAS
ATTORNEY GENERAL
LESLIE RUTLEDGE
The Honorable Kim D. Hammer
State Senator
1201 Military Road PMB 285
Benton, AR 72015

Dear Senator Hammer:

This is in response to your request for an opinion regarding the Medicaid Provider-Led Organized Care Act, codified at Ark. Code Ann. §§ 20-77-2701 - 2708 (Repl. 2018) (the Act). In this regard, you have provided the following background information:

Under Ark. Code Ann. § 20-77-2706(a), a risk-based provider organization is required to have established characteristics and duties to operate under the act and obtain licensure from the Insurance Commissioner. Specifically, under subdivision (a)(3), a risk-based provider organization shall have an ownership interest of not less than fifty-one percent (51%) by participating providers.

A participating provider is defined under Ark. Code Ann. § 20-77-2703(11) as an organization or individual that is a member of or has an ownership interest in a risk-provider organization and delivers healthcare services to enrollable Medicaid beneficiary populations.

Under Ark. Code Ann. § 20-77-2704(a), the Insurance Commissioner may issue a license to a risk-based provider to participate in the Medicaid provider-led organized care system…

In light of this information, you ask the following questions:

1. Can an insurer create and operate a subsidiary as a risk-based provider organization under the Medicaid Provider-Led Organized Care Act, Ark. Code Ann. §§ 20-77-2701 [- 2708], if the combined total ownership interest of the parent company and subsidiary is more than fifty-one percent (51%) of the risk-based provider organization?
2. Does the Insurance Commissioner have the authority to take action against the licensure of an insurer and its subsidiary if the combined total ownership interest of the parent company and subsidiary violates the provision under Ark. Code Ann. § 20-77-2706(a)?

RESPONSE

The answer to your first question is "yes." There is no statutory prohibition on an insurer owning a subsidiary, which in turn has an ownership interest in a risk-based provider organization (RBPO), regardless of whether the combined ownership interest of the insurer and its subsidiary is more than 51%. The statute only requires that participating providers own 51% or more of an RBPO.

My response to your first question renders your second question moot.

DISCUSSION

Question One: Can an insurer create and operate a subsidiary as a risk-based provider organization under the Medicaid Provider-Led Organized Care Act, Ark. Code Ann. §§ 20-77-2701 [- 2708], if the combined total ownership interest of the parent company and subsidiary is more than fifty-one percent (51%) of the risk-based provider organization?

Although it is not entirely clear from your question, I take it you are asking whether an insurer can create and operate a subsidiary as a participating provider and then join with that subsidiary to form an RBPO if the insurer and the subsidiary have a combined total ownership interest in the RBPO of more than 51%.

Your mention of the 51% threshold suggests that you think such a combined ownership interest could be a violation of Ark. Code Ann. § 20-77-2706(a)(3). However, that subsection does not limit the ownership of participating providers in an RBPO. Rather, the statute only provides that an RBPO shall have "an ownership interest of not less than fifty-one percent (51%) by participating providers." The Act defines the term "participating provider" as "an organization or individual that is a member of or has an ownership interest in a risk-based provider organization and delivers healthcare services to enrollable Medicaid beneficiary populations." Nothing in this definition or elsewhere in the Act limits the entities that may have an ownership interest in a participating provider.

Your question suggests that subsection 20-77-2706(a)(3) might be read to imply that if participating providers own 51% or more of an RBPO, then insurers can own no more than a 49% interest in the RBPO. It is true that an insurer that does not deliver healthcare services cannot itself own a greater-than-49% interest in an RBPO, as the participating provider ownership requirement would not be met. However, there is no prohibition on an insurer having an ownership interest in a participating provider, which in turn has an ownership interest in an RBPO. The statute's text limits only the ownership of an RBPO, not participating providers, and we cannot presume that the legislature intended to prevent insurers from having an ownership interest in a participating provider where the text does not warrant such an inference.

Because the ownership requirement in subdivision (a)(3) only relates to the ownership of RBPOs, not participating providers, the key factor in your hypothetical is not whether the insurer and its subsidiary own 51% or more of the RBPO, but whether the subsidiary, as a participating provider, owns 51% or more of the RBPO (either on its own or in conjunction with other participating providers). If that requirement is met, there is no violation of Ark. Code Ann. § 20-77-2706(a)(3).

Question Two: Does the Insurance Commissioner have the authority to take action against the licensure of an insurer and its subsidiary if the combined total ownership interest of the parent company and subsidiary violates the provision under Ark. Code Ann. § 20-77-2706(a)?

This question is moot in light of my answer to your first question.

Sincerely,

LESLIE RUTLEDGE
Attorney General