BILL NUMBER: AB 78	ENROLLED
	BILL TEXT

	PASSED THE ASSEMBLY   SEPTEMBER 10, 1999
	PASSED THE SENATE   SEPTEMBER 9, 1999
	AMENDED IN SENATE   SEPTEMBER 8, 1999
	AMENDED IN SENATE   AUGUST 16, 1999
	AMENDED IN ASSEMBLY   JUNE 2, 1999
	AMENDED IN ASSEMBLY   MAY 28, 1999
	AMENDED IN ASSEMBLY   APRIL 15, 1999

INTRODUCED BY   Assembly Member Gallegos
   (Principal coauthors:  Assembly Members Shelley and Villaraigosa)
   (Coauthor:  Assembly Member Soto)

                        DECEMBER 8, 1998

   An act to amend Sections 1618.5 and 4382 of the Business and
Professions Code, to amend Sections 43.98, 56.17, 3296, of the Civil
Code, to amend Sections 10821, 13408.5 of the Corporations Code, to
amend Sections 1322, 6253.4, 6254.5, 11552, 13975, 21661, 31696.1,
37615.1, and to add Section 13975.2 to, the Government Code, to amend
Sections 1317.2a, 1317.6, 1342, 1342.5, 1343, 1344, 1345, 1346,
1346.4, 1346.5, 1347, 1348, 1349, 1349.2, 1351, 1351.1, 1351.2, 1352,
1352.1, 1353, 1354, 1355, 1356, 1356.1, 1357.03, 1357.09, 1357.10,
1357.11, 1357.15, 1357.16, 1357.17, 1357.53, 1357.54, 1358, 1358.1,
1358.2, 1358.4, 1358.6, 1358.9, 1358.10, 1358.11, 1358.12, 1358.14,
1358.15, 1358.16, 1358.18, 1358.19, 1358.21, 1359, 1360.1, 1361,
1363, 1364, 1365, 1365.5, 1366.4, 1367, 1367.02, 1367.3, 1367.35,
1367.695, 1367.10, 1367.15, 1367.24, 1368.02, 1370, 1371.4, 1372,
1373, 1373.95, 1374.9, 1374.26, 1374.27, 1374.28, 1374.60, 1374.64,
1374.66, 1374.67, 1374.68, 1374.69, 1374.71, 1375.1, 1376, 1377,
1380, 1380.1, 1380.3, 1381, 1382, 1384, 1385, 1386, 1387, 1388, 1389,
1389.1, 1389.2, 1391, 1392, 1393, 1393.5, 1393.6, 1394, 1394.1,
1394.3, 1394.5, 1394.7, 1394.8, 1395.5, 1396, 1397, 1397.5, 1397.6,
1398, 1399, 1399.1, 1399.70, 1399.71, 1399.72, 1399.73, 1399.74,
1399.75, 11758.47, 32121, 34943, 102910, 127580, and 128725 of, to
add Sections 1341.1, 1341.2, 1341.3, 1341.4, 1341.5, 1341.6, 1341.7,
1341.8, 1341.9, 1341.10, 1341.11, 1341.12, 1341.13, 1341.14, 1342.3,
1347.1, and 1391.5 to, and to repeal and add Section 1341 of, the
Health and Safety Code, to amend Sections 740, 742.407, 791.02, 1068,
1068.1, 10123.35, 10140.1, 10196, 10270.98, 10704, 10733, 10734,
10810, 10820, 10856, 12693.36, 12693.365, 12693.37, and 12695.18 of,
the Insurance Code, to amend Section 4600.5 of the Labor Code, to
amend Section 830.3 of the Penal Code, to amend Section 5777, 9541,
14087.32, 14087.36, 14087.37, 14087.38, 14087.4, 14087.9705,
14088.19, 14089, 14089.4, 14139.13, 14251, 14308, 14456, 14457,
14459, 14460, 14482, 14499.71, 22005, and 22010 of the Welfare and
Institutions Code, relating to health care.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 78, Gallegos.  Health care coverage:  Department of Managed
Health Care.
   Existing law provides for the implementation of programs for the
provision of managed health care by the Department of Corporations.
   This bill would transfer responsibility for the implementation of
those programs to the Department of Managed Care in the Business,
Transportation, and Housing Agency, established pursuant to the bill,
and would make conforming changes.
   The bill would also establish in the Department of Managed Care an
Advisory Committee on Managed Care to assist and advise the Director
of the Department of Managed Care on various issues.
   The bill would also establish in the department an Office of
Patient Advocate, in order to provide educational material to plan
enrollees and to render advice and assistance to enrollees.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  (a) The Legislature finds and declares that it is in
the public interest that the administration and enforcement of the
Knox-Keene Health Care Service Plan Act of 1975, as amended, be
undertaken by a department of state government devoted exclusively to
the licensing and regulation of managed health care.
   (b) Therefore, it is the intent of the Legislature to transfer the
administration of the Knox-Keene Health Care Service Plan Act of
1975, as amended, from the Commissioner of Corporations of the
Department of Corporations to the Director of the Department of
Managed Care established in the Business, Transportation and Housing
Agency.
  SEC. 2.  Section 1618.5 of the Business and Professions Code is
amended to read:
   1618.5.  (a) The board shall provide to the Director of the
Department of Managed Care a copy of any accusation filed with the
Office of Administrative Hearings pursuant to Chapter 5 (commencing
with Section 11500) of Part 1 of Division 3 of Title 2 of the
Government Code, when the accusation is filed, for a violation of
this chapter relating to the quality of care of any dental provider
of a health care service plan, as defined in Section 1345 of the
Health and Safety Code.  There shall be no liability on the part of,
and no cause of action shall arise against, the State of California,
the Board of Dental Examiners, the Department of Managed Care, the
director of that department, or any officer, agent, employee,
consultant, or contractor of the state or the board or the department
for the release of any false or unauthorized information pursuant to
this section, unless the release is made with knowledge and malice.

   (b) The board and its executive officer and staff shall maintain
the confidentiality of any nonpublic reports provided by the Director
of the Department of Managed Care pursuant to subdivision (i) of
Section 1380 of the Health and Safety Code.
  SEC. 3.  Section 4382 of the Business and Professions Code is
amended to read:
   4382.  The board may audit persons for compliance with the limits
established in paragraph (3) of subdivision (a) of Section 4380
except that in the case of a facility or pharmacy that predominately
serves members of a prepaid group practice health care service plan,
those audits may be undertaken solely by the Department of Managed
Care pursuant to its authority to audit those plans.
  SEC. 4.  Section 43.98 of the Civil Code is amended to read:
   43.98.  (a) There shall be no monetary liability on the part of,
and no cause of action shall arise against, any consultant on account
of any communication by that consultant to the Director of the
Department of Managed Care or any other officer, employee, agent,
contractor, or consultant of the Department of Managed Care, when
that communication is for the purpose of determining whether health
care services have been or are being arranged or provided in
accordance with the Knox-Keene Health Care Service Plan Act of 1975
(Chapter 2.2 (commencing with Section 1340) of Division 2 of the
Health and Safety Code) and any regulation adopted thereunder and the
consultant does all of the following:
   (1) Acts without malice.
   (2) Makes a reasonable effort to obtain the facts of the matter
communicated.
   (3) Acts with a reasonable belief that the communication is
warranted by the facts actually known to the consultant after a
reasonable effort to obtain the facts.
   (4) Acts pursuant to a contract entered into on or after January
1, 1998, between the Commissioner of Corporations and a state
licensing board or committee, including, but not limited to, the
Medical Board of California, or pursuant to a contract entered into
on or after January 1, 1998, with the Commissioner of Corporations
pursuant to Section 1397.6 of the Health and Safety Code.
   (5) Acts pursuant to a contract entered into on or after July 1,
2000, between the Director of the Department of Managed Care and a
state licensing board or committee, including, but not limited to,
the Medical Board of California, or pursuant to a contract entered
into on or after July 1, 1999, with the Director of the Department of
Managed Care pursuant to Section 1397.6 of the Health and Safety
Code.
   (b) The immunities afforded by this section shall not affect the
availability of any other privilege or immunity which may be afforded
under this part.  Nothing in this section shall be construed to
alter the laws regarding the confidentiality of medical records.
  SEC. 5.  Section 56.17 of the Civil Code is amended to read:
   56.17.  (a) This section shall apply to the disclosure of genetic
test results contained in an applicant or enrollee's medical records
by a health care service plan.
   (b) Any person who negligently discloses results of a test for a
genetic characteristic to any third party in a manner that identifies
or provides identifying characteristics of the person to whom the
test results apply, except pursuant to a written authorization as
described in subdivision (g), shall be assessed a civil penalty in an
amount not to exceed one thousand dollars ($1,000) plus court costs,
as determined by the court, which penalty and costs shall be paid to
the subject of the test.
   (c) Any person who willfully discloses the results of a test for a
genetic characteristic to any third party in a manner that
identifies or provides identifying characteristics of the person to
whom the test results apply, except pursuant to a written
authorization as described in subdivision (g), shall be assessed a
civil penalty in an amount not less than one thousand dollars
($1,000) and no more than five thousand dollars ($5,000) plus court
costs, as determined by the court, which penalty and costs shall be
paid to the subject of the test.
   (d) Any person who willfully or negligently discloses the results
of a test for a genetic characteristic to a third party in a manner
that identifies or provides identifying characteristics of the person
to whom the test results apply, except pursuant to a written
authorization as described in subdivision (g), that results in
economic, bodily, or emotional harm to the subject of the test, is
guilty of a misdemeanor punishable by a fine not to exceed ten
thousand dollars ($10,000).
   (e) In addition to the penalties listed in subdivisions (b) and
(c), any person who commits any act described in subdivision (b) or
(c) shall be liable to the subject for all actual damages, including
damages for economic, bodily, or emotional harm which is proximately
caused by the act.
   (f) Each disclosure made in violation of this section is a
separate and actionable offense.
   (g) The applicant's "written authorization," as used in this
section, shall satisfy the following requirements:
   (1) Is written in plain language.
   (2) Is dated and signed by the individual or a person authorized
to act on behalf of the individual.
   (3) Specifies the types of persons authorized to disclose
information about the individual.
   (4) Specifies the nature of the information authorized to be
disclosed.
   (5) States the name or functions of the persons or entities
authorized to receive the information.
   (6) Specifies the purposes for which the information is collected.

   (7) Specifies the length of time the authorization shall remain
valid.
   (8) Advises the person signing the authorization of the right to
receive a copy of the authorization.  Written authorization is
required for each separate disclosure of the test results.
   (h) This section shall not apply to disclosures required by the
Department of Health Services necessary to monitor compliance with
Chapter 1 (commencing with Section 124975) of Part 5 of Division 106
of the Health and Safety Code, nor to disclosures required by the
Department of Managed Care necessary to administer and enforce
compliance with Section 1374.7 of the Health and Safety Code.
  SEC. 7.  Section 3296 of the Civil Code is amended to read:
   3296.  (a) Whenever a judgment for punitive damages is entered
against an insurer or health care service plan licensed pursuant to
Chapter 2.2 (commencing with Section 1340) of Division 2 of the
Health and Safety Code, the plaintiff in the action shall, within 10
days of entry of judgment, provide all of the following to the
Commissioner of the Department of Insurance or the Director of the
Department of Managed Care, whichever commissioner has regulatory
jurisdiction over the insurer or health care service plan:
   (1) A copy of the judgment.
   (2) A brief recitation of the facts of the case.
   (3) Copies of relevant pleadings, as determined by the plaintiff.

   (b) The willful failure to comply with this section may, at the
discretion of the trial court, result in the imposition of sanctions
against the plaintiff or his or her attorney.
   (c) This section shall apply to all judgments entered on or after
January 1, 1995.
   (d) "Insurer," for purposes of this section, means any person or
entity transacting any of the classes of insurance described in
Chapter 1 (commencing with Section 100) of Part 1 of Division 1 of
the Insurance Code.
  SEC. 8.  Section 10821 of the Corporations Code is amended to read:

   10821.  Notwithstanding any other provision of this division, as
to a health care service plan which is formed under or subject to
Part 2 (commencing with Section 5110) or Part 3 (commencing with
Section 7110) of this division, all references to the Attorney
General contained in Part 2 or Part 3 of this division shall, in the
case of health care service plans, be deemed to refer to the Director
of the Department of Managed Care.
  SEC. 9.  Section 13408.5 of the Corporations Code is amended to
read:
   13408.5.  No professional corporation may be formed so as to cause
any violation of law, or any applicable rules and regulations,
relating to fee splitting, kickbacks, or other similar practices by
physicians and surgeons or psychologists, including, but not limited
to, Section 650 or subdivision (e) of Section 2960 of the Business
and Professions Code.  A violation of any such provisions shall be
grounds for the suspension or revocation of the certificate of
registration of the professional corporation.  The Commissioner of
Corporations or the Director of the Department of Managed Care may
refer any suspected violation of such provisions to the governmental
agency regulating the profession in which the corporation is, or
proposes to be engaged.
  SEC. 10.  Section 1322 of the Government Code is amended to read:
   1322.  In addition to any other statutory provisions requiring
confirmation by the Senate of officers appointed by the Governor, the
appointments by the Governor of the following officers and the
appointments by him or her to the listed boards and commissions are
subject to confirmation by the Senate:
   (1) California Horse Racing Board.
   (2) Court Reporters Board of California.
   (3) Chief, Division of Occupational Safety and Health.
   (4) Chief, Division of Labor Standards Enforcement.
   (5) Commissioner of Corporations.
   (6) Contractors State License Board.
   (7) Director of Fish and Game.
   (8) State Director of Health Services.
   (9) Chief Deputy, State Department of Health Services.
   (10) Real Estate Commissioner.
   (11) State Athletic Commissioner.
   (12) State Board of Barbering and Cosmetology Examiners.
   (13) State Librarian.
   (14) Director of Social Services.
   (15) Chief Deputy, State Department of Social Services.
   (16) Director of Mental Health.
   (17) Chief Deputy, State Department of Mental Health.
   (18) Director of Developmental Services.
   (19) Chief Deputy, State Department of Developmental Services.
   (20) Director of Alcohol and Drug Abuse.
   (21) Director of Rehabilitation.
   (22) Chief Deputy, Department of Rehabilitation.
   (23) Director of the Office of Statewide Health Planning and
Development.
   (24) Deputy, Health and Welfare Agency.
   (25) Director, Department of Managed Care.
   (26) Patient Advocate, Department of Managed Care.
  SEC. 11.  Section 6253.4 of the Government Code is amended to read:

   6253.4.  (a) Every agency may adopt regulations stating the
procedures to be followed when making its records available in
accordance with this section.
   The following state and local bodies shall establish written
guidelines for accessibility of records.  A copy of these guidelines
shall be posted in a conspicuous public place at the offices of these
bodies, and a copy of the guidelines shall be available upon request
free of charge to any person requesting that body's records:
   Department of Motor Vehicles
   Department of Consumer Affairs
   Department of Transportation
   Department of Real Estate
   Department of Corrections
   Department of the Youth Authority
   Department of Justice
   Department of Insurance
   Department of Corporations
   Department of Managed Care
   Secretary of State
   State Air Resources Board
   Department of Water Resources
   Department of Parks and Recreation
   San Francisco Bay Conservation and Development Commission
   State Board of Equalization
   State Department of Health Services
   Employment Development Department
   State Department of Social Services
   State Department of Mental Health
   State Department of Developmental Services
   State Department of Alcohol and Drug Abuse
   Office of Statewide Health Planning and Development
   Public Employees' Retirement System
   Teachers' Retirement Board
   Department of Industrial Relations
   Department of General Services
   Department of Veterans Affairs
   Public Utilities Commission
   California Coastal Commission
   State Water Resources Control Board
   San Francisco Bay Area Rapid Transit District
   All regional water quality control boards
   Los Angeles County Air Pollution Control District
   Bay Area Air Pollution Control District
   Golden Gate Bridge, Highway and Transportation District
   Department of Toxic Substances Control
   Office of Environmental Health Hazard Assessment
   (b) Guidelines and regulations adopted pursuant to this section
shall be consistent with all other sections of this chapter and shall
reflect the intention of the Legislature to make the records
accessible to the public.  The guidelines and regulations adopted
pursuant to this section shall not operate to limit the hours public
records are open for inspection as prescribed in Section 6253.
  SEC. 12.  Section 6254.5 of the Government Code is amended to read:

   6254.5.  Notwithstanding any other provisions of the law, whenever
a state or local agency discloses a public record which is otherwise
exempt from this chapter, to any member of the public, this
disclosure shall constitute a waiver of the exemptions specified in
Sections 6254, 6254.7, or other similar provisions of law.  For
purposes of this section, "agency" includes a member, agent, officer,
or employee of the agency acting within the scope of his or her
membership, agency, office, or employment.
   This section, however, shall not apply to  disclosures:
   (a) Made pursuant to the Information Practices Act (commencing
with Section 1798 of the Civil Code) or discovery proceedings.
   (b) Made through other legal proceedings or as otherwise required
by law.
   (c) Within the scope of disclosure of a statute which limits
disclosure of specified writings to certain purposes.
   (d) Not required by law, and prohibited by formal action of an
elected legislative body of the local agency which retains the
writings.
   (e) Made to any governmental agency which agrees to treat the
disclosed material as confidential.  Only persons  authorized in
writing by the person in charge of the agency shall be permitted to
obtain the information.  Any information obtained by the agency shall
only be used for purposes which are consistent with existing law.
   (f) Of records relating to a financial institution or an affiliate
thereof, if the disclosures are made to the financial institution or
affiliate by a state agency responsible for the regulation or
supervision of the financial institution or affiliate.
   (g) Of records relating to any person that is subject to the
jurisdiction of the Department of Corporations, if the disclosures
are made to the person that is the subject of the records for the
purpose of corrective action by that person, or if a corporation, to
an officer, director, or other key personnel of the corporation for
the purpose of corrective action, or to any other person to the
extent necessary to obtain information from that person for the
purpose of an investigation by the Department of Corporations.
   (h) Made by the Commissioner of Financial Institutions under
Section 1909, 8009, or 18396 of the Financial Code.
   (i) Of records relating to any person that is subject to the
jurisdiction of the Department of Managed Care, if the disclosures
are made to the person that is the subject of the records for the
purpose of corrective action by that person, or if a corporation, to
an officer, director, or other key personnel of the corporation for
the purpose of corrective action, or to any other person to the
extent necessary to obtain information from that person for the
purpose of an investigation by the Department of Managed Care.
  SEC. 13.  Section 11552 of the Government Code is amended to read:

   11552.  Effective January 1, 1988, an annual salary of eighty-five
thousand four hundred two dollars ($85,402) shall be paid to each of
the following:
   (a) Commissioner of Financial Institutions.
   (b) Commissioner of Corporations.
   (c) Insurance Commissioner.
   (d) Director of Transportation.
   (e) Real Estate Commissioner.
   (f) Director of Social Services.
   (g) Director of Water Resources.
   (h) Director of Corrections.
   (i) Director of General Services.
   (j) Director of Motor Vehicles.
   (k) Director of the Youth Authority.
   (l) Executive Officer of the Franchise Tax Board.
   (m) Director of Employment Development.
   (n) Director of Alcoholic Beverage Control.
   (o) Director of Housing and Community Development.
   (p) Director of Alcohol and Drug Abuse.
   (q) Director of the Office of Statewide Health Planning and
Development.
   (r) Director of the Department of Personnel Administration.
   (s) Chairperson and Member of the Board of Equalization.
   (t) Director of Commerce.
   (u) State Director of Health Services.
   (v) Director of Mental Health.
   (w) Director of Developmental Services.
   (x) State Public Defender.
   (y) Director of the California State Lottery.
   (z) Director of Fish and Game.
   (aa) Director of Parks and Recreation.
   (ab) Director of Rehabilitation.
   (ac) Director of Veterans Affairs.
   (ad) Director of Consumer Affairs.
   (ae) Director of Forestry and Fire Protection.
   (af) Director of the Department of Managed Care.
   The annual compensation provided by this section shall be
increased in any fiscal year in which a general salary increase is
provided for state employees.  The amount of the increase provided by
this section shall be comparable to, but shall not exceed, the
percentage of the general salary increases provided for state
employees during that fiscal year.
  SEC. 14.  Section 13975 of the Government Code is amended to read:

   13975.  The Business and Transportation Agency in state government
is hereby renamed the Business, Transportation and Housing Agency.
The agency consists of the Department of Alcoholic Beverage Control,
the Department of the California Highway Patrol, the Department of
Corporations, the Department of Housing and Community Development,
the Department of Motor Vehicles, the Department of Real Estate, the
Department of Transportation, the Department of Financial
Institutions, the Department of Managed Care, the Stephen P. Teale
Consolidated Data Center; and the California Housing Finance Agency
is also located within the Business, Transportation and Housing
Agency, as specified in Division 31 (commencing with Section 50000)
of the Health and Safety Code.
  SEC. 15.  Section 13975.2 is added to the Government Code, to read:

   13975.2.  (a) This section applies to every action brought in the
name of the people of the State of California by the Director of the
Department of Managed Care before, on, or after the effective date of
this section, when enforcing provisions of those laws administered
by the Director of the Department of Managed Care which authorize the
Director of Managed Care to seek a permanent or preliminary
injunction, restraining order, or writ of mandate, or the appointment
of a receiver, monitor, conservator, or other designated fiduciary
or officer of the court.  Upon a proper showing, a permanent or
preliminary injunction, restraining order, or writ of mandate shall
be granted and a receiver, monitor, conservator, or other designated
fiduciary or officer of the court may be appointed for the defendant
or the defendant's assets, or any other ancillary relief may be
granted as appropriate.  The court may order that the expenses and
fees of the receiver, monitor, conservator, or other designated
fiduciary or officer of the court, be paid from the property held by
the receiver, monitor, conservator, or other court designated
fiduciary or officer, but neither the state, the Business,
Transportation and Housing Agency, nor the Department of Managed Care
shall be liable for any of those expenses and fees, unless expressly
provided for by written contract.
   (b) The receiver, monitor, conservator, or other designated
fiduciary or officer of the court may do any of the following subject
to the direction of the court:
   (1) Sue for, collect, receive, and take into possession all the
real and personal property derived by any unlawful means, including
property with which that property or the proceeds thereof has been
commingled if that property or the proceeds thereof cannot be
identified in kind because of the commingling.
   (2) Take possession of all books, records, and documents relating
to any unlawfully obtained property and the proceeds thereof.  In
addition, they shall have the same right as a defendant to request,
obtain, inspect, copy, and obtain copies of books, records, and
documents maintained by third parties that relate to unlawfully
obtained property and the proceeds thereof.
   (3) Transfer, encumber, manage, control, and hold all property
subject to the receivership, including the proceeds thereof, in the
manner directed or ratified by the court.
   (4) Avoid a transfer of any interest in any unlawfully obtained
property including the proceeds thereof to any person who committed,
aided or abetted, or participated in the commission of unlawful acts
or who had knowledge that the property had been unlawfully obtained.

   (5) Avoid a transfer of any interest in any unlawfully obtained
property including the proceeds thereof made with the intent to
hinder or delay the recovery of that property or any interest in it
by the receiver or any person from whom the property was unlawfully
obtained.
   (6) Avoid a transfer of any interest in any unlawfully obtained
property including the proceeds thereof that was made within one year
before the date of the entry of the receivership order if less than
a reasonably equivalent value was given in exchange for the transfer,
except that a bona fide transferee for value and without notice that
the property had been unlawfully obtained may retain the interest
transferred until the value given in exchange for the transfer is
returned to the transferee.
   (7) Avoid a transfer of any interest in any unlawfully obtained
property including the proceeds thereof made within 90 days before
the date of the entry of the receivership order to a transferee from
whom the defendant unlawfully obtained some property if (A) the
receiver establishes that the avoidance of the transfer will promote
a fair pro rata distribution of restitution among all people from
whom defendants unlawfully obtained property and (B) the transferee
cannot establish that the specific property transferred was the same
property that had been unlawfully obtained from the transferee.
   (8) Exercise any power authorized by statute or ordered by the
court.
   (c) No person with actual or constructive notice of the
receivership shall interfere with the discharge of the receiver's
duties.
   (d) No person may file any action or enforce or create any lien,
or cause to be issued, served, or levied any summons, subpoena,
attachment, or writ of execution against the receiver or any property
subject to the receivership without first obtaining prior court
approval upon motion with notice to the receiver and the Director of
the Department of Managed Care.  Any legal procedure described in
this subdivision commenced without prior court approval is void
except as to a bona fide purchaser or encumbrancer for value and
without notice of the receivership.  No person without notice of the
receivership shall incur any liability for commencing or maintaining
any legal procedure described by this subdivision.
   (e) The court shall have jurisdiction of all questions arising in
the receivership proceedings and may make any orders and judgments as
may be required, including orders after noticed motion by the
receiver to avoid transfers as provided in paragraphs (4), (5), (6),
and (7) of subdivision (b).
   (f) This section is cumulative to all other provisions of law.
   (g) If any provision of this section or the application thereof to
any person or circumstances is held invalid, that invalidity shall
not affect other provisions or applications of this section that can
be given effect without the invalid provision or application, and to
this end the provisions of this section are severable.
   (h) The recordation of a copy of the receivership order imparts
constructive notice of the receivership in connection with any matter
involving real property located in the county in which the
receivership order is recorded.
  SEC. 16.  Section 21661 of the Government Code is amended to read:

   21661.  (a) The board shall contract with carriers offering
long-term care insurance plans and enter into health care service
plan contracts covering long-term care.
   The long-term care insurance plans and health care service plan
contracts covering long-term care shall be made available
periodically during open enrollment periods determined by the board.

   (b) The board shall award contracts to carriers who are qualified
to provide long-term care benefits, and may develop and administer
self-funded                                            long-term care
insurance plans.  The board may offer one or more long-term care
insurance plans or health care service plan contracts covering
long-term care and may offer service or indemnity-type plans.
   (c) The long-term care insurance plans and health care service
plan contracts covering long-term care shall include home, community,
and institutional care and shall, to the extent determined by the
board, provide substantially equivalent coverage to that required
under Chapter 2.6 (commencing with Section 10230) of Part 2 of
Division 2 of the Insurance Code, if the carrier has been approved by
the Department of Managed Care pursuant to Chapter 2.2 (commencing
with Section 1340) of Division 2 of the Health and Safety Code.
   (d) The classes of persons who shall be eligible to enroll are:
   (1) Active and retired members and annuitants of the Public
Employees' System, and their spouses, their parents, and their
spouses' parents.
   (2) Active and retired members and annuitants of any county or
district subject to the County Employees Retirement Law of 1937, and
their spouses, their parents, and their spouses' parents.
   (3) Active and retired members and annuitants of the State
Teachers' Retirement System, and their spouses, their parents, and
their spouses' parents.
   (4) Active employees and retirees and annuitants of any public
agency that is a contracting agency under this part or Part 5
(commencing with Section 22751), and their spouses, their parents,
and their spouses' parents.
   (5) Active and retired members and annuitants of the Judges'
Retirement System, and their spouses, their parents, and their
spouses' parents.
   (6) Active and retired members and annuitants of the Judges'
Retirement System II, and their spouses, their parents, and their
spouses' parents.
   (7) Active and retired members and annuitants of the Legislators'
Retirement System, and their spouses, their parents, and their
spouses' parents.
   (8) Members of the California Assembly and Senate and their
spouse, their parents and their spouse's parents.
   (9) Active and retired members and annuitants, and other classes
of employees of other public employee retirement systems or public
employers as the board determines may be eligible under the standards
the board may prescribe, and their spouses, their parents, and their
spouses' parents.
   (10) Active employees and retirees and annuitants of any agency
specified in paragraphs (1) through (9) who reside in the United
States, its territories and possessions, or in a country in which a
provider network can be established comparable in quality and
effectiveness to those established in the United States.
   (e) Any California public agency or retirement system may contract
with the board to extend the provisions of this article to its
active and retired employees and annuitants.
   (f) Irrespective of paragraphs (1) through (10) of subdivision
(d), no person shall be enrolled unless he or she meets the
eligibility and underwriting criteria established by the board.
   (g) Irrespective of paragraphs (1) through (10) of subdivision
(d), enrollment of active employees of the State of California shall
be subject to Section 19867.
   (h) The board shall establish eligibility criteria for enrollment,
establish appropriate underwriting criteria for potential enrollees,
define the scope of covered benefits, define the criteria to receive
benefits, and set any other standards as needed.
   (i) The full cost of enrollment in a long-term care insurance plan
or in health care service plan contracts covering long-term care
shall be paid by the enrollees.
   (j) The long-term care insurance plans and health care service
plan contracts covering long-term care shall not become part of, or
subject to, the retirement or health benefits programs administered
by the system.
   (k) For any self-funded long-term care plan developed by the
board, the premiums shall be deposited in the Public Employees'
Long-term Care Fund.
  SEC. 17.  Section 31696.1 of the Government Code is amended to
read:
   31696.1.  (a) The board of retirement may provide a long-term care
insurance program for retired members and their spouses, their
parents, and their spouses' parents.
   (b) Subject to Section 31696.5, the board may permit active
members and their spouses, their parents, and their spouses' parents
to enroll in the long-term care insurance program.
   (c) The long-term care insurance plan shall be made available
periodically during open enrollment periods determined by the board.

   (d) The board shall award contracts to carriers who are qualified
to provide long-term care benefits.
   (e) The long-term care insurance plan shall include home,
community, and institutional care and shall provide substantially
equivalent coverage to that required under Chapter 2.6 (commencing
with Section 10230) of Part 2 of Division 2 of the Insurance Code and
shall meet those requirements set forth in the Knox-Keene Health
Care Service Plan Act of 1975 (Chapter 2.2 (commencing with Section
1340) of Division 2 of the Health and Safety Code).  However, the
Department of Managed Care shall have no jurisdiction over the
insurance plan authorized by this article.
   (f) Notwithstanding subdivision (a), no person shall be enrolled
unless he or she meets the eligibility and underwriting criteria
approved by the board.
   (g) The board shall approve eligibility criteria for enrollment,
approve appropriate underwriting criteria for potential enrollees,
approve the scope of covered benefits, approve the criteria to
receive benefits, and approve any other standards as needed.
  SEC. 18.  Section 37615.1 of the Government Code is amended to
read:
   37615.1.  Each local municipal hospital shall have and may
exercise the following powers:
   (a) To purchase, receive, have, take, hold, lease, use, and enjoy
property of every kind and description within and without the limits
of the municipality, and to control, dispose of, convey, and encumber
the same and create a leasehold interest in the same for the benefit
of the hospital.
   (b) To establish one or more trusts for the benefit of the
municipal hospital, to administer any trusts declared or created for
the benefit of the municipal hospital, to designate one or more
trustees for trusts created by the municipality, to receive by gift,
devise, or bequest, and hold in trust or otherwise, property,
including corporate securities of all kinds, situated in this state
or elsewhere, and where not otherwise provided, dispose of the same
for the benefit of the municipal hospital.
   (c) To employ any officers and employees, including architects and
consultants, the board of trustees deems necessary to carry on
properly the business of the municipal hospital.
   (d) To do any and all things which an individual might do which
are necessary for, and to the advantage of, a hospital and a nurses'
training school, or a child-care facility for the benefit of
employees of the hospital or residents of the municipality.
   (e) To establish, maintain and operate, or provide assistance in
the operation of, one or more health facilities or health services,
including, but not limited to, outpatient programs, services and
facilities, retirement programs, services and facilities, chemical
dependency programs, services and facilities, or other health care
programs, services and facilities and activities at any location
within or without the municipality for the benefit of the hospital
and the people served by the municipal hospital.
   "Health facilities," as used in this subdivision, means those
facilities defined in either Section 15432 of this code or Section
1250 of the Health and Safety Code and specifically includes
freestanding chemical dependency recovery units.
   (f) To do any and all other acts and things necessary to carry out
this division.
   (g) To acquire, maintain, and operate ambulances or ambulance
services within and without the municipality.
   (h) To establish, maintain, and operate, or provide assistance in
the operation of, free clinics, diagnostic and testing centers,
health education programs, wellness and prevention programs,
rehabilitation, aftercare, and any other health care services
provider, groups, and organizations which are necessary for the
maintenance of good physical and mental health in the communities
served by the municipal hospital.
   (i) To establish and operate in cooperation with its medical staff
a coinsurance plan between the municipal hospital and the members of
its attending medical staff.
   (j) With the approval of the city council, to establish, maintain,
and carry on its activities through one or more corporations, joint
ventures, or partnerships for the benefit of the municipal hospital.

   (k) With the consent of the city council, to contract for bond
insurance, letters of credit, remarketing services, and other forms
of credit enhancement and liquidity support for its bonds, notes, and
other indebtedness and to enter into reimbursement agreements,
monitoring agreements, remarketing agreements, and similar ancillary
contracts in connection therewith.
   (l) To establish, maintain, operate, participate in, or manage
capitated health care plans, health maintenance organizations,
preferred provider organizations, and other managed health care
systems and programs properly licensed by the Department of Insurance
or the Department of Managed Care, at any location within or without
the municipality for the benefit of residents of communities served
by the hospital.  However, no such activity shall be deemed to result
in or constitute the giving or lending of the municipality's credit,
assets, surpluses, cash, or tangible goods to, or in aid of, any
person, association, or corporation in violation of Section 6 of
Article XVI of the California Constitution.
   Nothing in this section shall authorize activities which
corporations and other artificial legal entities are prohibited from
conducting by Section 2400 of the Business and Professions Code.
   Any agreement to provide health care coverage which is a health
care service plan, as defined in subdivision (f) of Section 1345 of
the Health and Safety Code, shall be subject to the provisions of
Chapter 2.2 (commencing with Section 1340) of Division 2 of the
Health and Safety Code, unless exempted pursuant to Section 1343 or
1349.2 of the Health and Safety Code.
   A municipal hospital shall not provide health care coverage for
any employee of an employer operating within the service area of the
municipal hospital, unless the Legislature specifically authorizes,
or has authorized the coverage.
   This section shall not authorize any municipal hospital to
contribute its facilities to any joint venture that could result in
transfer of the facilities from city ownership.
   (m) To provide health care coverage to members of the hospital's
medical staff, employees of the medical staff members, and the
dependents of both groups, on a self-pay basis.
   (n) With the consent of the city council, to establish, maintain,
and carry on its activities through one or more corporations, joint
ventures, or partnerships for the benefit of the municipal hospital.

   (o) With the consent of the city council, to transfer, with or
without consideration, any part of its assets to one or more
nonprofit corporations to operate and maintain the assets for the
benefits of the area served by the hospital.  The initial members of
the board of directors of the nonprofit corporation or corporations
shall be approved by the city council and shall be residents of the
city.
   (p) Nothing in this section, including, but not limited to,
subdivision (e), shall be construed to permit a municipal hospital to
operate or be issued a single consolidated license to operate a
separate physical plant as a skilled nursing facility or an
intermediate care facility which is not located within the boundaries
of the municipality.
  SEC. 19.  Section 1317.2a of the Health and Safety Code is amended
to read:
   1317.2a.  (a) A hospital which has a legal obligation, whether
imposed by statute or by contract, to the extent of that contractual
obligation, to any third-party payor, including, but not limited to,
a health maintenance organization, health care service plan,
nonprofit hospital service plan, insurer, or preferred provider
organization, a county, or an employer to provide care for a patient
under the circumstances specified in Section 1317.2 shall receive
that patient  to the extent required by the applicable statute or by
the terms of the contract, or, when the hospital is unable to accept
a patient for whom it has a legal obligation to provide care whose
transfer will not create a medical hazard as specified in Section
1317.2, it shall make appropriate arrangements for the patient's
care.
   (b) A county hospital shall accept a patient whose transfer will
not create a medical hazard as specified in Section 1317.2 and who is
determined by the county to be eligible to receive health care
services required under Part 5 (commencing with Section 17000) of
Division 9 of the Welfare and Institutions Code, unless the hospital
does not have appropriate bed capacity, medical personnel, or
equipment required to provide care to the patient in accordance with
accepted medical practice.  When a county hospital is unable to
accept a patient whose transfer will not create a medical hazard as
specified in Section 1317.2, it shall make appropriate arrangements
for the patient's care.  The obligation to make appropriate
arrangements as set forth in this subdivision does not mandate a
level of service or payment, modify the county's obligations under
Part 5 (commencing with Section 17000) of Division 9 of the Welfare
and Institutions Code, create a cause of action, or limit a county's
flexibility to manage county health systems within available
resources.  However, the county's flexibility shall not diminish a
county's responsibilities under Part 5 (commencing with Section
17000) of Division 9 of the Welfare and Institutions Code or the
requirements contained in Chapter 2.5 (commencing with Section 1440).

   (c) The receiving hospital shall provide personnel and equipment
reasonably required in the exercise of good medical practice for the
care of the transferred patient.
   (d) Any third-party payor, including, but not limited to, a health
maintenance organization, health care service plan, nonprofit
hospital service plan, insurer, or preferred provider organization,
or employer which has a statutory or contractual obligation to
provide or indemnify emergency medical services on behalf  of a
patient shall be liable, to the extent of the contractual obligation
to the patient, for the reasonable charges of the transferring
hospital and the treating physicians for the emergency services
provided pursuant to this article, except that the patient shall be
responsible for uncovered services, or any deductible or copayment
obligation.  Notwithstanding this section, the liability of a
third-party payor which has contracted with health care providers for
the provision of these emergency services shall be set by the terms
of that contract.  Notwithstanding this section, the liability of a
third-party payor that is licensed by the Insurance Commissioner or
the Director of the Department of Managed Care and has a contractual
obligation to provide or indemnify emergency medical services under a
contract which covers a subscriber or an enrollee shall be
determined in accordance with the terms of that contract and shall
remain under the sole jurisdiction  of that licensing agency.
   (e) A hospital which has a legal obligation to provide care for a
patient as specified by subdivision (a) of Section 1317.2a to the
extent of its legal obligation, imposed by statute or by contract to
the extent of that contractual obligation, which does not accept
transfers of, or make other appropriate arrangements for, medically
stable patients in violation of this article or regulations adopted
pursuant thereto shall be liable for the reasonable charges of the
transferring hospital and treating physicians for providing services
and care which should have been provided by the receiving hospital.
   (f) Subdivisions (d) and (e) do not apply to county obligations
under Section 17000 of the Welfare and Institutions Code.
   (g) Nothing in this section shall be interpreted to require a
hospital to make arrangements for the care of a patient for whom the
hospital does not have a legal obligation to provide care.
  SEC. 20.  Section 1317.6 of the Health and Safety Code is amended
to read:
   1317.6.  (a) Hospitals found by the state department to have
committed or to be responsible for a violation of this article or the
regulations adopted pursuant thereto shall be subject to a civil
penalty by the state department in an amount not to exceed
twenty-five thousand dollars ($25,000) for each hospital violation.
In determining the amount of the fine for a hospital violation, the
state department shall take into account all of the following:
   (1) Whether the violation was knowing or unintentional.
   (2) Whether the violation resulted or was reasonably likely to
result in a medical hazard to the patient.
   (3) The frequency or gravity of the violation.
   (4) Other civil fines which have been imposed as a result of the
violation under Section 1395 of Title 42 of the United States Code.
   (b) Notwithstanding this section, the director shall refer any
alleged violation by a hospital owned and operated by a health care
service plan involving a plan member or enrollee to the Department of
Managed Care unless the director determines the complaint is without
reasonable basis.  The Department of Managed Care shall have sole
authority and responsibility to enforce this article with respect to
violations involving hospitals owned and operated by health care
service plans in their treatment of plan members or enrollees.
   (c) Physicians and surgeons found by the board to have committed,
or to be responsible for, a violation of this article or the
regulations adopted pursuant thereto shall be subject to any and all
penalties which the board may lawfully impose and may be subject to a
civil penalty by the board in an amount not to exceed five thousand
dollars ($5,000) for each violation.  A civil penalty imposed under
this subdivision shall not duplicate federal fines, and the board
shall credit any federal fine against a civil penalty imposed under
this subdivision.
   (d) The board may impose fines when it finds any of the following:

   (1) The violation was knowing or willful.
   (2) The violation was reasonably likely to result in a medical
hazard.
   (3) There are repeated violations.
   (e) It is the intent of the Legislature that the state department
has primary responsibility for regulating the conduct of hospital
emergency departments and that fines imposed under this section
should not be duplicated by additional fines imposed by the federal
government as a result of the conduct which constituted a violation
of this section.  To effectuate the Legislature's intent, the
Governor shall inform the Secretary of the federal Department of
Health and Human Services of the enactment of this section and
request the federal department to credit any penalty assessed under
this section against any subsequent civil monetary penalty assessed
pursuant to Section 1395dd of Title 42 of the United States Code for
the same violation.
   (f) There shall be a cumulative maximum limit of thirty thousand
dollars ($30,000) in fines assessed against hospitals under this
article and under Section 1395dd of Title 42 of the United States
Code for the same circumstances.  To effectuate this cumulative
maximum limit, the state department shall do both of the following:
   (1) As to state fines assessed prior to the final conclusion,
including judicial review, if available, of an action against a
hospital by the federal Department of Health and Human Services under
Section 1395dd of Title 42 of the United States Code (for the same
circumstances finally deemed to have been a violation of this article
or the regulations adopted hereunder, because of the state
department action authorized by this article), remit and return to
the hospital within 30 days after conclusion of the federal action,
that portion of the state fine necessary to assure that the
cumulative maximum limit is not exceeded.
   (2) Immediately credit against state fines assessed after the
final conclusion, including judicial review, if available, of an
action against a hospital by the federal Department of Health and
Human Services under Section 1395dd of Title 42 of the United States
Code, which results in a fine against a hospital (for the same
circumstances finally deemed to have been a violation of this article
or the regulations adopted hereunder, because of the state
department action authorized by this article), the amount of the
federal fine, necessary to assure the cumulative maximum limit is not
exceeded.
   (g) Any hospital found by the state department pursuant to
procedures established by the state department to have committed a
violation of this article or the regulations adopted hereunder may
have its emergency medical service permit revoked or suspended by the
  state department.
   (h) Any administrative or medical personnel who knowingly and
intentionally violates any provision of this article, may be charged
by the local district attorney with a misdemeanor.
   (i) Notification of each violation found by the state department
of the provisions of this article or the regulations adopted
hereunder shall be sent by the state department to the Joint
Commission for the Accreditation of Hospitals, the state emergency
medical services authority, and local emergency medical services
agencies.
   (j) Any person who suffers personal harm and any medical facility
which suffers a financial loss as a result of a violation of this
article or the regulations adopted hereunder may recover, in a civil
action against the transferring or receiving hospital, damages,
reasonable attorney's fees, and other appropriate relief.
Transferring and receiving hospitals from which inappropriate
transfers of persons are made or refused in violation of this article
and the regulations adopted hereunder shall be liable for the
reasonable charges of the receiving or transferring hospital  for
providing the services and care which should have been provided.  Any
person potentially harmed by a violation of this article or the
regulations adopted hereunder, or the local district attorney or the
Attorney General, may bring a civil action against the responsible
hospital or administrative or medical personnel, to enjoin the
violation, and if the injunction issues, the court shall award
reasonable attorney's fees.  The provisions of this subdivision are
in addition to other civil remedies and do not limit the availability
of the other remedies.
   (k) The civil remedies established by this section do not apply to
violations of any requirements established by any county or county
agency.
  SEC. 21.  Section 1341 of the Health and Safety Code is repealed.

  SEC. 22.  Section 1341 is added to the Health and Safety Code, to
read:
   1341.  (a) There is in state government, in the Business,
Transportation and Housing Agency, a Department of Managed Care that
has charge of the execution of the laws of this state relating to
health care service plans and the health care service plan business
including, but not limited to, those laws directing the department to
ensure that health care service plans provide enrollees with access
to quality health care services and protect and promote the interests
of enrollees.
   (b) The chief officer of the Department of Managed Care is the
Director of the Department of Managed Care.  The director shall be
appointed by the Governor and shall hold office at the pleasure of
the Governor.  The director shall receive an annual salary as fixed
in the Government Code.  Within 15 days from the time of the director'
s appointment, the director shall take and subscribe to the
constitutional oath of office and file it in the office of the
Secretary of State.
   (c) The director shall be responsible for the performance of all
duties, the exercise of all powers and jurisdiction, and the
assumption and discharge of all responsibilities vested by law in the
department.  The director has and may exercise all powers necessary
or convenient for the administration and enforcement of, among other
laws, the laws described in subdivision (a).
  SEC. 23.  Section 1341.1 is added to the Health and Safety Code, to
read:
   1341.1.  The director shall have his or her principal office in
the City of Sacramento, and may establish branch offices in the City
and County of San Francisco, in the City of Los Angeles, and in the
City of San Diego.  The director shall from time to time obtain the
necessary furniture, stationery, fuel, light, and other proper
conveniences for the transaction of the business of the Department of
Managed Care.
  SEC. 24.  Section 1341.2 is added to the Health and Safety Code, to
read:
   1341.2.  In accordance with the laws governing the state civil
service, the director shall employ and, with the approval of the
Department of Finance, fix the compensation of such personnel as the
director needs to discharge properly the duties imposed upon the
director by law, including, but not limited to, a chief deputy, a
public information officer, a chief enforcement counsel, and legal
counsel to act as the attorney for the director in actions or
proceedings brought by or against the director under or pursuant to
any provision of any law under the director's jurisdiction, or in
which the director joins or intervenes as to a matter within the
director's jurisdiction, as a friend of the court or otherwise, and
stenographic reporters to take and transcribe the testimony in any
formal hearing or investigation before the director or before a
person authorized by the director.  The personnel of the Department
of Managed Care shall perform such duties as the director assigns to
them.  Such employees as the director designates by rule or order
shall, within 15 days after their appointments, take and subscribe to
the constitutional oath of office and file it in the office of the
Secretary of State.
  SEC. 25.  Section 1341.3 is added to the Health and Safety Code, to
read:
   1341.3.  The director shall adopt a seal bearing the inscription:
"Director, Department of Managed Care, State of California."  The
seal shall be affixed to or imprinted on all orders and
                                        certificates issued by him or
her and such other instruments as he or she directs.  All courts
shall take judicial notice of this seal.
  SEC. 26.  Section 1341.4 is added to the Health and Safety Code, to
read:
   1341.4.  In order to effectively support the Department of Managed
Care in the administration of this law, there is hereby established
in the State Treasury, the Managed Care Fund.  The administration of
the Department of Managed Care shall be supported from the Managed
Care Fund.
  SEC. 27.  Section 1341.5 is added to the Health and Safety Code, to
read:
   1341.5.  (a) The director, as a general rule, shall publish or
make available for public inspection any information filed with or
obtained by the department, unless the director finds that this
availability or publication is contrary to law.  No provision of this
chapter authorizes the director or any of the director's assistants,
clerks, or deputies to disclose any information withheld from public
inspection except among themselves or when necessary or appropriate
in a proceeding or investigation under this chapter or to other
federal or state regulatory agencies.  No provision of this chapter
either creates or derogates from any privilege that exists at common
law or otherwise when documentary or other evidence is sought under a
subpoena directed to the director or any of his or her assistants,
clerks, or deputies.
   (b) It is unlawful for the director or any of his or her
assistants, clerks, or deputies to use for personal benefit any
information that is filed with or obtained by the director and that
is not then generally available to the public.
  SEC. 28.  Section 1341.6 is added to the Health and Safety Code, to
read:
   1341.6.  (a) The Attorney General shall render to the director
opinions upon all questions of law, relating to the construction or
interpretation of any law under the director's jurisdiction or
arising in the administration thereof, that may be submitted to the
Attorney General by the director and upon the director's request
shall act as the attorney for the director in actions and proceedings
brought by or against the director under or pursuant to any
provision of any law under the director's jurisdiction.
   (b) Sections 11041, 11042, and 11043 of the Government Code do not
apply to the Director of the Department of Managed Care.
  SEC. 29.  Section 1341.7 is added to the Health and Safety Code, to
read:
   1341.7.  (a) Neither the director nor any of the director's
assistants, clerks, or deputies shall be interested as a director,
officer, shareholder, member other than a member of an organization
formed for religious purposes, partner, agent, or employee of any
person who, during the period of the official's or employee's
association with the Department of Managed Care, was licensed or
applied for license as a health care service plan under this chapter.

   (b) Nothing contained in subdivision (a) shall prohibit the
holdings or purchasing of any securities by the director, an
assistant, clerk, or deputy in accordance with rules which shall be
adopted for the purpose of protecting the public interest and
avoiding conflicts of interest.
  SEC. 30.  Section 1341.8 is added to the Health and Safety Code, to
read:
   1341.8.  The director shall have the powers of a head of a
department pursuant to Chapter 2 (commencing with Section 11150) of
Part 1 of Division 3 of Title 2 of the Government Code.  The director
may make the agreements that he or she deems necessary or
appropriate in exercising his or her powers.
  SEC. 31.  Section 1341.9 is added to the Health and Safety Code, to
read:
   1341.9.  The director and department succeed to, and are vested
with, all duties, powers, purposes, responsibilities, and
jurisdiction of the Commissioner of Corporations and the Department
of Corporations as they relate to the Department of Corporations'
Health Plan Program, health care service plans, and the health care
service plan business, including those powers and duties specified in
this chapter.  Nothing in this section abrogates, limits,
diminishes, or otherwise restricts the duties, powers, purposes,
responsibilities, and jurisdictions of the Commissioner of
Corporations and the Department of Corporations under the Investment
Program, the Financial Services Program, and the other laws in which
jurisdiction is vested in the Commissioner of Corporations and the
Department of Corporations.
  SEC. 32.  Section 1341.10 is added to the Health and Safety Code,
to read:
   1341.10.  The department may use the unexpended balance of funds
available for use in connection with the performance of the functions
of the Department of Corporations to which the department succeeds
pursuant to Section 1341.9.
  SEC. 33.  Section 1341.11 is added to the Health and Safety Code,
to read:
   1341.11.  All officers and employees of the Department of
Corporations who, on the operative date of this section, are
performing any duty, power, purpose, responsibility, or jurisdiction
to which the department succeeds, who are serving in the state civil
service, other than as temporary employees, and engaged in the
performance of a function vested by the department by Section 1341.9,
shall be transferred to the department.  The status, positions, and
rights of those persons shall not be affected by the transfer and
shall be retained by those persons as officers and employees of the
department, pursuant to the State Civil Service Act (Part 2
(commencing with Section 18500) of Division 5 of Title 2 of the
Government Code), except as to positions exempted from civil service.

  SEC. 34.  Section 1341.12 is added to the Health and Safety Code,
to read:
   1341.12.  The department shall have possession and control of all
records, papers, offices, equipment, supplies, moneys, funds,
appropriations, licenses, permits, agreements, contracts, claims,
judgments, land, and other property, real or personal, connected with
the administration of, or held for the benefit or use of, the
Department of Corporations for the performance of the functions
transferred to the department by Section 1341.9.
  SEC. 35.  Section 1341.13 is added to the Health and Safety Code,
to read:
   1341.13.  All officers or employees of the department employed
after the operative date of this section shall be appointed by the
director.
  SEC. 36.  Section 1341.14 is added to the Health and Safety Code,
to read:
   1341.14.  (a) Any regulation, order, or other action, adopted,
prescribed, taken, or performed by the Department of Corporations or
by an officer of the Department of Corporations in the administration
of a program or the performance of a duty, responsibility, or
authorization transferred to the department by Section 1341.9 shall
remain in effect and shall be deemed to be a regulation, order, or
action of the department.
   (b) No suit, action, or other proceeding lawfully commenced by or
against the Department of Corporations or any other officer of the
state, in relation to the administration of any program or the
discharge of any duty, responsibility, or authorization transferred
to the department by Section 1341.9 shall abate by reason of the
transfer of the program, duty, responsibility, or authorization.
  SEC. 37.  Section 1342 of the Health and Safety Code is amended to
read:
   1342.  It is the intent and purpose of the Legislature to promote
the delivery of health and medical care to the people of the State of
California who enroll in, or subscribe for the services rendered by,
a health care service plan or specialized health care service plan
by accomplishing all of the following:
   (a) Ensuring the continued role of the professional as the
determiner of the patient's health needs which fosters the
traditional relationship of trust and confidence between the patient
and the professional.
   (b) Ensuring that subscribers and enrollees are educated and
informed of the benefits and services available in order to enable a
rational consumer choice in the marketplace.
   (c) Prosecuting malefactors who make fraudulent solicitations or
who use deceptive methods, misrepresentations, or practices which are
inimical to the general purpose of enabling a rational choice for
the consumer public.
   (d) Helping to ensure the best possible health care for the public
at the lowest possible cost by transferring the financial risk of
health care from patients to providers.
   (e) Promoting effective representation of the interests of
subscribers and enrollees.
   (f) Ensuring the financial stability thereof by means of proper
regulatory procedures.
   (g) Ensuring that subscribers and enrollees receive available and
accessible health and medical services rendered in a manner providing
continuity of care.
   (h) Ensuring that subscribers and enrollees have their grievances
expeditiously and thoroughly reviewed by the department.
  SEC. 38.  Section 1342.3 is added to the Health and Safety Code, to
read:
   1342.3.  The director shall, in conjunction with the Advisory
Committee on Managed Care, undertake a study to consider the
feasibility and benefit of consolidating into the Department of
Managed Care the regulation of other health insurers providing
insurance through indemnity, preferred provider organization, and
exclusive provider organization products, as well as through other
managed care products regulated by the Department of Insurance.  The
results of the study along with the recommendations of the director
shall be incorporated into a report to the Governor and the
Legislature no later than December 31, 2001.
  SEC. 39.  Section 1342.5 of the Health and Safety Code is amended
to read:
   1342.5.  The director shall consult with the Insurance
Commissioner prior to adopting any regulations applicable to health
care service plans subject to this chapter and nonprofit hospital
service plans subject to Chapter 11A (commencing with Section 11491)
of Part 2 of Division 2 of the Insurance Code and other entities
governed by the Insurance Code for the specific purpose of ensuring,
to the extent practical, that there is consistency of regulations
applicable to these plans and entities by the Insurance Commissioner
and the Director of the Department of Managed Care.
  SEC. 40.  Section 1343 of the Health and Safety Code is amended to
read:
   1343.  (a) This chapter shall apply to health care service plans
and specialized health care service plan contracts as defined in
subdivisions (f) and (n) of Section 1345.
   (b) The director may by the adoption of rules or the issuance of
orders deemed necessary and appropriate, either unconditionally or
upon specified terms and conditions or for specified periods, exempt
from this chapter any class of persons or plan contracts if the
director finds the action to be in the public interest and not
detrimental to the protection of subscribers, enrollees, or persons
regulated under this chapter, and that the regulation of the persons
or plan contracts is not essential to the purposes of this chapter.
   (c) The director, upon request of the Director of Health Services,
shall exempt from this chapter any county-operated pilot program
contracting with the State Department of Health Services pursuant to
Article 7 (commencing with Section 14490) of Chapter 8 of Part 3 of
Division 9 of the Welfare and Institutions Code.  The director may
exempt non-county-operated pilot programs upon request of the State
Director of Health Services.  Those exemptions may be subject to
conditions the Director of Health Services deems appropriate.
   (d) Upon the request of the Director of Mental Health, the
director may exempt from this chapter any mental health plan
contractor or any capitated rate contract under Part 2.5 (commencing
with Section 5775) of Division 5 of the Welfare and Institutions
Code.  Those exemptions may be subject to conditions the Director of
Mental Health deems appropriate.
   (e) This chapter shall not apply to:
   (1) A person organized and operating pursuant to a certificate
issued by the Insurance Commissioner unless the entity is directly
providing the health care service through those entity-owned or
contracting health facilities and providers, in which case this
chapter shall apply to the insurer's plan and to the insurer.
   (2) A plan directly operated by a bona fide public or private
institution of higher learning which directly provides health care
services only to its students, faculty, staff, administration, and
their respective dependents.
   (3) A nonprofit corporation formed under Chapter 11a (commencing
with Section 11491) of Part 2 of Division 2 of the Insurance Code.
   (4) A person who does all of the following:
   (A) Promises to provide care for life or for more than one year in
return for a transfer of consideration from, or on behalf of, a
person 60 years of age or older.
   (B) Has obtained a written license pursuant to Chapter 2
(commencing with Section 1250) or Chapter 3.2 (commencing with
Section 1569).
   (C) Has obtained a certificate of authority from the State
Department of Social Services.
   (5) The Major Risk Medical Insurance Board when engaging in
activities under Chapter 14 (commencing with Section 10700) of Part 2
of Division 2 of the Insurance Code, Part 6.3 (commencing with
Section 12695) of Division 2 of the Insurance Code, and Part 6.5
(commencing with Section 12700) of Division 2 of the Insurance Code.

   (6) The California Small Group Reinsurance Fund.
  SEC. 41.  Section 1344 of the Health and Safety Code is amended to
read:
   1344.  (a) The director may from time to time adopt, amend, and
rescind such rules, forms, and orders as are necessary to carry out
the provisions of this chapter, including rules governing
applications and reports, and defining any terms, whether or not used
in this chapter, insofar as the definitions are not inconsistent
with the provisions of this chapter.  For the purpose of rules and
forms, the director may classify persons and matters within the
director's jurisdiction, and may prescribe different requirements for
different classes.  The director may waive any requirement of any
rule or form in situations where in the director's discretion such
requirement is not necessary in the public interest or for the
protection of the public, subscribers, enrollees, or persons or plans
subject to this chapter.  The director may adopt rules consistent
with federal regulations and statutes to regulate health care
coverage supplementing Medicare.
   (b) The director may honor requests from interested parties for
interpretive opinions.
   (c) No provision of this chapter imposing any liability applies to
any act done or omitted in good faith in conformity with any rule,
form, order, or written interpretive opinion of the director, or any
such opinion of the Attorney General, notwithstanding that the rule,
form, order, or written interpretive opinion may later be amended or
rescinded or be determined by judicial or other authority to be
invalid for any reason.
  SEC. 42.  Section 1345 of the Health and Safety Code is amended to
read:
   1345.  As used in this chapter:
   (a) "Advertisement" means any written or printed communication or
any communication by means of recorded telephone messages or by
radio, television, or similar communications media, published in
connection with the offer or sale of plan contracts.
   (b) "Basic health care services" means all of the following:
   (1) Physician services, including consultation and referral.
   (2) Hospital inpatient services and ambulatory care services.
   (3) Diagnostic laboratory and diagnostic and therapeutic
radiologic services.
   (4) Home health services.
   (5) Preventive health services.
   (6) Emergency health care services, including ambulance and
ambulance transport services and out-of-area coverage.  "Basic health
care services" includes ambulance and ambulance transport services
provided through the "911" emergency response system.
   (c) "Enrollee" means a person who is enrolled in a plan and who is
a recipient of services from the plan.
   (d) "Evidence of coverage" means any certificate, agreement,
contract, brochure, or letter of entitlement issued to a subscriber
or enrollee setting forth the coverage to which the subscriber or
enrollee is entitled.
   (e) "Group contract" means a contract which by its terms limits
the eligibility of subscribers and enrollees to a specified group.
   (f) "Health care service plan" or "specialized health care service
plan" means either of the following:
   (1) Any person who undertakes to arrange for the provision of
health care services to subscribers or enrollees, or to pay for or to
reimburse any part of the cost for those services, in return for a
prepaid or periodic charge paid by or on behalf of the subscribers or
enrollees.
   (2) Any person, whether located within or outside of this state,
who solicits or contracts with a subscriber or enrollee in this state
to pay for or reimburse any part of the cost of, or who undertakes
to arrange or arranges for, the provision of health care services
that are to be provided wholly or in part in a foreign country in
return for a prepaid or periodic charge paid by or on behalf of the
subscriber or enrollee.
   (g) "License" means, and "licensed" refers to, a license as a plan
pursuant to Section 1353.
   (h) "Out-of-area coverage," for purposes of paragraph (6) of
subdivision (b), means coverage while an enrollee is anywhere outside
the service area of the plan, and shall also include coverage for
urgently needed services to prevent serious deterioration of an
enrollee's health resulting from unforeseen illness or injury for
which treatment cannot be delayed until the enrollee returns to the
plan's service area.
   (i) "Provider" means any professional person, organization, health
facility, or other person or institution licensed by the state to
deliver or furnish health care services.
   (j) "Person" means any person, individual, firm, association,
organization, partnership, business trust, foundation, labor
organization, corporation, limited liability company, public agency,
or political subdivision of the state.
   (k) "Service area" means a geographical area designated by the
plan within which a plan shall provide health care services.
   (l) "Solicitation" means any presentation or advertising conducted
by, or on behalf of, a plan, where information regarding the plan,
or services offered and charges therefor, is disseminated for the
purpose of inducing persons to subscribe to, or enroll in, the plan.

   (m) "Solicitor" means any person who engages in the acts defined
in subdivision (1) of this section.
   (n) "Solicitor firm" means any person, other than a plan, who
through one or more solicitors engages in the acts defined in
subdivision (1) of this section.
   (o) "Specialized health care service plan contract" means a
contract for health care services in a single specialized area of
health care, including dental care, for subscribers or enrollees, or
which pays for or which reimburses any part of the cost for those
services, in return for a prepaid or periodic charge paid by or on
behalf of the subscribers or enrollees.
   (p) "Subscriber" means the person who is responsible for payment
to a plan or whose employment or other status, except for family
dependency, is the basis for eligibility for membership in the plan.

   (q) Unless the context indicates otherwise, "plan" refers to
health care service plans and specialized health care service plans.

   (r) "Plan contract" means a contract between a plan and its
subscribers or enrollees or a person contracting on their behalf
pursuant to which health care services, including basic health care
services, are furnished; and unless the context otherwise indicates
it includes specialized health care service plan contracts; and
unless the context otherwise indicates it includes group contracts.
   (s) All references in this chapter to financial statements,
assets, liabilities, and other accounting items mean those financial
statements and accounting items prepared or determined in accordance
with generally accepted accounting principles, and fairly presenting
the matters which they purport to present, subject to any specific
requirement imposed by this chapter or by the director.
  SEC. 43.  Section 1346 of the Health and Safety Code is amended to
read:
   1346.  (a) The director shall administer and enforce this chapter
and shall have the following powers:
   (1) Recommend and propose the enactment of any legislation
necessary to protect and promote the interests of the public,
subscribers, enrollees, and providers of health care services in
health care service plans in the State of California.
   (2) Provide information to federal and state legislative
committees and executive agencies concerning plans.
   (3) Assist, advise, and cooperate with federal, state, and local
agencies and officials to protect and promote the interests of plans,
subscribers, enrollees, and the public.
   (4) Study, investigate, research, and analyze matters affecting
the interests of plans, subscribers, enrollees, and the public.
   (5) Hold public hearings, subpoena witnesses, take testimony,
compel the production of books, papers, documents, and other
evidence, and call upon other state agencies for information to
implement the purposes, and enforce this chapter.
   (6) Conduct audits and examinations of the books and records of
plans and other persons subject to this chapter, and may prescribe by
rule or order, but is not limited to, the following:
   (A) The form and contents of financial statements required under
this chapter.
   (B) The circumstances under which consolidated statements shall be
filed.
   (C) The circumstances under which financial statements shall be
audited by independent certified public accountants or public
accountants.
   (7) Conduct necessary onsite medical surveys of the health
delivery system of each plan.
   (8) Propose, develop, conduct, and assist in educational programs
for the public, subscribers, enrollees, and licensees.
   (9) Promote and establish standards of ethical conduct for the
administration of plans and undertake activities to encourage
responsibility in the promotion and sale of plan contracts and the
enrollment of subscribers or enrollees in the plans.
   (10) Advise the Governor on all matters affecting the interests of
plans, subscribers, enrollees, and the public.
   (11) Determine that investments of a plan's assets necessary to
meet the requirements of Section 1376 are acceptable.  For those
purposes, reinvestment in the plan and investment in any obligations
set forth in Article 3 (commencing with Section 1170) of, and Article
4 (commencing with Section 1190) of, Chapter 2 of Part 2 of Division
1 of the Insurance Code shall be considered acceptable.  All other
assets shall be invested in a prudent manner.
   (b) The powers enumerated in subdivision (a) shall not limit,
diminish, or otherwise restrict the other powers of the director
specifically set forth in this chapter and other laws.
  SEC. 44.  Section 1346.4 of the Health and Safety Code is amended
to read:
   1346.4.  (a) The Legislature finds and declares all of the
following:
   (1) That millions of Californians are insured under health care
service plans regulated by the Knox-Keene Health Care Service Plan
Act of 1975, and that more Californians each year are insuring
themselves under these health plans.
   (2) That greater awareness of the rights and protections afforded
by the Knox-Keene Health Care Service Plan Act of 1975 will further
the act's goal of providing access to quality health care.
   (3) That the public, Knox-Keene providers, and those seeking to
form health care service plans under the act will benefit from having
the text of the act available to them, affording a greater
understanding of what the act does and making it easier for providers
to comply with its provisions.
   (b) The director shall annually publish this chapter and make it
available  for sale to the public.
  SEC. 45.  Section 1346.5 of the Health and Safety Code is amended
to read:
   1346.5.  If the director determines that an entity purporting to
be a health care service plan exempt from the provisions of Section
740 of the Insurance Code is not a health care service plan, the
director shall inform the Department of Insurance of that finding.
However, if the director determines that an entity is a health care
service plan, the director shall prepare and maintain for public
inspection a list of those persons or entities described in
subdivision (a) of Section 740 of the Insurance Code, which are not
subject to the jurisdiction of another agency of this or another
state or the federal government and which the director knows to be
operating in the state.  There shall be no liability of any kind on
the part of the state, the director, and employees of the Department
of Managed Care for the accuracy of the list or for any comments made
with respect to it.  Additionally, any solicitor or solicitor firm
who advertises or solicits health care service plan coverage in this
state described in subdivision (a) of Section 740 of the Insurance
Code, which is provided by any person or entity described in
subdivision (c) of that section, and where such coverage does not
meet all pertinent requirements specified in the Insurance Code, and
which is not provided or completely underwritten, insured or
otherwise fully covered by a health care service plan, shall advise
and disclose to any purchaser, prospective purchaser, covered person
or entity, all financial and operational information relative to the
content and scope of the plan and, specifically, as to the lack of
plan coverage.
  SEC. 46.  Section 1347 of the Health and Safety Code is amended to
read:
   1347.  (a) (1) There is established in the Department of Managed
Care the  Advisory Committee on Managed Care consisting of 22
members, as follows:
   (A) The director.
   (B)  Eleven members appointed by the Governor, to be appointed as
follows:
   (i) A physician and surgeon with five years' experience in
providing services to enrollees of a full service health care service
plan.
   (ii) An executive officer or medical director of a full service
health care service plan.

   (iii) A person with expertise and five years' experience in an
administrative capacity of a  health care service plan.
   (iv) An executive officer with five years' experience with a
contracting medical group.
                                                                  (v)
A medical director with a contracting medical group.
   (vi) A member of the department's Financial Solvency Standards
Board.
   (vii) A physician-executive from an academic medical center.
   (viii) A member of the department's clinical advisory panel.
   (ix) A medical director or senior officer with a dental service
plan.
   (x) A medical director or senior officer with a vision service
plan.
   (xi) A medical director or senior officer with a mental health
service plan.
   (C) (i) Ten public members, four of whom shall be appointed by the
Governor and three each by the Speaker of the Assembly and the
Senate Committee on Rules who have a broad understanding of health
and managed care issues and who have no financial interest in the
delivery of health care services or in plans except  that public
members may be enrollees in a health care service plan or specialized
health care service plan.
   (ii) Of the public members appointed by the Governor, at least two
of these members shall have significant academic backgrounds in the
area.
   (iii) Of the members appointed by the Speaker of the Assembly and
the Senate Committee on Rules at least one public member appointed by
each appointing power shall represent a health care consumer
advocacy organization, with the Speaker's appointee representing an
organization that devotes at least 50 percent of its time to
resolving consumer complaints.  The Speaker of the Assembly and the
Senate Committee on Rules shall also each appoint one public member
with significant background experience in the area of health care.
   (D) With respect to members appointed by the Governor, if members
with the qualifications specified in this subdivision are not
available for service, other factors such as relevant health care
experience and education shall be substituted at the discretion of
the Governor.
   (2) Except as otherwise specified in this paragraph, all
appointments to the committee shall be for a period of three years.
The initial appointments shall commence January 1, 2000.  Of the
initial appointments made by the Governor, four shall serve for a
term of one year and five shall serve for a term of two years, as
designated by the Governor.  Of the initial appointments made by the
Speaker of the Assembly and the Senate Committee on Rules, one member
appointed by each appointing power shall serve for a term of one
year, and one shall serve for a term of two years, as designated by
the appointing power.
   (b) The committee shall meet at least quarterly and at the call of
the chairperson.  The director or the director's designee shall be
chairperson of the committee.  The committee may establish its own
rules and procedures.  All members shall serve without compensation,
but the consumer representatives and public members shall be
reimbursed from department funds for expenses actually and
necessarily incurred by them in the performance of their duties.
   (c) The purpose of the committee is to assist and advise the
director in the implementation of the director's duties under this
chapter and to make recommendations that it deems beneficial and
appropriate as to how the department may best serve the people of the
state.  The committee shall produce an Internet-accessible annual
public report that will, at a minimum, contain recommendations made
to the director.  At a minimum, the report shall include the
following:
   (1) Recommendations to the director on producing a report card to
the public on the comparative performance of the managed care
organizations overseen by the department, including health care
service plans and subcontracting providers, building on the work of
the private sector and other government entities and including
complaint information received by the state.
   (2) (A) The committee's top five recommendations for improving the
health care delivery system and quality of care taking into
consideration information received from the public.
   (B) To assist the committee in formulating its recommendations,
the views and suggestions of the public should be solicited.  The
committee shall accompany the director at least twice each year for
public hearings (with at least one in northern California and at
least one in southern California).
   (C) This report shall be delivered to the director, the Governor,
and to the appropriate policy committees of the Legislature.
   (d) The director shall consult with the advisory committee on
regulations and the recommendations of the committee shall be made a
part of the record with regard to such regulations.  The committee
shall be given at least 40 days to review and comment on regulations
prior to setting a notice of hearing for proposed regulations.
Nothing in this subdivision prohibits the director from promulgating
emergency regulations pursuant to the provisions of the
Administrative Procedure Act.  The director shall discuss budget
changes relating to the administration of this chapter with the
committee, and the committee may make recommendations to the director
regarding the proposed budget changes.
  SEC. 47.  Section 1347.1 is added to the Health and Safety Code, to
read:
   1347.1.  There is established in the department a Clinical
Advisory Panel consisting of five members appointed by the director.
These members shall be professors of medicine from California's
public and private medical schools and, additionally, two of the
members shall be practicing physicians.  The purpose of the advisory
panel shall be to provide expert assistance to the director in
ensuring that the external independent review system is meeting the
quality standards necessary to protect the public's interest.  The
panel shall also assist the director with other clinical issues as
needed, such as recommending approaches to globally reducing clinical
errors, improving patient safety, increasing the practice of
evidence-based medicine, and catalyzing clinical studies when a clear
need for additional clinical evidence becomes evident.  The panel
shall review the decisions made in external review to ensure that the
decisions are consistent with best practices and make
recommendations for improvements where necessary.  The panel shall
meet quarterly and shall have staff provided as necessary.
  SEC. 48.  Section 1348 of the Health and Safety Code is amended to
read:
   1348.  (a) Every health care service plan licensed to do business
in this state shall establish an antifraud plan.  The purpose of the
antifraud plan shall be to organize and implement an antifraud
strategy to identify and reduce costs to the plans, providers,
subscribers, enrollees, and others caused by fraudulent activities,
and to protect consumers in the delivery of health care services
through the timely detection, investigation, and prosecution of
suspected fraud.  The antifraud plan elements shall include, but not
be limited to, all of the following:  the designation of, or a
contract with, individuals with specific investigative expertise in
the management of fraud investigations; training of plan personnel
and contractors concerning the detection of health care fraud; the
plan's procedure for managing incidents of suspected fraud; and the
internal procedure for referring suspected fraud to the appropriate
government agency.
   (b) Every plan shall submit its antifraud plan to the department
no later than July 1, 1999.  Any changes shall be filed with the
department pursuant to Section 1352.  The submission shall describe
the manner in which the plan is complying with subdivision (a), and
the name and telephone number of the contact person to whom inquiries
concerning the antifraud plan may be directed.
   (c) Every health care service plan that establishes an antifraud
plan pursuant to subdivision (a) shall provide to the director an
annual written report describing the plan's efforts to deter, detect,
and investigate fraud, and to report cases of fraud to a law
enforcement agency.  For those cases that are reported to law
enforcement agencies by the plan, this report shall include the
number of cases prosecuted to the extent known by the plan.  This
report may also include recommendations by the plan to improve
efforts to combat health care fraud.
   (d) Nothing in this section shall be construed to limit the
director's authority to implement this section in accordance with
Section 1344.
   (e) For purposes of this section, "fraud" includes, but is not
limited to, knowingly making or causing to be made any false or
fraudulent claim for payment of a health care benefit.
   (f) Nothing in this section shall be construed to limit any civil,
criminal, or administrative liability under any other provision of
law.
  SEC. 49.  Section 1349 of the Health and Safety Code is amended to
read:
   1349.  It is unlawful for any person to engage in business as a
plan in this state or to receive advance or periodic consideration in
connection with a plan from or on behalf of persons in this state
unless such person has first secured from the director a license,
then in effect, as a plan or unless such person is exempted by the
provisions of Section 1343 or a rule adopted thereunder.  A person
licensed pursuant to this chapter need not be licensed pursuant to
the Insurance Code to operate a health care service plan or
specialized health care service plan unless the plan is operated by
an insurer, in which case the insurer shall also be licensed by the
Insurance Commissioner.
  SEC. 50.  Section 1349.2 of the Health and Safety Code is amended
to read:
   1349.2.  (a) A health care service plan, including a self-insured
reimbursement plan that pays for or reimburses any part of the cost
of health care services, operated by any city, county, city and
county, public entity, political subdivision, or public joint labor
management trust that satisfies all of the following criteria is
exempt from this chapter:
   (1) Provides services or reimbursement only to employees,
retirees, and the dependents of those employees and retirees, of any
participating city, county, city and county, public entity, or
political subdivision, but not to the general public.
   (2) Provides funding for the program.
   (3) Provides that providers are reimbursed solely on a
fee-for-service basis, so that providers are not at risk in
contracting arrangements.
   (4) Complies with Section 1378 and, to the extent that a plan
contracts directly with providers for health care services, complies
with Section 1379.
   (5) Does not reduce or change current benefits except in
accordance with collective bargaining agreements, or as otherwise
authorized by the governing body in the case of unrepresented
employees, and provides, pays for, or reimburses at least part of the
cost of all basic health care services as defined in subdivision (b)
of Section 1345.  Plans covering only a single specialized health
care service, including dental, vision, or mental health services,
shall not be required to cover all basic health care services.
   (6) Refrains from any conduct that constitutes fraud or dishonest
dealing or unfair competition, as defined by Section 17200 of the
Business and Professions Code, and notifies enrollees of their right
to file complaints with the director regarding any violation of this
exemption.
   (7) Maintains a fiscally sound operation and makes adequate
provision against the risk of insolvency so that enrollees are not at
risk, individually or collectively, as evidenced by audited
financial statements submitted to the director as of the end of the
plan's fiscal year, within 180 days after the close of that fiscal
year.  The financial statements shall be accompanied by a report,
certificate, or opinion of an independent certified public
accountant.  The financial statements shall be prepared in accordance
with generally accepted accounting principles.  The audit shall be
conducted in accordance with generally accepted auditing standards.
However, audits of public entities or political subdivisions shall be
conducted in accordance with governmental auditing standards.  Upon
request, the governing body of the plan shall provide copies thereof,
without charge, to any enrollee or recognized and participating
employee organization.
   (8) Submits with the annual financial statements required under
paragraph (7), a declaration, which shall conform to Section 2015.5
of the Code of Civil Procedure, executed by a plan official
authorized by the governing body of the plan, that the plan complies
with this subdivision.
   (b) The director's responsibilities under this section shall be
limited to enforcing compliance with this section.  Nothing in this
section shall impair or impede the director's enforcement authority
or the remedies available under this chapter, including, but not
limited to, the termination of the plan's exemption under this
section.
   (c) A public joint labor management trust is a trust maintained by
one or more participating cities, counties, cities and counties,
public entities, or political subdivisions that appoint management
representatives, and one or more recognized and participating
employee organizations representing the employees of one or more of
the cities, counties, cities and counties, public entities, or
political subdivisions that appoint labor representatives, in which
the management representatives and the labor representatives have
equal voting power in the operation of the trust.
   (d) A public joint labor management trust shall not be deemed to
provide services or reimbursement to the general public if, in
addition to providing services or reimbursement to the persons
described in paragraph (1) of subdivision (a), it provides services
or reimbursement only to employees, retirees, and dependents of those
employees and retirees, of the recognized and participating employee
organizations or of the trust.
   (e) Nothing in this section shall be construed to prohibit a
recognized and participating employee organization from filing a
complaint with the director regarding a violation of this section.
  SEC. 51.  Section 1351 of the Health and Safety Code is amended to
read:
   1351.  Each application for licensure as a health care service
plan or specialized health care service plan under this chapter shall
be verified by an authorized representative of the applicant, and
shall be in a form prescribed by the department.  Such application
shall be accompanied by the fee prescribed by subdivision (a) of
Section 1356 and shall set forth or be accompanied by each and all of
the following:
   (a) The basic organizational documents of the applicant; such as,
the articles of incorporation, articles of association, partnership
agreement, trust agreement, or other applicable documents and all
amendments thereto.
   (b) A copy of the bylaws, rules and regulations, or similar
documents regulating the conduct of the internal affairs of the
applicant.
   (c) A list of the names, addresses, and official positions of the
persons who are to be responsible for the conduct of the affairs of
the applicant, which shall include among others, all members of the
board of directors, board of trustees, executive committee, or other
governing board or committee, the principal officers, each
shareholder with over 5-percent interest in the case of a
corporation, and all partners or members in the case of a partnership
or association, and each person who has loaned funds to the
applicant for the operation of its business.
   (d) A copy of any contract made, or to be made, between the
applicant and any provider of health care services, or persons listed
in subdivision (c), or any other person or organization agreeing to
perform an administrative function or service for the plan.  The
director by rule may identify contracts excluded from this
requirement and make provision for the submission of form contracts.
The payment rendered or to be rendered to such provider of health
care services shall be deemed confidential information that shall not
be divulged by the director, except that such payment may be
disclosed and become a public record in any legislative,
administrative, or judicial proceeding or inquiry.  The plan shall
also submit the name and address of each physician employed by or
contracting with the plan, together with his or her license number.
   (e) A statement describing the plan, its method of providing for
health care services and its physical facilities.  If applicable,
this statement shall include the health care delivery capabilities of
the plan including the number of full-time and part-time primary
physicians, the number of full-time and part-time and specialties of
all nonprimary physicians; the numbers and types of licensed or
state-certified health care support staff, the number of hospital
beds contracted for, and the arrangements and the methods by which
health care services will  be provided.  For purposes of this
subdivision, primary physicians include general and family
practitioners, internists, pediatricians, obstetricians, and
gynecologists.
   (f) A copy of the forms of evidence of coverage and of the
disclosure forms or material which are to be issued to subscribers or
enrollees of the plan.
   (g) A copy of the form of the individual contract which is to be
issued to individual subscribers and the form of group contract which
is to be issued to any employers, unions, trustees, or other
organizations.
   (h) Financial statements accompanied by a report, certificate, or
opinion of an independent certified public accountant.  However,
financial statements from public entities or political subdivisions
of the state need not include a report, certificate, or opinion by an
independent certified public accountant if the financial statement
complies with such requirements as may be established by regulation
of the director.
   (i) A description of the proposed method of marketing the plan and
a copy of any contract made with any person to solicit on behalf of
the plan or a copy of the form of agreement used and a list of the
contracting parties.
   (j) A power of attorney duly executed by any applicant, not
domiciled in this state, appointing the director the true and lawful
attorney in fact of such applicant in this state for the purposes of
service of all lawful process in any legal action or proceeding
against the plan on a cause of action arising in this state.
   (k) A statement describing the service area or areas to be served,
including the service location for each provider rendering
professional services on behalf of the plan and the location of any
other plan facilities where required by the director.
   (l) A description of enrollee-subscriber grievance procedures to
be utilized as required by this chapter, and a copy of the form
specified by subdivision (c) of Section 1368.
   (m) A description of the procedures and programs for internal
review of the quality of health care pursuant to the requirements set
forth in this chapter.
   (n) A description of the mechanism by which enrollees and
subscribers will be afforded an opportunity to express their views on
matters relating to the policy and operation of the plan.
   (o) Evidence of adequate insurance coverage or self-insurance to
respond to claims for damages arising out of the furnishing of health
care services.
   (p) Evidence of adequate insurance coverage or self-insurance to
protect against losses of facilities where required by the director.

   (q) If required by the director by rule pursuant to Section 1376,
a fidelity bond or a surety bond in the amount prescribed.
   (r) Evidence of adequate workmen's compensation insurance coverage
to protect against claims arising out of work-related injuries that
might be brought by the employees and staff of a plan against the
plan.
   (s) Such other information as the director may reasonably require.

  SEC. 52.  Section 1351.1 of the Health and Safety Code is amended
to read:
   1351.1.  In addition to the requirements of Section 1351 and upon
request of the director, each application shall be accompanied by
authorization for disclosure to the director of financial records of
each health care service plan or specialized health care service plan
licensed under this chapter pursuant to Section 7473 of the
Government Code.  For the purpose of this chapter, the authorization
for disclosure shall also include the financial records of any
association, partnership or corporation controlling, controlled by or
otherwise affiliated with a health care service plan or specialized
health care service plan.
  SEC. 53.  Section 1351.2 of the Health and Safety Code is amended
to read:
   1351.2.  (a)  If a health care service plan licensed under the
laws of Mexico elects to operate a health care service plan in this
state, the plan shall apply for licensure as a health care service
plan under this chapter by filing an application for licensure in the
form prescribed by the department and verified by an authorized
representative of the applicant.  The plan shall be subject to the
provisions of this chapter, and the rules adopted by the director
thereunder, as determined by the director to be applicable.  The
application shall be accompanied by the fee prescribed by subdivision
(a) of Section 1356 and shall demonstrate compliance with the
following requirements:
   (1) The plan is operating lawfully under the laws of Mexico.
   (2) The plan offers and sells in this state only
employer-sponsored group plan contracts exclusively for the benefit
of citizens of Mexico legally employed in this state, and for the
benefit of their dependents regardless of nationality, that pay for,
reimburse the cost of, or arrange for the provision or delivery of
health care services that are to be provided or delivered wholly in
Mexico, except for the provision or delivery of those health care
services set forth in subparagraphs (A) and (B) of paragraph (4).
   (3) Solicitation of plan contracts in this state is made only
through insurance brokers and agents licensed in this state or a
third-party administrator licensed in this state, each of which is
authorized by the plan to offer and sell plan group contracts.
   (4) Group contracts provide, through a contract of insurance
between the plan and an insurer admitted in this state, for the
reimbursement of emergency and urgent care services provided out of
area as required by subdivision (h) of Section 1345.
   (5) All advertising, solicitation material, disclosure statements,
evidences of coverage, and contracts are in compliance with the
appropriate provisions of this chapter and the rules or orders of the
director.  The director shall require that each of these documents
contain a legend in 10-point type, in both English and Spanish,
declaring that the health care service plan contract provided by the
plan may be limited as to benefits, rights, and remedies under state
and federal law.
   (6) All funds received by the plan from a subscriber are deposited
in an account of a bank organized under the laws of this state or in
an account of a national bank located in this state.
   (7) The plan maintains a tangible net equity as required by this
chapter and the rules of the director, as calculated under United
States generally accepted accounting principles, in the amount of a
least one million dollars ($1,000,000).  In lieu of an amount in
excess of the minimum tangible net equity of one million dollars
($1,000,000), the plan may demonstrate a reasonable acceptable
alternative reimbursement arrangement that the director may in his or
her discretion accept.  The plan shall also maintain a fidelity bond
and a surety bond as required by Section 1376 and the rules of the
director.
   (8) The plan agrees to make all of its books and records,
including the books and records of health care providers in Mexico,
available to the director in the form and at the time and place
requested by the director.  Books and records shall be made available
to the director no later than 24 hours from the date of the request.

   (9) The plan files a consent to service of process with the
director and agrees to be subject to the laws of this state and the
United States in any investigation, examination, dispute, or other
matter arising from the advertising, solicitation, or offer and sale
of a plan contract, or the management or provision of health care
services in this state or throughout the United States.  The plan
shall agree to notify the director, immediately and in no case later
than one business day, if it is subject to any investigation,
examination, or administrative or legal action relating to the plan
or the operations of the plan initiated by the government of Mexico
or the government of any state of Mexico against the plan or any
officer, director, security holder, or contractor owning 10 percent
or more of the securities of the plan.  The plan shall agree that in
the event of conflict of laws in any action arising out of the
license, the laws of California and the United States shall apply.
   (10) The plan agrees that disputes arising from the group
contracts involving group contract holders and providers of health
care services in the United States shall be subject to the
jurisdiction of the courts of this state and the United States.
   (b) The plan shall pay the application processing fee and other
fees and assessments set forth in Section 1356.  The director, by
order, may designate provisions of this chapter and rules adopted
thereunder that need not be applied to a health care service plan
licensed under the laws of Mexico when consistent with the intent and
purpose of this chapter, and in the public interest.
  SEC. 54.  Section 1352 of the Health and Safety Code is amended to
read:
   1352.  (a) A licensed plan shall, within 30 days after any change
in the information contained in its application, other than financial
or statistical information, file an amendment thereto in the manner
the director may by rule prescribe setting forth the changed
information.  However, the addition of any association, partnership,
or corporation in a controlling, controlled, or affiliated status
relative to the plan shall necessitate filing, within a 30-day period
of an authorization for disclosure to the director of financial
records of the person pursuant to Section 7473 of the Government
Code.
   (b) Prior to any material modification of its plan or operations,
a plan shall give notice thereof to the director, who shall, within
20 business days or such additional time as the plan may specify, by
order approve, disapprove, suspend, or postpone the effectiveness of
any such change, subject to Section 1354.
                        (c) A plan shall, within five days, give
written notice to the director in the form as by rule may be
prescribed, of any change in the officers, directors, partners,
controlling shareholders, principal creditors, or persons occupying
similar positions or performing similar functions, of the plan and of
any management company of the plan, and of any parent company of the
plan or management company.  The director may by rule define the
positions, duties, and relationships which are referred to in this
subdivision.
   (d) The fee for filing a notice of major modification pursuant to
subdivision (b) shall be the actual cost to the director of
processing the notice, including overhead, but shall not exceed seven
hundred fifty dollars ($750).
  SEC. 55.  Section 1352.1 of the Health and Safety Code is amended
to read:
   1352.1.  (a) Except as provided in subdivision (b), no plan shall
enter into any new or modified plan contract or publish or
distribute, or allow to be published or distributed on its behalf,
any disclosure form or evidence of coverage, unless (1) a true copy
thereof has first been filed with the director, at least 30 days
prior to any such use, or any shorter period as the director by rule
or order may allow, and (2) the director by notice has not found the
plan contract, disclosure form, or evidence of coverage, wholly or in
part, to be untrue, misleading, deceptive, or otherwise not in
compliance with this chapter or the rules thereunder, and specified
the deficiencies, within at least 30 days or any shorter time as the
director by rule or order may allow.
   (b) Except as provided in subdivision (c), a licensed plan which
has been continuously licensed under this chapter for the preceding
18 months and which has had group contracts in effect at all times
during that period may enter a new or modified group contract or may
publish or distribute, or allow to be published or distributed on its
behalf, any group disclosure form or evidence of coverage without
having filed the same for the director's prior approval, if the plan
and the materials comply with each of the following conditions:
   (1) The contract, disclosure form, or evidence of coverage, or any
material provision thereof, has not been previously disapproved by
the director by written notice to the plan and the plan reasonably
believes that the contract, disclosure form, and evidence of coverage
do not violate any requirements of this chapter or the rules
thereunder.
   (2) The plan files the contract and any related disclosure form
and evidence of coverage with the director not later than 10 business
days after entering the contract, or within any additional period as
the director by rule or order may provide.
   (3) If the person or group entering into the contract with the
plan is not an employee welfare benefit plan, as defined in the
Employee Retirement Income Security Act of 1974 (29 U.S.C. Sec. 1001
et seq.), the person or group is not organized solely or principally
for the purpose of providing health benefits to members of the group.

   (c) The director by order may require a plan which has entered any
group contract or published or distributed, or allowed to be
published or distributed on its behalf, any disclosure form or
evidence of coverage in violation of this chapter or the rules
thereunder to comply with subdivision (a) prior to entering group
contracts, or a specified class of group contracts, and prior to
publishing or distributing, or allowing to be published or
distributed on its behalf, related disclosure forms and evidences of
coverage.  An order issued pursuant to this subdivision shall be
effective for 12 months from its issuance, and may be renewed by
order if the contracts, disclosure forms, or evidences of coverage
submitted under this subdivision indicate difficulties of voluntary
compliance with the applicable provisions of this chapter and the
rules thereunder.
   (d) A licensed plan or other person regulated under this chapter
may, within 30 days after receipt of any notice or order under this
section, file a written request for a hearing with the director.
  SEC. 56.  Section 1353 of the Health and Safety Code is amended to
read:
   1353.  The director shall issue a license to any person filing an
application pursuant to this article, if the director, upon due
consideration of the application and of the information obtained in
any investigation, including, if necessary, an onsite inspection,
determines that the applicant has satisfied the provisions of this
chapter and that, in the judgment of the director, a disciplinary
action pursuant to Section 1386 would not be warranted against such
applicant.  Otherwise, the director shall deny the application.
  SEC. 57.  Section 1354 of the Health and Safety Code is amended to
read:
   1354.  Upon denial of application for licensure, or the issuance
of an order pursuant to Section 1352 disapproving, suspending, or
postponing a material modification, the director shall notify the
applicant in writing, stating the reason for the denial and that the
applicant has the right to a hearing if the applicant makes written
request within 30 days after the date of mailing of the notice of
denial.  Service of the notice required by this subdivision may be
made by certified mail addressed to the applicant at the latest
address filed by the applicant in writing with the department.
  SEC. 58.  Section 1355 of the Health and Safety Code is amended to
read:
   1355.  Every plan's license issued under this chapter shall remain
in effect until revoked or suspended by the director, except that
every transitional license shall expire on September 30, 1978, unless
such expiration date is extended by the director.
  SEC. 59.  Section 1356 of the Health and Safety Code is amended to
read:
   1356.  (a) Each plan applying for licensure under this chapter
shall reimburse the director for the actual cost of processing the
application, including overhead, up to an amount not to exceed
twenty-five thousand dollars ($25,000).  The cost shall be billed not
more frequently than monthly and shall be remitted by the applicant
to the director within 30 days of the date of billing.  The director
shall not issue a license to any applicant prior to receiving payment
in full for all amounts charged pursuant to this subdivision.
   (b) In addition to other fees and reimbursements required to be
paid under this chapter, each licensed plan shall pay to the
director an amount as estimated by the  director for the ensuing
fiscal year, as a reimbursement of its share of all costs and
expenses, including, but not limited to, costs and expenses
associated with routine financial examinations, grievances and
complaints including maintaining a toll-free number for consumer
grievances and complaints, investigation and enforcement, medical
surveys and reports, and overhead, reasonably incurred in the
administration of this chapter and not otherwise recovered by the
director under this chapter or from the Managed Care Fund.  The
amount may be paid in two equal installments.  The first installment
shall be paid on or before August 1 of each year, and the second
installment shall be paid on or before December 15 of each year.  The
amount paid by each plan, except a plan offering only specialized
health care service plan contracts, shall be twelve thousand five
hundred dollars ($12,500), plus an amount up to, but not exceeding,
an amount computed in accordance with the following schedule:


     Plan Enrollment                      Amount of Assessment
0 to 25,000                  $0 + 65 cents for each enrollee
25,001 to 75,000             $16,250 + 53 cents for each
                                enrollee in excess of 25,000
75,001 to 150,000            $42,750 + 50 cents for each
                                enrollee in excess of 75,000
150,001 to 300,000           $80,250 + 47 cents for each
                                enrollee in excess of 150,000
over 300,000                 $150,750 + 45 cents for each
                                enrollee in excess of 300,000

   Plans offering only specialized health care service plan contracts
shall pay seven thousand five hundred dollars ($7,500), plus an
amount up to, but not exceeding, an amount computed in accordance
with the following schedule:


     Plan Enrollment                      Amount of Assessment
0 to 25,000                  $0 + 48 cents for each enrollee
25,001 to 75,000             $12,000 + 36 cents for each
                                enrollee in excess of 25,000
75,001 to 150,000            $30,000 + 30 cents for each
                                enrollee in excess of 75,000
150,001 to 300,000           $52,500 + 26 cents for each
                                enrollee in excess of 150,000
over 300,000                 $91,500 + 24 cents for each
                                enrollee in excess of 300,000

   The amount paid by each plan shall be for each enrollee enrolled
in its plan in this state as of the preceding March 31, and shall be
fixed by the director by notice to all licensed plans on or before
June 15 of each year.  A plan that is unable to report the number of
enrollees enrolled in the plan because it does not collect that data,
shall provide the director with an estimate of the number of
enrollees enrolled in the plan and the method used for determining
the estimate.  The director may, upon giving written notice to the
plan, revise the estimate if the commissioner determines that the
method used for determining the estimate was not reasonable.
   In determining the amount assessed, the director shall consider
all appropriations from the Managed Care Fund for the support of this
chapter and all reimbursements provided for in this chapter.
   (c) Each licensed plan shall also pay two thousand dollars
($2,000), plus an amount up to, but not exceeding, forty-eight
hundredths of one cent ($0.0048) for each enrollee for the purpose of
reimbursing its share of all costs and expenses, including overhead,
reasonably anticipated to be incurred by the department in
administering Sections 1394.7 and 1394.8 during the current fiscal
year.  The amount charged shall be remitted within 30 days of the
date of billing.
   (d) In no case shall the reimbursement, payment, or other fee
authorized by this section exceed the cost, including overhead,
reasonably incurred in the administration of this chapter.
   (e) The director by notice to all licensed plans on or before
September 15,  2000, may require health care service plans to pay an
additional assessment to provide the department with sufficient
revenues to support the 2000-01 fiscal year costs and expenses as set
forth in this section.
  SEC. 60.  Section 1356.1 of the Health and Safety Code is amended
to read:
   1356.1.  Notwithstanding subdivision (f) of Section 1356, as
amended by Section 2.5 of Chapter 722 of the Statutes of 1991, and
subdivision (d) of Section 1356, as amended by Section 3 of Chapter
722 of the Statutes of 1991, if the director determines that the
charges and assessments set forth in this chapter for any year are in
excess of the amount necessary, or are insufficient, to meet the
expenses of administration of this chapter, for that year, the
assessments and charges for the following year shall be adjusted on a
pro rata basis in accordance with the percentage of the excess or
insufficiency as related to the actual charges and assessments for
the year for which the excess or insufficiency occurred, in order to
recover the actual costs of administration.
  SEC. 61.  Section 1357.03 of the Health and Safety Code is amended
to read:
   1357.03.  (a) Upon the effective date of this article, a plan
shall fairly and affirmatively offer, market, and sell all of the
plan's health care service plan contracts that are sold to small
employers or to associations that include small employers to all
small employers in each service area in which the plan provides or
arranges for the provision of health care services.  A plan
contracting to participate in the voluntary purchasing pool for small
employers provided for under Article 4 (commencing with Section
10730) of Chapter 14 of Part 2 of Division 2 of the Insurance Code
shall be deemed in compliance with this requirement for a contract
offered through the voluntary purchasing pool established under
Article 4 (commencing with Section 10730) of Chapter 14 of Part 2 of
Division 2 of the Insurance Code in those geographic regions in which
plans participate in the pool, if the contract is offered
exclusively through the pool.  Each plan shall make available to each
small employer all small employer health care service plan contracts
which the plan offers and sells to small employers or to
associations that include small employers in this state.  No plan or
solicitor shall induce or otherwise encourage a small employer to
separate or otherwise exclude an eligible employee from a health care
service plan contract that is provided in connection with the
employee's employment or membership in a guaranteed association.
   (b) Every plan shall file with the director the reasonable
employee participation requirements and employer contribution
requirements that will be applied in offering its plan contracts.
Participation requirements shall be applied uniformly among all small
employer groups, except that a plan may vary application of minimum
employee participation requirements by the size of the small employer
group and whether the employer contributes 100 percent of the
eligible employee's premium.  Employer contribution requirements
shall not vary by employer size.  A health care service plan shall
not establish a participation requirement that (1) requires a person
who meets the definition of a dependent in subdivision (a) of Section
1357 to enroll as a dependent if he or she is otherwise eligible for
coverage and wishes to enroll as an eligible employee and (2) allows
a plan to reject an otherwise eligible small employer because of the
number of persons that waive coverage due to coverage through
another employer.  Members of an association eligible for health
coverage under subdivision (o) of Section 1357 but not electing any
health coverage through the association shall not be counted as
eligible employees for purposes of determining whether the guaranteed
association meets a plan's reasonable participation standards.
   (c) The plan may not reject an application from a small employer
for a health care service plan contract if all of the following are
met:
   (1) The small employer, as defined by paragraph (1) of subdivision
(l) of Section 1357 offers health benefits to 100 percent of its
eligible employees, as defined by paragraph (1) of subdivision (b) of
Section 1357.  Employees who waive coverage on the grounds that they
have other group coverage shall not be counted as eligible
employees.
   (2) The small employer agrees to make the required premium
payments.
   (3) The small employer agrees to inform the small employers'
employees of the availability of coverage and the provision that
those not electing coverage must wait one year to obtain coverage
through the group if they later decide they would like to have
coverage.
   (4) The employees and their dependents who are to be covered by
the plan contract work or reside in the service area in which the
plan provides or otherwise arranges for the provision of health care
services.
   (d) No plan or solicitor shall, directly or indirectly, engage in
the following activities:
   (1) Encourage or direct small employers to refrain from filing an
application for coverage with a plan because of the health status,
claims experience, industry, occupation of the small employer, or
geographic location provided that it is within the plan's approved
service area.
   (2) Encourage or direct small employers to seek coverage from
another plan or the voluntary purchasing pool established under
Article 4 (commencing with Section 10730) of Chapter 14 of Part 2 of
Division 2 of the Insurance Code because of the health status, claims
experience, industry, occupation of the small employer, or
geographic location provided that it is within the plan's approved
service area.
   (e) No plan shall, directly or indirectly, enter into any
contract, agreement, or arrangement with a solicitor that provides
for or results in the compensation paid to a solicitor for the sale
of a health care service plan contract to be varied because of the
health status, claims experience, industry, occupation, or geographic
location of the small employer.  This subdivision shall not apply
with respect to a compensation arrangement that provides compensation
to a solicitor on the basis of percentage of premium, provided that
the percentage shall not vary because of the health status, claims
experience, industry, occupation, or geographic area of the small
employer.
   (f) No policy or contract that covers two or more employees may
establish rules for eligibility, including continued eligibility, of
any individual, or dependent of an individual, to enroll under the
terms of the plan based on any of the following health status-related
factors:  (1) health status, (2) medical condition, including
physical and mental illnesses, (3) claims experience, (4) receipt of
health care, (5) medical history, (6) genetic information, (7)
evidence of insurability, including conditions arising out of acts of
domestic violence, or (8) disability.
   (g) Each plan shall comply with the requirements of Section
1374.3.
  SEC. 62.  Section 1357.09 of the Health and Safety Code is amended
to read:
   1357.09.  No plan shall be required to offer a health care service
plan contract or accept applications for such a contract pursuant to
this article in the case of any of the following:
   (a) To a small employer, where the small employer is not
physically located in a plan's approved service areas, or where an
eligible employee and dependents who are to be covered by the plan
contract do not work or reside within a plan's approved service
areas.
   (b) Within a specific service area or portion of a service area
where a plan reasonably anticipates and demonstrates to the
satisfaction of the director that it will not have sufficient health
care delivery resources to assure that health care services will be
available and accessible to the eligible employee and dependents of
the employee because of its obligations to existing enrollees.
   (1) A plan that cannot offer a health care service plan contract
to small employers because it is lacking in sufficient health care
delivery resources within a service area or a portion of a service
area may not offer a contract in the area in which the plan is not
offering coverage to small employers to new employer groups with more
than 50 eligible employees until the plan notifies the director that
it has the ability to deliver services to small employer groups, and
certifies to the director that from the date of the notice it will
enroll all small employer groups requesting coverage in that area
from the plan unless the plan has met the requirements of subdivision
(d).
   (2) Nothing in this article shall be construed to limit the
director's authority to develop and implement a plan of
rehabilitation for a health care service plan whose financial
viability or organizational and administrative capacity have become
impaired.
   (c) Offer coverage to a small employer or an eligible employee as
defined under paragraph (2) of subdivision (b) of Section 1357 which,
within 12 months of application for coverage, disenrolled from a
plan contract offered by the plan.
   (d) The director approves the plan's certification that the number
of eligible employees and dependents enrolled under contracts issued
during the current calendar year equals or exceeds (1) in the case
of a plan that administers any self-funded health coverage
arrangements in California, 10 percent of the total enrollment of the
plan in California as of December 31 of the preceding year, or (2)
in the case of a plan that does not administer any self-funded health
coverage arrangements in California, 8 percent of the total
enrollment of the plan in California as of December 31 of the
preceding year.  If that certification is approved, the plan shall
not offer any health care service plan contract to any small
employers during the remainder of the current year.
   (1) If a health care service plan treats an affiliate or
subsidiary as a separate carrier for the purpose of this article
because one health care service plan is qualified under the federal
Health Maintenance Organization Act and does not offer coverage to
small employers, while the affiliate or subsidiary offers a plan
contract that is not qualified under the federal Health Maintenance
Organization Act and offers plan contracts to small employers, the
health care service plan offering coverage to small employers shall
enroll new eligible employees and dependents, equal to the applicable
percentage of the total enrollment of both the health care service
plan qualified under the federal Health Maintenance Organization Act
and its affiliate or subsidiary.
   (2) The certified statement filed pursuant to this subdivision
shall state the following:
   (A) Whether the plan administers any self-funded health coverage
arrangements in California.
   (B) The plan's total enrollment as of December 31 of the preceding
year.
   (C) The number of eligible employees and dependents enrolled under
contracts issued to small employer groups during the current
calendar year.
   The director shall, within 45 days, approve or disapprove the
certified statement.  If the certified statement is disapproved, the
plan shall continue to issue coverage as required by Section 1357.03
and be subject to disciplinary action as set forth in Article 7
(commencing with Section 1386).
   (e) A health care service plan that, as of December 31 of the
prior year, had a total enrollment of fewer than 100,000 and 50
percent or more of the plan's total enrollment have premiums paid by
the Medi-Cal program.
   (f) A social health maintenance organization, as described in
subdivision (a) of Section 2355 of the federal Deficit Reduction Act
of 1984 (Public Law 97-369), that, as of December 31 of the prior
year, had a total enrollment of fewer than 100,000 and has 50 percent
or more of the organization's total enrollment premiums paid by the
Medi-Cal program or Medicare programs, or by a combination of
Medi-Cal and Medicare.  In no event shall this exemption be based
upon enrollment in Medicare supplement contracts, as described in
Article 3.5 (commencing with Section 1358).
  SEC. 63.  Section 1357.10 of the Health and Safety Code is amended
to read:
   1357.10.  The director may require a plan to discontinue the
offering of contracts or acceptance of applications from any small
employer or group with more than 50 employees upon a determination by
the director that the plan does not have sufficient financial
viability, or organizational and administrative capacity to assure
the delivery of health care services to its enrollees.  In
determining whether the conditions of this section have been met, the
director shall consider, but not be limited to, the plan's
compliance with the requirements of Section 1367, Article 6
(commencing with Section 1375), and the rules adopted thereunder.
  SEC. 64.  Section 1357.11 of the Health and Safety Code is amended
to read:
   1357.11.  All health care service plan contracts offered to a
small employer shall be renewable with respect to all eligible
employees or dependents at the option of the contractholder or small
employer except:
   (a) For nonpayment of the required premiums by the contractholder
or small employer.
   (b) For fraud or misrepresentation by the contractholder or small
employer or, with respect to coverage of individuals, the individuals
or their representatives.
   (c) For noncompliance with a plan's participation or employer
contribution requirements at the time of renewal.
   (d) When the plan ceases to provide or arrange for the provision
of health care services for new small employer health care service
plan contracts in this state; provided, however, that the following
conditions are satisfied:
   (1) Notice of the decision to cease new or existing small employer
health benefits plans in this state is provided to the director and
to either the contractholder or small employer at least 180 days
prior to the discontinuation of the coverage.
   (2) Small employer health care service plan contracts subject to
this chapter shall not be canceled for 180 days after the date of the
notice required under paragraph (1) and for that business of a plan
which remains in force, any plan that ceases to offer for sale new
small employer health care service plan contracts shall continue to
be governed by this article with respect to business conducted under
this article.
   (3) Except as authorized under subdivision (d) of Section 1357.09
and Section 1357.10, a plan that ceases to write new small employer
business in this state after the effective date of this article shall
be prohibited from offering for sale new small employer health care
service plan contracts in this state for a period of five years from
the date of notice to the director.
   (e) When the plan withdraws a health care service plan contract
from the small employer market; provided, the plan notifies all
affected contractholders or small employers and the director at least
90 days prior to the discontinuation of those contracts, and the
plan makes available to the small employer all plan contracts that it
makes available to new small employer business; and provided, that
the premium for the new plan contract complies with the renewal
increase requirements set forth in Section 1357.12.
  SEC. 65.  Section 1357.15 of the Health and Safety Code is amended
to read:
   1357.15.  (a) At least 20 business days prior to renewing or
amending a plan contract subject to this article which will be in
force on the operative date of this article, a plan shall file a
notice of material modification with the director in accordance with
the provisions of Section 1352.  The notice of material modification
shall include a statement certifying that the plan is in compliance
with subdivision (j) of Section 1357 and Section 1357.12.  The
certified statement shall set forth the standard employee risk rate
for each risk category and the highest and lowest risk adjustment
factors that will be used in setting the rates at which the contract
will be renewed or amended.  Any action by the director, as permitted
                                           under Section 1352, to
disapprove, suspend or postpone the plan's use of a plan contract
shall be in writing, specifying the reasons that the plan contract
does not comply with the requirements of this chapter.
   (b) At least 20 business days prior to offering a plan contract
subject to this article, all plans shall file a notice of material
modification with the director in accordance with the provisions of
Section 1352.  The notice of material modification shall include a
statement certifying that the plan is in compliance with subdivision
(j) of Section 1357 and Section 1357.12.  The certified statement
shall set forth the standard employee risk rate for each risk
category and the highest and lowest risk adjustment factors that will
be used in setting the rates at which the contract will be offered.
Plans that will be offering to a small employer plan contracts
approved by the director prior to the effective date of this article
shall file a notice of material modification in accordance with this
subdivision.  Any action by the director, as permitted under Section
1352, to disapprove, suspend or postpone the plan's use of a plan
contract shall be in writing, specifying the reasons that the plan
contract does not comply with the requirements of this chapter.
   (c) Prior to making any changes in the risk categories, risk
adjustment factors or standard employee risk rates filed with the
director pursuant to subdivision (a) or (b), the plan shall file as
an amendment a statement setting forth the changes and certifying
that the plan is in compliance with subdivision (j) of Section 1357
and Section 1357.12.  A plan may commence offering plan contracts
utilizing the changed risk categories set forth in the certified
statement on the 31st day from the date of the filing, or at an
earlier time determined by the director, unless the director
disapproves the amendment by written notice, stating the reasons
therefor.  If only the standard employee risk rate is being changed,
and not the risk categories or risk adjustment factors, a plan may
commence offering plan contracts utilizing the changed standard
employee risk rate upon filing the certified statement unless the
director disapproves the amendment by written notice.
   (d) Periodic changes to the standard employee risk rate that a
plan proposes to implement over the course of up to 12 consecutive
months may be filed in conjunction with the certified statement filed
under subdivision (a), (b), or (c).
   (e) Each plan shall maintain at its principal place of business
all of the information required to be filed with the director
pursuant to this section.
   (f) Each plan shall make available to the director, on request,
the risk adjustment factor used in determining the rate for any
particular small employer.
   (g) Nothing in this section shall be construed to limit the
director's authority to enforce the rating practices set forth in
this article.
  SEC. 66.  Section 1357.16 of the Health and Safety Code is amended
to read:
   1357.16.  (a) Health care service plans may enter into contractual
agreements with qualified associations, as defined in subdivision
(b), under which these qualified associations may assume
responsibility for performing specific administrative services, as
defined in this section, for qualified association members.  Health
care service plans that enter into agreements with qualified
associations for assumption of administrative services shall
establish uniform definitions for the administrative services that
may be provided by a qualified association or its third-party
administrator.  The health care service plan shall permit all
qualified associations to assume one or more of these functions when
the health care service plan determines the qualified association
demonstrates the administrative capacity to assume these functions.
   For the purposes of this section, administrative services provided
by qualified associations or their third-party administrators shall
be services pertaining to eligibility determination, enrollment,
premium collection, sales, or claims administration on a per-claim
basis that would otherwise be provided directly by the health care
service plan or through a third-party administrator on a commission
basis or an agent or solicitor work force on a commission basis.
   Each health care service plan that enters into an agreement with
any qualified association for the provision of administrative
services shall offer all qualified associations with which it
contracts the same premium discounts for performing those services
the health care service plan has permitted the qualified association
or its third-party administrator to assume.  The health care service
plan shall apply these uniform discounts to the health care service
plan's risk adjusted employee risk rates after the health plan has
determined the qualified association's risk adjusted employee risk
rates pursuant to Section 1357.12.  The health care service plan
shall report to the Department of Managed Care its schedule of
discount for each administrative service.
   In no instance may a health care service plan provide discounts to
qualified associations that are in any way intended to, or
materially result in, a reduction in premium charges to the qualified
association due to the health status of the membership of the
qualified association.  In addition to any other remedies available
to the director to enforce this chapter, the director may declare a
contract between a health care service plan and a qualified
association for administrative services pursuant to this section null
and void if the director determines any discounts provided to the
qualified association are intended to, or materially result in, a
reduction in premium charges to the qualified association due to the
health status of the membership of the qualified association.
   (b) For the purposes of this section, a qualified association is a
nonprofit corporation comprised of a group of individuals or
employers who associate based solely on participation in a specified
profession or industry, that conforms to all of the following
requirements:
   (1) It accepts for membership any individual or small employer
meeting its membership criteria.
   (2) It does not condition membership directly or indirectly on the
health or claims history of any person.
   (3) It uses membership dues solely for and in consideration of the
membership and membership benefits, except that the amount of the
dues shall not depend on whether the member applies for or purchases
insurance offered by the association.
   (4) It is organized and maintained in good faith for purposes
unrelated to insurance.
   (5) It existed on January 1, 1972, and has been in continuous
existence since that date.
   (6) It has a constitution and bylaws or other analogous governing
documents that provide for election of the governing board of the
association by its members.
   (7) It offered, marketed, or sold health coverage to its members
for 20 continuous years prior to January 1, 1993.
   (8) It agrees to offer only to association members any plan
contract.
   (9) It agrees to include any member choosing to enroll in the plan
contract offered by the association, provided that the member agrees
to make required premium payments.
   (10) It complies with all provisions of this article.
   (11) It had at least 10,000 enrollees covered by association
sponsored plans immediately prior to enactment of Chapter 1128 of the
Statutes of 1992.
   (12) It applies any administrative cost at an equal rate to all
members purchasing coverage through the qualified association.
   (c) A qualified association shall comply with Section 1357.52.
   (d) The department shall monitor compliance with this section and
report the impact of any noncompliance to the Assembly Insurance
Committee and the Senate Insurance Committee on January 1, 2002.
   (e) This section shall remain in effect only until January 1,
2003, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2003, deletes or extends
that date.
  SEC. 67.  Section 1357.17 of the Health and Safety Code is amended
to read:
   1357.17.  The director may issue regulations that are necessary to
carry out the purposes of this article.  Prior to the public comment
period required on the regulations under the Administrative
Procedure Act, the director shall provide the Insurance Commissioner
with a copy of the proposed regulations.  The Insurance Commissioner
shall have 30 days to notify the director in writing of any comments
on the regulations.  The Insurance Commissioner's comments shall be
included in the public notice issued on the regulations.  Any rules
and regulations adopted pursuant to this article may be adopted as
emergency regulations in accordance with the Administrative Procedure
Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code).  Until December 31,
1994, the adoption of these regulations shall be deemed an emergency
and necessary for the immediate preservation of the public peace,
health and safety or general welfare.
  SEC. 68.  Section 1357.53 of the Health and Safety Code is amended
to read:
   1357.53.  All group health benefit plans shall be renewable with
respect to the contractholder or employer except as follows:
   (a) For nonpayment of the required premiums by the contractholder
or employer.
   (b) For fraud or other intentional misrepresentation of material
fact by the contractholder or employer.
   (c) For noncompliance with a material plan contract provision.
   (d) If the plan ceases to provide or arrange for the provision of
health care services for new health benefit plans in the state;
provided, however, that the following conditions are satisfied:
   (1) Notice of the decision to cease new or existing group health
benefit plans in the state shall be provided to the director and to
either the contractholder or employer at least 180 days prior to
discontinuation of this coverage.
   (2) Group health benefit plans shall not be canceled for 180 days
after the date of the notice required under paragraph (1) and for
that business of a plan that remains in force, any plan that ceases
to offer for sale new group health benefit plans shall continue to be
governed by this section with respect to business conducted under
this section.
   (3) Except as authorized under subdivision (d) of Section 1357.09
and Section 1357.10, a plan that ceases to write new group health
benefit plans in this state after the effective date of this section
shall be prohibited from offering for sale group health benefit plans
in this state for a period of five years from the date of notice to
the director.
   (e) If the plan withdraws a group health benefit plan from the
market; provided, that the plan notifies all affected contractholders
or employers and the director at least 90 days prior to the
discontinuation of these plans, and that the plan makes available to
the employer all health benefit plans that it makes available to new
employer business without regard to the claims experience or
health-related factors of enrollees.
  SEC. 69.  Section 1357.54 of the Health and Safety Code is amended
to read:
   1357.54.  All individual health benefit plans, except for
short-term limited duration insurance, shall be renewable with
respect to all eligible individuals or dependents at the option of
the individual except as follows:
   (a) For nonpayment of the required premiums or contributions by
the individual in accordance with the terms of the health insurance
coverage or the timeliness of the payments.
   (b) For fraud or intentional misrepresentation of material fact
under the terms of the coverage by the individual.
   (c) Movement of the individual contractholder outside the service
area, but only if the coverage is terminated uniformly without regard
to any health status-related factor of covered individuals.
   (d) If the plan ceases to provide or arrange for the provision of
health care services for new individual health benefit plans in this
state; provided, however, that the following conditions are
satisfied:
   (1) Notice of the decision to cease new or existing individual
health benefit plans in the state is provided to the director and to
the individual at least 180 days prior to discontinuation of that
coverage.
   (2) Individual health benefit plans shall not be canceled for 180
days after the date of the notice required under paragraph (1) and
for that business of a plan that remains in force, any plan that
ceases to offer for sale new individual health benefit plans shall
continue to be governed by this section with respect to business
conducted under this section.
   (3) A plan that ceases to write new individual health benefit
plans in this state after the effective date of this section shall be
prohibited from offering for sale individual health benefit plans in
this state for a period of five years from the date of notice to the
director.
   (e) If the plan withdraws an individual health benefit plan from
the market; provided, that the plan notifies all affected individuals
and the director at least 90 days prior to the discontinuation of
these plans, and that the plan makes available to the individual all
health benefit plans that it makes available to new individual
business without regard to any health status-related factor of
enrolled individuals or individuals who may become eligible for the
coverage.
  SEC. 70.  Section 1358 of the Health and Safety Code is amended to
read:
   1358.  Every health care service plan that offers any contract
that primarily or solely supplements Medicare, or is advertised or
represented as a supplement to Medicare, shall, in addition to
complying with this chapter and rules of the director, comply with
this article.  This article shall not apply to a contract or other
arrangement of a health care service plan that offers benefits under
Section 1395mm of Title 42 of the United States Code or under a
demonstration project authorized pursuant to amendments to the
federal Social Security Act.  This article shall not apply to a
contract of one or more employers or labor organizations, or of the
trustees of a fund established by one or more employers or labor
organizations, or combination thereof, for employees or former
employees, or a combination thereof, or for members or former
members, or a combination thereof, of the labor organizations.
   As used in this chapter, "Medicare" means the Health Insurance for
the Aged Act, Title XVIII of the Social Security Amendments of 1965,
Title 1, Part 1 of Public Law 89-97, enacted by the 89th United
States Congress; as then constituted or as later amended.
  SEC. 71.  Section 1358.1 of the Health and Safety Code is amended
to read:
   1358.1.  A plan offering contracts to supplement Medicare shall do
all of the following:
   (a) Meet the minimum benefit standards as established by the
director.
   (b) Provide an examination period of 30 days after the receipt of
the contract for purposes of review of the contract at which time the
applicant may return the contract.  The return shall void the
contract from the beginning, and the parties shall be in the same
position as if no policy or contract had been issued.  All premiums
paid and any policy fee paid for the policy shall be fully refunded
to the owner by the plan in a timely manner.
   (1) Each plan contract or certificate shall have a notice
prominently printed in no less than 10-point upper case type, on the
cover page of the plan contract or certificate or attached thereto,
and on the cover page of the outline of coverage, stating that the
applicant has the right to return the plan contract or certificate
within 30 days after its receipt via regular mail, and to have the
full premium refunded.
   (2) For purposes of this section, a timely manner shall be no
later than 30 days after the plan or entity issuing the contract or
certificate receives the returned contract or certificate.
   (3) If the plan or entity issuing the contract or certificate
fails to refund all premiums paid in a timely manner, then the
applicant shall receive interest on the paid premium at the legal
rate of interest on judgments as provided in Section 685.010 of the
Code of Civil Procedure.  The interest shall be paid from the date
the plan or entity received the returned contract or certificate.
   (c) Explain the relationship of the coverage under the contract to
the benefits provided by Medicare.
   (d) Not be limited to coverage exclusively for a single disease or
affliction.
   (e) If the plan contract or policy does not cover custodial care,
the cover page of the outline of coverages required by subdivision
(c) shall contain the following statement in upper case type:  "THIS
POLICY DOES NOT COVER CUSTODIAL CARE IN A SKILLED NURSING CARE
FACILITY."
  SEC. 72.  Section 1358.2 of the Health and Safety Code is amended
to read:
   1358.2.  (a) The disclosure form required pursuant to Section 1363
and applicable regulations, if it relates to a contract that
primarily or solely supplements Medicare, with hospital or medical
coverage shall also set forth the following information in the format
indicated:
   (1) With the information required by paragraph (1) of subdivision
(b) of Section 1300.63 of Title 10 of the California Code of
Regulations, conspicuously identify, on the first page of the
disclosure form immediately under the plan name, the disclosure form
as being for the plan's Medicare supplement contract.
   (2) If the Medicare supplement contract is issued on a basis not
identical to that described in the disclosure form previously
provided, a corrected disclosure form shall also be provided in
accordance with Section 1363 when the contract is delivered and shall
contain the following statement, in no less than 12-point type on
the first page, immediately above the company name:

   "NOTICE:  Read this disclosure form carefully.  It is not
identical to the disclosure form previously provided and the coverage
originally applied for has not been issued."
   (3) The outline of coverage provided to applicants pursuant to
this section shall consist of four parts:  a cover page, premium
information, disclosure pages, and charts displaying the features of
each benefit plan offered by the plan.
   The cover page shall include the items, in the same order,
specified in the chart set forth in paragraph (4) of subdivision (C)
of Section 16 of the Model Regulation to Implement the NAIC Medicare
Supplement Insurance Minimum Standards Model Act, as adopted by the
National Association of Insurance Commissioners on July 30, 1991.
All benefit plans "A" through "J" shall be shown on the cover page,
and the plan or plans that are offered by the plan shall be
prominently identified.
   All possible charges for benefit plans that are offered shall be
shown on the cover page or immediately following the cover page and
shall be prominently displayed. All possible charges shall be stated
for all benefit plans that are offered to the prospective applicant.
All possible charges for the prospective applicant shall be
illustrated.
   The disclosure pages shall be in the language and format described
below in no less than 12-point type.
      PREMIUM INFORMATION

   (Insert plan's name) can only raise your premium if it raises the
premium for all contracts like yours in this state.  (If the premium
is based on the increasing age of the enrollee, include information
specifying when premiums will change.)
      DISCLOSURES

   Use this outline to compare benefits and premiums among policies.

      READ YOUR POLICY VERY CAREFULLY

   This is only an outline describing the most important features of
your Medicare supplement plan contract.  This is not the plan
contract and only the actual contract provisions will control.  You
must read the contract itself to understand all of the rights and
duties of both you and (insert the health care service plan's name).

      RIGHT TO RETURN POLICY

   If you find that you are not satisfied with your contract, you may
return it to (insert plan's address).  If you send the contract back
to us within 30 days after you receive it, we will treat the
contract as if it had never been issued and return all of your
payments.
      POLICY REPLACEMENT

   If you are replacing other health coverage, do NOT cancel it until
you have actually received your new contract and are sure you want
to keep it.
      NOTICE

   This contract may not fully cover all of your medical costs.
Neither (insert the health care service plan's name) nor its agents
are connected with Medicare.
   This outline of coverage does not give all the details of Medicare
coverage.  Contact your local Social Security office or consult "The
Medicare Handbook" for further details and limitations applicable to
Medicare.
      COMPLETE ANSWERS ARE VERY IMPORTANT

   When you fill out the application for the new contract, be sure to
answer truthfully and completely all questions about your medical
and health history.  The company may cancel your contract and refuse
to pay any claims if you leave out or falsify important medical
information.  (If the contract is guaranteed issue, this paragraph
need not appear.)  Review the application carefully before you sign
it.  Be certain that all information has been properly recorded. (The
charts displaying the features of each benefit plan offered by the
plan shall use the uniform format and language shown in the charts
set forth in Section 16 of the Model Regulation to Implement the NAIC
Medicare Supplement Insurance Minimum Standards Model Act, as
adopted by the National Association of Insurance Commissioners on
July 30, 1991.  No more than four benefit plans may be shown on one
chart.  For purposes of illustration, charts for each benefit plan
are set forth below.  A plan may use additional benefit plan
designations on these charts.)
   (Include an explanation of any innovative benefits on the cover
page and in the chart, in a manner approved by the director.)
   (b) Notwithstanding Section 1300.63.2 of Title 10 of the
California Code of Regulations, no plan shall combine the evidence of
coverage and disclosure form into a single document relating to a
contract that supplements Medicare, or is advertised or represented
as a supplement to Medicare, with hospital or medical coverage.
   (c) Notwithstanding this section, a plan shall not be required to
comply with this section with respect to any group contract that is
any of the following:
   (1) A group contract with one or more employers or labor
organizations, or trustees of a fund established by one or more
employers or labor organizations, or combination thereof, for
employees or former employees or combination thereof or for members
or former members, or combination thereof, of the labor
organizations.
   (2) A group contract with any professional, trade, or occupational
association for its members or former or retired members, or
combination thereof, if the association is composed of individuals
all of whom are actively engaged in the same profession, trade or
occupation, has been maintained in good faith for purposes other than
obtaining health coverage, and has been in existence for at least
two years prior to the date of its initial offering of the contract
to its members.
  SEC. 73.  Section 1358.4 of the Health and Safety Code is amended
to read:
   1358.4.  (a) In the interest of full and fair disclosure, and to
assure the availability of necessary consumer information to
potential subscribers or enrollees not possessing a special knowledge
of Medicare, health care service plans, and Medicare supplement
contracts, a health care service plan offering contracts to
supplement Medicare shall comply with the provisions of subdivision
(b).
   (b) The application form or other consumer information for persons
eligible for Medicare and used by a plan described in subdivision
(a) shall contain as an attachment a Medicare supplement buyer's
guide in the form approved by the director.  The application or other
consumer information, containing as an attachment the buyer's guide,
shall be mailed or delivered to each person applying for that
coverage at or before the time of application and, to establish
compliance with this subdivision, the plan shall obtain an
acknowledgment of receipt of the attached buyer's guide from each
applicant.  No plan shall make use of or otherwise disseminate any
buyer's guide that does not accurately outline current Medicare
benefits.  No plan shall be required to provide more than one copy of
the buyer's guide to any applicant.
   (c) A plan may comply with the requirement of this section in the
case of group contracts by causing the group contractholder (1) to
disseminate copies of the disclosure form containing as an attachment
the buyer's guide to all persons eligible under the group contract
at the time those persons are offered the plan, and (2) collecting
and forwarding to the plan an acknowledgment of receipt of the
disclosure form containing as an attachment the buyer's guide from
each person described in paragraph (1).
   (d) Notwithstanding the provisions of this section, a plan shall
not be required to comply with the provisions of this section with
respect to any group contract that is any of the following:
   (1) A group contract with one or more employers or labor
organizations, or trustees of a fund established by one or more
employers or labor organizations, or combination thereof, for
employees, or former employees or combination thereof, or for members
or former members, or combination thereof, of the labor
organizations.
   (2) A group contract with any professional, trade, or occupational
association for its members or former or retired members, or
combination thereof, if the association is composed of individuals
all of whom are actively engaged in the same profession, trade or
occupation, has been maintained in good faith for purposes other than
obtaining health coverage, and has been in existence for at least
two years prior to the date of its initial offering of the contract
to its members.
  SEC. 74.  Section 1358.6 of the Health and Safety Code is amended
to read:
   1358.6.  (a) On or before March 1 of each year, a health care
service plan offering contracts to supplement Medicare, shall report
to the director the following information for every individual
resident of this state for which the plan has in force more than one
Medicare supplement contract:
                            (1) Contract name.
   (2) Date of Issuance.
   (b) The items set forth above shall be grouped by enrollee.
  SEC. 75.  Section 1358.9 of the Health and Safety Code is amended
to read:
   1358.9.  (a) A contract offered to supplement Medicare shall be
deemed not to be fair, just, or consistent with the objectives of the
Knox-Keene Health Care Service Plan Act of 1975 at all times, and
shall not be advertised, solicited for, entered, or renewed at any
time, except during that period of time, if any, beginning with the
date of receipt by the plan of notification by the director that the
provisions of the contract are deemed to be fair, just, and
consistent with the objectives of this chapter, and ending with the
earlier to occur of the events indicated in subdivision (b).
   (b) The period of time indicated in subdivision (a) shall
terminate at the earlier to occur of (1) receipt by the plan of
written revocation by the director of the immediate past notification
referred to in subdivision (a) specifying the basis for the
revocation, (2) the last day of the prepaid or periodic charge
calculation period, that in no event may exceed one year, or (3) June
30, of the next succeeding calendar year.
   (c) A plan shall secure the director's review of a plan contract
subject to this article by submitting, not less than 30 days prior to
any proposed advertising or other use of the plan contract not
already protected by a currently effective notice under subdivision
(a), the following for the director's review:
   (1) A copy of the plan contract.
   (2) A copy of the disclosure form.
   (3) A representation that the plan contract complies with the
provisions of this chapter and the rules adopted thereunder.
   (4) A completed copy of the "Medicare Supplement Health Care
Service Plan Contract Experience Exhibit" set forth in Section
1358.17.
   (5) A copy of the calculations for the actual or expected loss
ratio.
   (6) Supporting data used in calculating the actual or expected
loss ratio as indicated in Section 1358.11.
   (7) An actuarial certification, as specified in Section 1358.11 of
the loss ratio computations.
   (8) If required by the director, actuarial certification, as
specified in Section 1358.11, of the loss ratio computations by one
or more unaffiliated actuaries acceptable to the director.
   (9) An undertaking by the plan to notify the subscribers in
writing within 60 days of decertification, if the contract is
identified as a certified contract at the time of sale and later
decertified.
   (10) A signed statement of the president of the plan or other
officer of the plan designated by that person attesting that the
information submitted for review is accurate and complete and does
not misrepresent any material fact.
   (d) A plan that submits information pursuant to subdivision (c)
shall provide such additional information as may be requested by the
director to enable the director to conclude that the plan contract
complies with the provisions of this chapter and rules adopted
thereunder.
   (e) For the purposes of this section, the term "decertified," as
applied to a plan contract, means that the director by written notice
has found that the contract no longer complies with the provisions
of this chapter and the rules adopted thereunder and has revoked the
prior authorization to display on the plan contract the emblem
indicating certification.
   (f) Notwithstanding the other provisions of the section, this
section shall not apply to any group contract that is all of the
following:
   (1) A group contract with one or more employers or labor
organizations, or of the trustee of a fund established by one or more
employers or labor organizations, or combination thereof, for
employees, or former employees, or combination thereof, or for
members or former members, or combination thereof, of the labor
organization.
   (2) A group contract with any professional, trade, or occupational
association for its members or former or retired members, or
combination thereof, if the association is composed of individuals
all of whom are actively engaged in the same profession, trade, or
occupation, has been maintained in good faith for purposes other than
obtaining health coverage, and has been in existence for at least
two years prior to the date of its initial offering of the contract
to its members.
  SEC. 76.  Section 1358.10 of the Health and Safety Code is amended
to read:
   1358.10.  (a) No plan subject to this article may advertise,
solicit for, enter, or renew any plan contract that primarily or
solely supplements Medicare, or is advertised or represented as a
supplement to Medicare, with hospital or medical coverage if the
contract contains any of the prohibited provisions described in
subdivision (b), does not contain any of the mandatory provisions
described in subdivision (c), or does not conform to the requirements
set forth in subdivision (d).  No plan contract that primarily or
solely supplements Medicare shall contain benefits that duplicate
benefits provided by Medicare.
   (b) The following provisions shall be deemed to be unfair,
unreasonable, and inconsistent with the objectives of this chapter
and shall not be contained in any plan contract subject to
subdivision (a):
   (1) Any waiver, exclusion, limitation, or reduction based on or
relating to a preexisting disease or physical condition, unless that
waiver, exclusion, limitation, or reduction (A) applies only to
coverage for specified services rendered not more than six months
from the effective date of coverage, (B) is based on or relates only
to a preexisting disease or physical condition defined no more
restrictively than a condition for which medical advice was given or
treatment was recommended by or received from a physician within six
months before the effective date of coverage, (C) does not apply to
any coverage under any group contract, and (D) is approved in advance
by the director.  Any limitations with respect to a preexisting
condition shall appear as a separate paragraph of the contract and be
labeled "Preexisting Condition Limitations."
   (2) Any provision delaying the effective date of coverage beyond
the first day of the month following the date of receipt by the plan
of the applicant's properly completed application, except that the
effective date of coverage may be delayed until the 65th birthday of
an applicant who is to become eligible for Medicare by reason of age
if the application is received any time during the three months
immediately preceding the applicant's 65th birthday.
   (3) Any distinction in coverage based on whether health care
services are provided because of illness or injury.
   (4) The terms "Medicare supplement," "Medicare Wrap-Around," or
terms of similar import to characterize a plan contract, unless the
contract is in compliance with the provisions of this chapter and
this article.  The term "medigap," shall not be used.
   (5) Any provision allowing termination of coverage of a spouse
solely because of the occurrence of an event specified for
termination of coverage of the subscriber, other than the nonpayment
of the prepaid or periodic charge.
   (6) Except with respect to a group contract subject to and in
compliance with Section 1399.62, any provision denying coverage,
after termination of the contract, for services provided continuously
beginning while the contract was in effect, during the continuous
total disability of the subscriber or enrollee, except that the
coverage may be limited to a reasonable period of time not less than
the duration of the contract benefit period, if any, and may be
limited to the maximum benefits provided under the contract.
   (7) Any definition, condition, limitation, exclusion, reduction,
or other provision that is inconsistent with or more restrictive or
limiting than that term as officially used in Medicare, except as
expressly authorized in this chapter.
   (c) A plan contract shall be deemed to be unfair, unreasonable,
and inconsistent with the objectives of this chapter and shall not be
advertised, solicited for, entered, or renewed unless it contains
the following mandatory provisions:
   (1) Prominently printed on the first page of the contract, a
notice stating in substance that the subscriber or enrollee shall
have the right to return the contract within 30 days of its delivery
and to have the prepaid or periodic charge refunded if, after
examination of the contract, the covered person is not satisfied for
any reason.
   (2) Appropriately captioned, and appearing on the first page of
the contract, a provision regarding renewal or continuation.  The
provision shall be consistent with subdivision (a) of Section 1365
and the rules adopted thereunder and shall include any reservation by
the plan of the right to change prepaid or periodic charges and any
automatic renewal increases based on the enrollee's age.
   (3) Benefits designed to cover cost sharing amounts under Medicare
will be changed automatically to coincide with any changes in the
applicable Medicare deductible amount and copayment percentage
factors and the amount of prepaid charges may be modified, as
indicated in paragraph (6) of subdivision (a) of Section 1300.67.4 of
the California Code of Regulations, to correspond with those
changes.
   (4) The health care service plan shall not in any way reduce or
eliminate any benefit or coverage under a Medicare supplement
contract at any time after the date of entering the contract,
including dates of reinstatement or renewal, unless and until the
change is voluntarily agreed to in writing signed by the subscriber
or enrollee, or is required to reduce or eliminate benefits to avoid
duplication of Medicare benefits.  The health care service plan shall
not increase benefits or coverage with a concomitant increase in
prepaid or periodic charges during the term of the contract unless
and until the change is voluntarily agreed to in writing signed by
the subscriber or enrollee or unless the increased benefits or
coverage is required by law or regulation.
   (5) A plan contract shall not provide for the payment of benefits
based on standards described as "usual and customary," "reasonable
and customary," or words of similar import.
   (6) The plan contract shall contain the provisions required to be
set forth in the plan contract by Section 1300.67.4 of the California
Code of Regulations.
   (d) A plan contract subject to subdivision (a) shall be deemed to
be unfair, unreasonable, and inconsistent with the objectives of this
chapter and shall not be advertised, solicited for, entered, or
renewed unless the contract contains definitions of terms in
compliance with the following requirements:
   (1) "Accident," "accidental injury," or "accidental means," if
defined, shall be defined without including words that establish an
accidental means test or use words such as "external, violent,
visible wounds" or similar words of description or characterization.
The definition shall not be more restrictive than the following:
"Injury or injuries for which benefits are provided," means
accidental bodily injury sustained by the covered person.
   (2) "Benefit period" or "Medicare benefit period" shall not be
defined more restrictively than as defined in the Medicare program.
   (3) "Convalescent nursing home," "extended care facility," or
"skilled nursing facility" shall not be defined more restrictively
than as defined in the federal Medicare program.
   (4) "Health care expenses" may include expenses associated with
the delivery of health care services, but shall not include (A) home
office and overhead costs, (B) advertising costs, (C) commissions and
other acquisition costs, (D) taxes, (E) capital costs, (F)
administrative costs, or (G) claims processing costs.
   (5) "Hospital" may be defined in relation to its status,
facilities and available services or to reflect its accreditation by
the Joint Commission on Accreditation of Hospitals but not more
restrictively than as defined in the federal Medicare program.
   (6) "Medicare" shall be defined in the contract.  Medicare may be
substantially defined as "The Health Insurance for the Aged Act,
Title XVIII of the Social Security Amendments of 1965 as then
constituted or later amended," or "Title I, Part I of Public Law
89-97, as enacted by the Eighty-Ninth Congress of the United States
of America and popularly known as the Health Insurance for the Aged
Act, as then constituted and any later amendments or substitutes
thereof," or words of similar import.
   (7) "Medicare eligible expenses" shall mean expenses of the kinds
covered by Medicare, to the extent recognized as reasonable and
medically necessary by Medicare.
   (8) "Physician" shall not be defined more restrictively than as
defined in the federal Medicare program.
   (9) "Sickness," if defined, shall not be defined to be more
restrictive than the following: "Sickness means illness or disease of
a covered person."
   (e) Nothing in this section shall be construed as prohibiting any
plan contract, by definitions or express provisions, from limiting or
restricting any or all of the benefits provided under the contract,
except in-area and out-of-area emergency services, to those health
care services that are delivered by plan employed, owned, or
contracting providers and provider facilities, so long as the plan
contract complies with the provisions of Sections 1367 and 1358.11
and with Section 1300.67 of the California Code of Regulations.
   (f) Nothing in this section shall be construed as prohibiting any
plan contract that limits or restricts any or all of the benefits
provided under the contract in the manner contemplated in subdivision
(e) from limiting its obligation to deliver services, and
disclaiming any liability from any delay or failure to provide those
services (1) in the event of a major disaster or epidemic or (2) in
the event of circumstances not reasonably within the control of the
plan, such as the partial or total destruction of facilities, war,
riot, civil insurrection, disability of a significant part of its
health personnel, or similar circumstances so long as the provisions
comply with the provisions of subdivision (h) of Section 1367.
  SEC. 77.  Section 1358.11 of the Health and Safety Code is amended
to read:
   1358.11.  (a) No plan subject to this article may advertise,
solicit for, enter, or renew any plan contract that primarily or
solely supplements Medicare, or is advertised or represented as a
supplement to Medicare, with hospital or medical coverage unless the
contract returns to the subscribers and enrollees in the form of
aggregate benefits under the contract, not including anticipated
refunds or credits, as estimated for the entire period for which
prepaid or periodic charges are computed to provide coverage, on the
basis of incurred claims or costs of health care services experience
and earned prepaid or periodic charges for that period and in
accordance with accepted actuarial principles and practices:
   (1) At least 75 percent of the aggregate amount of prepaid or
periodic charges collected in the case of group contracts.
   (2) At least 65 percent of the aggregate amount of prepaid or
periodic charges collected in the case of individual contracts.
   (b) The calculation of actual or expected loss ratios shall be
pursuant to that formula, definitions, procedures, and other
provisions as may be deemed by the director, with due consideration
of the circumstances of the particular plan, to be fair, reasonable,
and consistent with the objectives of this chapter.  These loss
ratios shall also apply to prestandardized plan contracts and
certificates issued prior to July 21, 1992, the date mandated for
standardized Medicare supplement coverage by the Omnibus Budget
Reconciliation Act of 1990 (P.L. 101-508).
   (c) Each plan subject to subdivision (a) shall submit to the
department a copy of the calculations for the actual or expected loss
ratio as required by Section 1358.9.  The calculations shall include
the following data:  the actual loss ratio for the entire period in
which the plan contract has been in force, as well as for the
immediate past three years and for each year in which the plan
contract has been in force; the scale of prepaid or periodic charges
for the loss ratio calculation period, a description of all
assumptions, the formula used to calculate gross prepaid or periodic
charges, the expected level of earned prepaid or periodic charges in
the loss ratio calculation period, and the expected level of incurred
claims for reimbursement, including paid claims and incurred but not
paid claims, in the loss ratio calculation period.  The calculations
shall be accompanied by an actuarial certification, consisting of a
signed declaration of an actuary who is a member in good standing of
the American Academy of Actuaries in which the actuary states that
the assumptions used in calculating the expected loss ratio are
appropriate and reasonable, taking into account that the calculations
are in accordance with the provisions of subdivision (b) and the
provisions referred to therein.  In addition, the director may
require the plan to submit actuarial certification, as described
above, by one or more unaffiliated actuaries acceptable to the
director.
   (d) Notwithstanding the calculations required by subdivision (c),
plan contracts shall be deemed to comply with the loss ratio
standards if, and shall be deemed not to comply with the loss
standards unless:  (1) for the most recent year, the ratio of the
incurred losses to earned prepaid charges for contracts that have
been in force for three years or more is greater than or equal to the
applicable percentages contained in this section; and (2) the
expected losses in relation to premiums over the entire period for
which the contract is rated comply with the requirements of this
section.  An expected third-year loss ratio that is greater than or
equal to the applicable percentage shall be demonstrated for
contracts in force less than three years.
   (e) Notwithstanding the provisions of this section, this section
shall not apply to any group contract that is either:
   (1) A group contract with one or more employers or labor
organizations, or trustees of a fund established by one or more
employers or organizations, or combination thereof, for employees or
former employees or combination thereof or for members or former
members, or combination thereof, of the labor organizations.
   (2) A group contract with any professional, trade, or occupational
association for its members or former or retired members, or
combination thereof, if the association is composed of individuals
all of whom are actively engaged in the same profession, trade or
occupation, has been maintained in good faith for purposes other than
obtaining health coverage, and has been in existence for at least
two years prior to the date of its initial offering of the contract
to its members.
   (f) For contracts issued prior to July 21, 1992, expected claims
in relation to premiums shall meet all of the following:
   (1) The originally filed anticipated loss ratio when combined with
the actual experience since July 21, 1992.
   (2) The appropriate percentage from paragraphs (1) and (2) of
subdivision (a) when combined with actual expenses on or after the
effective date of this act.
   (3) The appropriate percentage from paragraphs (1) and (2) of
subdivision (a) over the entire future period for which rates are
computed to provide coverage on or after the effective date of this
act.
  SEC. 78.  Section 1358.12 of the Health and Safety Code is amended
to read:
   1358.12.  (a) To comply with federal law (P.L. 101-508, Section
4351) a plan shall, for each Medicare supplement contract it offers,
collect and file with the director by May 31, of each year the data
contained in the reporting form contained in Appendix A of the Model
Regulation to implement the NAIC Medicare Supplement Insurance
Minimum Standards Model Act, as adopted by the National Association
of Insurance Commissioners on July 30, 1991.
   (b) If on the basis of the experience as reported the bench mark
ratio since inception (ratio 1) exceeds the adjusted experience ratio
since inception (ratio 3), then a refund or credit calculation is
required.  The refund calculation shall be done on a statewide basis
for each Medicare supplement contract offered by the plan.  For
purposes of the refund or credit calculation, experience on contracts
issued within the reporting year shall be excluded.
   (c) A refund or credit shall be made only when the bench mark loss
ratio exceeds the adjusted experience loss ratio and the amount to
be refunded or credited exceeds ten dollars ($10).  The refund shall
include interest from the end of the calendar year to the date of the
refund or credit at a rate specified by the Secretary of Health and
Human Services, but in no event shall it be less than the average
rate of interest for 13-week Treasury Notes.  A refund or credit
against prepaid or periodic charges due shall be made by September 30
following the experience year upon which the refund or credit is
based.
   (d) The director may conduct a public hearing to gather
information if the experience of the form filed under subdivision (a)
for the previous reporting period is not in compliance with the
applicable loss ratio standard.  The determination of compliance is
made without consideration of any refund or credit for such reporting
period.  Public notice of the hearing shall be furnished in a manner
deemed appropriate by the director.
  SEC. 79.  Section 1358.14 of the Health and Safety Code is amended
to read:
   1358.14.  (a) Every plan shall, by June 30 of each year, file with
the director a list of its Medicare supplement plan contracts
offered or issued or outstanding in this state as of the end of the
previous calendar year.
   (b) The list shall identify the filing plan by name and address,
shall identify each type of contract it offers by name and form
number, if one is used, and shall differentiate between contracts
filed with and approved by the director in years prior to the
previous calendar year, and those filed and approved in the previous
calendar year.
   (c) The list shall specifically identify all of the following:
   (1) Contracts that are issued and outstanding in this state but
are no longer offered for sale.
   (2) Contracts that, for any reason, were not filed and approved by
the director.
   (3) Contracts for which the director's approval was withdrawn
within the previous calendar year.
   (d) The director shall, on or before the first day of September of
each year provide the Secretary of Health and Human Services with a
list identifying each plan contract by name and address and the
information required to be submitted by this section.
  SEC. 80.  Section 1358.15 of the Health and Safety Code is amended
to read:
   1358.15.  (a) Within 30 days prior to the effective date of any
Medicare benefit changes, a plan providing Medicare supplement
contracts to a resident of this state shall file with the director,
and notify its contract holders of, modifications it has made to
Medicare supplement contracts.
   (1) The notice shall include a description of revisions to the
Medicare program and a description of each modification made to the
coverage provided under the Medicare supplement contract.
   (2) The notice shall inform each subscriber and enrollee as to
when any adjustment in the prepaid or periodic charges will be made
due to changes in Medicare benefits.
   (3) The notice of benefit modifications and any adjustments to the
prepaid or periodic charges shall be in outline form and in clear
and simple terms so as to facilitate comprehension.  The notice shall
not contain or be accompanied by any solicitation.
   (b) No modifications to existing Medicare supplement coverage
shall be made at the time of, or in connection with the notice
requirements of this regulation except to the extent necessary to
eliminate duplication of Medicare benefits and any modifications
necessary under the contract to provide indexed benefit adjustment.
   (c) As soon as practicable, but prior to the effective date of
changes in Medicare benefits a plan providing Medicare supplement
contracts in this state shall file the following with the director:
   (1) Appropriate prepaid or periodic charge adjustments necessary
to produce loss ratios as anticipated for the current prepaid or
periodic charges for the applicable contracts.  Those supporting
documents as are necessary to justify the adjustment shall accompany
the filing.
   (2) Any appropriate contract amendments needed to accomplish the
Medicare supplement coverage modifications necessary to eliminate
benefit duplications with Medicare.  Any such contract amendments
shall provide a clear description of the Medicare supplement benefits
provided by the contract.
   (d) Upon satisfying the filing and approval requirements of the
director, a plan providing Medicare supplement coverage in this state
shall provide each subscriber or enrollee with any contract
amendment necessary to eliminate any benefit duplications under the
contract with benefits provided by Medicare.
   (e) Every plan providing Medicare supplement coverage to a
resident of this state shall make those prepaid or periodic charge
adjustments as are necessary to produce an expected loss ratio under
the contract as will conform with minimum loss ratio standards for
Medicare supplement contracts and that is expected to result in a
loss ratio at least as great as that originally anticipated.  No
prepaid or periodic charge adjustment that would modify loss ratio
experience, other than the adjustments described herein, shall be
made at any time other than upon the renewal date.
  SEC. 81.  Section 1358.16 of the Health and Safety Code is amended
to read:
   1358.16.  (a) A plan offering Medicare supplement coverage shall,
as a condition precedent to the director's approval or continued
approval of Medicare supplement contracts offered in this state,
agree to accept and shall accept a notice under Section 1842(h)(3)(B)
of the Social Security Act (42 U.S.C. Sec. 1395u(h)(3)(B)) as a
claim form for benefits under those contracts in lieu of any claim
form otherwise required, and shall agree to make a payment
determination and shall make that determination on the basis of the
information contained in or accompanying the notice.
   (b) As further conditions precedent to the approval or continued
approval of Medicare supplement contracts, a plan offering Medicare
supplement coverage in this state shall do all of the following:
                                                          (1) When a
notice under Section 1842(h)(3)(B) of the Social Security Act (42
U.S.C. Sec. 1395u(h)(3)(B)) is received:
   (A) Provide written notice of the payment determination to the
participating physician or supplier and assignor.
   (B) Provide any payment due directly to the participating
physician or supplier involved.
   (2) Provide each subscriber and enrollee at the time coverage is
initiated, a card listing the contract name and number and a single
mailing address to which notices under Section 1842(h)(3)(B) of the
Social Security Act (42 U.S.C. Sec. 1395u(h)(3)(B)) respecting
coverage are to be sent.
   (3) Pay any user fees established under Section 1842(h)(3)(B) of
the Social Security Act (42 1395u(h)(3)(B)).
   (4) Provide the Secretary of Health and Human Services at least
annually, a single mailing address to which notices under Section
1842(h)(3)(B) (42 U.S.C. Sec. 1395u(h)(3)(B)) are to be sent.
  SEC. 82.  Section 1358.18 of the Health and Safety Code is amended
to read:
   1358.18.  In compliance with the Medicare supplement coverage
standardization requirements of Section 1882 of the Social Security
Act (42 U.S.C.A. Sec. 1395ss), as added by the Omnibus Reconciliation
Act of 1990 (P.L. 101-508), the following standards are applicable
to all Medicare supplement contracts subject to this article
delivered or issued for delivery on or after the effective date of
this section.  No contract may be advertised, solicited, offered, or
issued for delivery in this state as a Medicare supplement contract
unless it complies with these benefit standards, as well as all other
requirements under this chapter.  The basic health care services
required to be provided pursuant to Sections 1345 and 1367 of this
chapter shall not be included in Medicare supplement contracts
subject to this article, to the extent that California is required to
disallow coverage for these health care services under the federal
Medicare supplement standardization requirements set forth in Section
1882 of the Social Security Act (42 U.S.C.A. 1395ss).
   (a) (1) All Medicare supplement contracts shall be guaranteed
renewable.  A plan shall not cancel or nonrenew a contract solely on
the ground of the health status of the individual.  A plan shall not
cancel or nonrenew a contract for any reason other than nonpayment of
the prepaid or periodic charge or misrepresentation of the risk by
the applicant that is shown by the plan to be material to the
acceptance for coverage.  The contestability period for Medicare
supplement contracts shall be two years.
   (2) Termination of a Medicare supplement contract shall be without
prejudice to any continuous loss that commenced while the contract
was in force, but the extension of benefits beyond the period during
which the contract was in force may be conditioned upon the
continuous total disability of the subscriber or enrollee, limited to
the duration of the contract benefit period, if any, or limited to
the maximum benefits provided under the contract.
   (3) A Medicare supplement contract shall provide that benefits and
prepaid or periodic charges under the contract shall be suspended at
the request of the subscriber or enrollee for the period (not to
exceed 24 months) in which the subscriber or enrollee has applied for
and is determined to be entitled to medical assistance under Title
XIX of the Social Security Act, but only if the subscriber or
enrollee notifies the plan of that contract within 90 days after the
date the individual becomes entitled to that assistance.  Upon
receipt of timely notice, the plan shall return to the subscriber or
enrollee that portion of the prepaid or periodic charge attributable
to the period of medicaid eligibility.
   If the suspension occurs and if the subscriber or enrollee loses
entitlement to that medical assistance, the contract shall be
automatically reinstituted, effective as of the date of termination
of entitlement, if the subscriber or enrollee provides notice of loss
of the entitlement within 90 days after the date of the loss and
pays the prepaid or periodic charge attributable to the period,
effective as of the date of termination of entitlement.
Reinstitution of coverage shall not provide for any waiting period
with respect to treatment of preexisting conditions.  The
reinstitution coverage shall be substantially equivalent to coverage
in effect before the date of the suspension.  When coverage is
reinstituted the classification of prepaid or periodic charges shall
be on terms at least as favorable to the subscriber or enrollee as
the prepaid or periodic charge classification terms that would have
applied to the subscriber or enrollee had the coverage not been
suspended.
   (b) Any plan contract that primarily or solely supplements
Medicare, or is advertised or represented as a supplement to
Medicare, shall include the following "core" package of benefits.
This "core" package of benefits shall be referred to as standardized
Medicare supplement benefit plan "A".  A plan may make available to
prospective subscribers and enrollees any of the other standardized
Medicare supplement benefit plans in addition to the basic "core"
package, but not in lieu thereof.
   (1) Coverage of Part A Medicare Eligible Expenses for incurred
hospitalization to the extent not covered by Medicare from the 61st
day through the 90th day in any Medicare benefit period.
   (2) Coverage of Part A Medicare Eligible Expenses incurred for
hospitalization to the extent not covered by Medicare for each
Medicare lifetime inpatient reserve day used.
   (3) Upon exhaustion of the Medicare hospital inpatient coverage
including the lifetime reserve days, coverage of the Medicare Part A
Eligible Expenses for hospitalization not covered by Medicare,
subject to a lifetime maximum benefit of an additional 365 days.
   (4) Coverage under Medicare Parts A and B for the reasonable cost
of the first three pints of blood, or equivalent quantities of packed
red blood cells, as defined under federal regulations, unless
replaced in accordance with federal regulations.
   (5) Coverage for the coinsurance amount of Medicare Eligible
Expenses under Part B regardless of hospital confinement, subject to
the Medicare Part B deductible.
   (c) Plans may also make available any of the other standardized
Medicare supplement benefit plans set forth below in addition to the
basic "core" package, but not in lieu thereof.  No groups, packages,
or combinations of Medicare supplement benefits other than the
standardized Medicare supplement benefit plans listed in this
subdivision shall be offered for sale in this state, except as may be
permitted.  Benefit plans shall conform in structure, language,
designation, and format to the standard benefit plans "A" through "J"
listed in this section.  The benefits shall be listed in the order
shown in this section.  For purposes of this section, "structure,
language, and format" mean style, arrangement, and overall content of
a benefit.
   (d) In addition to the standardized Medicare supplement benefit
plan "A", the nine other standardized benefit plans that may be
offered are defined as follows:
   (1) Standardized Medicare supplement benefit plan "B" shall
include only the following:  the Core Benefit as defined in
subdivision (b) plus the Medicare Part A Deductible as defined in
paragraph (1) of subdivision (e).
   (2) Standardized Medicare supplement benefit plan "C" shall
include only the following:  the Core Benefit as defined in
subdivision (b) plus the Medicare Part A Deductible, Skilled Nursing
Facility Care, Medicare Part B Deductible and Medically Necessary
Emergency Care in a Foreign Country as defined in paragraphs (1),
(2), (3), and (8) of subdivision (e), respectively.
   (3) Standardized Medicare supplement benefit plan "D" shall
include only the following:  the Core Benefit as defined in
subdivision (b) plus the Medicare Part A Deductible, Skilled Nursing
Facility Care, Medically Necessary Emergency Care in a Foreign
Country and the At-Home Recovery Benefit as defined in paragraphs
(1), (2), (8), and (10) of subdivision (e), respectively.
   (4) Standardized Medicare supplement benefit plan "E" shall
include only the following:  the Core Benefit as defined in
subdivision (b) plus the Medicare Part A Deductible, Skilled Nursing
Facility Care, Medically Necessary Emergency Care in a Foreign
Country and Preventive Medical Care as defined in paragraphs (1),
(2), (8), and (9) of subdivision (e), respectively.
   (5) Standardized Medicare supplement benefit plan "F" shall
include only the following:  the Core Benefit as defined in
subdivision (b) plus the Medicare Part A Deductible, the Skilled
Nursing Facility Care, the Part B Deductible, 100 Percent of the
Medicare Part B Excess Charges, and Medically Necessary Emergency
Care in a Foreign Country, as defined in paragraphs (1), (2), (3),
(5), and (8) of subdivision (e), respectively.
   (6) Standardized Medicare supplement benefit plan "G" shall
include only the following:  the Core Benefit as defined in
subdivision (b) plus the Medicare Part A Deductible, Skilled Nursing
Facility Care, 80 Percent of the Medicare Part B Excess Charges,
Medically Necessary Emergency Care in a Foreign Country, and the
At-Home Recovery Benefit as defined in paragraphs (1), (2), (4), (8),
and (10) of subdivision (e), respectively.
   (7) Standardized Medicare supplement benefit plan "H" shall
consist of only the following:  the Core Benefit as defined in
subdivision (b) plus the Medicare Part A Deductible, Skilled Nursing
Facility Care, Basic Outpatient Prescription Drug Benefit and
Medically Necessary Emergency Care in a Foreign Country, as defined
in paragraphs (1), (2), (6), and (8) of subdivision (e),
respectively.
   (8) Standardized Medicare supplement benefit plan "I" shall
consist of only the following:  the Core Benefit as defined in
subdivision (b) plus the Medicare Part A Deductible, Skilled Nursing
Facility Care, 100 Percent of the Medicare Part B Excess Charges,
Basic Outpatient Prescription Drug Benefit, Medically Necessary
Emergency Care in a Foreign Country and At-Home Recovery Benefit, as
defined in paragraphs (1), (2), (5), (6), (8), and (10) of
subdivision (e), respectively.
   (9) Standardized Medicare supplement benefit plan "J" shall
consist of only the following:  the Core Benefit as defined in
subdivision (b) plus the Medicare Part A Deductible, Skilled Nursing
Facility Care, Medicare Part B Deductible, 100 Percent of the
Medicare Part B Excess Charges, Extended Prescription Drug Benefit,
Medically Necessary Emergency Care in a Foreign Country, Preventive
Medical Care and At-Home Recovery Benefit, as defined in paragraphs
(1), (2), (3), (5), (7), (8), (9), and (10) of subdivision (e),
respectively.
   (e) The terms used in the standardized Medicare supplement benefit
plans described in subdivision (d) are defined as follows:
   (1) "Medicare Part A Deductible" means coverage for all of the
Medicare Part A inpatient hospital deductible amount per benefit
period.
   (2) "Skilled nursing facility care" means coverage for the actual
billed charges up to the coinsurance amount from the 21st day through
the 100th day in a Medicare benefit period for posthospital skilled
nursing facility care eligible under Medicare Part A.
   (3) "Medicare Part B Deductible" means coverage for all of the
Medicare Part B deductible amount per calendar year regardless of
hospital confinement.
   (4) "Eighty Percent of the Medicare Part B Excess Charges" means
coverage for 80 percent of the difference between the actual Medicare
Part B charge as billed, not to exceed any charge limitation
established by the Medicare program or state law, and the
Medicare-approved Part B charge.
   (5) "One Hundred Percent of the Medicare Part B Excess Charges"
means coverage for all of the differences between the actual Medicare
Part B charge as billed, not to exceed any charge limitation
established by the Medicare program or state law, and the
Medicare-approved Part B charge.
   (6) "Basic Outpatient Prescription Drug Benefit" means coverage
for 50 percent of outpatient prescription drug charges, after a two
hundred fifty dollar ($250) calendar year deductible, to a maximum of
one thousand two hundred fifty dollars ($1,250) in benefits received
by the enrollee per calendar year, to the extent not covered by
Medicare.
   (7) "Extended Outpatient Prescription Drug Benefit" means coverage
for 50 percent of outpatient prescription drug charges, after a two
hundred fifty dollar ($250) calendar year deductible to a maximum of
three thousand dollars ($3,000) in benefits received by the enrollee
per calendar year, to the extent not covered by Medicare.
   (8) "Medically Necessary Emergency Care in a Foreign Country"
means coverage to the extent not covered by Medicare for 80 percent
of the billed charges for Medicare-eligible expenses for medically
necessary emergency hospital, physician and medical care received in
a foreign country, which care would have been covered by Medicare if
provided in the United States and which care began during the first
60 consecutive days of each trip outside the United States, subject
to a calendar year deductible of two hundred fifty dollars ($250),
and a lifetime maximum benefit of fifty thousand dollars ($50,000).
   (9) "Preventive Medical Care Benefit" means coverage for the
following preventive health services:
   (A) An annual clinical preventive medical history and physical
examination that may include tests and services from subparagraph (B)
and patient education to address preventive health care measures.
   (B) Any one or a combination of the following preventive screening
tests or preventive services, the frequency of which is considered
medically appropriate:
   (i) Fecal occult blood test or digital rectal examination or both.

   (ii) Mammogram.
   (iii) Dipstick urinalysis for hematuria, bacteriuria, and
proteinuria.
   (iv) Pure tone, air only, hearing screening test, administered or
ordered by a physician.
   (v) Serum cholesterol screening every five years.
   (vi) Thyroid function test.
   (vii) Diabetes screening.
   (C) Influenza vaccine administered at any appropriate time during
the year and tetanus and diphtheria booster every 10 years.
   (D) Any other tests or preventive measures determined appropriate
by the attending physician.  Reimbursement shall be for the actual
charges up to 100 percent of the Medicare-approved amount for each
service, as if Medicare were to cover the service as identified in
American Medical Association Current Procedural Terminology (AMA CPT)
codes, to a maximum of one hundred twenty dollars ($120) annually
under this benefit.  This benefit shall not include payment for any
procedure covered by Medicare.
   (10) "At-Home Recovery Benefit" means coverage for services to
provide short-term, at-home assistance with activities of daily
living for those recovering from an illness, injury or surgery.
   (A) For purposes of this benefit, the following definitions shall
apply:
   (i) "Activities of daily living" include, but are not limited to,
bathing, dressing, personal hygiene, transferring, eating,
ambulating, assistance with drugs that are normally
self-administered, and changing bandages or other dressings.
   (ii) "Care provider" means a home health aide or homemaker,
personal care aide or nurse provided through a licensed home health
care agency or referred by a licensed referral agency or licensed
nurses registry.
   (iii) "Home" means any place used by the enrollee as a place of
residence, provided that the place would qualify as a residence for
home health care services covered by Medicare.  A hospital or skilled
nursing facility shall not be considered the enrollee's place of
residence.
   (iv) "At-home recovery visit" means the period of a visit required
to provide at-home recovery care, without limit on the duration of
the visit, except each consecutive four hours in a 24-hour period of
services provided by a care provider is one visit.
   (B) The following coverage limitations apply to this benefit:
   (i) The actual charges for each visit up to a maximum
reimbursement of forty dollars ($40) per visit, not to exceed one
thousand six hundred dollars ($1,600) per calendar year.
   (ii) A plan may require that the at-home recovery services,
including the number of visits, frequency and the type of services,
be certified by an attending physician as necessary for a condition
for which Medicare has approved a home health care plan.  The total
number of at-home recovery visits may be limited to the number of
Medicare approved home health care visits under a Medicare approved
home care plan of treatment.  The number of visits per week may be
limited to seven visits.
   (iii) A plan may require that all at-home recovery visits for a
particular Medicare benefit period must be used within an eight-week
period following the last Medicare-approved home health care visit.
   (C) Coverage is excluded for any of the following:
   (i) Home care visits paid for by Medicare or other government
programs.
   (ii) Care provided by family members, unpaid volunteers or
providers who are not care providers.
   (f) A plan may, with the prior approval of the director, offer
Medicare supplement contracts with new or innovative benefits in
addition to the benefits required under this section.  The benefits
may include benefits that are appropriate to Medicare supplement
coverage, not otherwise available, cost-effective, and offered in a
manner that is consistent with the goal of simplification of Medicare
supplement contracts consistent with this chapter.
  SEC. 83.  Section 1358.19 of the Health and Safety Code is amended
to read:
   1358.19.  The director may authorize a plan to offer Medicare
Select contracts pursuant to Section 4358 of the Omnibus Budget
Reconciliation Act ("OBRA") of 1990 if the director finds that the
plan's Medicare supplement contracts are in compliance with the
Knox-Keene Act, including the following additional requirements for
Medicare Select contracts:
   (a) A Medicare Select plan shall make full and fair disclosure in
writing of the provisions, restrictions, and limitations of the
Medicare Select contract to each applicant.  This disclosure shall
include at least the following:
   (1) An outline of coverage sufficient to permit the applicant to
compare the coverage and charges of the Medicare Select contract with
the following:
   (A) Other Medicare supplement contracts, policies, or certificates
offered by the plan and its affiliates.
   (B) Medicare select policies, contracts, and certificates offered
by other companies.
   (2) A description, including address, phone number and hours of
operation, of the providers contracting with the plan, including
primary care physicians, specialty physicians, hospitals, and
pharmacies.
   (3) A description of the restricted provider provisions, including
charges when providers other than those contracting with the plan
are utilized.
   (4) A description of coverage for emergency and urgently needed
care and out-of-service area coverage.
   (5) A description of covered services that require a referral by a
plan provider or plan preauthorization.
   (6) A description of the subscriber or enrollees' rights to
purchase any other Medicare supplement contract otherwise offered by
the plan.
   (7) A description of the Medicare Select plan's quality of care
review program and grievance procedure.
   (b) Prior to the sale of a Medicare Select contract, a plan shall
obtain from the applicant a signed and dated form stating that the
applicant has received the information required to be provided
pursuant to subdivision (a) and that the applicant understands the
restrictions of the Medicare Select contract.
   (c) At the time of initial purchase, a Medicare Select plan shall
make available to each applicant for a Medicare Select contract the
opportunity to purchase any Medicare supplement contract, policy, or
certificate otherwise offered by the plan or its affiliates.
   (1) At the request of an enrollee under a Medicare Select
contract, a Medicare Select plan shall make available to the enrollee
the opportunity to purchase a Medicare supplement contract offered
by the plan which has comparable or lesser benefits and which does
not contain a restricted provider network provision, if any such
Medicare Select contract is offered by the plan.  The plan shall make
those contracts available without regard to the health status of the
enrollee after the Medicare supplement contract has been in force
for six months.
   (2) For the purposes of this subdivision, a Medicare supplement
contract will be considered to have comparable or lesser benefits
unless it contains one or more significant benefits not included in
the Medicare Select contract being replaced.  For the purposes of
this paragraph "significant benefit" means coverage for the Medicare
Part A deductible, coverage for prescription drugs, coverage for
at-home recovery services or coverage for Part B excess charges.
   (d) Medicare Select contracts shall provide for continuation of
coverage in the event the Secretary of Health and Human Services
determines that Medicare Select contracts, policies, and certificates
issued pursuant to this section should be discontinued due to either
the failure of the Medicare Select program to be reauthorized under
law or its substantial amendment.
   (1) Each Medicare Select issuer shall make available to each
enrollee under a Medicare Select plan the opportunity to purchase a
Medicare supplement contract offered by the plan which has comparable
or lesser benefits and which does not contain a restricted provider
network provision, if any such Medicare supplement contract is
offered by the plan.  The plan shall make those contracts available
without regard to the health status of the enrollee after the
Medicare supplement contract has been in force for six months.
   (2) For the purposes of this subdivision, a Medicare supplement
contract will be considered to have comparable or lesser benefits
unless it contains one or more significant benefits not included in
the Medicare Select contract being replaced.  For the purposes of
this paragraph "significant benefit" means coverage for the Medicare
Part A deductible, coverage for prescription drugs, coverage for
at-home recovery services or coverage for Part B excess charges.
   (e) A plan offering Medicare Select contracts shall comply with
reasonable requests for data made by state or federal agencies,
including the United States Department of Health and Human Services,
for the purpose of evaluating the Medicare Select program.  A
Medicare Select plan shall not issue a Medicare Select contract in
this state until the contract has been approved by the director.
  SEC. 84.  Section 1358.21 of the Health and Safety Code is amended
to read:
   1358.21.  (a) A plan may discontinue the availability of a
Medicare supplement contract if the plan provides to the director in
writing its decision at least 60 days prior to discontinuing the
availability of the contract.  After receipt of the notice by the
director, the plan shall no longer offer for sale the contract in
this state.  A contract shall not be considered to be available for
purchase unless the plan has actively offered it for sale in the
previous 12 months.
   (b) A plan that discontinues the availability of a contract
pursuant to subdivision (a) shall not file for approval a new
contract of the same type for the same standardized Medicare
supplement benefit plan as the discontinued contract for a period of
five years after the plan provides notice to the director of the
discontinuance.  The period of discontinuance may be reduced if the
director determines that a shorter period is appropriate.
   (c) The sale or other transfer of Medicare supplement business to
another company shall be considered a discontinuance for the purpose
of this section.
  SEC. 85.  Section 1359 of the Health and Safety Code is amended to
read:
   1359.  (a) The director may require that solicitors and solicitor
firms, and principal persons engaged in the supervision of
solicitation for plans of solicitor firms, meet such reasonable and
appropriate standards with respect to training, experience, and other
qualifications as the director finds necessary and appropriate in
the public interest or for the protection of subscribers, enrollees,
and plans.  For such purposes, the director may do the following:
   (1) Appropriately classify such persons and individuals.
   (2) Specify that all or any portion of such standards shall be
applicable to any such class.
   (3) Require individuals in any such class to pass examinations
prescribed in accordance with such rules.
   (b) The director may prescribe by rule reasonable fees and charges
to defray the costs of carrying out this section, including, but not
limited to, fees for any examination administered by the director or
under his or her direction.
  SEC. 86.  Section 1360.1 of the Health and Safety Code is amended
to read:
   1360.1.  It is unlawful for any person, including a plan, subject
to this chapter to represent or imply in any manner that the person
or plan has been sponsored, recommended, or approved, or that the
person's or plan's abilities or qualifications have in any respect
been passed upon, by the director.  Nothing in this section prohibits
a statement (other than in a paid advertisement) that a person or
plan holds a license under this chapter, if such statement is true
and if the effect of such licensing is not misrepresented.
  SEC. 87.  Section 1361 of the Health and Safety Code is amended to
read:
   1361.  (a) Except as provided in subdivision (b), no plan shall
publish or distribute, or allow to be published or distributed on its
behalf, any advertisement not subject to Section 1352.1 unless (1) a
true copy thereof has first been filed with the director, at least
30 days prior to any such use, or any shorter period as the director
by rule or order may allow, and (2) the director by notice has not
found the advertisement, wholly or in part, to be untrue, misleading,
deceptive, or otherwise not in compliance with this chapter or the
rules thereunder, and specified the deficiencies, within the 30 days
or any shorter time as the director by rule or order may allow.
   (b) Except as provided in subdivision (c), a licensed plan which
has been continuously licensed under this chapter for the preceding
18 months may publish or distribute or allow to be published or
distributed on its behalf an advertisement not subject to Section
1352.1 without having filed the same
            for the director's prior approval, if the plan and the
material comply with each of the following conditions:
   (1) The advertisement or a material provision thereof has not been
previously disapproved by the director by written notice to the plan
and the plan reasonably believes that the advertisement does not
violate any requirement of this chapter or the rules thereunder.
   (2) The plan files a true copy of each new or materially revised
advertisement, used by it or by any person acting on behalf of the
plan, with the director not later than 10 business days after
publication or distribution of the advertisement or within such
additional period as the director may allow by rule or order.
   (c) If the director finds that any advertisement of a plan has
materially failed to comply with this chapter or the rules
thereunder, the director may, by order, require the plan to publish
in the same or similar medium, an approved correction or retraction
of any untrue, misleading, or deceptive statement contained in the
advertising, and may prohibit the plan from publishing or
distributing, or allowing to be published or distributed on its
behalf the advertisement or any new materially revised advertisement
without first having filed a copy thereof with the director, 30 days
prior to the publication or distribution thereof, or any shorter
period specified in the order.  An order issued under this
subdivision shall be effective for 12 months from its issuance, and
may be renewed by order if the advertisements submitted under this
subdivision indicate difficulties of voluntary compliance with the
applicable provisions of this chapter and the rules thereunder.
   (d) A licensed plan or other person regulated under this chapter
may, within 30 days after receipt of any notice or order under this
section, file a written request for a hearing with the director.
   (e) The director by rule or order may classify plans and
advertisements and exempt certain classes, wholly or in part, either
unconditionally or upon specified terms and conditions or for
specified periods, from the application of subdivisions (a) and (b).

  SEC. 88.  Section 1363 of the Health and Safety Code, as amended by
Section 2 of Chapter 994 of the Statutes of 1998, is amended to
read:
   1363.  (a) The director shall require the use by each plan of
disclosure forms or materials containing information regarding the
benefits, services, and terms of the plan contract as the director
may require, so as to afford the public, subscribers, and enrollees
with a full and fair disclosure of the provisions of the plan in
readily understood language and in a clearly organized manner.  The
director may require that the materials be presented in a reasonably
uniform manner so as to facilitate comparisons between plan contracts
of the same or other types of plans.  Nothing contained in this
chapter shall preclude the director from permitting the disclosure
form to be included with the evidence of coverage or plan contract.
   The disclosure form shall provide for at least the following
information, in concise and specific terms, relative to the plan,
together with additional information as may be required by the
director, in connection with the plan or plan contract:
   (1) The principal benefits and coverage of the plan, including
coverage for acute care and subacute care.
   (2) The exceptions, reductions, and limitations that apply to the
plan.
   (3) The full premium cost of the plan.
   (4) Any copayment, coinsurance, or deductible requirements that
may be incurred by the member or the member's family in obtaining
coverage under the plan.
   (5) The terms under which the plan may be renewed by the plan
member, including any reservation by the plan of any right to change
premiums.
   (6) A statement that the disclosure form is a summary only, and
that the plan contract itself should be consulted to determine
governing contractual provisions.  The first page of the disclosure
form shall contain a notice that conforms with all of the following
conditions:
   (A) (i) States that the evidence of coverage discloses the terms
and conditions of coverage.
   (ii) States, with respect to individual plan contracts, small
group plan contracts, and any other group plan contracts for which
health care services are not negotiated, that the applicant has a
right to view the evidence of coverage prior to enrollment, and, if
the evidence of coverage is not combined with the disclosure form,
the notice shall specify where the evidence of coverage can be
obtained prior to enrollment.
   (B) Includes a statement that the disclosure and the evidence of
coverage should be read completely and carefully and that individuals
with special health care needs should read carefully those sections
that apply to them.
   (C) Includes the plan's telephone number or numbers that may be
used by an applicant to receive additional information about the
benefits of the plan or a statement where the telephone number or
numbers are located in the disclosure form.
   (D) For individual contracts, and small group plan contracts as
defined in Article 3.1 (commencing with Section 1357), the disclosure
form shall state where the health plan benefits and coverage matrix
is located.
   (E) Is printed in type no smaller than that used for the remainder
of the disclosure form and is displayed prominently on the page.
   (7) A statement as to when benefits shall cease in the event of
nonpayment of the prepaid or periodic charge and the effect of
nonpayment upon an enrollee who is hospitalized or undergoing
treatment for an ongoing condition.
   (8) To the extent that the plan permits a free choice of provider
to its subscribers and enrollees, the statement shall disclose the
nature and extent of choice permitted and the financial liability
which is, or may be, incurred by the subscriber, enrollee, or a third
party by reason of the exercise of that choice.
   (9) A summary of the provisions required by subdivision (g) of
Section 1373, if applicable.
   (10) If the plan utilizes arbitration to settle disputes, a
statement of that fact.
   (11) A summary of, and a notice of the availability of, the
process the plan uses to authorize, modify, or deny health care
services under the benefits provided by the plan, pursuant to
Sections 1363.5 and 1367.01.
   (12) A description of any limitations on the patient's choice of
primary care or specialty care physician based on service area and
limitations on the patient's choice of acute care hospital care,
subacute or transitional inpatient care, or skilled nursing facility.

   (13) General authorization requirements for referral by a primary
care physician to a specialty care physician.
   (14) Conditions and procedures for disenrollment.
   (15) A description as to how an enrollee may request continuity of
care as required by Section 1373.96 and request a second opinion
pursuant to Section 1383.15.
   (16) Information concerning the right of an enrollee to request an
independent review in accordance with Article 12 (commencing with
Section 1399.80).
   (17) A notice as required by Section 1364.6.
   (b) (1) As of July 1, 1999, the director shall require each plan
offering a contract to an individual or small group to provide with
the disclosure form for individual and small group plan contracts a
uniform health plan benefits and coverage matrix containing the plan'
s major provisions in order to facilitate comparisons between plan
contracts.  The uniform matrix shall include the following category
descriptions together with the corresponding copayments and
limitations in the following sequence:
   (A) Deductibles.
   (B) Lifetime maximums.
   (C) Professional services.
   (D) Outpatient services.
   (E) Hospitalization services.
   (F) Emergency health coverage.
   (G) Ambulance services.
   (H) Prescription drug coverage.
   (I) Durable medical equipment.
   (J) Mental health services.
   (K) Chemical dependency services.
   (L) Home health services.
   (M) Other.
   (2) The following statement shall be placed at the top of the
matrix in all capital letters in at least 10-point boldface type:
THIS MATRIX IS INTENDED TO BE USED TO HELP YOU COMPARE COVERAGE
BENEFITS AND IS A SUMMARY ONLY.  THE EVIDENCE OF COVERAGE AND PLAN
CONTRACT SHOULD BE CONSULTED FOR A DETAILED DESCRIPTION OF COVERAGE
BENEFITS AND LIMITATIONS.

   (c) Nothing in this section shall prevent a plan from using
appropriate footnotes or disclaimers to reasonably and fairly
describe coverage arrangements in order to clarify any part of the
matrix that may be unclear.
   (d) All plans, solicitors, and representatives of a plan shall,
when presenting any plan contract for examination or sale to an
individual prospective plan member, provide the individual with a
properly completed disclosure form, as prescribed by the director
pursuant to this section for each plan so examined or sold.
   (e) In the case of group contracts, the completed disclosure form
and evidence of coverage shall be presented to the contractholder
upon delivery of the completed health care service plan agreement.
   (f) Group contractholders shall disseminate copies of the
completed disclosure form to all persons eligible to be a subscriber
under the group contract at the time those persons are offered the
plan.  Where the individual group members are offered a choice of
plans, separate disclosure forms shall be supplied for each plan
available.  Each group contractholder shall also disseminate or cause
to be disseminated copies of the evidence of coverage to all
applicants, upon request, prior to enrollment and to all subscribers
enrolled under the group contract.
   (g) In the case of conflicts between the group contract and the
evidence of coverage, the provisions of the evidence of coverage
shall be binding upon the plan notwithstanding any provisions in the
group contract which may be less favorable to subscribers or
enrollees.
   (h) In addition to the other disclosures required by this section,
every health care service plan and any agent or employee of the plan
shall, when presenting a plan for examination or sale to any
individual purchaser or the representative of a group consisting of
25 or fewer individuals, disclose in writing the ratio of premium
costs to health services paid for plan contracts with individuals and
with groups of the same or similar size for the plan's preceding
fiscal year.  A plan may report that information by geographic area,
provided the plan identifies the geographic area and reports
information applicable to that geographic area.
   (i) Subdivision (b) shall not apply to any coverage provided by a
plan for the Medi-Cal program or the Medicare program pursuant to
Title XVIII and Title XIX of the Social Security Act.
  SEC. 90.  Section 1364 of the Health and Safety Code is amended to
read:
   1364.  Where the director finds it necessary in the interest of
full and fair disclosure, all advertising and other consumer
information disseminated by a plan for the purpose of influencing
persons to become members of a plan shall contain such supplemental
disclosure information as the director may require.
  SEC. 91.  Section 1365 of the Health and Safety Code is amended to
read:
   1365.  (a) An enrollment or a subscription may not be canceled or
not renewed except for the following:
   (1) Failure to pay the charge for such coverage if the subscriber
has been duly notified and billed for the charge and at least 15 days
has elapsed since the date of notification.
   (2) Fraud or deception in the use of the services or facilities of
the plan or knowingly permitting such fraud or deception by another.

   (3) Such other good cause as is agreed upon in the contract
between the plan and a group or the subscriber.
   (b) An enrollee or subscriber who alleges that an enrollment or
subscription has been canceled or not renewed because of the enrollee'
s or subscriber's health status or requirements for health care
services may request a review by the director.  If the director
determines that a proper complaint exists under the provisions of
this section, the director shall notify the plan.  Within 15 days
after receipt of such notice, the plan shall either request a hearing
or reinstate the enrollee or subscriber.  If, after hearing, the
director determines that the cancellation or failure to renew is
contrary to subdivision (a), the director shall order the plan to
reinstate the enrollee or subscriber.  A reinstatement pursuant to
this subdivision shall be retroactive to the time of cancellation or
failure to renew and the plan shall be liable for the expenses
incurred by the subscriber or enrollee for covered health care
services from the date of cancellation or nonrenewal to and including
the date of reinstatement.
   (c) This section shall not abrogate any preexisting contracts
entered into prior to the effective date of this chapter between a
subscriber or enrollee and a health care service plan or a
specialized health care service plan including, but not limited to,
the financial liability of such plan, except that each plan shall, if
directed to do so by the director, exercise its authority, if any,
under any such preexisting contracts to conform them to the
provisions of subdivision (a).
  SEC. 92.  Section 1365.5 of the Health and Safety Code is amended
to read:
   1365.5.  (a) No health care service plan or specialized health
care service plan shall refuse to enter into any contract or shall
cancel or decline to renew or reinstate any contract because of the
race, color, national origin, ancestry, religion, sex, marital
status, sexual orientation, or age of any contracting party,
prospective contracting party, or person reasonably expected to
benefit from that contract as a subscriber, enrollee, member, or
otherwise.
   (b) The terms of any contract shall not be modified, and the
benefits or coverage of any contract shall not be subject to any
limitations, exceptions, exclusions, reductions, copayments,
coinsurance, deductibles, reservations, or premium, price, or charge
differentials, or other modifications because of the race, color,
national origin, ancestry, religion, sex, marital status, sexual
orientation, or age of any contracting party, potential contracting
party, or person reasonably expected to benefit from that contract as
a subscriber, enrollee, member, or otherwise; except that premium,
price, or charge differentials because of the sex or age of any
individual when based on objective, valid, and up-to-date statistical
and actuarial data are not prohibited.   Nothing in this section
shall be construed to permit a health care service plan to charge
different premium rates to individual enrollees within the same group
solely on the basis of the enrollee's sex.
   (c) It shall be deemed a violation of subdivision (a) for any
health care service plan to utilize marital status, living
arrangements, occupation, gender, beneficiary designation, zip codes
or other territorial classification, or any combination thereof for
the purpose of establishing  sexual orientation.  Nothing in this
section shall be construed to alter in any manner the existing law
prohibiting health care service plans from conducting tests for the
presence of human immunodeficiency virus or evidence thereof.
   (d) This section shall not be construed to limit the authority of
the director to adopt or enforce regulations prohibiting
discrimination because of sex, marital status, or sexual orientation.

  SEC. 93.  Section 1366.4 of the Health and Safety Code is amended
to read:
   1366.4.  (a) A medical group, physician, or independent practice
association that contracts with a health care service plan may enter
into contracts with licensed nonphysician providers to provide
services, as defined in Section 1300.67(a)(1) of Title 10 of the
California Code of Regulations, to plan enrollees covered by the
contract between the plan and the group, physician, or association.
   (b) The licensed nonphysician provider described in subdivision
(a) that contracts with a medical group, physician, or independent
practice association may directly bill, if direct billing is
otherwise permitted by law, a health care service plan for covered
services pursuant to a contract with the health care service plan
that specifies direct billing.  Direct billing pursuant to this
subdivision is permitted only to the extent that the same services
are not billed for by the medical group, physician, or independent
practice association.
   (c) A health care service plan may require the nonphysician
provider to complete an appropriate credentialing process.
   (d) Every health care service plan may either list licensed
nonphysician providers that contract with medical groups, physicians,
and independent practice associations pursuant to subdivision (b) in
any listing or directory of plan health care providers that is
provided to enrollees or to the public, or may include a notification
in the plan's evidence of coverage or provider list that the health
care service plan has contracts with nonphysician providers, pursuant
to subdivision (b), and may list the types of contracted
nonphysician providers.  The notification may inform an enrollee that
he or she may obtain a list of the nonphysician providers by
contacting his or her primary or specialist medical group.  The
listing may indicate whether licensed nonphysician providers may be
accessed directly by enrollees.
   (e) Nothing in this section shall be construed to authorize, or
otherwise require the director to approve, a risk-sharing arrangement
between a plan and a provider.
  SEC. 94.  Section 1367 of the Health and Safety Code is amended to
read:
   1367.  Each health care service plan and, if applicable, each
specialized health care service plan shall meet the following
requirements:
   (a) All facilities located in this state including, but not
limited to, clinics, hospitals, and skilled nursing facilities to be
utilized by the plan shall be licensed by the State Department of
Health Services, where licensure is required by law.  Facilities not
located in this state shall conform to all licensing and other
requirements of the jurisdiction in which they are located.
   (b) All personnel employed by or under contract to the plan shall
be licensed or certified by their respective board or agency, where
licensure or certification is required by law.
   (c) All equipment required to be licensed or registered by law
shall be so licensed or registered and the operating personnel for
that equipment shall be licensed or certified as required by law.
   (d) The plan shall furnish services in a manner providing
continuity of care and ready referral of patients to other providers
at times as may be appropriate consistent with good professional
practice.
   (e) (1) All services shall be readily available at reasonable
times to all enrollees.  To the extent feasible, the plan shall make
all services readily accessible to all enrollees.
   (2) To the extent that telemedicine services are appropriately
provided through telemedicine, as defined in subdivision (a) of
Section 2290.5 of the Business and Professions Code, these services
shall be considered in determining compliance with Section 1300.67.2
of Title 10 of the California Code of Regulations.
   (f) The plan shall employ and utilize allied health manpower for
the furnishing of services to the extent permitted by law and
consistent with good medical practice.
   (g) The plan shall have the organizational and administrative
capacity to provide services to subscribers and enrollees.  The plan
shall be able to demonstrate to the department that medical decisions
are rendered by qualified medical providers, unhindered by fiscal
and administrative management.
   (h) All contracts with subscribers and enrollees, including group
contracts, and all contracts with providers, and other persons
furnishing services, equipment, or facilities to or in connection
with the plan, shall be fair, reasonable, and consistent with the
objectives of this chapter.  All contracts with providers shall
contain provisions requiring a dispute resolution mechanism under
which providers may submit disputes to the plan, and requiring the
plan to inform its providers upon contracting with the plan, or upon
change to these provisions, of the procedures for processing and
resolving disputes, including the location and telephone number where
information regarding disputes may be submitted.
   (i) Each health care service plan contract shall provide to
subscribers and enrollees all of the basic health care services
included in subdivision (b) of Section 1345, except that the director
may, for good cause, by rule or order exempt a plan contract or any
class of plan contracts from that requirement.  The director shall by
rule define the scope of each basic health care service which health
care service plans shall be required to provide as a minimum for
licensure under this chapter.  Nothing in this chapter shall prohibit
a health care service plan from charging subscribers or enrollees a
copayment or a deductible for a basic health care service or from
setting forth, by contract, limitations on maximum coverage of basic
health care services, provided that the copayments, deductibles, or
limitations are reported to, and held unobjectionable by, the
director and set forth to the subscriber or enrollee pursuant to the
disclosure provisions of Section 1363.
   (j) No health care service plan shall require registration under
the Controlled Substances Act of 1970 (21 U.S.C. Sec. 801 et seq.) as
a condition for participation by an optometrist certified to use
therapeutic pharmaceutical agents pursuant to Section 3041.3 of the
Business and Professions Code.
   Nothing in this section shall be construed to permit the director
to establish the rates charged subscribers and enrollees for
contractual health care services.
   The director's enforcement of Article 3.1 (commencing with Section
1357) shall not be deemed to establish the rates charged subscribers
and enrollees for contractual health care services.
  SEC. 95.  Section 1367.02 of the Health and Safety Code is amended
to read:
   1367.02.  (a) On or before July 1, 1999, for purposes of public
disclosure, every health care service plan shall file with the
department a description of any policies and procedures related to
economic profiling utilized by the plan and its medical groups and
individual practice associations.  The filing shall describe how
these policies and procedures are used in utilization review, peer
review, incentive and penalty programs, and in provider retention and
termination decisions.  The filing shall also indicate in what
manner, if any, the economic profiling system being used takes into
consideration risk adjustments that reflect case mix, type and
severity of patient illness, age of patients, and other enrollee
characteristics that may account for higher or lower than expected
costs or utilization of services.  The filing shall also indicate how
the economic profiling activities avoid being in conflict with
subdivision (g) of Section 1367, which requires each plan to
demonstrate that medical decisions are rendered by qualified medical
providers, unhindered by fiscal and administrative management.  Any
changes to the policies and procedures shall be filed with the
director pursuant to Section 1352.  Nothing in this section shall be
construed to restrict or impair the department, in its discretion,
from utilizing the information filed pursuant to this section for
purposes of ensuring compliance with this chapter.
   (b) The director shall make each plan's filing available to the
public upon request.  The director shall not publicly disclose any
information submitted pursuant to this section that is determined by
the director to be confidential pursuant to state law.
   (c) Each plan that uses economic profiling shall, upon request,
provide a copy of economic profiling information related to an
individual provider, contracting medical group, or individual
practice association to the profiled individual, group, or
association.  In addition, each plan shall require as a condition of
contract that its medical groups and individual practice associations
that maintain economic profiles of individual providers shall, upon
request, provide a copy of individual economic profiling information
to the individual providers who are profiled.  The economic profiling
information provided pursuant to this section shall be provided upon
request until 60 days after the date upon which the contract between
the plan and the individual provider, medical group, or individual
practice association terminates, or until 60 days after the date the
contract between the medical group or individual practice association
and the individual provider terminates, whichever is applicable.
   (d) For the purposes of this article, "economic profiling" shall
mean any evaluation of a particular physician, provider, medical
group, or individual practice association based in whole or in part
on the economic costs or utilization of services associated with
medical care provided or authorized by the physician, provider,
medical group, or individual practice association.
  SEC. 96.  Section 1367.3 of the Health and Safety Code is amended
to read:
   1367.3.  (a) On and after January 1, 1993, every health care
service plan that covers hospital, medical, or surgical expenses on a
group basis shall offer benefits for the comprehensive preventive
care of children.  This section shall apply to children 17 and 18
years of age, except as provided in paragraph (4) of subdivision (b).
  Every plan shall communicate the availability of these benefits to
all group contractholders and to all prospective group
contractholders with whom they are negotiating.  This section shall
apply to a plan which, by rule or order of the director, has been
exempted from subdivision (i) of Section 1367, insofar as that
section and the rules thereunder relate to the provision of the
preventive health care services described herein.
   (b) For purposes of this section, benefits for the comprehensive
preventive care of children shall comply with both of the following:

   (1) Be consistent with both of the following:
   (A) The Recommendations for Preventive Pediatric Health Care, as
adopted by the American Academy of Pediatrics in September of 1987.
   (B) The most current version of the Recommended Childhood
Immunization  Schedule/United States, jointly adopted by the American
Academy of Pediatrics, the Advisory Committee on Immunization
Practices, and the American
   Academy of Family Physicians, unless the State Department of
Health Services determines, within 45 days of the published date of
the schedule, that the schedule is not consistent with the purposes
of this section.
   (2) Provide for the following:
   (A) Periodic health evaluations.
   (B) Immunizations.
   (C) Laboratory services in connection with periodic health
evaluations.
   (D) For health care service plan contracts within the scope of
this section that are issued, amended, or renewed on and after
January 1, 1993, screening for blood lead levels in children at risk
for lead poisoning, as determined by a physician and surgeon
affiliated with the plan, when the screening is prescribed by a
physician and surgeon affiliated with the plan.  This subparagraph
shall be applicable to all children and shall not be limited to
children 17 and 18 years of age.
  SEC. 97.  Section 1367.35 of the Health and Safety Code is amended
to read:
   1367.35.  (a) On and after January 1, 1993, every health care
service plan that covers hospital, medical, or surgical expenses on a
group basis shall provide benefits for the comprehensive preventive
care of children 16 years of age or younger under terms and
conditions agreed upon between the group subscriber and the plan.
Every plan shall communicate the availability of these benefits to
all group contractholders and to all prospective group
contractholders with whom they are negotiating.  This section shall
apply to each plan that, by rule or order of the director, has been
exempted from subdivision (i) of Section 1367, insofar as that
section and the rules thereunder relate to the provision of the
preventive health care services described in this section.
   (b) For purposes of this section, benefits for the comprehensive
preventive care of children shall comply with both of the following:

   (1) Be consistent with both of the following:
   (A) The Recommendations for Preventive Pediatric Health Care, as
adopted by the American Academy of Pediatrics in September of 1987.
   (B) The most current version of the Recommended Childhood
Immunization Schedule/United States, jointly adopted by the American
Academy of Pediatrics, the Advisory Committee on Immunization
Practices, and the American Academy of Family Physicians, unless the
State Department of Health Services determines, within 45 days of the
published date of the schedule, that the schedule is not consistent
with the purposes of this section.
   (2) Provide for all of the following:
   (A) Periodic health evaluations.
   (B) Immunizations.
   (C) Laboratory services in connection with periodic health
evaluations.
  SEC. 98.  Section 1367.695 of the Health and Safety Code is amended
to read:
   1367.695.  (a) The Legislature finds and declares that the unique,
private, and personal relationship between women patients and their
obstetricians and gynecologists warrants direct access to obstetrical
and gynecological physician services.
   (b) Commencing January 1, 1999, every health care service plan
contract issued, amended, renewed, or delivered in this state, except
a specialized health care service plan, shall allow an enrollee the
option to seek obstetrical and gynecological physician services
directly from a participating obstetrician and gynecologist or
directly from a participating family practice physician and surgeon
designated by the plan as providing obstetrical and gynecological
services.
   (c) In implementing this section, a health care service plan may
establish reasonable provisions governing utilization protocols and
the use of obstetricians and gynecologists, or family practice
physicians and surgeons, as provided for in subdivision (b),
participating in the plan network, medical group, or independent
practice association, provided that these provisions shall be
consistent with the intent of this section and shall be those
customarily applied to other physicians and surgeons, such as primary
care physicians and surgeons, to whom the enrollee has direct
access, and shall not be more restrictive for the provision of
obstetrical and gynecological physician services.  An enrollee shall
not be required to obtain prior approval from another physician,
another provider, or the health care service plan prior to obtaining
direct access to obstetrical and gynecological physician services,
but the plan may establish reasonable requirements for the
participating obstetrician and gynecologist or family practice
physician and surgeon, as provided for in subdivision (b), to
communicate with the enrollee's primary care physician and surgeon
regarding the enrollee's condition, treatment, and any need for
followup care.
   (d) This section shall not be construed to diminish the provisions
of Section 1367.69.
   (e) The Department of Managed Care shall report to the
Legislature, on or before January 1, 2000, on the implementation of
this section.
  SEC. 99.  Section 1367.10 of the Health and Safety Code is amended
to read:
   1367.10.  (a) Every health care service plan shall include within
its disclosure form and within its evidence of coverage a statement
clearly describing how participation in the plan may affect the
choice of physician, hospital, or other health care providers, the
basic method of reimbursement, including the scope and general
methods of payment made to its contracting providers of health care
services, and whether financial bonuses or any other incentives are
used.  The disclosure form and evidence of coverage shall indicate
that if an enrollee wishes to know more about these issues, the
enrollee may request additional information from the health care
service plan, the enrollee's provider, or the provider's medical
group or independent practice association regarding the information
required pursuant to subdivision (b).
   (b) If a plan, medical group, independent practice association, or
participating health care provider uses or receives financial
bonuses or any other incentives, the plan, medical group, independent
practice association, or health care provider shall provide a
written summary to any person who requests it that includes all of
the following:
   (1) A general description of the bonus and any other incentive
arrangements used in its compensation agreements.  Nothing in this
section shall be construed to require disclosure of trade secrets or
commercial or financial information that is privileged or
confidential, such as payment rates, as determined by the director,
pursuant to state law.
   (2) A description regarding whether, and in what manner, the
bonuses and any other incentives are related to a provider's use of
referral services.
   (c) The statements and written information provided pursuant to
subdivisions (a) and (b) shall be communicated in clear and simple
language that enables consumers to evaluate and compare health care
service plans.
   (d) The plan shall clearly inform prospective enrollees that
participation in that plan will affect the person's choice of
provider by placing the following statement in a conspicuous place on
all material required to be given to prospective enrollees including
promotional and descriptive material, disclosure forms, and
certificates and evidences of coverage:
      PLEASE READ THE FOLLOWING INFORMATION SO YOU WILL KNOW FROM
WHOM OR WHAT GROUP OF PROVIDERS HEALTH CARE MAY BE OBTAINED

   It is not the intent of this section to require that the names of
individual health care providers be enumerated to prospective
enrollees.
   If the health care service plan provides a list of providers to
patients or contracting providers, the plan shall include within the
provider listing a notification that enrollees may contact the plan
in order to obtain a list of the facilities with which the health
care service plan is contracting for subacute care and/or
transitional inpatient care.
  SEC. 100.  Section 1367.15 of the Health and Safety Code is amended
to read:
   1367.15.  (a) This section shall apply to individual health care
service plan contracts and plan contracts sold to employer groups
with fewer than two eligible employees as defined in subdivision (b)
of Section 1357 covering hospital, medical, or surgical expenses,
which is issued, amended, delivered, or renewed on or after January
1, 1994.
   (b) As used in this section, "block of business" means individual
plan contracts or plan contracts sold to employer groups with fewer
than two eligible employees as defined in subdivision (b) of Section
1357, with distinct benefits, services, and terms.  A "closed block
of business" means a block of business for which a health care
service plan ceases to actively offer or sell new plan contracts.
   (c) No block of business shall be closed by a health care service
plan unless (1) the plan permits an enrollee to receive health care
services from any block of business that is not closed and which
provides comparable benefits, services, and terms, with no additional
underwriting requirement, or (2) the plan pools the experience of
the closed block of business with all appropriate blocks of business
that are not closed for the purpose of determining the premium rate
of any plan contract within the closed block, with no rate penalty or
surcharge beyond that which reflects the experience of the combined
pool.
   (d) A block of business shall be presumed closed if either of the
following is applicable:
   (1) There has been an overall reduction in that block of 12
percent in the number of in force plan contracts for a period of 12
months.
   (2) That block has less than 1,000 enrollees in this state.  This
presumption shall not apply to a block of business initiated within
the previous 24 months, but notification of that block shall be
provided to the director pursuant to subdivision (e).
   The fact that a block of business does not meet one of the
presumptions set forth in this subdivision shall not preclude a
determination that it is closed as defined in subdivision (b).
   (e) A health care service plan shall notify the director in
writing within 30 days of its decision to close a block of business
or, in the absence of an actual decision to close a block of
business, within 30 days of its determination that a block of
business is within the presumption set forth in subdivision (d).
When the plan decides to close a block, the written notice shall
fully disclose all information necessary to demonstrate compliance
with the requirements of subdivision (c).  When the plan determines
that a block is within the presumption, the written notice shall
fully disclose all information necessary to demonstrate that the
presumption is applicable.  In the case of either notice, the plan
shall provide additional information within 15 days after any request
of the director.
   (f) A health care service plan shall preserve for a period of not
less than five years in an identified location and readily accessible
for review by the director all books and records relating to any
action taken by a plan pursuant to subdivision (c).
   (g) No health care service plan shall offer or sell any contract,
or provide misleading information about the active or closed status
of a block of business, for the purpose of evading this section.
   (h) A health care service plan shall bring any blocks of business
closed prior to the effective date of this section into compliance
with the terms of this section no later than December 31, 1994.
   (i) This section shall not apply to health care service plan
contracts providing small employer health coverage to individuals or
employer groups with fewer than two eligible employees if that
coverage is provided pursuant to Article 3.1 (commencing with Section
1357) and, with specific reference to coverage for individuals or
employer groups with fewer than two eligible employees, is approved
by the director pursuant to Section 1357.15, provided a plan electing
to sell coverage pursuant to this subdivision shall do so until such
time as the plan ceases to market coverage to small employers and
complies with subdivision (c) of Section 1357.11.
   (j) This section shall not apply to coverage of Medicare services
pursuant to contracts with the United States government, Medicare
supplement, dental, vision, or conversion coverage.
  SEC. 101.  Section 1367.24 of the Health and Safety Code is amended
to read:
   1367.24.  (a) Every health care service plan that provides
prescription drug benefits shall maintain an expeditious process by
which prescribing providers may obtain authorization for a medically
necessary nonformulary prescription drug.  On or before July 1, 1999,
every health care service plan that provides prescription drug
benefits shall file with the department a description of its process,
including timelines, for responding to authorization requests for
nonformulary drugs.  Any changes to this process shall be filed with
the department pursuant to Section 1352.  Each plan shall provide a
written description of its most current process, including timelines,
to its prescribing providers.  For purposes of this section, a
prescribing provider shall include a provider authorized to write a
prescription, pursuant to subdivision (a) of Section 4040 of the
Business and Professions Code, to treat a medical condition of an
enrollee.
   (b) Any plan that disapproves a request made pursuant to
subdivision (a) by a prescribing provider to obtain authorization for
a nonformulary drug shall provide the reasons for the disapproval in
a notice provided to the enrollee.  The notice shall indicate that
the enrollee may file a grievance with the plan if the enrollee
objects to the disapproval, including any alternative drug or
treatment offered by the plan.  The notice shall comply with
subdivision (b) of Section 1368.02.
   (c) The process described in subdivision (a) by which prescribing
providers may obtain authorization for medically necessary
nonformulary drugs shall not apply to a nonformulary drug that has
been prescribed for an enrollee in conformance with the provisions of
Section 1367.22.
   (d) The process described in subdivision (a) by which enrollees
may obtain medically necessary nonformulary drugs, including
specified timelines for responding to prescribing provider
authorization requests, shall be described in evidence of coverage
and disclosure forms, as required by subdivision (a) of Section 1363,
issued on or after July 1, 1999.
   (e) Every health care service plan that provides prescription drug
benefits shall maintain, as part of its books and records under
Section 1381, all of the following information, which shall be made
available to the director upon request:
   (1) The complete drug formulary or formularies of the plan, if the
plan maintains a formulary, including a list of the prescription
drugs on the formulary of the plan by major therapeutic category with
an indication of whether any drugs are preferred over other drugs.
   (2) Records developed by the pharmacy and therapeutic committee of
the plan, or by others responsible for developing, modifying, and
overseeing formularies, including medical groups, individual practice
associations, and contracting pharmaceutical benefit management
companies, used to guide the drugs prescribed for the enrollees of
the plan, that fully describe the reasoning behind formulary
decisions.
   (3) Any plan arrangements with prescribing providers, medical
groups, individual practice associations, pharmacists, contracting
pharmaceutical benefit management companies, or other entities that
are associated with activities of the plan to encourage formulary
compliance or otherwise manage prescription drug benefits.
   (f) If a plan provides prescription drug benefits, the department
shall, as part of its periodic onsite medical survey of each plan
undertaken pursuant to Section 1380, review the performance of the
plan in providing those benefits, including, but not limited to, a
review of the procedures and information maintained pursuant to this
section, and describe the performance of the plan as part of its
report issued pursuant to Section 1380.
   (g) The director shall not publicly disclose any information
reviewed pursuant to this section that is determined by the director
to be confidential pursuant to state law.
   (h) Nothing in this section shall be construed to restrict or
impair the application of any other provision of this chapter,
including, but not limited to, Section 1367, which includes among its
requirements that a health care service plan furnish services in a
manner providing continuity of care and demonstrate that medical
decisions are rendered by qualified medical providers unhindered by
fiscal and administrative management.  Subdivision (c) of Section
1367.24, which establishes an exemption if a drug has been prescribed
in conformance with Section 1367.22, shall have no effect unless
Section 1367.22 of the Health and Safety Code, as added by Assembly
Bill 974 of the 1997-98 Regular Session, takes effect on or before
July 1, 1999.
  SEC. 103.  Section 1368.02 of the Health and Safety Code, as
amended by Section 3 of Chapter 377 of the Statutes of 1998, is
amended to read:
   1368.02.  (a) The director shall establish and maintain a
toll-free telephone number for the purpose of receiving complaints
regarding health care service plans regulated by the director.
   (b) Every health care service plan shall publish the department's
toll-free telephone number, the California Relay Service's toll-free
telephone numbers for the hearing and speech impaired, the plan's
telephone number, and the department's Internet address, on every
plan contract, on every evidence of coverage, on copies of plan
grievance procedures, on plan complaint forms, and on all written
notices to enrollees required under the grievance process of the
plan, including any written communications to an enrollee that offer
the enrollee the opportunity to participate in the grievance process
of the plan and on all written responses to grievances.  The
department's telephone number, the California Relay Service's
telephone numbers, the plan's telephone number, and the department's
Internet address shall be displayed by the plan in each of these
documents in 12-point boldface type in the following regular type
statement:

   "The California Department of Managed Care is responsible for
regulating health care service plans.  The department has a toll-free
telephone number (1-800-400-0815) to receive complaints regarding
health plans.  The hearing and speech impaired may use the California
Relay Service's toll-free telephone numbers (1-800-735-2929 (TTY) or
1-888-877-5378 (TTY)) to contact the department.  The department's
Internet website (http://www.dmc.ca.gov) has complaint forms and
instructions online.  If you have a grievance against your health
plan, you should first telephone your plan at (plan's telephone
number) and use the plan's grievance process before contacting the
department. If you need help with a grievance involving an emergency,
a grievance that has not been satisfactorily resolved by your plan,
or a grievance that has remained unresolved for more than 30 days,
you may call the department for assistance.  The plan's grievance
process and the department's complaint review process are in addition
to any other dispute resolution procedures that may be available to
you, and your failure to use these processes does not preclude your
use of any other remedy provided by law."

   (c) (1) There is within the department an Office of Patient
Advocate, which shall be known and may be cited as the
Gallegos-Rosenthal Patient Advocate Program, to represent the
interests of enrollees served by health care service plans regulated
by the department.  The goal of the office shall be to help enrollees
secure health care services to which they are entitled under the
laws administered by the department.
   (2) The office shall be headed by a patient advocate recommended
to the Governor by the Secretary of the Business, Transportation and
Housing Agency.  The patient advocate shall be appointed by and serve
at the pleasure of the Governor.
   (3) The duties of the office shall be determined by the secretary,
in consultation with the director, and shall include, but not be
limited to:
   (A) Developing educational and informational guides for consumers
describing enrollee rights and responsibilities, and informing
enrollees on effective ways to exercise their rights to secure health
care services.  The guides shall be easy to read and understand,
available in English and other languages, and shall be made available
to the public by the department, including access on the department'
s Internet website and through public outreach and educational
programs.
   (B) Compiling an annual publication, to be made available on the
department's Internet website, of a quality of care report card
including but not limited to health care service plans.
   (C) Rendering advice and assistance to enrollees regarding
procedures, rights, and responsibilities related to the use of health
care service plan grievance systems, the department's system for
reviewing unresolved grievances, and the independent review process.

   (D) Making referrals within the department regarding studies,
investigations, audits, or enforcement that may be appropriate to
protect the interests of enrollees.
   (E) Coordinating and working with other government and
nongovernment patient assistance programs and health care
ombudsprograms.
   (4) The director, in consultation with the patient advocate, shall
provide for the assignment of personnel to the office.  The
department may employ or contract with experts when necessary to
carry out functions of the office.  The annual budget for the office
shall be separately identified in the annual budget request of the
department.
   (5) The office shall have access to department records including,
but not limited to, information related to health care service plan
audits, surveys, and enrollee grievances.  The department shall
assist the office in compelling the production and disclosure of any
information the office deems necessary to perform its duties, from
entities regulated by the department, if the information is
determined by the department's legal counsel to be subject, under
existing law, to production or disclosure to the department.
   (6) The patient advocate shall annually issue a public report on
the activities of the office, and shall appear before the appropriate
policy and fiscal committees of the Senate and Assembly, if
requested, to report and make recommendations on the activities of
the office.
  SEC. 105.  Section 1370 of the Health and Safety Code is amended to
read:
   1370.  Every plan shall establish procedures in accordance with
department regulations for continuously reviewing the quality of
care, performance of medical personnel, utilization of services and
facilities, and costs.  Notwithstanding any other provision of law,
there shall be no monetary liability on the part of, and no cause of
action for damages shall arise against, any person who participates
in plan or provider quality of care or utilization reviews by peer
review committees which are composed chiefly of physicians and
surgeons or dentists, psychologists, or optometrists, or any of the
above, for any act performed during the reviews if the person acts
without malice, has made a reasonable effort to obtain the facts of
the matter, and believes that the action taken is warranted by the
facts, and neither the proceedings nor the records of the reviews
shall be subject to discovery, nor shall any person in attendance at
the reviews be required to testify as to what transpired thereat.
Disclosure of the proceedings or records to the governing body of a
plan or to any person or entity designated by the plan to review
activities of the plan or provider committees shall not alter the
status of the records or of the proceedings as privileged
communications.
   The above prohibition relating to discovery or testimony shall not
apply to the statements made by any person in attendance at a review
who is a party to an action or proceeding the subject matter of
which was reviewed, or to any person requesting hospital staff
privileges, or in any action against an insurance carrier alleging
bad faith by the carrier in refusing to accept a settlement offer
within the policy limits, or to the director in conducting surveys
pursuant to Section 1380.
   This section shall not be construed to confer immunity from
liability on any health care service plan.  In any case in which, but
for the enactment of the preceding provisions of this section, a
cause of action would arise against a health care service plan, the
cause of action shall exist notwithstanding the provisions of this
section.
  SEC. 107.  Section 1371.4 of the Health and Safety Code is amended
to read:
   1371.4.  (a) A health care service plan, or its contracting
medical providers, shall provide 24-hour access for enrollees and
providers to obtain timely authorization for medically necessary
care, for circumstances where the enrollee has received emergency
services and care is stabilized, but the treating provider believes
that the enrollee may not be discharged safely.   A physician and
surgeon shall be available for consultation and for resolving
disputed requests for authorizations.  A health care service plan
that does not require prior authorization as a prerequisite for
payment for necessary medical care following stabilization of an
emergency medical condition or active labor need not satisfy the
requirements of this subdivision.
   (b) A health care service plan shall reimburse providers for
emergency services and care provided to its enrollees, until the care
results in stabilization of the enrollee, except as provided in
subdivision (c).  As long as federal or state law requires that
emergency services and care be provided without first questioning the
patient's ability to pay, a health care service plan shall not
require a provider to obtain authorization prior to the provision of
emergency services and care necessary to stabilize the enrollee's
emergency medical condition.
   (c) Payment for emergency services and care may be denied only if
the health care service plan reasonably determines that the emergency
services and care were never performed; provided that a health care
service plan may deny reimbursement to a provider for a medical
screening examination in cases when the plan enrollee did not require
emergency services and care and the enrollee reasonably should have
known that an emergency did not exist.  A health care service plan
may require prior authorization as a
         prerequisite for payment for necessary medical care
following stabilization of an emergency medical condition.
   (d) If there is a disagreement between the health care service
plan and the provider regarding the need for necessary medical care,
following stabilization of the enrollee, the plan shall assume
responsibility for the care of the patient either by having medical
personnel contracting with the plan personally take over the care of
the patient within a reasonable amount of time after the
disagreement, or by having another general acute care hospital under
contract with the plan agree to accept the transfer of the patient as
provided in Section 1317.2, Section 1317.2a, or other pertinent
statute.  However, this requirement shall not apply to necessary
medical care provided in hospitals outside the service area of the
health care service plan.  If the health care service plan fails to
satisfy the requirements of this subdivision, further necessary care
shall be deemed to have been authorized by the plan.  Payment for
this care may not be denied.
   (e) A health care service plan may delegate the responsibilities
enumerated in this section to the plan's contracting medical
providers.
   (f) Subdivisions (b), (c), (d), (g), and (h) shall not apply with
respect to a nonprofit health care service plan that has 3,500,000
enrollees and maintains a prior authorization system that includes
the availability by telephone within 30 minutes of a practicing
emergency department physician.
   (g) The Department of Managed Care shall adopt by July 1, 1995, on
an emergency basis, regulations governing instances when an enrollee
requires medical care following stabilization of an emergency
medical condition, including appropriate timeframes for a health care
service plan to respond to requests for treatment authorization.
   (h) The Department of Managed Care shall adopt, by July 1, 1999,
on an emergency basis, regulations governing instances when an
enrollee in the opinion of the treating provider requires necessary
medical care following stabilization of an emergency medical
condition, including appropriate timeframes for a health care service
plan to respond to a request for treatment authorization from a
treating provider who has a contract with a plan.
   (i) The definitions set forth in Section 1317.1 shall control the
construction of this section.
  SEC. 108.  Section 1372 of the Health and Safety Code is amended to
read:
   1372.  Subject to the applicable provisions of this chapter, a
plan may offer one or more plan contracts or specialized health care
service plan contracts, except that a specialized health care service
plan contract shall not offer one or more basic health care services
except as may be permitted by rule or order of the director.
Advertising, disclosure forms, contract forms, and evidences of
coverage for more than one type of plan contract or specialized
health care service plan contract, or both, may not be used except as
authorized by the director pursuant to this chapter.
  SEC. 109.  Section 1373 of the Health and Safety Code is amended to
read:
   1373.  (a) A plan contract may not provide an exception for other
coverage where the other coverage is entitlement to Medi-Cal benefits
under Chapter 7 (commencing with Section 14000) or Chapter 8
(commencing with Section 14200) of Part 3 of Division 9 of the
Welfare and Institutions Code, or medicaid benefits under Subchapter
19 (commencing with Section 1396) of Chapter 7 of Title 42 of the
United States Code.
   Each plan contract shall be interpreted not to provide an
exception for the Medi-Cal or medicaid benefits.
   A plan contract shall not provide an exemption for enrollment
because of an applicant's entitlement to Medi-Cal benefits under
Chapter 7 (commencing with Section 14000) or Chapter 8 (commencing
with Section 14200) of Part 3 of Division 9 of the Welfare and
Institutions Code, or medicaid benefits under Subchapter 19
(commencing with Section 1396) of Chapter 7 of Title 42 of the United
States Code.
   A plan contract may not provide that the benefits payable
thereunder are subject to reduction if the individual insured has
entitlement to the Medi-Cal or medicaid benefits.
   (b) A plan contract that provides coverage, whether by specific
benefit or by the effect of general wording, for sterilization
operations or procedures shall not impose any disclaimer, restriction
on, or limitation of, coverage relative to the covered individual's
reason for sterilization.
   As used in this section, "sterilization operations or procedures"
shall have the same meaning as that specified in Section 10120 of the
Insurance Code.
   (c) Every plan contract that provides coverage to the spouse or
dependents of the subscriber or spouse shall grant immediate accident
and sickness coverage, from and after the moment of birth, to each
newborn infant of any subscriber or spouse covered and to each minor
child placed for adoption from and after the date on which the
adoptive child's birth parent or other appropriate legal authority
signs a written document, including, but not limited to, a health
facility minor release report, a medical authorization form, or a
relinquishment form, granting the subscriber or spouse the right to
control health care for the adoptive child or, absent this written
document, on the date there exists evidence of the subscriber's or
spouse's right to control the health care of the child placed for
adoption.  No such plan may be entered into or amended if it contains
any disclaimer, waiver, or other limitation of coverage relative to
the coverage or insurability of newborn infants of, or children
placed for adoption with, a subscriber or spouse covered as required
by this subdivision.
   (d) Every plan contract that provides that coverage of a dependent
child of a subscriber shall terminate upon attainment of the
limiting age for dependent children specified in the plan, shall also
provide in substance that attainment of the limiting age shall not
operate to terminate the coverage of the child while the child is and
continues to be both (1) incapable of self-sustaining employment by
reason of mental retardation or physical handicap and (2) chiefly
dependent upon the subscriber for support and maintenance, provided
proof of the incapacity and dependency is furnished to the plan by
the member within 31 days of the request for the information by the
plan or group plan contractholder and subsequently as may be required
by the plan or group plan contractholder, but not more frequently
than annually after the two-year period following the child's
attainment of the limiting age.
   (e) A plan contract which provides coverage, whether by specific
benefit or by the effect of general wording, for both an employee and
one or more covered persons dependent upon the employee and provides
for an extension of the coverage for any period following a
termination of employment of the employee shall also provide that
this extension of coverage shall apply to dependents upon the same
terms and conditions precedent as applied to the covered employee,
for the same period of time, subject to payment of premiums, if any,
as required by the terms of the policy and subject to any applicable
collective bargaining agreement.
   (f) A group contract shall not discriminate against handicapped
persons or against groups containing handicapped persons.  Nothing in
this subdivision shall preclude reasonable provisions in a plan
contract against liability for services or reimbursement of the
handicap condition or conditions relating thereto, as may be allowed
by rules of the director.
   (g) Every group contract shall set forth the terms and conditions
under which subscribers and enrollees may remain in the plan in the
event the group ceases to exist, the group contract is terminated or
an individual subscriber leaves the group, or the enrollees'
eligibility status changes.
   (h) (1) A health care service plan or specialized health care
service plan may provide for coverage of, or for payment for,
professional mental health services, or vision care services, or for
the exclusion of these services.  If the terms and conditions include
coverage for services provided in a general acute care hospital or
an acute psychiatric hospital as defined in Section 1250 and do not
restrict or modify the choice of providers, the coverage shall extend
to care provided by a psychiatric health facility as defined in
Section 1250.2 operating pursuant to licensure by the State
Department of Mental Health. A health care service plan that offers
outpatient mental health services but does not cover these services
in all of its group contracts shall communicate to prospective group
contractholders as to the availability of outpatient coverage for the
treatment of mental or nervous disorders.
   (2) No plan shall prohibit the member from selecting any
psychologist who is licensed pursuant to the Psychology Licensing Law
(Chapter 6.6 (commencing with Section 2900) of Division 2 of the
Business and Professions Code), any optometrist who is the holder of
a certificate issued pursuant to Chapter 7 (commencing with Section
3000) of Division 2 of the Business and Professions Code or, upon
referral by a physician and surgeon licensed pursuant to the Medical
Practice Act (Chapter 5 (commencing with Section 2000) of Division 2
of the Business and Professions Code), (i) any marriage, family, and
child counselor who is the holder of a license under Section 4980.50
of the Business and Professions Code, (ii) any licensed  clinical
social worker who is the holder of a license under Section 4996 of
the Business and Professions Code, or (iii) any registered nurse
licensed pursuant to Chapter 6 (commencing with Section 2700) of
Division 2 of the Business and Professions Code who possesses a
master's degree in psychiatric-mental health nursing and two years of
supervised experience in psychiatric-mental health nursing, at the
time  that the State Board of Registered Nurses produces and
maintains a list of those psychiatric-mental health nurses who
possess a master's degree in psychiatric-mental health nursing and
two years of supervised experience in psychiatric-mental health
nursing, to perform the particular services covered under the terms
of the plan, and the certificate holder is expressly authorized by
law to perform these services.
   (3) Nothing in this section shall be construed to allow any
certificate holder or licensee enumerated in this section to perform
professional mental health services beyond his or her field or fields
of competence as established by his or her education, training and
experience.
   (4) For the purposes of this section, "marriage, family, and child
counselor" means a licensed marriage, family, and child counselor
who has received specific instruction in assessment, diagnosis,
prognosis, and counseling, and psychotherapeutic treatment of
premarital, marriage, family, and child relationship dysfunctions
which is equivalent to the instruction required for licensure on
January 1, 1981.
   (5) Nothing in this section shall be construed to allow a member
to select and obtain mental health or psychological or vision care
services from a certificate or licenseholder who is not directly
affiliated with or under contract to the health care service plan or
specialized health care service plan to which the member belongs.
All health care service plans and individual practice associations
that offer mental health benefits shall make reasonable efforts to
make available to their members the services of licensed
psychologists.  However, a failure of a plan or association to comply
with the requirements of the preceding sentence shall not constitute
a misdemeanor.
   (6) As used in this subdivision, "individual practice association"
means an entity as defined in subsection (5) of Section 1307 of the
federal Public Health Service Act (42 U.S.C. Sec. 300e-1, subsec.
(5)).
   (7) Health care service plan coverage for professional mental
health services may include community residential treatment services
that are alternatives to inpatient care and which are directly
affiliated with the plan or to which enrollees are referred by
providers affiliated with the plan.
   (i) If the plan utilizes arbitration to settle disputes, the plan
contracts shall set forth the type of disputes subject to
arbitration, the process to be utilized, and how it is to be
initiated.
   (j) A plan contract which provides benefits that accrue after a
certain time of confinement in a health care facility shall specify
what constitutes a day of confinement or the number of consecutive
hours of confinement that are requisite to the commencement of
benefits.
  SEC. 110.  Section 1373.95 of the Health and Safety Code is amended
to read:
   1373.95.  (a) On or before July 1, 1996, every health care service
plan that provides coverage on a group basis shall file with the
Department of Managed Care, a written policy describing how the
health plan shall facilitate the continuity of care for new enrollees
receiving services during a current episode of care for an acute
condition from a nonparticipating provider.  This written policy
shall describe the process used to facilitate the continuity of care,
including the assumption of care by a participating provider.
Notice of the policy and information regarding how enrollees may
request a review under the policy shall be provided to all new
enrollees, except those enrollees who are not eligible as described
in subdivision (e).  A copy of the written policy shall be provided
to eligible enrollees upon request.
   (b) The written policy shall describe how requests to continue
services with an existing provider are reviewed by the plan.  The
policy shall ensure that reasonable consideration is given to the
potential clinical effect that a change of provider would have on the
enrollee's treatment for the acute condition.
   (c) A health care service plan may require any nonparticipating
provider whose services are continued pursuant to the written policy
to agree in writing to meet the same contractual terms and conditions
that are imposed upon the plan's participating providers, including
location within the plan's service area, reimbursement methodologies,
and rates of payment.  If the health care service plan determines
that a patient's health care treatment should temporarily continue
with the patient's existing provider, the health care service plan
shall not be liable for actions resulting solely from the negligence,
malpractice, or other tortious or wrongful acts arising out of the
provision of services by the existing provider.
   (d) Nothing in this section shall require a health care service
plan to cover services or provide benefits that are not otherwise
covered under the terms and conditions of the plan contract.
   (e) The written policy shall not apply to any enrollee who is
offered an out-of-network option, or who had the option to continue
with his or her previous health plan or provider and instead
voluntarily chose to change health plans.
   (f) This section shall not apply to health plan contracts that
include out-of-network coverage under which the enrollee is able to
obtain services from the enrollee's existing provider.
   (g) For purposes of this section, "provider" refers to a person
who is described in subdivision (f) of Section 900 of the Business
and Professions Code.
  SEC. 111.  Section 1374.9 of the Health and Safety Code is amended
to read:
   1374.9.  For violations of Section 1374.7, the commissioner may,
after appropriate notice and opportunity for hearing, by order levy
administrative penalties as follows:
   (a) Any health care service plan that violates Section 1374.7, or
that violates any rule or order adopted or issued pursuant to this
section, is liable for administrative penalties of not less than two
thousand five hundred dollars ($2,500) for each first violation, and
of not less than five thousand dollars ($5,000) nor more than ten
thousand dollars ($10,000) for each second violation, and of not less
than fifteen thousand dollars ($15,000) and not more than one
hundred thousand dollars ($100,000) for each subsequent violation.
   (b)  The administrative penalties shall be paid to the Managed
Care Fund.
   (c)  The administrative penalties available to the commissioner
pursuant to this section are not exclusive, and may be sought and
employed in any combination with civil, criminal, and other
administrative remedies deemed advisable by the commissioner to
enforce the provisions of this chapter.
  SEC. 112.  Section 1374.26 of the Health and Safety Code is amended
to read:
   1374.26.  The director may, as required by this article, or from
time to time as conditions warrant, pursuant to Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title 2 of
the Government Code, adopt reasonable regulations, and amendments
and additions thereto, as are necessary to administer this article.

  SEC. 113.  Section 1374.27 of the Health and Safety Code is amended
to read:
   1374.27.  The director may levy administrative penalties and may
suspend or revoke the license or licenses issued to any health care
service plan, after notice and hearing, to have violated this article
or a regulation adopted pursuant to the authority of this article.
Notice of hearing shall be accomplished and a hearing conducted in
accordance with Chapter 5 (commencing with Section 11500) of Part 1
of Division 3 of Title 2 of the Government Code, and the director
shall have all of the powers granted therein.
   The remedies available to the director pursuant to this article
are not exclusive, and may be sought and employed in any combination
with other remedies deemed advisable by the director to enforce the
provisions of this article.
  SEC. 114.  Section 1374.28 of the Health and Safety Code is amended
to read:
   1374.28.  In addition to any other penalty provided by law or the
availability of any administrative procedure, if a health care
service plan, after notice and hearing, is found to have violated
this article, or regulations adopted pursuant to this article, or
knowingly permits any person to do so, the director may suspend the
authority of the plan to transact business.
  SEC. 115.  Section 1374.60 of the Health and Safety Code is amended
to read:
   1374.60.  For purpose of this article, the following definitions
shall apply:
   (a) A "point-of-service plan contract" means any plan contract
offered by a health care service plan whereby the health care service
plan assumes financial risk for both "in-network coverage or
services" and "out-of-network coverage or services."
   The term "point-of-service plan contract" shall not apply to a
plan contract where the out-of-network coverage or service is
underwritten by an insurance company admitted in this state or is
provided by a self-insured employer and is offered in conjunction
with in-network coverage or services provided pursuant to a health
care service plan contract.
   (b) "Out-of-network coverage or services" means health care
services received either from (1) providers who are not employed by,
under contract with, or otherwise affiliated with the health care
service plan, except for health care services received from these
providers in an emergency or when referred or authorized by the plan
under procedures specifically reviewed and approved by the  director
or (2) providers who are employed by, under contract with, or
otherwise affiliated with a health care service plan in instances
when the "in-network coverage or services" requirements for care set
forth in the health care service plan's approved evidence of coverage
are not met.
   (c) "In-network coverage or services" means all of the following:

   (1) All the health care services provided or offered under the
requirements of this chapter that are received from a provider
employed by, under contract with, or otherwise affiliated with the
health care service plan and in accordance with the procedures set
forth in the plan's approved evidence of coverage.
   (2) Health care services received from a provider not affiliated
with the health care service plan when the plan arranges for the
enrollee to receive services from that provider.
   (3) Out-of-area emergency care provided in accordance with the
procedures set by the health care service plan to be followed in
securing these services.
  SEC. 116.  Section 1374.64 of the Health and Safety Code is amended
to read:
   1374.64.  (a) Only a plan that has been licensed under this
chapter and in operation in this state for a period of five years or
more, or a plan licensed under this chapter and operating in this
state for a period of five or more years under a combination of (1)
licensure under this chapter and (2) pursuant to a certificate of
authority issued by the Department of Insurance may offer a
point-of-service contract.  A specialized health care service plan
shall not offer a point-of-service plan contract unless this plan was
formerly registered under the Knox-Mills Health Plan Act (Article
2.5 (commencing with Section 12530) of Chapter 6 of Part 2 of
Division 3 of Title 2 of the Government Code), as repealed by Chapter
941 of the Statutes of 1975, and offered point-of-service plan
contracts previously approved by the director on July 1, 1976, and on
September 1, 1993.
   (b) A plan may offer a point-of-service plan contract only if the
director has not found the plan to be in violation of any
requirements, including administrative capacity, under this chapter
or the rules adopted thereunder and the plan meets, at a minimum, the
following financial criteria:
   (1) The minimum financial criteria for a plan that maintains a
minimum net worth of at least five million dollars ($5,000,000) shall
be:
   (A) (i) Initial tangible net equity so that the plan is not
required to file monthly reports with the  director as required by
Section 1300.84.3(d)(1)(G) of Title 10 of the California Code of
Regulations and then have and maintain adjusted tangible net equity
to be determined pursuant to either of the following:
   (I) In the case of a plan that is required to have and maintain a
tangible net equity as required by Section 1300.76(a)(1) or (2) of
Title 10 of the California Code of Regulations, multiply 130 percent
times the sum resulting from the addition of the plan's tangible net
equity required by Section 1300.76(a)(1) or (2) of Title 10 of the
California Code of Regulations and the number that equals 10 percent
of the plan's annualized health care expenditures for out-of-network
services for point-of-service enrollees.
   (II) In the case of a plan that is required to have and maintain a
tangible net equity as required by Section 1300.76(a)(3) of Title 10
of the California Code of Regulations, recalculate the plan's
tangible net equity under Section 1300.76(a)(3) of Title 10 of the
California Code of Regulations excluding the plan's annualized health
care expenditures for out-of-network services for point-of-service
enrollees, add together the number resulting from this recalculation
and the number that equals 10 percent of the plan's annualized health
care expenditures for out-of-network services for point of services
enrollees, and multiply this sum times 130 percent, provided that the
product of this multiplication must exceed 130 percent of the
tangible net equity required by Section 1300.76(a)(3) of Title 10 of
the California Code of Regulations so that the plan is not required
to file monthly reports to the director as required by Section
1300.84.3(d)(1)(G) of Title 10 of the California Code of Regulations.

   (ii) The failure of a plan offering a point-of-service plan
contract under this article to maintain adjusted tangible net equity
as determined by this subdivision shall require the filing of monthly
reports with the director pursuant to Section 1300.84.3(d) of Title
10 of the California Code of Regulations, in addition to any other
requirements that may be imposed by the  director on a plan under
this article and chapter.
   (iii) The calculation of tangible net equity under any report to
be filed by a plan offering a point-of-service plan contract under
this article and required of a plan pursuant to Section 1384, and the
regulations adopted thereunder, shall be on the basis of adjusted
tangible net equity as determined under this subdivision.
   (B) Demonstrates adequate working capital, including (i) a current
ratio (current assets divided by current liabilities) of at least
1:1, after excluding obligations of officers, directors, owners, or
affiliates, or (ii) evidence that the plan is now meeting its
obligations on a timely basis and has been doing so for at least the
preceding two years.  Short-term obligations of affiliates for goods
or services arising in the normal course of business that are payable
on the same terms as equivalent transactions with nonaffiliates
shall not be excluded.  For purposes of this subdivision, an
obligation is considered short term if the repayment schedule is 30
days or fewer.
   (C) Demonstrates a trend of positive earnings over the previous
eight fiscal quarters.
   (2) The minimum financial criteria for a plan that maintains a
minimum net worth of at least one million five hundred thousand
dollars ($1,500,000) but less than five million dollars ($5,000,000)
shall be:
   (A) (i) Initial tangible net equity so that the plan is not
required to file monthly reports with the  director as required by
Section 1300.84.3(d)(1)(G) of Title 10 of the California Code of
Regulations and then have and maintain adjusted tangible net equity
to be determined pursuant to either of the following:
   (I) In the case of a plan that is required to have and maintain a
tangible net equity as required by Section 1300.76(a)(1) or (2) of
Title 10 of the California Code of Regulations, multiply 130 percent
times the sum resulting from the addition of the plan's tangible net
equity required by Section 1300.76(a)(1) or (2) of Title 10 of the
California Code of Regulations and the number that equals 10 percent
of the plan's annualized health care expenditures for out-of-network
services for point-of-service enrollees.
   (II) In the case of a plan that is required to have and maintain a
tangible net equity as required by Section 1300.76(a)(3) of Title 10
of the California Code of Regulations, recalculate the plan's
tangible net equity under Section 1300.76(a)(3) excluding the plan's
annualized health care expenditures for out-of-network services for
point-of-service enrollees, add together the number resulting from
this recalculation and the number that equals
                        10 percent of the plan's annualized health
care expenditures for out-of-network services for point-of-services
enrollees, and multiply this sum times 130 percent, provided that the
product of this multiplication must exceed 130 percent of the
tangible net equity required by Section 1300.76(a)(3) of Title 10 of
the California Code of Regulations so that the plan is not required
to file monthly reports to the  director as required by Section
1300.84.3(d)(1)(G) of Title 10 of the California Code of Regulations.

   (ii) The failure of a plan offering a point-of-service plan
contract under this article to maintain adjusted tangible net equity
as determined by this subdivision shall require the filing of monthly
reports with the director pursuant to Section 1300.84.3(d) of Title
10 of the California Code of Regulations, in addition to any other
requirements that may be imposed by the  director on a plan under
this article and chapter.
   (iii) The calculation of tangible net equity under any report to
be filed by a plan offering a point-of-service plan contract under
this article and required of a plan pursuant to Section 1384, and the
regulations adopted thereunder, shall be on the basis of adjusted
tangible net equity as determined under this subdivision.
   (B) Demonstrates adequate working capital, including (i) a current
ratio (current assets divided by current liabilities) of at least
1:1, after excluding obligations of officers, directors, owners, or
affiliates or (ii) evidence that the plan is now meeting its
obligations on a timely basis and has been doing so for at least the
preceding two years.  Short-term obligations of affiliates for goods
or services arising in the normal course of business that are payable
on the same terms as equivalent transactions with nonaffiliates
shall not be excluded.  For purposes of this subdivision, an
obligation is considered short term if the repayment schedule is 30
days or fewer.
   (C) Demonstrates a trend of positive earnings over the previous
eight fiscal quarters.
   (D) Demonstrates to the  director that it has obtained insurance
for the cost of providing any point-of-service enrollee with
out-of-network covered health care services, the aggregate value of
which exceeds five thousand dollars ($5,000) in any year.  This
insurance shall obligate the insurer to continue to provide care for
the period in which a premium was paid in the event a plan becomes
insolvent.  Where a plan cannot obtain insurance as required by this
subparagraph, then a plan may demonstrate to the  director that it
has made other arrangements, acceptable to the  director, for the
cost of providing enrollees out-of-network health care services; but
in this case the expenditure for total out-of-network costs for all
enrollees in all point-of-service contracts shall be limited to a
percentage, acceptable to the  director, not to exceed 15 percent of
total health care expenditures for all its enrollees.
   (c) Within 30 days of the close of each month a plan offering
point-of-service plan contracts under paragraph (2) of subdivision
(b) shall file with the  director a monthly financial report
consisting of a balance sheet and statement of operations of the
plan, which need not be certified, and a calculation of the adjusted
tangible net equity required under subparagraph (A).  The financial
statements shall be prepared on a basis consistent with the financial
statements furnished by the plan pursuant to Section 1300.84.2 of
Title 10 of the California Code of Regulations.  A plan shall also
make special reports to the  director as the director may from time
to time require.  Each report to be filed by a plan pursuant to this
subdivision shall be verified by a principal officer of the plan as
set forth in Section 1300.84.2(e) of Title 10 of the California Code
of Regulations.
   (d) If it appears to the director that a plan does not have
sufficient financial viability, or organizational and administrative
capacity to assure the delivery of health care services to its
enrollees, the director may, by written order, direct the plan to
discontinue the offering of a point-of-service plan contract.  The
order shall be effective immediately.
  SEC. 117.  Section 1374.66 of the Health and Safety Code is amended
to read:
   1374.66.  Any health care service plan that offers a
point-of-service plan contract may do all of the following:
   (a) Limit or exclude coverage for specific types of services or
conditions when obtained out-of-plan.
   (b) Include annual out-of-pocket limits, copayments, and annual
and lifetime maximum benefit limits for out-of-network coverage or
services that are different or separate from any amounts or limits
applied to in-network coverage or services, and may impose a
deductible on coverage for out-of-network coverage or services.
   (c) To the extent permitted under this chapter, may limit the
groups to which a point-of-service plan contract is offered, and may
adopt nondiscriminatory renewal guidelines under which one or more
point-of-service plan contracts would be replaced with other than
point-of-service plan contracts.  If a point-of-service plan contract
is sold to a group, then the group shall offer it to all members of
that group who are eligible for coverage by the health care service
plan.
   (d) Treat as out-of-network services those services that an
enrollee obtains from a provider affiliated with the plan, but not in
accordance with the authorization procedures set forth in the health
care service plan's approved evidence of coverage.
   (e) Contracts between health care service plans and medical
providers, for the purpose of providing medical services under
point-of-service contracts, may include risk-sharing arrangements for
out-of-network services, but only if the risk sharing arrangements
meet all of the following conditions:
   (1) The contracting medical provider agrees to participate in
risk-sharing arrangements applicable to out-of-network services.
   (2) If the medical provider is reimbursed on a capitated or
prepaid basis, the contract shall clearly disclose the capitation or
prepayment amount to be paid to the medical provider for in-network
services received by enrollees under point-of-service contracts.
   (3) Any capitation or prepayment amounts paid to the medical
provider shall not place the medical provider directly at risk for or
directly transfer liability for out-of-network services received by
enrollees under point-of-service contracts.
   (4) The risk-sharing arrangements for out-of-network services may
provide a bonus or incentive to the medical provider to attempt to
reduce the utilization of out-of-network services, but shall not
place the medical provider at risk for any amounts in excess of the
amounts used by the plan to budget for or fund the risk-sharing pool
for out-of-network services.
   (5) The contract between the medical provider and the plan shall
clearly disclose the mathematical method by which funding for the
risk-sharing arrangement is established, the mathematical method by
which and the extent to which payments for out-of-network services
are debited against the risk-sharing funds, and the method by which
the risk-sharing arrangement is reconciled on no less than an annual
basis.
   (6) The contract is approved by the  director.
  SEC. 118.  Section 1374.67 of the Health and Safety Code is amended
to read:
   1374.67.  A health care service plan offering a point-of-service
plan contract is subject to the following limitations:
   (a) A health care service plan shall limit its offering of
point-of-service plan contracts so that no more than 50 percent of
the plan's total premium revenue in any fiscal quarter is earned from
point-of-service plan contracts.
   (b) A health care service plan offering a point-of-service plan
contract shall not expend in any fiscal-year quarter more than 20
percent of its total health care expenditures for all its enrollees
for out-of-network services for point-of-service enrollees.
   (c) If the amount specified in subdivision (a) or (b) is exceeded
by 2 percent in any quarter, the health care service plan shall come
into compliance with subdivisions (a) and (b) by the end of the next
following quarter.  If compliance with the amount specified in
subdivisions (a) and (b) is not demonstrated in the health care
service plan's next quarterly report, the director may prohibit the
health care service plan from offering a point-of-service plan
contract to new groups, or may require the health care service plan
to amend one or more of its point-of-service contracts at the time of
renewal to delete some or all of the out-of-network coverage or
services as may be necessary for the plan to demonstrate compliance
to the  director's satisfaction.
   (d) The limitation imposed by this section shall not apply to a
plan which in substantial part indemnified subscribers and enrollees
pursuant to contracts issued under such plan's former registration
under the Knox-Mills Health Plan Act in 1975 and as of that date, and
on September 1, 1993, was offering point-of-service plan contracts
previously approved by the director.
  SEC. 119.  Section 1374.68 of the Health and Safety Code is amended
to read:
   1374.68.  A health care service plan that offers a
point-of-service plan contract shall do all of the following:
   (a) Deposit with the  director or, at the discretion of the
director, with any organization or trustee acceptable to the director
through which a custodial or controlled account is maintained, cash,
securities, or any combination of these, which is acceptable to the
director, that at all times have a fair market value equal to the
greater of either one of the following:
   (1) Two hundred thousand dollars ($200,000).
   (2) One hundred twenty percent of the plan's current monthly
claims payable plus incurred but not reported balance for coverage
out-of-network coverage or services provided under point-of-service
contracts.
   (b) Track out-of-network point-of-service utilization separately
from in-network utilization.
   (c) Record point-of-service utilization in a manner that will
permit utilization and cost reporting as the  director may require.
   (d) Demonstrate to the satisfaction of the  director that the
health care service plan has the fiscal, administrative, and
marketing capacity to control its point-of-service plan contract
enrollment, utilization, and costs so as not to jeopardize the
financial viability or organizational and administrative capacity of
the health care service plan.
   (e) Maintain the deposit required under subdivision (a) in a
manner agreed to by the  director, subject to subdivision (a) of
Section 1377 and any regulations adopted thereunder.
   (f) Any deposit made pursuant to this section shall be a credit
against any deposit required by subdivision (a) of Section 1377.
  SEC. 120.  Section 1374.69 of the Health and Safety Code is amended
to read:
   1374.69.  At least 20 business days prior to offering a
point-of-service plan contract, a health care service plan shall file
a notice of material modification in accordance with Section 1352.
The notice of material modification shall include, but not be limited
to, provisions specifying how the health care service plan shall
accomplish all of the following:
   (a) Design the benefit levels and conditions of coverage for
in-network coverage and services and out-of-network point-of-service
utilization.
   (b) Provide or arrange for the provision of adequate systems to do
all of the following:
   (1) Process and pay claims for all out-of-network coverage and
services.
   (2) Generate accurate financial and utilization data and reports
on a timely basis, so that it and any authorized regulatory agency
can evaluate the health care service plan's experience with
point-of-service plan contracts and monitor compliance with
point-of-service plan contract projections established by the health
care service plan and regulatory requirements.
   (3) Track and monitor the quality of health care obtained
out-of-network by plan enrollees to the extent reasonable and
possible.
   (4) Respond promptly to enrollee grievances and complaints,
written or oral, including those regarding services obtained
out-of-network.
   (5) Meet the requirements for a point-of-service plan contract set
forth in this section and any additional requirements that may be
required by the director.
   (c) Comply initially and on an ongoing basis with the requirements
of this article.
   (d) This section shall become operative July 1, 1995.
  SEC. 121.  Section 1374.71 of the Health and Safety Code is amended
to read:
   1374.71.  No plan formerly registered under the Knox-Mills Health
Plan Act (Article 2.5 (commencing with Section 12530) of Chapter 6 of
Part 2 of Division 3 of Title 2 of the Government Code) in 1975
shall be required to file a notice of material modification under
Section 1374.69 or 1374.70 for any point-of-service plan contract
previously approved by the director under this chapter and offered by
plan on or before September 1, 1993.
  SEC. 122.  Section 1375.1 of the Health and Safety Code is amended
to read:
   1375.1.  (a) Every plan shall have and shall demonstrate to the
director that it has all of the following:
   (1) A fiscally sound operation and adequate provision against the
risk of insolvency.
   (2) Assumed full financial risk on a prospective basis for the
provision of covered health care services, except that a plan may
obtain insurance or make other arrangements for the cost of providing
to any subscriber or enrollee covered health care services, the
aggregate value of which exceeds five thousand dollars ($5,000) in
any year, for the cost of covered health care services provided to
its members other than through the plan because medical necessity
required their provision before they could be secured through the
plan, and for not more than 90 percent of the amount by which its
costs for any of its fiscal years exceed 115 percent of its income
for that fiscal year.
   (3) A procedure for prompt payment or denial of provider and
subscriber or enrollee claims, including those telemedicine services,
as defined in subdivision (a) of Section 2290.5 of the Business and
Professions Code, covered by the plan.  Except as provided in Section
1371, a procedure meeting the requirements of Subchapter G of the
regulations (29 C.F.R. Part 2560) under Public Law 93-406 (88 Stats.
829-1035, 29 U.S.C. Secs. 1001 et seq.) shall satisfy this
requirement.
   (b) In determining whether the conditions of this section have
been met, the  director shall consider, but not be limited to, the
following:
   (1) The financial soundness of the plan's arrangements for health
care services and the schedule of rates and charges used by the plan.

   (2) The adequacy of working capital.
   (3) Agreements with providers for the provision of health care
services.
   (c) For the purposes of this section, "covered health care
services" means health care services provided under all plan
contracts.
  SEC. 123.  Section 1376 of the Health and Safety Code is amended to
read:
   1376.  (a) No plan shall conduct any activity regulated by this
chapter in contravention of such rules and regulations as the
director may prescribe as necessary or appropriate in the public
interest or for the protection of plans, subscribers, and enrollees
to provide safeguards with respect to the financial responsibility of
plans.  Such rules and regulations may require a minimum capital  or
net worth, limitations on indebtedness, procedures for the handling
of funds or assets, including segregation of funds, assets and net
worth, the maintenance of appropriate insurance and a fidelity bond
and the maintenance of a surety bond in an amount not exceeding fifty
thousand dollars ($50,000).
   (b) The surety bond referred to in subdivision (a) shall be
conditioned upon compliance by the licensee with the provisions of
this chapter and the rules and regulations adopted pursuant to this
chapter and orders issued under this chapter.  Every surety bond
shall provide that no suit may be maintained to enforce any liability
thereon unless brought within two years after the act upon which
such suit is based.
   (c) For purposes of computing any minimum capital requirement
which may be prescribed by the rules and regulations of the  director
under subdivision (a),  any operating cost assistance or direct loan
made to a plan by the United States Department of Health and Human
Services pursuant to Public Law 93-222, as amended, may be treated as
a subordinated loan, notwithstanding any express terms thereof to
the contrary.
   (d) Each solicitor and solicitor firm shall handle funds received
for the account of plans, subscribers, or groups in accordance with
such rules as the  director may adopt pursuant to this subdivision.
   (e) The  director may, by regulation, designate requirements of
this section or regulations adopted pursuant to this section, from
which public entities and political subdivisions of the state shall
be exempt.
  SEC. 124.  Section 1377 of the Health and Safety Code is amended to
read:
   1377.  (a) Every plan which reimburses providers of health care
services that do not contract in writing with the plan to provide
health care services, or which reimburses its subscribers or
enrollees for costs incurred in having received health care services
from providers that do not contract in writing with the plan, in an
amount which exceeds 10 percent of its total costs for health care
services for the immediately preceding six months, shall comply with
the requirements set forth in either paragraph (1) or (2):
   (1) (A) Place with the  director, or with any organization or
trustee acceptable to the  director through which a custodial or
controlled account is maintained, a noncontracting provider
insolvency deposit consisting of cash or securities that are
acceptable to the director that at all times have a fair market value
in an amount at least equal to 120 percent of the sum of the
following:
   (i) All claims for noncontracting provider services received for
reimbursement, but not yet processed.
   (ii) All claims for noncontracting provider services denied for
reimbursement during the previous 45 days.
   (iii) All claims for noncontracting provider services approved for
reimbursement, but not yet paid.
   (iv) An estimate of claims for noncontracting provider services
incurred, but not reported.
   (B) Each plan licensed pursuant to this chapter prior to January
1, 1991, shall, upon that date, make a deposit of 50 percent of the
amount required by subparagraph (A), and shall maintain additional
cash or cash equivalents as defined by rule of the  director, in the
amount of 50 percent of the amount required by subparagraph (A), and
shall make a deposit of 100 percent of the amount required by
subparagraph (A) by January 1, 1992.
   (C) The amount of the deposit shall be reasonably estimated as of
the first day of the month and maintained for the remainder of the
month.
   (D) The deposit required by this paragraph is in addition to the
deposit that may be required by rule of the  director and is an
allowable asset of the plan in the determination of tangible net
equity as defined in subdivision (b) of Section 1300.76 of Title 10
of the California Code of Regulations.  All income from the deposit
shall be an asset of the plan and may be withdrawn by the plan at any
time.
   (E) A health care service plan that has made a deposit may
withdraw that deposit or any part of the deposit if (i) a substitute
deposit of cash or securities of equal amount and value is made, (ii)
the fair market value exceeds the amount of the required deposit, or
(iii) the required deposit under this paragraph is reduced or
eliminated.  Deposits, substitutions, or withdrawals may be made only
with the prior written approval of the director, but approval shall
not be required for the withdrawal of earned income.
   (F) The deposit required under this section is in trust and may be
used only as provided by this section.  The  director or, if a
receiver has been appointed, the receiver shall use the deposit of an
insolvent health care service plan, as defined in Sections 1394.7
and 1394.8, for payment of covered claims for services rendered by
noncontracting providers under circumstances covered by the plan.
All claims determined by the director or receiver, in his or her
discretion, to be eligible for reimbursement under this section shall
be paid on a pro rata basis based on assets available from the
deposit to pay the ultimate liability for incurred expenditures.
Partial distribution may be made pending final distribution.  Any
amount of the deposit remaining shall be paid into the liquidation or
receivership of the health care service plan.  The  director may
also use the deposit of an insolvent health care service plan for
payment of any administrative costs associated with the
administration of this section.  The department, the  director, and
any employee of the department shall not be liable, as provided by
Section 820.2 of the Government Code, for an injury resulting from an
exercise of discretion pursuant to this section.  Nothing in this
section shall be construed to provide immunity for the acts of a
receiver, except when the  director is acting as a receiver.
   (G) The  director may, by regulation, prescribe the time, manner,
and form for filing claims.
   (H) The  director may permit a plan to meet a portion of this
requirement by a deposit of tangible assets acceptable to the
director, the fair market value of which shall be determined on at
least an annual basis by the  director.  The plan shall bear the cost
of any appraisal or valuations required hereunder by the director.
   (2) Maintain adequate insurance, or a guaranty arrangement
approved in writing by the  director, to pay for any loss to
providers, subscribers, or enrollees claiming reimbursement due to
the insolvency of the plan.
   (b) Whenever the reimbursements described in this section exceed
10 percent of the plan's total costs for health care services over
the immediately preceding six months, the plan shall file a written
report with the  director containing the information necessary to
determine compliance with subdivision (a) no later than 30 business
days from the first day of the month.  Upon an adequate showing by
the plan that the requirements of this section should be waived or
reduced, the  director may waive or reduce these requirements to an
amount as the  director deems sufficient to protect subscribers and
enrollees of the plan consistent with the intent and purpose of this
chapter.
   (c) Every plan which reimburses providers of health care service
on a fee-for-services basis; or which directly reimburses its
subscribers or enrollees, to an extent exceeding 10 percent of its
total payments for health care services, shall estimate and record in
the books of account a liability for incurred and unreported claims.
  Upon a determination by the director that the estimate is
inadequate, the  director may require the plan to increase its
estimate of incurred and unreported claims.  Every plan shall
promptly report to the  director whenever these reimbursables exceed
10 percent of its total expenditures for health care services.
   As used herein, the term "fee-for-services" refers to the
situation where the amount of reimbursement paid by the plan to
providers of service is determined by the amount and type of service
rendered by the provider of service.
   (d) In the event an insolvent plan covered by this section fails
to pay a noncontracting provider sums for covered services owed, the
provider shall first look to the uncovered expenditures insolvency
deposit or the insurance or guaranty arrangement maintained by the
plan for payment.  When a plan becomes insolvent, in no event shall a
noncontracting provider, or agent, trustee, or assignee thereof,
attempt to collect from the subscriber or enrollee sums owed for
covered services by the plan or maintain any action at law against a
subscriber or enrollee to collect sums owed by the plan for covered
services without having first attempted to obtain reimbursement  from
the plan.
  SEC. 125.  Section 1380 of the Health and Safety Code is amended to
read:
   1380.  (a) The department shall conduct periodically an onsite
medical survey of the health delivery system of each plan.  The
survey shall include a review of the procedures for obtaining health
services, the procedures for regulating utilization, peer review
mechanisms, internal procedures for assuring quality of care, and the
overall performance of the plan in providing health care benefits
and meeting the health needs of the subscribers and enrollees.
   (b) The survey shall be conducted by a panel of qualified health
professionals experienced in evaluating the delivery of prepaid
health care.  The department shall be authorized to contract with
professional organizations or outside personnel to conduct medical
surveys and these contracts shall be on a noncompetitive bid basis
and shall be exempt from Chapter 2 (commencing with Section 10290) of
Part 2 of Division 2 of the Public Contract Code.  These
organizations or personnel shall have demonstrated the ability to
objectively evaluate the delivery of health care by plans or health
maintenance organizations.
   (c) Surveys performed pursuant to this section shall be conducted
as often as deemed necessary by the  director to assure the
protection of subscribers and enrollees, but not less frequently than
once every three years.  Nothing in this section shall be construed
to require the survey team to visit each clinic, hospital office, or
facility of the plan.  To avoid duplication, the  director shall
employ, but is not bound by, the following:
   (1) For hospital-based health care service plans, to the extent
necessary to satisfy the requirements of this section, the findings
of inspections conducted pursuant to Section 1279.
   (2) For health care service plans contracting with the State
Department of Health Services pursuant to the Waxman-Duffy Prepaid
Health Plan Act, the findings of reviews conducted pursuant to
Section 14456 of the Welfare and Institutions Code.
   (3) To the extent feasible, reviews of providers conducted by
professional standards review organizations, and surveys and audits
conducted by other governmental entities.
   (d) Nothing in this section shall be construed to require the
medical survey team to review peer review proceedings and records
conducted and compiled under Section 1370 or medical records.
However, the                                                 director
shall be authorized to require onsite review of these peer review
proceedings and records or medical records where necessary to
determine that quality health care is being delivered to subscribers
and enrollees.  Where medical record review is authorized, the survey
team shall insure that the confidentiality of physician-patient
relationship is safeguarded in accordance with existing law and
neither the survey team nor the  director or the  director's staff
may be compelled to disclose this information except in accordance
with the physician-patient relationship.  The  director shall ensure
that the confidentiality of the peer review proceedings and records
is maintained.  The disclosure of the peer review proceedings and
records to the  director or the medical survey team shall not alter
the status of the proceedings or records as privileged and
confidential communications pursuant to Sections 1370 and 1370.1.
   (e) The procedures and standards utilized by the survey team shall
be made available to the plans prior to the conducting of medical
surveys.
   (f) During the survey the members of the survey team shall examine
the complaint files kept by the plan pursuant to Section 1368.  The
survey report issued pursuant to subdivision (i) shall include a
discussion of the plan's record for handling complaints.
   (g) During the survey the members of the survey team shall offer
such advice and assistance to the plan as deemed appropriate.
   (h) (1) Survey results shall be publicly reported by the director
as quickly as possible but no later than 180 days following the
completion of the survey unless the  director determines, in his or
her discretion, that additional time is reasonably necessary to fully
and fairly report the survey results.  The  director shall provide
the plan with an overview of survey findings and notify the plan of
deficiencies found by the survey team at least 90 days prior to the
release of the public report.
   (2) Reports on all surveys, deficiencies, and correction plans
shall be open to public inspection except that no surveys,
deficiencies, or correction plans shall be made public unless the
plan has had an opportunity to review the report and file a response
within 45 days of the date that the department provided the report to
the plan.  After reviewing the plan's response, the director shall
issue a final report that excludes any survey information and legal
findings and conclusions determined by the director to be in error,
describes compliance efforts, identifies deficiencies that have been
corrected by the plan by the time of the director's receipt of the
plan's 45-day response, and describes remedial actions for
deficiencies requiring longer periods to the remedy required by the
director or proposed by the plan.
   (3) The final report shall not include a description of
"acceptable" or of "compliance" for any uncorrected deficiency.
   (4) Upon making the final report available to the public, a single
copy of a summary of the final report's findings shall be made
available free of charge by the department to members of the public,
upon request.  Additional copies of the summary may be provided at
the department's cost.  The summary shall include a discussion of
compliance efforts, corrected deficiencies, and proposed remedial
actions.
   (5) If requested by the plan, the  director shall append the plan'
s response to the final report issued pursuant to paragraph (2), and
shall append to the summary issued pursuant to paragraph (4) a brief
statement provided by the plan summarizing its response to the
report.  The plan may modify its response or statement at any time
and provide modified copies to the department for public distribution
no later than 10 days from the date of notification from the
department that the final report will be made available to the
public.  The plan may file an addendum to its response or statement
at any time after the final report has been made available to the
public.  The addendum to the response or statement shall also be made
available to the public.
   (6) Any information determined by the  director to be confidential
pursuant to statutes relating to the disclosure of records,
including the California Public Records Act (Chapter 3.5 (commencing
with Section 6250) of Division 7 of Title 1 of the Government Code),
shall not be made public.
   (i) (1) The  director shall give the plan a reasonable time to
correct deficiencies.  Failure on the part of the plan to comply to
the  director's satisfaction shall constitute cause for disciplinary
action against the plan.
   (2) No later than 18 months following release of the final report
required by subdivision (h), the department shall conduct a follow-up
review to determine and report on the status of the plan's efforts
to correct deficiencies.  The department's follow-up report shall
identify any deficiencies reported pursuant to subdivision (h) that
have not been corrected to the satisfaction of the  director.
   (3) If requested by the plan, the  director shall append the plan'
s response to the follow-up report issued pursuant to paragraph (2).
The plan may modify its response at any time and provide modified
copies to the department for public distribution no later than 10
days from the date of notification from the department that the
follow-up report will be made available to the public.  The plan may
file an addendum to its response at any time after the follow-up
report has been made available to the public.  The addendum to the
response or statement shall also be made available to the public.
   (j) The director shall provide to the plan and to the executive
officer of the Board of Dental Examiners a copy of information
relating to the quality of care of any licensed dental provider
contained in any report described in subdivisions (h) and (i) that,
in the judgment of the  director, indicates clearly excessive
treatment, incompetent treatment, grossly negligent treatment,
repeated negligent acts, or unnecessary treatment.  Any confidential
information provided by the director shall not be made public
pursuant to this subdivision.  Notwithstanding any other provision of
law, the disclosure of this information to the plan and to the
executive officer shall not operate as a waiver of confidentiality.
There shall be no liability on the part of, and no cause of action of
any nature shall arise against, the State of California, the
Department of  Managed Care, the Director of the Department of
Managed Care, the Board of Dental Examiners, or any officer, agent,
employee, consultant, or contractor of the state or the department or
the board for the release of any false or unauthorized information
pursuant to this section, unless the release of that information is
made with knowledge and malice.
   (k) Nothing in this section shall be construed as affecting the
director's authority pursuant to Article 7 (commencing with Section
1386) or Article 8 (commencing with Section 1390) of this chapter.
  SEC. 126.  Section 1380.1 of the Health and Safety Code is amended
to read:
   1380.1.  (a) (1) With the department as the lead agency, the
department and the State Department of Health Services shall convene
a working group for the purpose of developing standards for quality
audits of providers that provide services to enrollees pursuant to
contracts governed by this chapter.
   (2) The working group shall include, but not be limited to,
representatives of health care service plans, consumer organizations,
public and private purchasers of health care, and providers,
including medical groups, independent practice associations, and
health facilities.
   (3) The working group shall be comprised so that a balance of
perspectives of providers, plans, purchasers of health care, and
consumers can reasonably be expected to be represented.
   (4) The department may consult with the National Commission on
Quality Assurance, the federal Health Care Financing Authority, and
other organizations that have worked toward defining quality
standards.
   (5) The department shall consult with the State Department of
Health Services on the implementation of this section.
   (6) The Legislature recognizes that streamlining audits, and
defining quality standards, are best achieved with consideration of
federal regulatory and third party auditing standards.
   (b) To the extent feasible, the goals of this working group shall
include, but not be limited to, all of the following:
   (1) Recommending ways to reduce duplicative audits of providers by
health plans.
   (2) Developing a core set of health care quality standards that
can serve as baseline requirements for meeting audit standards for
contracts governed by this chapter.
   (3) Recommending data collection methods and processes that can
result in better coordination of health care quality audits, lessen
the burden on providers, and maintain high quality standards for
providers.
   (4) Developing recommendations as to how health care service plans
can best access quality information about providers in order to
ensure higher quality standards than those core standards identified
by the working group.
   (5) Recommending standards for determining appropriate nonprofit
organizations to conduct audits pursuant to the standards developed
in this section.
   (6) Determining how the results of quality audits shall be made
available to the public.
   (c) The department shall report to the Governor, the Department of
Managed Care, the State Department of Health Services, and the
appropriate committees of the Legislature, on or before January 1,
2000, its findings and recommendations pursuant to this section.
  SEC. 127.  Section 1380.3 of the Health and Safety Code is amended
to read:
   1380.3.  Notwithstanding Section 1380, any plan that provides
services solely to Medi-Cal beneficiaries pursuant to Chapter 8
(commencing with Section 14200) of Part 3 of Division 9 of the
Welfare and Institutions Code shall not be subject to the
requirements of Section 1380 upon the submission to the  director of
the medical survey audit for the same period conducted by the State
Department of Health Services as part of the Medi-Cal contracting
process, unless the  director determines that an additional medical
survey audit is required.
  SEC. 128.  Section 1381 of the Health and Safety Code is amended to
read:
   1381.  (a) All records, books, and papers of a plan, management
company, solicitor, solicitor firm, and any provider or subcontractor
providing health care or other services to a plan, management
company, solicitor, or solicitor firm shall be open to inspection
during normal business hours by the  director.
   (b) To the extent feasible, all such records, books, and papers
described in subdivision (a) shall be located in this state.  In
examining such records outside this state, the  director shall
consider the cost to the plan, consistent with the effectiveness of
the  director's examination, and may upon reasonable notice require
that such records, books and papers, or a specified portion thereof,
be made available for examination in this state, or that a true and
accurate copy of such records, books and papers, or a specified
portion thereof, be furnished to the director.
  SEC. 129.  Section 1382 of the Health and Safety Code is amended to
read:
   1382.  (a) The  director shall conduct an examination of the
fiscal and administrative affairs of any health care service plan,
and each person with whom the plan has made arrangements for
administrative, management, or financial services, as often as deemed
necessary to protect the interest of subscribers or enrollees, but
not less frequently than once every five years.
   (b) The expense of conducting any additional or nonroutine
examinations pursuant to this section, and the expense of conducting
any additional or nonroutine medical surveys pursuant to Section 1380
shall be charged against the plan being examined or surveyed.  The
amount shall include the actual salaries or compensation paid to the
persons making the examination or survey, the expenses incurred in
the course thereof, and overhead costs in connection therewith as
fixed by the  director.  In determining the cost of examinations or
surveys, the director may use the estimated average hourly cost for
all persons performing examinations or surveys of plans for the
fiscal year.  The amount charged shall be remitted by the plan to the
director.  If recovery of these costs cannot be made from the plan,
these costs may be added to, but subject to the limitation of, the
assessment provided for in subdivision (b) of Section 1356.
   (c) Reports of all examinations shall be open to public
inspection, except that no examination shall be made public, unless
the plan has had an opportunity to review the examination report and
file a statement or response within 45 days of the date that the
department provided the report to the plan.  After reviewing the plan'
s response, the director shall issue a final report that excludes any
survey information, legal findings, or conclusions determined by the
director to be in error, describes compliance efforts, identifies
deficiencies that have been corrected by the plan on or before the
time the director receives the plan's response, and describes
remedial actions for deficiencies requiring longer periods for the
remedy required by the director or proposed by the plan.
   (d) If requested in writing by the plan, the director shall append
the plan's response to the final report issued pursuant to
subdivision (c).  The plan may modify its response or statement at
any time and provide modified copies to the department for public
distribution not later than 10 days from the date of notification
from the department that the final report will be made available to
the public.  The addendum to the response or statement shall also be
made available to the public.
   (e) Notwithstanding subdivision (c), any health care service plan
that contracts with the State Department of Health Services to
provide service to Medi-Cal beneficiaries pursuant to Chapter 8
(commencing with Section 14200) of Part 3 of Division 9 of the
Welfare and Institutions Code may make a written request to the
director to permit the State Department of Health Services to review
its examination report.
   (f) Upon receipt of the written request described in subdivision
(e), the director may, consistent with Section 6254.5 of the
Government Code, permit the State Department of Health Services to
review the plan's examination report.
   (g) Nothing in this section shall be construed as affecting the
director's authority pursuant to Article 7 (commencing with Section
1386) or Article 8 (commencing with Section 1390).
  SEC. 130.  Section 1384 of the Health and Safety Code is amended to
read:
   1384.  (a) Within 90 days after receipt of a request from the
director, a plan or other person subject to this chapter shall submit
to the director an audit report containing audited financial
statements covering the 12-calendar months next preceding the month
of receipt of the request, or another period as the director may
require.
   (b) On or before 105 days after the date of a notice of surrender
or order of revocation, a plan shall file with the director a closing
audit report containing audited financial statements.  The reporting
period for the closing audit report shall be the 12-month period
preceding the date of the notice of surrender or order of revocation,
or for another period as the director may specify.  This report
shall include other relevant information as specified by rule of the
director.  The director shall not consent to a surrender and an order
of revocation shall not be considered final until the closing audit
report has been filed with the director and all concerns raised by
the director therefrom have been resolved by the plan, as determined
by the director.  For good cause, the director may waive the
requirement of a closing audit report.
   (c) Except as otherwise provided in this subdivision, each plan
shall submit financial statements prepared as of the close of its
fiscal year within 120 days after the close of the fiscal year.  The
financial statements referred to in this subdivision and in
subdivisions (a) and (b) of this section shall be accompanied by a
report, certificate, or opinion of an independent certified public
accountant or independent public accountant.  The audits shall be
conducted in accordance with generally accepted auditing standards
and the rules and regulations of the director.  However, financial
statements from public entities or political subdivisions of the
state whose audits are conducted by a county grand jury shall be
submitted within 180 days after the close of the fiscal year and need
not include a report, certificate, or opinion by an independent
certified public accountant or an independent public accountant, and
the audit shall be conducted in accordance with governmental auditing
standards.
   (d) A plan, solicitor, or solicitor firm shall make any special
reports to the director as the director may from time to time
require.
   (e) For good cause and upon written request, the director may
extend the time for compliance with subdivisions (a), (b), and (h) of
this section.
   (f) A plan, solicitor, or solicitor firm shall, when requested by
the director, for good cause, submit its unaudited financial
statement, prepared in accordance with generally accepted accounting
principles and consisting of at least a balance sheet and statement
of income as of the date and for the period specified by the
director.  The director may require the submission of these reports
on a monthly or other periodic basis.
   (g) If the report, certificate, or opinion of the independent
accountant referred to in subdivision (c) is in any way qualified,
the director may require the plan to take any action as the director
deems appropriate to permit an independent accountant to remove the
qualification from the report, certificate, or opinion.
   (h) The director may reject any financial statement, report,
certificate, or opinion filed pursuant to this section by notifying
the plan, solicitor, or solicitor firm required to make this filing
of its rejection and the cause thereof.  Within 30 days after the
receipt of the notice, the person shall correct the deficiency, and
the failure so to do shall be deemed a violation of this chapter.
The director shall retain a copy of all filings so rejected.
   (i) The director may make rules and regulations specifying the
form and content of the reports and financial statements referred to
in this section, and may require that these reports and financial
statements be verified by the plan or other person subject to this
chapter in a manner as the director may prescribe.
  SEC. 131.  Section 1385 of the Health and Safety Code is amended to
read:
   1385.  Each plan, solicitor firm, and solicitor shall keep and
maintain current such books of account and other records as the
director may by rule require for the purposes of this chapter.  Every
plan shall require all providers who contract with the plan to
report to the plan in writing all surcharge and copayment moneys paid
by subscribers and enrollees directly to such providers, unless the
director expressly approves otherwise.
  SEC. 132.  Section 1386 of the Health and Safety Code is amended to
read:
   1386.  (a) The director may, after appropriate notice and
opportunity for a hearing, by order, suspend or revoke any license
issued under this chapter to a health care service plan or assess
administrative penalties if the director determines that the licensee
has committed any of the acts or omissions constituting grounds for
disciplinary action.
   (b) The following acts or omissions constitute grounds for
disciplinary action by the  director:
   (1) The plan is operating at variance with the basic
organizational documents as filed pursuant to Section 1351 or 1352,
or with its published plan, or in any manner contrary to that
described in, and reasonably inferred from, the plan as contained in
its application for licensure and annual report, or any modification
thereof, unless amendments allowing the variation have been submitted
to, and approved by, the  director.
   (2) The plan has issued, or permits others to use, evidence of
coverage or uses a schedule of charges for health care services which
do not comply with those published in the latest evidence of
coverage found unobjectionable by the  director.
   (3) The health care service plan does not provide basic health
care services to its enrollees and subscribers as set forth in the
evidence of coverage.  This subdivision shall not apply to
specialized health care service plan contracts.
   (4) The plan is no longer able to meet the standards set forth in
Article 5 (commencing with Section 1367).
   (5) The continued operation of the plan will constitute a
substantial risk to its subscribers and enrollees.
   (6) The plan has violated or attempted to violate, or conspired to
violate, directly or indirectly, or assisted in or abetted a
violation or conspiracy to violate any provision of this chapter, any
rule or regulation adopted by the director pursuant to this chapter,
or any order issued by the  director pursuant to this chapter.
   (7) The plan has engaged in any conduct that constitutes fraud or
dishonest dealing or unfair competition, as defined by Section 17200
of the Business and Professions Code.
   (8) The plan has permitted, or aided or abetted any violation by
an employee or contractor who is a holder of any certificate,
license, permit, registration or exemption issued pursuant to the
Business and Professions Code, or the Health and Safety Code which
would constitute grounds for discipline against the certificate,
license, permit, registration, or exemption.
   (9) The plan has aided or abetted or permitted the commission of
any illegal act.
   (10) The engagement of a person as an officer, director, employee,
associate, or provider of the plan contrary to the provisions of an
order issued by the  director pursuant to subdivision (c) of this
section or subdivision (d) of Section 1388.
   (11) The engagement of a person as a solicitor or supervisor of
solicitation contrary to the provisions of an order issued by the
director pursuant to Section 1388.
   (12) The plan, its management company, or any other affiliate of
the plan, or any controlling person, officer, director, or other
person occupying a principal management or supervisory position in
the plan, management company or affiliate, has been convicted of or
pleaded nolo contendere to a crime, or committed any act involving
dishonesty, fraud, or deceit, which crime or act is substantially
related to the qualifications, functions, or duties of a person
engaged in business in accordance with this chapter.  The director
may revoke or deny a license hereunder irrespective of a subsequent
order under the provisions of Section 1203.4 of the Penal Code.
   (13) The plan violates Section 510, 2056, or 2056.1 of the
Business and Professions Code.
   (14) The plan has been subject to a final disciplinary action
taken by this state, another state, an agency of the federal
government, or another country, for any act or omission that would
constitute a violation of this chapter.
   (c) (1) The director may prohibit any person from serving as an
officer, director, employee, associate, or provider of any plan or
solicitor firm, or of any management company of any plan, or as a
solicitor, if either of the following applies:
   (A) The prohibition is in the public interest and the person has
committed, caused, participated in, or had knowledge of a violation
of this chapter by a plan, management company, or solicitor firm.
   (B) The person was an officer, director, employee, associate, or
provider of a plan or of a management company or solicitor firm of
any plan whose license has been suspended or revoked pursuant to this
section and the person had knowledge of, or participated in, any of
the prohibited acts for which the license was suspended or revoked.
   (2) A proceeding for the issuance of an order under this
subdivision may be included with a proceeding against a plan under
this section or may constitute a separate proceeding, subject in
either case to, subdivision (d).
   (d) A proceeding under this section shall be subject to
appropriate notice to, and the opportunity for a hearing with regard
to, the person affected in accordance with subdivision (a) of Section
1397.
  SEC. 133.  Section 1387 of the Health and Safety Code is amended to
read:
   1387.  (a) Any person who violates any provision of this chapter,
or who violates any rule or order adopted or issued pursuant to this
chapter, shall be liable for a civil penalty not to exceed two
thousand five hundred dollars ($2,500) for each violation, which
shall be assessed and recovered in a civil action brought in the name
of the people of the State of California by the director in any
court of competent jurisdiction.
   (b) As applied to the civil penalties for acts in violation of
this chapter, the remedies provided by this section and by other
sections of this chapter are not exclusive, and may be sought and
employed in any combination to enforce this chapter.
   (c) No action shall be maintained to enforce any liability created
under subdivision (a), unless brought before the expiration of four
years after the act or transaction constituting the violation.
  SEC. 134.  Section 1388 of the Health and Safety Code is amended to
read:
   1388.  (a) The director may, after appropriate notice and
opportunity for hearing, by order, censure a person acting as a
solicitor or solicitor firm, or suspend for a period not exceeding 24
months or bar a person from operating as a solicitor or solicitor
firm, or assess administrative penalties against a person acting as a
solicitor or solicitor firm if the director determines that the
person has committed any of the acts or omissions constituting
grounds for disciplinary action.
   (b) The following acts or omissions constitute grounds for
disciplinary action by the  director:
   (1) The continued operation of the solicitor or solicitor firm in
a manner that may constitute a substantial risk to a plan or
subscribers and enrollees.
   (2) The solicitor or solicitor firm has violated or attempted to
violate, or conspired to violate, directly or indirectly, or assisted
in or abetted a violation or conspiracy to violate any provision of
this chapter, any rule or regulation adopted by the director pursuant
to the chapter, or any order issued by the
                    director pursuant to this chapter.
   (3) The solicitor or solicitor firm has engaged in any conduct
that constitutes fraud or dishonest dealing or unfair competition, as
defined by Section 17200 of the Business and Professions Code.
   (4) The engagement of a person as an officer, director, employee,
or associate of the solicitor firm contrary to the provisions of an
order issued by the director pursuant to subdivision (d) of this
section or subdivision (c) of Section 1386.
   (5) The solicitor or solicitor firm, or its management company, or
any other affiliate of the solicitor firm, or any controlling
person, officer, director, or other person occupying a principal
management or supervisory position in that solicitor firm, management
company, or affiliate, has been convicted or pleaded nolo contendere
to a crime, or committed any act involving dishonesty, fraud, or
deceit, which crime or act is substantially related to the
qualifications, functions, or duties of a person engaged in business
in accordance with the provisions of this chapter.  The director may
issue an order hereunder irrespective of a subsequent order under the
provisions of Section 1203.4 of the Penal Code.
   (c) The director shall notify plans of any order issued pursuant
to subdivision (a) which suspends or bars a person from engaging in
operations as a solicitor or solicitor firm.  It shall be unlawful
for any plan, after receipt of notice of the order, to receive any
new subscribers or enrollees through that person or to otherwise
utilize any solicitation services of that person in violation
thereof.
   (d) (1) The director may prohibit any person from serving as an
officer, director, employee, or associate of any plan or solicitor
firm, or as a solicitor, if that person was an officer, director,
employee, or associate of a solicitor firm that has been the subject
of an order of suspension or bar from engaging in operations as a
solicitor firm pursuant to this section and that person had knowledge
of, or participated in, any of the prohibited acts for which the
order was issued.
   (2) A proceeding for the issuance of an order under this
subdivision may be included with a proceeding against a solicitor
firm under this section or may constitute a separate proceeding,
subject in either case to subdivision (e).
   (e) A proceeding for the issuance of an order under this section
shall be subject to appropriate notice to, and the opportunity for a
hearing with regard to, the person affected in accordance with
subdivision (a) of Section 1397.
  SEC. 135.  Section 1389 of the Health and Safety Code is amended to
read:
   1389.  (a) A person whose license has been revoked, or suspended
for more than one year, may petition the director to reinstate the
license as provided by Section 11522 of the Government Code.  No
petition may be considered if the petitioner is under criminal
sentence for a violation of this chapter, or any offense which would
constitute grounds for discipline, or denial of licensure under this
chapter, including any period of probation or parole.
   (b) A person who is barred, or suspended for more than one year,
from acting as a solicitor or solicitor firm pursuant to Section
1388, or who is subject to an order, pursuant to subdivision (c) of
Section 1386 or subdivision (d) of Section 1388, which by its terms
is effective for more than one year, may petition the director to
reduce by order such penalty in a manner generally consistent with
the provisions of Section 11522 of the Government Code.  No petition
may be considered if the petitioner is under criminal sentence for a
violation of this chapter, or any offense which would constitute
grounds for discipline under this chapter, including any period of
probation or parole.
   (c) The petition for restoration shall be in the form prescribed
by the director and the director may condition the granting of such
petition upon such additional information and undertakings as the
director may require in order to determine whether such person, if
restored, would engage in business in full compliance with the
objectives and provisions of this chapter and the rules and
regulations adopted by the director pursuant to this chapter.
   (d) The director may, by rule, prescribe a fee not to exceed five
hundred dollars ($500) for the filing of a petition for restoration
pursuant to this section.  In addition, the director may condition
the granting of such a petition to a plan upon payment of the
assessment due and unpaid pursuant to subdivision (b) of Section 1356
as of the 15th day of December occurring within the preceding
12-calendar months and, if the plan's suspension or revocation was in
effect for more than 12 months, upon the filing of a new plan
application and the payment of the fee prescribed by subdivision (a)
of Section 1356.
  SEC. 136.  Section 1389.1 of the Health and Safety Code is amended
to read:
   1389.1.  (a) The director shall not approve any plan contract
unless the director finds that the application conforms to both of
the following requirements:
   (1) All applications for coverage which include health-related
questions shall contain clear and unambiguous questions designed to
ascertain the health condition or history of the applicant.
   (2) The application questions related to an applicant's health
shall be based on medical information that is reasonable and
necessary for medical underwriting purposes.  The  application shall
include a prominently displayed notice that shall read:
   "California law prohibits an HIV test from being required or used
by health care service plans as a condition of obtaining coverage."
   (b) Nothing in this section shall authorize the director to
establish or require a single or standard application form for
application questions.
  SEC. 137.  Section 1389.2 of the Health and Safety Code is amended
to read:
   1389.2.  At the request of the director, a health care service
plan shall provide a written statement of the actuarial basis for any
medical underwriting decision on any application form, or contract
issued or delivered to, or denied a resident of this state.
  SEC. 138.  Section 1391 of the Health and Safety Code is amended to
read:
   1391.  (a) (1) The director may issue an order directing a plan,
solicitor firm, or any representative thereof, a solicitor, or any
other person to cease and desist from engaging in any act or practice
in violation of the provisions of this chapter, any rule adopted
pursuant to this chapter, or any order issued by the director
pursuant to this chapter.
   (2) If the plan, solicitor firm, or any representative thereof, or
solicitor, or any other person fails to file a written request for a
hearing within 30 days from the date of service of the order, the
order shall be deemed a final order of the director and shall not be
subject to review by any court or agency, notwithstanding subdivision
(b) of Section 1397.
   (b) If a timely request for a hearing is made by a licensed plan,
the request shall automatically stay the effect of the order only to
the extent that the order requires the cessation of operation of the
plan or prohibits acceptance of new members by the plan or both.
However, no automatic stay shall be issued if any examination or
inspection of the plan performed by the director discloses, or
reports or documents submitted to the director by the plan on their
face show, that the plan is in violation of any fiscal requirement of
this chapter or in violation of any requirement of Section 1384 or
1385.  In the event of an automatic stay, only that portion of the
order requiring cessation of operation or prohibiting enrollment
shall be stayed and all other portions of the order shall remain
effective.  If a hearing is held, and a finding is made that the
health or safety of the members and potential members of the plan
might be adversely affected by its continued operation, the stay
shall be terminated.  This finding shall be made, if at all, not
later than 30 days after the date of the hearing.
   (c) If a timely request for a hearing is made by an unlicensed
plan, the director may stay the effect of the order to the extent
that the order requires the cessation of operation of the plan or
prohibits acceptance of new members by the plan, for that period and
subject to those conditions that the director may require, upon a
determination by the director that the action would be in the public
interest.
  SEC. 139.  Section 1391.5 is added to the Health and Safety Code,
to read:
   1391.5.  (a) If, after examination or investigation, the director
has reasonable grounds to believe that irreparable loss and injury to
the plan's enrollee or enrollees occurred or may occur unless the
director acts immediately, the director may, by written order,
addressed to that person, order the discontinuance of the unsafe or
injurious practice.  The order shall become effective immediately,
but shall not become final except in accordance with this section.
   (b) No order issued pursuant to this section shall become final
except after notice to the affected person of the director's
intention to make the order final and of the reasons for the finding.
  The director shall also notify that person that upon receiving a
request for hearing by the plan, the matter shall be set for hearing
to commence with 15 business days after receipt of the request,
unless that person consents to have the hearing commence at a later
date.
   (c) If no hearing is requested within 15 days after the mailing or
service of the required notice, and none is ordered by the director,
the order shall become final on the 15th day without a hearing and
shall not be subject to review by any court or agency notwithstanding
subdivision (b) of Section 1397.
   (d) If a hearing is requested or ordered, it shall be held in
accordance with the provisions of the Administrative Procedure Act
(Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of
Title 2 of the Government Code), and the director shall have all of
the powers granted under that act.
   (e) If, upon conclusion of the hearing, it appears to the director
that the affected person has conducted business in an unsafe or
injurious manner, the director shall make the order of discontinuance
final.
   (f) For purposes of this section, "person" includes any plan,
solicitor firm, or any representative thereof, a solicitor, or any
other person defined in subdivision (j) of Section 1345.
  SEC. 140.  Section 1392 of the Health and Safety Code is amended to
read:
   1392.  (a) (1) Whenever it appears to the director that any person
has engaged, or is about to engage, in any act or practice
constituting a violation of any provision of this chapter, any rule
adopted pursuant to this chapter, or any order issued pursuant to
this chapter, the director may bring an action in superior court, or
the director may request the Attorney General to bring an action to
enjoin these acts or practices or to enforce compliance with this
chapter, any rule or regulation adopted by the director pursuant to
this chapter, or any order issued by the director pursuant to this
chapter, or to obtain any other equitable relief.
   (2) If the director determines that it is in the public interest,
the director may include in any action authorized by paragraph (1) a
claim for any ancillary or equitable relief and the court shall have
jurisdiction to award this additional relief.
   (3) Upon a proper showing, a permanent or preliminary injunction,
restraining order, writ of mandate, or other relief shall be granted,
and a receiver, monitor, conservator, or other designated fiduciary
or officer of the court may be appointed for the defendant or the
defendant's assets.
   (b) A receiver, monitor, conservator, or other designated
fiduciary, or officer of the court appointed by the superior court
pursuant to this section may, with the approval of the court,
exercise any or all of the powers of the defendant's officers,
directors, partners, or trustees, or any other person who exercises
similar powers and performs similar duties, including the filing of a
petition for bankruptcy.  No action at law or in equity may be
maintained by any party against the  director, or a receiver,
monitor, conservator, or other designated fiduciary or officer of the
court by reason of their exercising these powers or performing these
duties pursuant to the order of, or with the approval of, the
superior court.
  SEC. 141.  Section 1393 of the Health and Safety Code is amended to
read:
   1393.  (a) The superior court of the county in which is located
the principal office of the plan in this state shall, upon the filing
by the director of a verified application showing any of the
conditions enumerated in Section 1386 to exist, issue its order
vesting title to all of the assets of the plan, wherever situated, in
the director or the director's successor in office, in his or her
official capacity as such, and direct the director to take possession
of all of its books, records, property, real and personal, and
assets, and to conduct, as conservator, the business or portion of
the business of the person as may seem appropriate to the  director,
and enjoining the person and its officers, directors, agents,
servants, and employees from the transaction of its business or
disposition of its property until the further order of the court.
   (b) Whenever it appears to the director that irreparable loss and
injury to the property and business of the plan or to the plan's
enrollees has occurred or may occur unless the director acts
immediately, the  director, without notice and before applying to the
court for any order, may take possession of the property, business,
books, records, and accounts of the plan, and of the offices and
premises occupied by it for the transaction of its business, and
retain possession until returned to the plan or until further order
of the director or subject to an order of the court.  Any person
having possession of and refusing to deliver any of the books,
records, or assets of a plan against which a seizure order has been
issued by the  director, shall be guilty of a misdemeanor and
punishable by a fine not exceeding ten thousand dollars ($10,000) or
imprisonment not exceeding one year, or both the fine and
imprisonment.  Whenever the director has taken possession of any plan
pursuant to this subdivision, the owners, officers, and directors of
the plan may apply to the superior court in the county in which the
principal office of the plan is located, within 10 days after the
taking, to enjoin further proceedings.  The court, after citing the
director to show cause why further proceedings should not be
enjoined, and after a hearing and a determination of the facts upon
the merits, may do any of the following:
   (1) Dismiss the application after confirming the director's
authority to take possession of all of the plan's books, records,
property, real and personal, and assets, and to conduct, as
conservator, the business or portion of the business as the director
may deem appropriate, and enjoining the owners, officers, and
directors, and their agents and employees, from the transaction of
plan business or disposition of plan property until the further order
of the court.
   (2) Enjoin the director from further proceedings and direct the
director to surrender the property and business to the plan.
   (3) Make any further order as may be just.
   (c) If any facts occur that would entitle the director to take
possession of the property, business, and assets of the plan, the
director may appoint a conservator over the plan and require any bond
of the conservator as the director deems proper.  The conservator,
under the direction of the  director, shall take possession of the
property, business, and assets of the plan pending further
disposition of its business.  The conservator shall retain possession
until the property, business, and assets of the plan are returned to
the plan, or until further order of the director, except that the
conservator shall be able to pay necessary costs of the ongoing
operation without formal order of the  director.  Whenever the
director has taken possession of any plan pursuant to subdivision
(b), the director shall, within 10 days after the taking, apply to
the superior court in the county in which the principal office of the
plan is located for an order confirming the director's appointment
of the conservator.  The order may be given after a hearing upon
notice that the court prescribes.
   (d) (1) Subject to the other provisions of this section, a
conservator, while in possession of the property, business, and
assets of a plan, has the same powers and rights, and is subject to
the same duties and obligations, as the director under the same
circumstances, and during this time, the rights of a plan and of all
persons with respect to the plan are the same as if the director had
taken possession of the property, business, and assets of the plan,
for the purpose of carrying out the conservatorship.
   (2) Subject to the other provisions of this section, a
conservator, while in possession of the property, business, and
assets of a plan, shall have all of the rights, powers, and
privileges of the plan, and its officers and directors, for the
purpose of carrying out the conservatorship.  All expenses of any
conservatorship shall be paid from the assets of the plan, and shall
be a lien on the plan which shall be prior to any other lien.
   (3) No action at law or in equity may be maintained by any party
against the director or a conservator by reason of their exercising
or performing the privileges, powers, rights, duties, and obligations
pursuant to the order, or with the approval, of the superior court.

   (e) Upon appointing a conservator, the director shall cause to be
made and completed, at the earliest possible date, an examination of
the affairs of the plan as shall be necessary to inform the director
as to the plan's financial condition.
   (f) If the director becomes satisfied that it may be done safely
and in the public interest, the director may terminate the
conservatorship and permit the plan for which the conservator was
appointed to resume its business under the direction of its board of
directors, subject to any terms, conditions, restrictions, and
limitations the director prescribes.
  SEC. 142.  Section 1393.5 of the Health and Safety Code is amended
to read:
   1393.5.  (a) A person who violates Section 1349, or any person who
directly or indirectly participates in the direction of the
management or policies of the person in violation of Section 1349,
including, but not limited to, any officer, director, partner, or
other person occupying a principal management or supervisory
position, shall be liable for civil penalties as follows:
   (1) A sum not more than two thousand five hundred dollars
($2,500), and (2) a sum not exceeding five hundred dollars ($500) for
each subscriber under an individual or group plan contract which was
entered into or renewed while such person was in violation of
Section 1349.
   (b) The penalty specified in paragraph (2) of subdivision (a)
shall be imposed only if one or more of the following occurs:
   (1) The solicitation of the entry into or renewal of such
contract, or of any subscription or enrollment thereunder, included
the use by the plan or a representative of the plan of any
advertising, evidence of coverage, or disclosure form which was
untrue, misleading, or deceptive.
   (2) The contract is not in compliance with this chapter, or  the
rules adopted pursuant to this chapter.
   (3) The plan does not have a financially sound operation and
adequate provision against the risk of insolvency.
   (4) The plan has operated in violation of the provisions of
subdivision (a), (b), (c), (d), or (e) of Section 1367.
   (5) The plan has not complied with the provisions of Section 1379.

   (c) The civil penalty may be assessed and recovered only in a
civil action.  The cause of action may be brought in the name of the
people of the State of California by the Attorney General or the
director, as determined by the director.
  SEC. 143.  Section 1393.6 of the Health and Safety Code is amended
to read:
   1393.6.  For violations of Article 3.1 (commencing with Section
1357) and Article 3.15 (commencing with Section 1357.50), the
commissioner may, after appropriate notice and opportunity for
hearing, by order levy administrative penalties as follows:
   (a) Any person, solicitor, or solicitor firm, other than a health
care service plan, who willfully violates any provision of this
chapter, or who willfully violates any rule or order adopted or
issued pursuant to this chapter, is liable for administrative
penalties of not less than two hundred fifty dollars ($250) for each
first violation, and of not less than one thousand dollars ($1,000)
and not more than two thousand five hundred dollars ($2,500) for each
subsequent violation.
   (b) Any health care service plan that willfully violates any
provision of this chapter, or that willfully violates any rule or
order adopted or issued pursuant to this chapter, is liable for
administrative penalties of not less than two thousand five hundred
dollars ($2,500) for each first violation, and of not less than five
thousand dollars ($5,000) nor more than ten thousand dollars
($10,000) for each second violation, and of not less than fifteen
thousand dollars ($15,000) and not more than one hundred thousand
dollars ($100,000) for each subsequent violation.
   (c) The administrative penalties shall be paid to the Managed Care
Fund.
   (d) The administrative penalties available to the director
pursuant to this section are not exclusive, and may be sought and
employed in any combination with civil, criminal, and other
administrative remedies deemed advisable by the director to enforce
the provisions of this chapter.
  SEC. 144.  Section 1394 of the Health and Safety Code is amended to
read:
   1394.  The civil, criminal, and administrative remedies available
to the director pursuant to this article are not exclusive, and may
be sought and employed in any combination deemed advisable by the
director to enforce the provisions of this chapter.
  SEC. 145.  Section 1394.1 of the Health and Safety Code is amended
to read:
   1394.1.  Notwithstanding any other provision of law, the director
may file a verified complaint for involuntary dissolution of a health
care service plan on any one or more of the grounds specified in
subdivision (b) of Section 1386.  The complaint shall be filed in the
superior court of the county where the principal executive office of
the health care service plan is located or, if the principal
executive office of the health care service plan is not located in
this state, or the health care service plan has no such office, the
County of Sacramento.
  SEC. 146.  Section 1394.3 of the Health and Safety Code is amended
to read:
   1394.3.  Except as provided for in Section 1394.1, and 1394.2, the
involuntary dissolution of a health care service plan shall be in
accordance with either of the following:
   (a) Chapter 18 (commencing with Section 1800) of Division 1 of
Title 1 of the Corporations Code, if the plan is incorporated under
the General Corporation Law.
   (b) Chapter 15 (commencing with Section 8510) of Part 3 of
Division 2 of Title 1 of the Corporations Code if the plan is
incorporated under the Nonprofit Corporation Law.
  SEC. 147.  Section 1394.5 of the Health and Safety Code is amended
to read:
   1394.5.  When any person, including any nonresident of this state,
engages in conduct prohibited or made actionable by this chapter or
any rule, regulation, or order adopted hereunder, whether or not the
person has filed a power of attorney under subdivision (j) of Section
1351, and personal jurisdiction over the person cannot otherwise be
obtained in this state, that conduct shall be considered equivalent
to the appointment of the director or the director's successor in
office to be the attorney in fact to receive any lawful process in
any noncriminal suit, action, or proceeding against the person or the
person's successor, executor, or administrator which arises out of
that conduct and which is brought under this chapter or any rule,
regulation, or order adopted hereunder, with the same force and
validity as if personally served.  Service may be made by leaving a
copy of the process in the office of the  director, but it is not
effective unless the plaintiff or petitioner, who may be the director
in a suit, action, or proceeding instituted by him or her, forthwith
sends notice of the service and a copy of the process by registered
or certified mail to the defendant or respondent at his or her last
known address or takes other steps which are reasonably calculated to
give actual notice, and in a court action, an affidavit of
compliance with this section is filed in the case on or before the
return day of the process, if any, or within such further time as the
court allows.  In the case of administrative orders issued by the
director, the affidavit of compliance need not be filed with the
administrative tribunal unless the respondent requests a hearing.
  SEC. 148.  Section 1394.7 of the Health and Safety Code is amended
to read:
   1394.7.  (a) As used in this section the following definitions
shall apply:
   (1) "Health care service plan" means any plan as defined in
Section 1345, but this section does not apply to specialized health
care service contracts.
   (2) "Carrier" means a health care service plan, an insurer issuing
group disability coverage which covers hospital, medical, or
surgical expenses, a nonprofit hospital service plan, or any other
entity responsible for either the payment of benefits or the
provision of hospital, medical, and surgical benefits under a group
contract.
   (3) "Insolvency" means that the director has determined that the
health care service plan is not financially able to provide health
care services to its enrollees and (A) the director has taken an
action pursuant to Section 1386, 1391, or 1399, or (B) an order
requested by the director or the Attorney General has been issued by
the superior court under Section 1392, 1393, or 1394.1.
   (b) In the event of the insolvency of a health care service plan
and upon order of the  director, any health care service plan which
the director determines to have sufficient health care delivery
resources and sufficient financial and administrative capacity and
that participated in the enrollment process with the insolvent health
care service plan at the last regular open enrollment period of a
group shall                                               offer
enrollees of the group in the insolvent health care service plan a
30-day enrollment period commencing upon the date specified by the
director.  Each health care service plan shall offer enrollees of the
group in the insolvent health care service plan the same coverages
and rates that it offered to enrollees of the group at the last
regular open enrollment period of the group.  Coverage shall be
effective upon receipt by the successor plan of an application for
enrollment by or on behalf of a subscriber or enrollee of the
insolvent plan.  The director shall send a notice of the insolvency
of a health care service plan to the Insurance Commissioner.
   (c) If no other carrier had been offered to groups enrolled in the
insolvent health care service plan, or if the director determines
that the other carriers do not include a sufficient number of health
care service plans that have adequate health care delivery resources
or the financial or administrative capacity to assure that health
care services will be available and accessible to all of the group
enrollees of the insolvent health care service plan, then the
director shall allocate equitably the insolvent health care service
plan's group contracts for the groups, except for Medi-Cal contracts
made pursuant to Section 14200 of the Welfare and Institutions Code,
among all health care service plans which operate within at least a
portion of the service area of the insolvent health care service
plan, taking into consideration the health care delivery resources
and the financial and administrative capacity of each health care
service plan.  The director shall also have the authority to allocate
equitably enrollees, except Medi-Cal enrollees, if he or she has
been unable to successfully place them through the open enrollment
procedure in subdivision (b).  The director shall make every
reasonable effort to allocate enrollees within 30 days of the
insolvency of the plan, but not later than 45 days after insolvency.
Each health care service plan to which a group or groups are so
allocated shall offer the group or groups the health care service
plan's coverage which is most similar to each group's coverage with
the insolvent health care service plan, as determined by the
director, at rates determined in accordance with the successor health
care service plan's existing rating methodology.  Coverage shall be
effective upon the date specified by the director.  Further, except
to the extent benefits for any condition would have been reduced or
excluded under the insolvent health care service plan's contract or
policy, no provision in a successor health care service plan's
contract of coverage that would operate to reduce or exclude benefits
on the basis that the condition giving rise to benefits preexisted
on the effective date of the enrollee's assignment to the succeeding
health care service plan shall be applied with respect to those
enrollees validly covered under the insolvent health care service
plan's contract or policy on the date of the assignment.
   The State Department of Health Services shall have the authority
to allocate Medi-Cal enrollees to other carriers with valid Medi-Cal
contracts, which operate within the same service area of an insolvent
Medi-Cal contractor and that have sufficient capacity to absorb the
Medi-Cal enrollees allocated to them.
   (d) The director shall also allocate equitably the insolvent
health care service plan's nongroup enrollees among all health care
service plans which operate within at least a portion of the service
area of the insolvent health care service plan, taking into
consideration the health care delivery resources or the financial and
administrative capacity of each health care service plan.  Each
health care service plan to which nongroup enrollees are allocated
shall offer the nongroup enrollees the health care service plan's
most similar coverage for individual or conversion coverage, as
determined by the  director, taking into consideration his or her
type of coverage in the insolvent health care service plan, at rates
determined in accordance with the successor health care service plan'
s existing rating methodology.  Coverage shall be effective upon the
date specified by the  director.  Further, except to the extent
benefits for any condition would have been reduced or excluded under
the insolvent health care service plan's contract or policy, no
provision in a successor health care service plan's contract of
coverage that would operate to reduce or exclude benefits on the
basis that the condition giving rise to benefits preexisted on the
effective date of the enrollee's assignment to the succeeding health
care service plan shall be applied with respect to those enrollees
validly covered under the insolvent health care service plan's
contract or policy on the date of the assignment.  Successor health
care service plans which do not offer direct nongroup enrollment may
aggregate all allocated nongroup enrollees into one group for rating
and coverage purposes.
   (e) Contracting providers shall continue to provide services to
enrollees of an insolvent plan until the effective date of an
enrollee's coverage in a successor plan selected pursuant to either
open enrollment or the allocation process but in no event for the
period exceeding that required by their contract or 45 days in the
case of allocation, whichever is greater; or for a period exceeding
that required by their contract or 30 days in the case of open
enrollment, whichever is greater.
   (f) The failure to comply with an order under this section shall
constitute a violation of this section.
  SEC. 149.  Section 1394.8 of the Health and Safety Code is amended
to read:
   1394.8.  (a) As used in this section:
   (1) "Carrier" means a specialized health care service plan, and
any of the following entities which offer coverage comparable to the
coverages offered by a specialized health care service plan:  an
insurer issuing group disability coverage; a nonprofit hospital
service plan; or any other entity responsible for either the payment
of benefits for or the provisions of services under a group contract.

   (2) "Insolvency" means that the director has determined that the
specialized health care service plan is not financially able to
provide specialized health care services to its enrollees and (A) the
director has taken an action pursuant to Section 1386, 1391, 1399,
or (B) an order requested by the director or the Attorney General has
been issued by the superior court under Sections 1392, 1393, or
1394.1.
   (3) "Specialized health care service plan" means any plan
authorized to issue only specialized health care service plan
contracts as defined in Section 1345.
   (b) In the event of the insolvency of a specialized health care
service plan and upon order of the  director, any specialized health
care service plan which the director determines to have sufficient
health care delivery resources and sufficient financial and
administrative capacity and that participated in the enrollment
process with the insolvent specialized health care service plan at
the last regular open enrollment period of a group for the same type
of specialized health care services shall offer enrollees of the
group in the insolvent specialized health care service plan a 30-day
enrollment period commencing upon the date specified by the director.
  Each specialized health care service plan  shall offer enrollees of
the group in the insolvent specialized health care service plan the
same specialized coverage and rates that it offered to the enrollees
of the group at its last regular open enrollment period.  Coverage
shall be effective upon receipt by the successor plan of an
application for enrollment by or on behalf of a subscriber or
enrollee of the insolvent plan.  The director shall send a notice of
the insolvency of a specialized health care service plan to the
Insurance Commissioner.
   (c) If no other carrier for the same type of specialized health
care services had been offered to some groups enrolled in the
insolvent specialized health care service plan, or if the director
determines that the other carriers do not include a sufficient number
of specified health care service plans which have adequate health
care delivery resources or the financial and administrative capacity
to assure that the specialized health care services will be available
and accessible to all of the group enrollees of the insolvent
specialized health care service plan, then the director shall
allocate equitably the insolvent specialized health care service plan'
s group contracts for the groups among all specialized health care
service plans which offer the same type of specialized health care
services as the insolvent plan and which operate within at least a
portion of the service area of the insolvent specialized health care
service plan, taking into consideration the health care delivery
resources and the financial and administrative capacity of each
specialized health care service plan.  The director shall also have
the authority to allocate equitable enrollees if he or she has been
unable to successfully place them through the open enrollment
procedure in subdivision (b).  The director shall make every
reasonable effort to allocate enrollees within 30 days of the
insolvency of the plan, but not later than 45 days after insolvency.
Each specialized health care service plan to which a group or groups
is so allocated shall offer such group or groups the specialized
health care service plan's coverage which is most similar to each
group's coverage with the insolvent specialized health care service
plan as determined by the director, at rates determined in accordance
with the successor specialized health care service plan's existing
rating methodology.  Coverage shall be effective on a date specified
by the  director.  Further, except to the extent benefits for any
condition would have been reduced or excluded under the insolvent
specialized health care service plan's contract or policy, no
provision in a successor specialized health care service plan's
contract of coverage which would operate to reduce or exclude
benefits on the basis that the condition giving rise to benefits
preexisted on the effective date of the enrollee's assignment to the
succeeding plan shall be applied with respect to those enrollees
validly covered under the insolvent specialized health care service
plan's contract or policy on the date of the assignment.
   (d) The director shall also allocate equitably the insolvent
specialized health care service plan's nongroup enrollees among all
specialized health care services which offer the same type of
specialized health care services as the insolvent plan and which
operate within at least a portion of the insolvent specialized health
care service plan's service area, taking into consideration the
health care delivery resources and the financial and administrative
capacity of each specialized health care service plan.  Each
specialized health care service plan to which nongroup enrollees are
allocated shall offer the nongroup enrollees the health care service
plan's most similar coverage for individual or conversion coverage,
as determined by the  director, taking into consideration his or her
type of coverage in the insolvent specialized health care service
plan at rates determined in accordance with the successor specialized
health care service plan's existing rating methodology.  Coverage
shall be effective on the date specified by the  director.  Further,
except to the extent benefits for any condition would have been
reduced or excluded under the insolvent specialized health care
service plan's contract or policy, no provision in a successor
specialized health care service plan's contract of coverage which
would operate to reduce or exclude benefits on the basis that the
condition giving rise to benefits preexisted on the effective date of
the enrollee's assignment to the succeeding plan shall be applied
with respect to those enrollees validly covered under the insolvent
specialized health care service plan's contract or policy on the date
of the assignment.  Successor specialized health care service plans
which do not offer direct nongroup enrollment may aggregate all
allocated nongroup enrollees into one group for rating and coverage
purposes.
   (e) Contracting providers shall continue to provide services to
enrollees of an insolvent plan until the effective date of an
enrollee's coverage in a successor plan selected pursuant to either
open enrollment or the allocation process but in no event for the
period exceeding that required by their contract or 45 days in the
case of allocation, whichever is greater; or for a period exceeding
that required by their contract or 30 days in the case of open
enrollment, whichever is greater.
   (f) Failure to comply with an order pursuant to this section shall
constitute a violation of this section.
  SEC. 150.  Section 1395.5 of the Health and Safety Code is amended
to read:
   1395.5.  (a) Except as provided in subdivisions (b) and (c), no
contract that is issued, amended, renewed, or delivered on or after
January 1, 1999, between a health care service plan, including a
specialized health care service plan, and a provider shall contain
provisions that prohibit, restrict, or limit the health care provider
from advertising.
   (b) Nothing in this section shall be construed to prohibit plans
from establishing reasonable guidelines in connection with the
activities regulated pursuant to this chapter, including those to
prevent advertising that is, in whole or in part, untrue, misleading,
deceptive, or otherwise inconsistent with this chapter or the rules
and regulations promulgated thereunder.  For advertisements
mentioning a provider's participation in a plan, nothing in this
section shall be construed to prohibit plans from requiring each
advertisement to contain a disclaimer to the effect that the provider'
s services may be covered for some, but not all, plan contracts, or
that plan contracts may cover some, but not all, provider services.
   (c) Nothing in this section is intended to prohibit provisions or
agreements intended to protect service marks, trademarks, trade
secrets, or other confidential information or property.  If a health
care provider participates on a provider panel or network as a result
of a direct contractual arrangement with a health care service plan
that, in turn, has entered into a direct contractual arrangement with
another person or entity, pursuant to which enrollees, subscribers,
insureds, and other beneficiaries of that other person or entity may
receive covered services from the health care provider, then nothing
in this section is intended to prohibit reasonable provisions or
agreements in the direct contractual arrangement between the health
care provider and the health care service plan that protect the name
or trade name of the other person or entity or require that the
health care provider obtain the consent of the health care service
plan prior to the use of the name or trade name of the other person
or entity in any advertising by the health care provider.
   (d) Nothing in this section shall be construed to impair or impede
the authority of the director to regulate advertising, disclosure,
or solicitation pursuant to this chapter.
  SEC. 151.  Section 1396 of the Health and Safety Code is amended to
read:
   1396.  It is unlawful for any person willfully to make any untrue
statement of material fact in any application, notice, amendment,
report, or other submission filed with the director under this
chapter or the regulations adopted thereunder, or willfully to omit
to state in any application, notice, or report any material fact
which is required to be stated therein.
  SEC. 152.  Section 1397 of the Health and Safety Code is amended to
read:
   1397.  (a) Whenever reference is made in this chapter to a hearing
before or by the  director, the hearing shall be held in accordance
with the Administrative Procedure Act (Chapter 5 (commencing with
Section 11500) of Part 1 of Division 3 of Title 2 of the Government
Code), and the director shall have all of the powers granted under
that act.
   (b) Every final order, decision, license, or other official act of
the director under this chapter is subject to judicial review in
accordance with the law.
  SEC. 153.  Section 1397.5 of the Health and Safety Code is amended
to read:
   1397.5.  (a) The director shall make and file annually with the
Department of Managed Care as a public record, an aggregate summary
of grievances against plans filed with the director by enrollees or
subscribers.  This summary shall include at least all of the
following information:
   (1) The total number of grievances filed.
   (2) The types of  grievances.
   (b) The summary set forth in subdivision (a) shall include the
following disclaimer:
THIS INFORMATION IS PROVIDED FOR STATISTICAL PURPOSES ONLY.  THE
DIRECTOR OF THE DEPARTMENT OF MANAGED CARE HAS NEITHER INVESTIGATED
NOR DETERMINED WHETHER THE GRIEVANCES COMPILED WITHIN THIS SUMMARY
ARE REASONABLE OR VALID.
   (c) Nothing in this section shall require or authorize the
disclosure of grievances filed with or received by the director and
made confidential pursuant to any other provision of law including,
but not limited to, the California Public Records Act (Chapter 3.5
(commencing with Section 6250) of Division 7 of Title 1 of the
Government Code) and the Information Practices Act of 1977 (Chapter 1
(commencing with Section 1798) of Title 1.8 of Part 4 of Division 3
of the Civil Code).  Nothing in this section shall affect any other
provision of law including, but not limited to, the California Public
Records Act and the Information Practices Act of 1977.
  SEC. 154.  Section 1397.6 of the Health and Safety Code is amended
to read:
   1397.6.  The director may contract with necessary medical
consultants to assist with the health care program.  These contracts
shall be on a noncompetitive bid basis and shall be exempt from
Chapter 2 (commencing with Section 10290) of Part 2 of Division 2 of
the Public Contract Code.
  SEC. 155.  Section 1398 of the Health and Safety Code is amended to
read:
   1398.  Neither the director nor any employee of the department
shall be precluded from subscribing to or enrolling in any plan which
is subject to the provisions of this chapter, subject to such rules
as may be adopted hereunder or pursuant to other proper authority.
  SEC. 156.  Section 1399 of the Health and Safety Code is amended to
read:
   1399.  (a) Surrender of a license as a health plan becomes
effective 30 days after receipt of an application to surrender the
license or within a shorter period of time as the director may
determine, unless a revocation or suspension proceeding is pending
when the application is filed or a proceeding to revoke or suspend or
to impose conditions upon the surrender is instituted within 30 days
after the application is filed.  If this proceeding is pending or
instituted, surrender becomes effective at the time and upon the
conditions as the director by order determines.
   (b) If the director finds that any plan is no longer in existence,
or has ceased to do business or has failed to initiate business
activity as a licensee within six months after licensure, or cannot
be located after reasonable search, the director may by order
summarily revoke the license of the plan.
   (c) The director may summarily suspend or revoke the license of a
plan upon (1) failure to pay any fee required by this chapter within
15 days after notice by the director that the fee is due and unpaid,
(2) failure to file any amendment or report required under this
chapter within 15 days after notice by the director that the report
is due, (3) failure to maintain any bond or insurance pursuant to
Section 1376, (4) failure to maintain a deposit, insurance, or
guaranty arrangement pursuant to Section 1377, or (5) failure to
maintain a deposit pursuant to Section 1300.76.1 of Title 10 of the
California Code of Regulations.
  SEC. 157.  Section 1399.1 of the Health and Safety Code is amended
to read:
   1399.1.  (a) All orders and other actions taken by the
Commissioner of Corporations pursuant to the authority contained in
subdivision (c) of Section 1350 on or before September 30, 1977, and
all administrative or judicial decisions or orders relating to the
same and all conditions imposed upon the same remain in effect
against a plan holding a transitional license.
   (b) The Knox-Mills Health Plan Act as in effect prior to its
repeal continues to govern all suits, actions, prosecutions or
proceedings which are pending or which may be initiated under
subdivision (c) of Section 1350 on the basis of facts or
circumstances occurring on or before September 30, 1977.
  SEC. 158.  Section 1399.70 of the Health and Safety Code is amended
to read:
   1399.70.  (a) In addition to the information required by
subdivision (a) of Section 1399.73, a nonprofit health care service
plan submitting an application to the director to restructure or
convert its activities pursuant to this article shall submit to the
director a copy of all of its original and amended articles of
incorporation and bylaws, as well as a report summarizing the
activities undertaken by the plan to meet its nonprofit obligations
as directed by the  director.
   (b) The report required by this section shall include a summary of
the following:
   (1) The nature of public benefit or charitable activities
undertaken by the plan.
   (2) The expenditures incurred by the plan on these public benefit
or charitable activities.
   (3) The plan's procedure for avoiding conflicts of interest
involving public benefit or charitable activities and a summary of
any conflicts that have occurred and the manner in which they were
resolved.
   (c) The report required by this section shall also include a
written plan that specifies on a projected basis the information
required by subdivision (b) for the immediately following fiscal
year.
   (d) When requested by the  director, the plan shall promptly
supplement the report to include any additional information as the
director deems necessary to ascertain whether the plan's assets are
appropriately being used by the plan to meet its nonprofit
obligations.
   (e) For purposes of this article, a "nonprofit health care service
plan" includes a plan formed under or subject to Part 2 (commencing
with Section 5110) or Part 3 (commencing with Section 7110) of
Division 2 of the Corporations Code.
  SEC. 159.  Section 1399.71 of the Health and Safety Code is amended
to read:
   1399.71.  (a) Any nonprofit health care service plan that intends
to restructure its activities as defined in subdivision (d) shall,
prior to restructuring, secure approval from the  director.
   (b) Every nonprofit health care service plan that applies to the
department to restructure its activities shall submit for approval by
the department a public benefit program that identifies activities
to be undertaken by the nonprofit health care service plan following
restructuring to continue to meet its nonprofit public benefit
obligations.  The program shall include all information required
pursuant to subdivisions (b) and (c) of Section 1399.70.
   (c) The director shall apply the requirements of Section 1399.72
to the public benefit program submitted for approval as part of a
restructuring proposal submitted pursuant to subdivision (b) of this
section.  The set-aside requirement in paragraph (1) of subdivision
(c) of Section 1399.72 shall apply only to the fair value of the
portion of the nonprofit health care service plan involved in the
restructuring, as determined by the director.
   (d) (1) For the purposes of this section, a "restructuring" or
"restructure" by a nonprofit health care service plan means the sale,
lease, conveyance, exchange, transfer, or other similar disposition
of a substantial amount of a nonprofit health care service plan's
assets, as determined by the  director, to a business or entity
carried on for profit.  Nothing in this section shall be construed to
prohibit the director from consolidating actions taken by a plan for
the purpose of treating the consolidated actions as a restructuring
or restructure of the plan.
   (2) For the purposes of this section, a "restructuring" or
"restructure" by a nonprofit health care service plan shall not
include any sales or purchases undertaken in the normal and ordinary
course of plan business.  The director may request information from
the plan to verify that transactions qualify as occurring in the
normal and ordinary course of plan business, and are not subject to
the requirements of subdivision (e).
   (e) Notwithstanding that a transaction or consolidated
transactions involve a substantial amount of a nonprofit health care
service plan's assets and are not in the normal and ordinary course
of plan business, a "restructuring" or "restructure" by a nonprofit
health care service plan shall not include any of the following
transactions:
   (1) Investments in a wholly owned subsidiary of the nonprofit
health care service plan in which all of the following occur:
   (A) Any profit from the investment will not inure to the benefit
of any individual.
   (B) The investment is fundamentally consistent with and advances
the public benefit, charitable, or mutual benefit purpose of the
plan.
   (C) The investment does not adversely impact the plan's ability to
fulfill its public benefit, charitable, or mutual benefit purposes.

   (D) No officer or director of the plan has any financial interest
constituting a conflict of interest in the investments.
   (E) The investment results in the provision of services, goods, or
insurance to or for the benefit of the plan or its members,
enrollees, or groups.
   (2) Sales or purchases of plan assets, including interests in
wholly owned subsidiaries and in joint ventures, partnerships, and
other investments in for-profit entities, in which all of the
following occur:
   (A) Any profit from the sale will not inure to the benefit of any
individual.
   (B) The sale or purchase is fundamentally consistent with and
advances the public benefit, charitable, or mutual benefit purposes
of the plan.
   (C) The plan receives all proceeds from the sale.
   (D) No officer or director of the plan has any financial interest
constituting a conflict of interest in the sale or purchase.
   (E) The transaction is conducted at arm's length and for fair
market value.
   (F) The sale or purchase does not adversely impact the plan's
ability to fulfill its public benefit, charitable, or mutual benefit
purposes.
                                               (3) Investments in or
joint ventures and partnerships with a for-profit entity in which all
of the following occur:
   (A) Any profit will not inure to the benefit of any individual.
   (B) The mission or purpose of the investment, joint venture, or
partnership is fundamentally consistent with the public benefit,
charitable, or mutual benefit purposes of the plan.
   (C) No officer or director of the plan has any financial interest
constituting a conflict of interest in the investment, joint venture,
or partnership.
   (D) The transaction is conducted at arm's length and for fair
market value.
   (E) The investment, joint venture, or partnership furthers the
plan's ability to fulfill its public benefit, charitable, or mutual
benefit purposes.
   (F) The investment, joint venture, or partnership results in the
provision of services, goods, or insurance to or for the benefit of
the plan or its members, enrollees, or groups.
   The sharing of profits or earnings upon a reasonable and equitable
basis reflecting the contribution of other participants to the
investment, joint venture, or partnership or the success thereof
shall not constitute private inurement.
   (f) All transactions subject to the exemptions listed in
subdivision (e) may not be executed by the plan without the written
prior approval of the director.  In the application for material
modification seeking approval, the plan shall demonstrate that the
proposed transaction meets all of the relevant conditions for
exemption required by subdivision (e).
   (g) Prior to issuing a decision to approve an application for a
material modification involving a transaction that is exempt pursuant
to subdivision (e), the director shall issue a public notice of the
filing of the application and may seek public review and comment on
the director's determination that the transaction is exempt under
subdivision (e).
   (h) The director may approve or deny the material modification
request, or approve the request with conditions necessary to satisfy
the requirements of this section, taking into consideration any
public comments submitted to the  director.
  SEC. 160.  Section 1399.72 of the Health and Safety Code is amended
to read:
   1399.72.  (a) Any health care service plan that intends to convert
from nonprofit to for-profit status, as defined in subdivision (b),
shall, prior to the conversion, secure approval from the  director.
   (b) For the purposes of this section, a "conversion" or "convert"
by a nonprofit health care service plan means the transformation of
the plan from nonprofit to for-profit status, as determined by the
director.
   (c) Prior to approving a conversion, the director shall find that
the conversion proposal meets all of the following charitable trust
requirements:
   (1) The fair market value of the nonprofit plan is set aside for
appropriate charitable purposes.  In determining fair market value,
the director shall consider, but not be bound by, any market-based
information available concerning the plan.
   (2) The set-aside shall be dedicated and transferred to one or
more existing or new tax-exempt charitable organizations operating
pursuant to Section 501(c)(3) (26 U.S.C.A. Sec. 501(c)(3)) of the
federal Internal Revenue Code.  The director shall consider requiring
that a portion of the set-aside include equity ownership in the
plan.  Further, the director may authorize the use of a federal
Internal Revenue Code Section 501(c)(4) organization (26 U.S.C.A.
Sec. 501(c)(4)) if, in the director's view, it is necessary to ensure
effective management and monetization of equity ownership in the
plan and if the plan agrees that the Section 501(c)(4) organization
will be limited exclusively to these functions, that funds generated
by the monetization shall be transferred to the Section 501(c)(3)
organization except to the extent necessary to fund the level of
activity of the Section 501(c)(4) organization as may be necessary to
preserve the organization's tax status, that no funds or other
resources controlled by the Section 501(c)(4) organization shall be
expended for campaign contributions, lobbying, or other political
activities, and that the Section 501(c)(4) organization shall comply
with reporting requirements that are applicable to Section 501(c)(3)
organizations, and that the 501(c)(4) organization shall be subject
to any other requirements imposed upon 501(c)(3) organizations that
the director determines to be appropriate.
   (3) Each 501(c)(3) or 501(c)(4) organization receiving a
set-aside, its directors and officers, and its assets including any
plan stock, shall be independent of any influence or control by the
health care service plan and its directors, officers, subsidiaries,
or affiliates.
   (4) The charitable mission and grant-making functions of the
charitable organization receiving any set-aside shall be dedicated to
serving the health care needs of the people of California.
   (5) Every 501(c)(3) or 501(c)(4) organization that receives a
set-aside under this section shall have in place procedures and
policies to prohibit conflicts of interest, including those
associated with grant-making activities that may benefit the plan,
including the directors, officers, subsidiaries, or affiliates of the
plan.
   (6) Every 501(c)(3) or 501(c)(4) organization that receives a
set-aside under this section shall demonstrate that its directors and
officers have sufficient experience and judgment to administer
grant-making and other charitable activities to serve the state's
health care needs.
   (7) Every 501(c)(3) or 501(c)(4) organization that receives a
set-aside under this section shall provide the director and the
Attorney General with an annual report that includes a detailed
description of its grant-making and other charitable activities
related to its use of the set-aside received from the health care
service plan.  The annual report shall be made available by the
director and the Attorney General for public inspection,
notwithstanding the California Public Records Act (Chapter 3.5
(commencing with Section 6250) of Division 7 of Title 1 of the
Government Code).  Each organization shall submit the annual report
for its immediately preceding fiscal year within 120 days after the
close of that fiscal year.  When requested by the director or the
Attorney General, the organization shall promptly supplement the
report to include any additional information that the director or the
Attorney General deems necessary to ascertain compliance with this
article.
   (8) The plan has satisfied the requirements of this chapter, and a
disciplinary action pursuant to Section 1386 is not warranted
against the plan.
   (d) The plan shall not file any forms or documents required by the
Secretary of State in connection with any conversion or
restructuring until the plan has received an order of the director
approving the conversion or restructuring, or unless authorized to do
so by the director.
  SEC. 161.  Section 1399.73 of the Health and Safety Code is amended
to read:
   1399.73.  (a) An application for a conversion or restructuring
shall contain the information the director may require, by rule or
order.
   (b) The director shall charge a health care service plan an
application filing fee.  The fee for filing an application shall be
the actual cost of processing the application, including the overhead
costs.  The filing fee shall include the costs of undertaking the
activities described in subdivisions (c), (d), and (e) of Section
1399.74.
   (c) The director may contract with experts or consultants to
assist the director in reviewing the application.  Contract costs
shall not exceed an amount that is reasonable and necessary to review
the application.  Any contract entered into under this subdivision
shall be on a noncompetitive bid basis and shall be exempt from
Chapter 2 (commencing with Section 10290) of Part 2 of Division 2 of
the Public Contract Code.  The applicant shall promptly pay the
director, upon request, for all contract costs.
  SEC. 162.  Section 1399.74 of the Health and Safety Code is amended
to read:
   1399.74.  (a) By July 1, 1996, the director shall adopt
regulations, on an emergency basis, that specify the application
procedures and requirements for the restructuring or conversion of
nonprofit health care service plans.  This subdivision shall not be
construed to limit or otherwise restrict the director's authority to
adopt regulations under Section 1344, including, but not limited to,
any additional regulations to implement this article.
   (b) Upon receiving an application to restructure or convert, the
director shall publish a notice in one or more newspapers of general
circulation in the plan's service area describing the name of the
applicant, the nature of the application, and the date of receipt of
the application.  The notice shall indicate that the director will be
soliciting public comments and will hold a public hearing on the
application.  The director shall require the plan to publish a
written notice concerning the application pursuant to conditions
imposed by rule or order.
   (c) Any applications, reports, plans, or other documents under
this article shall be public records, subject to the California
Public Records Act (Chapter 3.5 (commencing with Section 6250) of
Division 7 of Title 1 of the Government Code) and regulations adopted
by the director thereunder.  The director shall provide the public
with prompt and reasonable access to public records relating to the
restructuring and conversion of health care service plans.  Access to
public records covered by this section shall be made available no
later than one month prior to any solicitation for public comments or
public hearing scheduled pursuant to this article.
   (d) Prior to approving any conversion or restructuring, the
director shall solicit public comments in written form and shall hold
at least one public hearing concerning the plan's proposal to comply
with the set-aside and other conditions required under this article.

   (e) The director may disapprove any application to restructure or
convert if the application does not meet the requirements of this
chapter or of the Nonprofit Corporation Law (Div. 2 (commencing with
Sec.  5000), Title 1, Corp. C.), including any requirements imposed
by rule or order of the  director.
  SEC. 163.  Section 1399.75 of the Health and Safety Code is amended
to read:
   1399.75.  (a) This article shall apply to the restructuring or
conversion of nonprofit mutual benefit health care service plans to
the extent these plans have held or currently hold assets subject to
a charitable trust obligation, as determined by the  director.
   (b) Nonprofit mutual benefit health care service plans that do not
have, or have only a partial, charitable trust obligation, and that
intend to convert or restructure their activities shall, prior to the
conversion or restructuring, secure approval from the  director.
   (c) Prior to approving a mutual benefit health care service plan
restructuring or conversion under subdivision (b), the director shall
find that the plan has complied with its noncharitable obligations
including, but not limited to, any obligations set forth in its
articles of incorporation regarding the dedication and distribution
of assets.
   (d) The  director, in carrying out the department's
responsibilities under subdivision (c), may apply, to the extent
appropriate in each case as determined by the  director, the
beneficiary protections authorized in this act, including, but not
limited to, protections concerning the fair market value of assets,
the avoidance of conflicts of interest, and the avoidance of undue
influence or control, with respect to a mutual benefit plan's
proposed disposition of assets.
   (e) Nothing in this section shall be construed to limit the
director's, Attorney General's, or a court's authority under existing
law to impose charitable trust obligations upon any or all of the
assets of a mutual benefit corporation or otherwise treat a mutual
benefit corporation in the same manner as a public benefit
corporation.
  SEC. 164.  Section 11758.47 of the Health and Safety Code is
amended to read:
   11758.47.  Service providers may assist Medi-Cal beneficiaries,
upon request, to file a fair hearing request in accordance with
Chapter 7 (commencing with Section 10950) of Part 2 of Division 9 of
the Welfare and Institutions Code, or may inform Medi-Cal
beneficiaries about the Department of Managed Care's toll-free
telephone number for health care service plan members or the State
Department of Health Services' ombudsman for Medi-Cal beneficiaries
enrolled in Medi-Cal managed care plans.
  SEC. 165.  Section 32121 of the Health and Safety Code is amended
to read:
   32121.  Each local district shall have and may exercise the
following powers:
   (a) To have and use a corporate seal and alter it at its pleasure.

   (b) To sue and be sued in all courts and places and in all actions
and proceedings whatever.
   (c) To purchase, receive, have, take, hold, lease, use, and enjoy
property of every kind and description within and without the limits
of the district, and to control, dispose of, convey, and encumber the
same and create a leasehold interest in the same for the benefit of
the district.
   (d) To exercise the right of eminent domain for the purpose of
acquiring real or personal property of every kind necessary to the
exercise of any of the powers of the district.
   (e) To establish one or more trusts for the benefit of the
district, to administer any trust declared or created for the benefit
of the district, to designate one or more trustees for trusts
created by the district, to receive by gift, devise, or bequest, and
hold in trust or otherwise, property, including corporate securities
of all kinds, situated in this state or elsewhere, and where not
otherwise provided, dispose of the same for the benefit of the
district.
   (f) To employ legal counsel to advise the board of directors in
all matters pertaining to the business of the district, to perform
the functions in respect to the legal affairs of the district as the
board may direct, and to call upon the district attorney of the
county in which the greater part of the land in the district is
situated for legal advice and assistance in all matters concerning
the district, except that if that county has a county counsel, the
directors may call upon the county counsel for legal advice and
assistance.
   (g) To employ any officers and employees, including architects and
consultants, the board of directors deems necessary to carry on
properly the business of the district.
   (h) To prescribe the duties and powers of the health care facility
administrator, secretary, and other officers and employees of any
health care facilities of the district, to establish offices as may
be appropriate and to appoint board members or employees to those
offices, and to determine the number of, and appoint, all officers
and employees and to fix their compensation.  The officers and
employees shall hold their offices or positions at the pleasure of
the boards of directors.
   (i) To do any and all things that an individual might do that are
necessary for, and to the advantage of, a health care facility and a
nurses' training school, or a child care facility for the benefit of
employees of the health care facility or residents of the district.
   (j) To establish, maintain, and operate, or provide assistance in
the operation of, one or more health facilities or health services,
including, but not limited to, outpatient programs, services, and
facilities, retirement programs, services, and facilities, chemical
dependency programs, services, and facilities, or other health care
programs, services, and facilities and activities at any location
within or without the district for the benefit of the district and
the people served by the district.
   "Health care facilities," as used in this subdivision, means those
facilities defined in subdivision (b) of Section 32000.1 and
specifically includes freestanding chemical dependency recovery
units. "Health facilities," as used in this subdivision, may also
include those facilities defined in subdivision (d) of Section 15432
of the Government Code.
   (k) To do any and all other acts and things necessary to carry out
this division.
   (l) To acquire, maintain, and operate ambulances or ambulance
services within and without the district.
   (m) To establish, maintain, and operate, or provide assistance in
the operation of, free clinics, diagnostic and testing centers,
health education programs, wellness and prevention programs,
rehabilitation, aftercare, and any other health care services
provider, groups, and organizations that are necessary for the
maintenance of good physical and mental health in the communities
served by the district.
   (n) To establish and operate in cooperation with its medical staff
a coinsurance plan between the hospital district and the members of
its attending medical staff.
   (o) To establish, maintain, and carry on its activities through
one or more corporations, joint ventures, or partnerships for the
benefit of the health care district.
   (p) (1) To transfer, at fair market value, any part of its assets
to one or more corporations to operate and maintain the assets.  A
transfer pursuant to this paragraph shall be deemed to be at fair
market value if an independent consultant, with expertise in methods
of appraisal and valuation and in accordance with applicable
governmental and industry standards for appraisal and valuation,
determines that fair and reasonable consideration is to be received
by the district for the transferred district assets.  Before the
district transfers, pursuant to this paragraph, 50 percent or more of
the district's assets to one or more corporations, in sum or by
increment, the elected board shall, by resolution, submit to the
voters of the district a measure proposing the transfer.  The measure
shall be placed on the ballot of a special election held upon the
request of the district or the ballot of the next regularly scheduled
election occurring at least 88 days after the resolution of the
board.  If a majority of the voters voting on the measure vote in its
favor, the transfer shall be approved.  The campaign disclosure
requirements applicable to local measures provided under Chapter 4
(commencing with Section 84100) of Title 9 of the Government Code
shall apply to this election.
   (2) To transfer, for the benefit of the communities served by the
district, in the absence of adequate consideration, any part of the
assets of the district, including without limitation real property,
equipment, and other fixed assets, current assets, and cash, relating
to the operation of the district's health care facilities to one or
more nonprofit corporations to operate and maintain the assets.
   (A) A transfer of 50 percent or more of the district's assets, in
sum or by increment, pursuant to this paragraph shall be deemed to be
for the benefit of the communities served by the district only if
all of the following occur:
   (i) The transfer agreement and all arrangements necessary thereto
are fully discussed in advance of the district board decision to
transfer the assets of the district in at least five properly noticed
open and public meetings in compliance with the Ralph M. Brown Act,
Chapter 9 (commencing with Section 54950) of Part 1 of Division 2 of
Title 5 of the Government Code, and Section 32106.
   (ii) The transfer agreement provides that the hospital district
shall approve all initial board members of the nonprofit corporation
and any subsequent board members as may be specified in the transfer
agreement.
   (iii) The transfer agreement provides that all assets transferred
to the nonprofit corporation, and all assets accumulated by the
corporation during the term of the transfer agreement arising out of
or from the operation of the transferred assets, are to be
transferred back to the district upon termination of the transfer
agreement, including any extension of the transfer agreement.
   (iv) The transfer agreement commits the nonprofit corporation to
operate and maintain the district's health care facilities and its
assets for the benefit of the communities served by the district.
   (v) The transfer agreement requires that any funds received from
the district at the outset of the agreement or any time thereafter
during the term of the agreement be used only to reduce district
indebtedness, to acquire needed equipment for the district health
care facilities, to operate, maintain, and make needed capital
improvements to the district's health care facilities, to provide
supplemental health care services or facilities for the communities
served by the district, or to conduct other activities that would
further a valid public purpose if undertaken directly by the
district.
   (B) A transfer of 33 percent or more but less than 50 percent of
the district's assets, in sum or by increment, pursuant to this
paragraph shall be deemed to be for the benefit of the communities
served by the district only if both of the following occur:
   (i) The transfer agreement and all arrangements necessary thereto
are fully discussed in advance of the district board decision to
transfer the assets of the district in at least two properly noticed
open and public meetings in compliance with the Ralph M. Brown Act
(Chapter 9 (commencing with Section 54950) of Part 1 of Division 2 of
Title 5 of the Government Code), and Section 32106.
   (ii) The transfer agreement meets all of the requirements of
clauses (ii) to (v), inclusive, of subparagraph (A).
   (C) A transfer of 10 percent or more but less than 33 percent of
the district's assets, in sum or by increment, pursuant to this
paragraph shall be deemed to be for the benefit of the communities
served by the district only if both of the following occur:
   (i) The transfer agreement and all arrangements necessary thereto
are fully discussed in advance of the district board decision to
transfer the assets of the district in at least two properly noticed
open and public meetings in compliance with the Ralph M. Brown Act
(Chapter 9 (commencing with Section 54950) of Part 1 of Division 2 of
Title 5 of the Government Code), and Section 32106.
   (ii) The transfer agreement meets all of the requirements of
clauses (iii) to (v), inclusive, of subparagraph (A).
   (D) Before the district transfers, pursuant to this paragraph, 50
percent or more of the district's assets to one or more nonprofit
corporations, in sum or by increment, the elected board shall, by
resolution, submit to the voters of the district a measure proposing
the transfer.  The measure shall be placed on the ballot of a special
election held upon the request of the district or the ballot of the
next regularly scheduled election occurring at least 88 days after
the resolution of the board.  If a majority of the voters voting on
the measure vote in its favor, the transfer shall be approved.  The
campaign disclosure requirements applicable to local measures
provided under Chapter 4 (commencing with Section 84100) of Title 9
of the Government Code shall apply to this election.
   (E) Notwithstanding the other provisions of this paragraph, a
hospital district shall not transfer any portion of its assets to a
private nonprofit organization that is owned or controlled by a
religious creed, church, or sectarian denomination in the absence of
adequate consideration.
   (3) If the district board has previously transferred less than 50
percent of the district's assets pursuant to this subdivision before
any additional assets are transferred, the board shall hold a public
hearing and shall make a public determination that the additional
assets to be transferred will not, in combination with any assets
previously transferred, equal 50 percent or more of the total assets
of the district.
   (4) The amendments to this subdivision made during the 1991-92
Regular Session, and the amendments made to this subdivision and to
Section 32126 made during the 1993-94 Regular Session, shall only
apply to transfers made on or after the effective dates of the acts
amending this subdivision.  The amendments to this subdivision made
during those sessions shall not apply to any of the following:
   (A) A district that has discussed and adopted a board resolution,
prior to September 1, 1992, that authorizes the development of a
business plan for an integrated delivery system.
   (B) A lease agreement, transfer agreement, or both between a
district and a nonprofit corporation that were in full force and
effect as of September 1, 1992, for as long as that lease agreement,
transfer agreement, or both remain in full force and effect.
   (5) Notwithstanding paragraph (4), if substantial amendments are
proposed to be made to a transfer agreement described in subparagraph
(A) or (B) of paragraph (4), the amendments shall be fully discussed
in advance of the district board's decision to adopt the amendments
in at least two properly noticed open and public meetings in
compliance with Section 32106 and the Ralph M. Brown Act, (Chapter 9
(commencing with Section 54950) of Part 1 of Division 2 of Title 5 of
the Government Code).
   (6) Notwithstanding paragraphs (4) and (5), a transfer agreement
described in subparagraph (A) or (B) of paragraph (4) that provided
for the transfer of less than 50 percent of a district's assets shall
be subject to the requirements of subdivision (p) of Section 32121
when subsequent amendments to that transfer agreement would result in
the transfer, in sum or by increment, of 50 percent or more of a
district's assets to the nonprofit corporation.
   (7) For purposes of this subdivision, a "transfer" means the
transfer of ownership of the assets of a district.  A lease of the
real property or the tangible personal property of a district shall
not be subject to this subdivision except as specified in Section
32121.4 and as required under Section 32126.
   (8) Districts that request a special election pursuant to
paragraph (1) or (2) shall reimburse counties for the costs of that
special election as prescribed pursuant to Section 10520 of the
Elections Code.
   (9) Nothing in this section, including subdivision (j), shall be
construed to permit a local district to obtain or be issued a single
consolidated license to operate a separate physical plant as a
skilled nursing facility or an intermediate care facility that is not
located within the boundaries of the district.

            (10) A transfer of any of the assets of a district to one
or more nonprofit corporations to operate and maintain the assets
shall not be required to meet paragraphs (1) to (9), inclusive, of
this subdivision if all of the following conditions apply at the time
of the transfer:
   (A) The district has entered into a loan that is insured by the
State of California under Chapter 1 (commencing with Section 129000)
of Part 6 of Division 107.
   (B) The district is in default of its loan obligations, as
determined by the Office of Statewide Health Planning and
Development.
   (C) The Office of Statewide Health Planning and Development and
the district, in their best judgment, agree the transfer of some or
all of the assets of the district to a nonprofit corporation or
corporations is necessary to cure the default, and will obviate the
need for foreclosure.  This cure of default provision shall be
applicable prior to the office foreclosing on district hospital
assets.  After the office has foreclosed on district hospital assets,
or otherwise taken possession in accordance with law, the office may
exercise all of its powers to deal with and dispose of hospital
property.
   (D) The transfer and all arrangements necessary thereto are
discussed in advance of the transfer in at least one properly noticed
open and public meeting in compliance with the Ralph M. Brown Act,
Chapter 9 (commencing with Section 54950) of Part 1 of Division 2 of
Title 5 of the Government Code and Section 32106.  The meeting
referred to in this paragraph shall be noticed and held within 90
days of notice in writing to the district by the office of an event
of default.  If the meeting is not held within this 90-day period,
the district shall be deemed to have waived this requirement to have
a meeting.
   (11) If a transfer under paragraph (10) is a lease, the lease
shall provide that the assets shall revert to the district at the
conclusion of the leasehold interest.  If the transfer is a sale, the
proceeds shall be used first to retire the obligation insured by the
office, then to retire any other debts of the district.  After
providing for debts, any remaining funds shall revert to the
district.
   (q) To contract for bond insurance, letters of credit, remarketing
services, and other forms of credit enhancement and liquidity
support for its bonds, notes, and other indebtedness and to enter
into reimbursement agreements, monitoring agreements, remarketing
agreements, and similar ancillary contracts in connection therewith.

   (r) To establish, maintain, operate, participate in, or manage
capitated health care plans, health maintenance organizations,
preferred provider organizations, and other managed health care
systems and programs properly licensed by the Department of Insurance
or the Department of Managed Care, at any location within or without
the district for the benefit of residents of communities served by
the district.  However, that activity shall not be deemed to result
in or constitute the giving or lending of the district's credit,
assets, surpluses, cash, or tangible goods to, or in aid of, any
person, association, or corporation in violation of Section 6 of
Article XVI of the California Constitution.
   Nothing in this section shall authorize activities that
corporations and other artificial legal entities are prohibited from
conducting by Section 2400 of the Business and Professions Code.
   Any agreement to provide health care coverage that is a health
care service plan, as defined in subdivision (f) of Section 1345,
shall be subject to the provisions of Chapter 2.2 (commencing with
Section 1340) of Division 2, unless exempted pursuant to Section 1343
or 1349.2.
   A district shall not provide health care coverage for any employee
of an employer operating within the communities served by the
district, unless the Legislature specifically authorizes, or has
authorized in this section or elsewhere, the coverage.
   This section shall not authorize any district to contribute its
facilities to any joint venture that could result in transfer of the
facilities from district ownership.
   (s) To provide health care coverage to members of the district's
medical staff, employees of the medical staff members, and the
dependents of both groups, on a self-pay basis.
   (t) This section shall remain in effect only until January 1,
2001, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2001, deletes or extends
that date.
  SEC. 166.  Section 34943 of the Health and Safety Code is amended
to read:
   34943.  The provisions of the Corporate Securities Law of 1968 not
inconsistent with this chapter apply to a corporation formed under
this chapter.
  SEC. 167.  Section 102910 of the Health and Safety Code is amended
to read:
   102910.  For the purpose of conducting the three-year study
required pursuant to Section 102905, the department is hereby
encouraged to contract with a federally recognized tribe or tribal
organization or an American Indian-controlled health care corporation
or research institution having a record of good standing with the
Department of Managed Care and the Indian Health program within the
department, and established competence in the area of records
management.
  SEC. 168.  Section 127580 of the Health and Safety Code is amended
to read:
   127580.  The office, after consultation with the Insurance
Commissioner, the  Director of the Department of Managed Care, the
State Director of Health Services, and the Director of Industrial
Relations, shall adopt a California uniform billing form format for
professional health care services and a California uniform billing
form format for institutional provider services.  The format for
professional health care services shall be the format developed by
the National Uniform Claim Form Task Force.  The format for
institutional provider services shall be the format developed by the
National Uniform Billing Committee.  The formats shall be acceptable
for billing in federal Medicare and medicaid programs.  The office
shall specify a single uniform system for coding diagnoses,
treatments, and procedures to be used as part of the uniform billing
form formats.  The system shall be acceptable for billing in federal
Medicare and medicaid programs.
  SEC. 169.  Section 128725 of the Health and Safety Code is amended
to read:
   128725.  The functions and duties of the commission shall include
the following:
   (a) Advise the office on the implementation of the new,
consolidated data system.
   (b) Advise the office regarding the ongoing need to collect and
report health facility data and other provider data.
   (c) Annually develop a report to the director of the office
regarding changes that should be made to existing data collection
systems and forms.  Copies of the report shall be provided to the
Senate Health and Human Services Committee and to the Assembly Health
Committee.
   (d) Advise the office regarding changes to the uniform accounting
and reporting systems for health facilities.
   (e) Conduct public meetings for the purposes of obtaining input
from health facilities, other providers, data users, and the general
public regarding this chapter and Chapter 1 (commencing with Section
127125) of Part 2 of Division 107.
   (f) Advise the Secretary of Health and Welfare on the formulation
of general policies which shall advance the purposes of this part.
   (g) Advise the office on the adoption, amendment, or repeal of
regulations it proposes prior to their submittal to the Office of
Administrative Law.
   (h) Advise the office on the format of individual health facility
or other provider data reports and on any technical and procedural
issues necessary to implement this part.
   (i) Advise the office on the formulation of general policies which
shall advance the purposes of Chapter 1 (commencing with Section
127125) of Part 2 of Division 107.
   (j) Recommend, in consultation with a 12-member technical advisory
committee appointed by the chairperson of the commission, to the
office the data elements necessary for the production of outcome
reports required by Section 128745.
   (k) (1) The technical advisory committee appointed pursuant to
subdivision (j) shall be composed of two members who shall be
hospital representatives appointed from a list of at least six
persons nominated by the California Association of Hospitals and
Health Systems, two members who shall be physicians and surgeons
appointed from a list of at least six persons nominated by the
California Medical Association, two members who shall be registered
nurses appointed from a list of at least six persons nominated by the
California Nurses Association, one medical record practitioner who
shall be appointed from a list of at least six persons nominated by
the California Health Information Association, one member who shall
be a representative of a hospital authorized to report as a group
pursuant to subdivision (d) of Section 128760, two members who shall
be representative of California research organizations experienced in
effectiveness review of medical procedures or surgical procedures,
or both procedures, one member representing the Health Access
Foundation, and one member representing the Consumers Union.  Members
of the technical advisory committee shall serve without
compensation, but shall be reimbursed for any actual and necessary
expenses incurred in connection with their duties as members of the
technical advisory committee.
   (2) The commission shall submit its recommendation to the office
regarding the first of the reports required pursuant to subdivision
(a) of Section 128745 no later than January 1, 1993.  The technical
advisory committee shall submit its initial recommendations to the
commission pursuant to subdivision (d) of Section 128750 no later
than January 1, 1994.  The commission, with the advice of the
technical advisory committee, may periodically make additional
recommendations under Sections 128745 and 128750 to the office, as
appropriate.
   (l) (1) Assess the value and usefulness of the reports required by
Sections 127285, 128735, and 128740.  On or before December 1, 1997,
the commission shall submit recommendations to the office to
accomplish all of the following:
   (A) Eliminate redundant reporting.
   (B) Eliminate collection of unnecessary data.
   (C) Augment data bases as deemed valuable to enhance the quality
and usefulness of data.
   (D) Standardize data elements and definitions with other health
data collection programs at both the state and national levels.
   (E) Enable linkage with, and utilization of, existing data sets.
   (F) Improve the methodology and data bases used for quality
assessment analyses, including, but not limited to, risk-adjusted
outcome reports.
   (G) Improve the timeliness of reporting and public disclosure.
   (2) The commission shall establish a committee to implement the
evaluation process.  The committee shall include representatives from
the health care industry, providers, consumers, payers, purchasers,
and government entities, including the Department of  Managed Care,
the departments that comprise the Health and Welfare Agency, and
others deemed by the commission to be appropriate to the evaluation
of the data bases.  The committee may establish subcommittees
including technical experts.
   (3) In order to ensure the timely implementation of the provisions
of the legislation enacted in the 1997-98 Regular Session that
amended this part, the office shall present an implementation work
plan to the commission.  The work plan shall clearly define goals and
significant steps within specified timeframes that must be completed
in order to accomplish the purposes of that legislation.  The office
shall make periodic progress reports based on the work plan to the
commission.  The commission may advise the Secretary of Health and
Welfare of any significant delays in following the work plan.  If the
commission determines that the office is not making significant
progress toward achieving the goals outlined in the work plan, the
commission shall notify the office and the secretary of that
determination.  The commission may request the office to submit a
plan of correction outlining specific remedial actions and timeframes
for compliance.  Within 90 days of notification, the office shall
submit a plan of correction to the commission.
   (m) (1) As the office and the commission deem necessary, the
commission may establish committees and appoint persons who are not
members of the commission to these committees as are necessary to
carry out the purposes of the commission.  Representatives of area
health planning agencies shall be invited, as appropriate, to serve
on committees established by the office and the commission relative
to the duties and responsibilities of area health planning agencies.
Members of the standing committees shall serve without compensation,
but shall be reimbursed for any actual and necessary expenses
incurred in connection with their duties as members of these
committees.
   (2) Whenever the office or the commission does not accept the
advice of the other body on proposed regulations or on major policy
issues, the office or the commission shall provide a written response
on its action to the other body within 30 days, if so requested.
   (3) The commission or the office director may appeal to the
Secretary of Health and Welfare over disagreements on policy,
procedural, or technical issues.
  SEC. 170.  Section 740 of the Insurance Code is amended to read:
   740.  (a) Notwithstanding any other provision of law, and except
as provided herein, any person or other entity that provides coverage
in this state for medical, surgical, chiropractic, physical therapy,
speech pathology, audiology, professional mental health, dental,
hospital, or optometric expenses, whether the coverage is by direct
payment, reimbursement, or otherwise, shall be presumed to be subject
to the jurisdiction of the department unless the person or other
entity shows that while providing the services it is subject to the
jurisdiction of another agency of this or another state or the
federal government.
   (b) A person or entity may show that it is subject to the
jurisdiction of another agency of this or another state or the
federal government by providing to the commissioner the appropriate
certificate or license issued by the other governmental agency that
permits or qualifies it to provide those services for which it is
licensed or certificated.
   (c) Any person or entity that is unable to show that it is subject
to the jurisdiction of another agency of this or another state or
the federal government, shall submit to an examination by the
commissioner to determine the organization and solvency of the person
or the entity, and to determine whether the person or entity is in
compliance with the applicable provisions of this code, and shall be
required to obtain a certificate of authority to do business in
California and be required to meet all appropriate reserve, surplus,
capital, and other necessary requirements imposed by this code for
all insurers.
   (d) Any person or entity unable to show that it is subject to the
jurisdiction of another agency of this or another state or the
federal government shall be subject to all appropriate provisions of
this code regarding the conduct of its business.
   (e) The department shall prepare and maintain for public
inspection a list of those persons or entities described in
subdivision (a) that are not subject to the jurisdiction of another
agency of this or another state or the federal government and that
the department knows to be operating in this state.  There shall be
no liability of any kind on the part of the state, the department,
and its employees for the accuracy of the list or for any comments
made with respect to it.
   (f) Any administrator licensed by the department who advertises or
administers coverage in this state described in subdivision (a),
that is provided by any person or entity described in subdivision
(c), and where the coverage does not meet all pertinent requirements
specified in this code and that is not provided or completely
underwritten, insured or otherwise fully covered by an admitted life
or disability insurer, hospital service plan or health care service
plan, shall advise and disclose to any purchaser, prospective
purchaser, covered person or entity, and any production agency
licensed by the department involved in the transaction, all financial
and operational information relative to the content and scope of the
plan and, specifically, as to the lack of insurance or other
coverage.
   Any production agency obtaining knowledge of any coverage relative
to the content and scope of a hospital service plan or health care
service plan, as required under this subdivision, shall advise and
disclose to any purchaser, prospective purchaser, covered person or
entity, the knowledge regarding the content and scope of the plan
and, specifically, as to the lack of insurance by an admitted carrier
or other qualified plan.
   (g) A health care service plan, as defined in Chapter 2.2
(commencing with Section 1340) of Division 2 of the Health and Safety
Code, shall not be subject to this section.
   (h) The department shall notify, in writing, the Director of the
Department of Managed Care whenever it determines that a multiple
employer trust qualifies as a health care service plan subject to
Chapter 2.2 (commencing with Section 1340) of Division 2 of the
Health and Safety Code.
   (i) Any health care service plan, including a self-insured
reimbursement plan that pays for or reimburses any part of the cost
of health care services, operated by any city, county, city and
county, public entity, or political subdivision, or a public joint
labor management trust as described in subdivision (c) of Section
1349.2 of the Health and Safety Code, that is exempt pursuant to
Section 1349.2 of the Health and Safety Code from the Knox-Keene
Health Care Service Plan Act of 1975 (Chapter 2.2 (commencing with
Section 1340) of Division 2 of the Health and Safety Code), is also
exempt from this code.
  SEC. 171.  Section 742.407 of the Insurance Code is amended to
read:
   742.407.  (a) This section shall apply to the disclosure of
genetic test results contained in an applicant or enrollee's medical
records by a multiple employer welfare arrangement.
   (b) Any person who negligently discloses results of a test for a
genetic characteristic to any third party in a manner that identifies
or provides identifying characteristics of the person to whom the
test results apply, except pursuant to a written authorization as
described in subdivision (g), shall be assessed a civil penalty in an
amount not to exceed one thousand dollars ($1,000) plus court costs,
as determined by the court, which penalty and costs shall be paid to
the subject of the test.
   (c) Any person who willfully discloses the results of a test for a
genetic characteristic to any third party in a manner that
identifies or provides identifying characteristics of the person to
whom the test results apply, except pursuant to a written
authorization as described in subdivision (g), shall be assessed a
civil penalty in an amount not less than one thousand dollars
($1,000) and no more than five thousand dollars ($5,000) plus court
costs, as determined by the court, which penalty and costs shall be
paid to the subject of the test.
   (d) Any person who willfully or negligently discloses the results
of a test for a genetic characteristic to a third party in a manner
that identifies or provides identifying characteristics of the person
to whom the test results apply, except pursuant to a written
authorization as described in subdivision (g), that results in
economic, bodily, or emotional harm to the subject of the test, is
guilty of a misdemeanor punishable by a fine not to exceed ten
thousand dollars ($10,000).
   (e) In addition to the penalties listed in subdivisions (b) and
(c), any person who commits any act described in subdivision (b) or
(c) shall be liable to the subject for all actual damages, including
damages for economic, bodily, or emotional harm which is proximately
caused by the act.
   (f) Each disclosure made in violation of this section is a
separate and actionable offense.
   (g) The applicant's "written authorization," as used in this
section, shall satisfy the following requirements:
   (1) Is written in plain language.
   (2) Is dated and signed by the individual or a person authorized
to act on behalf of the individual.
   (3) Specifies the types of persons authorized to disclose
information about the individual.
   (4) Specifies the nature of the information authorized to be
disclosed.
   (5) States the name or functions of the persons or entities
authorized to receive the information.
   (6) Specifies the purposes for which the information is collected.

   (7) Specifies the length of time the authorization shall remain
valid.
   (8) Advises the person signing the authorization of the right to
receive a copy of the authorization.  Written authorization is
required for each separate disclosure of the test results, and the
authorization shall set forth the person or entity to whom the
disclosure would be made.
   (h) This section shall not apply to disclosures required by the
Department of Health Services necessary to monitor compliance with
Chapter 1 (commencing with Section 124975) of Part 5 of Division 106
of the Health and Safety Code, nor to disclosures required by the
Department of Managed Care necessary to administer and enforce
compliance with Section 1374.7 of the Health and Safety Code.
  SEC. 172.  Section 791.02 of the Insurance Code is amended to read:

   791.02.  As used in this act:
   (a) (1) "Adverse underwriting decision" means any of the following
actions with respect to insurance transactions involving insurance
coverage which is individually underwritten:
   (A) A declination of insurance coverage.
   (B) A termination of insurance coverage.
   (C) Failure of an agent to apply for insurance coverage with a
specific insurance institution which the agent represents and which
is requested by an applicant.
   (D) In the case of a property or casualty insurance coverage:
   (i) Placement by an insurance institution or agent of a risk with
a residual market mechanism, with an unauthorized insurer, or with an
insurance institution which provides insurance to other than
preferred or standard risks, if in fact the placement is at other
than a preferred or standard rate.  An adverse underwriting decision,
in case of placement with an insurance institution which provides
insurance to other than preferred or standard risks, shall not
include such placement where the applicant or insured did not specify
or apply for placement as a preferred or standard risk or placement
with a particular company insuring preferred or standard risks, or
   (ii) The charging of a higher rate on the basis of information
which differs from that which the applicant or policyholder
furnished.
   (E) In the case of a life, health or disability insurance
coverage, an offer to insure at higher than standard rates.
   (2) Notwithstanding paragraph (1), any of the following actions
shall not be considered adverse underwriting decisions but the
insurance institution or agent responsible for their occurrence shall
nevertheless provide the applicant or policyholder with the specific
reason or reasons for their occurrence:
   (A) The termination of an individual policy form on a class or
statewide basis.
   (B) A declination of insurance coverage solely because such
coverage is not available on a class or statewide basis.
   (C) The rescission of a policy.
   (b) "Affiliate" or "affiliated" means a person that directly, or
indirectly through one or more intermediaries, controls, is
controlled by or is under common control with another person.
   (c) "Agent" means any person licensed pursuant to Chapter 5
(commencing with Section 1621), Chapter 5A (commencing with Section
1759), Chapter 6 (commencing with Section 1760), Chapter 7
(commencing with Section 1800), or Chapter 8 (commencing with Section
1831).
   (d) "Applicant" means any person who seeks to contract for
insurance coverage other than a person seeking group insurance that
is not individually underwritten.
   (e) "Consumer report" means any written, oral or other
communication of information bearing on a natural person's
creditworthiness, credit standing, credit capacity, character,
general reputation, personal characteristics or mode of living which
is used or expected to be used in connection with an insurance
transaction.
   (f) "Consumer reporting agency" means any person who:
   (1) Regularly engages, in whole or in part, in the practice of
assembling or preparing consumer reports for a monetary fee.
   (2) Obtains information primarily from sources other than
insurance institutions.
   (3) Furnishes consumer reports to other persons.
   (g) "Control," including the terms "controlled by" or "under
common control with," means the possession, direct or indirect, of
the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting
securities, by contract other than a commercial contract for goods or
nonmanagement services, or otherwise, unless the power is the result
of an official position with or corporate office held by the person.

   (h) "Declination of insurance coverage" means a denial, in whole
or in part, by an insurance institution or agent of requested
insurance coverage.
   (i) "Individual" means any natural person who:
   (1) In the case of property or casualty insurance, is a past,
present or proposed named insured or certificate holder;
   (2) In the case of life or disability insurance, is a past,
present or proposed principal insured or certificate holder;
   (3) Is a past, present or proposed policyowner;
   (4) Is a past or present applicant; or
   (5) Is a past or present claimant; or
   (6) Derived, derives or is proposed to derive insurance coverage
under an insurance policy or certificate subject to this act.
   (j) "Institutional source" means any person or governmental entity
that provides information about an individual to an agent, insurance
institution or insurance-support organization, other than:
   (1) An agent,
   (2) The individual who is the subject of the information, or
   (3) A natural person acting in a personal capacity rather than in
a business or professional capacity.
               (k) "Insurance institution" means any corporation,
association, partnership, reciprocal exchange, interinsurer, Lloyd's
insurer, fraternal benefit society or other person engaged in the
business of insurance, including medical service plans and hospital
service plans.  "Insurance institution" shall not include agents,
insurance-support organizations, or group practice prepayment health
care  service plans regulated pursuant to the Knox-Keene Health Care
Service Plan Act, Chapter 2.2 (commencing with Section 1340) of
Division 2 of the Health and Safety Code.
   (l) "Insurance-support organization" means:
   (1) Any person who regularly engages, in whole or in part, in the
business of assembling or collecting information about natural
persons for the primary purpose of providing the information to an
insurance institution or agent for insurance transactions, including:

   (A) The furnishing of consumer reports or investigative consumer
reports to an insurance institution or agent for use in connection
with an insurance transaction, or
   (B) The collection of personal information from insurance
institutions, agents or other insurance-support organizations for the
purpose of detecting or preventing fraud, material misrepresentation
or material nondisclosure in connection with insurance underwriting
or insurance claim activity.
   (2) Notwithstanding paragraph (1), the following persons shall not
be considered "insurance-support organizations":  agents,
governmental institutions, insurance institutions, medical care
institutions, medical professionals, and peer review committees.
   (m) "Insurance transaction" means any transaction involving
insurance primarily for personal, family or household needs rather
than business or professional needs which entails:
   (1) The determination of an individual's eligibility for an
insurance coverage, benefit or payment, or
   (2) The servicing of an insurance application, policy, contract or
certificate.
   (n) "Investigative consumer report" means a consumer report or
portion thereof in which information about a natural person's
character, general reputation, personal characteristics or mode of
living is obtained through personal interviews with the person's
neighbors, friends, associates, acquaintances or others who may have
knowledge concerning such items of information.
   (o) "Medical care institution" means any facility or institution
that is licensed to provide health care services to natural persons,
including but not limited to, hospitals, skilled nursing facilities,
home health agencies, medical clinics, rehabilitation agencies and
public health agencies.
   (p) "Medical professional" means any person licensed or certified
to provide health care services to natural persons, including but not
limited to, a physician, dentist, nurse, optometrist, physical or
occupational therapist, psychiatric social worker, clinical
dietitian, clinical psychologist, chiropractor, pharmacist, or speech
therapist.
   (q) "Medical record information" means personal information which:

   (1) Relates to an individual's physical or mental condition,
medical history or medical treatment, and
   (2) Is obtained from a medical professional or medical care
institution, from the individual, or from the individual's spouse,
parent or legal guardian.
   (r) "Person" means any natural person, corporation, association,
partnership, limited liability company, or other legal entity.
   (s) "Personal information" means any individually identifiable
information gathered in connection with an insurance transaction from
which judgments can be  made about an individual's character,
habits, avocations, finances, occupation, general reputation, credit,
health or any other personal characteristics.  "Personal information"
includes an individual's name and address and "medical record
information" but does not include "privileged information."
   (t) "Policyholder" means any person who:
   (1) In the case of individual property or casualty insurance, is a
present named insured;
   (2) In the case of individual life or disability insurance, is a
present policyowner; or
   (3) In the case of group insurance which is individually
underwritten, is a present group certificate holder.
   (u) "Pretext interview" means an interview whereby a person, in an
attempt to obtain information about a natural person, performs one
or more of the following acts:
   (1) Pretends to be someone he or she is not,
   (2) Pretends to represent a person he or she is not in fact
representing,
   (3) Misrepresents the true purpose of the interview, or
   (4) Refuses to identify himself or herself upon request.
   (v) "Privileged information" means any individually identifiable
information that both:
   (1) Relates to a claim for insurance benefits or a civil or
criminal proceeding involving an individual.
   (2) Is collected in connection with or in reasonable anticipation
of a claim for insurance benefits or civil or criminal proceeding
involving an individual.  However, information otherwise meeting the
requirements of this division shall nevertheless be considered
"personal information" under this act if it is disclosed in violation
of Section 791.13.
   (w) "Residual market mechanism" means the California FAIR Plan
Association, Chapter 10 (commencing with Section 10101) of Part 1 of
Division 2, and the assigned risk plan, Chapter 1 (commencing with
Section 11550) of Part 3 of Division 2.
   (x) "Termination of insurance coverage" or "termination of an
insurance policy" means either a cancellation or nonrenewal of an
insurance policy, in whole or in part, for any reason other than the
failure to pay a premium as required by the policy.
   (y) "Unauthorized insurer" means an insurance institution that has
not been granted a certificate of authority by the commissioner to
transact the business of insurance in this state.
   (z) "Commissioner" means the Insurance Commissioner; except in the
case of a person or entity subject to the provisions of the
Knox-Keene Health Care Service Plan Act of 1975 (Chapter 2.2
(commencing with Section 1340) of Division 2 of the Health and Safety
Code), and except as to any person defined in subdivision  (k) when
engaged in providing information or evaluation to a person or entity
subject to the provisions of the Knox-Keene Health Care Service Plan
Act of 1975, and in such instances only, the term "commissioner"
shall mean the  Director of the Department of Managed Care.
   (aa) "Insurance" includes a medical service or hospital service
agreement or  contract issued by a person or entity subject to the
Knox-Keene Health Care Service Plan Act of 1975 (Chapter 2.2
(commencing with Section 1340) of Division 2 of the Health and Safety
Code).
  SEC. 173.  Section 1068 of the Insurance Code is amended to read:
   1068.  (a) As used in this section, the following definitions
shall apply:
   (1) "Health care service plan" means any plan as defined in
Section 1345 of the Health and Safety Code, but this section does not
apply to specialized health care service contracts.
   (2) "Carrier" means a health care service plan, an insurer issuing
group disability coverage which covers hospital, medical, or
surgical expenses, a nonprofit hospital service plan, or any other
entity responsible for either the payment of benefits for or the
provision of hospital, medical, and surgical benefits under a group
contract.
   (3) "Insolvency" means that the Director of the Department of
Managed Care has determined that the health care service plan is not
financially able to provide health care services to its enrollees and
(A) the Director of the Department of Managed Care has taken an
action pursuant to Section 1386, 1391, or 1399 of the Health and
Safety Code, or (B) an order requested by the Director of the
Department of Managed Care or the Attorney General has been issued by
the superior court under Section 1392, 1393, or 1394.1 of the Health
and Safety Code.
   (b) In the event of the insolvency of a health care service plan,
upon order of the commissioner which shall be issued following his or
her receipt of a notice issued by the Director of the Department of
Managed Care pursuant to Section 1394.7 of the Health and Safety
Code, any insurer, nonprofit hospital service plan, and any other
entity, other than a health care service plan, responsible for either
the payment of benefits for or the provision of hospital, medical,
and surgical benefits under a group contract, that participated in
the enrollment process with the insolvent health care service plan at
the last regular open enrollment period of a group, shall offer
enrollees of the group in the insolvent health care service plan a
30-day enrollment period commencing upon the date of insolvency.
Each such carrier shall offer enrollees  of the group in the
insolvent health care service plan the same coverages and rates that
it offered to enrollees of the group at the last regular open
enrollment period of the group.
  SEC. 174.  Section 1068.1 of the Insurance Code is amended to read:

   1068.1.  (a) As used in this section:
   (1) "Carrier" means a specialized health care service plan, and
any of the following entities which offer coverage comparable to the
coverages offered by a specialized health care service plan:  an
insurer issuing group disability coverage; a nonprofit hospital
service plan; or other entity responsible for either the payment of
benefits for or the provision of services under a group contract.
   (2) "Insolvency" means that the Director of the Department of
Managed Care has determined that the specialized health care service
plan is not financially able to provide specialized health care
services to its enrollees and (A) the Director of the Department of
Managed Care has taken an action pursuant to Section 1386, 1391, or
1399 of the Health and Safety Code, or (B) an order requested by the
commissioner or the Attorney General has been issued by the superior
court under Section 1392, 1393, or 1394.1 of the Health and Safety
Code.
   (3) "Specialized health care service plan" means any plan
authorized to issue only specialized health care service plan
contracts as defined in Section 1345 of the Health and Safety Code.
   (b) In the event of the insolvency of a specialized health care
service plan, upon order of the commissioner which shall be issued
following his or her receipt of a notice issued by the Director of
the Department of Managed Care pursuant to Section 1394.8 of the
Health and Safety Code, all carriers that participated in the
enrollment process with the insolvent specialized health care service
plan at a group's last regular open enrollment period for the same
type of specialized health care service benefits shall offer the
group's enrollees in the insolvent specialized health care service
plan a 30-day enrollment period commencing upon the date of
insolvency.  Each such carrier shall offer enrollees of the insolvent
specialized health care service plan the same specialized coverage
and rates that it had offered to the enrollees of the group at its
last regular open enrollment period.
  SEC. 175.  Section 10123.35 of the Insurance Code is amended to
read:
   10123.35.  (a) This section shall apply to the disclosure of
genetic test results contained in an applicant or enrollee's medical
records by a self-insured welfare benefit plan.
   (b) Any person who negligently discloses results of a test for a
genetic characteristic to any third party in a manner that identifies
or provides identifying characteristics of the person to whom the
test results apply, except pursuant to a written authorization as
described in subdivision (g), shall be assessed a civil penalty in an
amount not to exceed one thousand dollars ($1,000) plus court costs,
as determined by the court, which penalty and costs shall be paid to
the subject of the test.
   (c) Any person who willfully discloses the results of a test for a
genetic characteristic to any third party in a manner that
identifies or provides identifying characteristics of the person to
whom the test results apply, except pursuant to a written
authorization as described in subdivision (g), shall be assessed a
civil penalty in an amount not less than one thousand dollars
($1,000) and no more than five thousand dollars ($5,000) plus court
costs, as determined by the court, which penalty and costs shall be
paid to the subject of the test.
   (d) Any person who willfully or negligently discloses the results
of a test for a genetic characteristic to a third party in a manner
that identifies or provides identifying characteristics of the person
to whom the test results apply, except pursuant to a written
authorization as described in subdivision (g), that results in
economic, bodily, or emotional harm to the subject of the test, is
guilty of a misdemeanor punishable by a fine not to exceed ten
thousand dollars ($10,000).
   (e) In addition to the penalties listed in subdivisions (b) and
(c), any person who commits any act described in subdivision (b) or
(c) shall be liable to the subject for all actual damages, including
damages for economic, bodily, or emotional harm which is proximately
caused by the act.
   (f) Each disclosure made in violation of this section is a
separate and actionable offense.
   (g) The applicant's "written authorization," as used in this
section, shall satisfy the following requirements:
   (1) Is written in plain language.
   (2) Is dated and signed by the individual or a person authorized
to act on behalf of the individual.
   (3) Specifies the types of persons authorized to disclose
information about the individual.
   (4) Specifies the nature of the information authorized to be
disclosed.
   (5) States the name or functions of the persons or entities
authorized to receive the information.
   (6) Specifies the purposes for which the information is collected.

   (7) Specifies the length of time the authorization shall remain
valid.
   (8) Advises the person signing the authorization of the right to
receive a copy of the authorization.  Written authorization is
required for each separate disclosure of the test results, and the
authorization shall set forth the person or entity to whom the
disclosure would be made.
   (h) This section shall not apply to disclosures required by the
Department of Health Services necessary to monitor compliance with
Chapter 1 (commencing with Section 124975) of Part 5 of Division 106
of the Health and Safety Code, nor to disclosures required by the
Department of Managed Care necessary to administer and enforce
compliance with Section 1374.7 of the Health and Safety Code.
  SEC. 176.  Section 10140.1 of the Insurance Code is amended to
read:
   10140.1.  (a) This section shall apply to the disclosure of
genetic test results contained in an applicant or enrollee's medical
records by an admitted insurer licensed to issue life or disability
insurance, except life and disability income policies issued or
delivered on or after January 1, 1995, that are contingent upon
review or testing for other diseases or medical conditions.
   (b) Any person who negligently discloses results of a test for a
genetic characteristic to any third party in a manner that identifies
or provides identifying characteristics, of the person to whom the
test results apply, except pursuant to a written authorization as
described in subdivision (g), shall be assessed a civil penalty in an
amount not to exceed one thousand dollars ($1,000) plus court costs,
as determined by the court, which penalty and costs shall be paid to
the subject of the test.
   (c) Any person who willfully discloses the results of a test for a
genetic characteristic to any third party in a manner that
identifies or provides identifying characteristics of the person to
whom the test results apply, except pursuant to a written
authorization as described in subdivision (g), shall be assessed a
civil penalty in an amount not less than one thousand dollars
($1,000) and no more than five thousand dollars ($5,000) plus court
costs, as determined by the court, which penalty and costs shall be
paid to the subject of the test.
   (d) Any person who willfully or negligently discloses the results
of a test for a genetic characteristic to a third party in a manner
that identifies or provides identifying characteristics of the person
to whom the test results apply, except pursuant to a written
authorization as described in subdivision (g), that results in
economic, bodily, or emotional harm to the subject of the test, is
guilty of a misdemeanor punishable by a fine not to exceed ten
thousand dollars ($10,000).
   (e) In addition to the penalties listed in subdivisions (b) and
(c), any person who commits any act described in subdivision (b) or
(c) shall be liable to the subject for all actual damages, including
damages for economic, bodily, or emotional harm which is proximately
caused by the act.
   (f) Each disclosure made in violation of this section is a
separate and actionable offense.
   (g) The applicant's "written authorization," as used in this
section, shall satisfy the following requirements:
   (1) Is written in plain language.
   (2) Is dated and signed by the individual or a person authorized
to act on behalf of the individual.
   (3) Specifies the types of persons authorized to disclose
information about the individual.
   (4) Specifies the nature of the information authorized to be
disclosed.
   (5) States the name or functions of the persons or entities
authorized to receive the information.
   (6) Specifies the purposes for which the information is collected.

   (7) Specifies the length of time the authorization shall remain
valid.
   (8) Advises the person signing the authorization of the right to
receive a copy of the authorization.  Written authorization is
required for each separate disclosure of the test results, and the
authorization shall set forth the person or entity to whom the
disclosure would be made.
   (h) This section shall not apply to disclosures required by the
Department of Health Services necessary to monitor compliance with
Chapter 1 (commencing with Section 124975) of Part 5 of Division 106
of the Health and Safety Code, nor to disclosures required by the
Department of Managed Care necessary to administer and enforce
compliance with Section 1374.7 of the Health and Safety Code.
  SEC. 178.  Section 10196 of the Insurance Code is amended to read:

   10196.  (a) The commissioner, with the advice of the Department of
Managed Care, shall prepare a guide that explains the factors to be
considered in selecting long-term care insurance and the consequences
of particular clauses and exclusions.  The guide shall be made
available to the public and to interested organizations upon request.
  Any advertisement in this state dealing with long-term care
insurance shall include notice of availability of this guide from the
commissioner.
   (b) For purposes of this section, "long-term care insurance" means
any insurance policy or rider advertised, marketed, offered, or
designed to provide coverage for not less than 12 consecutive months
for each covered person on an expense incurred, indemnity, prepaid,
or other basis for one or more necessary or medically necessary
diagnostic, preventive, therapeutic, rehabilitative, maintenance, or
personal care services, provided in a setting other than an acute
care unit of a  hospital.  "Long-term care insurance" does not
include any insurance policy which is offered primarily to provide
basic Medicare supplement coverage, basic hospital expense coverage,
basic medical-surgical expense coverage, hospital confinement
indemnity coverage, major medical expense coverage, disability income
protection coverage, accident only coverage, or specified disease or
accident coverage.
  SEC. 179.  Section 10270.98 of the Insurance Code is amended to
read:
   10270.98.  Group disability policies may provide, among other
things, that the benefits payable thereunder are subject to reduction
if the individual insured has any other coverage (other than
individual policies or contracts) providing hospital, surgical or
medical benefits, whether on an indemnity basis or a provision of
service basis, resulting in such insured being eligible for more than
100 percent of the covered expenses.
   Except as permitted by this section and by Section 10323, 10369.5,
10369.6, or 11515.5,  and except in the case of group practice
prepayment plan contracts which do not provide for coordination of
benefits, to the extent they provide for a reduction of benefits on
account of other coverage with respect to emergency services that are
not obtained from providers that contract with the plan, no group or
individual disability insurance policy or service contract issued by
nonprofit hospital service plans operating under Chapter 11A
(commencing with Section 11491) of Part 2 of Division 2 shall limit
payment of benefits by reason of the existence of other insurance or
service coverage.
   The policy provisions authorized by this section shall contain a
provision that payments of funds may be made directly between
insurers and other providers of benefits.  Such policy provisions
shall also contain a provision that if benefits are provided in the
form of services rather than cash payments the reasonable cash value
of each service rendered shall be deemed to be both an allowable
expense and a benefit paid.  The reasonable cash value of any
contractual benefit provided to the insured in the form of service
rather than cash payment by or through any hospital service
organization or medical service organization or group-practice
prepayment plan shall be deemed an expense incurred by the insured
for such service, whether or not actually incurred, and the liability
of the insurer shall be the same as if the insured had not been
entitled to any such service benefit, unless the policy contains a
provision authorized by Section 10323, 10369.5 or 10369.6 in the case
of an individual disability policy, or by this section, in the case
of a group disability policy.
   This section shall not be construed to require that benefits
payable under group disability policies be subject to reduction by
the benefit amounts payable under Chapter 3 (commencing with Section
2800) of Part 2 of Division 1 of the Unemployment Insurance Code.
   The provisions of this section, and all regulations adopted
pursuant thereto pertaining to coordination of benefits with other
group disability benefits, shall apply to all employers,
labor-management trustee plans, union welfare plans (including those
established in conformity with 29 U.S.C. Sec.  186), employer
organization plans or employee benefit organization plans, health
care service plan contracts,  pursuant to regulations adopted by the
Director of the Department of Managed Care which shall be uniform
with those issued under this section for those plans that elect to
coordinate benefits, group practice, individual practice, any other
prepayment coverage for medical or dental care or treatment, and
administrators, within the meaning of Section 1759 not otherwise
subject to the provisions of this section whenever such plan,
contract or practice provides or administers hospital, surgical,
medical or dental benefits to employees or agents who are also
covered under one or more additional group disability policies which
are subject to this section or health care service plans.
  SEC. 180.  Section 10704 of the Insurance Code is amended to read:

   10704.  The commissioner may issue regulations that are necessary
to carry out the purposes of this  chapter.  Prior to the public
comment period required on the regulations under the Administrative
Procedure Act, the commissioner shall provide the Director of the
Department of Managed Care with a copy of the proposed regulations.
The Director of the Department of Managed Care shall have 30 days to
notify the commissioner in writing of any comments on the
regulations.  The Director of the Department of Managed Care's
comments shall be included in the public notice issued on the
regulations.  Any rules and regulations issued pursuant to this
subdivision may be adopted as emergency regulations in accordance
with the Administrative Procedure Act (Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2 of the Government
Code).  Until December 31, 1994, the adoption of these regulations
shall be deemed an emergency and necessary for the immediate
preservation of the public peace, health, safety, or general welfare.
  The regulations shall be enforced by the director.
  SEC. 181.  Section 10733 of the Insurance Code is amended to read:

   10733.  On or after the effective date of this chapter, the board
shall enter into contracts with carriers for the purpose of providing
health benefits coverage to eligible employees and dependents.
Participating carriers shall have, but need not be limited to, all of
the following operating characteristics satisfactory to the board:
   (a) Strong financial condition, including the ability to assume
the risk of providing and paying for covered services.  A
participating carrier may utilize reinsurance, provider risk sharing,
and other appropriate mechanisms to share a portion of the risk.
   (b) Adequate administrative management.
   (c) In the case of the health care service plan, the following
requirements must be met:  (1) on the effective date of the contract,
the health care service plan must be in compliance with the minimum
tangible net equity requirements of the Director of the Department of
Managed Care as those requirements will be in effect on January 1,
1995, and must remain in compliance with these requirements
throughout the duration of the contract; (2) (A) before the effective
date of the contract, the health care service plan must have devised
a system for identifying in a simple and clear fashion both in its
own records and in the medical records of subscribers and enrollees
the fact that the services provided are provided under the program;
and (B) throughout the duration of the contract, the health care
service plan must use that system; and (3) at least 30 days before
the effective date of any contract with the board, the health care
service plan must inform the Director of the Department of Managed
Care in writing of the health care service plan's intent to enter
into the contract and must demonstrate in that letter, to the
satisfaction of the Director of the Department of Managed Care, that
it has complied with the requirements of paragraphs (1) and (2).
                                                       (d) A
satisfactory grievance procedure.
   (e) Participating carriers that contract with or employ health
care providers shall have mechanisms to accomplish all of the
following, in a manner satisfactory to the board, in consultation
with the carrier's licensing agency.
   (1) Review the quality of care covered.
   (2) Review the appropriateness of care covered.
   (3) Provide accessible health care services.
  SEC. 182.  Section 10734 of the Insurance Code is amended to read:

   10734.  (a) Notwithstanding any other provision of law, the board
shall not be subject to licensure or regulation by the Department of
Insurance or the Department of  Managed Care, as the case may be.
   (b) Participating carriers that contract with the program shall be
licensed and in good standing with their licensing agencies.
  SEC. 183.  Section 10810 of the Insurance Code is amended to read:

   10810.  As used in this chapter:
   (a) "Ancillary benefit plan" means a policy or contract written or
administered by a participating carrier that covers dental or vision
benefits for the covered eligible employees of an employer or small
employer and their dependents.
   (b) "Appropriate Regulatory Authority" means the Department of
Insurance except for health care service plans, in which case it
means the Department of  Managed Care.
   (c) "Benefit plan design" means a specific health coverage product
issued by a carrier to employers or small employers, to trustees of
associations, or to individuals if the coverage is offered through
employment or sponsored by an employer or small employer.  It
includes the services covered and the levels of copayment and
deductibles.
   (d) "Board" means the governing body of the purchasing alliance.
This term shall include the board of directors of a nonprofit
corporation or trust, a for-profit corporation, the general partners
of a partnership, or a sole proprietor.
   (e) "Carrier" means any licensed disability insurance company or
licensed health care service plan or any other entity that writes,
issues, or administers any health benefit plan or ancillary benefit
plan to employers or small employers in this state.
   (f) "Commissioner" means the Insurance Commissioner, who shall
have regulatory jurisdiction over purchasing alliances.
   (g) "Dependent" has the same meaning as in the subdivision (a) of
Section 1357 of the Health and Safety Code and in subdivision (e) of
Section 10700 of this code.
   (h) "Eligible employee" means any permanent employee who is
actively engaged on a full-time basis in the conduct of business of
the employer or small employer and, who has satisfied any employer or
small employer waiting period requirements.  The term includes sole
proprietors or partners of a partnership if they are actively engaged
on a full-time basis in the employer's or small employer's business,
but does not include employees who work on a part-time, temporary,
or substitute basis.
   (i) "Employer" means any corporation, partnership, sole
proprietorship, or other business entity doing business in this state
that may be eligible to participate in a purchasing alliance.  The
term "employer" shall not include "small employer" as defined in
subdivision (s).
   (j) "Enrollee" means an eligible employee or a dependent of an
eligible employee who is enrolled in a health benefit plan or
ancillary benefit plan offered through the purchasing alliance by a
participating carrier.
   (k)  "Health benefit plan" means a policy or contract written or
administered by a participating carrier that arranges or provides
health care benefits for the covered eligible employees of an
employer or small employer and their dependents.  The term does not
include accident only, credit, dental, vision, disability income, or
long-term care insurance, coverage issued as a supplement to
liability insurance, automobile medical payments insurance, or
insurance under which benefits are payable with or without regard to
fault and is statutorily required to be continued in any liability
insurance policy or equivalent self-insurance.
   (l) "Management company" means the company under contract to the
purchasing alliance to provide managerial services for the operation
of the purchasing alliance.
   (m) "Participating carrier" means a carrier that contracts with a
purchasing alliance to provide coverage to enrollees under a health
benefit plan or ancillary benefit plan.
   (n) "Participating employer" means an employer or small employer
who contracts with a purchasing alliance to provide coverage to the
employer's or small employer's employees.
   (o) "Purchasing alliance" means a non-risk-bearing entity issued a
certificate of registration pursuant to this chapter to provide
health benefits through multiple unaffiliated participating carriers
to multiple participating employers, small employers and their
employees within this state as authorized by the commissioner.  That
entity shall include nonprofit corporations, for-profit corporations,
trusts, partnerships, and sole proprietorships.
   (p) "Risk adjustment factor" for small employer benefit plan
designs and contracts has the same meaning as in subdivision (j) of
Section 1357 of the Health and Safety Code and in subdivision (u) of
Section 10700 of this code.
   (q) "Service region" means that portion of the state, designated
by the commissioner pursuant to regulations as described in this
chapter in which each purchasing alliance must fairly and
affirmatively offer, market, and sell all of the health benefit plan
designs offered through the purchasing alliance that are sold or
offered to a small employer to all small employers.
   (r) "Small employer" has the same meaning as in paragraph (1) of
subdivision (l) of Section 1357 of the Health and Safety Code and in
paragraph (1) of subdivision (w) of Section 10700 of this code.
   (s) "Third-party administrator" means the company contracted by
the purchasing alliance to provide administrative services for the
purchasing alliance and that is licensed to provide those services by
the department pursuant to Section 1759.10.
  SEC. 184.  Section 10820 of the Insurance Code is amended to read:

   10820.  (a) The commissioner shall regulate the establishment and
conduct of purchasing alliances as set forth in this chapter.
   (b) No person or entity may market, sell, offer, or contract for a
package of one or more health benefit plans underwritten by two or
more carriers to two or more employers or small employers or their
eligible employees within a purchasing alliance without first being
registered by the commissioner pursuant to this chapter.  This
subdivision does not apply to entities licensed by the Department of
Managed Care as health care service plans or entities licensed by the
Department of Insurance as disability insurers except that no
licensed health care service plan or licensed disability insurer may
be registered with the commissioner as a purchasing alliance.  This
chapter does not apply to any entity exempt pursuant to Section
1349.2 of the Health and Safety Code.
   (c) A person or entity not registered by the commissioner as a
purchasing alliance and engaged in the purchase, sale, marketing or
distribution of health insurance or health care benefit plans shall
not hold itself out as an alliance, health insurance purchasing
alliance, purchasing alliance, health alliance, health insurance
purchasing cooperative, or purchasing cooperative, or otherwise use a
confusingly similar name.
   (d) The commissioner shall establish six geographic service
regions throughout which all purchasing alliances shall operate.
These regions shall be established with no region smaller than an
area in which the first three digits of all its postal ZIP Codes are
in common within a county and shall divide no county into more than
two service regions.  Geographic service regions established pursuant
to this section shall, as a group, cover the entire state, and the
areas encompassed in geographic service regions shall be separate and
distinct from regions encompassed in other geographic service
regions.  Geographic service regions may be noncontiguous.
   (e) Nothing in this chapter shall be deemed to be in conflict with
or limit the duties and powers granted to the commissioner under the
laws of this state.
   (f) Purchasing alliances shall report to the commissioner any
suspected or alleged law violations of this chapter.
   (g) Violations of this chapter shall be subject to the penalties
outlined hereafter.
   (h) The commissioner shall adopt reasonable rules and regulations
as are necessary to administer this chapter.
   (i) Nothing in this chapter shall be construed or interpreted to
apply to an entity that has been approved by the Director of the
Department of Managed Care, pursuant to Chapter 2.2 (commencing with
Section 1340) of Division 2 of the Health and Safety Code, to act as
a solicitor and third-party administrator with respect to a multiple
carrier or health care service plan marketing cooperative in which
each carrier or health care service plan contracts directly with
subscribing groups or individuals for the provision of health care,
for the arranging for the provision of health care, or for the
provision of coverage for health care.
  SEC. 185.  Section 10856 of the Insurance Code is amended to read:

   10856.  Nothing in this article shall be construed to limit the
existing regulatory authority of the Department of Managed Care to
regulate health care service plans or of the Department of Insurance
to regulate disability or life insurers or hospital service plans.
None of the requirements of this article shall conflict with the
participating carrier's licensing requirements.
  SEC. 186.  Section 12693.36 of the Insurance Code is amended to
read:
   12693.36.  (a) Notwithstanding any other provision of law, the
board shall not be subject to licensure or regulation by the
Department of Insurance or the Department of Managed Care, as the
case may be.
   (b) Participating health, dental, and vision plans that contract
with the program and are regulated by either the Insurance
Commissioner or the Department of Managed Care shall be licensed and
in good standing with their respective licensing agencies.  In their
application to the program, those entities shall provide assurance of
their standing with the appropriate licensing entity.
   (c) Local initiatives that have a contract with the State
Department of Health Services, and that contract with the program,
and that are licensed by the Department of Managed Care but do not
have a commercial license from the Department of  Managed Care, may
contract with the board for a maximum of 18 months.  During this
18-month period, those plans shall be in good standing with the
Department of Managed Care and shall demonstrate to the board that
they are making a good faith effort to obtain a commercial license
with the Department of Managed Care.  The board may extend this
period to 24 months if the board determines the additional time is
necessary to comply with this requirement.  In their application to
the program, those entities shall provide assurance of their standing
with the Department of Managed Care and shall outline their plans
for obtaining commercial licensure.
   (d) County organized health systems and the special health care
authority established under Section 101675 of the Health and Safety
Code that have a contract with the State Department of Health
Services, and that contract with the program, and that are not
licensed by either the Insurance Commissioner or the Department of
Managed Care may contract with the board for a maximum of 24 months.
During this 24-month period those plans shall be in good standing
with the state agency providing oversight to their operations and
shall demonstrate to the board that they are making a good faith
effort to obtain licensure with the Department of Insurance or the
Department of  Managed Care.  In their application to the program,
those entities shall provide assurance of their standing with the
appropriate state oversight entity and shall outline their plans for
obtaining licensure from the Department of Insurance or the
Department of  Managed Care.
  SEC. 187.  Section 12693.365 of the Insurance Code is amended to
read:
   12693.365.  Geographic managed care plans that have a contract
with the Department of Health Services, that contract with the
program, and that are licensed by the Department of Managed Care but
do not have a commercial license from the Department of  Managed
Care, may contract with the board for a maximum of 12 months.  During
this 12-month period, those plans shall be required to be in good
standing with the Department of Managed Care  and shall demonstrate
to the board that they are making a good faith effort to obtain a
commercial license from the Department of  Managed Care.  In their
application to the program, those plans shall provide assurance of
their standing with the Department of Managed Care and shall outline
their plans for obtaining commercial licensure.
  SEC. 188.  Section 12693.37 of the Insurance Code is amended to
read:
   12693.37.  (a) The board shall contract with a broad range of
health plans in an area, if available, to ensure that subscribers
have a choice from among a reasonable number and types of competing
health plans.  The board shall develop and make available objective
criteria for health plan selection and provide adequate notice of the
application process to permit all health plans a reasonable and fair
opportunity to participate.  The criteria and application process
shall allow participating health plans to comply with their state and
federal licensing and regulatory obligations, except as otherwise
provided in this chapter.  Health plan selection shall be based on
the criteria developed by the board.
   (b) (1) In its selection of participating plans the board shall
take all reasonable steps to assure the range of choices available to
each applicant, other than a purchasing credit member, shall include
plans that include in their provider networks and have signed
contracts with traditional and safety net providers.
   (2) Participating health plans shall be required to submit to the
board on an annual basis a report summarizing their provider network.
  The report shall provide, as available, information on the provider
network as it relates to:
   (A) Geographic access for the subscribers.
   (B) Linguistic services.
   (C) The ethnic composition of providers.
   (D) The number of subscribers who selected traditional and safety
net providers.
   (c) (1) The board shall not rely solely on the Department of
Managed Care's determination of a health plan network's adequacy or
geographic access to providers in the awarding of contracts under
this part.  The board shall collect and review demographic, census,
and other data to provide to prospective local initiatives, health
plans, or specialized health plans, as defined in this act, specific
provider contracting target areas with significant numbers of
uninsured children in low-income families.  The board shall give
priority to those plans, on a county-by-county basis, that
demonstrate that they have included in their prospective plan
networks significant numbers of providers in these geographic areas.

   (2) Targeted contracting areas are those ZIP Codes or groups of
ZIP Codes or census tracts or groups of census tracts that have a
percentage of uninsured children in low-income families greater than
the overall percentage of uninsured children in low-income families
in that county.
   (d) In each geographic area, the board shall designate a community
provider plan that is the participating health plan which has the
highest percentage of traditional and safety net providers in its
network.  Subscribers selecting such a plan shall be given a family
contribution discount as described in Section 12693.43.
   (e) The board shall establish reasonable limits on health plan
administrative costs.
  SEC. 189.  Section 12695.18 of the Insurance Code is amended to
read:
   12695.18.  "Participating health plan" means any of the following
plans which are lawfully engaged in providing, arranging, paying for,
or reimbursing the cost of personal health care services under
insurance policies or contracts, medical and hospital service
arrangements, or membership contracts, in consideration of premiums
or other periodic charges payable to it, and that contracts with the
program to provide coverage to program subscribers:
   (a) A private insurer holding a valid outstanding certificate of
authority from the Insurance Commissioner.
   (b) A nonprofit hospital service plan qualifying under Chapter 11a
(commencing with Section 11491) of Part 2 of Division 2.
   (c) A nonprofit membership corporation lawfully operating under
the Nonprofit Corporation Law (Division 2 (commencing with Section
5000) of the Corporations Code).
   (d) A health care service plan as defined under subdivision (f) of
Section 1345 of the Health and Safety Code.
   (e) A county or a city and county, in which case no license or
approval from the Department of Insurance or the Department of
Managed Care shall be required to meet the requirements of this part.

   (f) A comprehensive primary care licensed community clinic that is
an organized outpatient freestanding health facility and is not
part of a hospital that delivers comprehensive primary care services,
in which case, no license or approval from the Department of
Insurance or the Department of Managed Care shall be required to meet
the requirements of this part.
  SEC. 190.  Section 4600.5 of the Labor Code is amended to read:
   4600.5.  (a) Any health care service plan licensed pursuant to the
Knox-Keene Health Care Service Plan Act, a disability insurer
licensed by the Department of Insurance, or any entity, including,
but not limited to, workers' compensation insurers and third-party
administrators authorized by the administrative director under
subdivision (e), may make written application to the administrative
director to become certified as a health care organization to provide
health care to injured employees for injuries and diseases
compensable under this article.
   (b) Each application for certification shall be accompanied by a
reasonable fee prescribed by the administrative director, sufficient
to cover the actual cost of processing the application.  A
certificate is valid for the period that the director may prescribe
unless sooner revoked or suspended.
   (c) If the health care organization is a health care service plan
licensed pursuant to the Knox-Keene Health Care Service Plan Act, the
administrative director shall certify the plan to provide health
care pursuant to Section 4600.3 if the director finds that the plan
is in good standing with the Department of Managed Care and meets the
following additional requirements:
   (1) Proposes to provide all medical and health care services that
may be required by this article.
   (2) Provides a program involving cooperative efforts by the
employees, the employer, and the health plan to promote workplace
health and safety, consultative and other services, and early return
to work for injured employees.
   (3) Proposes a timely and accurate method to meet the requirements
set forth by the administrative director for all carriers of workers'
compensation coverage to report necessary information regarding
medical and health care service cost and utilization, rates of return
to work, average time in medical treatment, and other measures as
determined by the administrative director to enable the director to
determine the effectiveness of the plan.
   (4) Agrees to provide the administrative director with
information, reports, and records prepared and submitted to the
Department of Managed Care in compliance with the Knox-Keene Health
Care Service Plan Act, relating to financial solvency, provider
accessibility, peer review, utilization review, and quality
assurance, upon request, if the administrative director determines
the information is necessary to verify that the plan is providing
medical treatment to injured employees in compliance with the
requirements of this code.
   Disclosure of peer review proceedings and records to the
administrative director shall not alter the status of the proceedings
or records as privileged and confidential communications pursuant to
Sections 1370 and 1370.1 of the Health and Safety Code.
   (5) Demonstrates the capability to provide occupational medicine
and related disciplines.
   (6) Complies with any other requirement the administrative
director determines is necessary to provide medical services to
injured employees consistent with the intent of this article,
including, but not limited to, a written patient grievance policy.
   (d) If the health care organization is a disability insurer
licensed by the Department of Insurance, and is in compliance with
subdivision (d) of Sections 10133 and 10133.5 of the Insurance Code,
the administrative director shall certify the organization to provide
health care pursuant to Section 4600.3 if the director finds that
the plan is in good standing with the Department of Insurance and
meets the following additional requirements:
   (1) Proposes to provide all medical and health care services that
may be required by this article.
   (2) Provides a program involving cooperative efforts by the
employees, the employer, and the health plan to promote workplace
health and safety, consultative and other services, and early return
to work for injured employees.
   (3) Proposes a timely and accurate method to meet the requirements
set forth by the administrative director for all carriers of workers'
compensation coverage to report necessary information regarding
medical and health care service cost and utilization, rates of return
to work, average time in medical treatment, and other measures as
determined by the administrative director to enable the director to
determine the effectiveness of the plan.
   (4) Agrees to provide the administrative director with
information, reports, and records prepared and submitted to the
Department of Insurance in compliance with the Insurance Code
relating to financial solvency, provider accessibility, peer review,
utilization review, and quality assurance, upon request, if the
administrative director determines the information is necessary to
verify that the plan is providing medical treatment to injured
employees consistent with the intent of this article.
   Disclosure of peer review proceedings and records to the
administrative director shall not alter the status of the proceedings
or records as privileged and confidential communications pursuant to
subdivision (d) of Section 10133 of the Insurance Code.
   (5) Demonstrates the capability to provide occupational medicine
and related disciplines.
   (6) Complies with any other requirement the administrative
director determines is necessary to provide medical services to
injured employees consistent with the intent of this article,
including, but not limited to, a written patient grievance policy.
   (e) If the health care organization is a workers' compensation
insurer, third-party administrator, or any other entity that the
administrative director determines meets the requirements of Section
4600.6, the administrative director shall certify the organization to
provide health care pursuant to Section 4600.3 if the director finds
that it meets the following additional requirements:
   (1) Proposes to provide all medical and health care services that
may be required by this article.
   (2) Provides a program involving cooperative efforts by the
employees, the employer, and the health plan to promote workplace
health and safety, consultative and other services, and early return
to work for injured employees.
   (3) Proposes a timely and accurate method to meet the requirements
set forth by the administrative director for all carriers of workers'
compensation coverage to report necessary information regarding
medical and health care service cost and utilization, rates of return
to work, average time in medical treatment, and other measures as
determined by the administrative director to enable the director to
determine the effectiveness of the plan.
   (4) Agrees to provide the administrative director with
information, reports, and records relating to provider accessibility,
peer review, utilization review, quality assurance, advertising,
disclosure, medical and financial audits, and grievance systems, upon
request, if the administrative director determines the information
is necessary to verify that the plan is providing medical treatment
to injured employees consistent with the intent of this article.
   Disclosure of peer review proceedings and records to the
administrative director shall not alter the status of the proceedings
or records as privileged and confidential communications pursuant to
subdivision (d) of Section 10133 of the Insurance Code.
   (5) Demonstrates the capability to provide occupational medicine
and related disciplines.
   (6) Complies with any other requirement the administrative
director determines is necessary to provide medical services to
injured employees consistent with the intent of this article,
including, but not limited to, a written patient grievance policy.
   (7) Complies with the following requirements:
   (A) An organization certified by the administrative director under
this subdivision may not provide or undertake to arrange for the
provision of health care to employees, or to pay for or to reimburse
any part of the cost of that health care in return for a prepaid or
periodic charge paid by or on behalf of those employees.
   (B) Every organization certified under this subdivision shall
operate on a fee-for-service basis.  As used in this section, fee for
service refers to the situation where the amount of reimbursement
paid by the employer to the organization or providers of health care
is determined by the amount and type of health care rendered by the
organization or provider of health care.
   (C) An organization certified under this subdivision is prohibited
from assuming risk.
   (f) (1) A workers' compensation health care provider organization
authorized by the Department of Corporations on December 31, 1997,
shall be eligible for certification as a health care organization
under subdivision (e).
   (2) An entity that had, on December 31, 1997, submitted an
application with the Commissioner of Corporations under Part 3.2
(commencing with Section 5150) shall be considered an applicant for
certification under
subdivision (e) and shall be entitled to priority in consideration
of its application.  The Commissioner of Corporations shall provide
complete files for all pending applications to the administrative
director on or before January 31, 1998.
   (g) The provisions of this section shall not affect the
confidentiality or admission in evidence of a claimant's medical
treatment records.
   (h) Charges for services arranged for or provided by health care
service plans certified by this section and that are paid on a
per-enrollee-periodic-charge basis shall not be subject to the
schedules adopted by the administrative director pursuant to Section
5307.1.
   (i) Nothing in this section shall be construed to expand or
constrict any requirements imposed by law on a health care service
plan or insurer when operating as other than a health care
organization pursuant to this section.
   (j) In consultation with interested parties, including the
Department of Corporations and the Department of Insurance, the
administrative director shall adopt rules necessary to carry out this
section.
   (k) The administrative director shall refuse to certify or may
revoke or suspend the certification of any health care organization
under this section if the director finds that:
   (1) The plan for providing medical treatment fails to meet the
requirements of this section.
   (2) A health care service plan licensed by the Department of
Managed Care, a workers' compensation health care provider
organization authorized by the Department of Corporations, or a
carrier licensed by the Department of Insurance is not in good
standing with its licensing agency.
   (3) Services under the plan are not being provided in accordance
with the terms of a certified plan.
   (l) (1) When an injured employee requests chiropractic treatment
for work-related injuries, the health care organization shall provide
the injured worker with access to the services of a chiropractor
pursuant to guidelines for chiropractic care established by paragraph
(2).  Within five working days of the employee's request to see a
chiropractor, the health care organization and any person or entity
who directs the kind or manner of health care services for the plan
shall refer an injured employee to an affiliated chiropractor for
work-related injuries that are within the guidelines for chiropractic
care established by paragraph (2).  Chiropractic care rendered in
accordance with guidelines for chiropractic care established pursuant
to paragraph (2) shall be provided by duly licensed chiropractors
affiliated with the plan.
   (2) The health care organization shall establish guidelines for
chiropractic care in consultation with affiliated chiropractors who
are participants in the health care organization's utilization review
process for chiropractic care, which may include qualified medical
evaluators knowledgeable in the treatment of chiropractic conditions.
  The guidelines for chiropractic care shall, at a minimum,
explicitly require the referral of any injured employee who so
requests to an affiliated chiropractor for the evaluation or
treatment, or both, of neuromusculoskeletal conditions.
   (3) Whenever a dispute concerning the appropriateness or necessity
of chiropractic care for work-related injuries arises, the dispute
shall be resolved by the health care organization's utilization
review process for chiropractic care in accordance with the health
care organization's guidelines for chiropractic care established by
paragraph (2).
   Chiropractic utilization review for work-related injuries shall be
conducted in accordance with the health care organization's approved
quality assurance standards and utilization review process for
chiropractic care.  Chiropractors affiliated with the plan shall have
access to the health care organization's provider appeals process
and, in the case of chiropractic care for work-related injuries, the
review shall include review by a chiropractor affiliated with the
health care organization, as determined by the health care
organization.
   (4) The health care organization shall inform employees of the
procedures for processing and resolving grievances, including those
related to chiropractic care, including the location and telephone
number where grievances may be submitted.
   (5) All guidelines for chiropractic care and utilization review
shall be consistent with the standards of this code that require care
to cure or relieve the effects of the industrial injury.
   (m) Individually identifiable medical information on patients
submitted to the division shall not be subject to the California
Public Records Act (Chapter 3.5 (commencing with Section 6250) of
Division 7 of Title 1 of the Government Code).
   (n) (1) When an injured employee requests acupuncture treatment
for work-related injuries, the health care organization shall provide
the injured worker with access to the services of an acupuncturist
pursuant to guidelines for acupuncture care established by paragraph
(2).  Within five working days of the employee's request to see an
acupuncturist, the health care organization and any person or entity
who directs the kind or manner of health care services for the plan
shall refer an injured employee to an affiliated acupuncturist for
work-related injuries that are within the guidelines for acupuncture
care established by paragraph (2).  Acupuncture care rendered in
accordance with guidelines for acupuncture care established pursuant
to paragraph (2) shall be provided by duly licensed acupuncturists
affiliated with the plan.
   (2) The health care organization shall establish guidelines for
acupuncture care in consultation with affiliated acupuncturists who
are participants in the health care organization's utilization review
process for acupuncture care, which may include qualified medical
evaluators.  The guidelines for acupuncture care shall, at a minimum,
explicitly require the referral of any injured employee who so
requests to an affiliated acupuncturist for the evaluation or
treatment, or both, of neuromusculoskeletal conditions.
   (3) Whenever a dispute concerning the appropriateness or necessity
of acupuncture care for work-related injuries arises, the dispute
shall be resolved by the health care organization's utilization
review process for acupuncture care in accordance with the health
care organization's guidelines for acupuncture care established by
paragraph (2).
   Acupuncture utilization review for work-related injuries shall be
conducted in accordance with the health care organization's approved
quality assurance standards and utilization review process for
acupuncture care.  Acupuncturists affiliated with the plan shall have
access to the health care organization's provider appeals process
and, in the case of acupuncture care for work-related injuries, the
review shall include review by an acupuncturist affiliated with the
health care organization, as determined by the health care
organization.
   (4) The health care organization shall inform employees of the
procedures for processing and resolving grievances, including those
related to acupuncture care, including the location and telephone
number where grievances may be submitted.
   (5) All guidelines for acupuncture care and utilization review
shall be consistent with the standards of this code that require care
to cure or relieve the effects of the industrial injury.
  SEC. 191.  Section 830.3 of the Penal Code is amended to read:
   830.3.  The following persons are peace officers whose authority
extends to any place in the state for the purpose of performing their
primary duty or when making an arrest pursuant to Section 836 of the
Penal Code as to any public offense with respect to which there is
immediate danger to person or property, or of the escape of the
perpetrator of that offense, or pursuant to Section 8597 or 8598 of
the Government Code.  These peace officers may carry firearms only if
authorized and under those terms and conditions as specified by
their employing agencies:
   (a) Persons employed by the Division of Investigation of the
Department of Consumer Affairs and investigators of the Medical Board
of California and the Board of Dental Examiners, who are designated
by the Director of Consumer Affairs, provided that the primary duty
of these peace officers shall be the enforcement of the law as that
duty is set forth in Section 160 of the Business and Professions
Code.  The Director of Consumer Affairs shall designate as peace
officers seven persons who shall at the time of their designation be
assigned to the investigations unit of the Board of Dental Examiners.

   (b) Voluntary fire wardens designated by the Director of Forestry
and Fire Protection pursuant to Section 4156 of the Public Resources
Code, provided that the primary duty of these peace officers shall be
the enforcement of the law as that duty is set forth in Section 4156
of that code.
   (c) Employees of the Department of Motor Vehicles designated in
Section 1655 of the Vehicle Code, provided that the primary duty of
these peace officers shall be the enforcement of the law as that duty
is set forth in Section 1655 of that code.
   (d) Investigators of the California Horse Racing Board designated
by the board, provided that the primary duty of these peace officers
shall be the enforcement of Chapter 4 (commencing with Section 19400)
of Division 8 of the Business and Professions Code and Chapter 10
(commencing with Section 330) of Title 9 of Part 1 of this code.
   (e) The State Fire Marshal and assistant or deputy state fire
marshals appointed pursuant to Section 13103 of the Health and Safety
Code, provided that the primary duty of these peace officers shall
be the enforcement of the law as that duty is set forth in Section
13104 of that code.
   (f) Inspectors of the food and drug section designated by the
chief pursuant to subdivision (a) of Section 106500 of the Health and
Safety Code, provided that the primary duty of these peace officers
shall be the enforcement of the law as that duty is set forth in
Section 106500 of that code.
   (g) All investigators of the Division of Labor Standards
Enforcement designated by the Labor Commissioner, provided that the
primary duty of these peace officers shall be the enforcement of the
law as prescribed in Section 95 of the Labor Code.
   (h) All investigators of the State Departments of Health Services,
Social Services, Mental Health, Developmental Services, and Alcohol
and Drug Programs, the Department of Toxic Substances Control, the
Office of Statewide Health Planning and Development, and the Public
Employees' Retirement System, provided that the primary duty of these
peace officers shall be the enforcement of the law relating to the
duties of his or her department, or office.  Notwithstanding any
other provision of law, investigators of the Public Employees'
Retirement System shall not carry firearms.
   (i) The Chief of the Bureau of Fraudulent Claims of the Department
of Insurance and those investigators designated by the chief,
provided that the primary duty of those investigators shall be the
enforcement of Section 550.
   (j) Employees of the Department of Housing and Community
Development designated under Section 18023 of the Health and Safety
Code, provided that the primary duty of these peace officers shall be
the enforcement of the law as that duty is set forth in Section
18023 of that code.
   (k) Investigators of the office of the Controller, provided that
the primary duty of these investigators shall be the enforcement of
the law relating to the duties of that office.  Notwithstanding any
other law, except as authorized by the Controller, the peace officers
designated pursuant to this subdivision shall not carry firearms.
   (l) Investigators of the Department of Corporations designated by
the Commissioner of Corporations, provided that the primary duty of
these investigators shall be the enforcement of the provisions of law
administered by the Department of Corporations.  Notwithstanding any
other provision of law, the peace officers designated pursuant to
this subdivision shall not carry firearms.
   (m) Persons employed by the Contractors' State License Board
designated by the Director of Consumer Affairs pursuant to Section
7011.5 of the Business and Professions Code, provided that the
primary duty of these persons shall be the enforcement of the law as
that duty is set forth in Section 7011.5, and in Chapter 9
(commencing with Section 7000) of Division 3, of that code.  The
Director of Consumer Affairs may designate as peace officers not more
than three persons who shall at the time of their designation be
assigned to the special investigations unit of the board.
Notwithstanding any other provision of law, the persons designated
pursuant to this subdivision shall not carry firearms.
   (n) The chief and coordinators of the Law Enforcement Division of
the Office of Emergency Services.
   (o) Investigators of the office of the Secretary of State
designated by the Secretary of State, provided that the primary duty
of these peace officers shall be the enforcement of the law as
prescribed in Chapter 3 (commencing with Section 8200) of Division 1
of Title 2 of, and Section 12172.5 of, the Government Code.
Notwithstanding any other provision of law, the peace officers
designated pursuant to this subdivision shall not carry firearms.
   (p) The Deputy Director for Security designated by Section 8880.38
of the Government Code, and all lottery security personnel assigned
to the California State Lottery and designated by the director,
provided that the primary duty of any of those peace officers shall
be the enforcement of the laws related to assuring the integrity,
honesty, and fairness of the operation and administration of the
California State Lottery.
   (q) Investigators employed by the Investigation Division of the
Employment Development Department designated by the director of the
department, provided that the primary duty of those peace officers
shall be the enforcement of the law as that duty is set forth in
Section 317 of the Unemployment Insurance Code.
   Notwithstanding any other provision of law, the peace officers
designated pursuant to this subdivision shall not carry firearms.
   (r) The chief and assistant chief of museum security and safety of
the California Science Center, as designated by the executive
director pursuant to Section 4108 of the Food and Agricultural Code,
provided that the primary duty of those peace officers shall be the
enforcement of the law as that duty is set forth in Section 4108 of
the Food and Agricultural Code.
   (s) Employees of the Franchise Tax Board designated by the board,
provided that the primary duty of these peace officers shall be the
enforcement of the law as set forth in Chapter 9 (commencing with
Section 19701) of Part 10.2 of Division 2 of the Revenue and Taxation
Code.
   (t) Notwithstanding any other provision of this section, a peace
officer authorized by this section shall not be authorized to carry
firearms by his or her employing agency until that agency has adopted
a policy on the use of deadly force by those peace officers, and
until those peace officers have been instructed in the employing
agency's policy on the use of deadly force.
   Every peace officer authorized pursuant to this section to carry
firearms by his or her employing agency shall qualify in the use of
the firearms at least every six months.
   (u) Investigators of the Department of Managed Care designated by
the Director of the Department of Managed Care, provided that the
primary duty of these investigators shall be the enforcement of the
provisions of laws administered by the Director of the Department of
Managed Care.  Notwithstanding any other provision of law, the peace
officers designated pursuant to this subdivision shall not carry
firearms.
  SEC. 192.  Section 5777 of the Welfare and Institutions Code is
amended to read:
   5777.  (a) (1) Except as otherwise specified in this part, a
contract entered into pursuant to this part shall include a provision
that the mental health plan contractor shall bear the financial risk
for the cost of providing medically necessary mental health services
to Medi-Cal beneficiaries irrespective of whether the cost of those
services exceeds the payment set forth in the contract.  If the
expenditures for services do not exceed the payment set forth in the
contract, the mental health plan contractor shall report the
unexpended amount to the department, but shall not be required to
return the excess to the department.
   (2) If the mental health plan is not the county's, the mental
health plan may not transfer the obligation for any mental health
services to Medi-Cal beneficiaries to the county.  The mental health
plan may purchase services from the county.  The mental health plan
shall establish mutually agreed-upon protocols with the county that
clearly establish conditions under which beneficiaries may obtain
non-Medi-Cal reimbursable services from the county.  Additionally,
the plan shall establish mutually agreed-upon protocols with the
county for the conditions of transfer of beneficiaries who have lost
Medi-Cal eligibility to the county for care under Part 2 (commencing
with Section 5600), Part 3 (commencing with Section 5800), and Part 4
(commencing with Section 5850).
   (3) The mental health plan shall be financially responsible for
ensuring access and a minimum required scope of benefits, consistent
with state and federal requirements, to the services to the Medi-Cal
beneficiaries of that county regardless of where the beneficiary
resides.  The department shall require that the definition of medical
necessity used, and the minimum scope of benefits offered, by each
mental health contractor be the same, except to the extent that any
variations receive prior federal approval and are consistent with
state and federal statutes and regulation.
   (b) Any contract entered into pursuant to this part may be renewed
if the plan continues to meet the requirements of this part,
regulations promulgated pursuant thereto, and the terms and
conditions of the contract.  Contract renewal shall be on an annual
basis.  Failure to meet these requirements shall be cause for
nonrenewal of the contract.  The department may base the decision to
renew on timely completion of a mutually agreed upon plan of
correction of any deficiencies, submissions of required information
in a timely manner, or other conditions of the contract.
   (c) (1) The obligations of the mental health plan shall be changed
only by contract or contract amendment.
   (2) A change may be made during a contract term or at the time of
contract renewal, where there is a change in obligations required by
federal or state law or when required by a change in the
interpretation or implementation of any law or regulation.  To the
extent permitted by federal law and except as provided under
subdivision (r) of Section 5778, if any change in obligations occurs
that affects the cost to the mental health plan of performing under
the terms of its contract, the department may reopen contracts to
negotiate the state General Fund allocation to the mental health plan
under Section 5778, if the mental health plan is reimbursed through
a fee-for-service payment system, or the capitation rate to the
mental health plan under Section 5779, if the mental health plan is
reimbursed through a capitated rate payment system.  During the time
period required to redetermine the allocation or rate, payment to the
mental health plan of the allocation or rate in effect at the time
the change occurred shall be considered interim payments and shall be
subject to increase or decrease, as the case may be, effective as of
the date on which the change is effective.
   (3) To the extent permitted by federal law, either the department
or the mental health plan may request that contract negotiations be
reopened during the course of a contract due to substantial changes
in the cost of covered benefits that result from an unanticipated
event.
   (d) The department shall immediately terminate a contract when the
director finds that there is an immediate threat to the health and
safety of Medi-Cal beneficiaries.  Termination of the contract for
other reasons shall be subject to reasonable notice of the department'
s intent to take that action and notification of affected
beneficiaries.  The plan may request a public hearing by the Office
of Administrative Hearings.
   (e) A plan may terminate its contract in accordance with the
provisions in the contract.  The plan shall provide written notice to
the department at least 180 days prior to the termination or
nonrenewal of the contract.
   (f) Upon the request of the Director of Mental Health, the
Director of the Department of Managed Care may exempt a mental health
plan contractor or a capitated rate contract from the Knox-Keene
Health Care Service Plan Act of 1975 (Chapter 2.2 (commencing with
Section 1340) of Division 2 of the Health and Safety Code).  These
exemptions may be subject to conditions the director deems
appropriate.  Nothing in this part shall be construed to impair or
diminish the authority of the Director of the Department of Managed
Care under the Knox-Keene Health Care Service Plan Act of 1975, nor
shall anything in this part be construed to reduce or otherwise limit
the obligation of a mental health plan contractor licensed as a
health care service plan to comply with the requirements of the
Knox-Keene Health Care Service Plan Act of 1975, and the rules of the
Director of the Department of Managed Care promulgated thereunder.
The Director of Mental Health, in consultation with the Director of
the Department of Managed Care, shall analyze the appropriateness of
licensure or application of applicable standards of the Knox-Keene
Health Care Service Plan Act of 1975.
   (g) The department, pursuant to an agreement with the State
Department of Health Services, shall provide oversight to the mental
health plans to ensure quality, access, and cost efficiency.  At a
minimum, the department shall, through a method independent of any
agency of the mental health plan contractor, monitor the level and
quality of services provided, expenditures pursuant to the contract,
and conformity with federal and state law.
   (h) County employees implementing or administering a mental health
plan act in a discretionary capacity when they determine whether or
not to admit a person for care or to provide any level of care
pursuant to this part.
   (i) If a county chooses to discontinue operations as the local
mental health plan, the new plan shall give reasonable consideration
to affiliation with nonprofit community mental health agencies that
were under contract with the county and that meet the mental health
plan's quality and cost efficiency standards.
   (j) Nothing in this part shall be construed to modify, alter, or
increase the obligations of counties as otherwise limited and defined
in Chapter 3 (commencing with Section 5700) of Part 2.  The county's
maximum obligation for services to persons not eligible for Medi-Cal
shall be no more than the amount of funds remaining in the mental
health subaccount pursuant to Sections 17600, 17601, 17604, 17605,
17606, and 17609 after fulfilling the Medi-Cal contract obligations.

  SEC. 193.  Section 9541 of the Welfare and Institutions Code is
amended to read:
   9541.  (a) The Legislature finds and declares that the purpose of
the Health Insurance Counseling and Advocacy Program is to provide
Medicare beneficiaries and those imminent of becoming eligible for
Medicare with counseling and advocacy as to Medicare, private health
insurance, and related health care coverage plans, on a statewide
basis, and preserving service integrity.
   (b) The department shall be responsible for, but not limited to,
doing both of the following:
   (1) To act as a clearinghouse for information and materials
relating to Medicare, managed care, health and long-term care related
life and disability insurance, and related health care coverage
plans.
   (2) To develop additional information and materials relating to
Medicare, managed care, and health and long-term care related life
and disability insurance, and related health care coverage plans, as
necessary.
   (c) Notwithstanding the terms and conditions of the contracts,
direct services contractors shall be responsible for, but not limited
to, all of the following:
   (1) Community education to the public on Medicare, long-term care
planning, private health and long-term care insurance, managed care,
and related health care coverage plans.
   (2) Counseling and informal advocacy with respect to Medicare,
long-term care planning, private health and long-term care insurance,
managed care, and related health care coverage plans.
   (3) Referral services for legal representation or legal
representation with respect to Medicare appeals, Medicare related
managed care appeals, and life and disability insurance problems.
Legal services provided under this program shall be subject to the
understanding that the legal representation and legal advocacy shall
not include the filing of lawsuits against private insurers or
managed health care plans.  In the event that legal services are
contracted for by the agency separately from counseling and education
services, a formal system of coordination and referral from
counseling services to legal services shall be established and
maintained.
   (4) Educational services supporting long-term care educational
activities aimed at the general public, employers, employee groups,
senior organizations, and other groups expressing interest in
long-term care planning issues.
   (5) Educational services emphasizing the importance of long-term
care planning, promotion of self-reliance and independence, and
options for long-term care.
   (6) To the extent possible, support additional emphasis on
community educational activities that would provide for announcements
on television and in other media describing the limited nature of
Medicare, the need for long-term care planning, the function of
long-term care insurance, and the availability of counseling and
educational literature on those subjects.
   (7) Recruitment, training, coordination, and registration, with
the department, of health insurance counselors, including a large
contingent of volunteer counselors designed to expand services as
broadly as possible.
   (8) A systematic means of capturing and reporting all required
community-based services program data, as specified by the
department.
                                                 (d) Participants who
volunteer their time for the health insurance counseling and
advocacy program may be reimbursed for expenses incurred, as
specified by the department.
   (e) The department, the Department of Managed Care, and the
Department of Insurance shall jointly develop interagency procedures
for referring and investigating suspected instances of
misrepresentation in advertising or sales of services provided by
Medicare, managed health care plans, and life and disability insurers
and agents.
   (f) (1) No health insurance counselor shall provide counseling
services under this chapter, unless he or she is registered with the
department.
   (2) No registered volunteer health insurance counselor shall be
liable for his or her negligent act or omission in providing
counseling services under this chapter.  No immunity shall apply to
health insurance counselors for any grossly negligent act or omission
or intentional misconduct.
   (3) No registered volunteer health insurance counselor shall be
liable to any insurance agent, broker, employee thereof, or similarly
situated person, for defamation, trade libel, slander, or similar
actions based on statements made by the counselor when providing
counseling, unless a statement was made with actual malice.
   (4) Prior to providing any counseling services, health insurance
counselors shall disclose, in writing, to recipients of counseling
services pursuant to this chapter that the counselors are acting in
good faith to provide information about health insurance policies and
benefits on a volunteer basis, but that the information shall not be
construed to be legal advice, and that the counselors are,
generally, not liable unless their acts and omissions are grossly
negligent or there is intentional misconduct on the part of the
counselor.
   (5) The department shall not register any applicant under this
section unless he or she has completed satisfactorily training which
is approved by the department, and which shall consist of not less
than 24 hours of training that shall include, but is not limited to,
all of the following subjects:
   (A) Medicare.
   (B) Life and disability insurance.
   (C) Managed care.
   (D) Retirement benefits and principles of long-term care planning.

   (E) Counseling skills.
   (F) Any other subject or subjects determined by the department to
be necessary to the provision of counseling services under this
chapter.
   (6) The department shall not register any applicant under this
section unless he or she has completed all training requirements and
has served an internship of cocounseling of not less than 10 hours
with an experienced counselor and is determined by the local program
manager to be capable of discharging the responsibilities of a
counselor.  An applicant shall sign a conflict of interest and
confidentiality agreement, as specified by the department.
   (7) A counselor shall not continue to provide health insurance
counseling services unless he or she has received continuing
education and training, in a manner prescribed by the department, on
Medicare, managed care, life and disability insurance, and other
subjects during each calendar year.
  SEC. 194.  Section 14087.32 of the Welfare and Institutions Code is
amended to read:
   14087.32.  (a) Commencing on the date the authority first receives
Medi-Cal capitated payments for the provision of health care
services to Medi-Cal beneficiaries and until a commission established
pursuant to Section 14087.31 is in compliance with all the
requirements regarding tangible net equity applicable to a health
care service plan licensed under Chapter 2.2 (commencing with Section
1340) of Division 2 of the Health and Safety Code, all of the
following shall apply:
   (1) The commission may select and design its automated management
information system.  The department, in cooperation with the
commission, prior to making capitated payments, shall test the system
to ensure that the system is capable of producing detailed,
accurate, and timely financial information on the financial condition
of the commission, and any other information that is generally
required by the department in its contracts with other health care
service plans.
   (2) In addition to the reports required by the Department of
Managed Care under Chapter 2.2 (commencing with Section 1340) of
Division 2 of the Health and Safety Code, and the rules of the
Director of the Department of Managed Care promulgated thereunder, a
commission established pursuant to Section 14087.31 shall provide, on
a monthly basis, to the department, the Department of Managed Care,
and the members of the commission, a copy of the automated report
described in paragraph (1) and a projection of assets and
liabilities, including those that have been incurred but not
reported, with an explanation of material increases or decreases in
current or projected assets of liabilities.  The explanation of
increases and decreases in assets or liabilities shall be provided,
upon request, to a hospital, independent physicians' practice
association or community clinic, which has contracted with the
authority to provide health care services.
   (3) In addition to the reporting and notification obligations the
commission has under Chapter 2.2 (commencing with Section 1340) of
Division 2 of the Health and Safety Code, the chief executive officer
or director of the commission shall immediately notify the
department, the Department of Managed Care, and the members of the
commission, in writing, of any fact or facts that, in the chief
executive officer's or director's reasonable and prudent judgment, is
likely to result in the commission being unable to meet its
financial obligations to health care providers or to other parties.
The written notice shall describe the fact or facts, the anticipated
fiscal consequences, and the actions which will be taken to address
the anticipated consequences.
   (4) The Department of Managed Care shall not, in any way, waive or
vary, nor shall the department request the Department of Managed
Care to waive or vary, the tangible net equity requirements for a
commission under Chapter 2.2 (commencing with Section 1340) of
Division 2 of the Health and Safety Code, after three years from the
date of commencement of capitated payments to the commission.  Until
the commission is in compliance with all of the tangible net equity
requirements under Chapter 2.2 (commencing with Section 1340) of
Division 2 of the Health and Safety Code, and the rules of the
Director of the Department of Managed Care adopted thereunder, the
commission shall develop a stop-loss program appropriate to the risks
of the commission, which program shall be satisfactory to both
department and the Department of Managed Care.
   (5) (A) If the commission votes to file a petition of bankruptcy,
or the county board of supervisors notifies the department of its
intent to terminate the commission, the department shall immediately
transfer the authority's Medi-Cal beneficiaries as follows:
   (i) To other managed care contractors, when available, provided
those contractors are able to demonstrate that they can absorb the
increased enrollment without detriment to the provision of health
care services to their existing enrollees.
   (ii) To the extent that other managed care contractors are
unavailable or the department determines that it is otherwise in the
best interest of any particular beneficiary, to a fee-for-service
reimbursement system pending the availability of managed care
contractors provided those contractors are able to demonstrate that
they can absorb the increased enrollment without detriment to the
provision of health care services to their existing enrollees, or the
department determines that providing care to any particular
beneficiary pursuant to a fee-for-service reimbursement system is no
longer necessary to protect the continuity of care or other interests
of the beneficiary.
   (B) Beneficiary eligibility for Medi-Cal shall not be affected by
actions taken pursuant to subparagraph (A).
   (C) Beneficiaries who have been or who are scheduled to be
transferred to a fee-for-service reimbursement system or managed care
contractor may make a choice to be enrolled in another managed care
system, if one is available, in full compliance with the federal
freedom-of-choice requirements.
   (6) (A) A commission established pursuant to Section 14087.31
shall submit to a review of financial records when the department
determines, based on data reported by the commission or otherwise,
that the commission will not be able to meet its financial
obligations to health care providers contracting with the commission.
  Where the review of financial records determines that the
commission will not be able to meet its financial obligations to
contracting health care providers for the provision of health care
services, the Director of Health Services shall immediately terminate
the contract between the commission and the state, and immediately
transfer the commission's Medi-Cal beneficiaries in accordance with
paragraph (5) in order to ensure uninterrupted provision of health
care services to the beneficiaries and to minimize financial
disruption to providers.
   (B) The action of the Director of Health Services pursuant to
subparagraph (A) shall be the final administrative determination.
Beneficiary eligibility for Medi-Cal shall not be affected by this
action.
   (C) Beneficiaries who have been or who are scheduled to be
transferred under paragraph (5) may make a choice to be enrolled in
another managed care plan, if one is available, in full compliance
with federal freedom-of-choice requirements.
   (7) It is the intent of the Legislature that the department shall
implement Medi-Cal capitated enrollments in a matter that ensures
that appropriate levels of health care services will be provided to
Medi-Cal beneficiaries and that appropriate levels of administrative
services will be furnished to health care providers.  The contract
between the department and the commission shall authorize and permit
the department to administer the number of covered Medi-Cal
enrollments in such a manner that the commission's provider network
and administrative structure are able to provide appropriate and
timely services to beneficiaries and to participating providers.
   (8) In the event a commission is terminated, files for bankruptcy,
or otherwise no longer functions for the purpose for which it was
established, the county shall, with respect to compensation for
provision of health care services to beneficiaries, occupy no greater
or lesser status than any other health care provider in the
disbursement of assets of the commission.
   (9) Nothing in this section shall be construed to impair or
diminish the authority of the Director of the Department Managed Care
under Chapter 2.2 (commencing with Section 1340) of Division 2 of
the Health and Safety Code, nor shall anything in the section be
construed to reduce or otherwise limit the obligation of a commission
licensed as a health care service plan to comply with the
requirements of Chapter 2.2 (commencing with Section 1340) of
Division 2 of the Health and Safety Code and the rules of the
Director of the Department of Managed Care adopted thereunder.
   (10) Except as expressly provided by other provisions of this
section, all exemptions and exclusions from disclosure as public
records pursuant to the Public Records Act (Chapter 5 (commencing
with Section 65250) of Division 7 of Title 1 of the Government Code),
including but not limited to, those pertaining to trade secrets and
information withheld in the public interest, shall be fully
applicable for all state agencies and local agencies with respect to
all writings that the commission is required to prepare, produce or
submit pursuant to this section.
  SEC. 195.  Section 14087.36 of the Welfare and Institutions Code is
amended to read:
   14087.36.  (a) The following definitions shall apply for purposes
of this section:
   (1) "County" means the City and County of San Francisco.
   (2) "Board" means the Board of Supervisors of the City and County
of San Francisco.
   (3) "Department" means the State Department of Health Services.
   (4) "Governing body" means the governing body of the health
authority.
   (5) "Health authority" means the separate public agency
established by the board of supervisors to operate a health care
system in the county and to engage in the other activities authorized
by this section.
   (b) The Legislature finds and declares that it is necessary that a
health authority be established in the county to arrange for the
provision of health care services in order to meet the problems of
the delivery of publicly assisted medical care in the county, to
enter into a contract with the department under Article 2.97
(commencing with Section 14093), or to contract with a health care
service plan on terms and conditions acceptable to the department,
and to demonstrate ways of promoting quality care and cost
efficiency.
   (c) The county may, by resolution or ordinance, establish a health
authority to act as and be the local initiative component of the
Medi-Cal state plan pursuant to regulations adopted by the
department.  If the board elects to establish a health authority, all
rights, powers, duties, privileges, and immunities vested in a
county under Article 2.8 (commencing with Section 14087.5) and
Article 2.97 (commencing with Section 14093) shall be vested in the
health authority.  The health authority shall have all power
necessary and appropriate to operate programs involving health care
services, including, but not limited to, the power to acquire,
possess, and dispose of real or personal property, to employ
personnel and contract for services required to meet its obligations,
to sue or be sued, and to take all actions and engage in all public
and private business activities, subject to any applicable licensure,
as permitted a health care service plan pursuant to Chapter 2.2
(commencing with Section 1340) of Division 2 of the Health and Safety
Code.
   (d) (1) (A) The health authority shall be considered a public
entity separate and distinct from the county and shall file the
statement required by Section 53051 of the Government Code.  The
health authority shall have primary responsibility to provide the
defense and indemnification required under Division 3.6 (commencing
with Section 810) of Title 1 of the Government Code for employees of
the health authority who are employees of the county.  The health
authority shall provide insurance under terms and conditions required
by the county in order to satisfy its obligations under this
section.
   (B) For purposes of this paragraph, "employee" shall have the same
meaning as set forth in Section 810.2 of the Government Code.
   (2) The health authority shall not be considered to be an agency,
division, department, or instrumentality of the county and shall not
be subject to the personnel, procurement, or other operational rules
of the county.
   (3) Notwithstanding any other provision of law, any obligations of
the health authority, statutory, contractual, or otherwise, shall be
the obligations solely of the health authority and shall not be the
obligations of the county, unless expressly provided for in a
contract between the authority and the county, nor of the state.
   (4) Except as agreed to by contract with the county, no liability
of the health authority shall become an obligation of the county upon
either termination of the health authority or the liquidation or
disposition of the health authority's remaining assets.
   (e) (1) To the full extent permitted by federal law, the
department and the health authority may enter into contracts to
provide or arrange for health care services for any or all persons
who are eligible to receive benefits under the Medi-Cal program.  The
contracts may be on an exclusive or nonexclusive basis, and shall
include payment provisions on any basis negotiated between the
department and the health authority.  The health authority may also
enter into contracts for the provision of health care services to
individuals including, but not limited to, those covered under
Subchapter 18 (commencing with Section 1395) of Chapter 7 of Title 42
of the United States Code, individuals employed by public agencies
and private businesses, and uninsured or indigent individuals.
   (2) Notwithstanding paragraph (1), or subdivision (f), the health
authority may not operate health plans or programs for individuals
covered under Subchapter XVIII (commencing with Section 1395) of
Chapter 7 of Title 42 of the United States Code, or for private
businesses, until the health authority is in full compliance with all
of the requirements of the Knox-Keene Health Care Service Plan Act
of 1975 under Chapter 2.2 (commencing with Section 1340) of Division
2 of the Health and Safety Code, including tangible net equity
requirements applicable to a licensed health care service plan.  This
limitation shall not preclude the health authority from enrolling
persons pursuant to the county's obligations under Section 17000, or
from enrolling county employees.
   (f) The board of supervisors may transfer responsibility for
administration of county-provided health care services to the health
authority for the purpose of service of populations including
uninsured and indigent persons, subject to the provisions of any
ordinances or resolutions passed by the county board of supervisors.
The transfer of administrative responsibility for those health care
services shall not relieve the county of its responsibility for
indigent care pursuant to Section 17000.  The health authority may
also enter into contracts for the provision of health care services
to individuals including, but not limited to, those covered under
Subchapter 18 (commencing with Section 1395) of Chapter 7 of Title 42
of the United States Code, and individuals employed by public
agencies and private businesses.
   (g) Upon creation, the health authority may borrow from the county
and the county may lend the authority funds, or issue revenue
anticipation notes to obtain those funds necessary to commence
operations or perform the activities of the health authority.
Notwithstanding any other provision of law, both the county and the
health authority shall be eligible to receive funding under
subdivision (p) of Section 14163.
   (h) The county may terminate the health authority, but only by an
ordinance approved by a two-thirds affirmative vote of the full
board.
   (i) Prior to the termination of the health authority, the county
shall notify the department of its intent to terminate the health
authority.  The department shall conduct an audit of the health
authority's records within 30 days of notification to determine the
liabilities and assets of the health authority.  The department shall
report its findings to the county and to the Department of Managed
Care within 10 days of completion of the audit.  The county shall
prepare a plan to liquidate or otherwise dispose of the assets of the
health authority and to pay the liabilities of the health authority
to the extent of the health authority's assets, and present the plan
to the department and the Department of Managed Care within 30 days
upon receipt of these findings.
   (j) Any assets of the health authority derived from the contract
entered into between the state and the authority pursuant to Article
2.97 (commencing with Section 14093), after payment of the
liabilities of the health authority, shall be disposed of pursuant to
the contract.
   (k) (1) The governing body shall consist of 18 voting members, 14
of whom shall be appointed by resolution or ordinance of the board as
follows:
   (A) One member shall be a member of the board or any other person
designated by the board.
   (B) One member shall be a person who is employed in the senior
management of a hospital not operated by the county or the University
of California and who is nominated by the San Francisco Section of
the Westbay Hospital Conference or any successor organization, or if
no such successor organization, a person who shall be nominated by
the Hospital Council of Northern and Central California.
   (C) Two members, one of whom shall be a person employed in the
senior management of San Francisco General Hospital and one of whom
shall be a person employed in the senior management of St. Luke's
Hospital (San Francisco).  If San Francisco General Hospital or St.
Luke's Hospital, at the end of the term of the person appointed from
its senior management, is not designated as a disproportionate share
hospital, and if the governing body, after providing an opportunity
for comment by the Westbay Hospital Conference, or any successor
organization, determines that the hospital no longer serves an
equivalent patient population, the governing body may, by a
two-thirds vote of the full governing body, select an alternative
hospital to nominate a person employed in its senior management to
serve on the governing body.  Alternatively, the governing body may
approve a reduction in the number of positions on the governing body
as set forth in subdivision (p).
   (D) Two members shall be employees in the senior management of
either private nonprofit community clinics or a community clinic
consortium, nominated by the San Francisco Community Clinic
Consortium, or any successor organization.
   (E) Two members shall be physicians, nominated by the San
Francisco Medical Society, or any successor organization.
   (F) One member shall be nominated by the San Francisco Labor
Council, or any successor organization.
   (G) Two members shall be persons nominated by the beneficiary
committee of the health authority, at least one of whom shall, at the
time of appointment and during the person's term, be a Medi-Cal
beneficiary.
   (H) Two members shall be persons knowledgeable in matters relating
to either traditional safety net providers, health care
organizations, the Medi-Cal program, or the activities of the health
authority, nominated by the program committee of the health
authority.
   (I) One member shall be a person nominated by the San Francisco
Pharmacy Leadership Group, or any successor organization.
   (2) One member, selected to fulfill the appointments specified in
subparagraph (A), (G), or (H) shall, in addition to representing his
or her specified organization or employer, represent the discipline
of nursing, and shall possess or be qualified to possess a registered
nursing license.
   (3) The initial members appointed by the board under the
subdivision shall be, to the extent those individuals meet the
qualifications set forth in this subdivision and are willing to
serve, those persons who are members of the steering committee
created by the county to develop the local initiative component of
the Medi-Cal state plan in San Francisco.  Following the initial
staggering of terms, each of those members shall be appointed to a
term of three years, except the member appointed pursuant to
subparagraph (A) of paragraph (1), who shall serve at the pleasure of
the board.  At the first meeting of the governing body, the members
appointed pursuant to this subdivision shall draw lots to determine
seven members whose initial terms shall be for two years.  Each
member shall remain in office at the conclusion of that member's term
until a successor member has been nominated and appointed.
   (l) In addition to the requirements of subdivision (k), one member
of the governing body shall be appointed by the Mayor of the City of
San Francisco to serve at the pleasure of the mayor, one member
shall be the county's director of public health or designee, who
shall serve at the pleasure of that director, one member shall be the
Chancellor of the University of California at San Francisco or his
or her designee, who shall serve at the pleasure of the chancellor,
and one member shall be the county director of mental health or his
or her designee, who shall serve at the pleasure of that director.
   (m) There shall be one nonvoting member of the governing body who
shall be appointed by, and serve at the pleasure of, the health
commission of the county.
   (n) Each person appointed to the governing body shall, throughout
the member's term, either be a resident of the county or be employed
within the geographic boundaries of the county.
   (o) (1) The composition of the governing body and nomination
process for appointment of its members shall be subject to alteration
upon a two-thirds vote of the full membership of the governing body.
  This action shall be concurred in by a resolution or ordinance of
the county.
   (2) Notwithstanding paragraph (1), no alteration described in that
paragraph shall cause the removal of a member prior to the
expiration of that member's term.
   (p) A majority of the members of the governing body shall
constitute a quorum for the transaction of business, and all official
acts of the governing body shall require the affirmative vote of a
majority of the members present and voting.  However, no official
shall be approved with less than the affirmative vote of six members
of the governing body, unless the number of members prohibited from
voting because of conflicts of interest precludes adequate
participation in the vote.  The governing body may, by a two-thirds
vote adopt, amend, or repeal rules and procedures for the governing
body.  Those rules and procedures may require that certain decisions
be made by a vote that is greater than a majority vote.
   (q) For purposes of Section 87103 of the Government Code, members
appointed pursuant to subparagraphs (B) to (E), inclusive, of
paragraph (1) of subdivision (k) represent, and are appointed to
represent, respectively, the hospitals, private nonprofit community
clinics, and physicians that contract with the health authority, or
the health care service plan with which the health authority
contracts, to provide health care services to the enrollees of the
health authority or the health care service plan.  Members appointed
pursuant to subparagraphs (F) and (G) of paragraph (1) of subdivision
(k) represent and are appointed to represent, respectively, the
health care workers and enrollees served by the health authority or
its contracted health care service plan, and traditional safety net
and ancillary providers and other organizations concerned with the
activities of the health authority.
   (r) A member of the governing body may be removed from office by
the board by resolution or ordinance, only upon the recommendation of
the health authority, and for the following reasons:
                    (1) Failure to retain the qualifications for
appointment specified in subdivisions (k) and (n).
   (2) Death or a disability that substantially interferes with the
member's ability to carry out the duties of office.
   (3) Conviction of any felony or a crime involving corruption.
   (4) Failure of the member to discharge legal obligations as a
member of a public agency.
   (5) Substantial failure to perform the duties of office,
including, but not limited to, unreasonable absence from meetings.
The failure to attend three meetings in a row of the governing body,
or a majority of the meetings in the most recent calendar year, may
be deemed to be unreasonable absence.
   (s) Any vacancy on the governing body, however created, shall be
filled for the unexpired term by the board by resolution or
ordinance.  Each vacancy shall be filled by an individual having the
qualifications of his or her predecessor, nominated as set forth in
subdivision (k).
   (t) The chair of the authority shall be selected by, and serve at
the pleasure of, the governing body.
   (u) The health authority shall establish all of the following:
   (1) A beneficiary committee to advise the health authority on
issues of concern to the recipients of services.
   (2) A program committee to advise the health authority on matters
relating to traditional safety net providers, ancillary providers,
and other organizations concerned with the activities of the health
authority.
   (3) Any other committees determined to be advisable by the health
authority.
   (v) (1) Notwithstanding any provision of state or local law,
including, but not limited to, the county charter, a member of the
health authority shall not be deemed to be interested in a contract
entered into by the authority within the meaning of Article 4
(commencing with Section 1090) of Chapter 1 of Division 4 of Title 1
of the Government Code, or within the meaning of conflict-of-interest
restrictions in the county charter, if all of the following apply:
   (A) The member does not influence or attempt to influence the
health authority or another member of the health authority to enter
into the contract in which the member is interested.
   (B) The member discloses the interest to the health authority and
abstains from voting on the contract.
   (C) The health authority notes the member's disclosure and
abstention in its official records and authorizes the contract in
good faith by a vote of its membership sufficient for the purpose
without counting the vote of the interested member.
   (D) The member has an interest in or was appointed to represent
the interests of physicians, health care practitioners, hospitals,
pharmacies, or other health care organizations.
   (E) The contract authorizes the member or the organization the
member has an interest in or represents to provide services to
beneficiaries under the authority's program or administrative
services to the authority.
   (2) In addition, no person serving as a member of the governing
body shall, by virtue of that membership, be deemed to be engaged in
activities that are inconsistent, incompatible, or in conflict with
their duties as an officer or employee of the county or the
University of California, or as an officer or an employee of any
private hospital, clinic, or other health care organization.  The
membership shall not be deemed to be in violation of Section 1126 of
the Government Code.
   (w) Notwithstanding any other provision of law, those records of
the health authority and of the health county that reveal the
authority's rates of payment for health care services or the health
authority's deliberative processes, discussions, communications, or
any other portion of the negotiations with providers of health care
services for rates of payment, or the health authority's peer review
proceedings shall not be required to be disclosed pursuant to the
California Public Records Act, Chapter 5 (commencing with Section
6250) of Division 7 of Title 1 of the Government Code, or any similar
local law requiring the disclosure of public records.  However,
three years after a contract or amendment to a contract is fully
executed, the portion of the contract or amendment containing the
rates of payment shall be open to inspection.
   (x) Notwithstanding any other provision of law, the health
authority may meet in closed session to consider and take action on
peer review proceedings and on matters pertaining to contracts and to
contract negotiations by the health authority's staff with providers
of health care services concerning all matters relating to rates of
payment.  However, a decision as to whether to enter into, amend the
services provisions of, or terminate, other than for reasons based
upon peer review, a contract with a provider of health care services,
shall be made in open session.
   (y) The health authority shall be deemed to be a public agency for
purposes of all grant programs and other funding and loan guarantee
programs.
   (z) Contracts under this article between the State Department of
Health Services and the health authority shall be on a nonbid basis
and shall be exempt from Chapter 2 (commencing with Section 10290) of
Part 2 of Division 2 of the Public Contract Code.
   (aa) (1) The county controller or his or her designee, at
intervals the county controller deems appropriate, shall conduct a
review of the fiscal condition of the health authority, shall report
the findings to the health authority and the board, and shall provide
a copy of the findings to any public agency upon request.
   (2) Upon the written request of the county controller, the health
authority shall provide full access to the county controller all
health authority records and documents as necessary to allow the
county controller or designee to perform the activities authorized by
this subdivision.
   (bb) A Medi-Cal recipient receiving services through the health
authority shall be deemed to be a subscriber or enrollee for purposes
of Section 1379 of the Health and Safety Code.
  SEC. 196.  Section 14087.37 of the Welfare and Institutions Code is
amended to read:
   14087.37.  Commencing on the date that a health authority
established pursuant to Section 14087.35 or 14087.36 first receives
Medi-Cal capitated payments for the provision of health care services
to Medi-Cal beneficiaries and until the time that the health
authority is in compliance with all the requirements regarding
tangible net equity applicable to a health care service plan licensed
under the Knox-Keene Health Care Service Plan Act of 1975, the
following provisions shall apply:
   (a) The health authority may select and design its automated
management information system, but the department, in cooperation
with the health authority, prior to making capitated payments shall
test the system to ensure that the system is capable of producing
detailed, accurate, and timely financial information on the financial
condition of the health authority and any other information
generally required by the department in its contracts with health
care service plans.
   (b) In addition to the reports required by the Department of
Managed Care under the Knox-Keene Health Care Service Plan Act of
1975, and the rules of the Director of the Department of Managed Care
promulgated thereunder, the health authority shall provide on a
monthly basis to the department, the Department of Managed Care, and
the members of the health authority, a copy of the automated report
described in subdivision (a) and a projection of assets and
liabilities, including those that have been incurred but not
reported, with an explanation of material increases or decreases in
current or projected assets or liabilities.  The explanation of
increases and decreases in assets or liabilities shall be provided,
upon request, to a hospital, independent physicians' practice
association, or community clinic, that has contracted with the health
authority to provide health care services.
   (c) In addition to the reporting and notification obligations the
health authority has under the Knox-Keene Health Care Service Plan
Act of 1975, the chief executive officer or director of the health
authority shall immediately notify the department, the Department of
Managed Care, and the members of the health authority in writing of
any fact or facts that, in the chief executive officers' or director'
s reasonable and prudent judgment, is likely to result in the health
authority being unable to meet its financial obligations to health
care providers or to other parties.  Written notice shall describe
the fact or facts, the anticipated fiscal consequences, and the
actions that will be taken to address the anticipated consequences.
   (d) The Department of Managed Care shall not waive or vary, nor
shall the department request the Department of Managed Care to waive
or vary, the tangible net equity requirements for a health authority
under the Knox-Keene Health Care Service Plan Act of 1975 after three
years from the date of commencement of capitated payments to the
health authority.  Until the time the health authority is in
compliance with all of the tangible net equity requirements under the
Knox-Keene Health Care Service Plan Act of 1975, and the rules of
the Director of the Department of Managed Care promulgated
thereunder, the health authority shall develop a stop-loss program
appropriate to the risks of the health authority.  The program shall
be satisfactory to both the department and the Department of Managed
Care.
   (e) In the event that the health authority votes to file a
petition of bankruptcy, or the board of supervisors notifies the
department of its intent to terminate the health authority, the
department shall immediately convert the health authority's Medi-Cal
beneficiaries to either of the following:
   (1) To other managed care contractors when available, provided
those contractors are able to demonstrate that they can absorb the
increased enrollment without detriment to the provision of health
care services to their existing enrollees.
   (2) To the extent that other managed care contractors are
unavailable or the department determines that the action is otherwise
in the best interest of any particular beneficiary, to a
fee-for-service reimbursement system pending the availability of
managed care contractors, provided those contractors are able to
demonstrate that they can absorb the increased enrollment without
detriment to the provision of health care services to their existing
enrollees, or if the department determines that providing care to any
particular beneficiary pursuant to a fee-for-service reimbursement
system is no longer necessary to protect the continuity of care or
other interests of the beneficiary.  Beneficiary eligibility for
Medi-Cal shall not be affected by this action.  Beneficiaries who
have been or who are scheduled to be converted to a fee-for-service
reimbursement system or managed care contractor may make a choice to
be enrolled in another managed care system, if one is available, in
full compliance with the federal freedom-of-choice requirements.
   (f) The health authority shall submit to a review of financial
records when the department determines, based on data reported by the
health authority or otherwise, that the health authority will not be
able to meet its financial obligations to health care providers
contracting with the health authority.  Where the review of financial
records determines that the health authority will not be able to
meet its financial obligations to contracting health care providers
for the provision of health care services, the director shall
immediately terminate the contract between the health authority and
the state, and immediately convert the health authority Medi-Cal
beneficiaries in accordance with subdivision (e) in order to ensure
uninterrupted provision of health care services to the beneficiaries
and to minimize financial disruption to providers.  The action of the
director shall be the final administrative determination.
Beneficiary eligibility for Medi-Cal shall not be affected by this
action.  Beneficiaries who have been or who are scheduled to be
converted under subdivision (e) may make a choice to be enrolled in
another managed care plan, if one is available, in full compliance
with federal freedom-of-choice requirements.
   (g) It is the intent of the Legislature that the department shall
implement Medi-Cal capitated enrollments in a manner that ensures
that appropriate levels of health care services will be provided to
Medi-Cal beneficiaries and that appropriate levels of administrative
services will be furnished to health care providers.  The contract
between the department and the health authority shall authorize and
permit the department to administer the number of covered Medi-Cal
enrollments in such a manner that the health authority's provider
network and administrative structure are able to provide appropriate
and timely services to beneficiaries and to participating providers.

   (h) In the event a health authority is terminated, files for
bankruptcy, or otherwise no longer functions for the purpose for
which it was established, the county shall, with respect to
compensation for provision of health care services to beneficiaries,
occupy no greater or lesser status than any other health care
provider in the disbursement of assets of the health authority.
   (i) Nothing in this subdivision shall be construed to impair or
diminish the authority of the Director of the Department of Managed
Care under the Knox-Keene Health Care Service Plan Act of 1975, nor
shall anything in the section be construed to reduce or otherwise
limit the obligation of a health authority licensed as a health care
service plan to comply with the requirements of the Knox-Keene Health
Care Service Plan Act of 1975, and the rules of the Director of the
Department of Managed Care promulgated thereunder.
  SEC. 197.  Section 14087.38 of the Welfare and Institutions Code is
amended to read:
   14087.38.  (a) (1) In counties selected by the director with the
concurrence of the county, a special county health authority may be
established in order to meet the problems of delivery of publicly
assisted medical care in each county, and to demonstrate ways of
promoting quality care and cost efficiency.  Nothing in this section
shall be construed to preclude the department from expanding Medi-Cal
managed care in ways other than those provided for in this section,
including, but not limited to, the establishment of a public benefit
corporation as set forth in Section 5110 of the Corporations Code.
   (2) For purposes of this section "health authority" means an
entity separate from the county that meets the requirements of state
and federal law and the quality, cost, and access criteria
established by the department.
   (b) The board of supervisors of a county described in subdivision
(a) may, by ordinance, establish a health authority to negotiate and
enter into contracts authorized by Section 14087.3, and to arrange
for the provision of health care services provided pursuant to this
chapter.  If the board of supervisors elects to enact this ordinance,
all rights, powers, duties, privileges, and immunities vested in a
county contracting with the department under this article shall be
vested in the health authority.  The health authority may also enter
into contracts for the provision of health care services to
individuals including, but not limited to, those covered under
Subchapter XVIII (commencing with Section 1395) of Chapter 7 of Title
42 of the United States Code, those entitled to coverage under other
publicly supported programs, those employed by public agencies or
private businesses, and uninsured or indigent individuals.
   (c) The enabling ordinance shall specify the membership of the
governing board of the health authority, the qualifications for
individual members, the manner of appointment, selection, or removal
of board members, and how long they shall serve, and any other
matters the board of supervisors deems necessary or convenient for
the conduct of the health authority's activities.  Members of the
governing board shall be appointed by the board of supervisors to
represent the interests of the county, the general public,
beneficiaries, physicians, hospitals, clinics, and other nonphysician
health care providers.  The health authority so established shall be
considered an entity separate from the county, shall file a
statement required by Section 53051 of the Government Code, and shall
have the power to acquire, possess, and dispose of real or personal
property, as necessary for the performance of its functions, to
employ personnel and contract for services required to meet its
obligations, and to sue or be sued.  Any obligations of a health
authority, statutory, contractual, or otherwise, shall be obligations
solely of the health authority and shall not be the obligations of
the county or of the state.
   (d) Upon creation, the health authority may borrow from the
county, and the county may lend the health authority funds or issue
revenue anticipation notes to obtain those funds necessary to
commence operations.
   (e) Notwithstanding any other provision of law, both the county
and the health authority shall be eligible to receive funding under
subdivision (p) of Section 14163, and the health authority shall be
considered to have satisfied the requirements of that subdivision.
   (f) The health authority shall be deemed to be a public agency
that is a unit of local government for purposes of all grant programs
and other funding and loan guarantee programs.
   (g) It is the intent of the Legislature that if a health authority
is formed pursuant to this section, the county shall, with respect
to its medical facilities and programs, occupy no greater or lesser
status than any other health care provider in negotiating with the
health authority for contracts to provide health care services.
Nothing in this subdivision shall be construed to interfere with or
limit the health authority in giving preference in negotiating to
disproportionate share hospitals or other providers of health care to
medically indigent or uninsured individuals.
   (h) Notwithstanding any other provisions of law, a member of the
governing board of the health authority shall not be deemed to be
interested in a contract entered into by the health authority within
the meaning of Article 4 (commencing with Section 1090) of Chapter 1
of Division 4 of Title 1 of the Government Code if all the following
apply:
   (1) The member was appointed to represent the interests of
physicians, health care practitioners, hospitals, pharmacies, or
other health care organizations, or beneficiaries.
   (2) The contract authorizes the member or the organization the
member represents to provide services to beneficiaries under the
health authority's programs.
   (3) The contract contains substantially the same terms and
conditions as contracts entered into with other individuals or
organizations that the member was appointed to represent.
   (4) The member does not influence or attempt to influence the
health authority or another member of the health authority to enter
into the contract in which the member is interested.
   (5) The member discloses the interest to the health authority and
abstains from voting on the contract.
   (6) The governing board notes the member's disclosure and
abstention in its official records and authorizes the contract in
good faith by a vote of its membership sufficient for the purpose
without counting the vote of the interested member.
   (i) All claims for money or damages against the health authority
shall be governed by Part 3 (commencing with Section 900) and Part 4
(commencing with Section 940) of Division 3.6 of Title 1 of the
Government Code, except as provided by other statutes or regulations
that expressly apply to the health authority.
   (j) The health authority, members of its governing board, and its
employees, are protected by the immunities applicable to public
entities and public employees governed by Part 1 (commencing with
Section 810) and Part 2 (commencing with Section 814) of Division 3.6
of Title 1 of the Government Code, except as provided by other
statutes or regulations that apply expressly to the health authority.

   (k) Notwithstanding any other provision of law, except as
otherwise provided in this section, a county shall not be liable for
any act or omission of the health authority.
   (l) The transfer of responsibility for health care services to the
health authority shall not relieve the county of its responsibility
for indigent care pursuant to Section 17000.
   (m) Notwithstanding any other provision of law, the governing
board of the health authority may meet in closed session to consider
and take action on matters pertaining to contracts, and to contract
negotiations by health authority staff with providers of health care
services concerning all matters related to rates of payment.
   (n) Notwithstanding Article 9 (commencing with Section 11120) of
Chapter 1 of Part 1 of Division 3 of Title 2 of, and Chapter 9
(commencing with Section 54950) of Part 1 of Division 2 of Title 5
of, the Government Code, or any other provision of law, any peer
review body, as defined in paragraph (1) of subdivision (a) of
Section 805 of the Business and Professions Code, formed pursuant to
the powers granted to the health authority authorized by this
section, may, at its discretion and without notice to the public,
meet in closed session, so long as the purpose of the meeting is the
peer review body's discharge of its responsibility to evaluate and
improve the quality of care rendered by health facilities and health
practitioners, pursuant to the powers granted to the health
authority.  Any such peer review body and its members shall receive,
to the fullest extent, all immunities, privileges, and protections
available to those peer review bodies, their individual members, and
persons or entities assisting in the peer review process, including
those afforded by Section 1157 of the Evidence Code and Section 1370
of the Health and Safety Code.
   (o) Notwithstanding any other provision of law, those records of
the health authority and of the county that reveal the health
authority's rates of payment for health care services or the health
authority's deliberative processes, discussions, communications, or
any other portion of the negotiations with providers of health care
services for rates of payment, shall not be required to be disclosed
pursuant to the California Public Records Act, Chapter 5 (commencing
with Section 6250) of Division 7 of Title 1 of the Government Code,
or any similar local law requiring the disclosure of public records.
However, three years after a contract or amendment to a contract is
fully executed, the portion of the contract or amendment containing
the rates of payment shall be open to inspection.
   (p) Notwithstanding the California Public Records Act, or Article
9 (commencing with Section 11120) of Chapter 1 of Part 1 of Division
3 of Title 2 of, and Chapter 9 (commencing with Section 54950) of
Part 1 of Division 2 of Title 5 of, the Government Code, or any other
provision of state or local law requiring disclosure of public
records, those records of a peer review body, as defined in paragraph
(1) of subdivision (a) of Section 805 of the Business and
Professions Code, formed pursuant to the powers granted to the health
authority authorized by this section, shall not be required to be
disclosed.  The records and proceedings of any such peer review body
and its individual members shall receive, to the fullest extent, all
immunities, privileges, and protections available to those records
and proceedings, including those afforded by Section 1157 of the
Evidence Code and Section 1370 of the Health and Safety Code.
   (q) Except as expressly provided by other provisions of this
section, all exemptions and exclusions from disclosure as public
records pursuant to the California Public Records Act, including, but
not limited to, those pertaining to trade secrets and information
withheld in the public interest, shall be fully applicable for all
state agencies and local agencies with respect to all writings that
the health authority is required to prepare, produce, or submit
pursuant to this section.
   (r) (1) Any health authority formed pursuant to this section shall
obtain licensure as a health care service plan under the Knox-Keene
Health Care Service Plan Act of 1975 (Chapter 2.2 (commencing with
Section 1340) of Division 3 of the Health and Safety Code).
   (2) Notwithstanding subdivisions (b) and (s), a health authority
may not operate health plans or programs for individuals covered
under Subchapter XVIII (commencing with Section 1395) of Chapter 7 of
Title 42 of the United States Code, or for private businesses, until
the health authority is in full compliance with all of the
requirements of the Knox-Keene Health Care Service Plan Act of 1975,
including tangible net equity requirements applicable to a licensed
health care service plan.
   (s) Commencing on the date that the health authority first
receives Medi-Cal capitated payments for the provision of health care
services to Medi-Cal beneficiaries and until the time that the
health authority is in compliance with all the requirements regarding
tangible net equity applicable to a health care service plan
licensed under the Knox-Keene Health Care Service Plan Act of 1975,
the following provisions shall apply:
   (1) The health authority may select and design its automated
management information system, but the department, in cooperation
with the health authority, prior to making capitated payments shall
test the system to ensure that the system is capable of producing
detailed, accurate, and timely financial information on the financial
condition of the health authority and any other information
generally required by the department in its contracts with health
care service plans.
   (2) In addition to the reports required by the Department of
Managed Care under the Knox-Keene Health Care Service Plan Act of
1975, and the rules of the Director of the Department of Managed Care
promulgated thereunder, the health authority shall provide on a
monthly basis to the department, the Department of Managed Care, and
the members of the health authority, a copy of the automated report
described in paragraph (1) and a projection of assets and
liabilities, including those that have been incurred but not
reported, with an explanation of material increases or decreases in
current or projected assets or liabilities.  The explanation of
increases and decreases
  in assets or liabilities shall be provided, upon request, to a
hospital, independent physicians' practice association, or community
clinic, that has contracted with the health authority to provide
health care services.
   (3) In addition to the reporting and notification obligations the
health authority has under the Knox-Keene Health Care Service Plan
Act of 1975, the chief executive officer or director of the health
authority shall immediately notify the department, the Department of
Managed Care, and the members of the governing board of the health
authority in writing of any fact or facts that, in the chief
executive officer's or director's reasonable and prudent judgment, is
likely to result in the health authority being unable to meet its
financial obligations to health care providers or to other parties.
Written notice shall describe the fact or facts, the anticipated
fiscal consequences, and the actions that will be taken to address
the anticipated consequences.
   (4) The Department of Managed Care shall not waive or vary, nor
shall the department request the Department of Managed Care to waive
or vary, the tangible net equity requirements for a health authority
under the Knox-Keene Health Care Service Plan Act of 1975 after three
years from the date of commencement of capitated payments to the
health authority.  Until the time the health authority is in
compliance with all of the tangible net equity requirements under the
Knox-Keene Health Care Service Plan Act of 1975, and the rules of
the Director of the Department of Managed Care promulgated
thereunder, the health authority shall develop a stop-loss program
appropriate to the risks of the health authority.  The program shall
be satisfactory to both the department and the Department of Managed
Care.
   (5) In the event that the health authority votes to file a
petition of bankruptcy, or the board of supervisors notifies the
department of its intent to terminate the health authority, the
department shall immediately convert the authority's Medi-Cal
beneficiaries to either of the following:
   (A) To other managed care contractors when available, provided
those contractors are able to demonstrate that they can absorb the
increased enrollment without detriment to the provision of health
care services to their existing enrollees.
   (B) To the extent that other managed care contractors are
unavailable or the department determines that the action is otherwise
in the best interest of any particular beneficiary, to a
fee-for-service reimbursement system pending the availability of
managed care contractors, provided those contractors are able to
demonstrate that they can absorb the increased enrollment without
detriment to the provision of health care services to their existing
enrollees, or if the department determines that providing care to any
particular beneficiary pursuant to a fee-for-service reimbursement
system is no longer necessary to protect the continuity of care or
other interests of the beneficiary.  Beneficiary eligibility for
Medi-Cal shall not be affected by this action.  Beneficiaries who
have been or who are scheduled to be converted to a fee-for-service
reimbursement system or managed care contractor may make a choice to
be enrolled in another managed care system, if one is available, in
full compliance with the federal freedom-of-choice requirements.
   (6) The health authority shall submit to a review of financial
records when the department determines, based on data reported by the
health authority or otherwise, that the health authority will not be
able to meet its financial obligations to health care providers
contracting with the health authority.  Where the review of financial
records determines that the health authority will not be able to
meet its financial obligations to contracting health care providers
for the provision of health care services, the director shall
immediately terminate the contract between the health authority and
the state, and immediately convert the health authority Medi-Cal
beneficiaries in accordance with paragraph (5) in order to ensure
uninterrupted provision of health care services to the beneficiaries
and to minimize financial disruption to providers.  The action of the
director shall be the final administrative determination.
Beneficiary eligibility for Medi-Cal shall not be affected by this
action.  Beneficiaries who have been or who are scheduled to be
converted under paragraph (5) may make a choice to be enrolled in
another managed care plan, if one is available, in full compliance
with federal freedom-of-choice requirements.
   (7) It is the intent of the Legislature that the department shall
implement Medi-Cal capitated enrollments in a manner that ensures
that appropriate levels of health care services will be provided to
Medi-Cal beneficiaries and that appropriate levels of administrative
services will be furnished to health care providers.  The contract
between the department and the health authority shall authorize and
permit the department to administer the number of covered Medi-Cal
enrollments in such a manner that the health authority's provider
network and administrative structure are able to provide appropriate
and timely services to beneficiaries and to participating providers.

   (8) In the event a health authority is terminated, files for
bankruptcy, or otherwise no longer functions for the purpose for
which it was established, the county shall, with respect to
compensation for provision of health care services to beneficiaries,
occupy no greater or lesser status than any other health care
provider in the disbursement of assets of the health authority.
   (9) Nothing in this subdivision shall be construed to impair or
diminish the authority of the Director of the Department of Managed
Care under the Knox-Keene Health Care Service Plan Act of 1975, nor
shall anything in the section be construed to reduce or otherwise
limit the obligation of a health authority licensed as a health care
service plan to comply with the requirements of the Knox-Keene Health
Care Service Plan Act of 1975, and the rules of the health
commissioner of Corporations promulgated thereunder.
   (t) In the event a health authority may no longer function for the
purposes for which it is established, at the time the health
authority's then-existing obligations have been satisfied or the
health authority's assets have been exhausted, the board of
supervisors may, by ordinance, terminate the health authority.
   (u) (1) Prior to the termination of the health authority, the
board of supervisors shall notify the department of its intent to
terminate the health authority.  The department shall conduct an
audit of the health authority's records within 30 days of the
notification to determine the liabilities and assets of the health
authority.
   (2) The department shall report its findings to the board within
10 days of completion of the audit.  The board shall prepare a plan
to liquidate or otherwise dispose of the assets of the health
authority and to pay the liabilities of the health authority to the
extent of the health authority's assets, and present the plan to the
department within 30 days upon receipt of these findings.
   (v) Any assets of the health authority shall be disposed of
pursuant to provisions contained in the contract entered into between
the state and the health authority pursuant to this section.
   (w) Upon termination of a health authority by the board, the
county shall manage any remaining assets of the health authority
until superseded by a department-approved plan.  Any liabilities of
the health authority shall not become obligations of the county upon
either the termination of the health authority or the liquidation or
disposition of the health authority's remaining assets.
  SEC. 198.  Section 14087.4 of the Welfare and Institutions Code is
amended to read:
   14087.4.  (a) Any contract made pursuant to this article may be
renewed if the provider continues to meet the requirements of this
chapter, regulations promulgated pursuant thereto, and the contract.
Failure to meet these requirements shall be cause for nonrenewal of
the contract.  The department may condition renewal on timely
completion of a mutually agreed upon plan of correction of any
deficiencies.
   (b) The department may terminate or decline to renew a contract,
in whole or in part, when the director determines that such action is
necessary to protect the health of the beneficiaries or the funds
appropriated to carry out the Medi-Cal program.  Nonrenewal or
termination under this article shall not qualify the applicant for an
administrative hearing including a hearing pursuant to Section
14123.
   (c) In order to achieve maximum cost savings the Legislature
hereby determines that an expedited contract process for contracts
under this article is necessary.  Therefore contracts under this
article shall be exempt from the provisions of Chapter 2 (commencing
with Section 10290) of Part 2 of Division 2 of the Public Contract
Code.
   (d) For any contract entered into pursuant to this article, the
Director of the Department of Managed Care shall, at the director's
request and with all due haste, grant an exemption from the
provisions of Chapter 2.2 (commencing with Section 1340) of Division
2 of the Health and Safety Code for purposes of carrying out the
contract.
  SEC. 199.  Section 14087.9705 of the Welfare and Institutions Code
is amended to read:
   14087.9705.  (a) The commission shall obtain licensure as a health
care service plan under Chapter 2.2 (commencing with Section 1340)
of Division 3 of the Health and Safety Code.
   (b) Commencing on the date that the commission first receives
Medi-Cal capitated payments for the provision of health care services
to Medi-Cal beneficiaries and the commission is in full compliance
with all of the requirements regarding tangible net equity applicable
to a health care service plan licensed under Chapter 2.2 (commencing
with Section 1340) of Division 3 of the Health and Safety Code, all
of the following provisions shall apply:
   (1) The commission is authorized to select and design its
automated management information system, subject to the requirement
that the department, in cooperation with the commission, prior to
making capitated payments, approve the system.  The department shall
test the system to ensure that the system is capable of producing
detailed, accurate, and timely financial information on the financial
condition of the commission, and any other information that is
generally required by the department in its contracts with other
local initiatives and with health care service plans.
   (2) In addition to the reports required by the Department of
Managed Care under Chapter 2.2 (commencing with Section 1340) of
Division 3 of the Health and Safety Code and the rules of the
Director of the Department of Managed Care adopted and promulgated
thereunder, the commission shall provide, on a monthly basis, to the
department, the Department of Managed Care, and the members of the
commission a copy of the automated report described in subdivision
(a) and a projection of assets and liabilities, including those that
have been incurred but not reported, with an explanation of material
increases or decreases in current or projected assets and
liabilities.  The explanation of increases and decreases in assets or
liabilities shall be provided, upon request, to a hospital,
independent physicians' practice association, or community clinic
that has contracted with the commission to provide health care
services.
   (3) In addition to the reporting and notification requirements to
which the commission is subject under Chapter 2.2 (commencing with
Section 1340) of Division 3 of the Health and Safety Code, the chief
executive officer or director of the commission shall immediately
notify the department, the Department of Managed Care, and the
members of the commission, in writing, of any fact or facts that, in
the chief executive officer's or director's reasonable and prudent
judgment, is likely to result in the commission being unable to meet
its financial obligations.  The written notice shall describe the
fact or facts, the anticipated financial consequences, and the
actions that will be taken to address the anticipated consequences.
   (4) In no event shall the Department of Managed Care waive or
vary, nor shall the department request the Department of Managed Care
to waive or vary, the tangible net equity requirements for a
commission under Chapter 2.2 (commencing with Section 1340) of
Division 3 of the Health and Safety Code after three years after the
date of the commencement of capitated payments to the commission.
Until the commission is in compliance with all of the tangible net
equity requirements under Chapter 2.2 (commencing with Section 1340)
of Division 3 of the Health and Safety Code and the rules of the
Director of the Department of Managed Care adopted and promulgated
thereunder, the commission shall develop a stop-loss program that is
appropriate to the risks of the commission.  The stop-loss program
shall be subject to the approval of the department and the Department
of Managed Care.
   (5) In the event the commission votes to file a petition of
bankruptcy, or the board of supervisors notifies the department that
it intends to terminate the commission, the department shall
immediately transfer the commission's Medi-Cal beneficiaries to other
managed care contractors, when the contractors are available, and
the contractors are able to demonstrate that they can absorb the
increased enrollment without detriment to the provision of health
care services to their existing enrollees.  To the extent that other
managed care providers are unavailable or the department determines
that the transfer to the other contractors to a fee-for-service
reimbursement system is in the best interest of any particular
beneficiary, the department shall make that transfer to the
fee-for-service system, pending the availability of managed care
contractors that can demonstrate that they can absorb the increased
enrollment without detriment to the provision of health care services
to their existing enrollees, or until the department determines that
providing care to any particular beneficiary pursuant to a
fee-for-service reimbursement system is no longer necessary to
protect the continuity of care or other interests of the beneficiary.
  Beneficiaries who have been or who are scheduled to be transferred
to a fee-for-service reimbursement system or managed care contractor
may make a choice to be enrolled in another managed care system, if
one is available, in full compliance with federal freedom-of-choice
requirements.
   (6) The commission shall submit to a review of financial records
when the department determines, based on data reported by the
commission or other data received by the department, that the
commission will not be able to meet its financial obligations to
health care providers contracting with the commission.  If the
department, pursuant to a review of financial records under this
paragraph, determines that the commission will not be able to meet
its financial obligation to contracting health care providers for the
provision of health care services, the Director of Health Services
shall immediately terminate the contract between the commission and
the department and shall immediately transfer the commission's
Medi-Cal beneficiaries in accordance with paragraph (5) in order to
ensure uninterrupted provision of health care services to
beneficiaries and to minimize financial disruption.  Beneficiary
eligibility for Medi-Cal shall not be affected by this action.
Beneficiaries who have been or who are scheduled to be transferred
under paragraph (5) may make a choice to be enrolled in another
managed care plan, if one is available, in full compliance with
federal freedom-of-choice requirements.
   (7) It is the intent of the Legislature that the department shall
implement Medi-Cal capitated enrollments in a manner that ensures
that appropriate levels of health care services will be provided to
Medi-Cal beneficiaries and that appropriate levels of administrative
services will be furnished to health care providers.  The contract
between the department and the commission shall authorize the
department to administer the number of covered Medi-Cal enrollments
in a manner that ensures that the commission's provider network and
administrative structure are able to provide appropriate and timely
services to beneficiaries and to participating providers.
   (8) In the event a commission is terminated, files for bankruptcy,
or otherwise no longer functions for the purposes for which it was
established, the county shall, with respect to compensation for
provision of health care services to beneficiaries, occupy no greater
or lesser status than any other health care provider in the
disbursement of assets of the commission.
   (9) Nothing in this section shall be construed to impair or
diminish the authority of the Director of the Department of Managed
Care under Chapter 2.2 (commencing with Section 1340) of Division 3
of the Health and Safety Code, nor shall any thing in this section be
construed to reduce or otherwise limit the obligation of a
commission licensed as a health care plan under Chapter 2.2
(commencing with Section 1340) of Division 3 of the Health and Safety
Code to comply with the requirements of that chapter, and the rules
of the Director of the Department of Managed Care adopted thereunder.

  SEC. 200.  Section 14088.19 of the Welfare and Institutions Code is
amended to read:
   14088.19.  (a) The department may enter into primary care case
management contracts pursuant to this article with any health care
service plan that is licensed by the Director of the Department of
Managed Care pursuant to the Knox-Keene Health Care Service Plan Act
of 1975 (Chapter 2.2 (commencing with Section 1340) of Division 2 of
the Health and Safety Code).
   The terms of the contracts entered into pursuant to this section
shall be exempt from those provisions of Chapter 2.2 (commencing with
Section 1340) of Division 2 of the Health and Safety Code that
regulate health care service plan contracts.  Nothing in this section
shall preclude the Director of the Department of Managed Care from
otherwise regulating a health care service plan subject to the
Knox-Keene Health Service Plan Act of 1975 (Chapter 2.2 (commencing
with Section 1340) of Division 2 of the Health and Safety Code).
   (b) When a health care service plan enters into a contract
pursuant to this article and also pursuant to Chapter 8 (commencing
with Section 14200), there shall be no duplication of service areas
between the two contracts without prior written approval by the
department.
  SEC. 201.  Section 14089 of the Welfare and Institutions Code is
amended to read:
   14089.  (a) The purpose of this article is to provide a
comprehensive program of managed health care plan services to
Medi-Cal recipients residing in clearly defined geographical areas.
It is, further, the purpose of this article to create maximum
accessibility to health care services by permitting Medi-Cal
recipients the option of choosing from among two or more managed
health care plans or fee-for-service managed case arrangements,
including, but not limited to, health maintenance organizations,
prepaid health plans, primary care case management plans.
Independent practice associations, health insurance carriers, private
foundations, and university medical centers systems, not-for-profit
clinics, and other primary care providers, may be offered as choices
to Medi-Cal recipients under this article if they are organized and
operated as managed care plans, for the provision of preventive
managed health care plan services.
   (b) The negotiator may seek proposals and then shall contract
based on relative costs, extent of coverage offered, quality of
health services to be provided, financial stability of the health
care plan or carrier, recipient access to services, cost-containment
strategies, peer and community participation in quality control,
emphasis on preventive and managed health care services and the
ability of the health plan to meet all requirements for both of the
following:
   (1) Certification, where legally required, by the Director of the
Department of Managed Care and the Insurance Commissioner.
   (2) Compliance with all of the following:
   (A) The health plan shall satisfy all applicable state and federal
legal requirements for participation as a Medi-Cal managed care
contractor.
   (B) The health plan shall meet any standards established by the
department for the implementation of this article.
   (C) The health plan receives the approval of the department to
participate in the pilot project under this article.
   (c) (1) (A) The proposals shall be for the provision of preventive
and managed health care services to specified eligible populations
on a capitated, prepaid or postpayment basis.
   (B) Enrollment in a Medi-Cal managed health care plan under this
article shall be voluntary for beneficiaries eligible for the federal
Supplemental Security Income for the Aged, Blind, and Disabled
Program (Subchapter 16 (commencing with Section 1381) of Chapter 7 of
Title 42 of the United States Code).
   (2) The cost of each program established under this section shall
not exceed the total amount which the department estimates it would
pay for all services and requirements within the same geographic area
under the fee-for-service Medi-Cal program.
   (d) The department shall enter into contracts pursuant to this
article, and shall be bound by the rates, terms, and conditions
negotiated by the negotiator.
   (e) (1) An eligible beneficiary shall be entitled to enroll in any
health care plan contracted for pursuant to this article that is in
effect for the geographic area in which he or she resides.
Enrollment shall be for a minimum of six months.  Contracts entered
into pursuant to this article shall be for at least one but no more
than three years.  The director shall make available to recipients
information summarizing the benefits and limitations of each health
care plan available pursuant to this section in the geographic area
in which the recipient resides.
   (2) No later than 30 days following the date a Medi-Cal or AFDC
recipient is informed of the health care options described in
paragraph (1) of subdivision (e), the recipient shall indicate his or
her choice in writing of one of the available health care plans and
his or her choice of primary care provider or clinic contracting with
the selected health care plan.
   (3) The health care options information described in paragraph (1)
of subdivision (e) shall include the following elements:
   (A) Each beneficiary or eligible applicant shall be provided with
the name, address, telephone number, and specialty, if any, of each
primary care provider, and each clinic participating in each health
care plan.  This information shall be presented under geographic area
designations in alphabetical order by the name of the primary care
provider and clinic.  The name, address, and telephone number of each
specialist participating in each health care plan shall be made
available by contacting the health care options contractor or the
health care plan.
   (B) Each beneficiary or eligible applicant shall be informed that
he or she may choose to continue an established patient-provider
relationship in a managed care option, if his or her treating
provider is a primary care provider or clinic contracting with any of
the health plans available and has the available capacity and agrees
to continue to treat that beneficiary or eligible applicant.
   (C) Each beneficiary or eligible applicant shall be informed that
if he or she fails to make a choice, he or she shall be assigned to,
and enrolled in, a health care plan.
   (4) At the time the beneficiary or eligible applicant selects a
health care plan, the department shall, when applicable, encourage
the beneficiary or eligible applicant to also indicate, in writing,
his or her choice of primary care provider or clinic contracting with
the selected health care plan.
   (5) Commencing with the implementation of a geographic managed
care project in a designated county, a Medi-Cal or AFDC beneficiary
who does not make a choice of health care plans in accordance with
paragraph (2), shall be assigned to and enrolled in an appropriate
health care plan providing service within the area in which the
beneficiary resides.
   (6) If a beneficiary or eligible applicant does not choose a
primary care provider or clinic, or does not select any primary care
provider who is available, the health care plan selected by or
assigned to the beneficiary shall ensure that the beneficiary selects
a primary care provider or clinic within 30 days after enrollment or
is assigned to a primary care provider within 40 days after
enrollment.
   (7) Any Medi-Cal or AFDC beneficiary dissatisfied with the primary
care provider or health care plan shall be allowed to select or be
assigned to another primary care provider within the same health care
plan.  In addition, the beneficiary shall be allowed to select or be
assigned to another health care plan contracted for pursuant to this
article that is in effect for the geographic area in which he or she
resides in accordance with Section 1903(m)(2)(F)(ii) of the Social
Security Act.
   (8) The department or its contractor shall notify a health care
plan when it has been selected by or assigned to a beneficiary.  The
health care plan that has been selected or assigned by a beneficiary
shall notify the primary care provider that has been selected or
assigned.  The health care plan shall also notify the beneficiary of
the health care plan and primary care provider selected or assigned.

   (9) This section shall be implemented in a manner consistent with
any federal waiver that is required to be obtained by the department
to implement this section.
   (f) A participating county may include within the plan or plans
providing coverage pursuant to this section, employees of county
government, and others who reside in the geographic area and who
depend upon county funds for all or part of their health care costs.

   (g) The negotiator and the department shall establish pilot
projects to test the cost-effectiveness of delivering benefits as
defined in subdivisions (a) to (f), inclusive.
   (h) The California Medical Assistance Commission shall evaluate
the cost-effectiveness of these pilot projects after one year of
implementation.  Pursuant to this evaluation the commission may
either terminate or retain the
       existing pilot projects.
   (i) Funds may be provided to prospective contractors to assist in
the design, development, and installation of appropriate programs.
The award of these funds shall be based on criteria established by
the department.
   (j) In implementing this article, the department may enter into
contracts for the provision of essential administrative and other
services.  Contracts entered into under this subdivision may be on a
noncompetitive bid basis and shall be exempt from Chapter 2
(commencing with Section 10290) of Part 2 of Division 2 of the Public
Contract Code.
  SEC. 202.  Section 14089.4 of the Welfare and Institutions Code is
amended to read:
   14089.4.  The negotiator may consult with the Department of
Insurance or the Department of Managed Care and shall consult with
the Department of Justice Medi-Cal Fraud Unit, the appropriate
licensing boards and the laboratory field services unit of the
department for the purposes of determining the qualifications,
performance capability, and financial stability of prospective
contractors.
  SEC. 203.  Section 14139.13 of the Welfare and Institutions Code is
amended to read:
   14139.13.  (a) Any contract entered into pursuant to this article
may be renewed if the long-term care services agency continues to
meet the requirements of this article and the contract.  Failure to
meet these requirements shall be cause for nonrenewal of the
contract.  The department may condition renewal on timely completion
of a mutually agreed upon plan of corrections of any deficiencies.
   (b) The department may terminate or decline to renew a contract in
whole or in part when the director determines that the action is
necessary to protect the health of the beneficiaries or the funds
appropriated to the Medi-Cal program.  The administrative hearing
requirements of Section 14123 do not apply to the nonrenewal or
termination of a contract under this article.
   (c) In order to achieve maximum cost savings the Legislature
hereby determines that an expedited contract process for contracts
under this article is necessary.  Therefore, contracts under this
article shall be exempt from Chapter 2 (commencing with Section
10290) of Part 2 of Division 2 of the Public Contract Code.
   (d) The Director of the Department of Managed Care shall, at the
director's request, immediately grant an exemption from Chapter 2.2
(commencing with Section 1340) of Division 2 of the Health and Safety
Code for purposes of carrying out any contract entered into pursuant
to this article.
  SEC. 204.  Section 14251 of the Welfare and Institutions Code is
amended to read:
   14251.  "Prepaid health plan" means any plan which meets all of
the following criteria:
   (a) Licensed as a health care service plan by the Director of the
Department of Managed Care pursuant to the Knox-Keene Health Care
Service Plan Act of 1975 (Chapter 2.2 (commencing with Section 1340),
Division 2, Health and Safety Code), other than a plan organized and
operating pursuant to Section 10810 of the Corporations Code which
substantially indemnifies subscribers or enrollees for the cost of
provided services, or has an application for licensure pending and
was registered under the Knox-Mills Health Plan Act prior to its
repeal (Chapter 941, Statutes of 1975) or licensed as a nonprofit
hospital service plan by the Insurance Commissioner pursuant to
Section 11493(e) and Sections 11501 to 11505 of the Insurance Code.
   (b) Meets the requirements for participation in the Medicaid
Program (Title XIX of the Social Security Act) on an at risk basis.
   (c) Agrees with the State Department of Health Services to furnish
directly or indirectly health services to Medi-Cal beneficiaries on
a predetermined periodic rate basis.
   "Prepaid health plan" includes any organization which is licensed
as a plan pursuant to the Knox-Keene Health Care Service Plan Act of
1975 and is subject to regulation by the Department of Managed Care
pursuant to that act, and which contracts with the State Department
of Health Services solely as a fiscal intermediary at risk.
   Except for the requirement of licensure pursuant to the Knox-Keene
Act, the State Director of Health Services may waive any provision
of this chapter which the director determines is inappropriate for a
fiscal intermediary at risk.  Any such exemption or waiver shall be
set forth in the fiscal intermediary at risk contract with the State
Department of Health Services.
   "Fiscal intermediary at risk" means any entity which entered into
a contract with the State Department of Health Services on a pilot
basis pursuant to subdivision (f) of Section 14000, as in effect June
1, 1973, in accordance with which the entity received capitated
payments from the state and reimbursed providers of health care
services on a fee-for-service or other basis  for at least the basic
scope of health care services, as defined in Section 14256, provided
to all beneficiaries covered by the contract residing within a
specified geographic region of the state. The fiscal intermediary at
risk shall be at risk for the cost of administration and utilization
of services or the cost of services, or both, for at least the basic
scope of health care services, as defined in Section 14256, provided
to all beneficiaries covered by the contract residing within a
specified geographic region of the state.  The fiscal intermediary at
risk may share the risk with providers or reinsuring agencies or
both. Eligibility of beneficiaries shall be determined by the State
Department of Health Services and capitation payments shall be based
on the number of beneficiaries so determined.
  SEC. 205.  Section 14308 of the Welfare and Institutions Code is
amended to read:
   14308.  (a) Each prepaid health plan shall furnish to the director
such information and reports as required by Title XIX of the federal
Social Security Act.
   (b) The director may require a prepaid health plan to provide the
director with information and reports which are furnished by the
prepaid health plan to the Director of the Department of Managed Care
pursuant to the provisions of Chapter 2.2 (commencing with Section
1340), Division 2, of the Health and Safety Code, the Knox-Keene
Health Care Service Plan Act of 1975, or to the Insurance
Commissioner pursuant to the provisions of Chapter 11A (commencing
with Section 11491) of Part 2 of Division 2 of the Insurance Code, as
appropriate.
   (c) The director may, by regulation, require plans to furnish
statistical information to the extent such information is necessary
for the department to establish rates of payment pursuant to Section
14301 and to provide reports pursuant to Section 14313.  The
department shall, to the extent feasible, accept this information in
a form which is consistent with reports required to be provided
pursuant to the Knox-Keene Health Care Service Plan Act of 1975, or
to Chapter 11A (commencing with Section 11491) of Part 2 of Division
2 of the Insurance Code, as appropriate.  In the case of a hospital
based plan which is a health maintenance organization qualified
pursuant to Title XIII of the federal Public Health Service Act, and
which has more than one million enrollees, of whom less than 10
percent are Medi-Cal enrollees, information required pursuant to this
subdivision shall consist of reports required to be made to the
Department of Health, Education and Welfare pursuant to Title XIII of
the federal Public Health Service Act.
  SEC. 206.  Section 14456 of the Welfare and Institutions Code is
amended to read:
   14456.  The department shall conduct annual medical audits of each
prepaid health plan unless the director determines there is good
cause for additional reviews.
   The reviews shall use the standards and criteria established
pursuant to the Knox-Keene Health Care Service Plan Act of 1975, or
to Chapter 11A (commencing with Section 11491) of Part 2 of Division
2 of the Insurance Code, as appropriate.  Except in those instances
where major unanticipated administrative obstacles prevent, or after
a determination by the director of good cause, the reviews shall be
scheduled and carried out jointly with reviews carried out pursuant
to the Knox-Keene Health Care Service Plan Act of 1975, or to Chapter
11A (commencing with Section 11491) of Part 2 of Division 2 of the
Insurance Code, as appropriate, if reviews under either act will be
carried out within time periods which satisfy the requirements of
federal law.
   The department shall be authorized to contract with professional
organizations or the Department of Managed Care or the Department of
Insurance, as appropriate, to perform the periodic review required by
this section.  The department, or its designee, shall make a finding
of fact with respect to the ability of the prepaid health plan to
provide quality health care services, effectiveness of peer review,
and utilization control mechanisms, and the overall performance of
the prepaid health plan in providing health care benefits to its
enrollees.
  SEC. 207.  Section 14457 of the Welfare and Institutions Code is
amended to read:
   14457.  In addition to the reviews required or authorized by
Section 14456, the department shall conduct periodic onsite visits or
additional visits after a determination by the director of good
cause by departmental representatives to include observation of the
general operation of the prepaid health plan, the condition of the
facilities for delivering health care, the availability of emergency
services, the degree of satisfaction of the enrollees, the operation
of the plan's grievance system, and the administrative and financial
aspects of the operation of the prepaid health plan.
   Except when reviewing a plan's grievance system or marketing
activities, this evaluation shall use standards and criteria
established pursuant to the Knox-Keene Health Care Service Plan Act
of 1975, or to Chapter 11A (commencing with Section 11491) of Part 2
of Division 2 of the Insurance Code, as appropriate.  Except in those
instances where major, unanticipated administrative obstacles
prevent, or after a determination by the director of good cause, the
visits shall be scheduled and carried out jointly with reviews
carried out pursuant to the Knox-Keene Health Care Service Plan Act
of 1975, or to Chapter 11A (commencing with Section 11491) of Part 2
of Division 2 of the Insurance Code, as appropriate, if reviews under
either act will be carried out within time periods which satisfy the
requirements of federal law.
   The State Department of Health Services may contract with the
Department of Managed Care or the Department of Insurance, as
appropriate, to perform the periodic visits required by this section.

  SEC. 208.  Section 14459 of the Welfare and Institutions Code is
amended to read:
   14459.  (a) The prepaid health plan shall maintain financial
records and shall have an annual audit or additional audits after a
determination by the director of good cause, performed by an
independent certified public accountant. A prepaid health plan
operated by a public entity shall have an annual audit performed in a
manner approved by the department.  All certified financial
statements shall be filed with the department as soon as practical
after the end of the prepaid health plan's fiscal year and in any
event, within a period not to exceed 90 days thereafter.  These
financial statements shall be filed with the department and shall be
public records.  The department shall perform routine auditing of
prepaid health plan contractors and their affiliated subcontractors.
Except in those instances where major unanticipated obstacles
prevent, or after a determination by the director of good cause, the
audits shall be scheduled and carried out jointly with audits carried
out pursuant to the Knox-Keene Health Care Service Plan Act of 1975,
or to Chapter 11A (commencing with Section 11491) of Part 2 of
Division 2 of the Insurance Code, as appropriate, if audits under
either act are carried out within time periods which satisfy the
requirements of federal law.  The department is authorized to
contract with the Department of Managed Care or the Department of
Insurance, as appropriate, to carry out the audits required by this
section.  The prepaid health plan shall make all of its books and
records available for inspection, examination or copying by the
department during normal working hours at the prepaid health plan's
principal place of business or at such other place in California as
the department shall designate.  For good cause, the department may
grant an exception to the time when annual financial statements are
to be submitted to the department.  The annual report required in
Section 14313 shall include an itemization of expenditures made by
each prepaid health plan for the following categories of
expenditures:  physician services, inpatient and outpatient hospital
services, pharmaceutical services and prescription drugs, dental
services, medical transportation services, vision care services,
mental health services, laboratory services, X-ray services, enrollee
education programs, marketing and enrollment costs, data-processing
costs, other administrative costs and health service expenditures and
any payments made to subcontractors, and the purposes of the
payments, including but not limited to, contributions to election
campaigns.
   (b) The requirements of a financial and administrative review by
the department of any health care service plan licensed by the
Director of the Department of Managed Care pursuant to Chapter 2.2
(commencing with Section 1340) of Division 2 of the Health and Safety
Code may be waived upon submission of the financial audit for the
same period conducted by the Department of Managed Care pursuant to
Section 1382 of the Health and Safety Code.
  SEC. 209.  Section 14460 of the Welfare and Institutions Code is
amended to read:
   14460.  A schedule of reviews, visits, and audits shall be jointly
established by the Department of Managed Care or the Department of
Insurance, as the case may be, and the State Department of Health
Services.  Nothing in Section 14456, 14457, or 14459 shall be
construed to prohibit the State Department of Health Services from
conducting reviews, visits, or audits either jointly or individually,
for the purpose of following up on findings resulting from reviews,
visits, or audits carried out in accordance with this chapter.
  SEC. 210.  Section 14482 of the Welfare and Institutions Code is
amended to read:
   14482.  No prepaid health plan shall contract with any
subcontractor other than the plan's subsidiary corporation, its
parent corporation, or another subsidiary of its parent corporation,
or an affiliate of the prepaid health plan whose financial statements
are consolidated with that of the prepaid health plan at the time of
the annual audit by the independent auditors of the plan and when
the quarterly and annual financial statements are filed with the
Director of the Department of Managed Care, if any of the following
persons connected with the plan have a substantial financial
interest, as defined by Section 14478, in such subcontractor:
   (a) Any person also having a substantial financial interest in the
plan.
   (b) Any director, officer, partner, trustee, or employee of the
plan.
   (c) Any member of the immediate family of any person designated in
(a) or (b).
  SEC. 211.  Section 14499.71 of the Welfare and Institutions Code is
amended to read:
   14499.71.  For the purposes of this article, "fiscal intermediary"
means an entity that agrees to pay for covered services provided to
Medi-Cal eligibles in exchange for a premium, subscription charge, or
capitation payment; to assume an underwriting risk; and is either
licensed by the Director of the Department of Managed Care under the
Knox-Keene Health Care Service Plan Act of 1975 (Chapter 2.2
(commencing with Section 1340) of Division 2 of the Health and Safety
Code) or is licensed as a nonprofit hospital service plan by the
Insurance Commissioner pursuant to subdivision (e) of Section 11493
of the Insurance Code and Sections 11501 to 11505, inclusive, of the
Insurance Code.
  SEC. 212.  Section 22005 of the Welfare and Institutions Code is
amended to read:
   22005.  The department shall only certify long-term care insurance
policies and health care service plan contracts which cover
long-term care that provide all of the following:
   (a) Individual case management by a coordinating entity designated
or approved by the department.
   (b) The levels and durations of benefits which meet minimum
standards set by the department.
   (c) Protection against loss of benefits due to inflation.
   (d) A recordkeeping system including an explanation of benefit
report on insurance payments or benefits which count toward Medi-Cal
resource exclusion.
   (e) Approval of the insurance policy by the Department of
Insurance as meeting the requirements of Chapter 2.6 (commencing with
Section 10230) of Part 2 of Division 2 of the Insurance Code,
excepting the requirements of Sections 10232.1, 10232.2, 10232.25,
10232.8, 10232.9, and 10232.92, or approval of the health care
service plan contract by the Department of Managed Care pursuant to
Chapter 2.2 (commencing with Section 1340) of Division 2 of the
Health and Safety Code as providing substantially equivalent coverage
to that required by Chapter 2.6 (commencing with Section 10230) of
Part 2 of Division 2 of the Insurance Code.
   (f) Compliance with any other requirements imposed by the
department through regulations consistent with the purposes of this
division.
  SEC. 213.  Section 22010 of the Welfare and Institutions Code is
amended to read:
   22010.  An executive and legislative advisory task force shall be
formed to provide advice and assistance in designing and implementing
the California Partnership for Long-Term Care Pilot Program.
   (a) The task force shall be composed of representatives,
designated by the chief officer or director of their agency or
department, of:
   (1) The State Department of Health Services.
   (2) The State Department of Social Services.
   (3) The Department of Aging.
   (4) The Department of Insurance.
   (5) The Department of Managed Care.
   (6) The Senate Office of Research.
   (7) The Assembly Office of Research.
   (b) The task force shall consult with persons knowledgeable of and
concerned with long-term care, including, but not limited to:
   (1) Consumers.
   (2) Health care providers.
   (3) Representatives of long-term care insurance companies and
administrators of health care service plans which cover long-term
care services.
   (4) Providers of long-term care.
   (5) Private employers.
   (6) Academic specialists in long-term care and aging.
   (7) Representatives of the public employees' and teachers'
retirement systems.
  SEC. 214.  This act shall become effective on January 1, 2000, and
shall become operative on the date that the Governor, by executive
order, establishes the Department of Managed Care or July 1, 2000,
whichever occurs first.
  SEC. 215.  (a) Subject to subdivision (b), any section of any act
enacted by the Legislature during the 1999 calendar year that takes
effect on or before January 1, 2000, and that amends, amends and
renumbers, adds, repeals and adds, or repeals a section that is
amended, amended and renumbered, repealed and added, or repealed by
this act, shall prevail over this act, whether that act is enacted
prior to, or subsequent to, the enactment of this act.
   (b) Subdivision (a) shall not apply to any of the following
provisions of this act:
   (1) Every provision of this act that amends any section of, adds
any section to, or repeals and adds any section of, the Health and
Safety Code.
   (2) Sections 1618.5 and 4382 of the Business and Professions Code,
as amended by this act.
   (3) Sections 43.98, 56.17, and 3296 of the Civil Code, as amended
by this act.
   (4) Sections 10821 and 13408.5 of the Corporations Code, as
amended by this act.
   (5) Sections 1322, 6253.4, 6254.5, 11552, 13975, 21661, 31696.1,
37615.1 of the Government Code, as amended by this act, and Section
13975.2 of the Government Code, as added by this act.
   (6) Sections 740, 742.407, 1068, 1068.1, and 10856 of the
Insurance Code, as amended by this act.
   (7) Section 830.3 of the Penal Code, as amended by this act.