BILL NUMBER: SB 260	ENROLLED
	BILL TEXT

	PASSED THE SENATE   SEPTEMBER 10, 1999
	PASSED THE ASSEMBLY   SEPTEMBER 9, 1999
	AMENDED IN ASSEMBLY   SEPTEMBER 8, 1999
	AMENDED IN ASSEMBLY   SEPTEMBER 7, 1999
	AMENDED IN ASSEMBLY   JULY 7, 1999
	AMENDED IN SENATE   MAY 28, 1999
	AMENDED IN SENATE   APRIL 28, 1999
	AMENDED IN SENATE   APRIL 19, 1999
	AMENDED IN SENATE   MARCH 2, 1999

INTRODUCED BY   Senator Speier
   (Principal coauthor:  Assembly Member Corbett)

                        JANUARY 28, 1999

   An act to add Sections 1347.15, 1375.4, 1375.5, and 1375.6 to, and
to add and repeal Section 1349.3 of, the Health and Safety Code,
relating to health.



	LEGISLATIVE COUNSEL'S DIGEST


   SB 260, Speier.  Health care coverage:  risk-bearing
organizations:  financial solvency.
   Existing law regulates health care coverage in a variety of
contexts, including (a) the Knox-Keene Health Care Service Plan Act
of 1975, under which health care service plans are regulated by the
Commissioner of Corporations, (b) the Medi-Cal Act, administered by
the State Department of Health Services under which qualified
low-income persons are provided with health care services, (c) the
Healthy Families Program, administered by the Managed Risk Medical
Insurance Board, which arranges for the provision of health care
services, including dental and vision care, to eligible children.
   Legislation is pending that would transfer the functions and
duties of the Department of Corporations and the Commissioner of
Corporations, with respect to the regulation of health care service
plans, to the Department of Managed Care and the Director of the
Department of Managed Care.
   This bill would establish the Financial Solvency Standards Board,
within the Department of Managed Care, composed of 8 members, one of
whom is the Director of the Department of Managed Care and 7 of whom
are appointed by the  director.  It would require the board to take
specified actions with regard to financial solvency and standards
affecting the delivery of health care services.
   The bill, until January 1, 2002, would prohibit a license with
waivers or limited license, on or after January 1, 2000, from being
issued to any person for provision of, or the arranging, payment, or
reimbursement for the provision of, health care services to enrollees
of another plan under certain risk-assuming contracts.  It would
also prohibit any licensed health care service plan, on and after
January 1, 2000, from contracting with any person, with certain
exceptions, for the assumption of financial risk with respect to
certain health care services and any other form of global capitation.

   This bill would require every contract between a health care
service plan and a risk-bearing organization, as defined, that is
issued, amended, renewed, or delivered in this state on or after July
1, 2000, from including certain provisions concerning the
risk-bearing organization's administrative and financial capacity,
which would be effective as of January 1, 2001.  The bill would
require the Director of the Department of Managed Care to adopt
regulations on or before June 30, 2000, with respect to, among other
things, a process for reviewing or grading risk-bearing organizations
based on specified criteria, and would require the director to
investigate and take enforcement action against a health care service
plan that fails to comply with these prescribed requirements.  It
would also prohibit a contract between a risk-bearing organization
and a health care service plan that is issued, amended, delivered, or
renewed in this state on or  after July 1, 2000, from including any
provision that requires a provider to accept rates or methods of
payment specified in contracts with health care service plan
affiliates or nonaffiliates unless the provision has been first
negotiated and agreed to between the health care service plan and the
risk-bearing organization.
   Since a violation of the provisions relating to health care
service plans is a crime, this bill, by creating new crimes, would
impose a state-mandated local program.
  The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
   This bill would provide that no reimbursement is required by this
act for a specified reason.


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


  SECTION 1.  Section 1347.15 is added to the Health and Safety Code,
to read:
   1347.15.  (a) There is hereby established in the Department of
Managed Care the Financial Solvency Standards Board composed of eight
members.  The members shall consist of the director, or the director'
s designee, and seven members appointed by the director.  The seven
members appointed by the director may be, but are not necessarily
limited to, individuals with training and experience in the following
subject areas or fields: medical and health care economics;
accountancy, with experience in integrated or affiliated health care
delivery systems; excess loss insurance underwriting in the medical,
hospital, and health plan business; actuarial studies in the area of
health care delivery systems; management and administration in
integrated or affiliated health care delivery systems; investment
banking; and information technology in integrated or affiliated
health care delivery systems.  The members appointed by the director
shall be appointed for a term of three years, but may be removed or
reappointed by the director before the expiration of the term.
   (b) The purpose of the board is to do all of the following:
   (1) Advise the director on matters of financial solvency affecting
the delivery of health care services.
   (2) Develop and recommend to the director financial solvency
requirements and standards relating to plan operations,
plan-affiliate operations and transactions, plan-provider contractual
relationships, and provider-affiliate operations and transactions.
   (3) Periodically monitor and report on the implementation and
results of the financial solvency requirements and standards.
   (c) Financial solvency requirements and standards recommended to
the director by the board may, after a period of review and comment
not to exceed 45 days and, notwithstanding Section 1347, be noticed
for adoption as regulations as proposed or modified under the
rulemaking provisions of the Administrative Procedure Act (Chapter
3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title
2 of the Government Code).  During the director's 45-day review and
comment period, the director, in consultation with the board, may
postpone the adoption of the requirements and standards pending
further review and comment.  Within five business days of receipt by
the director of the recommendation of the board, the director shall
send an information only copy of the recommendations to the members
of the Advisory Committee on Managed Care.  Nothing in this
subdivision prohibits the director from adopting regulations,
including emergency regulations, under the rulemaking provisions of
the Administrative Procedure Act.
   (d) Except as provided in subdivision (e), the board shall meet at
least quarterly and at the call of the chair.  In order to preserve
the independence of the board, the director shall not serve as chair.
  The members of the board may establish their own rules and
procedures.  All members shall serve without compensation, but shall
be reimbursed from department funds for expenses actually and
necessarily incurred in the performance of their duties.
   (e) During the two years from the date of the first meeting of the
board, the board shall meet monthly in order to expeditiously
fulfill its purpose under subparagraphs (A) and (B) of paragraph (1)
of subdivision (b).
   (f) For purposes of this section, "board" means the Financial
Solvency Standards Board.
  SEC. 2.  Section 1349.3 is added to the Health and Safety Code, to
read:
   1349.3.  (a) On or after January 1, 2000, no license with waivers
or limited license shall be issued to any person, including a
provider or an affiliate of a provider, for the provision of, or the
arranging, payment, or reimbursement for the provision of, health
care services to enrollees of another plan under a contract or other
arrangement whereby the person assumes financial risk for the
provision of at least both physician services and hospital inpatient
and ambulatory care services to the enrollees of the plan with which
the person proposes to contract or make an arrangement.  On and after
January 1, 2000, no licensed health care service plan shall contract
with any person, other than a licensed health care service plan or
licensed health care service plan with waivers, for the assumption of
financial risk with respect to the provision of both institutional
and noninstitutional health care services and any other form of
global capitation.  Health care service plans with waivers or
risk-bearing organizations, as defined in subdivision (g) of Section
1375.4, may contract with self-insured businesses if the self-insured
business does no marketing to the general public.
   (b) An applicant for a license with waivers or a limited license
that has an application on file with the director on August 1, 1999,
shall be entitled to a refund of the application filing fee paid as
of January 1, 2000.
   (c) This section shall remain in effect only until January 1,
2002, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2002, deletes or extends
that date.
  SEC. 3.  Section 1375.4 is added to the Health and Safety Code, to
read:
   1375.4.  (a) Every contract between a health care service plan and
a risk-bearing organization that is issued, amended, renewed, or
delivered in this state on or after July 1, 2000, shall include
provisions concerning the following, as to the risk-bearing
organization's administrative and financial capacity, which shall be
effective as of January 1, 2001:
   (1) A requirement that the risk-bearing organization furnish
financial information to the health care service plan or the plan's
designated agent and meet any other financial requirements that
assist the health care service plan in maintaining the financial
viability of its arrangements for the provision of health care
services in a manner that does not adversely affect the integrity of
the contract negotiation process.
   (2) A requirement that the health care service plan disclose
information to the risk-bearing organization that enables the
risk-bearing organization to be informed regarding the financial risk
assumed under the contract.
   (3) A requirement that the health care service plans provide
payments of all risk arrangements, excluding capitation, within 180
days after close of the fiscal year.
   (b) In accordance with subdivision (a) of Section 1344, the
director shall adopt regulations on or before June 30, 2000, to
implement this section which shall, at a minimum, provide for the
following:
   (1) (A) A process for reviewing or grading risk-bearing
organizations based on the following criteria:
   (i) The risk-bearing organization meets criterion 1 if it
reimburses, contests, or denies claims for health care services it
has provided, arranged, or for which it is otherwise financially
responsible in accordance with the timeframes and other requirements
described in Section 1371 and in accordance with any other applicable
state and federal laws and regulations.
   (ii) The risk-bearing organization meets criterion 2 if it
estimates its liability for incurred but not reported claims pursuant
to a method that has not been held objectionable by the director,
records the estimate at least quarterly as an accrual in its books
and records, and appropriately reflects this accrual in its financial
statements.
   (iii) The risk-bearing organization meets criterion 3 if it
maintains at all times a positive tangible net equity, as defined in
subdivision (e) of Section 1300.76 of Title 10 of the California Code
of Regulations.
   (iv) The risk-bearing organization meets criterion 4 if it
maintains at all times a positive level of working capital (excess of
current assets over current liabilities).
   (B) A risk-bearing organization may reduce its liabilities for
purposes of calculating tangible net equity, pursuant to clause (iii)
of subparagraph (A), and working capital, pursuant to clause (iv) of
subparagraph (A), by the amount of any liabilities the payment of
which is guaranteed by a sponsoring organization pursuant to a
qualified guarantee.  A sponsoring organization is one that has a
tangible net equity of a level to be established by the director that
is in excess of all amounts that it has guaranteed to any person or
entity.  A qualified guarantee is one that meets all of the
following:
   (i) It is approved by a board resolution of the sponsoring
organization.
   (ii) The sponsoring organization agrees to submit audited annual
financial statements to the plan within 120 days of the end of the
sponsoring organization's fiscal year.
   (iii) The guarantee is unconditional except for a maximum monetary
limit.
   (iv) The guarantee is not limited in duration with respect to
liabilities arising during the term of the guarantee.
   (v) The guarantee provides for six months' advance notice to the
plan prior to its cancellation.
   (2) The information required from risk-bearing organizations to
assist in reviewing or grading these risk-bearing organizations,
including balance sheets, claims reports, and designated annual,
quarterly, or monthly financial statements prepared in accordance
with generally accepted accounting principles, to be used in a
manner, and to the extent necessary, provided to a single external
party as approved by the director to the extent that it does not
adversely affect the integrity of the contract negotiation process
between the health care service plan and the risk-bearing
organizations.
   (3) Audits to be conducted in accordance with generally accepted
auditing standards and in a manner that avoids duplication of review
of the risk-bearing organization.
   (4) A process for corrective action plans, as mutually agreed upon
by the health care service plan and the risk-bearing organization
and as approved by the director, for cases where the review or
grading indicates deficiencies that need to be corrected by the
risk-bearing organization, and contingency plans to ensure the
delivery of health care services if the corrective action fails.  The
corrective action plan shall be approved by the director and
standardized, to the extent possible, to meet the needs of the
director and all health care service plans contracting with the
risk-bearing organization.  If the health care service plan and the
risk-bearing organization are unable to determine a mutually
agreeable corrective action plan, the director shall determine the
corrective action plan.
   (5) The disclosure of information by health care service plans to
the risk-bearing organization that enables the risk-bearing
organization to be informed regarding the risk assumed under the
contract, including:
   (A) Enrollee information monthly.
   (B) Risk arrangement information, information pertaining to any
pharmacy risk assumed under the contract, information regarding
incentive payments, and information on income and expenses assigned
to the risk-bearing organization quarterly.
   (6) Periodic reports from each health care service plan to the
director that include information concerning the risk-bearing
organizations and the type and amount of financial risk assumed by
them, and, if deemed necessary and appropriate by the director, a
registration process for the risk-bearing organizations.
   (7) The confidentiality of financial and other records to be
produced, disclosed, or otherwise made available, unless as otherwise
determined by the director.
   (c) The failure by a health care service plan to comply with the
contractual requirements pursuant to this section shall constitute
grounds for disciplinary action.  The director shall, as appropriate,
within 60 days after receipt of documented validation from a
risk-bearing organization, investigate and take enforcement action
against a health care service plan that fails to comply with these
requirements and shall periodically evaluate contracts between health
care service plans and risk-bearing organizations to determine if
any audit, evaluation, or enforcement actions should be undertaken by
the department.
   (d) The Financial Solvency Standards Board established in Section
1347.1 shall study and report to the director on or before January 1,
2001, regarding all of the following:
   (1) The feasibility of requiring that there be in force insurance
coverage commensurate with the financial risk assumed by the
risk-bearing organization to protect against financial losses.
   (2) The appropriateness of different risk-bearing arrangements
between health care service plans and risk-bearing organizations.
   (3) The appropriateness of the four criteria specified in
paragraph (1) of subdivision (b).
   (e) This section shall not apply to specialized health care
service plans.
   (f) For purposes of this section, "provider organization" means a
medical group, independent practice association, or other entity that
delivers, furnishes, or otherwise arranges for or provides health
care services, but does not include an individual or a plan.
   (g) (1) For the purposes of this section, a "risk-bearing
organization" means a professional medical corporation, other form of
corporation controlled by physicians and surgeons, a medical
partnership, a medical foundation exempt from licensure pursuant to
subdivision (l) of Section 1206, or another lawfully organized group
of physicians that delivers, furnishes, or otherwise arranges for or
provides health care services, but does not include an individual or
a health care service plan, and that does all of the following:
   (A) Contracts directly with a health care service plan or arranges
for health care services for the health care service plan's
enrollees.
   (B) Receives compensation for those services on any capitated or
fixed periodic payment basis.
   (C) Is responsible for the processing and payment of claims made
by providers for services rendered by those providers on behalf of a
health care service plan that are covered under the capitation or
fixed periodic payment made by the plan to the risk-bearing
organization.  Nothing in this subparagraph in any way limits,
alters, or abrogates any responsibility of a health care service plan
under existing law.
   (2) Notwithstanding paragraph (1), risk-bearing organizations
shall not be deemed to include a provider organization that meets
either of the following requirements:
   (A) The health care service plan files with the department
consolidated financial statements that include the provider
organization.
   (B) The health care service plan is the only health care service
plan with which the provider organization contracts for arranging or
providing health care services and, during the previous and current
fiscal years, the provider organization's maximum potential expenses
for providing or arranging for health care services did not exceed
115 percent of its maximum potential revenue for providing or
arranging for those services.
   (h) For purposes of this section, "claims" include, but are not
limited to, contractual obligations to pay capitation or payments on
a managed hospital payment basis.
  SEC. 4.  Section 1375.5 is added to the Health and Safety Code, to
read:
   1375.5.  (a) Except as provided in subdivision (b), no contract
between a risk-bearing organization and a health care service plan
that is issued, amended, delivered, or renewed in this state on or
after July 1, 2000, shall include any provision that requires the
risk-bearing organization to be at financial risk for the provision
of health care services, unless the provision has first been
negotiated and agreed to between the health care service plan and the
risk-bearing organization.
   (b) Notwithstanding subdivision (a), this section shall not
prevent a risk-bearing organization from accepting the financial risk
specified in subdivision (a) pursuant to a contract that meets the
requirements of Section 1375.4.
  SEC. 5.  Section 1375.6 is added to the Health and Safety Code, to
read:
   1375.6.  No contract between a risk-bearing organization and a
health care service plan that is issued, amended, delivered, or
renewed in this state on or after July 1, 2000, shall include any
provision that requires a provider to accept rates or methods of
payment specified in contracts with health care service plan
affiliates or nonaffiliates unless the provision has been first
negotiated and agreed to between the health care service plan and the
risk-bearing organization.
  SEC. 6.  For purposes of Sections 1347.1, 1349.3, 1375.4, 1375.5,
and 1375.6, until the Department of Managed Care and the position of
the Director of the Department of Managed Care is established by
legislative enactment or Executive order by July 1, 2000, the terms
"department" and "director" shall mean the Department of Corporations
and the Commissioner of Corporations, respectively.
  SEC. 7.  No reimbursement is required by this act pursuant to
Section 6 of Article XIIIB of the California Constitution because the
only costs that may be incurred by a local agency or school district
will be incurred because this act creates a new crime or infraction,
eliminates a crime or infraction, or changes the penalty for a crime
or infraction, within the meaning of Section 17556 of the Government
Code, or changes the definition of a crime within the meaning of
Section 6 of Article XIIIB of the California Constitution.