STATEMENTS OF POLICY
Title 31--INSURANCE
INSURANCE DEPARTMENT
[31 PA. CODE CH. 301]
Contractual Arrangements between HMOs and IDSs
[26 Pa.B. 1636] This statement of policy is adopted under the authority of the Health Maintenance Organization Act (HMO Act) (40 P. S. §§ 1551--1568). Specifically, the Insurance Commissioner's authority with respect to contracts entered into by Health Maintenance Organizations (HMOs) is set forth at section 8(b) of the HMO Act (40 P. S. § 1558(b)).
Introduction
The Insurance Department (Department) hereby adopts amendments to Chapter 301 (relating to health maintenance organizations) that appear in Annex A, regarding the contractual arrangements between HMOs and entities generally referred to as Integrated Delivery Systems (IDSs). This statement of policy sets forth guidelines regarding, and the procedures for reporting, contractual arrangements between HMOs and risk-bearing IDSs and suggests safeguards to be adhered to by HMOs to protect their members against the threat posed by financially troubled or insolvent IDSs. It also clarifies when an IDS is not required to be licensed as an HMO.
Applicability
This statement of policy applies to HMOs that elect to contract with risk-bearing IDSs. Accordingly, when an HMO contracts with an IDS, so that the IDS will assume risk and perform other functions as indicated in section 8(b) of the HMO Act, in addition to the delivery of health care services, the HMO will file its IDS contracts with the Department. For purposes of this statement of policy, IDSs include physician-hospital organizations, physician organizations, physician-hospital-community organizations and super physician-hospital organizations.
This statement of policy supersedes the industry notice jointly issued by the Department and the Department of Health on January 10, 1995.
Background
Various entities throughout this Commonwealth are at present organizing themselves into systems which integrate the financing and delivery of health care. The ultimate purpose of these entities, referred to as IDSs, is to contract with HMOs to perform a variety of functions on behalf of HMOs, when varying degrees of financial risk are assumed by the IDSs. With the passage of time, as these entities develop in sophistication and complexity, increased risk may be assumed by the IDSs in order to acquire an additional portion of potential profits.
The Department is charged with protecting HMO members and the general public against the potential threat posed by financially troubled or insolvent HMOs. The Department's regulation of HMOs involves the oversight of various aspects of HMO business including HMO contractual relationships with IDSs. The Department believes that the public interest will be served by providing guidance to HMOs with respect to their risk-sharing practices with IDSs.
Purpose and Effect
The guidelines in this statement of policy are designed to assist HMOs in implementing prudent business practices and in identifying and addressing issues which might lead to an IDS insolvency which could negatively impact the financial integrity of the HMO.
This statement of policy outlines the guidelines the Department intends to use to determine whether an HMO's delegation of responsibilities to an IDS may have the potential to result in harm to the financial condition of the HMO. Further, the statement of policy establishes safeguards for the financial protection of HMO members served through IDS contracts, and sets forth preferred reporting procedures for HMOs that contract with one or more risk-bearing IDSs.
This statement of policy provides guidance only, and does not constitute a rule or regulation entitled to the force and effect of law.
Companion Statement of Policy
This statement of policy is issued in conjunction with a companion statement of policy issued by the Department of Health. HMOs are subject to regulation by both the Department of Health and the Department. Accordingly, both statements of policy must be consulted to gain a clear understanding of the processes that are applicable to contracts between HMOs and IDSs.
Fiscal Impact and Paperwork Requirements
Adoption of this statement of policy may result in additional cost and paperwork to the Commonwealth, HMOs and IDSs. Additional costs and paperwork should be outweighed by overall cost savings to consumers in the form of lower health care costs resulting from: (1) separate licensure not being required for the vast majority of IDSs; and (2) lower legal and consulting costs for HMOs and IDSs through the clear articulation of guidelines and procedures.
Contact Person
Questions relating to this statement of policy may be directed to Kenneth B. Allen, Director, Bureau of Licensing and Financial Analysis, Insurance Department, 1345 Strawberry Square, Harrisburg, PA 17120, (717) 787-2735.
Effective Date/Sunshine Date
This statement of policy is effective immediately upon publication in the Pennsylvania Bulletin. No sunset date has been assigned. However, the Department intends to review this statement of policy in 180 days to ascertain whether adjustments in this statement of policy are appropriate. (Editor's Note: The regulations of the Insurance Department are amended by adding a statement of policy at 31 Pa. Code §§ 301.101--301.303, 301.311--301.314 and 301.321 to read as set forth in Annex A.)
LINDA S. KAISER,
Insurance Commissioner(Editor's Note: For a related statement of policy, see 26 Pa.B. 1629 (April 6, 1996).)
Fiscal Note: 11-139. No fiscal impact; (8) recommends adoption.
Annex A
TITLE 31. INSURANCE
PART X. HEALTH MAINTENANCE ORGANIZATIONS
CHAPTER 301. HEALTH MAINTENANCE ORGANIZATIONS
Subchapter I. CONTRACTUAL ARRANGEMENTS BETWEEEN HMOs AND IDSs--STATEMENT OF POLICY GENERAL PROVISIONS
Sec.
301.301. Definitions. 301.302. Applicability and purpose. 301.303. Certificate of authority. CONTRACT FILINGS AND OTHER REPORTING
301.311. Annual and quarterly filings. 301.312. Initial contract filing. 301.313. Filings upon contract changes. 301.314. Department review. DEPARTMENT EXAMINATIONS
301.321. Department examinations of HMOs.
GENERAL PROVISIONS § 301.301. Definitions.
The following words and terms, when used in this subchapter, have the following meanings, unless the context clearly indicates otherwise:
Contract--An arrangement between an HMO and a risk-bearing IDS, whereby the IDS is obligated to perform marketing, enrollment, administrative or similar functions. Administrative functions do not include quality assurance, utilization review, credentialing, provider relations or related functions.
Examination Law--Sections 901--1013 of The Insurance Company Law of 1921 (40 P. S. §§ 323.1--324.13).
HMO--Health Maintenance Organization--An organized system which combines the delivery and financing of health care and the provision of basic health services to voluntarily enrolled members for a fixed prepaid fee, and is required to obtain a certificate of authority in accordance with applicable statutes and regulations (See sections 4 and 5.1 of the act (40 P. S. §§ 1554 and 1555.1) and §§ 301.41 and 301.42 (relating to prohibition against uncertified HMOs, and content of application for certificate of authority).
IDS--Integrated Delivery System--A partnership, association, corporation or other legal entity which enters into a contractual arrangement with an HMO; employs or has contracts with providers (participating providers); and agrees under its arrangements with an HMO, to provide or arrange for the provision of a defined set of health care services to HMO members covered under an HMO benefits contract principally through its participating providers, assumes under the arrangements some responsibility for conduct, in conjunction with the HMO and under compliance monitoring of the HMO, of quality assurance, utilization review, credentialing, provider relations, or related functions, may perform claims processing and other functions and which assumes to some extent, through capitation reimbursement or other risk-sharing arrangements, the financial risk for provision of these services to HMO members.
Provider--A ''health care facility'' or ''health care provider'' as those terms are defined under section 802(a) of the Health Care Facilities Act (35 P. S. § 448.802(a)), a mental health facility licensed by the Department of Public Welfare, or an individual licensed by the Commonwealth to practice a profession involved in the healing arts. The term includes hospitals, mental health treatment facilities, drug and alcohol treatment facilities, physicians, dentists, podiatrists, psychologists, nurses, physician assistants, certified registered nurse practitioners, physical therapists, chiropractors, optometrists and pharmacists.
Risk--The possibility of financial loss associated with contracts to perform a defined set of health care services for a predetermined portion of premium dollars.
§ 301.302. Applicability and purpose.
(a) This subchapter applies to HMOs which enter into contracts with risk-bearing IDSs.
(b) This subchapter provides guidance to HMOs desiring to enter into contracts with risk-bearing IDSs for the performance of a defined set of health care services. This subchapter suggests safeguards to be adhered to by HMOs to protect HMO members against the threat posed by financially troubled or insolvent IDSs.
(c) This subchapter is not applicable to HMOs that enter into agreements with persons or entities other than IDSs for the performance of claims processing, administrative services, marketing, enrollment and other related functions.
§ 301.303. Certificate of authority.
(a) HMOs are required to obtain a certificate of authority issued jointly by the Department and the Department of Health in accordance with applicable statutes and regulations. See sections 4 and 5.1 of the act (40 P. S. §§ 1554 and 1555.1) and §§ 301.41 and 301.42 (relating to prohibition against uncertified HMOs; and content of application for certificate of authority).
(b) Under the act, persons or entities are acting as an HMO and are obligated to obtain a certificate of authority if the person or entity directly or through arrangements with others does the following:
(1) Solicits or enrolls members in a plan that will deliver prepaid basic health services.
(2) Delivers prepaid basic health services to those members.
(c) If a person or entity is delivering prepaid basic health services to HMO members, but not soliciting or enrolling members in a plan, that person or entity is not required to obtain a certificate of authority. If the person or entity is delivering prepaid basic health services and performing administrative services or other similar functions, but not soliciting or enrolling HMO members, that person or entity is not required to obtain a certificate of authority.
CONTRACT FILINGS AND OTHER REPORTING § 301.311. Annual and quarterly filings.
(a) HMOs are obligated to file annual financial statements with the Commissioner, and other reports upon the Department's request, under section 11 of the act (40 P. S. § 1561).
(b) It has been the Department's practice to require the filing of quarterly financial statements by HMOs, under the authority contained in section 11 of the act.
(c) Under this authority, the Commissioner will require that HMOs which enter into contracts with IDSs, file a written report at the same time as the filing of the HMO's annual financial statement in a form which will be available from the Department.
§ 301.312. Initial contract filing.
(a) An HMO shall file with the Department any contract entered into with an IDS under which the IDS will assume risk and perform other functions as indicated in section 8(b) of the act (40 P. S. § 1558(b)).
(b) Under this authority, the Commissioner will require that when an HMO initially enters into a contract with an IDS, the HMO shall file the contract with the Department not later than the filing of the next quarterly or annual financial statement, whichever occurs first, following the effective date of the contract, together with a written report in a form which will be available from the Department.
(c) If no quarterly financial statement is required by the Department, the Department requests that contracts with an IDS, together with a written report, be filed within 45 days of the effective date of the contract.
(d) Initial contract filings may be submitted with any additional information that may be appropriate for the Department's review, such as a cover letter describing the following:
(1) The extent to which functions are transferred to the IDS and the extent and type of services which will be provided by the IDS.
(2) The relationship between the IDS and the participating providers, and the manner in which services will be delivered by participating providers.
(3) The identities of IDS subcontractors.
(4) The reimbursement methodology, and a copy of security arrangements relating thereto, between the HMO and IDS.
§ 301.313. Filings upon contract changes.
(a) If a contract filed under § 301.312(a) (relating to initial contract filing) is amended, the HMO shall file the amended contract with the Department not later than the filing of the next quarterly or annual financial statement, whichever occurs first, following the effective date of the amendment.
(b) Upon filing with the Department of an applicable amended HMO contract with an IDS, the Department requests that the HMO submit a written report in a form which will be available from the Department.
(c) If no quarterly financial statement is required by the Department, the Department requests that the applicable amended contract, together with the written report, be filed within 45 days of the effective date of the amendment.
(d) Amended contract filings may be submitted with additional information that may be appropriate for the Department's review.
§ 301.314. Department review.
(a) The Department may review the HMO materials filed, to examine the transference of risk and other matters that may affect the financial condition of the HMO.
(b) In evaluating the financial condition of an HMO, the Department will ascertain whether one or more of the following are present in an IDS contract:
(1) An appropriate provision similar to the hold harmless provision described in § 301.122 (relating to hold harmless), prohibiting the IDS and participating providers from billing HMO members.
(2) A provision for the maintenance of books, accounts and records by the IDS to assure that transactions, including the risk transfer, are clearly, accurately and completely disclosed.
(3) Appropriate terms permitting the HMO to assure itself of the financial viability and condition of the IDS throughout the term of the contract. These terms might include one or more of the following:
(i) A provision authorizing the HMO to access the IDS's books, accounts and records upon terms and conditions as the HMO and the IDS may agree.
(ii) A provision requiring that the IDS secure an audited financial statement on at least an annual basis and that the HMO receive the audited statement on an annual basis and interim unaudited financial statements from the IDS on a regular and ongoing basis.
(iii) A provision authorizing the HMO to receive information regarding the IDS's reserves so that the HMO may adequately evaluate its reserves.
(iv) A provision for the IDS to post a letter of credit or other acceptable financial security, in a reasonable amount as agreed upon between the HMO and IDS.
(v) A provision establishing a withholding of the fee in a reasonable amount as agreed upon between the HMO and IDS and which may be returned to the IDS under the terms of the contract.
(vi) A provision for the IDS to carry general liability insurance and for participating providers to carry professional liability insurance in an amount and from a carrier mutually acceptable to the HMO and the IDS.
(vii) A provision for the IDS to secure a surety bond to cover the IDS's performance under the contract.
(viii) A provision for the IDS to secure excess of loss insurance in an amount and from a carrier mutually acceptable to the HMO and the IDS.
(4) A provision prohibiting the assignment of any rights or obligations under the contract in the absence of the consent of the HMO.
(5) A provision granting the HMO the right to be advised of, and the right to object to, any subcontractor of the IDS with respect to services required to be performed by the IDS under the contract with the HMO.
(6) Appropriate provisions for the termination of the contract, including consideration of whether the HMO has the right to immediately terminate the contract upon a valid order issued by the Commissioner or other lawful authority.
(7) A provision setting forth the circumstances under which the HMO may institute an appropriate financial monitoring plan of the IDS.
(8) A provision requiring that the IDS carry appropriate insurance coverage, such as fidelity bonds covering IDS employes who handle HMO funds and workers' compensation insurance.
(9) A provision requiring that the IDS timely advise the HMO of relevant matters that may have a material effect on the IDS's ability to perform under the contract, including, for example, the following:
(i) Whether the IDS or a participating provider is subject to an administrative order, cease and desist order, fine or license suspension.
(ii) Whether legal action has been taken which may have a material effect on the IDS's financial condition or the IDS's ability to perform under the contract.
(c) The Department may seek additional information if one or more of the following exist:
(1) A contract by which 50% or more of the HMO's annual aggregate premium is transferred to a single IDS.
(2) Multiple contracts by which 75% or more of the HMO's annual aggregate premium is transferred to one or more IDSs.
(3) A contract with an IDS that has control of the HMO. The Department presumes that control exists if an individual or entity, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing 10% or more of the voting securities of any other entity.
(4) A contract by which the claims processing, claims payment or claims adjudication functions are transferred to the IDS.
(5) A contract by which managerial control of the HMO's information system is transferred to the IDS.
(6) A contract when the HMO employs an individual who is also employed by the IDS.
(7) A contract when there is overlap between the officers or directors of the IDS and the HMO.
(8) A contract that contains a provision which might be construed as impeding or limiting the Department's authority to examine the books, accounts and records of the HMO and other persons under section 903(b) and (c) of The Insurance Department Act of 1921 (40 P. S. § 323.3(b) and (c)).
DEPARTMENT EXAMINATIONS § 301.321. Department examinations of HMOs.
(a) The Department is authorized to conduct financial examinations of HMOs under section 901 of The Insurance Department Act of 1921 (40 P. S. § 323.1).
(b) In its periodic financial examinations and other financial analyses of HMOs, the Department will continue to hold HMOs ultimately responsible for the liabilities arising under its subscriber agreements, regardless of whether the HMO has elected to contract with one or more IDSs to perform or arrange for the performance of services to HMO members.
(c) HMOs that contract with IDSs shall ensure that the HMOs remain able to meet their statutory financial reporting requirements, and otherwise comply with Department requests for information under section 11 of the act (40 P. S. § 1561) and section 903(a) of The Insurance Department Act of 1921 (40 P. S. § 323.1(a)).
[Pa.B. Doc. No. 96-577. Filed for public inspection April 5, 1996, 9:00 a.m.]
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