Definitions & What It Takes to Build

Direct-to-employer contracting Stage 1 · lightest

Selling care directly to self-funded employers — bundled/case rates, centers of excellence, on/near-site clinics — with no license required.

1206(l) Medical Foundation Stage 2 · Track A

A nonprofit (501(c)(3)) foundation that operates clinics and delivers care through a contracted physician group — the California-legal way for a hospital to have an "employed-equivalent" medical group (Sutter, Sharp, Scripps use it).

The statutory bar is high: the group must be 40+ physicians, ≥10 board-certified specialties, ≥⅔ full-time, and the foundation must conduct medical research and health education. This is a multi-year build, not a quick stand-up.

Friendly-PC + MSO Stage 2 · Track A

Two paired entities. A physician-owned Professional Corporation (PC) employs the doctors (satisfying the Corporate Practice of Medicine rule); a Management Services Organization (MSO) — which RCH can own — provides all the non-clinical back office under a management agreement.

The MSO is where RCH builds capability and captures economics without illegally controlling clinical decisions. SB 351 (2026) limits what the MSO may control — clinical judgment stays with the PC.

Clinically Integrated Network (CIN) / IPA Stage 2 · Track A

A network of independent physicians aligned around shared quality, data, and care standards. A genuine CIN is the only lawful way independents can jointly contract with payers (otherwise it's antitrust price-fixing).

This is how you aggregate the doctors Optum/Beaver doesn't own — capital-light, fast, but requires real clinical and financial integration to hold together.

Knox-Keene Act the rulebook

The California law (Health & Safety Code §1340 et seq.) that governs anyone who bears risk for arranging health care. Administered by the DMHC.

It's not a single thing you "get" — it's the statute under which you obtain a license (full or restricted) and which sets network-adequacy, solvency, grievance, and utilization-management rules. Think of it as the operating system; the two licenses below are the versions you run.

Restricted / Limited Knox-Keene license (RKKL) Stage 3

A lighter license to bear global risk as a sub-contractor to an already-licensed plan — you take capitation and pay providers, but you don't sell your own insurance products.

This is how a provider org takes full risk without becoming a full insurer. You contract under a licensed plan, which keeps the member-facing insurance functions; you run the risk and provider economics.

Risk-Bearing Organization (RBO) Stage 3

The DMHC's term for a physician-controlled group/IPA that takes capitation and is responsible for processing and paying provider claims. The thing an RKKL licenses.

RBOs must meet financial solvency rules — a minimum cash-to-claims ratio of 0.75 and positive working capital — and file quarterly and annual financials with DMHC. Most oversight is delegated through the contracting health plan.

Full-service Knox-Keene license = your own health plan Stage 4

The license to operate a health plan that sells coverage directly to employers and individuals and bears the insurance risk. The "own the plan" endgame.

You must prove to DMHC that you have the network, the money (reserves), and the operational machinery to enroll members, authorize care, pay claims, handle grievances, and stay solvent — and keep proving it with annual filings. This is a real insurance company.

Third-Party Administrator (TPA) rent, don't build

A vendor that runs the back office of a health plan — claims processing, enrollment, member services, often UM — for a per-member fee.

You almost always buy this rather than build it, especially early. It's the lever that lets a lean internal team operate a real plan. The "human capital" here is a small vendor-oversight team, not a department.

Corporate Practice of Medicine (CPOM)

California's prohibition on corporations practicing medicine, employing physicians to practice medicine, or controlling clinical judgment. The reason RCH can't simply hire PCPs — it must use a foundation or PC+MSO.

Capitation / global risk

Capitation = a fixed per-member-per-month payment to cover defined services, regardless of utilization. Global risk = taking both the professional (physician) and institutional (hospital) capitation — the point at which a Restricted Knox-Keene license is triggered.

Network adequacy & timely access

Enforced DMHC standards a licensed/risk-bearing network must meet: ≥1 primary-care physician per 2,000 enrollees, PCP within 15 miles / 30 minutes, non-urgent primary-care appointment within 10 business days, with annual reporting. This is why physician supply is the gating constraint.

Tangible Net Equity (TNE) / reserves

The minimum capital cushion a plan/RBO must hold so it can pay claims even in a bad year. A core reason "own the plan" needs real capital, not just will.

Stop-loss insurance

Catastrophic coverage a self-funded plan or risk-bearer buys to cap its exposure on any single large claim — essential before taking real risk at small scale.

ASO · PMPM · MLR

ASO (Administrative Services Only) = a carrier/TPA runs the plan but the employer bears claims risk (how RCH's current Cigna plan works). PMPM = per-member-per-month, the unit of plan economics. MLR = medical loss ratio, the share of premium spent on care — the core profitability dial under risk.